AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1998
REGISTRATION NO. 333-35575
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
POST EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
METALS USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5051 76-0533626
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER
THREE RIVERWAY
SUITE 600
HOUSTON, TEXAS 77056
(713) 965-0990
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------
COPIES TO:
WILLIAM D. GUTERMUTH JOHN A. HAGEMAN
BRACEWELL & PATTERSON, L.L.P. METALS USA, INC.
SOUTH TOWER PENNZOIL PLACE THREE RIVERWAY
711 LOUISIANA STREET, SUITE 2900 SUITE 600
HOUSTON, TEXAS 77002-2781 HOUSTON, TEXAS 77056
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this post-effective amendment to the Registration Statement
becomes effective.
------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
10,000,000 SHARES
[LOGO]
METALS USA
COMMON STOCK
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus covers 10,000,000 shares of common stock, $.01 par value
(the "Common Stock"), which may be offered and issued by Metals USA, Inc. (the
"Company" or "Metals") from time to time in connection with merger or
acquisition transactions entered into by the Company. Subsequent to the initial
filing on September 12, 1997, the Company issued 6,404,946 shares of Common
Stock covered by this registration statement, accordingly, 3,595,054 shares of
Common Stock remain available pursuant to this registration statement. The
shares covered by this registration statement may also be issued in connection
with the conversion of securities issued in connection with such transactions
which by their terms are convertible into Common Stock. It is expected that the
terms of acquisitions involving the issuance of securities covered by this
Prospectus will be determined by direct negotiations with the owners or
controlling persons of the businesses or assets to be merged with or acquired by
the Company, and that the shares of Common Stock issued will be valued at prices
reasonably related to the market prices of Common Stock either at the time the
terms of a merger or acquisition are agreed upon or at or about the time shares
are delivered. No underwriting discounts or commissions will be paid, although
finder's fees may be paid from time to time with respect to specific mergers or
acquisitions. Any person receiving any such fees may be deemed to be an
underwriter within the meaning of the Securities Act of 1933, as amended (the
"Securities Act").
The Company currently has 32,095,552 shares of its Common Stock listed on
The New York Stock Exchange, of which 13,189,946 are registered and available
for unrestricted trading in the public markets unless owned by affiliates of the
Company. Application will be made to list the shares of Common Stock offered
hereby on The New York Stock Exchange. On February 18, 1998, the closing price
of the Common Stock on The New York Stock Exchange was $15.50 per share as
published in THE WALL STREET JOURNAL on February 19, 1998. The Company is
subject to the informational requirements of the Exchange Act of 1934 and in
accordance therewith files reports and other information with the Securities and
Exchange Commission.
All expenses of this offering will be paid by the Company. The executive
offices of the Company are located at Three Riverway, Suite 600, Houston, Texas
77056, and its telephone number is (713) 965-0990.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BEFORE ACQUIRING THE COMMON STOCK OFFERED
HEREBY.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 20, 1998
<PAGE>
[This page intentionally left blank]
2
<PAGE>
PROSPECTUS SUMMARY
IN CONNECTION WITH ITS INITIAL PUBLIC OFFERING ON JULY 11, 1997, METALS USA
ACQUIRED, IN SEPARATE MERGER TRANSACTIONS (THE "MERGERS") IN EXCHANGE FOR CASH
AND SHARES OF ITS COMMON STOCK, EIGHT COMPANIES (EACH A "FOUNDING COMPANY"
AND, COLLECTIVELY, THE "FOUNDING COMPANIES") ENGAGED IN THE VALUE-ADDED
PROCESSING OF STEEL, ALUMINUM AND SPECIALTY METALS AS WELL AS THE MANUFACTURE OF
METAL COMPONENTS. SINCE THAT DATE METALS USA HAS ACQUIRED OR AGREED TO ACQUIRE
NINE ADDITIONAL COMPANIES IN SIMILAR BUSINESSES (THE "SUBSEQUENT ACQUISITIONS"
AND COLLECTIVELY WITH THE FOUNDING COMPANIES, THE "ACQUIRED COMPANIES").
UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY" HEREIN INCLUDE THE
FOUNDING COMPANIES, THE SUBSEQUENT ACQUISITIONS AND OTHER ENTITIES WHOLLY-OWNED
BY METALS USA, AND REFERENCES HEREIN TO "METALS USA" MEAN METALS USA, INC.
PRIOR TO THE CONSUMMATION OF THE MERGERS AND THE SUBSEQUENT ACQUISITIONS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA COMBINED
AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
REFERENCES TO COMMON STOCK INCLUDE BOTH COMMON STOCK, $0.01 PAR VALUE, AND
RESTRICTED VOTING COMMON STOCK, $0.01 PAR VALUE (THE "RESTRICTED COMMON
STOCK"), OF THE COMPANY. AFFILIATES OF NOTRE CAPITAL VENTURES II, L.L.C.
("NOTRE") HOLD ALL 3,122,914 SHARES OF THE COMPANY'S RESTRICTED COMMON STOCK.
THE HOLDERS OF RESTRICTED COMMON STOCK ARE ENTITLED TO ELECT ONE MEMBER OF THE
COMPANY'S BOARD OF DIRECTORS AND TO A 0.55 VOTE FOR EACH SHARE HELD ON ALL OTHER
MATTERS ON WHICH THEY ARE ENTITLED TO VOTE. HOLDERS OF RESTRICTED COMMON STOCK
ARE NOT ENTITLED TO VOTE ON THE ELECTION OF ANY OTHER DIRECTORS. EACH SHARE OF
RESTRICTED COMMON STOCK IS CONVERTIBLE INTO ONE SHARE OF COMMON STOCK UNDER
CERTAIN CIRCUMSTANCES. SEE "DESCRIPTION OF COMMON STOCK -- COMMON STOCK AND
RESTRICTED COMMON STOCK."
THE COMPANY
Metals USA was founded in 1996 to become a leading national value-added
metals processor/service center, to manufacture higher-value components from
processed metals and to pursue aggressively the consolidation of the
highly-fragmented metals processing industry. On July 11, 1997, the Company
acquired in separate concurrent transactions eight companies engaged principally
in the value-added metals processing business. These Founding Companies are
Texas Aluminum Industries, Inc. and the Cornerstone Group, headquartered in
Houston, Texas; Interstate Steel Supply Co., headquartered in Philadelphia,
Pennsylvania; Queensboro Steel Corporation, headquartered in Wilmington, North
Carolina; Affiliated Metals Company, headquartered in Granite Falls, Illinois;
Southern Alloy of America, Inc., headquartered in Salisbury, North Carolina;
Uni-Steel, Inc., headquartered in Enid, Oklahoma; Williams Steel & Supply Co.,
Inc., headquartered in Milwaukee, Wisconsin; and Steel Service Systems, Inc.,
headquartered in Horicon, Wisconsin. Since July 11, 1997, the Company has
acquired or agreed to acquire Harvey Titanium, Ltd., headquartered in Santa
Monica, California; Jeffreys Steel Company, Inc., headquartered in Mobile,
Alabama; Wayne Steel, Inc., headquartered in Wooster Ohio; Meier Metal
Servicenters, Inc., headquartered in Hazel Park, Michigan; Independent Metals
Co., Inc., headquartered in Germantown, Wisconsin; Royal Aluminum, Inc.,
headquartered in Leesburg, Florida; R.J. Fabricating, Inc., headquartered in
Milwaukee, Wisconsin; Pacific Metal Company, headquartered in Portland, Oregon;
and the business of Federal Bronze Products, Inc., headquartered in Newark, New
Jersey. The acquisition of Pacific Metal Company will be completed once certain
shareholder and regulatory approvals and certain other administrative matters
are finalized. The Company believes that the metals processor/service center
industry in the United States is consolidating and currently has as many as
3,500 participants collectively generating over $75 billion in annual revenues.
The Company intends to play a major role in the consolidation of this industry
by combining a broad-based group of metals processing and manufacturing
companies. To be a leader in the consolidation of the metals processing
industry, the Company will be required to acquire and deploy the
capital-intensive equipment and technology necessary to meet rapidly changing
customer requirements.
3
<PAGE>
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 intends to provide just-in-time inventory management
with a view to reducing its customers' overall cost of their manufactured metal
products. In addition to its metals processing capabilities, the Company
manufactures higher-value components from processed metals, such as finished
building products, and produces a number of finished components machined from
specialty metals, such as bushings, pump parts and hydraulic cylinders. The
Company intends to continue its focus on the metal building products industry,
the single fastest growing segment of the metals processing industry.
The Acquired Companies sell to over 25,000 customers in industries such as
the aerospace, furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment
industries. The Company believes that its broad customer base and wide array of
metals processing capabilities, products and services, coupled with its
geographic coverage across the United States, reduce the Company's
susceptibility to economic fluctuations affecting any one industry or
geographical area.
To date, the primary acquirors in the metals processor/service center
industry have been a few large metals service center companies that have
acquired businesses on a service center-by-service center basis. Following an
acquisition, these acquirors typically install their operating systems,
procedures and management and eliminate the acquired service center's separate
identity, thereby effectively converting the business into a branch office. The
Company believes that the sale of well-established businesses to these acquirors
is not an attractive alternative for many owners, particularly those who do not
wish to retire from the business. The Company, therefore, believes that
significant acquisition opportunities exist for a well-capitalized, national
value-added metals processor/service center that employs a decentralized
operating strategy and preserves the identity of the acquired businesses. The
Company believes that this operating strategy and the highly-fragmented nature
of the metals industry should allow it to be a leader in the industry's
consolidation.
Key elements of the Company's strategy to achieve its objectives are:
o EXPANDING THROUGH ACQUISITIONS. The Company believes that the metals
processor/service center industry is highly fragmented and consolidating. The
Company intends to pursue aggressively this consolidation through its
acquisition program, the key elements of which are: to enter new geographic
markets, expand within existing geographic markets, and enter complementary
processing and service markets. The Company believes that there are significant
opportunities to expand through acquisition in geographic markets where the
Company does not currently have a strong presence by acquiring companies that
are leaders in their regional markets. The Company also plans to improve its
market share in existing geographic markets by pursuing "tuck-in" acquisitions
as well as acquisitions of companies that expand its range of products and
services.
o OPERATING ON A DECENTRALIZED BASIS. The Company intends to manage the
Acquired Companies and subsequently acquired companies on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and growth of the business and the flexibility to capitalize on
the considerable regional market knowledge, name recognition and customer
relationships.
o ACCELERATING INTERNAL SALES GROWTH. A key component of the Company's
strategy is to accelerate internal sales growth at each Acquired Company and at
each subsequently acquired business. The key
4
<PAGE>
elements of this internal growth strategy are: to expand products and services
to existing customers and to add new customers. The Company believes that there
are significant opportunities to accelerate internal growth by making capital
investments in areas such as inventory management, logistics systems and
processing equipment, thereby expanding the range of processes and services
offered by the Company. The Company also intends to implement a Company-wide
marketing program which will utilize professional marketing sources and to adopt
"best-practices" among Acquired Companies to demonstrate to the numerous
customers not currently served by the Company that they could reduce their
production costs by taking advantage of the Company's processing, inventory
management and other services.
o IMPROVING OPERATING MARGINS. The Company believes that the
combination of the Acquired Companies will provide significant opportunities to
realize purchasing economies and increase the Company's profitability. The key
components of this strategy are: to increase operating efficiencies and to
centralize appropriate admininistrative functions. The Company intends to use
its increased purchasing power to gain volume discounts and to develop more
effective inventory management systems. The Company expects measureable cost
savings in such areas as vehicle leasing and maintenance, information systems
and other purchases. The Company also believes there are significant
opportunities to improve operating margins by consolidating administrative
functions such as financing, insurance and employee benefits.
The Company's executive offices are located at Three Riverway, Suite 600,
Houston, Texas 77056, and its telephone number is (713) 965-0990.
5
<PAGE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
RECENT DEVELOPMENTS
During 1996 and 1997, members of the management team and certain
consultants were assembled by Notre to pursue the consolidation of the Founding
Companies. Notre, a consolidator of highly-fragmented industries, provided the
Company with expertise regarding the consolidation process and advanced the
Company the capital needed to pay certain organizational and Offering expenses.
In connection therewith, during 1996 and the first and second quarters of
1997, Metals USA sold an aggregate of 1,385,500 shares of Common Stock to
management of and consultants to the Company for $0.01 per share. As a result,
the Company has recorded non-recurring, non-cash compensation charges of $3.6
million in 1996 and $2.8 million and $4.7 million in the first and second
quarters of 1997, respectively, representing the difference between the amount
paid for the shares and the estimated fair value of the shares on the date of
sale, as if the Founding Companies were combined. In addition, the second
quarter reflects a reduction in compensation expense of $1.5 million
representing a revision of the estimated fair value of the shares sold to
management and consultants in 1996 and the first quarter of 1997.
On July 11, 1997 the Company consummated the Mergers. In connection
therewith the Company issued to the public, 5,900,000 shares of Common Stock at
a price of $10.00 per share resulting in net proceeds to the Company of $50.4
million after deducting underwriting commissions and discounts. On August 12,
1997, the Company sold 885,000 shares of Common Stock pursuant to the
over-allotment option granted to the underwriters. The Company realized net
proceeds from the sale of $8.2 million. The sale by the Company of the 6,785,000
shares of its Common Stock is hereinafter referred to as the "IPO".
Since July 11, 1997, the Company has completed the acquisition of eight
Subsequent Acquisitions and has agreed to make one additional Subsequent
Acquisition. The aggregate consideration paid and to be paid by Metals USA for
the Acquired Companies consists of approximately $87.7 million in cash, 21.6
million shares of Common Stock, plus the assumption of approximately $168.1
million of indebtedness of the Acquired Companies. The consideration paid by
Metals USA for each Acquired Company was determined by negotiations between
Metals USA and representatives of each Acquired Company and was based primarily
upon the pro forma adjusted net income of each Acquired Company. For a more
detailed description of certain of these transactions, see "Certain
Transactions -- Organization of the Company."
RESULTS OF OPERATIONS FOR THE QUARTER AND YEAR ENDED DECEMBER 31, 1997
o PRO FORMA COMBINED. The pro forma combined information set forth
below reflects Metals USA restated for the acquisitions of Jeffreys and Wayne
(the acquisitions which were accounted for using the pooling-of-interests method
of accounting, referred to herein as the "Pooled Companies") combined with the
Founding Companies as if each were acquired on January 1, 1996 and the remaining
Acquired Companies which were accounted for as purchases from their respective
dates of acquisition. Additionally, the pro forma combined results of operations
reflect certain adjustments to the preacquisition periods of the Founding
Companies and the Pooled Companies for certain agreed adjustments relating to
reduced compensation, rent and other items that are more fully described in the
Notes to the Unaudited Pro Forma Financial Statements included elsewhere in this
Prospectus.
For the quarter, pro forma net sales were $211.4 million, representing a
37.8% increase over pro forma net sales of $153.4 million in the fourth quarter
of 1996. Net income of $4.9 million was 75.0% higher than $2.8 million in the
prior year. Pro forma earnings per share were $0.16 for the 1997 period compared
to $0.09 in the prior year.
For the year, pro forma net sales were $739.8 million, representing an
18.0% increase over pro forma net sales of $627.2 million in 1996. Pro forma net
income of $18.6 million was 7.5% higher than $17.3 million in the prior year.
Pro forma earnings per share was $0.61 for 1997 compared to $0.58 per share in
the prior year.
o HISTORICAL. The historical information set forth below differs from
the pro forma combined disclosure above in that: (i) the results of operations
for the Founding Companies are included only from
6
<PAGE>
July 11, 1997 (date of acquisition) and (ii) no adjustments were made to the
preacquisition periods of the Pooled Companies as described above with respect
to the Pro Forma Combined information.
For the quarter, net sales were $211.4 million, representing a 261.8%
increase over net sales of $58.4 million in the fourth quarter of 1996. Net
income of $4.7 million compared to a net loss of $(2.2) million in the prior
year. Earnings per share was $.15 for the 1997 period compared to $(.17) in the
prior year.
For the year, net sales were $507.8 million, representing a 111.5% increase
over net sales of $240.1 million in 1996. Net income of $6.0 million was 81.1%
higher than $3.3 million in the prior year. Earnings per share was $.29 for 1997
compared to $.25 per share in the prior year.
On February 11, 1998, the Company completed the sale of $200 million
aggregate principal amount of the Company's 8 5/8% Senior Subordinated Notes due
2008 (the "Notes"). The Notes mature on February 15, 2008 and bear interest at
the rate of 8 5/8% per annum. Interest on the Notes is payable semiannually on
February 15 and August 15 of each year, commencing August 15, 1998. The Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after February 15, 2003, at the redemption prices set forth in the indenture
together with accrued and unpaid interest to the date of redemption.
Notwithstanding the foregoing, at any time on or prior to February 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
originally issued with the net proceeds of one or more offerings of the Common
Stock of the Company, at a redemption price equal to 108.625% of the principal
amount thereof, plus accrued and unpaid interest to the date of such redemption;
provided that at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after such redemption.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness of the Company,
including indebtedness under the Credit Facility (as amended and restated), and
ranks PARI PASSU or senior in right of payment to any future subordinated
indebtedness of the Company. The Notes are unconditionally guaranteed on a
senior subordinated unsecured basis by each of the Company's subsidiaries. The
indenture governing the Notes (the "Indenture") permits the Company to incur
additional indebtedness, including senior indebtedness, subject to certain
limitations. The Company has agreed, for the benefit of all holders of the
Notes, that it will file a registration statement within 60 days after the
issuance of the Notes relating to an exchange offer for the Notes under the
Securities Act of 1933, as amended.
Additionally, the Company completed an extension and modification of its
revolving credit facility on February 11, 1998. The credit facility provides for
up to $300.0 million of borrowings, matures February 2003 and is secured by the
pledge of all of the capital stock of the Company's material subsidiaries (the
"Credit Facility"). The Credit Facility will be used to make acquisitions,
make capital expenditures, refinance the debt of acquired companies and for the
Company's general working capital requirements. The Company used approximately
$179.3 million of the net proceeds ($194.5 million before expected expenses of
$0.8 million) it received from the sale of the Notes to repay the outstanding
borrowings under the Credit Facility. As of February 18, 1998, the entire amount
of the Credit Facility was available to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
On February 17, 1998, Metals USA entered into an agreement which, upon
completion of certain regulatory and shareholder approvals, would call for the
acquisition of Pacific Metal Company.
7
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following historical and pro forma financial information should be read
in conjunction with the Unaudited Pro Forma Financial Statements and the Notes
thereto and the historical Consolidated Financial Statements of Metals USA and
the Notes thereto included elsewhere in this Prospectus. The historical
financial information for the fiscal years ended 1994 through 1996 and the nine
months ended September 30, 1996 and 1997, reflects the historical financial
statements of Metals USA, restated for the effects of business combinations with
Jeffreys and Wayne which were accounted for as "poolings-of-interests" and the
remaining Acquired Companies from their respective acquisition dates. The
results of operations for interim periods are unaudited and are not necessarily
indicative of the results for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, (1) SEPTEMBER 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
CONSOLIDATED:
Net sales.......................... $212,273 $235,200 $240,145 $181,700 $296,391
Cost of sales...................... 165,347 183,779 183,638 138,648 228,254
Operating and delivery............. 18,497 20,702 24,045 17,802 30,577
Selling, general and administrative
expenses......................... 12,729 14,204 19,748 12,552 24,835
Depreciation and amortization...... 2,204 2,789 3,480 2,553 3,082
Operating income................... 13,496 13,726 9,234 10,145 9,643
Interest expense................... 1,681 2,321 1,736 1,319 2,484
Other (income) expense............. (258) (308) (405) (424) (252)
Income before income taxes......... 12,073 11,713 7,903 9,250 7,411
Net income (loss).................. 7,264 6,901 3,294 5,521 1,315
Net income (loss) per share........ $.88 $.84 $.31 $.56 $.07
Shares used in computing net income
(loss) per share................. 8,230,011 8,230,011 10,600,208 9,797,072 18,002,020
PRO FORMA (2):
Net sales.......................... $940,375 $774,384
Cost of sales(3)................... 730,255 601,513
Operating and delivery(4).......... 88,036 73,478
Selling, general and administrative
expenses(4)...................... 61,999 49,814
Depreciation and amortiza-
tion(5).......................... 13,069 9,368
Operating income................... 47,016 40,211
Interest expense(6)................ 18,674 14,427
Other (income) expense............. (1,350) (935)
Income before income taxes......... 29,692 26,719
Net income(7)...................... 16,498 15,277
Net income per share............... $.50 $.46
Shares used in computing net income
per share(8)..................... 33,112,331 33,112,331
YEARS ENDED(1) SEPTEMBER 30, 1997
------------------------------- -------------------------
1994 1995 1996 ACTUAL PRO FORMA(9)
--------- --------- --------- ---------- ------------
BALANCE SHEET DATA:
Working capital.................... $ 43,498 $ 48,041 $ 46,348 $ 179,060 $224,978
Total assets....................... 88,480 88,784 95,087 466,482 580,048
Long-term debt, net of current
maturities....................... 23,195 31,372 24,574 153,353 219,581
Stockholders' equity............... 36,456 41,750 49,237 215,540 238,222
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
8
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- ------------
(1) As a result of the merger with Metals USA, Jeffreys changed its fiscal year
to December 31 beginning January 1, 1996, to conform to the fiscal periods
of Metals USA and the other Acquired Companies. The historical financial
information of Jeffreys for the years ended July 31, 1994 and 1995 have
been included in the Company's consolidated financial statements for the
years ended December 31, 1994 and 1995.
(2) The pro forma statements of operations data assume that the Mergers, the
Subsequent Acquisitions and the IPO occurred on January 1, 1996 and are not
necessarily indicative of the results the Company would have obtained had
these events actually then occurred or of the Company's future results. The
historical combined net sales for the Acquired Companies for the twelve
months ended December 31, 1996 and the nine months ended September 30, 1997
were $929.1 million and $774.0 million, respectively.
(3) Cost of sales includes a $6.7 million charge for the year ended December
31, 1996, and a $0.5 million charge for the nine months ended September 30,
1997, eliminating the gains recorded as historical LIFO adjustments to cost
of sales. These adjustments result from the restatement of base year LIFO
costs to the appropriate replacement costs as if the acquisitions occurred
on January 1, 1996.
(4) The pro forma statements of operations data reflect (a) in selling, general
and administrative expenses, an aggregate of approximately $9.3 million and
$6.7 million for the twelve months ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, in pro forma reductions in
salary, bonuses and benefits to the owners of the Acquired Companies to
which they have agreed prospectively (the "Compensation Differential"),
(b) in operating and delivery, a $0.8 million and $0.5 million for the
twelve months ended December 31, 1996 and the nine months ended September
30, 1997, respectively, reduction in lease expense pursuant to the
renegotiation of certain leases (the "Rent Differential"), and (c)
selling, general and administrative expenses do not include the
non-recurring portion of the non-cash compensation charge ("Compensation
Charge") of $3.6 million and $6.0 million for the twelve months ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively.
(5) Includes $3.7 million and $2.3 million for the twelve months ended December
31, 1996 and the nine months ended September 30, 1997, respectively, of
amortization on the $145.5 million of goodwill to be recorded as a result
of the Mergers and Subsequent Acquisitions computed on the basis described
in Notes to the Unaudited Pro Forma Combined Financial Statements.
(6) Includes $0.8 million and $0.9 million for the twelve months ended December
31, 1996 and nine months ended September 30, 1997, respectively, in
reductions in interest expense due to assumed refinancing of outstanding
indebtedness with the Company's Credit Facility. Interest expense is
increased by $2.9 million and $2.1 million for the twelve months ended
December 31, 1996 and the nine months ended September 30, 1997 due to the
assumed financing of the cash portion of the Acquired Companies' purchase
price with the Company's Credit Facility and $6.3 million and $4.8 million
for the twelve months ended December 31, 1996 and nine months ended
September 30, 1997, respectively, due to the issuance of the Notes.
(7) Assumes all income is subject to a corporate tax rate of 40%, the
Compensation Charge is non-deductible and goodwill of $81.2 million and
$50.5 million resulting from the Mergers and the Subsequent Acquisitions,
respectively, is nondeductible.
(8) Includes (i) 21,573,917 shares issued to owners of the Acquired Companies,
(ii) 1,385,500 shares issued to the management of and consultants to Metals
USA, (iii) 3,367,914 shares issued to Notre and, (iv) the 6,785,000 shares
sold in the IPO. Excludes the grant of options to purchase 3,570,265 shares
of Common Stock.
(9) The pro forma balance sheet data assumes that the issuance of the Notes and
the acquisitions of Independent Metals Co., Inc. R.J. Fabricating, Inc.,
Royal Aluminum, Inc. and Pacific Metal Company were consummated on
September 30, 1997.
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THE COMPANY
Metals USA was founded in 1996 to become a leading national value-added
metals processor/service center, to manufacture higher-value components from
processed metals and to pursue aggressively the consolidation of the
highly-fragmented metals processing industry. In July 1997, Metals USA acquired
the eight Founding Companies. Since that date the Company has acquired or agreed
to acquire the five companies which comprise the Subsequent Acquisitions. In
1996, the Acquired Companies, which have been in business an average of 40
years, had pro forma net sales of $746.6 million, servicing over 20,000
customers. For a description of the transactions pursuant to which certain of
these businesses were acquired, see "Certain Transactions -- Organization of
the Company." The following is a description of the Acquired Companies:
TEXAS ALUMINUM INDUSTRIES, INC./THE CORNERSTONE GROUP -- Texas Aluminum
Industries, Inc. ("Texas Aluminum"), headquartered in Houston, Texas, was
founded in 1949 by Gene C. Elkins. The Cornerstone Group ("Cornerstone")
includes four entities founded in 1995, 1996 and 1997 by Michael E. Christopher
and Mark Elkins, who are the principal stockholders of Texas Aluminum (Texas
Aluminum and Cornerstone being collectively referred to herein as "Texas
Aluminum/Cornerstone"). Texas Aluminum/Cornerstone operates through five
manufacturing plants and 37 service centers and distribution facilities
primarily in the Sunbelt. Texas Aluminum/Cornerstone produces and distributes
aluminum and steel building products consisting of windows, doors, insulated
wall panels, canopies and awnings primarily for the commercial and residential
building products industries. Texas Aluminum/Cornerstone had fiscal 1996 and
nine months ended September 30, 1997 net sales of $40.6 million and $36.7
million, respectively, operating income of $3.0 million and $2.3 million,
respectively, and currently has about 275 employees. Michael E. Christopher has
been employed by Texas Aluminum for ten years, has signed a five-year employment
agreement with Texas Aluminum/Cornerstone as President of Texas
Aluminum/Cornerstone and is a Senior Vice President and a director of the
Company.
INTERSTATE STEEL SUPPLY CO. -- Interstate Steel Supply Co.
("Interstate"), headquartered in Philadelphia, Pennsylvania, was founded in
1949 and operates primarily in the northeast and mid-Atlantic regions of the
United States. Interstate operates service centers in Philadelphia and
Pittsburgh, Pennsylvania and Baltimore, Maryland and is a value-added metals
processor/service center providing products and services primarily to structural
steel fabricators of buildings and bridges and to the shipbuilding, railroad and
electric power generation industries. Interstate had fiscal 1996 and nine months
ended September 30, 1997 net sales of $66.8 million and $55.3 million,
respectively, operating income of $4.7 million and $3.3 million, respectively,
and currently has about 180 employees. Arnold W. Bradburd, the Chairman of the
Board and Chief Executive Officer of Interstate, has been employed by Interstate
for 23 years, has signed a five-year employment agreement with Interstate to
continue in those capacities and is the Vice-Chairman of the Board of the
Company.
QUEENSBORO STEEL CORPORATION -- Queensboro Steel Corporation
("Queensboro"), headquartered in Wilmington, North Carolina, was founded in
1952 by George and Seymour Alper and operates primarily in the southeastern
region of the United States. Queensboro operates service centers in Wilmington
and Greensboro, North Carolina and Norfolk, Virginia and is a value-added metals
processor/service center and fabricator, providing products and services
primarily to the shipbuilding, transportation, construction, pulp and paper and
chemical industries. Queensboro had fiscal 1996 and nine months ended September
30, 1997 net sales of $55.0 million and $46.9 million, respectively, operating
income of $3.5 million and $2.5 million, respectively, and currently has about
200 employees. Mark Alper, the President of Queensboro has been employed by
Queensboro for 26 years, has signed a five-year employment agreement with
Queensboro to continue in that capacity and is the Vice President -- Development
and a director of the Company.
AFFILIATED METALS COMPANY -- Affiliated Metals Company ("Affiliated"),
headquartered in Granite City, Illinois, was founded in 1979 and operates
primarily in the midwestern region of the United States. Affiliated operates
service centers in Granite City, Illinois and a newly-constructed facility in
Butler, Indiana and is a value-added metals processor/service center providing
products and services primarily to manufacturers of consumer durables,
commercial transportation equipment, appliances and furniture.
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Affiliated had fiscal 1996 and nine months ended September 30, 1997 net sales of
$81.0 million and $87.2 million, respectively, operating income of $3.5 million
and $2.3 million, respectively, and currently has about 130 employees. Patrick
A. Notestine, the President of Affiliated, has been employed by Affiliated for
nine years, has signed a five-year employment agreement with Affiliated to
continue in that capacity and is a director of the Company.
SOUTHERN ALLOY OF AMERICA, INC. -- Southern Alloy of America, Inc.
("Southern Alloy"), headquartered in Salisbury, North Carolina, was founded in
1977 and operates primarily in the southeastern region of the United States.
Southern Alloy operates a plant in Salisbury, North Carolina and is a specialty
metals processor, providing products and services primarily to the fluid power,
machine tools, pump and valve, power transmission and textile machinery
industries. Southern Alloy had fiscal 1996 and nine months ended September 30,
1997 net sales of $10.8 million and $9.6 million, respectively, operating income
of less than $0.1 million and $0.6 million, respectively, and currently has
about 30 employees. William B. Edge, the President of Southern Alloy, has been
employed by Southern Alloy for 16 years, has signed a five-year employment
agreement with Southern Alloy to continue in that capacity and is a director of
the Company.
UNI-STEEL, INC. -- Uni-Steel, Inc. ("Uni-Steel"), headquartered in Enid,
Oklahoma, was founded in 1987 as a result of the merger of two companies which
began operations in 1907 and 1924, and operates primarily in the southwestern
and midwestern regions of the United States. Uni-Steel operates service centers
in Enid, Muskogee and the Port of Muskogee, Oklahoma and is a value-added metals
processor/service center providing products and services primarily to customers
in the oil and gas, transportation, mining and manufacturing industries.
Uni-Steel had fiscal 1996 and nine months ended September 30, 1997 net sales of
$54.6 million and $48.2 million, respectively, operating income of $2.4 million
and $2.0 million, respectively, and currently has about 130 employees. Richard
A. Singer, the Chief Executive Officer of Uni-Steel, has been employed by
Uni-Steel for 32 years, has signed a five-year employment agreement with
Uni-Steel to continue in such capacities and is a Senior Vice President and a
director of the Company.
WILLIAMS STEEL & SUPPLY CO., INC. -- Williams Steel & Supply Co., Inc.
("Williams"), headquartered in Milwaukee, Wisconsin, was founded in 1944 and
operates primarily in the midwest region of the United States. Williams operates
a service center in Milwaukee, Wisconsin and is a value-added metals
processor/service center, providing products and services primarily to the
construction industry, original equipment manufacturers ("OEMs") and
fabricators. Williams had fiscal 1996 and nine months ended September 30, 1997
net sales of $25.5 million and $24.5 million, respectively, operating income of
$1.4 million and $1.1 million, respectively, and currently has about 80
employees. Lester G. Peterson, the President of Williams, has been employed by
Williams for 27 years, has signed a five-year employment agreement with Williams
to continue in that capacity and is a director of the Company.
STEEL SERVICE SYSTEMS, INC. -- Steel Service Systems, Inc. ("Service
Systems"), headquartered in Horicon, Wisconsin was founded in 1990 and operates
primarily in the midwestern region of the United States. Service Systems
operates a service center in Horicon, Wisconsin and is a value-added metals
processor/service center providing products and services primarily for
manufacturers of lawn and garden equipment, outdoor recreation vehicles and
furniture. Service Systems had fiscal 1996 and nine months ended September 30,
1997 net sales of $35.8 million and $25.6 million, respectively, operating
income of $0.8 million and $1.2 million, respectively, and currently has about
75 employees. Craig R. Doveala, the President of Service Systems, has been
employed by Service Systems since its founding, has signed a five-year
employment agreement with Service Systems to continue in that capacity and is a
director of the Company.
JEFFREYS STEEL COMPANY, INC. -- Jeffreys Steel Company, Inc.
("Jeffreys"), headquartered in Mobile, Alabama, was founded in 1966 by Mr.
Leon Jeffreys. Jeffreys operates steel service centers in the south and
southeastern United States. These service center operations include the
locations in Mobile, in Muscle Shoals and Attalla, Alabama, Columbus,
Mississippi, Kenner, Louisiana, Jacksonville, Lakeland and Ft. Lauderdale,
Florida and Oakwood, Georgia. Jeffreys is a value-added processor/service center
specializing
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in steel plate and structural components and provides products and services to
the marine (including new ship construction and repair), offshore oil and gas,
construction and fabrication, transportation pulp and paper and chemical
industries. Jeffreys Steel had fiscal 1996 and nine months ended September 30,
1997 net sales of $103.4 million and $93.3, million respectively, operating
income of $5.0 million and $4.5 million, respectively and currently has about
450 employees. Mr. Toby Jeffreys, the President of Jeffreys, has been employed
by Jeffreys Steel for 10 years, and has signed a five-year employment agreement
with Jeffreys to continue in that capacity. Mr. Leon Jeffreys, Chairman of the
Board of Jeffreys, has signed a five-year employment agreement with Jeffreys to
continue in that capacity, and was elected a director of the Company.
WAYNE STEEL, INC. -- Wayne Steel, Inc. ("Wayne"), headquartered in
Wooster, Ohio, was founded in 1921 by Meyer Shapiro and operates in Randleman,
North Carolina is scheduled to open as a newly-constructed processing facility
in Jeffersonville, Indiana in late 1997. Wayne is a value-added metals processor
of flat rolled steel providing products and services primarily in the
transportation, electrical and telecommunications equipment manufacturing
industries. Wayne had fiscal 1996 and nine months ended September 30, 1997 net
sales of $105.8 million and $100.0 million, respectively, operating income of
$6.2 million and $6.7 million, respectively, and currently has about 220
employees. Mr. Tom Sharpiro, President and Chief Executive Officer of Wayne, has
been employed by Wayne for 25 years and has signed a five-year employment
agreement with Wayne to continue in that capacity.
HARVEY TITANIUM, LTD. -- Harvey Titanium, Ltd. ("Harvey"), headquartered
in Santa Monica, California, was founded in 1978 by Barry Harvey and operates on
a global basis through its international sales office in the United Kingdom and
through agents around the world. Harvey is a value-added metal service center
supplying primarily custom orders of titanium products, as well as nickel-based
alloys, vacuum melted stainless steels and other exotic alloys. Harvey's
customers are primarily in the aerospace industry, however Harvey also serves
customers in the recreation, petrochemical and biomedical industries. Harvey had
fiscal 1996 and nine months ended September 30, 1997 net sales of $45.5 million
and $44.3 million, respectively, operating income of $4.0 million and $3.8
million, respectively, and currently has about 50 employees. Mr. Barry Harvey,
President and Chief Executive Officer of Harvey, has been employed by Harvey for
19 years and has signed a three-year employment agreement with Harvey to
continue in that capacity.
MEIER METAL SERVICENTERS, INC. -- Meier Metal Servicenters, Inc.
("Meier"), headquartered in Hazel Park, Michigan, was founded in 1945 by Louis
F. Meier and operates primarily in the upper midwest and southeastern regions of
the United States. Meier operates service centers in Hazel Park and Grand
Rapids, Michigan, Chicago, Illinois, Dayton and Cleveland, Ohio and Greensboro,
North Carolina and is a value-added processor and distributor of nonferrous
metals, including aluminum, brass, copper, bronze and stainless steel. Meier
sells its products to customers in the tool and die, screw machine products,
industrial machinery, transportation and aerospace industries. Meier had fiscal
1996 and nine months ended September 30, 1997 net sales of $47.1 million and
$44.9 million, respectively, operating income of $2.3 million and $1.2 million
respectively and currently has about 115 employees. Mr. William Targett,
President and Chief Executive Officer of Meier, has been employed by Meier
Metals for approximately 42 years and has signed a five-year employment
agreement with Meier to continue in that capacity.
FEDERAL BRONZE ALLOYS INC. -- Federal Bronze Alloys Inc. ("Federal
Bronze"), headquartered in Newark, New Jersey is the successor entity to
Federal Bronze Products, Inc. which was founded in 1947 by Steve Stefiuk and
operates primarily in the northeast region of the United States. Federal Bronze
is a specialty metals processor, providing products and services primarily to
the fluid power, machine tool, power transmission, and the pump valve
industries. Federal Bronze had fiscal 1996 and nine months ended September 30,
1997 net sales of $12.4 million and $10.7 million, respectively, operating
income of $0.3 million and $0.3 million, respectively, and currently has about
55 employees. Mr. John Stefiuk, President and Chief Executive Officer of Federal
Bronze, has been employed by Federal Bronze for 25 years and has signed a
five-year employment agreement with Federal Bronze to continue in that capacity.
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INDEPENDENT METALS CO., INC. -- Independent Metals Co., Inc.
("Independent"), headquartered in Germantown, Wisconsin, was founded in 1982
by Barry Quinnies and operates primarily in the upper midwest and southeastern
regions of the United States. Independent operates service enters in Germantown,
Wisconsin; Broadview, Illinois; Minneapolis, Minnesota and Orlando, Florida and
is a processor and distributor of flat rolled stainless steel, aluminum, brass
and copper. Independent sells its products to the industrial machine,
transportation, food processing and electronics manufacturing industries.
Independent had calendar 1996 and nine months ended September 30, 1997 net sales
of $94.3 million and $72.1 million, respectively, operating income of $3.7
million and $2.3 million, respectively and currently has about 160 employees.
Mr. Barry Quinnies is the Chairman and Chief Executive Officer of Independent,
has been employed by Independent for approximately 16 years and has signed a
three-year employment agreement with Independent to continue in that capacity.
ROYAL ALUMINUM, INC. -- Royal Aluminum, Inc. ("Royal"), is headquartered
in Leesburg, Florida and is the successor to a business founded in 1965. Royal
manufactures and distributes aluminum building products through its
manufacturing facility in Leesburg, Florida, and sells its products through five
distribution centers located primarily in the southeastern United States. Royal
had calendar 1996 and nine months ended September 30, 1997 net sales of $15.3
million and $10.8 million, respectively, operating income of $0.3 million and
$0.1 million, respectively and currently has about 85 employees. Mr. Allen
Applebee is the President and Chief Operating Officer of Royal, has been
employed by Royal for approximately 29 years and has signed a three-year
employment agreement with Royal to continue in that capacity.
R. J. FABRICATING INC. -- R. J. Fabricating Inc. ("RJ Fabricating"),
headquartered in Milwaukee, Wisconsin, is a processor of steel products
utilizing laser burning, CNC punching and general fabrication. RJ Fabricating
had calendar 1996 and nine months ended September 30, 1997 net sales of $2.0
million and $2.3 million, respectively, operating income of $0.1 million and
$0.4 million, respectively and currently has about 21 employees.
PACIFIC METAL COMPANY -- Pacific Metal Company ("Pacific"), is
headquartered in Portland, Oregon, was founded in 1876 by Fredrick K. Morrow and
operates in Seattle, Washington; Spokane, Washington; Medford, Oregon; Eugene,
Oregon; Boise, Idaho; and Billings, Montana. Pacific is a value-added metals
processor of flat rolled common alloy aluminum and steel, other products include
sheet, bar and rod in variety of dimensions and alloys of brass, copper,
stainless and galvanized steel. Pacific provides a number of products and
services primarily to the transportation, consumer durables, electrical and
telecommunications equipment and other manufacturing industries. Pacific had
calendar 1996 and nine months ended 1997 net sales of $84.3 million and $65.0
million, respectively, operating income of $3.1 million and $2.2 million,
respectively, and currently has about 160 employees. Mr. Don Peck, Chairman and
Chief Executive Officer, has been employed by Pacific for 41 years and intends
to sign a three-year employment agreement with Pacific to continue in that
capacity.
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RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF
FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING FOUNDING
COMPANIES. Metals USA was founded in 1996 but conducted no operations and
generated no net sales prior to July 11, 1997. The Acquired Companies were
operated as separate independent entities prior to their acquisition, and there
can be no assurance that the Company will be able to integrate the operations of
these businesses successfully or to institute the necessary systems and
procedures, including accounting and financial reporting systems, to manage the
combined enterprise on a profitable basis. The Company's management group has
been assembled only recently, and there can be no assurance that the management
group will be able to manage the combined entity effectively or to implement
successfully the Company's acquisition and internal growth operating strategies.
The pro forma historical financial results of the Acquired Companies cover
periods when the Acquired Companies and Metals USA were not under common control
or management and may not be indicative of the Company's future financial or
operating results. The inability of the Company to integrate the Acquired
Companies successfully would have a material adverse effect on the Company's
business, financial condition and results of operations and would make it
unlikely that the Company's acquisition program will be successful. See
"Business -- Strategy" and "Management."
POSSIBLE IMPACT OF VARYING METAL PRICES. The principal raw materials used
by the Company are steel, aluminum and various specialty metals. The metals
industry as a whole is cyclical, and at times pricing and availability of raw
materials in the metals industry can be volatile due to numerous factors beyond
the control of the Company, including general, domestic and international
economic conditions, labor costs, production levels, competition, import duties
and tariffs and currency exchange rates. This volatility can significantly
affect the availability and cost of raw materials for the Company, and may,
therefore, adversely affect the Company's net sales, operating margin and net
income. During the last five years, carbon steel prices for the Acquired
Companies have increased an average of 2.7% per year. Aluminum prices have
declined approximately 7% per year for the past two years. While the overall
trend of steel and aluminum prices has been relatively stable, prices have
fluctuated approximately 10% up or down during interim periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company's service centers maintain substantial inventories of
metal to accommodate the short lead times and just-in-time delivery requirements
of its customers. Accordingly, the Company purchases metal in an effort to
maintain its inventory at levels that it believes to be appropriate to satisfy
the anticipated needs of its customers based on information derived from
customers, market conditions, historic usage and industry research. The
Company's commitments for metal purchases are generally at prevailing market
prices in effect at the time the Company places its orders. The Company has no
long-term, fixed-price purchase contracts. During periods of rising raw
materials pricing, there can be no assurance the Company will be able to pass
any portion of such increases on to customers. When raw material prices decline,
customer demands for lower prices could result in lower sale prices and, as the
Company uses existing inventory, lower margins. Changing metal prices could
adversely affect the Company's operating margin and net income.
CYCLICALITY OF DEMAND. Many of the Company's products are sold to
industries that experience significant fluctuations in demand based on economic
conditions, energy prices, consumer demand and other factors beyond the control
of the Company. No assurance can be given that the Company will be able to
increase or maintain its level of sales in periods of economic stagnation or
downturn.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to grow significantly through the acquisition of additional value-added metals
processors/service centers and manufacturers. The Company expects to face
competition for acquisition candidates, which may limit the number of
acquisition
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opportunities and may lead to higher acquisition prices. There can be no
assurance that the Company will be able to identify, acquire or manage
profitably additional businesses or to integrate successfully any acquired
businesses into the Company without substantial costs, delays or other
operational or financial difficulties. Further, acquisitions involve a number of
special risks, including failure of the acquired business to achieve expected
results, diversion of management's attention, failure to retain key personnel of
the acquired business and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that the Acquired Companies or other subsequently
acquired businesses will achieve anticipated net sales and earnings. See
"Business -- Strategy."
RESTRICTIVE LOAN COVENANTS. The Credit Facility and the Indenture contain
numerous financial and operating covenants that limit the discretion of the
Company's management with respect to certain business matters. These covenants
place significant restrictions on, among other things, the ability of the
Company to incur additional indebtedness, to create liens or other encumbrances,
to make certain payments and investments, and to sell or otherwise dispose of
assets and merge or consolidate with other entities. The Credit Facility will
also require the Company to meet certain financial ratios and tests. A failure
to comply with the obligations contained in the Credit Facility or the Indenture
could result in an event of default under either the Credit Facility or the
Indenture which could result in acceleration of the related debt and the
acceleration of debt under other instruments evidencing indebtedness that may
contain cross-acceleration or cross-default provisions.
RISKS RELATED TO ACQUISITION FINANCING. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be readily predicted. The Company currently intends to finance future
acquisitions by using shares of its Common Stock for all or a substantial
portion of the consideration to be paid. If the Common Stock does not maintain a
sufficient market value, or if potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. The Company's $300.0 million revolving credit facility became available
for working capital and acquisitions upon consummation of the sale of $200.0
million aggregate principal amount of its 8 5/8% Senior Subordinated Notes due
2008. As of February 18, 1998 no borrowings under the line of credit were
outstanding, and the Company had cash and cash equivalents of $18.1 million. If
the Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity
financings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Combined liquidity and capital resources."
RISKS RELATED TO INTERNAL GROWTH AND OPERATING STRATEGIES. Key elements of
the Company's strategy are to improve the profitability of the Acquired
Companies and subsequently acquired businesses and to continue to expand the net
sales of the Acquired Companies and any subsequently acquired businesses.
Although the Company intends to seek to improve the profitability of the
Acquired Companies and any subsequently acquired businesses by various means,
including realizing overhead and purchasing efficiencies, there can be no
assurances that the Company will be able to do so. The Company's ability to
increase the net sales of the Acquired Companies and any subsequently acquired
businesses will be affected by various factors, including demand for metals,
pricing and availability of raw materials, the Company's ability to expand the
range of products and services offered by each Acquired Company and any
subsequently acquired businesses and the Company's ability to successfully enter
new markets. Many of these factors are beyond the control of the Company, and
there can be no assurance that the Company's strategies will be successful or
that it will be able to generate cash flow adequate for its operations and to
support internal growth. A key component of the Company's strategy is to operate
the Acquired Companies and subsequently acquired businesses on a decentralized
basis, with local management retaining responsibility for day-to-day operations,
profitability and the growth of the business. If proper overall business
controls are not implemented, this decentralized operating strategy could result
in inconsistent operating and financial practices at the Acquired Companies and
subsequently acquired businesses and the Company's
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overall profitability could be adversely affected. See
"Business -- Strategy -- Operating on a Decentralized Basis."
COMPETITION. The Company is engaged in a highly-fragmented and competitive
industry. The Company competes with a large number of other value-added metals
processors/service centers on a regional and local basis, some of which may have
greater financial resources than the Company and several of which are public
companies. The Company also competes to a lesser extent with primary metals
producers, who typically sell to very large customers requiring regular
shipments of large volumes of metals. The Company may also face competition for
acquisition candidates from those public companies that have acquired a number
of metals service center businesses during the past decade. Other smaller metals
processors/service centers may also seek acquisitions from time to time.
Increased competition could have a material adverse effect on the Company's net
sales and profitability. See "Business -- Competition."
REGULATION. The Company's operations are subject to a number of federal,
state and local regulations relating to the protection of the environment and to
workplace health and safety. In particular, the Company's operations are subject
to extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environment protection, remediation, workplace exposure and other matters.
Hazardous materials the Company uses in its operations primarily include
lubricants, cleaning solvents and hydrochloric acid used in its pickling
operations at two facilities.
Some of the properties owned or leased by the Company are located in
industrial areas close to properties with histories of heavy industrial use,
three of which are on or near sites listed on the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") National Priority
List. The Company believes that as many as three of the properties leased by
Founding Companies have been contaminated by pollutants which have migrated from
neighboring facilities or have been deposited by prior occupants.
Prior to entering into the agreements relating to the Mergers and the
Subsequent Acquisitions, the Company evaluated the properties owned or leased by
the Acquired Companies and engaged an independent environmental consulting firm
to conduct or review assessments of environmental conditions at these
properties. Although no environmental claims have been made against the Company
and it has not been named as a potentially responsible party by the
Environmental Protection Agency or any other party, it is possible that the
Company could be identified by the Environmental Protection Agency, a state
agency or one or more third parties as a potentially responsible party under
CERCLA or under analogous state laws. If so, the Company could incur substantial
litigation costs to prove it is not responsible for the environmental damage.
The Company has obtained limited indemnities from the stockholders of the
Acquired Companies whose facilities are located at the contaminated sites. The
Company believes that these indemnities will be adequate to protect it from a
material adverse effect on its financial condition should the Company be found
to be responsible for a share of the clean-up costs. The limited indemnities are
subject to certain deductible amounts, however, and there can be no assurance
that the limited indemnities will fully protect the Company. See
"Business -- Governmental Regulation and Environmental Matters."
RELIANCE ON KEY PERSONNEL. Due in part to the Company's decentralized
operating strategy, the Company is highly dependent on the continuing efforts of
its executive officers and the senior management of the Acquired Companies, and
the Company likely will depend on the senior management of any significant
business it acquires in the future. The business or prospects of the Company
could be affected adversely if any of these persons does not continue in his
management role until the Company is able to attract and retain qualified
replacements. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. The Company's executive
officers and directors, former stockholders of the Acquired Companies (excluding
Pacific) and entities affiliated with them beneficially own approximately 69.4%
of the outstanding shares of Common Stock (not including the 3,595,054 shares of
Common Stock that remain available for issuance pursuant to this registration
statement). Holders of Restricted Common Stock are not entitled to vote on the
election of any other
16
<PAGE>
directors. Accordingly, the Company's executive officers, directors and the
former stockholders of the Acquired Companies (excluding Pacific) control in the
aggregate approximately 71.1% of the votes of all shares of Common Stock, and if
acting in concert, will be able to exercise control over the Company's affairs,
to elect the entire Board of Directors and to control the outcome of any matter
submitted to a vote of stockholders. See "Principal Stockholders."
SUBSTANTIAL PROCEEDS OF THE IPO WERE PAID TO AFFILIATES OF FOUNDING
COMPANIES. Of the net proceeds of the IPO, $27.8 million, or 47.4% was paid as
the cash portion of the purchase price for the Founding Companies. Some of the
recipients of these funds are directors of the Company or holders of more than
5% of the Common Stock. Prior to the IPO, 1,385,000 shares of Common Stock were
issued to management of and certain consultants to the Company at a price of
$0.01 per share. See "Certain Transactions."
LIMITED PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to
the IPO, there was no public market for the Common Stock. The offering price for
the Common Stock to be issued pursuant to this Prospectus will be based upon the
Company's closing stock price at a date certain or the average closing stock
price over a period of time determined by negotiations between the Company and
the owners of the companies to be acquired. The negotiated price may bear no
relationship to the price at which the Common Stock will trade after the
respective acquisition and there can be no assurance that an active trading
market will be sustained subsequent to any future acquisition transactions. The
market price of the Common Stock may be subject to significant fluctuations in
response to numerous factors, including the timing of any acquisitions by the
Company, variations in the Company's annual or quarterly financial results or
those of its competitors, changes by financial research analysts in their
estimates of the future earnings of the Company, conditions in the economy in
general or in the Company's industry in particular, unfavorable publicity or
changes in applicable laws and regulations (or judicial or administrative
interpretations thereof) affecting the Company or the metals industry. From time
to time, the stock market experiences significant price and volume volatility,
which may affect the market price of the Common Stock for reasons unrelated to
the Company's performance.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. There are currently 32,095,552 shares of Common Stock issued and
outstanding, of which 13,189,946 shares are freely tradeable (consisting of the
6,785,000 shares sold in the IPO and the 6,404,946 shares issued pursuant to
this registration statement). The remaining outstanding shares may be resold
publicly only following their registration under the Securities Act of 1933, as
amended (the "Securities Act"), or pursuant to an available exemption from
registration (such as provided by Rule 144 following a one year holding period
for previously unregistered shares). The holders of these remaining shares have
certain demand rights to have their shares registered in the future under the
Securities Act, but may not exercise such demand registration rights, and have
agreed with the Company that they will not sell, transfer or otherwise dispose
of any of their shares, for one year following the consummation of the IPO.
Following the acquisition of Pacific, the Company will have granted options to
purchase up to a total of 3,570,265 shares of Common Stock. The Company has
filed a registration statement on Form S-8 for the purpose of registering all
the shares subject to these options under the Securities Act for public resale.
In addition, the 3,595,054 shares of Common Stock that remain available for
issuance pursuant to this registration statement generally will be freely
tradeable after their issuance by persons not affiliated with the Company unless
their resale is contractually restricted. Sales, or the availability for sale
of, substantial amounts of the Common Stock in the public market could adversely
affect prevailing market prices and the future ability of the Company to raise
equity capital and complete any additional acquisitions for Common Stock. See
"Shares Eligible for Future Sale."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. Metals USA's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences, powers
and relative, participating, optional and other rights (including preferences
over the Common Stock respecting dividends and distributions and voting rights)
as the Board of Directors may determine. The issuance of this "blank-check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the
17
<PAGE>
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."
18
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the New York Stock Exchange since
July 11, 1997. On February 18, 1998, the last sale price of the Common Stock was
$15.50 per share, as published in THE WALL STREET JOURNAL on February 19, 1998.
At February 18, 1998, there were approximately 175 stockholders of record of the
Company's Common Stock.
The following table sets forth the range of high and low sales prices for
the Common Stock for the periods indicated:
HIGH LOW
--------- ---------
July 11, 1997 to September 30, 1997 ............ $ 16.00 $ 10.00
October 1, 1997 to December 31, 1997 ........... $ 16.50 $ 13.38
January 1, 1998 to February 18, 1998 ........... $ 15.63 $ 14.00
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Company's Credit Facility
(See Management's Discussion and Analysis of Financial Condition and Results of
Operations) includes restrictions on the ability of the Company to pay dividends
without the consent of the lender.
19
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and capitalization at September 30, 1997 (i) of Metals USA on a
consolidated basis and (ii) of Metals USA, pro forma, as adjusted to give effect
to; (a) the acquisitions of Independent, Royal, RJ Fabricating and Pacific, and
(b) the sale of $200.0 million aggregate principal amount of 8 5/8% Senior
Subordinated Notes due 2008 and the application of the net proceeds therefrom.
This table should be read in conjunction with the Unaudited Pro Forma Financial
Statements of the Company and the Notes thereto included elsewhere in this
Prospectus.
SEPTEMBER 30, 1997
------------------------------
CONSOLIDATED PRO FORMA
------------- ----------
(IN THOUSANDS OF DOLLARS)
Current maturities of long-term debt
obligations(1)........................ $ 7,029 $ 7,931
============= ==========
Long-term debt (net of current
maturities):
Bank Credit Facility............... $ 130,000 $ --
Other notes payable and capital
lease obligations(2)............. 23,353 19,581
8 5/8% Senior Subordinated Notes
due 2003......................... -- 200,000
------------- ----------
Total long-term debt.......... 153,353 219,581
------------- ----------
Total debt.................... 160,382 227,512
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;
31,189,397 issued and
outstanding; and 33,112,331
shares issued and outstanding,
pro forma(3)..................... 312 331
Additional paid-in capital......... 185,052 207,937
Unearned compensation.............. (1,535) (1,757)
Retained earnings.................. 31,711 31,711
------------- ----------
Total stockholders' equity.... 215,540 238,222
------------- ----------
Total capitalization....... $ 375,922 $465,734
============= ==========
- ------------
(1) For a description of the Company's debt, see the Notes to Unaudited Pro
Forma Financial Statements and Notes to the Founding Companies' Financial
Statements.
(2) See Notes to the Company's Audited Consolidated Financial Statements for a
description of certain other debt obligations.
(3) Excludes shares of Common Stock subject to options granted upon consummation
of the IPO and shares of Common Stock subject to options granted or to be
granted in connection with the Subsequent Acquisitions. See
"Management -- 1997 Long-Term Incentive Plan" and " -- 1997 Non-Employee
Directors' Stock Plan."
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following historical and pro forma financial information should be read
in conjunction with the Unaudited Pro Forma Financial Statements and the Notes
thereto and the historical Consolidated Financial Statements of Metals USA and
certain of the Acquired Companies and the Notes thereto included elsewhere in
this Prospectus. The historical financial information for the fiscal years ended
1992 through 1996 and the nine months ended September 30, 1996 and 1997,
reflects the historical financial statements of Metals USA, restated for the
effects of the business combinations with Jeffreys and Wayne which were
accounted for as "poolings-of-interests" and the remaining Acquired Companies
from their respective acquisition dates. The results of operations for interim
periods are unaudited and are not necessarily indicative of the results for the
full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, (1) SEPTEMBER 30,
----------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
CONSOLIDATED:
Net sales........................... $ 111,530 $ 136,141 $ 212,273 $ 235,200 $ 240,145 $ 181,700 $ 296,391
Cost of sales....................... 85,054 103,671 165,347 183,779 183,638 138,648 228,254
Operating and delivery.............. 10,934 12,517 18,497 20,702 24,045 17,802 30,577
Selling, general and administrative
expenses.......................... 8,004 9,087 12,729 14,204 19,748 12,552 24,835
Depreciation and amortization....... 1,589 1,844 2,204 2,789 3,480 2,553 3,082
Operating income.................... 5,949 9,022 13,496 13,726 9,234 10,145 9,643
Interest expense.................... 754 1,943 1,681 2,321 1,736 1,319 2,484
Other (income) expense.............. (410) (1,316) (258) (308) (405) (424) (252)
Income before tax................... 5,605 8,395 12,073 11,713 7,903 9,250 7,411
Net income (loss)................... 3,384 5,157 7,264 6,901 3,294 5,521 1,315
Net income (loss) per share......... $ .41 $ .63 $ .88 $ .84 $ .31 $ .56 $ .07
Shares used in computing net income
(loss) per share.................. 8,230,011 8,230,011 8,230,011 8,230,011 10,600,208 9,797,072 18,002,020
PRO FORMA(2):
Net sales........................... $ 940,375 $ 774,384
Cost of sales(3).................... 730,255 601,513
Operating and delivery(4)........... 88,036 73,478
Selling, general and administrative
expenses(4)....................... 61,999 49,814
Depreciation and amortization(5).... 13,069 9,368
Operating income.................... 47,016 40,211
Interest expense(6)................. 18,674 14,427
Other (income) expense.............. (1,350) (935)
Income before tax................... 29,692 26,719
Net income(7)....................... 16,498 15,277
Net income per share................ $ .50 $ .46
Shares used in computing net income
per share(8)...................... 33,112,331 33,112,331
FISCAL YEARS ENDED(1) SEPTEMBER 30, 1997
----------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(9)
--------- --------- --------- --------- --------- --------- ------------
BALANCE SHEET DATA:
Working capital (deficit)........... $ 23,126 $ 36,493 $ 43,498 $ 48,041 $ 46,348 $ 179,060 $224,978
Total assets........................ 43,151 61,957 88,480 88,784 95,087 466,482 580,048
Long-term debt, net of current
maturities........................ 6,966 21,274 23,195 31,372 24,574 153,353 219,581
Stockholders' equity................ 29,529 29,951 36,456 41,750 49,237 215,540 238,222
Dividends declared(10).............. -- -- -- -- -- -- --
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
21
<PAGE>
- ------------
(1) As a result of the merger with Metals USA, Jeffreys changed its fiscal year
to December 31 beginning January 1, 1996, to conform to the fiscal periods
of Metals USA and the other Acquired Companies. The historical financial
information of Jeffreys for the years ended July 31, 1992, 1993, 1994 and
1995 have been included in the Company's consolidated financial statements
for the years ended December 31, 1992, 1993, 1994 and 1995.
(2) The pro forma statements of operations data assume that the Mergers, the
Subsequent Acquisitions and the IPO and all acquisitions by the Acquired
Companies occurred on January 1, 1996 and are not necessarily indicative of
the results the Company would have obtained had these events actually then
occurred or of the Company's future results. The historical combined net
sales for the Acquired Companies for the twelve months ended December 31,
1996 and the nine months ended September 30, 1997 were $929.1 million and
$774.0 million, respectively.
(3) Cost of sales includes a $6.7 million charge for the year ended December
31, 1996, and a $0.5 million charge for the nine months ended September 30,
1997, eliminating the gains recorded as historical LIFO adjustments to cost
of sales. These adjustments result from the restatement of base year LIFO
costs to the appropriate replacement costs as if the acqusitions occurred
on January 1, 1996.
(4) The pro forma statements of operations data reflect the Compensation
Differential of $9.3 million and $6.7 million included in selling, general
and administrative expenses, the Rent Differential of $0.8 million and $0.5
million included in operating and delivery for the twelve months ended
December 31, 1996 and for the nine months ended September 30, 1997,
respectively, and selling, general and administrative expenses do not
include the nonrecurring portion of the Compensation Charge.
(5) Includes $3.7 million and $2.3 million of amortization for the twelve
months ended December 31, 1996 and for the nine months ended September 30,
1997, respectively, on the $145.5 million of goodwill recorded as a result
of the Mergers and Subsequent Acquisitions computed on the basis described
in Notes to the Unaudited Pro Forma Combined Financial Statements.
(6) Includes $0.8 million and $0.9 million for the twelve months ended December
31, 1996 and nine months ended September 30, 1997, respectively, in
reductions in interest expense due to assumed refinancing of outstanding
indebtedness with the Company's Credit Facility. Interest expense is
increased by $2.9 million and $2.1 million for the twelve months ended
December 31, 1996 and the nine months ended September 30, 1997 due to the
assumed financing of the cash portion of the Acquired Companies' purchase
price with the Company's Credit Facility and $6.3 million and $4.8 million
for the twelve months ended December 31, 1996 and nine months ended
September 30, 1997, respectively, due to the issuance of the Notes.
(7) Assumes all income is subject to a corporate tax rate of 40%, Compensation
Charge is non-deductible and goodwill of $81.2 million and $50.5 million
resulting from the Mergers and the Subsequent Acquisitions, respectively,
is nondeductible.
(8) Includes (i) 21,573,917 shares issued to owners of the Acquired Companies,
(ii) 1,385,500 shares issued to the management of and consultants to Metals
USA, (iii) 3,367,914 shares issued to Notre and, (iv) 6,785,000 shares sold
in the IPO. Excludes the grant of options to purchase 3,570,265 shares of
Common Stock.
(9) The pro forma combined balance sheet data assumes that the issuance of the
Notes and the acquisitions of Independent, RJ Fabricating, Royal and
Pacific were consummated on September 30, 1997.
(10) Exclusive of pre-acquisition distributions from S Corporations.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Company's Consolidated Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's net sales are derived from the processing of steel, aluminum
and other specialty metals and the use of processed metals to manufacture
high-value end-use products. The majority of the metals sold by the Company are
processed by the Company. The Company processes various metals to specified
thickness, length, width, shape and surface quality pursuant to specific
customer orders. Additionally, certain of the Acquired Companies manufacture
finished building products for commercial and residential applications and
machine certain specialty metals.
The Acquired Companies have operated as privately-owned entities and their
results of operations reflect varying tax structures ("S Corporations" or "C
Corporations") which have influenced the level of owners' compensation. The
owners of the Acquired Companies have contractually agreed to certain reductions
in both their compensation and benefits and in certain cases lease payments for
their respective facilities in connection with the acquisitions. These cost
savings are reflected in the pro forma financial statements. Pro forma net sales
were $940.4 million and $774.4 million and operating income was $47.0 million
and $40.2 million for the year ended December 31, 1996 and for the nine months
ended September 30, 1997, respectively. The foregoing and other pro forma
financial information are more fully described in the Pro Forma Financial
Statements, and the notes thereto presented elsewhere in this Prospectus.
The Company anticipates that it will realize savings from: (i) greater
volume discounts from raw materials and other suppliers and (ii) consolidation
of insurance, employee benefit programs and other general and administrative
costs. It is anticipated that these savings will be offset by costs related to
the Company's new corporate management and by the costs attributable to being a
public company, at least until the Company's cost savings program can be fully
implemented. The Company's pro forma financial statements do not reflect any
amounts as may be realized from future cost savings.
During 1996 and the first half of 1997, the Company sold an aggregate of
1,385,500 shares of Common Stock to management of and consultants to the Company
for $0.01 per share. Accordingly, the Company has recorded a Compensation Charge
of $3.6 million in 1996, and $6.0 million in the first half of 1997,
respectively, representing the difference between the amount paid for the shares
and the estimated fair value of the shares on the date of sale, as if the
Founding Companies were combined. In addition, the second quarter reflects a
reduction in compensation expense of $1.5 million representing a revision of the
estimated fair value of the shares sold to management and consultants in 1996
and the first quarter of 1997.
In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires that these
combinations be accounted for using the purchase method of acquisition
accounting. Under SAB 97, the company receiving the largest voting position from
the shares issued in connection with the Mergers must be designated as the
accounting acquiror. Accordingly, Metals USA was the designated "accounting
acquiror." Accordingly, the Company recorded the excess of the fair value of
the Merger consideration paid (exclusive of debt assumed), over the fair value
of the net assets acquired with respect to the Founding Companies as
"goodwill." Collectively, the amount by which the excess of consideration paid
(exclusive of debt assumed) over the fair value of the net assets acquired from
the merger of the Founding Companies together with the merger of certain of the
Subsequent Acquisitions that were accounted for using the "purchase" method of
accounting, totaled approximately $145.5 million at September 30, 1997.
Generally accepted accounting principles require the amortization of goodwill
over its useful life, not to exceed 40 years. The amortization of goodwill is a
non-cash charge to operating income. The pro forma impact of the amortization
expense attributable to the goodwill created from the application
23
<PAGE>
of SAB 97, with respect to the Founding Companies is approximately $2.1 million
per year and is not deductible for income tax purposes. The pro forma impact of
the amortization expense attributable to the goodwill created from the
Subsequent Acquisitions is approximately $1.5 million per year, a portion of
which will be deductible for income tax purposes. See "Certain
Transactions -- Organization of the Company." Prior to the issuance of SAB 97,
most business combinations similar to the Mergers were accounted for by
combining the historical financial statements of the respective companies
without the revaluation of acquired assets and liabilities and, therefore, did
not result in the creation of "goodwill."
The accounting classifications used by the Company to present the combined
results of operations for the Founding Companies generally conform to the
conventions established by the Steel Service Center Institute ("SSCI") and the
National Association of Aluminum Distributors. Depreciation and amortization
expenses are shown separately as management believes certain investors find the
information beneficial. Brief descriptions of the classifications are as
follows:
NET SALES. Net sales include sales of materials, processing and
fabrication, less sales returns, allowances and cash discounts. Net sales also
exclude any sales and use taxes collected.
COST OF SALES. Cost of sales include the cost of material and freight and
all processing services purchased from unaffiliated third parties, less any
applicable purchase discounts realized. The Company carries a substantial
quantity of raw material inventories and five of its Subsidiaries use the
last-in first-out ("LIFO") method of accounting. The LIFO method of accounting
generally matches current costs more closely with current sales. However,
variations in inventory quantities and/or prices may have a significant impact
on cost of sales.
OPERATING AND DELIVERY EXPENSE. Operating and delivery expenses consist of
labor, utilities, rent, repairs and maintenance expenses attributable to
material processing operations, warehouse facilities and delivery operations,
including the cost of freight attributable to product shipments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses include the cost of personnel conducting sales and
administrative activities (including commissions and other forms of incentive
compensation), advertising and marketing expenses, rent, utilities, repairs and
maintenance costs for non-warehouse facilities, professional fees, property
taxes and other costs not included in the preceding classifications that are
directly attributable to operations.
RESULTS OF OPERATIONS
The following historical financial information reflects the historical
financial statements of Metals USA, restated for the effects of the business
combinations with Jeffreys and Wayne accounted for as "poolings-of-interests"
and the remaining Acquired Companies from their respective acquisition dates.
Because of the merger with Metals USA, Jeffreys changed its fiscal year end from
July 31 to December 31, beginning January 1, 1996 to conform to the fiscal
periods of Metals USA and the other Acquired Companies. The historical financial
information of Jeffreys for the years ended July 31, 1994 and 1995 have been
included in the Company's consolidated financial statements for the years ended
December 31, 1994 and 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- --------------------
1994 % 1995 % 1996 % 1996 %
-------------------- -------------------- -------------------- --------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $ 212.3 100.0% $ 235.2 100.0% $ 240.1 100.0% $ 181.7 100.0%
Costs and expenses:
Cost of sales....................... 165.3 77.9% 183.8 78.1% 183.6 76.5% 138.6 76.3%
Operating and delivery.............. 18.5 8.7% 20.7 8.8% 24.0 10.0% 17.8 9.8%
Selling, general and administrative
expenses.......................... 12.7 6.0% 14.2 6.0% 19.7 8.2% 12.6 6.9%
Depreciation and amortization....... 2.3 1.0% 2.8 1.3% 3.6 1.5% 2.6 1.4%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income........................ 13.5 6.4% 13.7 5.8% 9.2 3.8% 10.1 5.6%
</TABLE>
SEPTEMBER 30,
--------------------
1997 %
--------------------
Net sales............................... $ 296.4 100.0%
Costs and expenses:
Cost of sales....................... 228.3 77.0%
Operating and delivery.............. 30.6 10.3%
Selling, general and administrative
expenses.......................... 24.8 8.4%
Depreciation and amortization....... 3.1 1.1%
--------- ---------
Operating income........................ 9.6 3.2%
The results of operations for the interim period are unaudited and are not
necessarily indicative of the results for the full year.
24
<PAGE>
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
NET SALES. Net sales increased $114.7 million, or 63.1%, from $181.7
million for the nine months ended September 30, 1996 to $296.4 million for the
nine months ended September 30, 1997. The increase in net sales was principally
due to increased shipments attributable to the acquisition of the Founding
Companies on July 11, 1997. The purchase acquisitions of Harvey, Meier and
Federal Bronze on September 26, 1997 did not have a significant impact on net
sales or results of operations for the nine months ended September 30, 1997.
COST OF SALES. Cost of sales increased $89.7 million, or 64.7%, from
$138.6 million for the nine months ended September 30, 1996 to $228.3 million
for the nine months ended September 30, 1997. The increase in cost of sales was
principally due to the increased shipments attributable to the business
acquisitions described above. As a percentage of net sales, cost of sales
increased from 76.3% for the nine months ended September 30, 1996 to 77.0% for
the nine months ended September 30, 1997. This percentage increase was due to
higher cost of raw materials.
OPERATING AND DELIVERY. Operating and delivery expenses increased $12.8
million, or 71.9%, from $17.8 million for the nine months ended September 30,
1996 to $30.6 million for the nine months ended September 30, 1997. The increase
in operating and delivery expenses was principally due to the increased
shipments attributable to the business acquisitions described above. As a
percentage of net sales, operating and delivery expenses increased from 9.8% for
the nine months ended September 30, 1996 to 10.3% for the nine months ended
September 30, 1997. This percentage increase was primarily due to higher
transportation costs to support an expanding market area.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $12.2 million, or 96.8%, from $12.6 million for the nine
months ended September 30, 1996 to $24.8 million for the nine months ended
September 30, 1997. This increase in selling, general and administrative
expenses was primarily attributable to the business acquisitions described
above. Additionally, the Company recorded a $6.0 million compensation charge
during the first and second quarters of 1997 related to 985,000 shares of Common
Stock that were sold to consultants and members of management at $0.01 per
share. As a percentage of net sales, selling, general and administrative
expenses increased from 6.9% for the nine months ended September 30, 1996 to
8.4% for the nine months ended September 30, 1997. This percentage increase was
primarily due to the compensation charge described above.
OPERATING INCOME. Operating income decreased $0.5 million, or 5.0%, from
$10.1 million for the nine months ended September 30, 1996 to $9.6 million for
the nine months ended September 30, 1997. The decrease in operating income was
primarily attributable to the $6.0 million compensation charge discussed above.
As a percentage of net sales, operating income decreased from 5.6% for the nine
months ended September 30, 1996 to 3.2% for the nine months ended September 30,
1997.
INTEREST EXPENSE. Interest expense increased $1.2 million, or 92.3%, from
$1.3 million for the nine months ended September 30, 1996 to $2.5 million for
the nine months ended September 30, 1997. The increase in interest expense was
primarily due to the purchase of the Founding Companies on July 11, 1997.
RESULTS FOR 1996 COMPARED TO 1995
NET SALES. Net sales increased $4.9 million, or 2.1%, from $235.2 million
in 1995 to $240.1 million in 1996. The increase in net sales was principally due
to a 6.0% increase in shipments from 388,600 tons in 1995 to 411,900 tons in
1996. Additionally, average realized prices decreased by approximately 2.5%.
Approximately one-third of the increased shipments were from the Oakwood,
Georgia facility acquired in March 1995.
COST OF SALES. Cost of sales decreased $0.2 million, or 0.1%, from $183.8
million in 1995 to $183.6 million in 1996. The decrease in cost of sales was
primarily attributable to a 4.4% decline in the cost of raw materials, partially
offset by the increased shipments described above. As a percentage of net sales,
cost of
25
<PAGE>
sales decreased from 78.1% in 1995 to 76.5% in 1996 due primarily to the decline
in the cost of raw materials referred to above.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$3.3 million, or 15.9%, from $20.7 million in 1995 to $24.0 million in 1996.
This increase was primarily attributable to the increased shipments described
above. As a percentage of net sales, operating and delivery expenses increased
from 8.8% in 1995 to 10.0% in 1996. This percentage increase was primarily due
to higher transportation costs to support an expanding market area.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $5.5 million, or 38.7%, from $14.2 million in
1995 to $19.7 million in 1996. The increase in selling, general and
administrative expenses was primarily due to a $3.6 million compensation charge
during the fourth quarter of 1996 related to 400,000 shares of Common Stock that
were sold to consultants and members of management at $0.01 per share and to a
lesser extent, the increased selling costs attributable to the increased
shipments described above. As a percentage of net sales, selling, general and
administrative expenses increased from 6.0% for 1995 to 8.2% for 1996. This
percentage increase was primarily due to the compensation charge described
above.
OPERATING INCOME. Operating income decreased $4.5 million, or 32.8%, from
$13.7 million in 1995 to $9.2 million in 1996. The decrease in operating income
was primarily attributable to the compensation charge discussed above. As a
percentage of net sales, operating income decreased from 5.8% in 1995 to 3.8% in
1996.
INTEREST EXPENSE. Interest expense decreased $0.6 million, or 26.1%, from
$2.3 million for 1995 to $1.7 million for 1996. The decrease in interest expense
was primarily due to lower average balances outstanding under the revolving
credit facility.
RESULTS FOR 1995 COMPARED TO 1994
NET SALES. Net sales increased $22.9 million, or 10.8%, from $212.3
million in 1994 to $235.2 million in 1995. The increase in net sales was
principally due to a 5.4% increase in shipments, from 369,800 tons in 1994 to
388,600 tons in 1995. Additionally, average realized prices increased by
approximately 5.1%. Approximately one-half of the increased shipments were
attributable to the Oakwood, Georgia facility acquired in March 1995.
COST OF SALES. Cost of sales increased $18.5 million, or 11.2%, from
$165.3 million in 1994 to $183.8 million in 1995. The increase in cost of sales
was principally due to the increase in shipments. As a percentage of net sales,
cost of sales increased from 77.9% in 1994 to 78.1% in 1995. This percentage
increase was primarily due to a 5.4% increase in the cost of raw materials.
OPERATING AND DELIVERY EXPENSES. Operating and delivery expenses increased
$2.2 million, or 11.9%, from $18.5 million in 1994 to $20.7 million in 1995. The
increase in operating and delivery expenses was primarily due to the increase in
product shipments from the Oakwood, Georgia facility. As a percentage of net
sales, operating and delivery expenses increased from 8.7% in 1994 to 8.8% in
1995. This percentage increase was primarily due to the increased shipments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.5 million, or 11.8%, from $12.7 million in
1994 to $14.2 million in 1995. The increase in selling, general and
administrative expenses was primarily attributable to the addition of the new
service center and the increase in net sales. As a percentage of net sales,
selling, general and administrative expenses remained unchanged at 6.0% for 1994
and 1995.
OPERATING INCOME. Operating income increased $0.2 million, or 1.5%, from
$13.5 million in 1994 to $13.7 million in 1995. The increase in operating income
was primarily attributable to the increased shipments, partially offset by the
higher costs of raw material and the opening of the new service center as
discussed above. As a percentage of net sales, operating income decreased from
6.4% in 1994 to 5.8% in 1995.
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INTEREST EXPENSE. Interest expense increased $0.6 million, or 35.3%, from
$1.7 million for 1994 to $2.3 million for 1995. The increase in interest expense
was primarily due to increased borrowings used to finance the purchase of the
Oakwood, Georgia facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $7.8 million and $9.0 million in net cash from
operating activities for 1996 and the nine months ended September 30, 1997,
respectively. Net cash used in investing activities was $6.3 million and $75.8
million for 1996 and for the nine months ended September 30, 1997, respectively.
The principal use of cash during the nine months ended September 30, 1997 was to
fund the cash portion of the acquisition cost for the Acquired Companies. Net
cash used in financing activities was $3.0 million for 1996 and net cash
provided by financing was $78.4 million for the nine months ended September 30,
1997. For the nine months ended September 30, 1997, the cash provided by
financing activities consisted primarily of the net proceeds from the sale of
Common Stock of $58.6 million in connection with the IPO and borrowings under
the Credit Facility. At December 31, 1996, the Company had cash of $1.7 million,
working capital of $46.3 million and total debt of $26.5 million. At September
30, 1997, the Company had cash of $13.2 million, working capital of $179.1
million and total debt of $160.4 million (of which $130.0 million was
attributable to the Original Credit Facility (as defined below), leaving $20.0
million of borrowing availability).
Concurently with the IPO, the Company obtained a five-year $150.0 million
unsecured revolving credit facility (the "Original Credit Facility") which was
used to fund acquisitions, refinance certain indebtedness of the acquired
companies and for general corporate and working capital requirements. In January
1998, the Company obtained a $50.0 million unsecured revolving credit facility
(the "Interim Credit Facility") to meet its acquisition related cash
requirements pending the completion of an extension and modification of the
Original Credit Facility to provide for up to $300.0 million of borrowing
availability. On February 11, 1998, the Company received $194.5 million of net
cash proceeds (before expected expenses of $0.8 million) from the sale of $200.0
million aggregate principal amount of its 8 5/8% Senior Subordinated Notes due
2008 (the "Notes"). The Company used $179.3 million of such proceeds to repay
the borrowings outstanding under the Original Credit Facility and Interim Credit
Facility on February 11, 1998. The closing of the extension and modification of
the Credit Facility on February 11, 1998, called for the termination of the
Interim Credit Facility. The Notes call for semi-annual interest payments each
February 15 and August 15 of each year, beginning August 15, 1998 and mature on
February 15, 2008. The Notes are guaranteed by substantially all of the
Company's current and future subsidiaries, and contain certain covenants
restricting additional indebtedness, liens, transactions with affiliates, asset
sales, investments, payment restrictions affecting subsidiaries and mergers and
acquisitions of subsidiaries. The Notes are subordinate to borrowings under the
Credit Facility and will rank PARI PASSU in right of payment with all other
future subordinated debt of the Company and will rank senior to other
indebtedness that expressly provides that it is subordinated in right of payment
to the Notes.
The Credit Facility will mature in February 2003. The Credit Facility will
be used to fund acquisitions, make capital expenditures, refinance debt of the
companies acquired and for general working capital requirements. The Credit
Facility requires the Company to comply with various affirmative and negative
covenants including: (i) the maintenance of certain financial ratios, (ii)
restrictions on additional indebtedness, (iii) restrictions on liens, guarantees
and dividends, (iv) obtaining the lenders' consent with respect to certain
individual acqusitions, and (v) maintenance of a specified level of consolidated
tangible net worth. Borrowings under the Credit Facility will be secured by the
pledge of all of the Capital Stock of each of the Company's material
subsidiaries.
The Company intends to continue to actively pursue acquisition
opportunities. The Company expects to fund future acquisitions through the
issuance of additional Common Stock, borrowings, including use of amounts
available under its Credit Facility, and cash flow from operations. Capital
expenditures for equipment and expansion of facilities are expected to be funded
from cash flow from operations and supplemented as necessary by borrowings from
the Credit Facility or other sources of financing. To the extent the Company
funds a significant portion of the consideration for future acquisitions with
cash, it may have to increase the amount of the Credit Facility or obtain other
sources of financing. The Company anticipates that its cash flow from operations
will be sufficient to meet the Company's normal working capital and debt service
requirements for at least the next several years.
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In July 1997, the Company closed its IPO of 5,900,000 shares of common
stock for which it received net proceeds of approximately $54.9 million, before
payment of estimated offering costs of $4.5 million. Concurrent with the
completion of the IPO, Metals acquired the Founding Companies for $27.8 million
in cash and 10,128,609 shares of common stock. The Company used a portion of the
Credit Facility together with the net proceeds from the IPO to retire
substantially all of the indebtedness of the Founding Companies. Additionally,
on August 12, 1997, the Company sold 885,000 shares of its common stock pursuant
to the overallotment option granted to the underwriters in connection with the
IPO for net proceeds of $8.2 million. The Company used the net proceeds to repay
borrowings on the Credit Facility and for other corporate purposes.
Following the IPO the Company acquired eight additional metal processing
companies. These acquisitions include Jeffreys, Wayne, Meier, Harvey,
Independent, Royal Aluminum and RJ Fabricating and Federal Bronze. On February
17, 1998, Metals USA entered into an agreement which, upon completion of certain
regulatory and shareholder approvals, would call for the acquisition of Pacific
Metal Company. The acquisitions of Jeffreys and Wayne have been accounted for
using the "pooling-of-interests" method of accounting. The other acquisitions
were accounted for using the "purchase" method of accounting. Collectively,
the Company paid or agreed to pay a total of $59.9 million in cash and issued
11.4 million shares of Common Stock in connection with these acquisitions.
Additionally, the Company also assumed approximately $71.8 million of existing
indebtedness of these companies.
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 next several years. In addition, the Company's Credit Facility
(see "Description of Certain Indebtedness") and the Indenture include
restrictions on the ability of the Company to pay dividends.
YEAR 2000 ISSUE
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Specifically, computational
errors are a known risk with respect to dates after December 31, 1999. The
Company has addressed the issue with respect to its existing subsidiaries and
potential acquisitions as part of its normal due diligence procedures. The
Company does not believe the cost of achieving Year 2000, compliance, in excess
of the cost of normal software upgrades and replacements incurred through fiscal
1999, will be material to the Company's results of operations, financial
position or liquidity.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," allows entities to choose between a
new fair value based method of accounting for employee stock options or similar
equity instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied. The Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). For the
Company, SFAS No. 128 will be effective for the year ended December 31, 1997.
SFAS No. 128 simplifies the standards required under current accounting rules
for computing earnings per share and replaces the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("basic EPS") and diluted earnings per share
("diluted EPS"). Basic EPS excludes dilution and is determined by dividing
income available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted EPS reflects the potential
dilution that could occur if securities and other contracts to issue common
stock were exercised or converted into common stock. Diluted EPS is computed
similarly to fully diluted earnings per share under current accounting rules.
The implementation of SFAS No. 128 is not expected to have a material effect on
the Company's earnings per share as determined under current accounting rules.
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BUSINESS
Metals USA was founded to become a leading national value-added metals
processor/service center, to manufacture higher-value components from processed
metals and to pursue aggressively the consolidation of the highly-fragmented
metals processing industry. The Company believes that the metals
processor/service center industry in the United States is consolidating and
currently has as many as 3,500 participants collectively generating over $75
billion in annual revenues. The Company intends to play a major role in the
consolidation of this industry by combining a broad-based group of metals
processing and manufacturing companies. To be a leader in the consolidation of
the metals processing industry, the Company will be required to acquire and
deploy the capital-intensive equipment and technology necessary to meet rapidly
changing customer requirements. On July 11, 1997, Metals USA acquired the eight
Founding Companies which had 1996 pro forma net sales of $387.0 million.
Subsequently, Metals USA acquired eight additional companies and on February 16,
1998 agreed to acquire Pacific. Collectively, the Subsequent Acquisitions had
1996 pro forma net sales of $553.4 million. On average, the Acquired Companies
have been in business for over 40 years.
The Company intends to capitalize on the trend of both primary metals
producers and end-users of metal products to reduce in-house processing and
outsource processing and inventory management requirements. The Company's metals
processing business purchases metals from primary producers, who focus on large
volume sales of unprocessed metals, and in most cases performs customized
processing services to meet specifications provided by end-use customers. By
providing these services, as well as offering inventory management and
just-in-time delivery services, the Company enables its customers to reduce
material costs, enhance quality, decrease capital required for raw materials
inventory and processing equipment and save time, labor and other expenses. The
Company believes that these "partnering" relationships with suppliers and
customers enable it to reduce its customers' overall cost of their manufactured
metal products. In addition to its metals processing capabilities, the Company
manufactures higher-value components from processed metals, such as finished
building products, and produces a number of finished components machined from
specialty metals, such as bushings, pump parts and hydraulic cylinder parts. The
Company intends to continue its focus on the metal building products industry,
the single fastest growing segment of the metals processing industry.
The Acquired Companies sell to over 25,000 customers in businesses such as
the machining, furniture, transportation equipment, power and process equipment,
industrial/commercial construction, consumer durables and electrical equipment
industries, and machinery and equipment manufacturers. The Company believes that
its broad customer base and its wide array of metals processing capabilities,
products and services, coupled with its broad geographic coverage of the United
States, reduce the Company's susceptibility to economic fluctuations affecting
any one industry or geographical area.
INDUSTRY OVERVIEW
Companies operating in the metals industry can be generally characterized
as: (i) primary metals producers, (ii) metals processors/service centers or
(iii) end-users. The Company believes that both primary metals producers and
end-users are increasingly seeking to have their metals processing and inventory
management requirements met by value-added metals processors/service centers.
Primary metals producers, which manufacture and sell large volumes of steel,
aluminum and specialty metals in standard sizes and configurations, generally
sell only to those large end-users and metals processors/service centers who do
not require processing of the products and who can tolerate relatively long lead
times. Metals processors/service centers, which offer services ranging from
precision, value-added preproduction processing in accordance with specific
customer demands to storage and distribution of unprocessed metal products,
function as intermediaries between primary metals producers and end-users, such
as contractors and OEMs. End-users incorporate the processed metal into a
product, in some cases without further modification.
Historically, metals service centers provided few value-added services and
were little more than distribution centers, linking metals producers with all
but the largest end-users of metals. In the past two decades, however, the
metals service center business has evolved significantly, and the most
successful metals service centers have added processing capabilities, thereby
offering an increasingly broad range of
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value-added services and products both to primary metals producers and
end-users. This evolution has resulted from several trends in the primary metals
industry as well as trends among end-users.
The current trend among primary metals producers is to focus on their core
competency of high-volume production of a limited number of standardized metal
products. This change in focus has been driven by their need to develop and
improve efficient, volume-driven production techniques in order to remain
competitive. As a result, during the past two decades, most of the primary
producers have sold their service centers, many of which are now independently
owned, including several of the Acquired Companies.
At the same time, most end-users are no longer able to obtain processed
products directly from primary metals producers and have recognized the economic
advantages associated with outsourcing their customized metals processing and
inventory management requirements. Outsourcing permits end-users to reduce total
production cost by shifting the responsibility for preproduction processing to
value-added metals processors/service centers, whose higher efficiencies in
performing these processing services make the ownership and operation of the
necessary equipment more financially feasible.
Value-added metals processors/service centers have also benefitted from
growing customer demand for inventory management and just-in-time delivery
services. These services, which are not normally available from primary metals
producers, enable end-users to reduce material costs, decrease capital required
for inventory and equipment and save time, labor and other expenses. In response
to customer expectations, the more sophisticated value-added metals
processors/service centers have acquired specialized and expensive equipment to
perform customized processing and have installed sophisticated computer systems
to automate order entry, inventory tracking, management and sourcing and
work-order scheduling. Additionally, some value-added metals processors/service
centers have installed electronic data interchange ("EDI") between their
computer systems and those of their customers to facilitate order entry, timely
delivery and billing.
These trends have resulted in value-added metals processors/service centers
playing an increasingly important role in all segments of the metals industry.
For example, the percentage of total flat-rolled steel shipments sold by service
centers in the United States increased from approximately one-quarter in 1975 to
approximately one-half in 1995. Metals processors/service centers now serve the
needs of over 300,000 OEMs and fabricators nationwide.
INDUSTRY CONSOLIDATION
Based on industry data, the Company believes that the metals
processor/service center industry is highly fragmented, with as many as 3,500
participants. The Company believes that this industry is consolidating and that
most companies are small, owner-operated businesses with limited access to
capital for modernization and expansion. These owners traditionally have not had
a viable exit strategy, leaving them with few attractive liquidity options.
According to industry data, the metals processor/service center industry
generates over $75 billion in annual net sales.
The necessity for value-added metals processors/service centers to add
specialized processing equipment, manage inventory on behalf of their customers
and utilize sophisticated computer systems is requiring industry participants to
make substantial capital investments in order to remain competitive. In
addition, many customers are seeking to reduce their operating costs by limiting
the number of suppliers with whom they do business, often eliminating those
suppliers offering limited ranges of products and services. These trends have
placed the substantial number of small, owner-operated businesses at a
competitive disadvantage because their operations are limited as to product
line, processing equipment, inventory and service area, and they have limited
access to the capital resources necessary to increase their capabilities. As a
result, smaller companies without access to capital for expansion and
modernization are finding it increasingly difficult to compete as present
industry trends continue, and the Company believes these businesses are
potential acquisition candidates.
To date, the primary acquirors in the metals processor/service center
industry have been a few large metals service center companies that have
acquired businesses on a service center-by-service center basis. Following an
acquisition, the acquiror typically installs its operating systems, procedures
and management and eliminates the acquired service center's separate identity,
thereby effectively converting the business
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into a branch office. The Company believes that the sale of well-established
businesses to these acquirors is not an attractive alternative for many owners,
particularly those who do not wish to retire from the business. The Company,
therefore, believes significant acquisition opportunities exist for a
well-capitalized, national value-added metals processor/service center that
employs a decentralized operating strategy and preserves the identity of the
acquired businesses. The Company believes that this operating strategy and the
highly fragmented nature of the metals industry should allow it to be a leader
in the industry's consolidation.
STRATEGY
The Company's objective is to become a leading national value-added metals
processor/service center, to manufacture higher-value components from processed
metals and to pursue aggressively the consolidation of the highly-fragmented
metals processing industry. Management plans to achieve this goal by:
EXPANDING THROUGH ACQUISITIONS. The Company believes that the metals
processor/service center industry is highly fragmented and consolidating, with
as many as 3,500 participants, collectively generating over $75 billion in
annual net sales. The key elements of the Company's acquisition strategy are:
ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets not currently served by the Founding Companies by
acquiring well-established value-added metals processors/service centers
that, like the Acquired Companies, are leaders in their regional markets.
EXPAND WITHIN EXISTING GEOGRAPHIC MARKETS. The Company also plans to
acquire additional value-added metals processors/service centers in many of
the markets in which it currently operates in order to expand the volume
and scope of the Company's operations in a particular market. The Company
also intends to pursue "tuck-in" acquisitions of smaller operations to
increase utilization at existing facilities, thereby improving operating
efficiencies and more effectively using its capital without a proportionate
increase in administrative costs.
ENTER COMPLEMENTARY PROCESSING AND SERVICES MARKETS. The Company
intends to acquire companies offering complementary processes and services
to those industries currently served by the Company as well as new
industries. This will enable existing and future customers to obtain a
broader range of value-added processes and services from the Company. The
Company also intends to leverage its metals processing capabilities by
acquiring leading companies who manufacture higher-value components from
processed metals.
OPERATING ON A DECENTRALIZED BASIS. The Company intends to manage the
Acquired Companies and subsequently acquired companies on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and growth of the business. The Company believes that, while
maintaining strong operating and financial controls, a decentralized structure
will retain the entrepreneurial culture present in each of the Acquired
Companies and will allow the Company to capitalize on the considerable local and
regional market knowledge, goodwill, name recognition and customer relationships
possessed by each Acquired Company and subsequently acquired businesses.
ACCELERATING INTERNAL SALES GROWTH. A key component of the Company's
strategy is to accelerate internal sales growth at each Acquired Company and at
each subsequently acquired business. The key elements of this internal growth
strategy are:
EXPAND PRODUCTS AND SERVICES TO EXISTING CUSTOMERS. The Company
believes it will be able to expand the products and services it offers to
its existing customers by leveraging the specialized and diverse product,
processing and marketing expertise of individual Acquired Companies.
Additionally, the Company believes that there are significant opportunities
to accelerate internal growth by making capital investments in areas such
as inventory management, logistics systems and processing equipment,
thereby expanding the range of processes and services offered by the
Company. The Company intends to develop and maintain long-term
"partnering" relationships with customers in response to their demand for
shorter production cycles, outsourcing, just-in-time delivery and other
services that lower customers' total production costs.
ADD NEW CUSTOMERS. The Company believes that there are numerous OEMs
not currently served by the Company that could reduce their production
costs by taking advantage of the Company's
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processing, inventory management and other services. Many of these OEMs
currently perform in-house metals processing tasks and maintain significant
inventories of metal. Through its well-trained, technically competent sales
force, the Company believes that it can demonstrate to these OEMs the cost
savings achievable through the Company's processing, inventory management
and other services. The Company also intends to implement a Company-wide
marketing program that will utilize professional marketing services and to
adopt "best practices" among the Acquired Companies to identify, obtain
and maintain new customers. In addition, the Company intends to increase
its visibility through trade shows, associations, publications and
telemarketing.
IMPROVING OPERATING MARGINS. The Company believes that the combination of
the Acquired Companies will provide significant opportunities to realize
purchasing economies and increase the Company's profitability. The key
components of this strategy are:
INCREASE OPERATING EFFICIENCIES. The Company believes that the
combination of the Acquired Companies presents significant opportunities to
achieve operating efficiencies and cost savings. The Company intends to use
its increased purchasing power to gain volume discounts and to develop more
effective inventory management systems. The Company expects measurable cost
savings in such areas as vehicle leasing and maintenance, information
systems and contractual relationships with key suppliers. Moreover, the
Company intends to review its operating and training programs at the local
and regional levels to identify those "best practices" that can be
successfully implemented throughout its operations. As primary metals
producers and end-users continue to follow the industry trend of
outsourcing processing and distribution services to value-added metals
processors/services centers, the Company expects to increase asset
utilization, particularly of its metals processing machinery, and realize
increased efficiencies and economies of scale.
CENTRALIZE APPROPRIATE ADMINISTRATIVE FUNCTIONS. The Company believes
that there are significant opportunities to improve operating margins by
consolidating administrative functions such as financing, marketing,
insurance, employee benefits, accounting and risk management.
ACQUISITION PROGRAM
The Company believes it will be regarded by acquisition candidates as an
attractive acquiror because of: (i) the Company's strategy for creating a
national, comprehensive and professionally managed value-added metals
processor/service center company; (ii) the Company's decentralized operating
strategy which emphasizes an ongoing role for owners, management and key
personnel of acquired businesses, as well as meaningful equity positions for
these individuals which will enable them to participate in the Company's growth;
(iii) the Company's increased visibility and access to financial resources as a
public company; and (iv) the potential for increased profitability of the
acquired company due to purchasing economies, centralization of administrative
functions, enhanced systems capabilities and access to increased marketing
resources.
The Company believes management of the Acquired Companies will be
instrumental in identifying and completing future acquisitions. Some of the
Acquired Companies have recently completed acquisitions, which have given them
valuable acquisition experience. Moreover, several of the principals of the
Acquired Companies currently have leadership roles in industry trade
associations, which has enabled these individuals to become personally
acquainted with the owners of numerous acquisition targets across the country.
The Company expects that the visibility of these individuals and the Company
within the industry will increase the awareness of, and interest of acquisition
candidates in, the Company and its acquisition program. Within the past several
months, the Company has contacted the owners of a number of acquisition
candidates, several of whom have expressed interest in having their businesses
acquired by the Company.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future prospects of the target and the ability of the target to complement the
services offered by the Company. The Company believes that it can structure
acquisitions as tax-free reorganizations by using its Common Stock
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as consideration, which will be attractive to those targeted business owners
with a low tax basis in the stock of their businesses.
PROCESSING SERVICES AND PRODUCTS
The Company engages in preproduction processing of steel, aluminum and
specialty metals and acts as an intermediary between primary metals producers
and end-users. The Company purchases metals from primary producers, maintains an
inventory of various metals to allow rapid fulfillment of customer orders and
performs customized processing services to the specifications provided by
end-users and other customers. By providing these services, as well as offering
inventory management and just-in-time delivery services, the Company enables its
customers to reduce overall production costs and decrease capital required for
raw materials inventory and metals processing equipment.
The Company buys steel and aluminum from integrated mills and mini-mills
and specialty metals from foundries. The Company purchases its raw materials in
anticipation of projected customer requirements based on interaction and
feedback from customers, market conditions, historical usage and industry
research. Primary producers typically find it more cost effective to focus on
large volume production and sale of steel, aluminum and specialty metals in
standard sizes and configurations to large volume purchasers. For example,
flat-rolled steel is normally sold by mills in coils typically weighing between
40,000 and 50,000 pounds. The Company processes the metals to the precise
thickness, length, width, shape, temper and surface quality specified by its
customers. Value-added processes provided by the Company include:
o SHEARING AND CUTTING TO LENGTH -- the cutting of metals into pieces
and along the width of a coil to create sheets or plates.
o METALLURGY -- the analysis and testing of the physical and chemical
composition of metals.
o PRECISION 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 LASER, FLAME AND PLASMA CUTTING -- the cutting of metals to produce
various shapes according to customer-supplied drawings.
o LEVELING -- the flattening of metals to uniform tolerances for proper
machining.
o SLITTING -- the cutting of coiled metals to specified widths along the
length of the coil.
o PICKLING -- a chemical treatment to improve surface quality by
removing the surface oxidation and scale which develops on the metal
shortly after it is hot-rolled.
o TEE-SPLITTING -- the splitting of metal beams.
o EDGE TRIMMING -- a process which removes a specified portion of the
outside edges of coiled metal to produce uniform width and round or
smooth edges.
o CAMBERING -- the bending of structural steel to improve load-bearing
capabilities.
Additional capabilities of the Company include precision roll forming (the
process by which metals are bent and stretched into various shapes), machining
and applications engineering. Using these capabilities, the Company uses
processed metals to manufacture higher-value components, such as finished
building products, and machines specialty metals into such items as bushings,
pump parts and hydraulic cylinder parts.
Once an order is received, the appropriate inventory is selected and
scheduled for processing in accordance with the customer's requirements and
specified delivery date. Orders are monitored by the Company's computer systems,
including in certain locations, the use of bar coding to aid in, and reduce the
cost of, tracking material. The Company's computer systems record the source of
all metal shipped to customers. This enables the Company to identify the source
of any metal which later is shown not to meet industry standards or that fails
during or after manufacture. This capability is important to the Company's
customers as it allows them to assign responsibility for non-conforming or
defective metal to the mill or foundry that produced that metal. Many of the
products and services provided by the Company can be
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ordered and tracked through EDI, a sophisticated electronic network that
directly connects the Company's computer system to those of its customers.
A majority of the Company's orders are filled within 24 hours. This is
accomplished through the Company's special inventory management programs which
permit the Company to deliver processed metals in accordance with the
just-in-time inventory programs of its customers. The Company is required to
carry sufficient inventory of raw materials to meet the short lead time and
just-in-time delivery requirements of its customers.
While the Company ships products throughout the United States, most of its
customers are located within a 200-mile radius of the Company's facilities, thus
enabling an efficient delivery system capable of handling a large number of
short lead-time orders. The Company transports most of its products directly to
its customers either through common or contract trucking companies or through
its own trucks for short-distance and/or multi-stop deliveries.
The following two case studies are examples of the types of value-added
processes and services provided by two of the Founding Companies for their
customers:
Uni-Steel's largest customer is one of the world's largest elevator
and escalator manufacturers. Uni-Steel sells a variety of steel products to
this customer in customized lengths and performs the majority of its
preproduction processing and just-in-time inventory management. Uni-Steel
saws, shears, flame cuts, forms, punches and drills holes in the metal
parts and delivers the product within 24 hours of ordering.
Affiliated achieved substantial total production cost savings for a
major manufacturer of electrical components. Until the fall of 1995, the
customer bought all its steel directly from an integrated mill which
required this customer to carry substantial amounts of inventory as well as
its own processing equipment. Affiliated explained the benefits of its
inventory management, processing, just-in-time delivery and other services.
As an Affiliated customer, its steel inventory dropped from approximately
two months' supply to an approximately three days' supply, and the customer
realized a significant cash flow savings.
The Acquired Companies have quality control systems to ensure product
quality and traceability throughout processing. Quality controls include
periodic supplier audits, customer approved quality standards, inspection
criteria and metals source traceability. Two of the Acquired Companies'
facilities are currently seeking ISO (International Standards Organization) 9002
certification. Williams received its ISO 9002 certification in October 1997.
Management believes that the Company's emphasis on quality assurance is a
distinct competitive advantage and is increasingly important to customers
seeking to establish "partnering" relationships with their key suppliers.
SOURCES OF SUPPLY
In recent years, steel and aluminum production in the United States has
varied from period to period as mills attempt to match production to projected
demand. Periodically, this has resulted in shortages of, or increased ordering
lead times for, some steel or aluminum products as well as fluctuations in
price. Typically, metals producers announce price changes only once or twice per
year, often sufficiently in advance to allow the Company to order additional
products prior to the effective date of a price increase or to defer purchases
until effectiveness of a price decrease. The Company's purchasing decisions are
based on its forecast of the availability of metal products, ordering lead times
and pricing as well as its prediction of customer demand for specific products.
The Company purchases steel and aluminum from domestic and foreign
integrated mills and mini-mills and specialty metals from foundries. The
Company's principal domestic steel suppliers are Nucor Corp., LTV Steel Co.,
Bethlehem Steel Corp. and National Steel Corp. Although most forms of steel and
aluminum produced by mills can be obtained from a number of integrated mills or
mini-mills, both domestically and internationally, there are a few products that
are available from only a limited number of producers. Since most metals are
shipped F.O.B. the mill, and the transportation of metals is a significant cost
factor, the Company seeks to purchase metals to the extent possible from the
nearest mill unless a more
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distant mill has a significantly lower price. The Company believes that it can
purchase raw materials in sufficient quantities to permit it to realize
purchasing economies and discounts from its suppliers. The Company believes it
is not materially dependent on any one of its suppliers for raw materials and
that its relationships with its suppliers are good.
SALES AND MARKETING; CUSTOMERS
The Company believes that its commitment to consistent quality, service and
just-in-time delivery has enabled it to develop and maintain long-term
relationships with existing customers, while expanding its market penetration
through the use of its sales and marketing program. The Company's sales and
marketing program focuses on the identification of OEMs and other metals
end-users that could achieve significant cost savings through the use of the
Company's inventory management, processing, just-in-time delivery and other
services. The typical target customer carries a significant inventory of
unprocessed metal and performs most of its own processing. The Company uses a
variety of methods to identify these target customers, including the utilization
of databases, telemarketing, direct mail and participation in manufacturers'
trade shows. Customer referrals and the knowledge of the Company's sales force
about regional end-users also result in the identification of target customers.
Once a target customer is identified, the Company's "outside" salespeople
assume responsibility for visiting the appropriate person at the target,
typically the purchasing manager or manager of operations. The Company's
salesperson seeks to explain the potential cost savings achievable through the
Company's services and the Company's commitment to service and quality.
The Company employs a sales force consisting of "inside" and "outside"
salespeople. "Inside" salespeople are primarily responsible for maintaining
customer relationships, receiving and soliciting individual orders and
responding to service and other inquiries by customers. Increasingly, these
"inside" salespeople have been given responsibility for telemarketing to
target customers. The Company's "outside" sales force is primarily responsible
for identifying target customers and calling on them to explain the Company's
services. The sales force is trained and knowledgeable about the characteristics
and applications of various metals and applications as well as the manufacturing
methods employed by the Company's customers. The Company believes that its high
level of interaction with its customers provides it with meaningful feedback and
information about sales opportunities. For example, Southern Alloy has shown
customers that a component of a machine (such as hydraulic cylinder parts) would
be less expensive and more effective if manufactured from Dura-Bar , a
continuous cast iron product which is a registered trademark of Wells
Manufacturing Company, Dura-Bar Division, because Dura-Barhas 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 25,000 customers, with
no single customer accounting for more than 10% of the Company's pro forma
revenues in 1996. The Company believes that its long-term relationships with
many of its customers contribute significantly to its success.
COMPETITION
The Company is engaged in a highly-fragmented and competitive industry.
Competition is based primarily on price, quality, service, timeliness and
geographic proximity. The Company competes with a large number of other metals
processors/service centers on a regional and local basis, some of which may have
greater financial resources than the Company, and several of which are public
companies. The Company also competes to a lesser extent with primary metals
producers, who typically sell directly only to very large customers requiring
regular shipments of large volumes of metals. The Company may also face
competition for acquisition candidates from these public companies, most of whom
have acquired a number of metals service center businesses during the past
decade. Other smaller metals processors/service centers may also seek
acquisitions from time to time.
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The Company believes that it will be able to compete effectively because of
its significant number of locations, geographic dispersion, knowledgeable and
trained sales force, integrated computer systems, modern equipment, broad-based
inventory, combined purchasing volume and operational economies of scale. The
Company intends to seek to differentiate itself from its competition in terms of
service and quality by investing in systems and equipment and by offering a
broad range of products and services as well as through its entrepreneurial
culture and decentralized operating structure.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to a number of federal, state and
local regulations relating to the protection of the environment and to workplace
health and safety. In particular, the Company's operations are subject to
extensive federal, state and local laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
environmental protection, remediation, workplace exposure and other matters.
Hazardous materials the Company uses in its operations include lubricants,
cleaning solvents and hydrochloric acid used in its pickling operations at three
facilities.
The Company's management believes that the Company is in substantial
compliance with all such laws and does not currently anticipate that the Company
will be required to expend any substantial amounts in the foreseeable future in
order to meet current environmental or workplace health and safety requirements.
However, some of the properties owned or leased by the Company are located in
areas with histories of heavy industrial use, three of which are on or near
sites listed on the CERCLA National Priority List. The Company believes that as
many as three of the properties leased by the Founding Companies have been
contaminated by pollutants which have migrated from neighboring facilities or
have been deposited by prior occupants.
Prior to entering into the agreements relating to the Mergers and the
Subsequent Acquisitions, the Company evaluated the properties owned or leased by
the Acquired Companies and engaged an independent environmental consulting firm
to conduct or review assessments of environmental conditions at these
properties. Although no environmental claims have been made against the Company
and it has not been named as a potentially responsible party by the
Environmental Protection Agency or any other party, it is possible that the
Company could be identified by the Environmental Protection Agency, a state
agency or one or more third parties as a potentially responsible party under
CERCLA or under analogous state laws. If so, the Company could incur substantial
litigation costs to prove that it is not responsible for the environmental
damage. The Company has obtained limited indemnities from the stockholders of
the Acquired Companies whose facilities are located at the contaminated sites.
The Company believes that these indemnities will be adequate to protect it from
a material adverse effect on its financial condition should the Company be found
to be responsible for a share of the clean-up costs. The limited indemnities are
subject to certain deductible amounts, however, and there can be no assurance
that these limited indemnities will fully protect the Company.
MANAGEMENT INFORMATION SYSTEMS
Each of the Acquired Companies operates a management information system
that is used to purchase, monitor and allocate inventory throughout its
production facilities. The Company believes that these systems enable it to
manage inventory costs effectively and to achieve appropriate inventory turnover
rates. Many of these systems also include computerized order entry, sales
analysis, inventory status, work-in-process status, bar-code tracking, invoicing
and payment. These systems are designed to improve productivity for both the
Company and its customers. Six of the Acquired Companies use EDI, through which
they offer their customers a paperless process for order entry, shipment
tracking, customer billing, remittance processing and other routine matters. In
addition, several of the Acquired Companies have computer-aided drafting systems
that control equipment used to perform some metals processing functions.
EMPLOYEES
As of December 31, 1997, the Acquired Companies employed a total of
approximately 2,460 persons. Approximately 285 employees at eight sites were
members of one of six unions: the United Steelworkers of America; the
International Association of Bridge, Structural, and Ornamental Ironworkers of
America; the
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International Brotherhood of Teamsters; Local 40 of the Glass, Molders, Pottery,
Plastic & Allied Workers International Union; United Auto Workers Local 771; or
the International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,
Forgers and Helpers. The Company's relationship with these unions generally has
been satisfactory, but occasional work stoppages have occurred. Within the last
five years, one work stoppage occurred at one facility, which involved 28
employees and lasted 10 days and another facility encountered a work stoppage
involving 26 persons for three days. The Company currently is a party to four
collective bargaining agreements which expire at various times. Collective
bargaining agreements expiring in 1998, 1999, 2000 and 2001 cover 127, 34, 62
and 62 employees, respectively. Historically, the Acquired Companies have
succeeded in negotiating new collective bargaining agreements without a strike.
From time to time, there are shortages of qualified operators of metals
processing equipment. In addition, turnover among less skilled workers is
relatively high. Following the Mergers, the Company intends to adopt "best
practices" for its employee benefits programs and human relations functions.
FACILITIES AND VEHICLES
The Company operates 49 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 35 sales and distribution centers throughout
the western, southwestern and southeastern United States. Southern Alloy has one
facility located in Salisbury, North Carolina which has the capability of
machining various specialty metals, such as continuous cast iron and bronze
alloys, into components for manufacturing machinery and equipment. Many of the
Company's facilities are capable of being utilized at higher capacities, if
necessary. The Company is planning to expand three of its existing facilities
over the next 12 months, with one expansion already under construction. The
Company believes that its facilities after the planned expansions will be
adequate for its expected needs over the next several years. See "Certain
Transactions."
The Company operates a fleet of owned or leased trucks and trailers as well
as fork lifts and support vehicles. It believes these vehicles generally are
well-maintained and adequate for the Company's current operations. The Company
expects it will be able to purchase or lease vehicles at lower prices due to its
combined purchasing and leasing volume.
RISK MANAGEMENT, INSURANCE AND LITIGATION
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. Upon completion of this Offering, the
Company intends to obtain and maintain liability insurance for bodily injury and
third-party property damage and workers' compensation coverage which it
considers sufficient to insure against these risks, subject to self-insured
amounts.
The Company is, from time to time, a party to litigation arising in the
ordinary course of its business, most of which involves claims for personal
injury or property damage incurred in connection with its operations. The
Company is not currently involved in any litigation that the Company believes
will have a material adverse effect on its financial condition or results of
operations.
SAFETY
The Company is committed to continuing the Acquired Companies' focus and
emphasis on safety in the workplace. The Acquired Companies currently have a
variety of safety programs in place, which may include regular weekly or monthly
field safety meetings, bonuses based on an employee's or a team's safety record
and training sessions to teach proper safety work procedures. The Company plans
to establish "best practices" throughout its operations to ensure that all
employees comply with safety standards established by the Company, its insurance
carriers and federal, state and local laws and regulations. In addition, the
Company intends to continue to promote the Acquired Companies' emphasis on an
accident-free workplace.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers upon completion of this Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Arthur L. French............................ 57 Chairman of the Board, Chief
Executive Officer and President
Arnold W. Bradburd.......................... 73 Vice-Chairman of the Board, Chairman
and Chief Executive Officer of
Interstate
J. Michael Kirksey.......................... 42 Senior Vice President, Chief
Financial Officer and Director
Stephen R. Baur............................. 33 Senior Vice President and Chief
Development Officer
John A. Hageman............................. 44 Senior Vice President, General
Counsel and Secretary
Terry L. Freeman............................ 47 Vice President and Corporate
Controller
Keith E. St. Clair.......................... 41 Vice President and Treasurer
Mark Alper.................................. 52 Vice President -- Development,
President of Queensboro, Director
Michael E. Christopher...................... 38 Senior Vice President, President of
Texas Aluminum/Cornerstone, Director
Craig R. Doveala............................ 46 President of Service Systems,
Director
William B. Edge............................. 39 President of Southern Alloy, Director
Patrick A. Notestine........................ 51 President of Affiliated, Director
Lester G. Peterson.......................... 57 President of Williams, Director
Richard A. Singer........................... 52 Senior Vice President, Chief
Executive Officer of
Uni-Steel, Director
A. Leon Jeffreys............................ 68 Director
Steven S. Harter............................ 36 Director
Tommy E. Knight............................. 59 Director
Richard H. Kristinik........................ 59 Director
T. William Porter........................... 57 Director
</TABLE>
- ------------
Arthur L. French has served as Chairman of the Board, Chief Executive
Officer and President of the Company since December 1996 and has been involved
in the organization of the Company, the acquisition of the Founding Companies
and this Offering. From 1989 through 1996, Mr. French served as Executive Vice
President and a director of Keystone International, Inc. ("Keystone"), a
publicly-traded manufacturer of industrial valves and controls, with
responsibility for domestic and international operations. From 1966 to 1989, Mr.
French held various positions with Fisher Controls International, Inc., a
control valve and instrumentation manufacturer, and served as its President and
Chief Operating Officer and a director prior to joining Keystone. Mr. French is
also a director of Innovative Valve Technologies, Inc., whose shares are listed
on the NASDAQ.
Arnold W. Bradburd is Vice-Chairman of the Board of the Company. He has
been employed by Interstate since 1974, serving as Chairman of the Board and
Chief Executive Officer since 1979. Mr. Bradburd has served as National
Secretary of the Association of Steel Distributors and as Chairman of SSCI.
J. Michael Kirksey has served as Senior Vice President, Chief Financial
Officer and a director of the Company since March 1997. From 1995 through
February 1997, Mr. Kirksey was Director -- Business Development and Acquisitions
of Keystone. From 1993 to 1995, Mr. Kirksey was Vice President of Finance of
Keystone for European operations based in Brussels, Belgium, and from 1989 to
1993, he was Vice President and Controller of Keystone. From 1976 to 1989, Mr.
Kirksey was a certified public accountant with Arthur Andersen LLP.
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Stephen R. Baur is a Senior Vice President and Chief Development Officer of
the Company. From July 1996 until joining the Company, Mr. Baur was a Senior
Vice President of Notre. From November 1995 to June 1996, he was a consultant to
a venture capital firm. From July 1988 through September 1995, he was a
certified public accountant with Arthur Andersen LLP.
John A. Hageman has served as Vice President, General Counsel and Secretary
of the Company since April 1997. From 1987 through March 1997, Mr. Hageman was
Senior Vice President of Legal Affairs, General Counsel and Secretary of
Physician Corporation of America, a publicly-traded health maintenance
organization. From 1981 to 1987, Mr. Hageman was a partner with a law firm in
Wichita, Kansas.
Terry L. Freeman has served as Vice President and Corporate Controller of
the Company since April 1997. From February 1997 through March 1997, Mr. Freeman
served as Controller of Maxxam Inc. ("Maxxam"), a publicly-traded aluminum,
forest products operations and real estate investment and development company.
From May 1994 to February 1997, he was Assistant Controller of Maxxam, and from
June 1990 to May 1994, he was Director -- Financial Reporting of Maxxam. From
December 1984 to June 1990, he was a certified public accountant with Deloitte &
Touche LLP. From August 1980 to December 1984, Mr. Freeman was a certified
public accountant with Arthur Andersen LLP.
Keith E. St. Clair has served as Vice President and Treasurer of the
Company since April 1997. From 1987 through March 1997, he served as Corporate
Controller of Gundle/SLT Environmental, Inc.
("Gundle/SLT"), a publicly-traded manufacturer and installer of synthetic
lining systems. From 1980 through 1986, Mr. St. Clair was a certified public
accountant with Arthur Andersen LLP.
Mark Alper is the Vice President -- Development and a director of the
Company and President of Queensboro. He has been an employee of Queensboro since
1971 and President since 1995.
Michael E. Christopher is a Senior Vice President and a director of the
Company. He became Executive Vice President of Texas Aluminum in 1987, and
President of Cornerstone in 1995, and became President of Texas
Aluminum/Cornerstone in July 1997. Mr. Christopher currently serves as Vice
President of the Board of Directors of the National Patio Enclosure Association.
Craig R. Doveala is a director of the Company and the President of Service
Systems. He has been President of Service Systems since 1990.
William B. Edge is a director of the Company. He has been President of
Southern Alloy since 1990.
Patrick A. Notestine is a director of the Company and the President of
Affiliated. He has been President of Affiliated since 1988.
Lester G. Peterson is a director of the Company and the President of
Williams. He has been President of Williams since 1981. Mr. Peterson is a member
of the Wisconsin Board of the SSCI.
Richard A. Singer is a Senior Vice President and a director of the Company
and Chief Executive Officer of Uni-Steel. He has been President and Chief
Executive Officer of Uni-Steel since 1972.
A. Leon Jeffreys is the founder and has served as the Chairman of the Board
of Directors of Jeffreys since inception. Mr. Jeffreys was elected to the
Company's Board on October 21, 1997.
Steven S. Harter has been a director of the Company since July 1996. Mr.
Harter is the President of Notre. Prior to becoming the President of Notre, Mr.
Harter was Senior Vice President of Notre Capital Ventures, Ltd. From April 1989
to June 1993, Mr. Harter was Director of Mergers and Acquisitions for Allwaste,
Inc., a publicly-traded environmental services company. From May 1984 to April
1989, Mr. Harter was a certified public accountant with Arthur Andersen LLP. Mr.
Harter also serves as a director of Coach USA, Inc., HomeUSA, Inc, and Comfort
Systems USA, Inc.
Tommy E. Knight is a director of the Company. Mr. Knight was President and
Chief Executive Officer of Brown and Root, Inc., a subsidiary of Halliburton
Company, and one of the largest international construction firms in the world,
from June 1992 until his retirement in December 1996. Prior to that time, he
served in a variety of other capacities with Brown and Root, Inc. since joining
Brown and Root, Inc. in 1964.
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<PAGE>
Richard H. Kristinik is a director of the Company. Mr. Kristinik is the
Chairman of the Board of Directors and Chief Executive Officer of Coach USA,
Inc. and has served in that capacity since March 1996. Prior to that time, Mr.
Kristinik was a partner with Arthur Andersen LLP from 1973 to March 1996,
serving in its Houston office for all those years, except for the period from
1979 to 1984, when he served as Managing Partner of the Tulsa office, and the
period from 1985 to 1989, when he served as Managing Partner of the Denver
office.
T. William Porter is a director of the Company. Mr. Porter has been a
partner with Porter & Hedges, L.L.P., a law firm, since 1981 and currently
serves as a director of Gundle/SLT and ITEQ, Inc., a manufacturer of specialized
process equipment.
The Board of Directors has been divided into three classes of five, five
and four directors, respectively, with directors serving staggered three-year
terms, expiring at the annual meeting of stockholders in 1998, 1999 and 2000,
respectively. At each annual meeting of stockholders, one class of directors
will be elected for a full term of three years to succeed that class of
directors whose terms are expiring. The Company's Certificate of Incorporation
permits the holders of the Restricted Common Stock to elect one director. Mr.
Harter is the director elected by the holders of the Restricted Common Stock.
All officers serve at the discretion of the Board of Directors.
The Board of Directors has established an Acquisition Committee, Audit
Committee, Compensation Committee, Nominating Committee and Executive Committee.
The members of the Audit Committee are Messrs. Harter, Kristinik and Knight and
the members of the Compensation Committee are Messrs. Knight, Harter and Porter.
DIRECTORS COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors' meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors'
meeting). In addition, under the Company's 1997 Non-Employee Directors' Stock
Plan, each non-employee director will automatically be granted an option to
acquire 10,000 shares of Common Stock upon such person's initial election as a
director, and an annual option to acquire 5,000 shares at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains a director, unless such annual meeting is held within three months of
such person's initial election as a director. Each non-employee director also
may elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See " -- 1997 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was incorporated in July 1996, and prior to the IPO conducted
no operations and generated no net sales. The Company anticipates that during
1997 its most highly compensated executive officers (other than those employed
by an Acquired Company) will be Messrs. French, Kirksey, Baur and Hageman.
Each of Messrs. French and Kirksey have entered into an employment
agreement with the Company providing for an annual base salary of $150,000.
Messrs. Hageman and Baur have entered into employment agreements with the
Company providing for an annual base salary of $130,000 and $100,000,
respectively. Each employment agreement is for a term of three years, and unless
terminated or not renewed by the Company or not renewed by the employee, the
term will continue thereafter on a year-to-year basis on the same terms and
conditions existing at the time of renewal. Each of these agreements provide
that, in the event of a termination of employment by the Company without cause,
the employee will be entitled to receive from the Company an amount equal to one
year's salary, payable in one lump sum on the effective 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,
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<PAGE>
the employee may elect to terminate his employment and receive in one lump sum
three times the amount he would receive pursuant to a termination without cause
during such initial term. The non-competition provisions of the employment
agreement do not apply to a termination without such notice. In the event the
employee is given at least five days' notice of such change in control, the
employee may elect to terminate his employment and receive in one lump sum two
times the amount he would receive pursuant to a termination without cause during
such initial term. In such event, the non-competition provisions of the
employment agreement would apply for two years from the effective date of
termination. Each employment agreement contains a covenant not to compete with
the Company for a period of two years immediately following termination of
employment or, in the case of a termination by the Company without cause in the
absence of a change in control, for a period of one year following termination
of employment.
Each of Messrs. Bradburd, Christopher, Alper, Doveala, Edge, Jeffreys,
Notestine, Peterson, Shapiro and Singer have entered into an employment
agreement with his respective company providing for an annual base salary of
$150,000. Each employment agreement is for a term of five years, and unless
terminated or not renewed by the respective company or not renewed by the
employee, the term will continue thereafter on a year-to-year basis on the same
terms and conditions existing at the time of renewal. Each of these agreements
provides that, in the event of a termination of employment by the respective
company without cause during the first three years of the employment term (the
"Initial Term"), the employee will be entitled to receive from the respective
company an amount equal to his then current salary for the remainder of the
Initial Term or for one year, whichever is greater. In the event of a
termination of employment with cause during the final two years of the initial
five-year term of the employment agreement, the employee will be entitled to
receive an amount equal to his then current salary for one year. In either case,
payment is due in one lump sum on the effective date of termination. In the
event of a change in control of the Company (as defined in the agreement) during
the Initial Term, if the employee is not given at least five days' notice of
such change in control, the employee may elect to terminate his employment and
receive in one lump sum three times the amount he would receive pursuant to a
termination without cause during the Initial Term. The non-competition
provisions of the employment agreement do not apply to a termination without
such notice. In the event the employee is given at least five days' notice of
such change in control, the employee may elect to terminate his employment
agreement and receive in one lump sum two times the amount he would receive
pursuant to a termination without cause during the Initial Term. In such event,
the non-competition provisions of the employment agreement would apply for two
years from the effective date of termination. Each employment agreement contains
a covenant not to compete with the Company for a period of two years immediately
following termination of employment or, in the case of a termination by the
Company without cause in the absence of a change in control, for a period of one
year following termination of employment.
1997 LONG-TERM INCENTIVE PLAN
No stock options were granted to, or exercised by or held by any executive
officer in 1996. In April 1997, the Board of Directors and the Company's
stockholders approved the Company's 1997 Long-Term Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives by
increasing their ownership interests in the Company. Individual awards under the
Plan may take the form of one or more of: (i) either incentive stock options or
non-qualified stock options ("NQSOs"), (ii) stock appreciation rights; (iii)
restricted or deferred stock, (iv) dividend equivalents and (v) other awards not
otherwise provided for, the value of which is based in whole or in part upon the
value of the Common Stock.
The Compensation Committee will administer the Plan and select the
individuals who will receive awards and establish the terms and conditions of
those awards. The maximum number of shares of Common Stock that may be subject
to outstanding awards, determined immediately after the grant of any award, may
not exceed the greater of 2,500,000 shares or 13% of the aggregate number of
shares of Common Stock outstanding.
Metals USA granted NQSOs to purchase a total of 705,000 shares of Common
Stock to key employees of Metals USA at the initial public offering price upon
consummation of the IPO. In addition, Metals USA
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<PAGE>
granted NQSOs to purchase a total of 1,426,024 shares of Common Stock to certain
employees of the Founding Companies at the initial public offering price per
share. Subsequent to the IPO, the Company has granted NQSOs to purchase a total
of 1,287,563 shares of Common Stock at prices which vary between $6.810 and
$15.125 a share. These options will vest at the rate of 20% per year, commencing
on the first anniversary of the IPO or date of grant and will expire ten years
from the date of grant or three months following termination of employment. With
respect to the foregoing the Company expects to issue 111,678 options to certain
employees of Pacific with an exercise price at market on the day of grant.
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.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in April 1997, provides for (i) the automatic grant to
each non-employee director serving at the consummation of the IPO of an option
to purchase 10,000 shares, (ii) the automatic grant to each non-employee
director of an option to purchase 10,000 shares upon such person's initial
election as a director, and (iii) an automatic annual grant to each non-employee
director of an option to purchase 5,000 shares at each annual meeting of
stockholders thereafter at which such director is re-elected or remains a
director, unless such annual meeting is held within three months of such
person's initial election as a director. All options have an exercise price per
share equal to the fair market value of the Common Stock on the date of grant
and are immediately vested and expire on the earlier of ten years from the date
of grant or one year after termination of service as a director. The Directors'
Plan also permits non-employee directors to elect to receive, in lieu of cash
directors' fees, shares or credits representing "deferred shares" at future
settlement dates, as selected by the director. The number of shares or deferred
shares received will equal the number of shares of Common Stock which, at the
date the fees would otherwise be payable, will have an aggregate fair market
value equal to the amount of such fees.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, Metals USA issued to Notre
a total of 3,367,914 shares of Common Stock for an aggregate cash consideration
of $35,375. Mr. Harter is the President of Notre and a director of the Company.
In April 1997, Notre exchanged 3,122,914 shares of Common Stock for 3,122,914
shares of Restricted Common Stock. See "Description of Capital Stock." Prior
to the consummation of the IPO, Notre advanced to the Company funds necessary to
effect the Mergers and the IPO. All of Notre's advances were repaid from the net
proceeds of the IPO.
From December 1996 through April 1997, the Company issued a total of
695,000 shares of Common Stock (as adjusted for a 135.81-to-one stock split) at
$.01 per share to various members of management, as follows: Mr.
French -- 260,000 shares, Mr. Kirksey -- 120,000 shares, Mr. Baur -- 120,000
shares, Mr. Freeman -- 60,000 shares, Mr. St. Clair -- 60,000 shares and Mr.
Hageman -- 75,000 shares. The Company also issued 690,500 shares of Common Stock
at $0.01 per share to other employees of and consultants to the Company,
including a total of 405,000 shares of Common Stock to persons who will become
directors of the Company upon consummation of this Offering. The Company also
granted options to purchase 10,000 shares of Common Stock under the Directors'
Plan, effective upon the consummation of this Offering, to Mr. Harter, a
director of the Company, and to Messrs. Knight, Kristinik and Porter.
The aggregate consideration paid and to be paid by Metals USA for the
Acquired Companies consists of approximately $87.7 million in cash, 21.6 million
shares of Common Stock, plus the assumption of approximately $168.1 million of
indebtedness. The consideration paid by Metals USA for each of the Acquired
Companies was determined by negotiation between representatives of each Acquired
Company and was based primarily upon the pro forma adjusted net income of each
Acquired Company.
Pursuant to the agreements that were entered into in connection with the
Acquisitions, the principal stockholders of the Acquired Companies have agreed
not to compete with the Company for five years, effective on the respective
dates of acquisition.
LEASES OF REAL PROPERTY BY ACQUIRED COMPANIES
Interstate leases the facilities located in Philadelphia, Pennsylvania and
Baltimore, Maryland from Warehouse Real Estate Associates ("WREA"), a
partnership controlled by Mr. Bradburd, the Vice-Chairman of the Company, and
his wife. The leases are for an initial term of ten years and provide for a
total annual rental of $234,000 during the initial five years, to be adjusted to
an applicable current market rate during the second five years. At the
conclusion of the initial lease term, Interstate has agreed to purchase the real
estate from WREA at a price to be determined by averaging two or more
independent appraisals. Additionally, Interstate pays all utility, taxes and
insurance costs on the leased premises. The Company believes that the rent to be
paid under the lease does not exceed fair market value.
Queensboro leases two adjacent tracts of real property located in
Wilmington, North Carolina from The Alper Company, a partnership of which Mr.
Alper, a director of the Company, is a controlling person. The lease on one
tract of real property is for a term of 20 years, expires in 2017 and provides
for an annual rental of $40,000. The rent will be adjusted every five years in
accordance with the Consumer Price Index ("CPI"). At the conclusion of the
tenth year of the lease, Queensboro has the option to purchase the real property
from The Alper Company for an amount equal to the average of three independent
appraisals. If Queensboro does not exercise its option, the annual rental will
be adjusted to reflect a ten year amortization of the fair market value of the
property. The lease on the other tract of real property is for a term of 20
years, expires in 2017 and provides for an annual rental of $137,200. The rent
will be adjusted every five years in accordance with the CPI. Queensboro will
pay for all utilities, taxes and insurance on the leased properties. The Company
believes that the rent for the properties does not exceed fair market value.
Service Systems leases certain real property located in Horicon, Wisconsin
from an entity owned in part by Mr. Doveala, a director of the Company. The
lease for the real property expires in 2011 and provides for an annual rental of
$420,000. The rental rate will be adjusted every three years in accordance
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with the CPI and will increase or decrease with changes in the prime rate.
Additionally, Service Systems pays for all utilities, taxes and insurance on the
leased premises. The Company believes that the rent for the property does not
exceed fair market value. The purchase of the real property, the construction of
improvements and the purchase of equipment was financed by the issuance of $5.0
million of industrial revenue bonds. Service Systems remains obligated to pay
these industrial revenue bonds.
Texas Aluminum leases certain real property located in Jackson, Mississippi
from an entity controlled by Mr. Christopher, a Senior Vice President and
director of the Company. The lease for the real property expires in 2012 and
provides for rental of $3,500 per month. The rent will be adjusted every three
years in accordance with the CPI. Additionally, Texas Aluminum pays for all
utilities, taxes and insurance on the leased premises. Texas Aluminum also
continues to lease from a number of entities owned by Mr. Christopher and/or
related affiliates the following facilities, which are used for manufacturing
and distribution services: (i) a warehouse in Lafayette, Louisiana for a term of
15 years at an annual rental of $24,000, (ii) three warehouses in Houston,
Texas, each for terms of 15 years and an aggregate monthly rental of $27,280,
(iii) a facility in Las Vegas, Nevada for $16,500 per month for a term of 15
years, (iv) a facility in Atlanta, Georgia for $6,000 per month for a term of 15
years, (v) a facility in Beaumont, Texas for $2,500 per month for a term of 15
years, (vi) a building in Weslaco, Texas for $2,500 per month for a term of 15
years, and (vii) a building in Oklahoma City, Oklahoma for $7,000 per month for
a term of 15 years. The Company believes that the rent for each of these
properties does not exceed fair market value.
Uni-Steel leases certain real property located in Enid, Oklahoma from
Garfield Development, LLC, an entity owned in part by Mr. Singer, a director of
the Company. The lease for the real property has a ten-year term and provides
for an annual rental of $115,000. The rent rate will be adjusted every five
years in accordance with the CPI. The Company believes that the rent for the
properties does not exceed fair market value.
Williams leases certain real property located in Milwaukee, Wisconsin from
PP&W, L.L.C., an entity owned in part by Mr. Peterson, a director of the
Company. The lease for the rental property expires on December 31, 2011, and
provides for an annual rental of $458,950. The rent will be adjusted every five
years in accordance with the CPI. Additionally, Williams pays for all utilities,
taxes and insurance on the leased premises. The Company believes that the rent
for the properties does not exceed fair market value.
Jeffreys has a lease agreement for the use of executive aircraft with
J-Air, Inc., an entity controlled by Mr. Toby Jeffreys, President and Chief
Executive Officer of Jeffreys. The lease calls for minimum rental payments
during 1998 of $256,000. Any time used beyond the stated minimums is billed at
actual cost. The lease terminates in December 1998.
OTHER TRANSACTIONS
On or about July 11, 1997, Interstate purchased certain equipment from WREA
for $530,000. WREA is controlled by Mr. Bradburd, the Vice-Chairman of the
Company. The Company believes that the purchase price for the equipment does not
exceed the fair market value thereof. Interstate has guaranteed bank loans to
WREA. The balance of the loans guaranteed was $769,000 and $694,000 at December
31, 1995 and 1996, respectively. These guarantees were released prior to July
11, 1997.
Queensboro provides administrative services to Southern Metals Recycling,
Inc. ("Southern"), an entity owned in part by Mr. Alper, a director of the
Company. In its last fiscal year, Queensboro provided services and billed
Southern $344,000 for these services. The Company believes that the fees charged
for such services represent the fair market value of such services.
An entity owned in part by Mr. Christopher leases equipment to Texas
Aluminum/Cornerstone under several leases totaling $96,000 per year. The leases
expire December 31, 2011. Mr. Christopher is a director and officer of the
Company.
Texas Aluminum/Cornerstone holds two promissory notes from EmC Industries,
LLC ("EmC") having balances as of June 30, 1997, in the amounts of $116,433
and $324,401, which are payable monthly
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and are due on May 1, 2001, and March 1, 2007, respectively. In November 1996,
Texas Aluminum/Cornerstone sold certain machinery and equipment to EmC resulting
in a gain of $242,000. Texas Aluminum/Cornerstone is leasing this machinery from
EmC for $72,000 per year through December 2001. EmC is owned in part by Mr.
Christopher, a director and officer of the Company. The indebtedness was in each
case incurred in connection with the sale of equipment to EmC. The largest
aggregate amount of indebtedness in each case at any time in the past three
fiscal years on the notes is $142,795 and $330,000, respectively. The rates of
interest charged on the loans are 8% and 7.5%, respectively. Texas
Aluminum/Cornerstone holds a promissory note in the original principal amount of
$120,279 from EmC issued June 1, 1996. The note was issued in connection with
the sale of equipment to EmC and earns interest at a rate of 8%. The note is
payable monthly and matures on May 1, 2001. The largest aggregate amount of
indebtedness outstanding on the note at any time in the past three fiscal years
is $120,279 and the amount outstanding as of December 31, 1996 was $108,866.
Additionally, Texas Aluminum/Cornerstone leases certain roll-former machines
from EmC for a monthly rental of $14,000.
The Company has agreed to indemnify Notre for liabilities arising in
connection with action taken by it in connection with its role as the organizer
of Metals USA prior to July 11, 1997.
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal, and must be approved in advance by
a majority of disinterested members of the Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock, as of February 18, 1998, by (i) each person known
to own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each Company director; (iii) each named executive officer; and (iv) all
executive officers and directors as a group. All persons listed have an address
c/o the Company's principal executive offices and have sole voting and
investment power with respect to their shares unless otherwise indicated.
SHARES BENEFICIALLY
OWNED
----------------------
NUMBER PERCENT
------------ -------
Toby L. Jeffreys(1).................. 3,016,800 9.4%
Thomas J. Shapiro(2)................. 2,518,864 7.9%
Arnold W. Bradburd................... 1,776,032 5.5%
A. Leon Jeffreys(1).................. 1,576,391 4.9%
Steven S. Harter(3)(4)............... 1,021,048 3.2%
Michael E. Christopher............... 648,837 2.0%
Richard A. Singer.................... 487,706 1.5%
Lester G. Peterson................... 477,544 1.5%
Mark Alper........................... 416,137 1.3%
Patrick A. Notestine................. 398,703 1.2%
Craig R. Doveala..................... 334,497 1.0%
Arthur L. French..................... 225,100 *
J. Michael Kirksey(5)................ 120,000 *
Stephen R. Baur(6)................... 120,000 *
William B. Edge...................... 116,997 *
John A. Hageman(7)................... 75,000 *
Keith E. St. Clair(8)................ 60,000 *
Terry L. Freeman..................... 60,000 *
Richard H. Kristinik(3).............. 30,000 *
T. William Porter(3)................. 25,000 *
Tommy E. Knight(3)................... 20,000 *
------------ -------
All executive officers, directors and
named directors as a group
(21 persons)(9).................... 12,236,877 38.1%
============ =======
- ------------
* Less than 1%
(1) Includes 1,247,779 shares of Common Stock held by Jeffreys Family
Partnership, of which Mr. Toby Jeffreys and Mr. Leon Jeffreys are both
general partners.
(2) Includes 276,461 shares of Common Stock held by various trusts for which Mr.
Shapiro is a Co-Trustee.
(3) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.
(4) Includes 1,011,048 shares of Restricted Common Stock held by Harter Venture
Partners, Ltd., of which Mr. Harter is a general partner.
(5) Includes 12,000 shares of Common Stock held by Mr. Kirksey's minor children
and of which he is custodian.
(6) Includes 10,000 shares of Common Stock held by Mr. Baur's minor children and
of which he is custodian.
(7) Includes 15,000 shares of Common Stock held by Mr. Hageman's minor children
and of which he is custodian.
(8) Inlcudes 4,000 shares of Common Stock held by Mr. St. Clair's minor children
and of which he is custodian.
(9) This amount has been adjusted to eliminate any duplication of beneficial
ownership attributable to the 1,247,779 shares owned by the Jeffreys Family
Partnership and the shares of Common Stock issuable under the Directors
Plan, referred to in footnote 3 above.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 58,122,914 shares
of capital stock, consisting of 50,000,000 shares of Common Stock, 3,122,914
shares of Restricted Common Stock and 5,000,000 shares of Preferred Stock
("Preferred Stock"). At February 18, 1998, the Company had outstanding
32,095,552 shares of Common Stock, including 3,122,914 shares of Restricted
Common Stock and no shares of Preferred Stock. The following discussion is
qualified in its entirety by reference to the Restated Certificate of
Incorporation of Metals USA, which is included as an exhibit to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to 0.55 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Upon consummation of
this Offering, the Board of Directors will be classified into three classes as
nearly equal in number as possible, with the term of each class expiring on a
staggered basis. The classification of the Board of Directors may make it more
difficult to change the composition of the Board of Directors and thereby may
discourage or make more difficult an attempt by a person or group to obtain
control of the Company. Cumulative voting for the election of directors is not
permitted. Any director, or the entire Board of Directors, may be removed at any
time, with cause, by a majority of the aggregate number of votes which may be
cast by the holders of outstanding shares of Common Stock and Restricted Common
Stock entitled to vote for the election of directors, provided, however, that
only the holders of the Restricted Common Stock may remove the director such
holders are entitled to elect.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are entitled to participate
pro rata in such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock and
Restricted Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. Holders
of Common Stock and holders of Restricted Common Stock have no preemptive rights
to purchase shares of stock of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. Shares of Restricted Common Stock are not subject to
any redemption provisions but are convertible into Common Stock, on the
occurrence of certain events. All outstanding shares of Common Stock and
Restricted Common Stock are fully paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (ii) in the
event any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock, or (iii) in the event any person offers to acquire 15%
or more of the total number of outstanding shares of Common Stock. After July 1,
1998, the Board of Directors may elect to convert any outstanding shares of
Restricted Common Stock into shares of Common Stock in the event 80% or more of
the originally outstanding shares of Restricted Common Stock have been
previously converted into shares of Common Stock.
The Common Stock is listed on The New York Stock Exchange under the symbol
"MUI." The Restricted Common Stock is not listed on any exchange.
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PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock and Restricted Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
Additionally, the Certificate of Incorporation of the Company provides that
directors and officers of the Company shall be, and at the discretion of the
Board of Directors non-officer employees and agents may be, indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in
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the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company,
and further permits the advancing of expenses incurred in defense of claims.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of stockholders in lieu thereof. The
Company's Bylaws provide that a special meeting of stockholders may be called
only by the Chief Executive Officer, by a majority of the Board of Directors or
by a majority of the Executive Committee of the Board of Directors. The Bylaws
provide that only those matters set forth in the notice of the special meeting
may be considered or acted upon at that special meeting. To amend or repeal the
Company's Bylaws, an amendment or repeal thereof must first be approved by the
Board of Directors or by affirmative vote of the holders of at least 66 2/3% of
the total votes eligible to be cast by holders of voting stock with respect to
such amendment or repeal.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure"). The Nomination Procedure requires that a stockholder give prior
written notice, in proper form, of a planned nomination for the Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the Company's Bylaws. If the Chairman of
the Board of Directors determines that a person was not nominated in accordance
with the Nomination Procedure, such person will not be eligible for election as
a director. Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Company's Bylaws. If the Chairman
of the Board of Directors determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Chicago
Trust Company of New York, 525 Washington Blvd., Jersey City, New Jersey 07303.
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SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 32,095,552 shares of Common Stock, of which
13,189,946 shares are freely tradable without restriction unless acquired by
affiliates of the Company. None of the remaining outstanding shares of Common
Stock or Restricted Common Stock has been registered under the Securities Act,
which means that they may be resold publicly only upon registration under the
Securities Act or in compliance with an exemption from the registration
requirements of the Securities Act, including the exemption provided by Rule 144
thereunder.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from an affiliate, the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of (i) one percent of the then outstanding shares of the Common Stock
(approximately 321,000 shares, which does not reflect the issuance of the shares
contemplated by this registration statement) or (ii) the average weekly reported
volume of trading of the Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain requirements
pertaining to the manner of such sales, notices of such sales and the
availability of current public information concerning the Company. Affiliates
may sell shares not constituting restricted securities in accordance with the
foregoing volume limitations and other requirements but without regard to the
one year holding period. Under Rule 144(k), if a period of at least two years
has elapsed between the later of the date on which restricted securities were
acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and has not been an affiliate for a least three months prior to
the sale is entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above.
All of the stockholders of the Founding Companies and the Company's
officers, certain directors and certain stockholders, which beneficially own
14,882,023 shares of Common Stock, have agreed with the Company that they will
not sell any of their shares for a period of one year after July 11, 1997. These
stockholders, however, have the right, in the event the Company proposes to
register under the Securities Act any Common Stock for its own account or for
the account of others, subject to certain exceptions, to require the Company to
include their shares in the registration, subject to the right of the Company to
exclude some or all of the shares in the offering upon the advice of the
managing underwriter. In addition, certain of such stockholders have certain
limited demand registration rights to require the Company to register shares
held by them following July 11, 1999.
The Company is registering 10,000,000 shares of its Common Stock under the
Securities Act for use by the Company in connection with future acquisitions. Of
these shares, 6,404,946 were issued in connection with the Subsequent
Acquisitions. After the effective date of such registration, these shares will
generally be freely tradable when issued, unless acquired by persons who become
affiliates of the Company or were affiliates of the acquired entity prior to the
acquisition. In some instances, however, the Company may contractually restrict
the sale of shares issued in connection with future acquisitions. The piggyback
registration rights described above do not apply to the registration statement
relating to these 10,000,000 shares.
No prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price for the
Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.
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LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas.
EXPERTS
The financial statements of Metals USA, Interstate, Jeffreys, Texas
Aluminum/Cornerstone, Uni-Steel, and Southern Alloy included elsewhere in this
Prospectus, and Registration Statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. The financial statements of Affiliated at August
31, 1996, and for the fifty-two weeks then ended, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, and at September 2, 1995, and for each of the two fifty-two week
periods then ended, by Rubin, Brown, Gornstein & Co. LLP, independent auditors,
as set forth in their respective reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing. The financial statements of
Queensboro included elsewhere in this Prospectus have been audited by McGladrey
& Pullen, LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report. The financial statements of Harvey
included elsewhere in this Prospectus have been audited by Klein, Bogakos, and
Robertson, CPA's, Inc., independent auditors, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report. The financial statements of Wayne
included elsewhere in this Prospectus have been audited by Meaden & Moore, Ltd.,
independent auditors, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report. The consolidated financial statements of Pacific included elsewhere
in this Prospectus have been audited by Perkins & Company, P.C., independent
auditors, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus, which
is part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the SEC. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. For further
information with respect to the Company, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof,
which may be inspected, without charge, at the Public Reference Section of the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC maintains a web
site that contains reports, proxy and information statements regarding
registrants that file electronically with the SEC. The address of this web site
is (http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the SEC, upon
payment of the prescribed fees.
The Common Stock is listed on The New York Stock Exchange. Proxy Statments,
reports and other information concerning the Company that are filed under the
Exchange Act can be inspected at the offices of The New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
METALS USA, INC. UNAUDITED PRO FORMA -----
Introduction to Unaudited Pro
Forma Financial Statements..... F-2
Unaudited Pro Forma Balance
Sheet.......................... F-3
Unaudited Pro Forma Statement of
Operations..................... F-4
Notes to Unaudited Pro Forma
Financial Statements........... F-6
METALS USA, INC. AND SUBSIDIARIES
Report of Independent Public
Accountants.................... F-10
Consolidated Balance Sheets..... F-11
Consolidated Statements of
Operations..................... F-12
Consolidated Statements of
Stockholders' Equity........... F-13
Consolidated Statements of Cash
Flows.......................... F-14
Notes to Consolidated Financial
Statements..................... F-15
TEXAS ALUMINUM INDUSTRIES, INC. AND
AFFILIATES
Report of Independent Public
Accountants.................... F-27
Combined Balance Sheets......... F-28
Combined Statements of Income... F-29
Combined Statements of
Stockholders' Equity and
Members' Equity................ F-30
Combined Statements of Cash
Flows.......................... F-31
Notes to Combined Financial
Statements..................... F-32
QUEENSBORO STEEL CORPORATION
Independent Auditors' Report.... F-43
Balance Sheets.................. F-44
Statements of Income............ F-45
Statements of Stockholders'
Equity......................... F-46
Statements of Cash Flows........ F-47
Notes to Financial Statements... F-48
AFFILIATED METALS COMPANY
Report of Independent
Auditors....................... F-54
Report of Independent
Auditors....................... F-55
Balance Sheets.................. F-56
Statements of Operations........ F-57
Statements of Stockholders'
Equity......................... F-58
Statements of Cash Flows........ F-59
Notes to Financial Statements... F-60
SOUTHERN ALLOY OF AMERICA, INC.
Report of Independent Public
Accountants.................... F-66
Balance Sheets.................. F-67
Statements of Operations........ F-68
Statements of Stockholders'
Equity......................... F-69
Statements of Cash Flows........ F-70
Notes to Financial Statements... F-71
F-1
<PAGE>
PAGE
-----
UNI-STEEL, INC.
Report of Independent Public
Accountants.................... F-76
Balance Sheets.................. F-77
Statements of Income............ F-78
Statements of Stockholders'
Equity......................... F-79
Statements of Cash Flows........ F-80
Notes to Financial Statements... F-81
JEFFREYS STEEL COMPANY, INC.
Report of Independent Public
Accountants.................... F-87
Balance Sheets.................. F-88
Statements of Income............ F-89
Statements of Stockholders'
Equity......................... F-90
Statements of Cash Flows........ F-91
Notes to Financial Statements... F-92
HARVEY TITANIUM, LTD.
Report of Independent
Auditors....................... F-100
Consolidated Balance Sheets..... F-101
Consolidated Statements of
Operations..................... F-102
Consolidated Statements of
Stockholders' Equity........... F-103
Consolidated Statements of Cash
Flows.......................... F-104
Notes to Consolidated Financial
Statements..................... F-105
WAYNE STEEL, INC.
Independent Auditors Report..... F-111
Balance Sheets.................. F-112
Statements of Stockholders'
Equity......................... F-113
Statements of Income............ F-114
Statements of Cash Flows........ F-115
Notes to Financial Statements... F-116
INTERSTATE STEEL SUPPLY CO. AND
AFFILIATES
Report of Independent Public
Accountants.................... F-122
Combined Balance Sheets......... F-123
Combined Statements of
Operations..................... F-124
Combined Statements of
Stockholders' Equity and
Partners' Capital.............. F-125
Combined Statements of Cash
Flows.......................... F-126
Notes to Combined Financial
Statements..................... F-127
PACIFIC METAL COMPANY
Independent Auditors Report..... F-131
Consolidated Balance Sheets..... F-132
Consolidated Statements of
Income......................... F-133
Consolidated Statements of
Stockholders' Equity........... F-134
Consolidated Statements of Cash
Flows.......................... F-135
Notes to Consolidated Financial
Statements..................... F-136
F-1(a)
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma financial statements give effect to the
acquisitions by Metals USA, Inc. ("Metals USA") of the outstanding capital
stock of Affiliated, Interstate, Texas Aluminum/Cornerstone, Queensboro,
Southern Alloy, Uni-Steel, Service Systems and Williams (together, the
"Founding Companies") and the outstanding stock of Federal Bronze, Harvey,
Jeffreys, Meier Metal, Wayne, Royal, RJ Fabricating and Independent (together,
the "Subsequent Acquisitions" and together with the Founding Companies, "the
Acquired Companies"). The Founding Companies acquisitions occurred concurrently
with the consummation of Metals USA's initial public offering of 5,900,000
shares of its Common Stock on July 11, 1997, and are accounted for using the
"purchase" method of accounting. On August 12, 1997, the Company sold 885,000
of its common stock pursuant to an over allotment option with the underwriters.
The sale by the Company of the 6,785,000 shares of its Common Stock, together
with the Founding Companies acquisitions, is hereinafter referred to as the
"IPO". On September 26, 1997, acquisitions were completed which included
Federal Bronze, Harvey, Jeffreys and Meier Metal, with all except Jeffreys
accounted for using the "purchase" method of accounting. Subsequent to
September 30, 1997, Metals USA acquired Wayne using the "pooling-of-interests"
method of accounting and Royal, RJ Fabricating and Independent were acquired and
accounted for using the purchase method of accounting.
The unaudited pro forma balance sheet gives effect to the acquisitions of
Wayne, Royal, RJ Fabricating, Independent and Pacific and the issuance of the
Notes as if they had occurred on September 30, 1997. The unaudited pro forma
statements of operations give effect to the IPO, the Subsequent Acquisitions and
the issuance of the Notes as if they had occurred on January 1, 1996.
Metals USA has preliminarily analyzed the savings that it expects to be
realized from reductions in salaries and certain benefits to the owners and
reductions in lease cost resulting from renegotiations of certain leases. To the
extent the owners of the Acquired Companies have agreed prospectively to
reductions in salary, bonuses and benefits and the reduction in lease cost has
been confirmed by lease agreements, these reductions have been reflected in the
pro forma statement of operations. In addition, the Company has a five-year
revolving credit facility of $300.0 million (as amended, the "Credit
Facility"). Based on terms of the Credit Facility, the Company believes that
its interest expense will be reduced with respect to borrowings made under
revolving credit loans. This reduction in interest expense has been reflected in
the pro forma statements of operations, offset by increased interest expense
with respect to the Notes. It is anticipated that other potential cost savings
will be realized which will be offset by costs related to Metals USA's new
corporate management and by the costs associated with being a public company.
However, because these factors cannot be accurately quantified at this time,
they have not been included in the pro forma financial information of Metals
USA.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what Metals
USA's financial position or results of operations would actually have been if
such transactions had in fact occurred on those dates and are not necessarily
representative of Metals USA's financial position or results of operations of
Metals USA for any future period. Since the Acquired Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma financial
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Offering Memorandum. See "Risk
Factors" included elsewhere herein.
F-2
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITIONS
COMPLETED AFTER
SEPTEMBER 30, PRO FORMA
METALS USA 1997 ADJUSTMENTS PRO FORMA
---------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash................................. $ 13,173 $ 554 $12,863 $ 26,590
Accounts receivable.................. 99,324 18,962 -- 118,286
Inventory............................ 147,038 31,078 5,172 183,288
Prepaid expenses..................... 2,507 171 -- 2,678
Deferred income taxes................ 2,039 1,016 -- 3,055
Other................................ 2,259 292 -- 2,551
---------- --------------- ----------- ---------
Total current assets............ 266,340 52,073 18,035 336,448
Property & equipment, net............ 71,192 11,872 1,351 84,415
Goodwill............................. 122,563 -- 22,439 145,002
Other................................ 6,387 696 7,100 14,183
---------- --------------- ----------- ---------
Total assets.................... $466,482 $64,641 $48,925 $ 580,048
========== =============== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ 65,871 $19,298 $-- $ 85,169
Accrued expenses..................... 11,411 3,855 -- 15,266
Income tax payable................... 2,006 88 -- 2,094
Notes payable........................ 3,157 4,898 (4,898) 3,157
Current portion of long-term debt.... 3,872 1,336 (434) 4,774
Payable to stockholders.............. 344 -- -- 344
Other................................ 619 47 -- 666
---------- --------------- ----------- ---------
Total current liabilities....... 87,280 29,522 (5,332) 111,470
Long-term debt....................... 153,353 21,094 45,134 219,581
Deferred income taxes................ 6,408 466 -- 6,874
Other................................ 3,901 -- -- 3,901
---------- --------------- ----------- ---------
Total liabilities............... 250,942 51,082 39,802 341,826
---------- --------------- ----------- ---------
Stockholders' equity:
Common stock....................... 312 180 (161) 331
Additional paid-in capital......... 185,052 602 22,283 207,937
Unearned compensation.............. (1,535) (222) -- (1,757)
Retained earnings.................. 31,711 13,446 (13,446) 31,711
Treasury stock..................... -- (447) 447 --
---------- --------------- ----------- ---------
Total stockholders' equity...... 215,540 13,559 9,123 238,222
---------- --------------- ----------- ---------
Total liabilities and stockholders'
equity............................. $466,482 $64,641 $48,925 $ 580,048
========== =============== =========== =========
</TABLE>
F-3
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
METALS PURCHASE PRO FORMA PRO FORMA
USA ACQUISITIONS ADJUSTMENTS 1996
-------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $240,145 $688,974 $ 11,256 $ 940,375
Costs and expenses:
Cost of sales...................... 183,638 532,517 14,100 730,255
Operating and delivery............. 24,045 64,252 (261) 88,036
Selling, general &
administrative................... 19,748 53,850 (11,599) 61,999
Depreciation and amortization...... 3,480 5,638 3,951 13,069
-------- ------------ ----------- ----------
Operating income........................ 9,234 32,717 5,065 47,016
Interest expense........................ 1,736 8,189 8,749 18,674
Other................................... (405) (917) (28) (1,350)
-------- ------------ ----------- ----------
Income before tax....................... 7,903 25,445 (3,656) 29,692
Taxes................................... 4,609 4,170 4,415 13,194
-------- ------------ ----------- ----------
Net income.............................. $ 3,294 $ 21,275 $ (8,071) $ 16,498
======== ============ =========== ==========
Earnings per share...................... $ 0.50
Shares used in computing pro forma
earnings per share(1)................. 33,112,331
</TABLE>
- ------------
(1) Includes (i) 3,367,914 shares issued to Notre, (ii) 1,385,500 shares issued
to management of and consultants to Metals USA, (iii) 21,573,917 shares
issued to owners of the Acquired Companies and (iv) the 6,785,000 shares
sold in the IPO. Excludes options to purchase shares of common stock granted
or to be granted.
F-4
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS
ENDED
METALS PURCHASE PRO FORMA SEPTEMBER 30,
USA ACQUISITIONS ADJUSTMENTS 1997
-------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales............................... $296,391 $477,598 $ 395 $ 774,384
Costs and expenses:
Cost of sales...................... 228,254 372,648 611 601,513
Operating and delivery............. 30,577 43,399 (498) 73,478
Selling, general &
administrative................... 24,835 38,374 (13,395) 49,814
Depreciation and amortization...... 3,082 3,943 2,343 9,368
-------- ------------ ------------ -------------
Operating income........................ 9,643 19,234 11,334 40,211
Interest expense........................ 2,484 5,810 6,133 14,427
Other................................... (252) (756) 73 (935)
-------- ------------ ------------ -------------
Income before tax....................... 7,411 14,180 5,128 26,719
Taxes................................... 6,096 2,705 2,641 11,442
-------- ------------ ------------ -------------
Net income.............................. $ 1,315 $ 11,475 $ 2,487 $ 15,277
======== ============ ============ =============
Earnings per share...................... $ 0.46
Shares used in computing pro forma
earnings per share(1)................. 33,112,331
</TABLE>
- ------------
(1) Includes (i) 3,367,914 shares issued to Notre, (ii) 1,385,500 shares issued
to management of and consultants to Metals USA, (iii) 21,573,917 shares
issued to owners of the Acquired Companies and (iv) the 6,785,000 shares
sold in the IPO. Excludes options to purchase shares of common stock granted
or to be granted.
F-5
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. GENERAL:
Metals USA, Inc. ("Metals USA") was founded to become a leading national
value-added metals processor/service center, to manufacture higher-value
components from processed metals and to pursue actively the consolidation of the
highly-fragmented metals processing industry. Prior to the IPO, Metals USA had
conducted no operations. Metals USA acquired the Founding Companies concurrently
with the consummation of the IPO, with the Subsequent Acquisitions occurring on
September 26, 1997, October 29, 1997 and December 18, 1997.
The pro forma financial statements reflect the historical financial
statements of Metals USA restated for the effects of the business combinations
with Jeffreys and Wayne accounted for as "poolings-of-interests" ("Metals
USA" column). The "Purchase Acquisitions" column reflects the pre-acquisition
results of operations of the companies acquired using the purchase method of
accounting.
2. ACQUISITION OF COMPANIES:
Concurrently with and as a condition to the consummation of the IPO, Metals
USA acquired all of the outstanding capital stock of the Founding Companies.
These acquisitions were accounted for using the purchase method of accounting.
On September 26, 1997, the Subsequent Acquisitions were completed which included
Federal Bronze, Harvey, Jeffreys and Meier Metal, with all except Jeffreys
accounted for using the purchase method of accounting. On October 29, 1997,
Metals USA acquired Wayne using the "pooling-of-interests" method of
accounting. On December 18, 1997, the Subsequent Acquisitions were completed
which included Royal and RJ Fabricating and on January 7, 1998, the acquisition
of Independent was completed, with all three acquisitions accounted for using
the purchase method of accounting. On February 17, 1998, Metals USA entered into
an agreement which, upon completion of certain regulatory and shareholder
approvals, would call for the acquisition of Pacific which will be accounted for
using the purchase method of accounting.
The aggregate consideration paid and to be paid by Metals USA for the
Acquired Companies consists of approximately $87.7 million in cash, 21,573,917
shares of Common Stock, plus the assumption of approximately $168.1 million of
indebtedness. The consideration paid by Metals USA for each of the Acquired
Companies was determined by negotiation between representatives of each Acquired
Company and was based primarily upon the pro forma adjusted net income of each
Acquired Company.
3. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS AND OFFERING TRANSACTIONS AS
OF SEPTEMBER 30, 1997:
The pro forma adjustments in the unaudited pro forma balance sheet give
effect to (a) the issuance of Common Stock and debt incurred for the cash
portion of the consideration exchanged for the common stock of Royal, RJ
Fabricating, Independent and Pacific and (b) the issuance of the Notes comprised
of: (i) net cash provided by the offering of $12,863, (ii) debt issuance costs
of $6,300 and $800 relating to the Notes and the Credit Facility, respectively,
and (iii) $19,963 of incremental debt resulting from the issuance of $200,000 of
the Notes and the subsequent repayment of $180,037 of the Company's outstanding
indebtedness under the Credit Facility and the Interim Credit Facility.
F-6
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS:
TWELVE MONTHS ENDED DECEMBER 31, 1996
(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed prospectively.
(b) Reflects the $9,314 reduction in salaries, bonuses and benefits to
the owners of the Acquired Companies to which they have agreed
prospectively and the reversal of the $3,636 non-cash compensation
charge related to the issuance of 400,000 shares of common stock
to management of and consultants to the Company offset by a $400
charge for recurring salary expenses of management.
(c) Reflects the amortization of goodwill to be recorded as a result
of the IPO and Subsequent Acquisitions over a 40-year estimated
life plus additional depreciation expense due to the allocation of
a portion of the excess purchase price to property and equipment.
(d) Reflects the assumed reductions in interest expense of $762 due to
refinancing of the outstanding indebtedness in conjunction with
the IPO and Subsequent Acquisitions, offset by an assumed increase
in interest expense of $2,872 due to financing the Subsequent
Acquisitions.
(e) Reflects the pre-acquisition results of operations for Cornerstone
Patio (acquired August 1996), Cornerstone Aluminum (acquired
February 1997) and Williams (acquired March 1996) as if the
acquisitions were completed as of January 1, 1996.
(f) Reflects a $6,709 charge eliminating the gains recorded as
historical LIFO adjustments to cost of sales. These adjustments
result from the restatement of base year LIFO costs to the
appropriate replacement costs as if the acquisitions occurred on
January 1, 1996. Other adjustments reflect certain other
nonrecurring expenses with respect to the Subsequent Acquisitions,
such as expenses associated with compensation plans which were
terminated in conjunction with the acquisitions of their
respective companies.
(g) Reflects the incremental interest expense of $5,548 and
amortization of deferred financing costs of $790 incurred as a
result of the issuance of the Notes and the Credit Facility and
the repayment of outstanding indebtedness of the Company.
(h) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.
The following table summarizes unaudited pro forma statements of operations
adjustments:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G) (H)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ 11,256 $ -- $ -- $ --
Costs and expenses:
Cost of sales........................ -- -- -- -- 7,391 6,709 -- --
Operating and delivery............... (806) -- -- -- 578 (33) -- --
Selling, general and
administrative..................... (32) (12,550) -- -- 1,822 (839) -- --
Depreciation and amortization........ 63 -- 3,670 -- 218 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 775 12,550 (3,670) -- 1,247 (5,837) -- --
Other (income) expense:
Interest (income) expense........ 95 -- -- 2,110 206 -- 6,338 --
Other (income) expense........... 97 -- -- -- (125) -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income taxes........... 583 12,550 (3,670) (2,110) 1,166 (5,837) (6,338) --
Provision for income taxes........... -- -- -- -- 459 -- -- 3,956
--------- --------- --------- --------- --------- --------- --------- ---------
Net income........................... $ 583 $ 12,550 $ (3,670) $ (2,110) $ 707 $ (5,837) $ (6,338) $ (3,956)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
PRO FORMA
ADJUSTMENTS
-----------
Net sales............................ $ 11,256
Costs and expenses:
Cost of sales........................ 14,100
Operating and delivery............... (261)
Selling, general and
administrative..................... (11,599)
Depreciation and amortization........ 3,951
-----------
Income from operations............... 5,065
Other (income) expense:
Interest (income) expense........ 8,749
Other (income) expense........... (28)
-----------
Income before income taxes........... (3,656)
Provision for income taxes........... 4,415
-----------
Net income........................... $ (8,071)
===========
F-7
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS (CONTINUED):
NINE MONTHS ENDED SEPTEMBER 30, 1997
(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed prospectively.
(b) Reflects the $6,692 reduction in salaries, bonuses and benefits to
the owners of the Founding Companies to which they have agreed
prospectively and the reversal of the $6,048 non-cash compensation
charge related to the issuance of 985,500 shares of common stock
to management of and consultants to the Company offset by a $350
charge for recurring salary expenses of management.
(c) Reflects the amortization of goodwill to be recorded as a result
of the IPO and Subsequent Acquisitions over a 40-year estimated
life plus additional depreciation expense due to the allocation of
a portion of the excess purchase price to property and equipment.
(d) Reflects the assumed reductions in interest expense of $859 due to
refinancing of the outstanding indebtedness in conjunction with
the IPO and Subsequent Acquisitions, offset by an assumed increase
in interest expense of $2,135 due to financing the Subsequent
Acquisitions.
(e) Reflects the pre-acquisition results of Cornerstone Aluminum
(acquired February 1997) as if the acquisition was completed as of
January 1, 1997.
(f) Reflects a $498 charge eliminating the gains recorded as
historical LIFO adjustments to cost of sales. These adjustments
result from the restatement of base year LIFO costs to the
appropriate replacement costs as if the acquisitions occurred on
January 1, 1996. Other adjustments reflect nonrecurring expenses
with respect to the Subsequent Acquisitions, such as expenses
associated with compensation plans which were terminated in
conjunction with the acquisitions of their respective companies.
(g) Reflects the incremental interest expense of $4,161 and
amortization of deferred financing costs of $594 incurred as a
result of the issuance of the Notes and the Credit Facility and
the repayment of outstanding indebtedness of the Company.
(h) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.
The following table summarizes unaudited pro forma statements of operations
adjustments:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G) (H)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ 395 $ -- $ -- $ --
Costs and expenses:
Cost of sales........................ -- -- -- -- 272 339 -- --
Operating and delivery............... (482) -- -- -- 16 (32) -- --
Selling, general and
administrative..................... (26) (12,390) -- -- 68 (1,047) -- --
Depreciation and amortization........ 48 -- 2,264 -- 31 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... 460 12,390 (2,264) -- 8 740 -- --
Other (income) expense:
Interest (income) expense........ 72 -- -- 1,276 30 -- 4,755 --
Other (income) expense........... 73 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income taxes........... 315 12,390 (2,264) (1,276) (22) 740 (4,755) --
Provision for income taxes........... -- -- -- -- -- -- -- 2,641
--------- --------- --------- --------- --------- --------- --------- ---------
Net income........................... $ 315 $ 12,390 $ (2,264) $ (1,276) $ (22) $ 740 $ (4,755) $ (2,641)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
PRO FORMA
ADJUSTMENTS
-----------
Net sales............................ $ 395
Costs and expenses:
Cost of sales........................ 611
Operating and delivery............... (498)
Selling, general and
administrative..................... (13,395)
Depreciation and amortization........ 2,343
-----------
Income from operations............... 11,334
Other (income) expense:
Interest (income) expense........ 6,133
Other (income) expense........... 73
-----------
Income before income taxes........... 5,128
Provision for income taxes........... 2,641
-----------
Net income........................... $ 2,487
===========
F-8
<PAGE>
METALS USA, INC. AND ACQUIRED COMPANIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
5. SUBSEQUENT EVENTS:
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128") which
simplifies the standards required under current accounting rules for computing
earnings per share and replaces the presentation of primary earnings per share
and fully diluted earnings per share with a presentation of basic earnings per
share ("basic EPS") and diluted earnings per share ("diluted EPS"). Basic
EPS excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock. Diluted EPS is computed similarly to fully diluted earnings
per share under current accounting rules. The implementation of SFAS No. 128 in
1997 is not expected to have a material effect on the Company's earnings per
share as determined under current accounting rules.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Metals USA, Inc.
We have audited the accompanying consolidated balance sheets of Metals USA,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 these financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Metals USA, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 18, 1998
F-10
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................... $ 3,144 $ 1,659 $ 13,173
Accounts receivable, net of
allowance of $402, $289 and
$3,195........................... 21,545 21,219 99,324
Inventories........................ 36,513 41,192 147,038
Prepaid expenses................... 877 660 2,507
Deferred income taxes.............. 730 998 2,039
Other.............................. 240 597 2,259
------------ ------------ -------------
Total current assets.......... 63,049 66,325 266,340
Property and equipment, net............. 23,359 26,679 71,192
Goodwill, net........................... -- -- 122,563
Other assets............................ 2,376 2,083 6,387
------------ ------------ -------------
Total assets.................. $ 88,784 $ 95,087 $ 466,482
============ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 9,541 $ 15,138 $ 65,871
Accrued liabilities................ 3,184 2,411 11,411
Current portion of long-term
debt............................. 1,191 1,617 3,872
Notes payable...................... 825 293 3,157
Income taxes payable............... 37 518 2,006
Other current liabilities.......... 230 -- 963
------------ ------------ -------------
Total current liabilities..... 15,008 19,977 87,280
Long-term debt, less current portion.... 31,372 24,574 153,353
Deferred income taxes................... 266 326 6,408
Other long-term liabilities............. 388 973 3,901
------------ ------------ -------------
Total liabilities............. 47,034 45,850 250,942
------------ ------------ -------------
Commitments and contingencies...........
Stockholders' equity:
Preferred stock, $.01 par,
5,000,000 shares authorized, none
issued and outstanding........... -- -- --
Common stock, $.01 par value,
53,122,914 shares authorized,
8,230,011, 11,997,925 and
31,189,397 shares outstanding,
respectively..................... 82 120 312
Additional paid-in capital......... 10,601 17,025 185,052
Unearned compensation.............. (2,437) (1,794) (1,535)
Retained earnings.................. 33,504 33,886 31,711
------------ ------------ -------------
Total stockholders' equity.... 41,750 49,237 215,540
------------ ------------ -------------
Total liabilities and
stockholders' equity....... $ 88,784 $ 95,087 $ 466,482
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 212,273 $ 235,200 $ 240,145 $ 181,700 $ 296,391
Operating cost and expenses:
Cost of sales...................... 165,347 183,779 183,638 138,648 228,254
Operating and delivery............. 18,497 20,702 24,045 17,802 30,577
Selling, general and
administrative..................... 12,729 14,204 19,748 12,552 24,835
Depreciation and amortization...... 2,204 2,789 3,480 2,553 3,082
----------- ----------- ------------ ----------- ------------
Operating income........................ 13,496 13,726 9,234 10,145 9,643
Other (income) expense:
Interest expense................... 1,681 2,321 1,736 1,319 2,484
Other income....................... (258) (308) (405) (424) (252)
----------- ----------- ------------ ----------- ------------
Income before income taxes.............. 12,073 11,713 7,903 9,250 7,411
Provision for income taxes.............. 4,809 4,812 4,609 3,729 6,096
----------- ----------- ------------ ----------- ------------
Net income.............................. $ 7,264 $ 6,901 $ 3,294 $ 5,521 $ 1,315
=========== =========== ============ =========== ============
Earnings per share...................... $ .88 $ .84 $ .31 $ .56 $ .07
=========== =========== ============ =========== ============
Shares used in computing earnings per
share................................. 8,230,011 8,230,011 10,600,208 9,797,072 18,466,130
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED UNEARNED
STOCK CAPITAL EARNINGS COMPENSATION TOTAL
------ -------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. $ 82 $ 4,632 $ 28,747 $ (3,510) $ 29,951
Shares released under leveraged
ESOP Plan........................ -- -- -- 650 650
Other adjustments.................. -- -- (34) -- (34)
Capital contributions attributable
to deemed tax payments of S
Corporations..................... -- 2,925 -- -- 2,925
Distributions...................... -- -- (4,300) -- (4,300)
Net income......................... -- -- 7,264 -- 7,264
------ -------- --------- ------------ --------
BALANCE, December 31, 1994.............. 82 7,557 31,677 (2,860) 36,456
Shares released under leveraged
ESOP Plan........................ -- 108 -- 423 531
Other adjustments.................. -- -- 1 -- 1
Capital contributions attributable
to deemed tax payments of S
Corporations..................... -- 2,936 -- -- 2,936
Distributions...................... -- -- (5,075) -- (5,075)
Net income......................... -- -- 6,901 -- 6,901
------ -------- --------- ------------ --------
BALANCE, December 31, 1995.............. 82 10,601 33,504 (2,437) 41,750
Adjustment to conform fiscal
year-ends........................ -- 75 939 187 1,201
Shares released under leveraged
ESOP Plan........................ -- 176 -- 456 632
Other adjustments.................. -- 135 24 -- 159
Initial capitalization of Metals
USA.............................. 1 -- -- 1
Shares issued in exchange for
contributed services............. 33 1 -- -- 34
Shares issued to members of
management....................... 4 3,636 -- -- 3,640
Capital contributions attributable
to deemed tax payments of S
Corporations..................... -- 2,401 -- -- 2,401
Distributions...................... -- -- (3,875) -- (3,875)
Net income (loss).................. -- -- 3,294 -- 3,294
------ -------- --------- ------------ --------
BALANCE, December 31, 1996.............. 120 17,025 33,886 (1,794) 49,237
Shares issued to members of
management (unaudited)........... 10 6,048 -- -- 6,058
Shares sold in connection with the
IPO (unaudited).................. 68 58,532 -- -- 58,600
Shares issued in connection with
the acquisition of the Founding
Companies (unaudited)............ 101 80,928 -- -- 81,029
Shares issued in connection with
the Subsequent Acquisitions
(unaudited)...................... 13 19,757 -- -- 19,770
Shares released under leveraged
ESOP Plan (unaudited)............ -- 96 -- 259 355
Other adjustments (unaudited)...... -- 117 -- -- 117
Capital contributions attributable
to deemed tax payments of S
Corporations (unaudited)......... -- 2,549 -- -- 2,549
Distributions (unaudited).......... -- -- (3,490) -- (3,490)
Net income (loss) (unaudited)...... -- -- 1,315 -- 1,315
------ -------- --------- ------------ --------
BALANCE, September 30, 1997
(unaudited)........................... $ 312 $185,052 $ 31,711 $ (1,535) $215,540
====== ======== ========= ============ ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 7,264 $ 6,901 $ 3,294 $ 5,521 $ 1,315
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Capital contributions
attributable to deemed tax
payments
of S Corporations............ 2,925 2,936 2,401 1,825 2,549
Provision for bad debts........ 281 281 177 143 578
Depreciation and
amortization................. 2,204 2,789 3,480 2,553 3,082
(Gain) loss on sale of property
and equipment................ (99) (57) (129) (146) (28)
Deferred income taxes.......... (225) 118 (208) (95) (118)
Compensation charged against
notes receivable............. 400 -- 512 -- --
Accrued retirement plan
contributions................ 723 629 860 661 (106)
Compensation
expense -- management
shares....................... -- -- 3,636 -- 6,048
Changes in operating assets and
liabilities, net of business
acquisitions --
Accounts and notes
receivable............... (6,355) 2,737 37 (2,754) (6,872)
Inventory.................. (17,468) 10,399 (9,728) (8,535) (1,376)
Prepaid expenses and other
assets................... (356) 76 (152) (123) 953
Accounts payable and
accrued liabilities...... 7,660 (4,101) 3,800 6,866 1,504
Income taxes payable....... (302) (14) 202 15 1,146
Other operating............ -- -- (350) (350) 286
--------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities........... (3,348) 22,694 7,832 5,581 8,961
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 134 118 368 267 715
Purchases of property.............. (3,736) (8,474) (6,513) (5,367) (12,199)
Proceeds applied to cash value life
insurance........................ (154) (137) (160) (102) (95)
Issuance of notes receivable to
affiliates....................... (233) (111) (315) (246) (204)
Collections on notes receivable
from affiliates.................. 23 48 300 300 431
Purchase of businesses, net of
acquired cash.................... -- (6,036) -- -- (64,495)
--------- --------- --------- --------- ---------
Net cash (used in)
investing
activities........... (3,966) (14,592) (6,320) (5,148) (75,847)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock.................. -- -- 5 1 58,610
Distributions to shareholders...... (4,300) (5,075) (3,875) (2,950) (3,490)
Borrowings on notes payable........ 11,607 5,028 481 544 9,184
Principal payments on notes
payable.......................... (1,321) (1,975) (2,499) (1,910) (32,141)
Borrowings on revolving credit
facility......................... 44,351 35,778 44,900 33,042 100,825
Payments on revolving credit
facility......................... (42,939) (39,468) (41,755) (29,639) (54,570)
Borrowings on notes payable to
affiliates....................... 744 13 213 213 --
Principal payments on notes payable
to affiliates.................... (129) (531) (626) (626) --
Other financing.................... (33) -- 159 159 (18)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities........... 7,980 (6,230) (2,997) (1,166) 78,400
--------- --------- --------- --------- ---------
NET INCREASE IN CASH................. 666 1,872 (1,485) (733) 11,514
CASH, beginning of period............ 606 1,272 3,144 3,144 1,659
--------- --------- --------- --------- ---------
CASH, end of period.................. $ 1,272 $ 3,144 $ 1,659 $ 2,411 $ 13,173
========= ========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest....................... $ 1,700 $ 2,220 $ 1,647 $ 1,109 $ 1,998
Income taxes................... 2,555 1,744 2,098 1,924 1,581
Noncash activities --
Operating expenses added to
note receivable from
affiliates................... 400 -- -- -- --
Interest expense added to notes
payable to affiliates........ 4 13 7 7 --
Interest income added to note
receivable from affiliates... 19 12 76 73 16
Retirement plan contribution
charged to unearned
compensation and paid in
capital...................... 650 531 632 474 355
Non-qualified plan contribution
accrued...................... 73 98 228 187 (461)
Purchase of businesses for
stock........................ -- -- -- -- 100,799
Contribution of services for
common stock................. -- -- 34 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Metals USA, Inc., a Delaware corporation, ("Metals USA") was founded in
July 1996 to become a leading national value-added metals processor service
center to manufacture higher-value components from processed metals and to
pursue aggressively the consolidation of the highly fragmented metals processing
industry. Prior to its initial public offering ("IPO"), Metals USA had
conducted no operations. Concurrently with the consummation of its IPO on July
11, 1997, Metals USA acquired, in separate merger transactions (the "Mergers")
eight companies (the "Founding Companies") engaged in the processing of steel,
aluminum and specialty metals, as well as the manufacture of metal components.
Subsequent to that date, Metals USA has acquired or agreed to acquire nine
additional companies (the "Subsequent Acquisitions") in similar businesses
(See Note 11). Subsequent Acquisitions include Jeffreys Steel Company, Inc.
("Jeffreys") and Wayne Steel, Inc. ("Wayne") which were accounted for using
the "pooling-of-interests" method, resulting in a restatement of the Company's
financial statements for all periods presented herein. Jeffreys was acquired on
September 26, 1997 and Wayne was acquired on November 20, 1997. References
herein to the Company include Metals USA and its subsidiaries.
Jeffreys is an Alabama corporation engaged in the wholesale and retail sale
of steel. Jeffreys purchases steel products from manufacturers and processes
steel to meet customers' specifications. Jeffreys operates eight steel service
centers, three in Alabama, two in Florida, one in each of Mississippi, Louisiana
and Georgia. Jeffreys also maintains a sales office in Fort Lauderdale, Florida.
The customers of these service centers are concentrated in the southeastern
states.
Jeffreys has historically reported on a July 31 fiscal year-end. For
purposes of the merger with Metals USA, the accompanying financial statements
reflect Jeffreys on a calendar year-end basis effective January 1, 1996. The
historical financial information of Jeffreys for the years ended July 31, 1994
and 1995 have been included in the Company's consolidated financial statements
for the years ended December 31, 1994 and 1995. The net sales and net income of
Jeffreys for the period from August 1, 1995, through December 31, 1995, were
$50,989 and $939, respectively. The net income of Jeffreys for this transition
period is included in the accompanying consolidated statements of stockholders'
equity as an adjustment to retained earnings in order to conform their fiscal
year to that of the Company.
Wayne is an Ohio corporation and operates as a wholesaler and processor of
steel and aluminum flat-rolled products. Wayne sells to customers generally
located in the Eastern United States and operates from facilities located in
Wooster, Ohio and Randleman, North Carolina; however, as of December 31, 1996,
management was considering the feasibility of constructing and operating a new
facility in Jeffersonville, Indiana, which was subsequently approved and initial
operations began in January 1998.
Prior to its acquisition by Metals USA, Wayne had an S Corporation election
in effect; accordingly, any federal income tax liabilities for the periods prior
to the acquisition date were the responsibility of the respective stockholders.
For purposes of these consolidated financial statements, federal income taxes
have been provided as if Wayne had filed C Corporation tax returns for the
pre-acquisition periods. The current income tax provisions for Wayne are
reflected in the consolidated financial statements as increases to additional
paid-in capital.
F-15
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The following table summarizes the restated consolidated revenues, net
income and per share data of the Company after giving effect to the acquisition
of Wayne (in thousands of dollars except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1996
1994 1995 ---------------------
-------------------- -------------------- NET
NET NET INCOME/
NET SALES INCOME NET SALES INCOME NET SALES (LOSS)
---------- ------ ---------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales and net income (loss) --
As previously reported........... $107,897 $2,925 $121,537 $2,392 $134,391 $ (239)
Acquisition accounted for as
"pooling-of-interests"....... 104,376 4,339 113,663 4,509 105,754 3,533
---------- ------ ---------- ------ ---------- -------
As restated................. $212,273 $7,264 $235,200 $6,901 $240,145 $ 3,294
========== ====== ========== ====== ========== =======
Net income (loss) per share --
As previously reported........... $ .73 $ .59 $ (.04)
Acquisition accounted for as
"pooling-of-interests"....... .15 .25 .35
------ ------ -------
As restated................. $ .88 $ .84 $ .31
====== ====== =======
</TABLE>
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at September 30, 1997, and the results of its operations and cash flows
for the nine months ended September 30, 1996 and 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at
year-end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed utilizing the straight-line
method at rates based upon the estimated useful lives of the various classes of
assets.
INTANGIBLE ASSETS -- Intangible assets primarily represent goodwill which
is being amortized over a forty-year life and various other intangible assets
which are being amortized over their respective estimated useful lives.
Accumulated amortization for such assets totaled $245 and $521 as of December
31, 1995 and 1996, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the notes payable
is estimated based on interest rates for the same or similar debt offered to the
Company having the same or similar remaining maturities and collateral
requirements. The carrying amounts of notes payable approximate fair value at
the applicable balance sheet dates.
F-16
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
CONCENTRATION OF CREDIT RISK -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of
cash deposits, trade accounts and notes receivable. The Company places its cash
with several financial institutions, limiting the amount of credit exposure to
any one financial institution. Concentrations of credit risk with respect to
trade accounts are within the machinists and fabricators, industrial/commercial
contractors and transportation equipment manufacturers industries. Generally,
credit is extended once appropriate credit history and references have been
obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. The Company periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.
INCOME TAXES -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are
recognized for the future tax consequences of differences between the tax bases
of assets and liabilities and their financial reporting amounts based on enacted
tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Provision for income taxes represents the amount of taxes
payable and the applicable changes in deferred tax assets and liabilities.
EARNINGS PER SHARE -- Earnings per share was computed using the aggregate
number of shares issued in connection with the acquisition of entities accounted
for using the "pooling-of-interests" method of accounting for periods prior to
July 3, 1996 (date of inception). Shares issued in connection with the
organization of Metals USA, including shares issued to management, were
considered to be issued and outstanding from the date of inception without
regard to the date such shares were actually issued. Shares issued in connection
with the IPO and entities acquired using the "purchase" method of accounting
have been included in the computation only from their respective dates of
issuance. Additionally, the effect of stock options were included in the
computation only to the extent they were dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 ("SFAS No.
121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," in March 1995. SFAS No. 121 requires that long-lived
assets and certain intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company adopted SFAS No.
121 on January 1, 1996. Adopting this standard did not have a material impact on
the results of operations.
Statement of Financial Accounting Standards No. 123 ("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 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 Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share". 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")
F-17
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
and diluted earnings per share ("diluted EPS"). Basic EPS excludes dilution
and is determined by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
EPS reflects the potential dilution that could occur if securities and other
contracts to issue common stock were exercised or converted into common stock.
Diluted EPS is computed similarly to fully diluted earnings per share under
current accounting rules. The implementation of SFAS No. 128 is not expected to
have a material effect on the Company's earnings per share as determined under
current accounting rules.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1995 1996
------------ --------- ---------
Land................................. $ 1,332 $ 1,499
Buildings and improvements........... 5-40 years 15,589 17,327
Machinery and equipment.............. 7-12 years 15,846 19,172
Automobiles and trucks............... 3-10 years 3,829 4,858
--------- ---------
36,596 42,856
Less -- Accumulated depreciation..... (13,237) (16,177)
--------- ---------
Total........................... $ 23,359 $ 26,679
========= =========
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Raw materials --
Structural steel............................... $ 20,050 $ 19,719
Flat-rolled steel.............................. 9,117 13,161
Aluminum products.............................. 1,334 601
Other.......................................... 3,607 3,914
--------- ---------
Total raw materials....................... 34,108 37,395
--------- ---------
Work-in-process and finished goods --
Flat-rolled steel.............................. 3,845 5,141
Aluminum products.............................. 222 407
--------- ---------
Total work-in-process and finished
goods..................................... 4,067 5,548
--------- ---------
Less -- LIFO reserve................................ (1,662) (1,751)
--------- ---------
Total..................................... $ 36,513 $ 41,192
========= =========
The replacement cost of the Company's inventory exceeds the historical cost
of the inventory, computed using the LIFO method of valuation, as reported in
the accompanying financial statements. If the average cost method had been used
for all inventories, the carrying value would have been $38,176 and $42,943 at
December 31, 1995 and 1996, respectively. Additionally, net income would have
been $6,790, $6,617 and $3,357 for the years ended December 31, 1994, 1995 and
1996, respectively.
F-18
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
4. LONG-TERM DEBT AND NOTES PAYABLE
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Revolving credit facility with
interest at prime less 1.0%,
maturing on December 31, 1998,
secured by inventory and trade
accounts receivable................ $ 17,787 $ 13,250
Notes payable to former employee
stock ownership plan and trust
members payable in annual
installments including interest at
prime with an 8.5% cap, through
February 1998...................... 2,861 2,118
Term loan payable to a bank in
monthly installments of $46 which
includes monthly payments of
interest at 6.5%, due March 1,
1999, secured by production and
rolling equipment.................. 1,736 1,097
Term loan payable to a bank in
monthly installments of $17 plus
monthly payments of interest
computed at a floating rate. The
rate at December 31, 1996, was
7.7%, maturing on June 1, 1998,
secured by certain equipment....... 605 293
Industrial Revenue Bonds:
1987 State of Ohio Industrial
Development Revenue Bonds,
payable in monthly installments
with variable interest averaging
4.28% per annum, maturing August
1, 2007, secured by real estate
and equipment acquired with
proceeds from these bonds with a
book value of $1,115 at December
31, 1996........................ 1,135 1,023
1990 Randolph County, North
Carolina Industrial Revenue
Bonds, payable in monthly
installments with variable
interest averaging 4.41% per
annum, maturing September 1,
2005, secured by real estate and
equipment acquired with proceeds
from these bonds with a book
value of $2,617 at December 31,
1996............................ 2,900 2,600
1995 Randolph County, North
Carolina Industrial Revenue
Bonds, payable in monthly
installments with variable
interest averaging 4.40% per
annum, maturing September 1,
2005, secured by real estate and
equipment acquired with proceeds
from these bonds with a book
value of $4,371 at December 31,
1996............................ 4,500 4,400
Note payable due in monthly
installments of $75,000 plus
interest at 6.25% maturing
January 1997, secured by
accounts receivable............. 900 293
Other long-term debt................. 964 1,410
--------- ---------
33,388 26,484
Less -- Current portion.............. (2,016) (1,910)
--------- ---------
$ 31,372 $ 24,574
========= =========
Annual maturities on the long-term debt are as follows:
1997................................. $ 1,910
1998................................. 17,752
1999................................. 975
2000................................. 897
2001................................. 893
Thereafter........................... 4,057
---------
$ 26,484
=========
F-19
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
In addition, the Industrial Revenue Bonds place various restrictions on the
Company, including but not limited to, maintenance of required insurance
coverage, maintenance of certain financial ratios, limits on capital
expenditures, maintenance of tangible net worth and letters of credit, among
other items.
In connection with the Subsequent Acquisitions, the revolving credit
facility and certain other obligations outstanding as of December 31, 1996 were
repaid with the Company's new credit facility discussed in Note 11. In addition,
the Company assumed and incurred additional debt in connection with the
Subsequent Acquisitions resulting in long-term debt outstanding of $157,225 as
of September 30, 1997.
5. DETAIL OF ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Accrued salaries and employee
benefits.............................. $ 2,041 $ 1,540
Accrued profit sharing.................. 150 150
Accrued ad valorem and sales taxes...... 760 488
Accrued interest and other.............. 233 233
--------- ---------
Total.............................. $ 3,184 $ 2,411
========= =========
6. INCOME TAXES
The components of the provision for income taxes are as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal --
Current............................ $ 4,103 $ 3,807 $ 3,933
Deferred........................... (187) 105 (160)
--------- --------- ---------
3,916 3,912 3,773
--------- --------- ---------
State --
Current............................ 931 887 885
Deferred........................... (38) 13 (49)
--------- --------- ---------
893 900 836
--------- --------- ---------
Total provision............... $ 4,809 $ 4,812 $ 4,609
========= ========= =========
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal income tax at statutory rates... $ 4,225 $ 4,100 $ 2,766
State income taxes, net of federal
income tax benefit.................... 507 514 447
Nondeductible expenses:
Meals, entertainment and other..... 77 198 123
Stock compensation................. -- -- 1,273
--------- --------- ---------
$ 4,809 $ 4,812 $ 4,609
========= ========= =========
F-20
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The significant items giving rise to the deferred tax assets (liabilities)
are as follows:
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Deferred tax assets --
Allowance for doubtful accounts.... $ 152 $ 98
Uniform capitalization of
inventory......................... 505 648
Nonqualified plan contribution..... 27 175
Accrued expenses................... 83 170
Other.............................. -- 7
--------- ---------
Total deferred tax assets..... 767 1,098
--------- ---------
Deferred tax liabilities --
Property and equipment............. (266) (326)
Other.............................. (37) (100)
--------- ---------
Total deferred income tax
liabilities............... (303) (426)
--------- ---------
Net deferred tax assets....... $ 464 $ 672
========= =========
7. STOCKHOLDERS' EQUITY
COMMON STOCK AND PREFERRED STOCK
Metals USA effected a 135.81-for-one stock split on April 21, 1997 for each
share of common stock ("Common Stock") then outstanding. In addition, Metals
USA increased the number of authorized shares of Common Stock to 50,000,000 and
the authorized shares of Restricted Common Stock to 3,122,914 and authorized
5,000,000 shares of $.01 par value preferred stock, which may be designated in
the future. The effects of the Common Stock split and the increase in the shares
of authorized Common Stock have been retroactively reflected in the consolidated
balance sheet and in the accompanying notes.
In connection with its organization and initial capitalization, Metals USA
issued 135,810 shares of Common Stock at $.01 per share to Notre Capital
Ventures II ("Notre"). Notre incurred $34 of expenses on behalf of Metals USA
for which 3,232,104 additional shares were issued to Notre in December 1996.
In December 1996, 400,000 shares of Common Stock were sold to management at
$.01 per share. During the first and second quarters of 1997, Metals USA issued
a total of 985,500 shares of Common Stock to management of and consultants to
Metals USA at a price of $.01 per share. As a result, Metals USA has recorded a
non-recurring, non-cash compensation charge of $3,636 in 1996 and $2,813 and
$4,725 in the first and second quarters of 1997, respectively, representing the
difference between the amount paid for the shares and the estimated fair value
of the shares on the date of sale as if the companies were combined. The second
quarter of 1997 also includes a reduction in compensation expense of $1,490
representing a revision of the estimated fair value of the shares sold to
management and consultants in 1996 and the first quarter of 1997.
RESTRICTED COMMON STOCK
In April 1997, Notre exchanged 3,122,914 shares of Common Stock for an
equal number of shares of restricted voting common stock ("Restricted Common
Stock"). The holder of Restricted Common Stock is entitled to elect one member
of Metals USA's Board of Directors and to 0.55 of one vote for each share held
on all other matters on which they are entitled to vote.
Each share of Restricted Common Stock will automatically convert into
Common Stock on a share-for-share basis (a) in the event of a disposition of
such share of Restricted Common Stock by the holder
F-21
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT 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 Metals USA, or (c) in the
event any person offers to acquire 15% or more of the total number of
outstanding shares of Common Stock.
After July 1, 1998, Metals USA may elect to convert any outstanding shares
of Restricted Common Stock into shares of Common Stock in the event 80% or more
of the outstanding shares of Restricted Common Stock have been converted into
shares of Common Stock.
LONG-TERM INCENTIVE PLAN
In April 1997, Metals USA's stockholders approved the Company's 1997
Long-Term Incentive Plan (the "Plan"), which provides for the granting or
awarding of incentive or non-qualified stock options ("NQSOs"), stock
appreciation rights, restricted or deferred stock, dividend equivalents and
other incentive awards to directors, officers, key employees and consultants to
Metals USA. The number of shares authorized and reserved for issuance under the
Plan is the greater of 2,500,000 shares or 13% of the aggregate number of shares
of Common Stock outstanding. The terms of the option awards will be established
by the Compensation Committee of Metals USA's Board of Directors. Metals USA
granted NQSOs to purchase a total of 705,000 shares of Common Stock to key
employees of Metals USA at the initial public offering price upon consummation
of the IPO. In addition, Metals USA granted NQSOs to purchase a total of
1,426,024 shares of Common Stock to certain employees of the Founding Companies
at the initial public offering price per share. As of February 18, 1998, the
Company has granted NQSOs to purchase a total of 3,458,587 shares (unaudited) of
common stock at prices which vary between $6.81 and $15.125 per share
(unaudited). These options will vest at the rate of 20% per year, commencing on
the first anniversary of the IPO or date of grant and will expire ten years from
the date of grant or three months following termination of employment.
NON-EMPLOYEE DIRECTORS STOCK PLAN
Metals USA's 1997 Non-Employee Directors' Stock Plan (the "Director's
Plan"), which was adopted by the Board of Directors and approved by Metals
USA's stockholders in April 1997, provides for (i) the automatic grant to each
non-employee director serving at the consummation of the IPO of an option to
purchase 10,000 shares, (ii) the automatic grant to each non-employee director
of an option to purchase 10,000 shares upon such person's initial election as a
director, and (iii) an automatic annual grant to each non-employee director of
an option to purchase 5,000 shares at each annual meeting of stockholders
thereafter at which such director is re-elected or remains a director, unless
such annual meeting is held within three months of such person's initial
election as a director. All options will have an exercise price per share equal
to the fair market value of the Common Stock on the date of grant and are
immediately vested and expire on the earlier of ten years from the date of grant
or one year after termination of service as a director. The Director's Plan also
permits non-employee directors to elect to receive, in lieu of cash directors'
fees, shares or credits representing "deferred shares" at future settlement
dates, as selected by the director. The number of shares or deferred shares
received will equal the number of shares of Common Stock which, at the date the
fees would otherwise be payable, will have an aggregate fair market value equal
to the amount of such fees.
8. EMPLOYEE BENEFIT PLANS
PROFIT-SHARING PLANS
Jeffreys has a profit-sharing plan that was adopted on July 29, 1988, and
amended June 1, 1995, to include Section 401(k) options. Contributions to the
plan are determined by the board of directors on an annual basis. All funds
contributed under this plan are subject to a vesting schedule of 20 percent
after two
F-22
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
years of service, then 20 percent each additional year until 100 percent at six
years. No contributions were made to this plan in the periods reported.
Employees of Wayne participate in a 401(k) profit sharing plan covering
substantially all full-time employees. Participants are vested at a varied rate
commencing after three years of service and are fully vested after seven years
of service. The deferral portion of the plan allows employees to elect to
contribute a portion of their pay into the plan. Wayne matches a portion of the
amount deferred by participating employees. Contributions for the profit sharing
portion of the plan are at the discretion of the Wayne Board of Directors. For
each of the years ended December 31, 1994, 1995 and 1996, Wayne contributed $150
to the profit sharing portion of the plan. Wayne contributed $66 and $98 to the
401(k) portion of the plan for the years ended December 31, 1995 and 1996,
respectively.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Under the provisions of an employee stock ownership plan ("ESOP") and its
related trust, Jeffreys made annual contributions to the plan which were
invested in stock of Jeffreys and other qualifying securities for the benefit of
Jeffreys' employees.
Under the provisions of the plan, employees had a put option which required
Jeffreys to purchase their shares at fair market value. Additionally, Jeffreys
had the right of first refusal for any shares sold by the employees. The plan
provided for Jeffreys' purchases of employee shares to be paid in cash and with
the issuance of a note payable. Effective September 26, 1997, the participation
was frozen. Concurrent with the merger, ESOP shares were exchanged for Metals
USA common stock and holders of such shares have the right to trade the stock,
beginning September 26, 1998.
LEVERAGED ESOP ARRANGEMENT
The following disclosure has been restated to reflect the equivalent shares
of Metals USA common stock that were issued in connection with the acquisition
of Jeffreys.
Jeffreys' ESOP purchased 735,384 shares of outstanding Jeffreys stock from
a majority stockholder for $5.31 per share. The ESOP borrowed the funds to
purchase such stock and Jeffreys guaranteed the repayment of this loan. Jeffreys
will repay this loan, plus interest, through deductible contributions to the
plan. As Jeffreys makes contributions to the plan, which reduces the principal
on the note, the plan will release the corresponding shares related to the
reduction in the note principal. At the point when these shares are no longer
specifically secured by the note payable, they will be allocated to the
individual participants of the plan and considered earned by those employees at
that time. Jeffreys accounts for its ESOP in accordance with Statement of
Position 93-6 ("SOP 93-6"). Accordingly, the debt of the ESOP is recorded as
debt and the shares pledged as collateral are reported as unearned compensation.
As shares are released from collateral, Jeffreys reports compensation expense
equal to the current estimated market price of the shares. ESOP share
compensation expense was $650, $531 and $632 for the years ended December 31,
1994, 1995 and 1996, respectively.
Since the obligation is secured by the shares purchased and the note is
guaranteed by Jeffreys, all amounts relating to this transaction are considered
unearned compensation of the employees until such time the note is deemed paid
and the corresponding shares are released to the individual participants of the
plan. The balance of $2,437 and $1,794 in unearned compensation at December 31,
1995 and 1996, results from the leveraged ESOP stock purchase less the deemed
release of shares at cost.
F-23
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The ESOP shares were as follows:
TOTAL SHARES TOTAL
SHARES DEEMED UNRELEASED
YEAR ENDED ALLOCATED RELEASED SHARES
- ---------------------------------------- --------- -------- ----------
December 31, 1995....................... 201,201 75,114 459,030
December 31, 1996....................... 276,354 84,669 374,361
In accordance with SOP 93-6, additional paid-in capital is adjusted
whenever the market value of the shares released is more or less than the cost
of the shares released. The addition to paid-in capital attributable to this
difference in market value and cost was $108 and $176 for the years ended
December 31, 1995 and 1996, respectively.
NONQUALIFIED DEFERRED COMPENSATION PLANS
Jeffreys has a deferred compensation plan, which is considered an unfunded,
nonqualified retirement plan, to provide supplemental retirement benefits to key
employees who are precluded from participating in the ESOP due to the leveraged
arrangement. The selective key employees will receive an annual contribution
under this plan equal to 10 percent of their compensation. All contributions are
deemed to have been used to purchase employee stock as of the most recent stock
valuation. Each year, gains or losses are recognized as the stock value
fluctuates.
Jeffreys will pay all amounts directly to the employees participating in
this plan, or their beneficiaries, in accordance with the payout provision of
the plan. These benefits will be paid directly from the general assets of
Jeffreys in either cash or Jeffreys stock. Concurrent with the merger, these
benefits were settled with the issuance of Metals USA common stock.
In March 1996, Wayne entered into a non-qualified retirement plan with one
of its employees. The agreement provides for monthly payments of $3 plus payment
of continuing medical insurance and other fringe benefits after early or normal
retirement. Payments continue for the life of the employee with a minimum
payment of 10 years. The liability has been recorded at the present value of
anticipated future payments with interest imputed at 7% per annum.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE AGREEMENTS
The Company is obligated under certain long-term noncancelable lease
agreements for office space, warehouse space and equipment as summarized below:
Year ending December 31 --
1997............................... $ 240
1998............................... 62
1999............................... 29
2000............................... 29
2001............................... 29
Thereafter......................... 21
------
$ 410
======
The Company paid approximately $446, $502 and $417 in rent expense during
the years ended December 31, 1994, 1995 and 1996, respectively, under operating
leases. Certain of these leases are with affiliated individuals and companies
(see Note 10).
F-24
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
CONTINGENCIES
Jeffreys has been named as one of three defendants in a lawsuit filed by
Allen Management Associates, Inc., and Esalen Holdings, Inc., who owned the
property leased by Jeffreys in Ft. Lauderdale, Florida. The plaintiffs are
seeking damages of approximately $535 for breach of maintenance obligations
under the sublease and damages for alleged environmental contamination of the
property. Subsequent to the initial suit filed, the other defendants have filed
cross-claims against Jeffreys. Jeffreys has filed a counterclaim and
cross-claims against the other defendants and has filed an answer and
affirmative defense concerning the suit. The Company has denied any liability
and intends to vigorously defend its position. In the opinion of the Company's
management, the final outcome of this matter should not materially affect the
Company's financial position and results of operations.
10. RELATED-PARTY TRANSACTIONS
In 1995, Jeffreys entered into a lease agreement for an aircraft from the
President of Jeffreys with payments of $13 per month which expired January 1997.
Concurrent with the merger with the Company, Jeffreys rents the aircraft based
on the number of flight hours. Aggregate lease payments for the year ended
December 31, 1998 are expected to be $256. The lease terminates on December 31,
1998.
Notes receivable include $210 and $141 due from a related party at December
31, 1995 and 1996, respectively.
11. SUBSEQUENT EVENTS (UNAUDITED)
On July 11, 1997 the Company completed its IPO, issuing to the public
5,900,000 shares of its common stock at a price of $10.00 per share, resulting
in net proceeds to the Company of $50,379 after deducting underwriting
commissions and discounts. On August 12, 1997, the Company sold 885,000 shares
of Common Stock pursuant to the over-allotment option granted to the
underwriters. The Company realized net proceeds from the sale of $8,231.
Metals USA acquired eight companies ("Founding Companies") effective with
the completion of its IPO on July 11, 1997. The companies acquired were the
Texas Aluminum/Cornerstone group of companies, Interstate Steel Supply Co.,
Queensboro Steel Corporation, Affiliated Metals Company, Uni-Steel Incorporated,
Southern Alloy of America, Inc., Williams Steel & Supply Co., Inc. and Steel
Service Systems, Inc. The aggregate consideration paid by Metals USA to acquire
the Founding Companies was approximately $27,826 in cash and 10,128,609 shares
of Common Stock, excluding assumed indebtedness of $92,600.
Metals USA has an unsecured $150,000 revolving credit facility which became
available upon the closing of the IPO. Metals USA entered into the Credit
Facility with the First National Bank of Chicago as agent, on July 15, 1997. The
Credit Facility matures on July 15, 2002, bears interest at the bank's prime
rate or LIBOR, at Metals USA's option, plus an applicable margin based on the
ratio of funded debt to cash flows (as defined). An annual commitment fee of up
to 1/4% is payable on any unused portion of the Credit Facility.
The Credit Facility will be used to fund acquisitions, capital expenditures
and working capital requirements. Under the terms of the Credit Facility, Metals
USA is required to comply with various affirmative and negative covenants
including: (i) the maintenance of certain financial ratios, (ii) restrictions on
additional indebtedness, (iii) restrictions on liens, guarantees and dividends,
(iv) obtaining the lenders' consent with respect to certain individual
acquisitions, and (v) maintain a specified level of consolidated tangible net
worth. Metals USA used a portion of the Credit Facility together with the net
proceeds from the IPO to retire substantially all of the indebtedness of the
Acquired Companies.
F-25
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
On February 11, 1998, the Company completed the sale of $200 million
aggregate principal amount of the Company's 8 5/8% Senior Subordinated Notes due
2008 (the "Notes"). The Notes mature on February 15, 2008 and bear interest at
the rate of 8 5/8% per annum. Interest on the Notes is payable semi-annually on
February 15 and August 15 of each year, commencing August 15, 1998. The Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after February 15, 2003, at the redemption prices set forth in the indenture
together with accrued and unpaid interest to the date of redemption.
Notwithstanding the foregoing, at any time on or prior to February 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
originally issued with the net proceeds of one or more offerings of the Common
Stock of the Company, at a redemption price equal to 108.625% of the principal
amount thereof, plus accrued and unpaid interest to the date of such redemption;
provided that at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after such redemption.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness of the Company,
including indebtedness under the Credit Facility (as amended and restated), and
ranks PARI PASSU or senior in right of payment to any future subordinated
indebtedness of the Company. The Notes are unconditionally guaranteed on a
senior subordinated unsecured basis by each of the Company's subsidiaries. The
Indenture permits the Company to incur additional indebtedness, including senior
indebtedness, subject to certain limitations. The Company has agreed, for the
benefit of all holders of the Notes, that it will file a registration statement
within 60 days after the issuance of the Notes relating to an exchange offer for
the Notes under the Securities Act of 1933, as amended.
Additionally, the Company completed an extension and modification of its
revolving credit facility on February 11, 1998. The credit facility provides for
up to $300,000 of borrowings, matures February 2003 and is secured by the pledge
of all of the capital stock of the Company's material subsidiaries. The Credit
Facility will be used to make acquisitions, make capital expenditures, refinance
the debt of acquired companies and for the Company's general working capital
requirements. The Company used approximately $179,300 of net proceeds it
received from the sale of the Notes ($194,500 before deducting anticipated
expenses of $800) to repay the outstanding borrowings under the Credit Facility.
At February 18, 1998, the entire amount of the Credit Facility was available to
the Company.
Subsequent to the IPO, Metals USA acquired eight additional companies,
including Harvey Titanium, Ltd., Jeffreys Steel Company, Inc., Meier Metal
Servicenters, Inc., Wayne Steel, Inc., Independent Metals Co., Inc., Royal
Aluminum, Inc., R.J. Fabricating, Inc., and the business of Federal Bronze
Products, Inc. On February 17, 1998, Metals USA entered into an agreement which,
upon completion of certain regulatory and shareholder approvals, would call for
the acquisition of Pacific Metal Company. The aggregate consideration paid and
to be paid by Metals USA for the Subsequent Acquisitions consists of
approximately $59,895 in cash and 11,445,308 shares of Common Stock, plus the
assumption of indebtedness of approximately $71,767. The consideration paid by
Metals USA for each of the Subsequent Acquisitions was determined by negotiation
between representatives of each Subsequent Acquisition and was based primarily
upon the pro forma adjusted net income of each Subsequent Acquisition.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Texas Aluminum Industries, Inc.:
We have audited the accompanying combined balance sheets of Texas Aluminum
Industries, Inc., and the affiliated Cornerstone Companies (collectively the
Companies), as of June 30, 1995 and December 31, 1996, and the related combined
statements of income, stockholders' equity and members' equity and cash flows
for the years ended June 30, 1994 and 1995, and December 31, 1996. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Texas
Aluminum Industries, Inc. and the affiliated Cornerstone Companies as of June
30, 1995 and December 31, 1996, and the results of their combined operations and
their combined cash flows for the years ended June 30, 1994 and 1995, and
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 18, 1997
F-27
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................ $ 359 $ 156 $ 1,493
Accounts and notes receivable,
net of allowance of
$519, $677 and $704........... 3,432 4,221 5,548
Accounts and notes receivable
from affiliates............... 993 81 111
Inventory....................... 8,193 10,878 11,475
Prepaid expenses................ 47 38 32
Deferred income taxes........... 591 754 477
-------- ------------- -----------
Total current assets....... 13,615 16,128 19,136
Property and equipment, net.......... 3,712 4,058 4,425
Notes receivable from affiliates..... -- 465 454
Other assets......................... 715 576 1,190
Goodwill............................. 690 822 1,609
-------- ------------- -----------
Total assets.......... $ 18,732 $22,049 $26,814
======== ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes
payable....................... $ 593 $ 683 $ 1,159
Current portion of notes payable
and capital lease obligations
to affiliates................. 54 77 22
Accounts payable................ 3,882 5,540 4,570
Income taxes payable............ 269 396 --
Accrued liabilities............. 1,416 1,158 1,256
-------- ------------- -----------
Total current
liabilities............. 6,214 7,854 7,007
Notes payable, less current
portion............................ 7,879 6,004 12,220
Notes payable and capital lease
obligations payable to affiliates,
less current portion............... 368 1,419 3,822
Deferred income taxes................ 249 163 222
Other long-term liabilities.......... 41 274 253
-------- ------------- -----------
Total liabilities..... 14,751 15,714 23,524
-------- ------------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock................. 379 369 369
Common stock.................... 1,517 1,501 1,506
Members' equity................. -- 1 1
Additional paid-in capital...... 198 188 188
Retained earnings............... 2,199 4,560 1,513
Less: treasury stock, at
cost.................... (312) (284) (287)
-------- ------------- -----------
Total stockholders'
equity.................. 3,981 6,335 3,290
-------- ------------- -----------
Total liabilities and
stockholders'
equity............. $ 18,732 $22,049 $26,814
======== ============= ===========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
F-28
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
-------------------- DECEMBER 31, --------------------
1994 1995 1996 1996 1997
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 26,105 $ 34,706 $ 40,651 $ 18,966 $ 23,776
Costs and expenses:
Cost of sales................... 17,991 23,893 27,146 12,766 15,577
Operating and delivery.......... 5,621 5,863 6,386 3,094 3,011
Selling, general and
administrative................ 1,654 2,810 3,539 2,032 3,961
Depreciation and amortization... 346 517 568 284 386
--------- --------- ------------ --------- ---------
Operating income..................... 493 1,623 3,012 790 841
Other (income) expense:
Interest expense................ 444 837 682 357 573
Other income.................... (169) (143) (8) (1) (96)
--------- --------- ------------ --------- ---------
Income before income taxes........... 218 929 2,338 434 364
Provision (benefit) for income
taxes.............................. 93 277 456 (3) 11
--------- --------- ------------ --------- ---------
Net income........................... $ 125 $ 652 $ 1,882 $ 437 $ 353
========= ========= ============ ========= =========
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
F-29
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY AND MEMBERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- CORNERSTONE MEMBERS' PREFERRED PAID-IN RETAINED TREASURY
CLASS A CLASS B COMMON EQUITY STOCK CAPITAL EARNINGS STOCK
-------- -------- ----------- -------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993............... $363 $1,239 $-- $-- $414 $254 $ 1,422 $(315)
Purchase of 6,757 shares of Class
B common stock at $16 per
share.......................... -- -- -- -- -- -- -- (108)
Purchase of 315 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (31)
Cancellation of treasury stock... -- (74) -- -- (21) (44) -- 139
Net income....................... -- -- -- -- -- -- 125 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, June 30, 1994............... 363 1,165 -- -- 393 210 1,547 (315)
Purchase of 2,142 shares of Class
B common stock at $16 per
share.......................... -- -- -- -- -- -- -- (34)
Purchase of 97 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (10)
Cancellation of treasury stock... -- (21) -- -- (14) (12) -- 47
Issuance of Cornerstone Metals
Corporation common stock....... -- -- 5 -- -- -- -- --
Issuance of Cornerstone Building
Products, Inc. common stock.... -- -- 5 -- -- -- -- --
Net income....................... -- -- -- -- -- -- 652 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, June 30, 1995............... 363 1,144 10 -- 379 198 2,199 (312)
Purchase of 249 shares of Class B
common stock at $16 per
share.......................... -- -- -- -- -- -- -- (4)
Purchase of 37 shares of
preferred stock at $100 per
share.......................... -- -- -- -- -- -- -- (4)
Issuance of Cornerstone Patio
Concepts L.L.C. members'
equity......................... -- -- -- 1 -- -- -- --
Cancellation of treasury stock... -- (16) -- -- (10) (10) -- 36
Adjustment to conform fiscal year
ends........................... -- -- -- -- -- -- 579 --
Distributions to stockholders.... -- -- -- -- -- -- (100) --
Net income....................... -- -- -- -- -- -- 1,882 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, December 31, 1996........... 363 1,128 10 1 369 188 4,560 (284)
Issuance of Cornerstone Aluminum
Company, Inc. common stock
(unaudited).................... -- -- 5 -- -- -- -- --
Purchase of 30 shares of
preferred stock at $100 per
share (unaudited).............. -- -- -- -- -- -- -- (3)
Distributions to stockholders
(unaudited).................... -- -- -- -- -- -- (3,400) --
Net income (unaudited)........... -- -- -- -- -- -- 353 --
-------- -------- ----------- -------- ---------- -------- --------- ---------
Balance, June 30, 1997 (unaudited)... $363 $1,128 $ 15 $ 1 $369 $188 $ 1,513 $(287)
======== ======== =========== ======== ========== ======== ========= =========
</TABLE>
TOTAL
---------
Balance, June 30, 1993............... $ 3,377
Purchase of 6,757 shares of Class
B common stock at $16 per
share.......................... (108)
Purchase of 315 shares of
preferred stock at $100 per
share.......................... (31)
Cancellation of treasury stock... --
Net income....................... 125
---------
Balance, June 30, 1994............... 3,363
Purchase of 2,142 shares of Class
B common stock at $16 per
share.......................... (34)
Purchase of 97 shares of
preferred stock at $100 per
share.......................... (10)
Cancellation of treasury stock... --
Issuance of Cornerstone Metals
Corporation common stock....... 5
Issuance of Cornerstone Building
Products, Inc. common stock.... 5
Net income....................... 652
---------
Balance, June 30, 1995............... 3,981
Purchase of 249 shares of Class B
common stock at $16 per
share.......................... (4)
Purchase of 37 shares of
preferred stock at $100 per
share.......................... (4)
Issuance of Cornerstone Patio
Concepts L.L.C. members'
equity......................... 1
Cancellation of treasury stock... --
Adjustment to conform fiscal year
ends........................... 579
Distributions to stockholders.... (100)
Net income....................... 1,882
---------
Balance, December 31, 1996........... 6,335
Issuance of Cornerstone Aluminum
Company, Inc. common stock
(unaudited).................... 5
Purchase of 30 shares of
preferred stock at $100 per
share (unaudited).............. (3)
Distributions to stockholders
(unaudited).................... (3,400)
Net income (unaudited)........... 353
---------
Balance, June 30, 1997 (unaudited)... $ 3,290
=========
The accompanying notes are an integral part of
these combined financial statements.
F-30
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31, JUNE 30,
-------------------- ------------ --------------------
1994 1995 1996 1996 1997
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 125 $ 652 $ 1,882 $ 437 $ 353
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Adjustment to conform fiscal year
ends........................... -- -- 579 -- --
Provision for bad debts.......... 456 501 718 174 206
Depreciation and amortization.... 346 517 763 284 386
(Gain) loss on sale of property
and equipment.................. (11) 11 (266) -- --
Deferred income taxes............ (95) (111) (249) (20) 336
Changes in operating assets and
liabilities, net of business
acquisitions --
Accounts and notes
receivable.................. (1,196) (100) (783) (1,182) (1,106)
Accounts and notes receivable
from affiliates............. 124 (654) (167) -- (19)
Inventory...................... (341) (1,166) (1,970) (15) 239
Other assets................... (17) (82) (29) (291) (27)
Accounts payable............... 39 393 1,476 1,166 (940)
Accounts payable to
affiliates.................. 11 161 -- -- --
Income taxes payable........... (18) 171 127 (157) (514)
Accrued liabilities............ 373 309 (269) 269 98
--------- --------- ------------ --------- ---------
Net cash provided by (used
in) operating activities.. (204) 602 1,812 665 (988)
--------- --------- ------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 104 71 611 330 --
Purchases of property.............. (438) (606) (739) (167) (270)
Collections on notes receivable.... 129 109 445 250 --
Purchase of businesses, net of
acquired cash.................... -- (2,500) (150) -- (1,300)
--------- --------- ------------ --------- ---------
Net cash provided by (used
in) investing activities.. (205) (2,926) 167 413 (1,570)
--------- --------- ------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable........ 2,566 2,518 -- -- --
Principal payments on notes payable
and capital leases............... (1,745) (322) (746) (110) (81)
Borrowings on revolving credit
facility......................... 5,498 1,403 3,692 2,605 9,861
Payments on revolving credit
facility......................... (6,005) (1,299) (5,160) (4,108) (4,850)
Payments made to former ESOP
members.......................... (92) (63) (89) (17) (90)
Borrowings on notes payable to
affiliates....................... -- 650 1,020 850 2,450
Principal payments on notes payable
to affiliates.................... -- (452) (800) -- --
Issuance of common stock and
members' equity.................. -- 10 1 -- 5
Distribution to stockholders....... -- -- (100) (100) (3,400)
--------- --------- ------------ --------- ---------
Net cash provided by (used
in) financing activities.. 222 2,445 (2,182) (880) 3,895
--------- --------- ------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... (187) 121 (203) 198 1,337
CASH, BEGINNING OF PERIOD............ 425 238 359 147 156
--------- --------- ------------ --------- ---------
CASH, END OF PERIOD.................. $ 238 $ 359 $ 156 $ 345 $ 1,493
========= ========= ============ ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest........................... $ 441 $ 526 $ 699 $ 157 $ 280
Income taxes....................... 207 217 584 82 33
Non-cash investing and financing
activities:
Purchase of assets through
assumption of debt............... $ -- $ 19 $ 820 $ 820 $ 1,700
Purchase of treasury stock through
assumption of debt............... 102 35 32 4 --
Sale of assets by issuing note
receivable....................... -- -- 330 -- --
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-31
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
Texas Aluminum Industries, Inc. ("Texas Aluminum"), a Texas corporation,
Cornerstone Metals Corporation ("CMC"), a Nevada Corporation, Cornerstone
Building Products, Inc. ("CBP"), a Nevada corporation, and Cornerstone Patio
Concepts, L.L.C. ("CPC"), a Nevada limited liability corporation. CMC, CBP and
CPC are collectively referred to herein as "Cornerstone". Texas Aluminum and
Cornerstone are under common control and ownership and are presented herein on a
combined basis. Texas Aluminum and Cornerstone are collectively referred to as
"Texas Aluminum/Cornerstone." Texas Aluminum/Cornerstone produces and
distributes aluminum and steel building products consisting of windows, doors,
insulated wall panels, canopies and awnings. These products are used by
commercial and residential contractors in the construction of sun rooms,
solariums, walkways, canopies and coverings, aluminum support structures, as
well as for facia coverings for retail buildings. Texas Aluminum/Cornerstone's
products are produced in five manufacturing plants. The products are marketed
and sold to contractors, architects and wholesale distributors through 36 sales
and distribution outlets across the United States, primarily concentrated in the
Sunbelt.
Texas Aluminum has historically reported on a June 30 fiscal year end,
whereas Cornerstone has historically reported on a December 31 year end. For
purposes of combined presentation, Texas Aluminum began reporting on a calendar
year end basis effective January 1, 1996. Cornerstone began operations on April
1, 1995 as further discussed below. Accordingly, the year ended June 30, 1994
includes the operations of Texas Aluminum, the year ended June 30, 1995 includes
the operations of Texas Aluminum for the twelve months ended June 30, 1995
combined with the operations of Cornerstone for the nine months ended December
31, 1995, and the year ended December 31, 1996 includes Texas Aluminum and
Cornerstone for the twelve months ended December 31, 1996. The net sales and net
income of Texas Aluminum for the period from July 1, 1995 through December 31,
1995 were $15,547 and $579, respectively. The net sales and net income of
Cornerstone for the period from July 1, 1995 through December 31, 1995 were
$3,671 and $165, respectively. The net income of Texas Aluminum for this
transition period is included in the accompanying statements of stockholders'
equity as an adjustment to retained earnings in order to conform the fiscal
years of these combined companies.
Intercompany transactions and ending balances among Texas Aluminum, CMC,
CBP and CPC have been eliminated except for certain transactions and balances
for the year ended June 30, 1995 which could not be eliminated due to the
combining of year ends (See Note 12).
Texas Aluminum/Cornerstone and its stockholders expect to enter into a
definitive merger agreement with Metals USA, Inc. ("Metals USA") pursuant to
which all of the Companies' outstanding shares of capital stock will be
exchanged for cash and shares of Metals USA common stock concurrently with the
consummation of the initial public offering (the "Offering") of Metals USA
common stock.
BUSINESS COMBINATIONS
CMC and CBP are both S Corporations, as defined by the Internal Revenue
Code, and were acquired April 1, 1995. Accordingly, the financial statements for
1995 include the nine-month period from the date of acquisition through December
31, 1995. CPC, a Limited Liability Corporation, was acquired in August, 1996.
The aggregate consideration paid for CMC and CBP was $2,500 in cash and $828 in
notes payable to the seller. The consideration paid for CPC was $150 in cash and
$415 in notes payable to the seller. The accompanying combined balance sheet as
of December 31, 1996, includes allocations of the respective purchase prices
which resulted in goodwill recognized of $887.
F-32
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The following summarizes the assets acquired and liabilities assumed.
JUNE 30, DECEMBER 31,
1995 1996
--------- -------------
Fair value of assets acquired, net of
cash acquired...................... $ 2,615 $ 607
Goodwill and other intangibles....... 713 174
Liabilities assumed.................. -- (216)
Notes issued to sellers.............. (828) (415)
--------- -------------
Cash paid, net of cash acquired...... $ 2,500 $ 150
========= =============
The results of operations for CPC are included in the combined income
statement from the date of acquisition.
The following presents the unaudited results of operations for Texas
Aluminum/Cornerstone for the years ended June 30, 1995 and December 31, 1996, as
if CPC had been acquired as of April 1, 1995, the effective date Cornerstone
began operations.
JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Unaudited pro forma sales............ $ 36,503 $ 42,041
Unaudited pro forma income before
income taxes....................... 734 1,957
In February 1997, the owners of Cornerstone, through a newly formed
corporation, Cornerstone Aluminum Company, Inc. ("CAC"), acquired the business
and assets of Amalgamated Building Components, Inc. CAC paid $1,300 in cash and
issued $1,700 in notes payable to the former owner. CAC is headquartered in
Tucson, Arizona with three additional locations in the western and southwestern
United States.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of Texas
Aluminum/Cornerstone at June 30, 1997, and the results of its operations and
cash flows for the six months ended June 30, 1996 and 1997. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the entire
year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method for Texas Aluminum and the
first-in, first-out ("FIFO") method for Cornerstone.
F-33
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based upon
the estimated useful lives of the various classes of assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents approximate their fair value. The
carrying amount of notes receivable approximates fair value at the applicable
balance sheet dates. The fair value of such notes receivable was based on
expected cash flows discounted using current rates at which similar loans would
be made to borrowers with similar credit ratings. The fair value of the notes
payable is estimated based on interest rates for the same or similar debt
offered to Texas Aluminum/Cornerstone having the same or similar remaining
maturities and collateral requirements. The carrying amounts of notes payable
approximate fair value at the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Texas Aluminum/Cornerstone
to concentrations of credit risk, consist principally of cash deposits and,
trade accounts and notes receivable. Texas Aluminum/Cornerstone places its cash
with several financial institutions limiting the amount of credit exposure to
any one financial institution. Concentrations of credit risk with respect to
trade accounts and notes receivable are within the home improvement and general
construction industry. Credit is extended once appropriate credit history and
references have been obtained. Adjustments to the allowance for doubtful
accounts are made periodically (as circumstances warrant) based upon the
expected collectibility of all such accounts. Texas Aluminum/Cornerstone
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.
INCOME TAXES
Texas Aluminum accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS
109"). Under SFAS 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. The principal items resulting
in the differences are different depreciation methods, use of the allowance
method for bad debts, and different inventory capitalization methods. Valuation
allowances are established when necessary to reduce deferred assets to the
amount to be realized. Income tax expense is the tax payable for the year and
the change during the year in deferred tax assets and liabilities.
Cornerstone, with the consent of its stockholders, elected to be taxed
under sections of the federal and state income tax laws which provide that, in
lieu of corporate income taxes, the stockholders separately account for
Cornerstone's items of income, deductions, losses and credits on their
individual income tax returns. The financial statements will not include a
provision for income taxes (credits) as long as the S Corporation election
remains in effect. As long as Cornerstone's S Corporation income tax election
remains in effect, Cornerstone may, from time to time, pay dividends to its
stockholders in amounts sufficient to enable the stockholders to pay the taxes
due on their share of Cornerstone's items of income, deductions, losses, and
credits which have been allocated to them for reporting on their individual
income tax returns.
F-34
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the consideration paid over the fair
market value of assets acquired and is being amortized on the straight-line
method over 40 years. Other intangibles include covenants not to compete,
trademarks, patents and consulting agreements, which are being amortized over
their respective lives ranging from 5-15 years. Accumulated amortization totaled
$23 and $65 as of June 30, 1995 and December 31, 1996, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS 121
requires that long-lived assets and certain intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Texas
Aluminum/Cornerstone adopted SFAS No. 121 on January 1, 1996. The impact of
adopting this standard did not have a material impact on the results of
operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED JUNE 30, DECEMBER 31,
USEFUL LIVES 1995 1996
-------------- -------- ------------
<S> <C> <C> <C>
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
======== ============
</TABLE>
F-35
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. SUMMARY OF LONG-TERM FINANCING ARRANGEMENTS
Notes payable to non-affiliates consist of the following:
JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ------------ -----------
(UNAUDITED)
Revolving credit facility with interest at prime plus .25% maturing on October
29, 1998, secured by inventory, trade accounts and notes receivable, and
equipment and personally guaranteed by
stockholders....................... $ 3,128 $ 2,753 $ 5,800
Revolving credit facility with
interest at prime plus .5%, maturing on May 15, 1998, secured by inventory,
trade accounts and notes receivable and equipment, and personally guaranteed
by stockholders.................... 1,405 311 1,550
Revolving credit facility with
interest at prime plus .25% maturing in May, 1998, secured by inventory, trade
accounts and notes receivable and equipment and personally guaranteed by
stockholders....................... -- -- 950
Term loan payable to a bank in
quarterly installments of $63 plus monthly payments of interest at 7.86%, due
October 29, 1998, secured by inventory, trade accounts and notes receivable,
and equipment and personally guaranteed
by stockholders.................... 2,175 1,800 1,675
Term loan payable to a bank in
monthly installments of $17 plus monthly payments of interest at prime plus
.5%, due June 30, 2000, secured by inventory, trade accounts and notes
receivable and equipment, and personally
guaranteed by stockholders......... 900 700 600
Notes payable to individuals in
annual installments of $240 plus accrued interest, beginning February 10, 1997
and maturing on February 10, 2002, secured by
certain property................... -- -- 1,734
Note payable to individuals in
monthly installments of $13 including interest, maturing on July 1, 1998, at
which time the note can be extended 20 months at
prime plus 2%...................... 795 701 651
Note payable to individual in annual
installments of $100 plus accrued
interest at 8%, beginning August 5,
1997 and maturing on August 5,
2000, unsecured.................... -- 314 314
Note payable to individuals in annual
installments of $25 including
interest, beginning August 5, 1997
and maturing on August 5, 2000,
unsecured.......................... -- 100 100
Other long-term debt................. 69 8 5
-------- ------------ -----------
8,472 6,687 13,379
Less: current portion................ (593) (683) (1,159)
-------- ------------ -----------
$ 7,879 $ 6,004 $12,220
======== ============ ===========
The maximum credit available under the Texas Aluminum revolving credit
facility was increased from $4,000 to $7,000 in February 1997 and the due dates
of the revolver and the term loan were extended to October 29, 1998. The maximum
credit available under the Cornerstone revolving credit facility was increased
from $2,000 to $3,000 in February 1997 and the due dates of the revolver and the
term loan were
F-36
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
extended to May 15, 1998 and June 30, 2000, respectively. The terms of the loan
agreements, which provide the revolvers and the term loans to Texas
Aluminum/Cornerstone, include certain restrictive covenants of which Texas
Aluminum/Cornerstone was in compliance as of December 31, 1996. The prime rate
of interest at June 30, 1995 and December 31, 1996 was 9% and 8.25%,
respectively.
Notes payable and capital lease obligations to affiliates consists of the
following:
JUNE 30, DECEMBER 31, JUNE 30,
1995 1996 1997
-------- ------------ -----------
(UNAUDITED)
Notes payable to former employee stock ownership plan and trust members payable
in annual installments including interest at 7% and 9%, through October 1999,
secured by treasury stock (See Note
7)................................. $ 172 $ 90 $--
Capital lease obligation to an
affiliated company with monthly
installments payable through
December 2011 (See Note 12)........ -- 806 794
Note payable to an affiliated company
in monthly installments of interest
only at 8%, maturing on July 31,
2000, unsecured.................... 100 -- --
Notes payable to stockholders,
accruing interest at prime, due at
various dates from October 1998
through February 2002, unsecured... 150 250 2,650
Note payable to an affiliated
corporation in monthly installments
of interest only at 8.5%, paid in
the first quarter 1997,
unsecured.......................... -- 350 400
-------- ------------ -----------
422 1,496 3,844
Less: current portion................ (54) (77) (22)
-------- ------------ -----------
$ 368 $ 1,419 $ 3,822
======== ============ ===========
Texas Aluminum/Cornerstone's long-term notes payable and capital lease
obligations are subject to mandatory redemption as follows:
<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-37
<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-38
<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-39
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Texas Aluminum and Cornerstone's capital structure consists of:
JUNE 30, DECEMBER 31,
1995 1996
-------- ------------
Texas Aluminum:
Preferred stock, cumulative and participating, authorized 100,000 shares,
$100 par value; 3,790 and 3,693 shares
issued and outstanding........ $ 379 $ 369
Common stock Class A voting,
authorized 5,000,000 shares,
no par value; 159,570 shares
issued and outstanding........ 363 363
Common stock Class B non-voting,
authorized 5,000,000 shares,
$10 par value; 114,441 and
112,827 shares issued and
outstanding................... 1,144 1,128
Treasury stock, 15,326 and
13,961 shares of Class B common
stock, respectively, and 667 and
608 shares of preferred stock shares,
respectively.................. (312) (284)
Cornerstone:
CMC common stock, authorized
1,000 shares, no par value;
1,000 shares issued and
outstanding................... 5 5
CBP common stock, authorized
1,000 shares, no par value;
1,000 shares issued and
outstanding................... 5 5
CPC members' equity............. -- 1
Treasury stock transactions are a result of employees exercising their put
options on shares awarded through the employee stock ownership plan. Texas
Aluminum cancels treasury stock and the corresponding Class B common stock or
preferred stock when the related note payable is fully paid (See Note 8).
8. EMPLOYEE BENEFIT PLANS
401(K) DEFERRED PROFIT SHARING PLAN AND TRUST
Texas Aluminum adopted a 401(k) salary deferral/savings plan effective July
1, 1989, for the benefit of all its employees. Employees electing to participate
in the plan may contribute up to 15% of annual compensation, limited to the
maximum amount that can be deducted for income tax purposes each year.
Texas Aluminum, at its discretion, has the option to match the employee's
contribution each plan year. Texas Aluminum elected to make contributions of
$24, $23 and $22 for the years ended June 30, 1994 and 1995 and December 31,
1996, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Texas Aluminum had an employee stock ownership plan and trust. Under the
provisions of this plan, Texas Aluminum made annual contributions to the plan
which were invested in stock and other qualifying securities of Texas Aluminum
for the benefit of Texas Aluminum's employees. Effective July 1, 1989, the ESOP
was frozen. As a result, all participants' accounts became fully vested on that
date.
Under the provisions of the plan, employees received a put option which
required Texas Aluminum to purchase their shares at fair market value.
Additionally, Texas Aluminum had the right of first refusal for any shares sold
by the employee. The plan provided for Texas Aluminum purchases of employee
shares to be paid in cash and with the issuance of a note payable.
In January 1997, Texas Aluminum terminated the plan and gave its employees
the option to receive a cash distribution, roll their account balances into an
IRA account, or have the account distributed in Texas Aluminum stock.
F-40
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Texas Aluminum's practice has generally been to purchase shares from
employees at $16 per share for the Class B non-voting common stock and $100 per
share for the cumulative, participating preferred stock. The distribution under
the termination is based on these prices. Management believes that these prices
approximate fair value and has obtained valuations from independent appraisers
to assist them in their determination. In March 1997, Gene C. Elkins, a
shareholder of Texas Aluminum, purchased the shares tendered by employees who
opted for a cash distribution. The remaining employees received shares of Texas
Aluminum stock. The put options were terminated upon the execution of these
transactions.
9. COMMITMENTS
OPERATING LEASE AGREEMENTS
Texas Aluminum/Cornerstone is obligated under certain long-term
non-cancelable lease agreements for office space, warehouse space and equipment
as summarized below:
YEAR ENDING
DECEMBER 31,
-------------
1997................................. $ 1,706
1998................................. 1,358
1999................................. 1,044
2000................................. 480
2001 and thereafter.................. 322
---------
$ 4,910
=========
Texas Aluminum/Cornerstone paid approximately $1,300, $1,700 and $1,700 in
rent expense during the years ended June 30, 1994 and 1995 and December 31,
1996, respectively, under operating leases. Certain of these leases are with
affiliated individuals and companies (see Note 12).
10. DIVESTITURE OF A RETAIL DIVISION
On June 30, 1993, Texas Aluminum divested its retail division under a
licensing agreement, whereby the Company transferred certain assets and existing
sales in exchange for $100 and the licensing agreement. The license grants the
licensee the right to sell certain proprietary products under the name of Air
Vent and/or Air Vent Awning Company. In accordance with the agreement, Texas
Aluminum is entitled to receive monthly license fees of $9 beginning on August
1, 1993, and continuing for a five-year period. These fees are included in other
income in the accompanying statements of income.
Under the terms of the agreement, the licensee has agreed to purchase the
merchandise used to market and install the products exclusively from Texas
Aluminum. During the term of the agreement, Texas Aluminum has agreed not to
compete with the licensee in the retail market in the state of Texas.
As part of the license agreement, Texas Aluminum granted an option for the
sale of the stock of Air Vent Awning Company for a purchase price of $100. This
option has a one year term and is extendable up to four successive one-year
terms. Consideration for these options is $5 per quarter which shall be applied
towards the purchase price.
11. LICENSING AGREEMENT
Texas Aluminum entered into a licensing agreement in July 1992, whereby it
is required to pay licensing fees to a third party on the sale of certain
products. Texas Aluminum has capitalized $94 in costs incurred in connection
with obtaining the licensing agreement which are being amortized over the life
of the agreement. The unamortized balance of capitalized licensing costs was $78
and $66 as of June 30, 1995 and December 31, 1996, respectively. Total licensing
fees paid for the years ended June 30, 1994 and 1995, and December 31, 1996 were
$36, $43 and $64, respectively.
F-41
<PAGE>
TEXAS ALUMINUM INDUSTRIES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
12. RELATED-PARTY TRANSACTIONS
Texas Aluminum/Cornerstone has various transactions with affiliated
individuals and companies as follows:
FACILITY AND EQUIPMENT LEASES
Texas Aluminum/Cornerstone leases certain facilities and equipment from
affiliated individuals and companies. Lease payments made to these affiliated
individuals and companies during the years ended June 30, 1994 and 1995 and
December 31, 1996 were $306, $541 and $697, respectively.
In June 1996, Texas Aluminum sold certain equipment with a net book value
of $143 to an affiliated company. This equipment is being leased to Cornerstone
for $48 per year through December 2011. Also in June 1996, Cornerstone sold
certain equipment with a net book value of $120 to the same affiliated company.
This equipment is being leased to Texas Aluminum for $48 per year through
December 2011. These leases are being accounted for as capital leases. In
November 1996, Texas Aluminum sold certain machinery and equipment to this
affiliated company resulting in a gain of $242. Texas Aluminum is leasing this
machinery from the affiliated company for $72 per year through December 2001.
The resulting gain has been deferred and will be recognized over the term of the
lease.
NOTES RECEIVABLE
Texas Aluminum/Cornerstone has unsecured notes receivable from an
affiliated corporation of $546 as of December 31, 1996, which is included in
accounts and notes receivable from affiliates. This note accrues interest at 8%
and is due June 1, 2001.
Texas Aluminum/Cornerstone believes the related party transactions are on
terms no more or less favorable than what could have been obtained from third
parties.
INTERCOMPANY ELIMINATIONS
The balance sheet as of June 30, 1995 and the statement of income for the
year ended June 30, 1995, include certain intercompany balances and transactions
between Texas Aluminum and Cornerstone which have not been eliminated due to the
conforming of year ends, as follows:
Affiliated receivables............... $ 993
Affiliated management fee expense.... $ 60
13. SUBSEQUENT EVENTS (UNAUDITED)
Certain transactions occurred subsequent to year end as follows:
i) On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Texas Aluminum/Cornerstone, through the
issuance of common stock and cash pursuant to a definitive merger agreement
dated May 1997.
ii) Prior to the merger, Cornerstone made cash distributions of
approximately $2,000 which represents Cornerstone's estimated S Corporation
accumulated adjustment account. Cornerstone funded this $2,000 distribution
through short-term borrowings.
iii) Texas Aluminum/Cornerstone made a cash distribution of $1,400 to
its stockholders to cover their tax liabilities due to Cornerstone's S
Corporation status.
iv) Discretionary bonuses totalling $1,600 were made to stockholders.
v) A stockholder and an affiliated entity purchased the shares of
Texas Aluminum's common and preferred stock which were tendered by the
Company's employees upon termination of the ESOP plan (See Note 8).
vi) Two stockholders made loans to the Company totalling $2,500 to
help fund potential future acquisitions.
F-42
<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-43
<PAGE>
QUEENSBORO STEEL CORPORATION
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash............................ $ 5 $ 5 $ 7
Accounts receivable:
Trade, less allowance of
$20, $20 and $20........ 10,249 8,390 8,533
Other...................... 108 173 81
Inventories..................... 6,217 8,574 9,504
Costs and estimated earnings in
excess of billings on
uncompleted contracts......... 406 971 1,310
Prepaid expenses and other
current assets................ 184 165 197
--------- --------- -----------
Total current assets....... 17,169 18,278 19,632
Property and equipment, net.......... 3,085 4,638 4,748
Other assets......................... 281 307 306
--------- --------- -----------
Total assets............... $ 20,535 $ 23,223 $24,686
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 2,857 $ 3,007 $ 2,383
Accrued liabilities............. 517 625 1,661
Billings in excess of costs and
estimated earnings on
uncompleted contracts......... 228 842 522
Current portion of long-term
debt.......................... 10 -- --
--------- --------- -----------
Total current
liabilities............. 3,612 4,474 4,566
Long-term debt....................... 8,884 8,551 15,170
Deferred compensation................ 359 410 438
--------- --------- -----------
Total liabilities.......... 12,855 13,435 20,174
--------- --------- -----------
Stockholders' equity:
Capital stock, 200,000 shares
authorized:
Class A voting, $10 par value,
18,666 shares issued and
outstanding................ 187 187 187
Class B non-voting, $10 par
value, 78,666 shares issued
and outstanding............ 787 787 787
Additional paid-in capital...... 870 870 870
Retained earnings............... 5,758 7,944 2,668
Unrealized gain on securities... 78 -- --
--------- --------- -----------
Total stockholders'
equity.................. 7,680 9,788 4,512
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 20,535 $ 23,223 $24,686
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 50,795 $ 60,322 $ 54,996 $ 29,135 $ 31,222
Costs and expenses:
Cost of sales................... 37,996 45,945 38,912 21,196 22,810
Operating and delivery.......... 7,408 8,080 8,355 4,110 4,623
Selling, general and
administrative expenses....... 3,656 3,839 3,870 1,954 2,163
Depreciation and amortization... 369 362 405 186 236
--------- --------- --------- --------- ---------
Operating income................ 1,366 2,096 3,454 1,689 1,390
Other (income) expense:
Interest expense................ 465 612 587 294 366
Other income.................... (63) (67) (77) 18 --
--------- --------- --------- --------- ---------
Net income........................... $ 964 $ 1,551 $ 2,944 $ 1,377 $ 1,024
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL GAIN ON TOTAL
-------------------- PAID-IN RETAINED INVESTMENT STOCKHOLDERS'
CLASS A CLASS B CAPITAL EARNINGS SECURITIES EQUITY
-------- -------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993........... $ 187 $ 787 $ 870 $ 4,290 $-- $ 6,134
Net income...................... -- -- -- 964 -- 964
Dividends....................... -- -- -- (138) -- (138)
-------- -------- ----------- --------- ----------- -------------
Balance, December 31, 1994........... 187 787 870 5,116 -- 6,960
Net income...................... -- -- -- 1,551 -- 1,551
Dividends....................... -- -- -- (909) -- (909)
Investment securities received
from insurance cooperative.... -- -- -- -- 78 78
-------- -------- ----------- --------- ----------- -------------
Balance, December 31, 1995........... 187 787 870 5,758 78 7,680
Net income...................... -- -- -- 2,944 -- 2,944
Dividends....................... -- -- -- (758) -- (758)
Donation of investment
securities received from
insurance cooperative......... -- -- -- -- (78) (78)
-------- -------- ----------- --------- ----------- -------------
Balance, December 31, 1996........... 187 787 870 7,944 -- 9,788
Net income (unaudited).......... -- -- -- 1,024 -- 1,024
Dividends (unaudited)........... -- -- -- (6,300) -- (6,300)
-------- -------- ----------- --------- ----------- -------------
Balance, June 30, 1997 (unaudited)... $ 187 $ 787 $ 870 $ 2,668 $-- $ 4,512
======== ======== =========== ========= =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
QUEENSBORO STEEL CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 964 $ 1,551 $ 2,944 $ 1,377 $ 1,024
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization.... 369 362 405 186 236
Loss (gain) on sale of assets.... (1) 2 4 -- --
Increase in deferred
compensation................... 54 40 51 25 28
Changes in operating assets and
liabilities:
Accounts receivable, net....... (1,225) (2,930) 1,702 1,325 (51)
Inventories.................... (2,241) 1,552 (2,358) (1,615) (930)
Prepaid expenses and other
assets...................... (69) (63) 99 (75) (31)
Accounts payable and accrued
liabilities................. 925 (173) 258 (881) 412
Billings related to cost and
estimated earnings on
uncompleted contracts....... 721 212 49 534 (659)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating activities.. (503) 553 3,154 876 29
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (896) (1,519) (1,962) (1,215) (346)
Proceeds from sales of property
and equipment.................. 2 16 7 -- --
Other, net....................... (7) (1) 2 -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities................ (901) (1,504) (1,953) (1,215) (346)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving
line-of-credit................. (61,087) (40,844) (43,543) (30,648) (29,346)
Borrowings on revolving
line-of-credit................. 62,755 42,829 40,210 32,609 35,965
Borrowings on long-term debt..... -- -- 3,000 -- --
Financing costs.................. -- -- (100) -- --
Principal payments on long-term
debt........................... (125) (125) (10) -- --
Dividends paid................... (138) (909) (758) (570) (6,300)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing activities.. 1,405 951 (1,201) 1,391 319
--------- --------- --------- --------- ---------
NET INCREASE IN CASH................. 1 -- -- 1,052 2
CASH BEGINNING OF PERIOD............. 4 5 5 5 5
--------- --------- --------- --------- ---------
CASH END OF PERIOD................... $ 5 $ 5 $ 5 $ 1,057 $ 7
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest........... $ 466 $ 601 $ 559 $ 300 $ 364
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Investment securities received
(donated)...................... $ -- $ (78) $ 78 $ -- $ --
Note received in settlement of an
account receivable............. -- -- 156 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Queensboro Steel Corporation ("Queensboro") is a heavy carbon steel service
center and structural fabricator with operations in Wilmington and Greensboro,
North Carolina and Norfolk, Virginia. Queensboro markets its products primarily
in the Southeast region of the United States. Sales consist principally of
beams, angles, channels, sheet, plate, bar, tubing and fabricated steel for
buildings. Value-added processing includes shearing, bending, drilling,
tee-splitting, rolling, cambering, burning and coil processing. Queensboro's
diversified customer base includes shipbuilding, transportation, building
construction, pulp and paper mills, chemical, public utility, farm equipment,
crane manufacturing, plant maintenance and other industries.
Queensboro and its shareholders expect to enter into a definitive merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Queensboro's outstanding shares of capital stock will be exchanged for cash and
shares of Metals USA common stock concurrently with the consummation of the
initial public offering (the "Offering") of Metals USA common stock.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation. These reclassifications have
no effect on previously reported net income or stockholders' equity.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of managment, are necessary to present fairly the financial position of
Queensboro at June 30, 1997, and the results of its operations and cash flows
for the six months ended June 30, 1996 and 1997. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based upon
the estimated useful lives of the various classes of assets.
F-48
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
LONG-TERM CONTRACTS
Sales are recorded at the time products and materials are shipped or as
services are provided. Income from fabrication contracts are recognized by
applying estimated percentages-of-completion to the total estimated profit for
the respective contracts, commencing at the time the contracts are at least
one-tenth complete. The percentage-of-completion is determined by relating the
actual cost of work performed through year end to the total estimated cost of
the respective contracts. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability, including those
arising from contract penalty provisions, and final contract settlements may
result in revisions to costs and income, and are recognized in the period in
which the revisions are determined. Contract costs include direct materials,
direct labor and related overhead.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt is estimated based on interest rates
for the same or similar debt offered to Queensboro having the same or similar
remaining maturities and collateral requirements. The carrying amounts of
long-term debt approximates fair value at the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Queensboro to
concentrations of credit risk, consist principally of trade account receivables.
Concentrations of credit risk with respect to trade accounts receivable are
within the Southeast region of the United States. Credit is extended once
appropriate credit history and references have been obtained. Adjustments to the
allowance for doubtful accounts are made periodically (as circumstances warrant)
based upon the expected collectibility of all such accounts. Queensboro
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.
INCOME TAXES
Queensboro, with the consent of its stockholders, elected to be taxed under
sections of the federal and state income tax laws which provide that, in lieu of
corporation income taxes, the stockholders separately account for Queensboro's
items of income, deductions, losses and credits on their individual income tax
returns. The financial statements will not include a provision for income taxes
(credits) as long as the S Corporation election remains in effect. As long as
Queensboro's S Corporation income tax election remains in effect, Queensboro
may, from time-to-time, pay dividends to its stockholders in amounts sufficient
to enable the stockholders to pay the taxes due on their share of Queensboro's
items of income, deductions, losses, and credits which has been allocated to
them for reporting on their individual income tax returns.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS 121
requires that long-lived assets and certain intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Queensboro
adopted SFAS No. 121 on January 1, 1996. The impact of adopting this standard
did not have a material impact on the results of operations.
F-49
<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-50
<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 inmonthly 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-51
<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-52
<PAGE>
QUEENSBORO STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The employment agreements with the employees mentioned in the preceding
paragraphs also provide that death benefits totaling $335 at December 31, 1996,
will be paid to their beneficiaries in the event these employees should die
while they are employees of Queensboro. Queensboro is the owner and beneficiary
of life insurance policies with a total face value of $853 on these employees.
In the event that a death benefit related to the employees mentioned above
should become payable, such benefit shall be in lieu of all deferred
compensation.
Queensboro also entered into a salary continuation agreement during 1992
which provides 50% salary continuation payments for up to ten years to the wife
of an officer upon death of that officer. The liability accrued for these
payments is $117 and $171 at December 31, 1995 and 1996, respectively.
9. LEASE COMMITMENTS
Queensboro has leased facilities and equipment under non-cancelable
long-term agreements, which have initial or remaining non-cancelable terms in
excess of one year as of December 31, 1996. Total rent expense related to such
leases aggregated $499, $417, and $417 for the years ended December 31, 1994,
1995 and 1996, respectively.
The future minimum rental commitments at December 31, 1996, under the
leases described above are due in future years as follows: 1997--$280;
1998--$93.
10. RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1996, Queensboro had a receivable from a
corporation related through common ownership of $32 and $34, respectively.
Queensboro provides certain administrative services to the affiliated
corporation, for which it billed $274 in 1994, $370 in 1995 and $344 in 1996.
Queensboro leases fabrication shop facilities from an affiliated
partnership under operating lease terms (see Note 9). Lease expense was $137 in
1994, 1995 and 1996.
11. SUBSEQUENT EVENT
On April 4, 1997, Queensboro further amended its bank line-of-credit
agreement (see Note 6) to extend the termination date to June 30, 1998. The debt
is classified as noncurrent as a result of this extension.
Queensboro made a cash distribution on April 11, 1997, of approximately
$5,040 which represents Queensboro's estimated S corporation accumulated
adjustment account. To affect this transaction, Queensboro also entered into a
ninety-day, $3,000 bank loan collateralized by the accounts receivable and
inventory and personal guarantees of certain shareholders. Had these
transactions been made at December 31, 1996, the effect on Queensboro's balance
sheet would have been to increase liabilities by $5,040 and decrease
stockholders' equity by $5,040. These transactions caused covenant violations
with respect to the debt disclosed in Note 6. On April 18, 1997, the bank waived
these covenants through July 11, 1997. Queensboro expects, on or before July 11,
1997, the above mentioned merger will have been consummated or the guarantors
will satisfy the $3,000 debt.
12. SUBSEQUENT EVENTS (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Queensboro, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.
Queensboro dividended its Wilmington facility to its stockholders
concurrently with the Merger. An affiliate of Queensboro entered into a
long-term lease for the facility which calls for annual lease payments of $40.
At December 31, 1996 the carrying value of the facility was approximately $601.
Additionally, immediately prior to the Merger, Queensboro transferred the salary
continuation agreement described in the last paragraph of Note 8 to an entity
that is not a party to the Merger.
F-53
<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-54
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Affiliated Metals Company
Granite City, Illinois
We have audited the accompanying balance sheet of Affiliated Metals Company
as of September 2, 1995 and the related statements of operations, stockholder's
equity and cash flows for the fifty-two weeks ended September 3, 1994 and
September 2, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Affiliated Metals Company as
of September 2, 1995 and the results of its operations and its cash flows for
the fifty-two weeks ended September 3, 1994 and September 2, 1995 in conformity
with generally accepted accounting principles.
RUBIN, BROWN, GORNSTEIN & CO. L.L.P.
St. Louis, Missouri
October 19, 1995
F-55
<PAGE>
AFFILIATED METALS COMPANY
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 2, AUGUST 31, MAY 31,
1995 1996 1997
------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................ $ 2 $ 10 $ --
Accounts receivable, less
allowances for doubtful
accounts
of $30 at September 2, 1995,
August 31, 1996 and
May 31, 1997.................. 7,013 7,074 11,955
Inventories..................... 6,810 10,658 14,582
Prepaid expenses and other
current assets................ 125 130 257
------------ ---------- ------------
Total current assets....... 13,950 17,872 26,794
Property and equipment, net.......... 2,699 7,940 8,195
Other assets......................... 705 649 686
------------ ---------- ------------
Total assets............... $ 17,354 $ 26,461 $ 35,675
============ ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................. $ 23 $ 143 $ 1,386
Accounts payable................ 5,860 7,154 9,248
Accrued liabilities............. 494 529 467
Current portion of long-term
debt.......................... 407 10,358 771
------------ ---------- ------------
Total current
liabilities............. 6,784 18,184 11,872
Long-term debt....................... 8,018 4,337 19,949
Deferred income taxes................ 622 599 582
Redeemable preferred stock, $119.048 par
value; 1,680 shares authorized; 840,
600 and 0 shares issued and outstanding
at September 2, 1995, August 31,
1996 and May 31, 1997,
respectively........................ 100 71 --
Common stock purchase warrant........ -- -- --
Stockholders' equity:
Common stock, $0.01 par value;
100,000 authorized;
6,000 shares issued and
outstanding................... -- -- --
Additional paid-in capital...... 50 50 50
Retained earnings............... 1,780 3,220 3,222
------------ ---------- ------------
Total stockholders'
equity.................. 1,830 3,270 3,272
------------ ---------- ------------
Total liabilities and
stockholders'
equity............. $ 17,354 $ 26,461 $ 35,675
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FIFTY-TWO WEEKS ENDED ENDED
------------------------------------------ --------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, JUNE 1, MAY 31,
1994 1995 1996 1996 1997
------------ ------------ ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 63,046 $ 78,976 $ 81,002 $ 60,830 $ 75,369
Costs and expenses:
Cost of sales................... 54,600 68,481 67,924 49,882 64,371
Operating and delivery
expenses...................... 4,316 5,060 5,871 5,243 7,011
Selling, general and
administrative expenses....... 2,352 2,803 3,431 2,236 2,163
Depreciation and amortization... 304 313 300 264 516
------------ ------------ ---------- -------- --------
Operating income..................... 1,474 2,319 3,476 3,205 1,308
Other expense:
Interest expense................ 735 1,058 1,011 815 1,220
Other, net...................... 37 22 38 45 96
------------ ------------ ---------- -------- --------
Income (loss) before income taxes.... 702 1,239 2,427 2,345 (8)
Credit (provision) for income
taxes.............................. (297) (497) (979) (927) 13
------------ ------------ ---------- -------- --------
Net income........................... $ 405 $ 742 $ 1,448 $ 1,418 $ 5
============ ============ ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, August 31, 1993............. 6,000 $ -- $ 50 $ 665 $ 715
Dividends paid, redeemable
preferred..................... -- -- -- (21) (21)
Net income...................... -- -- -- 405 405
------ ------ --- --------- -------------
Balance, September 3, 1994........... 6,000 -- 50 1,049 1,099
Dividends paid, redeemable
preferred..................... -- -- -- (11) (11)
Net income...................... -- -- -- 742 742
------ ------ --- --------- -------------
Balance, September 2, 1995........... 6,000 -- 50 1,780 1,830
Dividends paid, redeemable
preferred..................... -- -- -- (8) (8)
Net income...................... -- -- -- 1,448 1,448
------ ------ --- --------- -------------
Balance, August 31, 1996............. 6,000 -- 50 3,220 3,270
Dividends paid, redeemable
preferred (unaudited)......... -- -- -- (3) (3)
Net income (unaudited).......... -- -- -- 5 5
------ ------ --- --------- -------------
Balance, May 31, 1997 (unaudited).... 6,000 $ -- $ 50 $ 3,222 $ 3,272
====== ====== === ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
AFFILIATED METALS COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
FIFTY-TWO WEEKS ENDED ENDED
-------------------------------------------- --------------------
SEPTEMBER 3, SEPTEMBER 2, AUGUST 31, JUNE 1, MAY 31,
1994 1995 1996 1996 1997
------------- ------------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 405 $ 742 $ 1,448 $ 1,418 $ 5
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................ 304 313 300 264 516
Loss on sale of assets......... 3 -- 10 -- 87
Deferred tax provision
(benefit)................... (20) (45) (1) (17) (17)
Changes in operating assets and
liabilities:
Accounts receivable,
net..................... (890) (2,020) (61) 127 (4,881)
Inventories............... (190) 61 (3,848) (2,712) (3,924)
Prepaid expenses and other
assets.................. (116) 54 (27) (61) (164)
Accounts payable.......... (525) 2,786 1,293 (1,597) 2,094
Accrued liabilities....... (70) 245 35 237 (62)
Other..................... (7) (22) -- -- --
------------- ------------- ---------- --------- ---------
Net cash provided by
(used in) operating
activities............ (1,106) 2,114 (851) (2,341) (6,346)
------------- ------------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment........................ (310) (615) (5,553) (4,311) (1,148)
Proceeds from sales of property and
equipment........................ 5 -- 58 -- 290
Other, net......................... (36) -- -- -- --
------------- ------------- ---------- --------- ---------
Net cash used in
investing
activities............ (341) (615) (5,495) (4,311) (858)
------------- ------------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on bank
overdraft........................ 783 (1,259) 120 300 1,243
Principal payments on long-term
debt............................. (198) (523) (668) (456) (515)
Proceeds from issuance of long-term
debt............................. 1,412 325 6,939 6,834 6,540
Purchase of redeemable preferred
stock............................ (529) (29) (29) (21) (71)
Dividends paid on redeemable
preferred
stock............................ (21) (11) (8) (7) (3)
------------- ------------- ---------- --------- ---------
Net cash provided by
(used in) financing
activities............ 1,447 (1,497) 6,354 6,650 7,194
------------- ------------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... -- 2 8 (2) (10)
CASH BEGINNING OF PERIOD............. -- -- 2 2 10
------------- ------------- ---------- --------- ---------
CASH END OF PERIOD................... $-- $ 2 $ 10 $ -- $ --
============= ============= ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest (net of
amount capitalized of $153 in
1996)............................ $ 784 $ 1,054 $ 991 $ 800 $ 1,163
Cash paid for income taxes......... 389 370 1,083 802 --
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-59
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Affiliated Metals Company ("Affiliated") is a high-volume flat rolled steel
processor, with operations in Granite City, Illinois and a newly constructed
facility in Butler, Indiana. The operating plants are strategically located near
primary steel producers. Affiliated purchases wide, coiled hot rolled, cold
rolled and galvanized flat rolled steel from primary producers and pickles (hot
rolled) and slits coils to narrower widths. Principal customers include;
consumer durable goods manufacturers, commercial transportation, appliance,
furniture, pallet rack, and automotive industries as well as independent
stamping operations. Service areas include Missouri, Kansas, Texas, Oklahoma,
Tennessee, Kentucky, Indiana, Mississippi, Alabama, Georgia, Iowa, Illinois and
Nebraska.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING PERIOD
Affiliated's fiscal year is the fifty-two or fifty-three week period ending
the Saturday nearest to August 31. The results of operations and cash flows
include fifty-two weeks of activity for the periods ended August 31, 1996,
September 2, 1995, and September 3, 1994.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Affiliated at May 31, 1997, the results of its operations and cash flows for the
thirty-nine weeks ended June 1, 1996 and May 31, 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the specific identification method. Raw materials generally
represent 80% to 90% of Affiliated's inventories.
PROPERTY AND EQUIPMENT
Property and equipment, including capitalized interest, is stated at cost,
net of accumulated depreciation. Depreciation is computed utilizing the
straight-line and accelerated methods at rates based upon the estimated useful
lives of the various classes of assets.
OTHER ASSETS
Other assets consists primarily of goodwill, net of accumulated
amortization. Goodwill is being amortized over a thirty year period using the
straight line method. Affiliated periodically evaluates the propriety of the
carrying amount of goodwill using expected undiscounted cash flows. At September
2, 1995 and August 31, 1996 goodwill, net of accumulated amortization was $622
and $599, respectively.
F-60
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the long-term debt is estimated based on interest rates
for the same or similar debt offered to Affiliated having the same or similar
remaining maturities and collateral requirements. The carrying amounts of
long-term debt approximate fair value at the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Affiliated to
concentrations of credit risk, consist principally of cash deposits and, trade
account receivables. Affiliated places its cash with several financial
institutions limiting the amount of credit exposure to any one financial
institution. Concentrations of credit risk with respect to trade accounts
receivable are within the midwest and Great Lakes regions of the United States.
Affiliated had a credit risk concentration since two customers accounted for
approximately 27% of accounts receivable at August 31, 1996. For the fifty-two
weeks ended September 3, 1994, three customers accounted for 16.3%, 17.2%, and
11.1% of sales, respectively. For the fifty-two weeks ended September 2, 1995
and August 31, 1996 two of the same three customers accounted for 16.9% and
20.2%, and 14.5% and 14.0% of sales, respectively. Management performs ongoing
credit evaluations of its customers and provides allowances as deemed necessary.
Credit is extended once appropriate credit history and references have been
obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Affiliated periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS 121
requires that long-lived assets and certain intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Affiliated
adopted SFAS No. 121 on September 1, 1997. The impact of adopting this standard
did not have a material impact on the results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 2, AUGUST 31,
USEFUL LIVES 1995 1996
------------- ------------ ----------
<S> <C> <C> <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-61
<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-62
<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-63
<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%
============ ============ ==========
F-64
<PAGE>
AFFILIATED METALS COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
7. EMPLOYEE BENEFIT PLANS
Affiliated sponsors a qualified contributory profit sharing plan and 401(k)
plan. The plan covers substantially all full-time employees who have met certain
eligibility requirements. The plan may be amended or terminated at any time by
the Board of Directors. Affiliated, although not required to, has provided
contributions to the plan during each of the fifty-two weeks ended September 3,
1994, September 2, 1995 and August 31, 1996, of $89, $100 and $141,
respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Affiliated leases its corporate office and one of its production
facilities. The lease expires on May 31, 1998 and calls for a monthly rental
payment of $9. The lease also provides for an additional five-year renewal
option.
Rent expense for all operating leases for the fifty-two weeks ended
September 3, 1994, September 2, 1995 and August 31, 1996 was $126, $125 and
$128, respectively.
9. SUBSEQUENT EVENT (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Affiliated, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.
In February 1997, Affiliated amended its revolving credit facility, which
reduced the interest to prime, increased the available borrowing up to $16,000
and extended the maturity to August 31, 1998. Additionally, Affiliated also
entered into an agreement to extend until September 1997 the financing
agreements discussed in Note 3 related to the construction loan payable.
F-65
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern Alloy of America, Inc.
We have audited the accompanying balance sheets of Southern Alloy of
America, Inc. as of December 31, 1996 and 1995, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Alloy of America,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
April 30, 1997.
F-66
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 57 $ -- $--
Accounts receivable:
Trade, less allowances of
$18, $13 and $11........ 1,483 1,262 1,405
Affiliates................. 1,020 945 --
Inventories..................... 1,050 1,063 1,440
Prepaid expenses and other
current assets.................. 22 63 136
--------- --------- -----------
Total current assets....... 3,632 3,333 2,981
Property and equipment, net.......... 456 353 303
Other assets......................... 84 68 21
--------- --------- -----------
Total assets............... $ 4,172 $ 3,754 $ 3,305
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................ $ 1,602 $ 1,450 $ 1,790
Accrued liabilities............. 97 68 118
Revolving line-of-credit........ 1,424 1,424 1,604
Notes payable................... -- -- --
Current portion of obligations
under capital lease............. 68 25 26
Current portion of long-term
debt............................ 38 24 9
--------- --------- -----------
Total current
liabilities................ 3,229 2,991 3,547
Obligations under capital lease, less
current portion.................... 69 44 30
Long-term debt, less current
portion.............................. 24 -- --
--------- --------- -----------
Total liabilities.......... 3,322 3,035 3,577
--------- --------- -----------
Stockholders' equity (deficit):
Common stock 100,000 shares
authorized; 19,500, 17,200 and
19,500 shares issued and
outstanding at December 31,
1995 and 1996 and June 30,
1997, respectively............ 20 17 20
Additional paid-in capital...... 410 608 608
Retained earnings (deficit)..... 420 94 (900)
--------- --------- -----------
Total stockholders' equity
(deficit).................. 850 719 (272)
--------- --------- -----------
Total liabilities and
stockholders'
equity............. $ 4,172 $ 3,754 $ 3,305
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
Net sales.......................... $ 12,018 $ 10,815 $ 5,877 $ 5,568
Costs and expenses:
Cost of sales................. 7,669 7,084 3,811 3,596
Operating and delivery........ 902 709 373 392
Selling, general and
administrative expenses..... 2,806 2,850 1,504 1,343
Depreciation and amortization. 108 126 62 78
--------- --------- --------- ---------
Operating income................... 533 46 127 159
Other (income) expense:
Interest expense.............. 252 168 85 71
Interest income............... (146) (108) (69) (17)
--------- --------- --------- ---------
Income (loss) before income taxes.. 427 (14) 111 105
Provision (benefit) for income
taxes.............................. -- -- -- --
--------- --------- --------- ---------
Net income (loss).................. $ 427 $ (14) $ 111 $ 105
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
------------------ PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------- ------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995............. 19,500 $ 20 $ 410 $ 183 $ 613
Distributions to owners......... -- -- -- (190) (190)
Net income...................... -- -- -- 427 427
------- ------ ----------- --------- -------------
Balance, December 31, 1995........... 19,500 20 410 420 850
Purchase of common stock........ (2,300) (3) (48) (197) (248)
Distributions to owners......... -- -- -- (115) (115)
Stock options................... -- -- 246 -- 246
Net loss........................ -- -- -- (14) (14)
------- ------ ----------- --------- -------------
Balance, December 31, 1996........... 17,200 17 608 94 719
Sale of common stock
(unaudited)................... 2,300 3 -- -- 3
Distributions to owners
(unaudited)................... -- -- -- (1,099) (1,099)
Net income (unaudited).......... -- -- -- 105 105
------- ------ ----------- --------- -------------
Balance, June 30, 1997 (unaudited)... 19,500 $ 20 $ 608 $ (900) $ (272)
======= ====== =========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 427 $ (14) $ 111 $ 105
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation.................... 108 125 62 78
Grant of stock option........... -- 246 246 --
Gain on sale of assets.......... (9) (71) (71) --
Changes in operating assets and
liabilities:
Accounts receivable, net...... (113) 221 2 (143)
Inventories................... (90) (13) (222) (377)
Prepaid expenses and other
assets..................... (10) (41) (159) (73)
Other long-term assets........ 25 17 28 47
Accounts payable.............. 529 (152) 182 340
Accrued liabilities........... (57) (29) (36) 50
--------- --------- --------- ---------
Net cash provided by
operating activities.... 810 289 143 27
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment..................... (99) (23) (16) (28)
Proceeds from sales of property
and equipment................. 8 71 71 --
--------- --------- --------- ---------
Net cash provided by (used
in) investing
activities.............. (91) 48 55 (28)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase on revolving
line-of-credit................ 156 -- 243 180
Net increase (decrease) in notes
payable....................... -- -- 202 --
Net advances (to) from officers
and affiliates................ (535) 75 (178) 945
Payments on capital lease
obligations................... (63) (68) (35) (13)
Principal payments on long-term
obligations................... (30) (38) (19) (15)
Redemption of common stock...... -- (248) (248) --
Sale of common stock............ -- -- -- 3
Dividends paid.................. (190) (115) (220) (1,099)
--------- --------- --------- ---------
Net cash provided by (used
in) financing
activities.............. (662) (394) (255) 1
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 57 (57) (57) --
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... -- 57 57 --
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $ 57 $ -- $ -- $ --
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 26 $ 159 $ 84 $ 81
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-70
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Southern Alloy of America, Inc. ("Southern Alloy"), a North Carolina
corporation, is a specialty metal service center located in Salisbury, North
Carolina specializing in ferrous and non-ferrous continuous, centrifugal and
static cast bar stock. Southern Alloy performs a number of metal processing
services, including precision saw cutting, precision and semi-finished
machining, drilling and milling operations. Southern Alloy's customers are
comprised of original equipment manufacturers and machine shops servicing the
fluid power, power transmission, material handling and textile machinery
industries. Market areas are principally located in the Southeastern United
States.
Southern Alloy and its shareholders expect to enter into a definitive
merger agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Southern Alloy's outstanding shares of capital stock will be exchanged for cash
and shares of Metals USA common stock concurrently with the consummation of the
initial public offering (the "Offering") of Metals USA common stock.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation. These reclassifications have no effect on
previously reported net income or stockholders' equity.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Southern Alloy at June 30, 1997, and the results of its operations and cash
flows for the six months ended June 30, 1996 and 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based upon
the estimated useful lives of the various classes of assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash surrender value of life insurance policies
approximate their fair value. The fair value of the long-term debt is estimated
based on interest rates for the same or similar debt offered
F-71
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
to Southern Alloy having the same or similar remaining maturities and collateral
requirements. The carrying amounts of long-term debt approximate fair value at
the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Southern Alloy to
concentrations of credit risk, consist principally of cash deposits and, trade
account and note receivables. Concentrations of credit risk with respect to
trade accounts receivable are within the Southeastern United States.
Additionally, Southern Alloy has one customer that accounts for approximately
10% of net sales. Credit is extended once appropriate credit history and
references have been obtained. Adjustments to the allowance for doubtful
accounts are made periodically (as circumstances warrant) based upon the
expected collectibility of all such accounts. Southern Alloy periodically
reviews the credit history of its customers and generally does not require
collateral for the extension of credit.
INCOME TAXES
Southern Alloy, with the consent of its stockholders, elected to be taxed
under sections of the federal and state income tax laws which provide that, in
lieu of corporation income taxes, the stockholders separately account for
Southern Alloy's items of income, deductions, losses and credits on their
individual income tax returns. The financial statements will not include a
provision for income taxes (credits) as long as the S Corporation election
remains in effect. As long as Southern Alloy's S Corporation income tax election
remains in effect, Southern Alloy may, from time-to-time, pay dividends to its
stockholders in amounts sufficient to enable the stockholders to pay the taxes
due on their share of Southern Alloy's items of income, deductions, losses, and
credits which has been allocated to them for reporting on their individual
income tax returns.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS 121
requires that long-lived assets and certain intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Southern
Alloy adopted SFAS No. 121 on January 1, 1996. The impact of adopting this
standard did not have a material impact on the results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
ESTIMATED --------------------
USEFUL LIVES 1995 1996
------------- --------- ---------
Machinery and equipment.............. 3-7 years $ 1,112 $ 962
Furniture and fixtures............... 3-7 years 173 176
Leasehold improvements............... 5 years 85 85
--------- ---------
1,370 1,223
Less: accumulated depreciation....... (914) (870)
--------- ---------
$ 456 $ 353
========= =========
F-72
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. LINE OF CREDIT
At December 31, 1995, Southern Alloy had a line of credit with Freemont
Financial Corporation. On January 3, 1996, Southern Alloy entered into an
agreement with NationsBank of Georgia, N.A. which was to expire on January 1,
1997. The original agreement was terminated and Southern Alloy entered into a
new line-of-credit agreement with NationsBank N.A. ("NationsBank"), which
expires on July 31, 1997. This agreement provides a maximum borrowing limit of
$2,000 with interest payable monthly at the bank's prime rate (8.25% at December
31, 1996). The borrowing base under the new NationsBank line of credit is
limited to 80% of eligible receivables as defined by the agreement plus 50% of
the eligible inventory. Southern Alloy had $75 of unused availability under the
line-of-credit at December 31, 1996. The line is secured by accounts receivable,
inventory, equipment and guarantees of Southern Investments, The Development
Group, Inc. (both of which are affiliates of Southern Alloy) and stockholders of
Southern Alloy.
The new NationsBank agreement contains restrictive covenants which, among
other things, require Southern Alloy to maintain certain financial ratios, limit
capital expenditures and bonuses and restrict future indebtedness. At December
31, 1996, Southern Alloy was in compliance with, or had obtained all necessary
waivers regarding instances of non-compliance with the terms of the loan
agreement.
4. LONG-TERM DEBT
Long-term obligations consist of three notes payable to Amada Cutting
Technologies, Inc. The notes bear interest at rates ranging from 9.0% to 9.4%
and are payable in monthly installments totaling $4 through April 1997, and $1
from May 1997 to December 1997. The notes are secured by related equipment.
5. OBLIGATIONS UNDER CAPITAL LEASE
Southern Alloy leases certain shop equipment under capital leases through
1999, which bear interest at rates ranging from 9.0% to 11.27%.
Future minimum payments under capital leases as of December 31, 1996, are
as follows:
1997................................. $ 30
1998................................. 30
1999 and thereafter.................. 18
---------
78
Less: interest portion............... 9
---------
Capital lease obligation............. 69
Less: current portion................ 25
---------
$ 44
=========
The cost of equipment under capital leases amounted to approximately $256
and $135 at December 31, 1995 and 1996, respectively. Accumulated amortization
amounted to $107 and $65 at December 31, 1995 and 1996, respectively.
6. EMPLOYEE BENEFIT PLANS
Southern Alloy sponsors a defined contribution 401(k) profit-sharing plan
for employees who have attained at least 21 years of age and one year of
service. Company contributions to the plan, which are determined annually at the
discretion of the Board of Directors, amounted to $12 and $16 in 1995 and 1996,
respectively.
F-73
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
7. COMMITMENTS AND CONTINGENCIES
GUARANTEE
Southern Alloy had guaranteed a line-of-credit agreement for SOMAR, Inc.
(an affiliate of Southern Alloy). The outstanding balance under this agreement
amounted to approximately $1,200 at December 31, 1995. As of August 12, 1996,
Southern Alloy was no longer a guarantor on this line of credit.
8. STOCK OPTIONS
In February 1996, Southern Alloy purchased 2,300 shares from a primary
stockholder of Southern Alloy for $248.
In September 1996, 2,300 stock options were issued to two directors of
Southern Alloy (one of which also serves as an officer) at an option price of
$1.00 per share. The options were exercisable at any time through September
2001. The deemed value for accounting purposes at the date of grant was $108.00
per share. Accordingly, $246 of compensation expense was recorded at the date of
grant.
In January 1997, the directors exercised their options and purchased 2,300
shares of Southern Alloy for $2.
9. RELATED-PARTY TRANSACTIONS
Southern Investments (a partnership), The Development Group, Inc. and
Engineered Machine Technologies, Inc. are affiliated with Southern Alloy through
common ownership. SOMAR, Inc. was affiliated with Southern Alloy through common
ownership through August 12, 1996. On that date, SOMAR, Inc. was sold to an
unaffiliated company.
Southern Alloy leases commercial real estate from Southern Investments
under a non-cancelable operating lease. Rent expense related to this lease
amounted to $130 and $103 in 1995 and 1996, respectively.
Southern Alloy leases certain automobiles and operating equipment from
Southern Investments on a month-to-month basis. Rent expense related to these
leases amounted to $136 and $198 for 1995 and 1996, respectively.
During the years ended December 31, 1995 and 1996, Southern Alloy made
loans to or borrowed from SOMAR, Inc., Southern Investments, The Development
Group, Inc., Engineered Machine Technologies, Inc. and officers. Following is a
schedule of net receivable balances due from or payable to affiliated companies
at December 31, 1995 and 1996:
DUE FROM
(PAYABLE TO)
--------------------
1995 1996
--------- ---------
SOMAR, Inc........................... $ 563 $ --
Engineered Machine Technologies,
Inc................................ 334 640
Southern Investments................. 125 130
The Development Group, Inc........... (16) 7
Officers and affiliates.............. 14 168
--------- ---------
$ 1,020 $ 945
========= =========
F-74
<PAGE>
SOUTHERN ALLOY OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Following is a summary of interest income from affiliated companies for the
years ending December 31:
1995 1996
--------- ---------
SOMAR, Inc........................... $ 109 $ 57
Engineered Machine Technologies,
Inc................................ 37 51
--------- ---------
$ 146 $ 108
========= =========
Southern Alloy leases certain office space and equipment under
non-cancelable operating leases with initial or remaining lease terms in excess
of one year. Certain office and equipment leases contain renewal options and
purchase options at fair market value at the end of the lease term. Following is
a schedule of future minimum lease payments under non-cancelable leases as of
December 31, 1996:
RELATED
PARTIES OTHERS TOTAL
-------- ------- ------
1997................................. $ 193 $ 7 $ 200
1998................................. 128 7 135
1999................................. 77 4 81
2000................................. 77 4 81
2001................................. 77 1 78
Thereafter........................... 77 -- 77
-------- ------- ------
$ 629 $ 23 $ 652
======== ======= ======
10. SUBSEQUENT EVENTS (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Southern Alloy, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.
Prior to the merger, Southern Alloy made a distribution of receivables from
affiliates with a carrying value of approximately $842. This distribution
exceeded Southern Alloy's estimated S Corporation accumulated adjustment
account.
Concurrent with the Merger, Southern Alloy entered into an agreement with a
related party to lease certain real property for an annual lease payment of $48.
This lease runs through 2012, and provides for periodic increases in the annual
lease payment every five years equal to the cumulative change in the Consumer
Price Index. Additionally, Southern Alloy entered into a lease for certain
equipment from a related party on a month to month basis for $4 per month.
Southern Alloy believes these lease arrangements are no less favorable than
could be obtained from unaffiliated third parties.
F-75
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Uni-Steel, Inc.:
We have audited the accompanying balance sheet of Uni-Steel, Inc., an
Oklahoma Corporation, as of September 30, 1996, and the related statement of
income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Uni-Steel, Inc. as of
September 30, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 28, 1997
F-76
<PAGE>
UNI-STEEL, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, JUNE 30,
1996 1997
------------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 203 $ 346
Accounts receivable, less
allowance of $122 and $250..... 6,586 7,459
Accounts
receivable -- affiliates....... 261 --
Inventories..................... 9,947 11,242
Current portion of note
receivable..................... 25 17
Deferred income taxes........... 127 123
Prepaid expenses and other
current assets................. 22 25
------------- -----------
Total current assets....... 17,171 19,212
Property and equipment, net.......... 3,176 3,153
Notes receivable, net of current
portion............................ 1,212 1,174
Other assets......................... 355 533
Goodwill............................. 344 336
------------- -----------
Total assets............... $22,258 $24,408
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 3,165 $ 1,838
Accounts
payable -- affiliates........... 121 --
Accrued liabilities............. 419 395
Note payable to shareholders.... 36 --
Line of credit.................. 7,100 9,100
Current portion of long-term
debt........................... 174 358
Income taxes payable............ 92 42
------------- -----------
Total current
liabilities............. 11,107 11,733
Long-term debt, net of current
portion............................ 413 1,034
Deferred income taxes................ 788 753
------------- -----------
Total liabilities.......... 12,308 13,520
------------- -----------
Commitments and contingencies
Redemption value of 36,533 shares of
common stock $1.00 par value
subject to mandatory redemption.... 4,201 4,597
Stockholders' equity:
Common stock $1.00 par value, 500,000 shares authorized, 63,467 shares
issued (net of 36,533 shares subject to
redemption).................... 63 63
Additional paid-in capital...... 1,104 708
Retained earnings............... 5,743 6,681
Less: treasury stock, at cost... (1,161) (1,161)
------------- -----------
Total stockholders' equity...... 5,749 6,291
------------- -----------
Total liabilities and
stockholders' equity.... $22,258 $24,408
============= ===========
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
Net sales............................ $54,620 $ 40,442 $ 46,070
Operating costs and expenses:
Cost of sales................... 43,445 32,135 36,732
Operating and delivery.......... 5,355 3,909 4,704
Selling, general and
administrative................ 2,917 2,211 2,335
Depreciation and amortization... 542 402 378
------------- --------- ---------
Operating income..................... 2,361 1,785 1,921
Other (income) expense:
Interest expense................ 575 443 505
Interest income................. (179) (99) (132)
Other, net...................... (4) (9) (16)
------------- --------- ---------
392 335 357
------------- --------- ---------
Income before income taxes........... 1,969 1,450 1,564
Provision for income taxes........... 741 563 626
------------- --------- ---------
Net income........................... $ 1,228 $ 887 $ 938
============= ========= =========
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ TREASURY PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCK CAPITAL EARNINGS EQUITY
------- ------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995.......... 63,467 $ 63 $ (969) $ 1,432 $ 4,515 $ 5,041
Purchase of 1,901 shares of
common stock.................. -- -- (192) -- -- (192)
Increase in redemption value of
common stock subject to
mandatory redemption.......... -- -- -- (328) -- (328)
Net income...................... -- -- -- -- 1,228 1,228
------- ------- --------- ----------- --------- -------------
Balance, September 30, 1996.......... 63,467 63 (1,161) 1,104 5,743 5,749
Increase in redemption value of
common stock (unaudited)...... -- -- -- (396) -- (396)
Net income (unaudited).......... -- -- -- -- 938 938
------- ------- --------- ----------- --------- -------------
Balance, June 30, 1997
(unaudited)........................ 63,467 $ 63 $ (1,161) $ 708 $ 6,681 $ 6,291
======= ======= ========= =========== ========= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-79
<PAGE>
UNI-STEEL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,228 $ 887 $ 938
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Depreciation and
amortization............... 542 402 378
Deferred tax provision
(benefit).................. (36) (32) (30)
Increases in cash surrender
values of life insurance... (56) (34) (57)
Changes in operating assets
and liabilities:
Accounts receivable, net... 181 668 (612)
Inventories................ (1,748) (1,073) (1,295)
Prepaid expenses and other
assets.................. (4) (42) (92)
Accounts payable and
accrued liabilities..... 233 1,609 (1,473)
Income tax payable......... (131) (181) (50)
------------- --------- ---------
Net cash provided by
(used in) operating
activities............ 209 2,204 (2,293)
------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (362) (295) (345)
Principal collected on notes....... 13 12 12
------------- --------- ---------
Net cash used in
investing
activities............ (349) (283) (333)
------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase on revolving
line-of-credit.................. 800 (1,400) 2,000
Principal payments on shareholder
debt............................ (95) (94) (36)
Principal payments on long-term
obligations..................... (445) (334) (195)
Principal borrowings on long-term
obligations..................... -- -- 1,000
Purchase of treasury stock......... (192) (192) --
------------- --------- ---------
Net cash provided by
(used in) financing
activities............ 68 (2,020) 2,769
------------- --------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................ (72) (99) 143
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 275 275 203
------------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ 203 $ 176 $ 346
============= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 568 $ 483 $ 498
Cash paid for income taxes...... 909 528 762
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Uni-Steel, Inc. ("Uni-Steel") is a structural steel service center with
three locations in Oklahoma. Uni-Steel's products include carbon structural,
pressure vessel, high strength low alloy and alloy grades of steel sold to
customers in Oklahoma, Missouri, Arkansas, Texas, New Mexico, Colorado and
Kansas. Value added processing services include cut-to-length, leveling, flame
cutting, plasma cutting, shearing, and sawing and press brake forming. Uni-Steel
services customers in a wide variety of industries including oil and gas, truck
trailer, construction equipment, mining machinery, elevators, wholesale trade
and the construction industries.
Uni-Steel and its shareholders expect to enter into a definitive merger
agreement with Metals USA, Inc. ("Metals USA") pursuant to which all of
Uni-Steel's outstanding shares of capital stock will be exchanged for cash and
shares of Metals USA common stock concurrent with the consummation of the
initial public offering (the "Offering") of Metals USA common stock.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Uni-Steel at June 30, 1997, and the results of its operations and cash flows for
the nine months ended June 30, 1996 and 1997. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method.
PROPERTY AND EQUIPMENT
Property and equipment, including capitalized interest, is stated at cost,
net of accumulated depreciation. Depreciation is computed utilizing the
straight-line method at rates based upon the estimated useful lives of the
various classes of assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents approximate their fair value. The
carrying amount of notes receivable approximate fair value at the applicable
balance sheet dates. The fair value of such notes receivable was based on
expected cash flows discounted using current rates at which similar loans would
be
F-81
<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-82
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
ESTIMATED SEPTEMBER 30,
USEFUL LIVES 1996
-------------- -------------
Land................................. $ 32
Buildings and improvements........... 5 - 33 years 2,452
Yard equipment....................... 3 - 10 years 544
Shop equipment....................... 3 - 10 years 2,408
Autos and trucks..................... 3 - 5 years 17
Office equipment..................... 4 - 8 years 476
Computer software.................... 3 - 6 years 291
-------------
6,220
Less: accumulated depreciation....... (3,044)
-------------
Total........................... $ 3,176
=============
4. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30,
1996
-------------
Steel products....................... $ 9,482
Work in process...................... 372
Other................................ 93
-------------
Totals.......................... $ 9,947
=============
Net realizable value approximates cost on the first-in, first-out method.
In 1996, LIFO cost exceeded market value by $54. This 1996 amount was recorded
as a reduction of inventory and an increase in cost of sales. Management has
determined that lower of LIFO cost or market is the valuation method that most
accurately reflects the results of operations in accordance with generally
acceptable accounting principles. Had the statements of income been prepared on
the lower of FIFO cost or market basis, inventories would have been $9,947 and
net income for the year ended September 30, 1996 would have been $1,165.
5. LINE OF CREDIT
At September 30, 1996, Uni-Steel had drawn $7,100 against its $7,500 line
of credit at a bank. Interest is computed at prime (8.25% at September 30,
1996). Payments of interest are due monthly and the principal balance was due
February 28, 1997. This line of credit was amended in February 1997 to increase
the maximum borrowings under the facility to $10,000 and extend the maturity
date to April 30, 1999. Interest is computed at prime or Uni-Steel may elect for
interest to be computed at LIBOR plus 2.5%. This election must be made in
borrowing increments of $1,000 and no more than two such LIBOR advances may be
outstanding at one time.
Concurrently with the renewal of the line of credit, Uni-Steel also
obtained a $1,000 working capital term loan from its principal bank. Payments of
principal and interest are payable in equal monthly installments with final
maturity on February 28, 2002. Interest is also computed at Uni-Steel's option
at prime or LIBOR plus 2.5%. The line of credit and working capital term loan
include certain covenants which, among other things, restrict future borrowings
and set certain ratio, cash flow and net worth
F-83
<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-84
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The significant items giving rise to the deferred tax (assets) and
liabilities as of September 30, 1996 are as follows:
Deferred tax liabilities:
Bases differences in property
and equipment................. $ 592
Installment sales accounting.... 246
---------
Total deferred tax
liabilities............. 838
Deferred tax assets:
Allowance for doubtful
accounts...................... (49)
Inventory bases differences..... (85)
Other........................... (43)
---------
Total deferred tax
assets.................. (177)
---------
Net deferred tax liabilities......... $ 661
=========
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
Income tax expense at the statutory
rate............................... $ 670
State taxes.......................... 54
Meals and entertainment.............. 17
---------
$ 741
=========
8. EMPLOYEE BENEFIT PLANS
Uni-Steel has a qualified profit sharing plan covering substantially all
employees. Employer contributions to the plan are made at the Board of
Directors' discretion. On July 1, 1990, the plan was amended to include a
deferred compensation 401(k) provision which allows employees to defer up to 15%
of their salaries and provides for employer matching of the first 4%. The total
employer contribution and match made to the plan was $290 for the year ended
September 30, 1996.
9. COMMITMENTS AND CONTINGENCIES
STOCK PURCHASE AGREEMENTS
Uni-Steel has an agreement with certain common stockholders which
effectively restricts trading of their common stock. The agreement also requires
Uni-Steel to repurchase this stock from certain stockholders who are terminated
from employment, becomes totally disabled, or die. The price is determined
pursuant to agreements between the parties and is subject to revision annually.
In January 1996, Uni-Steel repurchased 1,901 shares from a retired stockholder
for $192. At September 30, 1996, there are 2,501 (2.9%) shares of common stock
remaining under this agreement. Uni-Steel also has an agreement with Richard A.
Singer, an officer and stockholder, which restricts trading of 34,031 shares
(39%) of its common stock. The agreement requires Uni-Steel to purchase Mr.
Singer's stock in the event of his death, permanent disability or retirement.
The purchase price is to be determined pursuant to the agreement and is subject
to revision annually. Uni-Steel has committed certain life insurance policies to
fund this agreement. Uni-Steel's obligations under this agreement have been
guaranteed by its other major shareholder, Yaffe Iron and Metal Company, Inc. As
these shares are subject to mandatory redemption, they have not been classified
as a component of permanent equity in the accompanying balance sheets.
OPERATING LEASES
Uni-Steel leases warehouse space under an operating lease expiring in
September 1998. Minimum future rental payments under this non-cancelable
operating lease as of September 30, 1996, are as follows:
1997................................. $ 24
1998................................. 24
1999................................. 2
---------
$ 50
=========
F-85
<PAGE>
UNI-STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Following is a summary of rental expense under non-cancelable operating
leases:
Minimum rentals...................... $ 24
Contingent rentals................... 191
---------
Total........................... $ 215
=========
The contingent rentals are based on inventory levels in excess of a
specified minimum.
PURCHASE COMMITMENTS
During the normal course of business, Uni-Steel enters into commitments to
purchase raw materials from steel mills. These commitments are made for
purchases of up to nine months into the future. In certain cases, prices paid
are calculated at the time the commitment is entered into. In other cases, they
are calculated at time of shipment. Uni-Steel estimates outstanding purchase
commitments at September 30, 1996 to be approximately $11,500.
10. RELATED PARTY TRANSACTIONS
A summary of transactions with Yaffe Iron and Metal Company, Inc., a
shareholder of Uni-Steel and other affiliated companies or individuals follows:
SEPTEMBER 30,
1996
-------------
Sales to related companies........... $ 2,807
=============
Shipping provided by a related
company (Included in operating and
delivery expenses in the
accompanying statements of
income)............................ $ 1,227
=============
Warehouse rent paid to related entity
under a one-year lease with seven
one-year options remaining.
(Included in operating and delivery
expenses in the accompanying
statements of income).............. $ 145
=============
11. SUBSEQUENT EVENTS (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securites of Uni-Steel, through the issuance of common stock
and cash pursuant to a definitive merger agreement dated May 1997.
Concurrent with the merger, Uni-Steel sold certain real property to an
affiliated party for $630 and entered into an agreement with the affiliate to
lease the real property for an annual lease payment of $115. This lease runs
through 2027, and provides for periodic increases in the annual lease payment
every five years equal to the cumulative change in the Consumer Price Index.
The parties to the stock purchase agreements discussed in Note 9 agreed to
waive such agreements upon the consumation of the Merger.
F-86
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jeffreys Steel Company, Inc.:
We have audited the accompanying balance sheets of Jeffreys Steel Company,
Inc. as of July 31, 1995, and December 31, 1996, and the related statements of
income, stockholders' equity and cash flows for the years ended July 31, 1994
and 1995, and December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jeffreys Steel Company,
Inc., as of July 31, 1995, and December 31, 1996, and the results of its
operations and its cash flows for the years ended July 31, 1994 and 1995, and
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 3, 1997
F-87
<PAGE>
JEFFREYS STEEL COMPANY, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
JULY 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
-------- ------------ -------------
(UNAUDITED)
ASSETS
Current Assets:
Cash............................ $ 672 $ 1,203 $ 1,866
Accounts receivable, net of
allowance of $382, $259 and
$204.......................... 13,878 12,887 12,532
Accounts receivable, other...... 283 474 57
Inventories..................... 21,770 21,512 18,817
Prepaid expenses................ 539 355 540
Deferred income taxes........... 242 397 489
Other........................... 222 496 103
-------- ------------ ------------
Total current
assets............. 37,606 37,324 34,404
Property and equipment, net.......... 12,492 13,514 14,298
Notes receivable..................... 407 210 134
Cash surrender value of life
insurance.......................... 890 1,126 1,221
Intangible assets and other.......... 834 540 411
-------- ------------ ------------
Total assets.......... $ 52,229 $ 52,714 $ 50,468
======== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes
payable....................... $ 686 $ 1,131 $ 2,128
Accounts payable................ 5,088 6,998 7,587
Income taxes payable............ 37 482 715
Accrued liabilities............. 2,071 1,253 1,821
-------- ------------ ------------
Total current
liabilities........ 7,882 9,864 12,251
Notes payable, net of current
portion............................ 22,358 15,647 --
Payable to Metals USA................ -- -- 8,814
Accrued nonqualified retirement plan
contribution....................... 244 461 --
Deferred income taxes................ 266 326 268
Other long-term liabilities,
affiliates......................... 144 -- --
-------- ------------ ------------
Total liabilities..... 30,894 26,298 21,333
-------- ------------ ------------
Commitments and contingencies
Stockholders' Equity:
Common stock, 100,000 shares at
$.415 par value, authorized,
issued and outstanding........ 42 42 42
Additional paid-in capital...... 108 359 455
Unearned compensation........... (2,437) (1,794) (1,535)
Retained earnings............... 23,622 27,809 30,173
-------- ------------ ------------
Total stockholders'
equity............. 21,335 26,416 29,135
-------- ------------ ------------
Total liabilities and
stockholders'
equity............. $ 52,229 $ 52,714 $ 50,468
======== ============ ============
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
JEFFREYS STEEL COMPANY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JULY 31, YEAR ENDED SEPTEMBER 30,
---------------------- DECEMBER 31, ---------------------
1994 1995 1996 1996 1997
---------- ---------- ------------ ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 107,897 $ 121,537 $134,391 $ 103,363 $ 93,281
Operating costs and expenses:
Cost of sales................... 81,904 93,421 100,868 77,834 68,405
Operating and delivery.......... 10,306 11,576 14,322 10,715 10,558
Selling, general and
administrative................ 9,018 9,563 10,482 7,999 7,861
Depreciation and amortization... 1,163 1,689 2,313 1,691 1,922
---------- ---------- ------------ ---------- ---------
Operating income..................... 5,506 5,288 6,406 5,124 4,535
Other (income) expense:
Interest expense................ 1,084 1,539 1,188 872 704
Other income, net............... (203) (221) (65) (39) (116)
---------- ---------- ------------ ---------- ---------
Income before income taxes........... 4,625 3,970 5,283 4,291 3,947
Provision for income taxes........... 1,782 1,661 2,035 1,678 1,583
---------- ---------- ------------ ---------- ---------
Net income........................... $ 2,843 $ 2,309 $ 3,248 $ 2,613 $ 2,364
========== ========== ============ ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
JEFFREYS STEEL COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED UNEARNED
STOCK CAPITAL EARNINGS COMPENSATION TOTAL
------ -------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1993............... $ 42 $-- $ 18,470 $ (3,510) $ 15,002
Shares released under leveraged
ESOP Plan..................... -- -- -- 650 650
Net income...................... -- -- 2,843 -- 2,843
------ -------- -------- ------------ ---------
Balance, July 31, 1994............... 42 -- 21,313 (2,860) 18,495
Shares released under leveraged
ESOP Plan..................... -- 108 -- 423 531
Net income...................... -- -- 2,309 -- 2,309
------ -------- -------- ------------ ---------
Balance, July 31, 1995............... 42 108 23,622 (2,437) 21,335
Adjustment to conform fiscal
year-ends..................... -- 75 939 187 1,201
Shares released under leveraged
ESOP Plan..................... -- 176 -- 456 632
Net income...................... -- -- 3,248 -- 3,248
------ -------- -------- ------------ ---------
Balance, December 31, 1996........... 42 359 27,809 (1,794) 26,416
Shares released under leveraged
ESOP Plan (unaudited)......... -- 96 -- 259 355
Net income (unaudited).......... -- -- 2,364 -- 2,364
------ -------- -------- ------------ ---------
Balance, September 30, 1997
(unaudited)........................ $ 42 $ 455 $ 30,173 $ (1,535) $ 29,135
====== ======== ======== ============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE>
JEFFREYS STEEL COMPANY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JULY 31, YEAR ENDED SEPTEMBER 30,
-------------------- DECEMBER 31, --------------------
1994 1995 1996 1996 1997
--------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 2,843 $ 2,309 $ 3,248 $ 2,613 $ 2,364
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Provision for bad debts.......... 281 281 177 143 103
Depreciation and amortization.... 1,163 1,689 2,313 1,691 1,922
(Gain) loss on sale of property
and equipment.................. (77) (41) 91 76 (33)
Deferred income taxes............ (104) 154 (95) (95) (150)
Compensation charged against
notes receivable............... 400 -- -- -- --
Retirement plan contribution
charged to unearned
compensation and paid-in
capital........................ 650 531 632 474 355
Non-qualified plan
contributions.................. 73 98 228 187 (461)
Changes in operating assets and
liabilities, net of business
acquisitions --
Accounts and notes
receivable..................... (4,116) 1,513 511 (537) 540
Inventory...................... (3,745) (1,114) (4,791) (5,408) 2,695
Other assets................... (104) (50) (206) (182) 278
Accounts payable............... 2,397 321 754 4,289 585
Income taxes payable........... (246) (6) 166 (34) 233
Accrued liabilities............ 382 666 (637) 1 568
--------- --------- ------------ --------- ---------
Net cash provided by
(used in) operating
activities............ (203) 6,351 2,391 3,218 8,999
--------- --------- ------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets....... 98 100 109 10 49
Purchases of property.............. (2,617) (4,899) (3,009) (2,529) (2,665)
Proceeds applied to cash value life
insurance........................ (154) (137) (160) (102) (95)
Issuance of notes receivable to
affiliates....................... (184) (111) (315) (246) (204)
Collections on notes receivable
from affiliates.................. 23 30 283 283 414
Purchase of businesses, net of
acquired cash.................... -- (6,036) -- -- --
--------- --------- ------------ --------- ---------
Net cash (used in)
investing
activities............ (2,834) (11,053) (3,092) (2,584) (2,501)
--------- --------- ------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable........ 2,350 622 -- -- --
Principal payments on notes
payable.......................... (624) (1,174) (1,087) (520) (468)
Borrowings on revolving credit
facility......................... 44,351 45,035 44,607 30,993 26,170
Payments on revolving credit
facility......................... (42,867) (39,468) (41,755) (29,639) (40,351)
Borrowings on notes payable to
affiliates....................... 4 13 213 213 8,814
Principal payments on notes payable
to affiliates.................... (129) (21) (396) (396) --
--------- --------- ------------ --------- ---------
Net cash provided by
(used in) financing
activities............ 3,085 5,007 1,582 651 (5,835)
--------- --------- ------------ --------- ---------
NET INCREASE IN CASH................. 48 305 881 1,285 663
CASH, beginning of period............ 319 367 322 322 1,203
--------- --------- ------------ --------- ---------
CASH, end of period.................. $ 367 $ 672 $ 1,203 $ 1,607 $ 1,866
========= ========= ============ ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest......................... $ 950 $ 1,470 $ 1,191 $ 708 $ 602
Income taxes..................... 2,295 1,484 1,869 1,712 1,350
Noncash activities --
Operating expenses added to note
receivable from affiliates..... 400 -- -- -- --
Interest expense added to notes
payable to affiliates.......... 4 13 7 7 --
Interest income added to note
receivable from affiliates..... 19 12 76 73 16
Retirement plan contribution
charged to unearned
compensation and paid-in
capital........................ 650 531 632 474 355
Non-qualified plan contribution
accrued........................ 73 98 228 187 (461)
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-91
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Jeffreys Steel Company, Inc. (Jeffreys), an Alabama corporation, is engaged
in the wholesale and retail sale of steel. Jeffreys purchases steel products
from manufacturers and processes steel to meet customers' specifications.
Jeffreys operates eight steel service centers, three in Alabama, two in Florida,
one in each of Mississippi, Louisiana and Georgia. Jeffreys also maintains a
sales office in Fort Lauderdale, Florida. The customers of these service centers
are concentrated in the southeastern states. Jeffreys is 70 percent owned by
three related individual shareholders and 30 percent owned by an employee stock
ownership plan. Approximately 20 percent of Jeffreys' sales are to machinists
and fabricators, 15 percent each to industrial / commercial contractors and
transportation equipment manufacturers, 9 percent each to machinery and
equipment manufacturers and wholesale distributors and 32 percent in other
industries.
Jeffreys and its stockholders entered into a definitive merger agreement
with Metals USA, Inc. (Metals USA), effective September 26, 1997, pursuant to
which all of Jeffreys' outstanding shares of capital stock were exchanged for
shares of Metals USA common stock.
Jeffreys has historically reported on a July 31 fiscal year-end. For
purposes of the merger with Metals USA, the accompanying financial statements
reflect Jeffreys on a calendar year-end basis effective January 1, 1996. The net
sales and net income of Jeffreys for the period from August 1, 1995, through
December 31, 1995, were $50,989 and $939, respectively. The net income of
Jeffreys for this transition period is included in the accompanying statements
of stockholders' equity as an adjustment to retained earnings in order to
conform the fiscal years to that of Metals USA.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of
Jeffreys at September 30, 1997, and the results of its operations and cash flows
for the nine months ended September 30, 1996 and 1997. Accounting measurements
at interim dates inherently involve greater reliance on estimates than at
year-end. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed utilizing the straight-line
method at rates based upon the estimated useful lives of the various classes of
assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the notes payable
is estimated based on interest rates for the same or similar debt offered to
Jeffreys having the same or similar remaining maturities
F-92
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and collateral requirements. The carrying amounts of notes payable approximate
fair value at the applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK -- Financial instruments, which potentially
subject Jeffreys to concentrations of credit risk, consist principally of cash
deposits, trade accounts and notes receivable. Jeffreys places its cash with
several financial institutions, limiting the amount of credit exposure to any
one financial institution. Concentrations of credit risk with respect to trade
accounts are within the machinists and fabricators, industrial / commercial
contractors and transportation equipment manufacturers industries. Generally,
credit is extended once appropriate credit history and references have been
obtained. Adjustments to the allowance for doubtful accounts are made
periodically (as circumstances warrant) based upon the expected collectibility
of all such accounts. Jeffreys periodically reviews the credit history of its
customers and generally does not require collateral for the extension of credit.
INCOME TAXES -- Jeffreys accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. The principal items resulting
in the differences are different depreciation methods, use of the allowance
method for bad debts, different inventory capitalization methods and
nonqualified plan contributions. Valuation allowances are established when
necessary to reduce deferred assets to the amount to be realized. Income tax
expense is the tax payable for the year and the change during the year in
deferred tax assets and liabilities.
INTANGIBLE ASSETS -- Intangible assets include covenants not to compete and
start-up costs which are being amortized over a five-year life. Accumulated
amortization totaled $173 and $428 as of July 31, 1995, and December 31, 1996,
respectively.
RECENT ACCOUNTING PRONOUNCEMENTS -- The Financial Accounting Standards
Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," in March 1995. SFAS No. 121
requires that long-lived assets and certain intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Jeffreys
adopted SFAS No. 121 on January 1, 1996. The impact of adopting this standard
did not have a material impact on the results of operations.
SELF-INSURANCE PLANS -- Jeffreys insures workers' compensation claims under
a self-insurance program. The plan is subject to a stop-loss provision which
provides conventional insurance policy coverage for losses above certain
specified levels. Estimated claims incurred but not yet reported in connection
with the self-insurance plans are accrued by Jeffreys.
F-93
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
ESTIMATED JULY 31, DECEMBER 31,
USEFUL LIVES 1995 1996
------------- -------- ------------
Land................................ $ 604 $ 604
Buildings and improvements.......... 5-30 years 8,576 9,420
Machinery and equipment............. 7-10 years 6,035 7,641
Automobiles and trucks.............. 3-10 years 3,390 4,430
-------- ------------
18,605 22,095
Less -- Accumulated depreciation.... (6,113) (8,581)
-------- ------------
Total..................... $ 12,492 $ 13,514
======== ============
3. INVENTORIES:
Inventories consist of the following:
JULY 31, DECEMBER 31,
1995 1996
-------- ------------
Carbon plates and sheets............. $ 11,298 $ 10,256
Beams................................ 3,388 4,541
Carbon tubular products.............. 2,923 2,355
Rolled finished bars/shapes.......... 2,441 2,567
Other................................ 3,382 3,544
Less -- LIFO reserve................. (1,662) (1,751)
-------- ------------
Total...................... $ 21,770 $ 21,512
======== ============
The replacement cost of Jeffreys' inventory exceeds the historical cost of
the inventory, computed using the LIFO method of valuation, as reported in the
accompanying financial statements. If the average cost method had been used for
all inventories, the carrying value would have been $23,433 and $23,263 at July
31, 1995, and December 31, 1996, respectively. Additionally, net income would
have been $2,369, $2,025 and $3,311 for the years ended July 31, 1994 and 1995,
and December 31, 1996, respectively.
F-94
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF LONG-TERM FINANCING ARRANGEMENTS:
JULY 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
--------- ------------ -------------
(UNAUDITED)
Revolving credit facility with interest
at prime less 1.0%, maturing on December
31, 1998, secured by inventory and
trade accounts receivable.......... $ 17,787 $ 13,250 --
Notes payable to former employee
stock ownership plan and trust
members payable in annual installments
including interest at prime with an
8.5% cap, through February 1998.... 2,861 2,118 2,118
Term loan payable to a bank in
monthly installments of $46 which
includes monthly payments of interest at
6.5%, due March 1, 1999, secured by
production and rolling equipment..... 1,736 1,097 --
Term loan payable to a bank in
monthly installments of $17 plus
monthly payments of interest computed
at a floating rate. The rate at December
31, 1996, was 7.7%, maturing on June 1,
1998, secured by certain equipment.. 605 293 --
Other long-term debt................. 55 20 10
--------- ------------ -------------
23,044 16,778 2,128
Less -- Current portion.............. (686) (1,131) (2,128)
--------- ------------ -------------
$ 22,358 $ 15,647 $--
========= ============ =============
The maximum credit available under the Jeffreys revolving credit facility
was increased from $16,000 to $20,000 on July 28, 1994. Additionally, the due
dates of the revolver were extended to December 31, 1998. The terms of the loan
agreements, which provide the revolvers to Jeffreys, include certain loan
covenants, the most restrictive of which requires Jeffreys to maintain a certain
minimum level of inventory and accounts receivable, with which Jeffreys was in
compliance as of December 31, 1996. The prime rate of interest upon which the
indebtedness referred to above was indexed at July 31, 1995, and December 31,
1996, was 8.75 percent and 8.25 percent, respectively.
Jeffreys' long-term notes are subject to mandatory redemption as follows:
Year ending December 31 --
1997............................ $ 1,131
1998............................ 15,565
1999............................ 82
---------
$ 16,778
=========
5. DETAIL OF ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
JULY 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
-------- ------------ --------------
(UNAUDITED)
Accrued salaries and employee
benefits.......................... $ 1,434 $ 923 $ 1,274
Accrued ad valorem and sales taxes.. 421 146 350
Accrued interest and other.......... 216 184 197
-------- ------------ --------------
$ 2,071 $1,253 $ 1,821
======== ============ ==============
F-95
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision for income taxes are as follows:
YEAR ENDED
-----------------------------------
JULY 31,
-------------------- DECEMBER 31,
1994 1995 1996
--------- --------- ------------
Federal --
Current......................... $ 1,642 $ 1,315 $1,832
Deferred........................ (92) 133 (82)
--------- --------- ------------
1,550 1,448 1,750
--------- --------- ------------
State --
Current......................... 244 192 298
Deferred........................ (12) 21 (13)
--------- --------- ------------
232 213 285
--------- --------- ------------
Total provision....... $ 1,782 $ 1,661 $2,035
========= ========= ============
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
YEAR ENDED
-----------------------------------
JULY 31,
-------------------- DECEMBER 31,
1994 1995 1996
--------- --------- ------------
Federal income tax at statutory
rates.............................. $ 1,619 $ 1,390 $1,849
State income taxes, net of federal
income tax benefit................. 78 67 89
Nondeductible expenses (mainly meals
and entertainment)................. 85 204 97
--------- --------- ------------
$ 1,782 $ 1,661 $2,035
========= ========= ============
The significant items giving rise to the deferred tax assets (liabilities)
as of July 31, 1995, and December 31, 1996, are as follows:
JULY 31, DECEMBER 31,
1995 1996
-------- ------------
Deferred tax assets --
Allowance for doubtful
accounts...................... $ 143 $ 85
Uniform capitalization of
inventory..................... 72 58
Nonqualified plan
contribution.................. 27 175
Accrued expenses................ -- 72
Other........................... -- 7
-------- ------------
Total deferred tax
assets.................. 242 397
-------- ------------
Deferred tax liabilities --
Property and equipment.......... (266) (326)
-------- ------------
Total deferred income tax
liabilities............. (266) (326)
-------- ------------
Net deferred tax assets.... $ (24) $ 71
======== ============
F-96
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE BENEFIT PLANS:
PROFIT-SHARING PLAN
Jeffreys has a profit-sharing plan that was adopted on July 29, 1988, and
amended June 1, 1995, to include Section 401(k) options. Contributions to the
plan are determined by the board of directors on an annual basis. All funds
contributed under this plan are subject to a vesting schedule of 20 percent
after two years of service, then 20 percent each additional year until 100
percent at six years. No contributions were made to this plan in the periods
reported.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
Under the provisions of an employee stock ownership plan (ESOP) and its
related trust, Jeffreys made annual contributions to the plan which were
invested in stock of Jeffreys and other qualifying securities for the benefit of
Jeffreys' employees.
Under the provisions of the plan, employees had a put option which required
Jeffreys to purchase their shares at fair market value. Additionally, Jeffreys
had the right of first refusal for any shares sold by the employees. The plan
provided for Jeffreys' purchases of employee shares to be paid in cash and with
the issuance of a note payable. Effective September 26, 1997, the participation
was frozen. Concurrent with the merger, ESOP shares were exchanged for Metals
USA common stock and holders of such shares have the right to trade the stock
beginning September 26, 1998.
LEVERAGED ESOP ARRANGEMENT
Jeffreys' ESOP purchased 18,856 shares of outstanding Jeffreys stock from a
majority stockholder for $207.06 per share. The ESOP borrowed the funds to
purchase such stock and Jeffreys guaranteed the repayment of this loan. Jeffreys
will repay this loan, plus interest, through deductible contributions to the
plan. As Jeffreys makes contributions to the plan, which reduces the principal
on the note, the plan will release the corresponding shares related to the
reduction in the note principal. At the point when these shares are no longer
specifically secured by the note payable, they will be allocated to the
individual participants of the plan and considered earned by those employees at
that time. Jeffreys accounts for its ESOP in accordance with Statement of
Position (SOP) 93-6. Accordingly, the debt of the ESOP is recorded as debt and
the shares pledged as collateral are reported as unearned compensation. As
shares are released from collateral, Jeffreys reports compensation expense equal
to the current estimated market price of the shares. ESOP share compensation
expense was $650, $531 and $632 for the years ended July 31, 1994 and 1995, and
December 31, 1996, respectively.
Since the obligation is secured by the shares purchased and the note is
guaranteed by Jeffreys, all amounts relating to this transaction are considered
unearned compensation of the employees until which time the note is deemed paid
and the corresponding shares are released to the individual participants of the
plan. The balance of $2,437 and $1,794 in unearned compensation at July 31,
1995, and December 31, 1996, results from the leveraged ESOP stock purchase less
the deemed release of shares at cost.
The ESOP shares were as follows:
TOTAL SHARES TOTAL
SHARES DEEMED UNRELEASED
YEAR ENDED ALLOCATED RELEASED SHARES
- ------------------------------------- ---------- -------- -----------
July 31, 1995........................ 5,159 1,926 11,770
December 31, 1996.................... 7,086 2,171 9,599
In accordance with SOP 93-6, additional paid-in capital is adjusted
whenever the market value of the shares released is more or less than the cost
of the shares released. The addition to paid-in capital attributable to this
difference in market value and cost was $108 and $176 for the years ended July
31, 1995, and December 31, 1996, respectively.
F-97
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The estimated average fair market value of the unearned ESOP shares was
$259 per share and $278 per share at July 31, 1995, and December 31, 1996.
NONQUALIFIED DEFERRED COMPENSATION PLAN
Jeffreys has a deferred compensation plan, which is considered an unfunded,
nonqualified retirement plan, to provide supplemental retirement benefits to key
employees who are precluded from participating in the ESOP due to the leveraged
arrangement. The selective key employees will receive an annual contribution
under this plan equal to 10 percent of their compensation. All contributions are
deemed to have been used to purchase employee stock as of the most recent stock
valuation. Each year, gains or losses are recognized as the stock value
fluctuates.
Jeffreys will pay all amounts directly to the employees participating in
this plan, or their beneficiaries, in accordance with the payout provision of
the plan. These benefits will be paid directly from the general assets of
Jeffreys in either cash or Jeffreys stock. Concurrent with the merger, these
benefits will be settled by the issuance of Metals common stock.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASE AGREEMENTS
Jeffreys is obligated under certain long-term noncancelable lease
agreements for office space, warehouse space and equipment as summarized below:
Year ending December 31 --
1997............................ $ 196
1998............................ 42
1999............................ 29
2000............................ 29
2001............................ 29
Thereafter...................... 21
---------
$ 346
=========
Jeffreys paid approximately $362, $401 and $314 in rent expense during the
years ended July 31, 1994 and 1995, and December 31, 1996, respectively, under
operating leases. Certain of these leases are with affiliated individuals and
companies (see Note 9).
CONTINGENCIES
Jeffreys has been named as one of three defendants in a lawsuit filed by
Allen Management Associates, Inc., and Esalen Holdings, Inc., who owned the
property leased by Jeffreys in Ft. Lauderdale, Florida. The plaintiffs are
seeking damages of approximately $535 for breach of maintenance obligations
under the sublease and damages for alleged environmental contamination of the
property. Subsequent to the initial suit filed, the other defendants have filed
cross-claims against Jeffreys. Jeffreys has filed a counterclaim and
cross-claims against the other defendants and has filed an answer and
affirmative defense concerning the suit. The trial date is scheduled for
February 9, 1998. The Company has denied any liability and intends to vigorously
defend its position. In the opinion of the Company's management, the final
outcome of this matter should not materially affect the Company's financial
position and results of operations.
9. RELATED-PARTY TRANSACTIONS:
Certain real property at three service centers and corporate offices were
leased from a corporation owned by the president of Jeffreys. The property was
leased on a month-to-month basis. In 1995, Jeffreys entered into a lease
agreement for an aircraft from the same related party with payments of $13 per
month, which expired January 1997. Concurrent with the merger, the lease was
renegotiated and Jeffreys rents the aircraft based on the number of flight
hours.
F-98
<PAGE>
JEFFREYS STEEL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Notes receivable include $210 and $141 due from a related party at July 31,
1995, and December 31, 1996.
10. SUBSEQUENT EVENTS (UNAUDITED):
Certain transactions occurred subsequent to year-end as follows:
a. On September 26, 1997, Metals USA acquired all of the issued and
outstanding equity securities of Jeffreys through the issuance of
common stock in a transaction to be accounted for as a
pooling-of-interests.
b. Metals USA also acquired, through issuance of stock, certain real
property owned by the president of Jeffreys and used in Jeffreys
operations (see Note 9). The real property had a book value of $1,753
at the date of acquisition.
c. Concurrent with the merger, Metals USA paid off the indebtedness of
Jeffreys, excluding the ESOP notes payable.
F-99
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Harvey Titanium, Ltd.
We have audited the accompanying consolidated balance sheet of Harvey
Titanium, Ltd. and Subsidiary as of June 30, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harvey
Titanium, Ltd. and Subsidiary at June 30, 1997 and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
KLEIN, BOGAKOS AND ROBERTSON, CPA'S INC.
Santa Monica, Ca
September 23, 1997
F-100
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)
JUNE 30, SEPTEMBER 30,
1997 1997
--------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 428 $ 584
Accounts receivable:
Trade, less allowance of
$230 at June 30 and
September 30, 1997...... 9,149 12,632
Other...................... 91 75
Inventories..................... 15,203 16,789
Deferred income taxes........... 309 309
Prepaid expenses and other
current assets................. 22 114
--------- -------------
Total current
assets................ 25,202 30,503
Property and equipment, net.......... 1,211 1,230
Other assets......................... 56 56
--------- -------------
Total assets.......... $ 26,469 $31,789
========= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 10,510 $12,366
Accrued liabilities............. 756 809
Income taxes payable............ 1,275 244
Notes payable -- former
stockholder..................... 400 344
Current portion of long term
debt and capitalized lease
obligation..................... 129 75
--------- -------------
Total current
liabilities........... 13,070 13,838
Long term debt and capitalized lease
obligations........................ 7,286 278
Due to parent........................ -- 10,789
Deferred income taxes................ 855 855
--------- -------------
Total liabilities..... 21,211 25,760
Shareholders' equity:
Common stock, no par value,
7,500 shares authorized, 489
shares issued and outstanding
at June 30 and September 30, 1997 5 5
Retained earnings............... 5,253 6,024
--------- -------------
Total stockholders' equity...... 5,258 6,029
--------- -------------
Total liabilities and
stockholders' equity......... $ 26,469 $31,789
========= =============
The accompanying notes are an integral part of these financial statements.
F-101
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, --------------------
1997 1996 1997
----------- --------- ---------
(UNAUDITED)
Net Sales............................ $52,630 $ 11,678 $ 15,561
Costs and expenses:
Cost of sales................... 41,121 8,861 12,273
Operating and delivery.......... 2,228 491 594
Selling, general, and
administrative expenses......... 4,226 706 1,004
Depreciation and amortization... 200 50 47
----------- --------- ---------
Operating income........... 4,855 1,570 1,643
Other expense:
Interest expense................ 669 142 283
Loss on abandonment of assets... 60 -- --
----------- --------- ---------
729 142 283
----------- --------- ---------
Income before taxes.................. 4,126 1,428 1,360
Provision for income taxes........... 1,691 586 589
----------- --------- ---------
Net income........................... $ 2,435 $ 842 $ 771
=========== ========= =========
The accompanying notes are an integral part of these financial statements.
F-102
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
<S> <C> <C> <C> <C>
Balance, July 1, 1996................... 489 $ 5 $ 2,818 $ 2,823
Net income......................... -- -- 2,435 2,435
------ ------ --------- -------------
Balance, June 30, 1997.................. 489 5 5,253 5,258
Net income (unaudited)............. -- -- 771 771
------ ------ --------- -------------
Balance, September 30, 1997
(unaudited)........................... 489 $ 5 $ 6,024 $ 6,029
====== ====== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, --------------------
1997 1996 1997
---------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 2,435 $ 842 $ 771
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization...... 200 50 50
Loss on abandonment of assets...... 60 -- --
Deferred income taxes.............. 52 -- --
Changes in operating assets and
liabilities:
Accounts receivable, net...... (756) 1,838 (3,467)
Inventories................... (7,087) (439) (1,586)
Prepaid expenses and other
assets..................... 14 2 (92)
Other long term assets........ (9) -- --
Accounts payable.............. 3,067 (1,835) 1,856
Accrued liabilities........... 373 19 53
Deferred revenue.............. (25) (25) --
Income taxes payable.......... 715 20 (1,031)
---------- --------- ---------
Net cash provided (used)
in operating
activities............ (961) 472 (3,446)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment........................ (1,073) (69) (69)
---------- --------- ---------
Net cash used in investing
activities................. (1,073) (69) (69)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayment) on
revolving line-of-credit......... 2,450 600 (6,950)
Advances from parent............... -- -- 10,789
Net payments to former
stockholder...................... (129) (99) (56)
Proceeds from capital lease
obligations...................... 301 -- 40
Principal payments on long term
debt............................. (63) (17) (136)
Principal payments on capital lease
obligations...................... (27) (8) (16)
---------- --------- ---------
Net cash provided by
financing
activities............ 2,532 476 3,671
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 498 879 156
CASH AND CASH EQUIVALENTS BEGINNING OF
PERIOD................................ (70) (70) 428
---------- --------- ---------
CASH AND CASH EQUIVALENTS END OF
PERIOD................................ $ 428 $ 809 $ 584
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest............. 636 142 283
Cash paid for income taxes......... $ 918 $ 564 $ 1,620
The accompanying notes are an integral part of these financial statements
F-104
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Harvey Titanium, Ltd., ("Harvey") a California Corporation, is a specialty
metal service center located in Santa Monica, California, specializing primarily
in the distribution of titanium products. Harvey performs services for its
customers including cutting, extruding, machining and treating of titanium
sheet, plate, ingot and billet. Harvey's customers are composed primarily of
manufacturers of aerospace products. Harvey markets its products principally in
the western part of the United States. Total sales to Europe aggregated
approximately $7,200.
As described in Note 10, on September 26, 1997, Harvey and its sole
stockholder entered into a definitive merger agreement with Metals USA, Inc.
("Metals USA") pursuant to which all of Harvey's outstanding shares of capital
stock were exchanged for cash and shares of Metals USA common stock.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Harvey and
its wholly-owned subsidiary, Harvey Overseas Sales Corporation, an
Interest-Charge Domestic International Sales Corporation (IC-DISC). Total export
sales amounted to $10,700 for the year ended June 30, 1997. All significant
intercompany balances and transactions have been eliminated.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
disclosure of contingent assets and liabilities known to exist as of the date
the financial statements are published and, (iii) the reported amount of
revenues and expenses recognized during the periods presented. Harvey reviews
all significant estimates affecting its consolidated financial statements on a
recurring basis and records the effect of any necessary adjustments prior to
their publication. Adjustments made with respect to the use of estimates often
relate to improved information not previously available. Uncertainties with
respect to such estimates and assumptions are inherent in the preparation of
financial statements; accordingly, it is possible that an unfavorable resolution
of the contingency described in Note 8 could have a material adverse effect on
Harvey's consolidated financial position, results of operation or liquidity.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which in the opinion
of management, are necessary to present fairly the financial position of Harvey
at September 30, 1997, and the results of its operations and cash flows for the
three months ended September 30, 1996 and 1997. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year end.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
INCOME TAXES
Harvey accounts for income taxes in accordance with Statement Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Under
SFAS 109, deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the period in which the differences are
expected to affect taxable income. The principal items resulting in the
differences are different depreciation methods, use of the allowance method for
bad debts, commission payments to an IC-DISC and different inventory
capitalization methods. Valuation allowances
F-105
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are established when necessary to reduce deferred assets to the amount to be
realized. Income tax expense is the tax payable for the year and the change
during the year in deferred tax assets and liabilities.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is generally recognized on the sale of goods when the goods are
shipped, all significant contractual obligations have been satisfied, and the
collection of the resulting receivable is reasonably assured.
INVENTORIES
Inventories are stated at the lower of cost of market with cost determined
primarily using the " last-in, first-out" ("LIFO") method, which is not in
excess of market. If the first-in, first-out (FIFO) method of inventory
valuation had been used, inventory would have been $1,328 higher, and income,
before income taxes, would have been $2,651 for the year ended June 30, 1997.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject Harvey to concentrations
of credit risk, consist principally of cash deposits and trade accounts
receivable. Harvey places its temporary cash investments with credit-worthy
financial institutions and periodically evaluates the credit ratings of such
institutions to mitigate risk. Concentrations of credit risk with respect to
trade accounts receivable result from Harvey having one customer, a large
aerospace company, that accounted for approximately 20% of the accounts
receivable at June 30, 1997. For the year ended June 30, 1997, the same customer
accounted for approximately 30% of sales. Credit is extended once appropriate
credit history and references have been obtained. Adjustments to the allowance
for doubtful accounts are made periodically (as circumstances warrant) based
upon the expected collectibility of all such accounts. Harvey periodically
reviews the credit history of its customers and generally does not require
collateral for the extension of credit.
DEPRECIATION AND AMORTIZATION
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed on the declining balance method over the estimated
lives of the assets. Amortization of leasehold improvements over their estimated
useful life, regardless of the lease term, is determined on the straight line
method. Expenditures for maintenance and repairs are charged to expense as
incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of ("SFAS 121") in March, 1995. SFAS
121 requires that long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Harvey adopted SFAS No. 121 on July 1, 1996.
F-106
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 consists of the following:
ESTIMATED
USEFUL LIVES
--------------
Machinery and equipment.............. 5-7 years $ 1,184
Auto and trucks...................... 5 years 19
Furniture............................ 5 years 691
Leasehold Improvements............... 7-15 years 357
---------
2,251
Less: accumulated depreciation....... (1,040)
---------
Total property and
equipment, net............. $ 1,211
=========
3. LONG TERM DEBT
Long-term debt at June 30, 1997 consists of the following:
Revolving line of credit.............................. $ 6,950
Loan payable to a lending institution, secured by
equipment and payable in monthly installments of $5,
plus interest at a fixed rate of 8.83%, with the
final payment due in July, 1999..................... 135
---------
7,085
Less: current portion................................. 63
---------
$ 7,022
=========
Harvey has a revolving line of credit agreement with the Bank of
California, effective March 21, 1995, modified on various occasions and restated
in its entirety on February 4, 1997, which provides for borrowings of up to
$7,500 with interest charged monthly at.875% in excess of the bank's prime
lending rate (8.50% at June 30, 1997) and matures January 29, 1998. This line is
secured by substantially all of the assets of Harvey and is personally
guaranteed by the Company's stockholder.
In addition, the credit agreement limits advances pursuant to a "borrowing
base" calculation based upon receivables and inventory and contains restrictive
covenants, which among other things, require Harvey to maintain certain levels
of working capital, net worth, profitability and financial leverage ratios.
Additional restrictions limit new indebtedness, purchase and sale of assets,
investments, mergers and acquisitions and dividend payments. Borrowings of
$6,950 were outstanding at June 30, 1997.
On August 28, 1997 Harvey modified its existing revolving line-of-credit
agreement with Bank of California to provide for increased available borrowings
of up to $13,000 and to extend the maturity date to August 30, 1998. This debt
is classified as noncurrent as a result of this extension.
F-107
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OBLIGATIONS UNDER CAPITAL LEASE
Harvey leases certain shop and office equipment under non-cancelable
capital leases through March, 2002, which bear interest at rates ranging from
9.0% to 14.84%.
Future minimum lease payments under capital leases as of June 30, 1997 are
as follows:
YEAR ENDED JUNE 30,
- ----------------------------------------
1998............................... $ 97
1999............................... 97
2000............................... 90
2001............................... 74
2002............................... 53
---------
Total future minimum lease
payments.......................... 411
Less: deferred interest............ 81
---------
Capital lease obligation........... 330
Less: current portion, net of
deferred interest................. 66
---------
$ 264
=========
The cost of equipment under capital leases and accumulated amortization
amounted to approximately $362 and $72 , respectively, at June 30, 1997.
5. INCOME TAXES
Income tax expense for the year ended June 30, 1997 is comprised of the
following:
Federal:
Current............................ $ 1,232
Deferred........................... 67
---------
1,299
State:
Current............................ 407
Deferred........................... (15)
---------
392
---------
Total tax provision..................... $ 1,691
=========
F-108
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant items giving rise to the deferred tax (assets) and
liabilities as of June 30, 1997 are as follows:
Deferred tax liabilities:
Bases differences in property and
equipment......................... $ 15
Investment in partnership.......... 97
IC-DISC commission................. 743
---------
Total deferred tax
liabilities................. 855
Deferred tax assets:
Allowance for doubtful accounts.... (100)
Inventory bases differences........ (78)
California franchise tax........... (131)
---------
Total deferred tax assets..... (309)
---------
Net deferred tax liabilities............ $ 546
=========
The provision for income taxes differs from an amount computed at the
statutory rates as follows:
U.S. Federal statutory rate............. 34.0%
State income taxes, net of Federal tax
benefit............................... 6.1%
Other................................... 0.9%
---------
41.0%
=========
6. EMPLOYEE BENEFIT PLANS
Effective June 1, 1997, Harvey adopted a profit sharing 401(k) plan with a
Section 125 component. The plan allows for employee contributions through salary
reductions of up to 15% of total compensation. Harvey contributes an amount
equal to 50% of participant 401(K) contributions, up to a maximum of 3% of their
salaries. Employer contributions vest at the rate of 20% per year starting with
the completion of the second year of employment Participants are entitled, upon
termination, death, or retirement, to their respective portion of retirement
fund assets. The Section 125 component allows employees to use pre-tax
compensation to pay for dependent care and certain medical costs. Harvey's
employer contribution for the year ended June 30, 1997 amounted to $2.
7. LEASE COMMITMENTS
Harvey has leased office and warehouse facilities and transportation
equipment under various non-cancelable long term agreements, which have initial
or remaining non-cancelable terms in excess of one year as of June 30, 1997.
Total rent expense related to such leases aggregated $591 for the year ended
June 30, 1997.
The current office/warehouse lease, effective December 1, 1996, expires in
November, 2001, and is renewable at the option of Harvey for an additional five
years. This lease is a net lease which requires that Harvey pay all executory
expenses such as real estate taxes, insurance, common area and other operating
costs. Harvey also leases office space in London, England for its international
sales office under a lease that expires in October, 1997.
Future minimum rental commitments for fiscal years ending after June 30,
1997, under the leases described above, net of sub-lease income, are as follows:
1998 -- $567; 1999 -- $551; 2000 -- $516; 2001 -- $485; 2002 -- $182.
F-109
<PAGE>
HARVEY TITANIUM, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONTINGENCY
Harvey has been notified that it is a party to a product liability claim
(for which it has no product liability insurance) relating to the sale of parts
that allegedly did not comply with certain contract specifications. Harvey and
other parties have entered into a tolling agreement, which effectively delays
the statute of limitations with respect to any potential legal action that may
arise from this matter. Discussions between the parties are in their early
stages with respect to the product liability claim. This matter is subject to
significant uncertainties and, accordingly, it is presently impossible to make a
reasonable estimate of the amount or range of amounts of any monetary liability
that could result from this uncertainty.
9. RELATED PARTY TRANSACTIONS
On June 28, 1996, the stockholder loaned Harvey $595 in the form of a
subordinated note payable. An additional loan of $452 was made by the
stockholder to Harvey on June 30, 1997. Both loans are unsecured, allow for
prepayment of principal and bear interest at a rate of 8% per annum, payable
semiannually. After reductions for principal repayments made at various times
during the year and reclassification of certain personal expenditures at year
end in connection with the annual financial audit, the remaining outstanding
balance was $400 at June 30, 1997. Interest paid to the stockholder during the
year amounted to $25.
Prior to December 1, 1996, Harvey leased its old office and warehouse
facilities from its sole stockholder under a total of two leases. In connection
with the lease of the current office/warehouse facility, the old leases were
terminated in November, 1996.
10. SUBSEQUENT EVENTS -- (UNAUDITED)
On September 26, 1997, Harvey and its sole stockholder entered into a
definitive agreement with a wholly-owned subsidiary of Metals USA, which among
other things, calls for the merger of Harvey with the Metals USA subsidiary.
Subsequent to the merger, (i) Harvey repaid the estimated remaining balance
on the stockholder note and, (ii) the outstanding balances on the revolving line
of credit facility and the long term debt owed to Bank of California totaling
$10,789 were paid by Metals USA.
F-110
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Wayne Steel, Inc.
Wooster, Ohio
We have audited the accompanying balance sheet of Wayne Steel, Inc. as of
December 31, 1996, and the related statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements as a result of our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wayne Steel, Inc. as of
December 31, 1996 and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
MEADEN & MOORE, LTD.
February 28, 1997 except as to Notes 10 and 12 for which the date is October 29,
1997
Wooster, Ohio
F-111
<PAGE>
WAYNE STEEL, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 451 $ 2,224
Accounts receivable, less
allowance of $30 and $75....... 7,859 11,009
Inventories..................... 19,680 22,718
Current portion of note
receivable from shareholder.... 17 17
Prepaid expenses and other
current assets................. 305 278
------------ -------------
Total current assets....... 28,312 36,246
Property and equipment, net.......... 11,397 18,810
Note receivable from shareholder, net
of current portion................. 17 --
Other assets......................... 187 299
------------ -------------
Total assets............... $ 39,913 $55,355
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 8,119 $ 9,924
Accrued liabilities............. 1,123 1,617
Line of credit.................. 293 2,157
Current portion of long-term
debt............................ 486 1,057
Income taxes payable............ 21 15
------------ -------------
Total current
liabilities.................. 10,042 14,770
Long-term debt, net of current
portion............................ 7,537 15,513
Deferred compensation................ 512 512
------------ -------------
Total liabilities.......... 18,091 30,795
Commitments and contingencies........ -- --
Stockholders' equity:
Common stock, no par value,
$.33 stated value:
Class A, voting; authorized
20,000 shares, issued and
outstanding 18,075 shares
at December 31, 1996 and
September 30, 1997......... 6 6
Class B, nonvoting;
authorized 180,000
shares, issued and
outstanding 90,975
shares at December 31,
1996 and 91,475 shares
at September 30, 1997...... 30 30
Additional paid-in capital...... 1,008 1,124
Retained earnings............... 20,778 23,400
------------ -------------
Total stockholders' equity...... 21,822 24,560
------------ -------------
Total liabilities and
stockholders' equity..... $ 39,913 $55,355
============ =============
The accompanying notes are an integral part of these financial statements.
F-112
<PAGE>
WAYNE STEEL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
------------------ ------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ --------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.............. 18,075 $ 6 90,375 $ 30 $ 873 $18,809 $19,718
Sale of 600 shares of
Class B common stock............. -- -- 600 -- 135 -- 135
Distributions to stockholders...... -- -- -- -- -- (3,875) (3,875)
Net Income......................... -- -- -- -- -- 5,844 5,844
--------- ------ --------- ------ ---------- --------- -------------
Balance, December 31, 1996.............. 18,075 6 90,975 30 1,008 20,778 21,822
Sale of 500 shares of
Class B common stock
(unaudited)...................... -- -- 500 -- 116 -- 116
Distributions to stockholders
(unaudited)...................... -- -- -- -- -- (3,300) (3,300)
Net income (unaudited)............. -- -- -- -- -- 5,922 5,922
--------- ------ --------- ------ ---------- --------- -------------
Balance, September 30, 1997
(unaudited)........................... 18,075 $ 6 91,475 $ 30 $1,124 $23,400 $24,560
========= ====== ========= ====== ========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-113
<PAGE>
WAYNE STEEL, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
Net sales............................... $105,754 $ 78,337 $ 99,977
Operating costs and expenses:
Cost of sales...................... 82,770 60,814 79,811
Operating and delivery............. 9,915 7,227 8,912
Selling, general and
administrative................... 5,701 4,586 3,720
Depreciation and amortization...... 1,141 843 877
------------ --------- ---------
Operating income........................ 6,227 4,867 6,657
Other (income) expense:
Interest expense................... 459 386 571
Other, net......................... (339) (385) (61)
------------ --------- ---------
120 1 510
------------ --------- ---------
Income before income taxes.............. 6,107 4,866 6,147
Provision for income taxes.............. 263 225 225
------------ --------- ---------
Net income.............................. $ 5,844 $ 4,641 $ 5,922
============ ========= =========
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE>
WAYNE STEEL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1996 1996 1997
------------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 5,844 $ 4,641 $ 5,922
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Depreciation and
amortization............... 1,162 858 897
Deferred compensation....... 512 512 --
Gain on sale of assets...... (220) (222) (7)
Changes in operating assets
and liabilities:
Accounts receivable,
net................... (474) (2,216) (3,150)
Inventories............ (4,937) (3,127) (3,038)
Prepaid expenses and
other assets....... 46 44 27
Accounts payable and
accrued
liabilities.......... 3,663 2,099 2,299
Income tax payable..... 21 13 (6)
------------- --------- ---------
Net cash
provided by
operating
activities.... 5,617 2,602 2,944
------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (2,811) (2,146) (8,320)
Principal collected on
shareholder note............... 17 17 17
Proceeds from sale of assets.... 259 257 37
------------- --------- ---------
Net cash used in
investing
activities.... (2,535) (1,872) (8,266)
------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving
line-of-credit................ 293 2,049 1,864
Principal payments on
shareholder debt.............. (230) (230) --
Principal payments on long-term
obligations................... (1,413) (1,390) (453)
Principal borrowings on
long-term obligations......... -- -- 9,000
Financing costs................. -- -- (132)
Sale of common stock............ 135 135 116
Distributions to shareholders... (3,875) (2,950) (3,300)
------------- --------- ---------
Net cash
provided by
(used in)
financing
activities.... (5,090) (2,386) 7,095
------------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (2,008) (1,656) 1,773
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD.......................... 2,459 2,459 451
------------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................. $ 451 $ 803 $ 2,224
============= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 456 $ 401 $ 358
Cash paid for income taxes...... 229 212 231
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
Wayne Steel, Inc. operates in one business segment and is a wholesaler and
processor of steel and aluminum flat-rolled products. The Company sells to
customers generally located in the Eastern United States. The Company operates
from facilities located in Wooster, Ohio and Randleman, North Carolina; however,
as of December 31, 1996, management was negotiating the plausibility of
constructing and operating a new facility in Jeffersonville, Indiana. (See Note
12).
Wayne Steel and its stockholders expect to enter into a definitive merger
agreement with Metals USA, Inc. pursuant to which all of Wayne Steel's
outstanding shares of capital stock will be exchanged for shares of Metals USA
common stock. The agreement contemplates that the transaction will be accounted
for using the pooling of interests method. (See Note 12).
USE OF ESTIMATES AND ASSUMPTIONS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INTERIM FINANCIAL INFORMATION:
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal and recurring nature, which, in the
opinion of management, are necessary to present fairly the financial position of
Wayne Steel at September 30, 1997, and the results of its operations and cash
flows for the nine months ended September 30, 1996 and 1997. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the entire
year.
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
CASH EQUIVALENTS
The company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenue is recognized as goods are shipped to customers.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined upon a specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment, including any capitalized interest is stated at
cost, net of accumulated depreciation. Assets purchased with the proceeds of
Industrial Revenue Bonds are depreciated using the straight-line method. Other
assets are generally depreciated using the declining balance method.
Depreciation is computed at rates based upon the estimated useful lives of the
various classes of assets. Expenditures for maintenance and repairs are charged
to income as incurred. Additions and betterments are capitalized. The cost and
related accumulated depreciation of properties sold or otherwise disposed of are
removed from the accounts and any gain or loss is reflected in the current
year's earnings.
F-116
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash equivalents approximate their fair value. The
carrying amounts of cash surrender value of life insurance policies approximate
their fair value. The carrying amount of the note receivable approximates fair
value at the applicable balance sheet dates. The fair value of the note was
based on expected cash flows discounted using current rates at which similar
loans would be made to borrowers with similar credit ratings. The fair value of
the line-of-credit facility and long-term debt are estimated based on interest
rates for the same or similar debt offered to Wayne Steel having the same or
similar remaining maturities and collateral requirements. The carrying amounts
of the line-of-credit facility and long-term debt approximates fair value at the
applicable balance sheet dates.
CONCENTRATION OF CREDIT RISK:
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash, cash equivalents and trade accounts
receivable. The Company places its cash and temporary cash investments with high
quality institutions. At times such investments may be in excess of the FDIC
insurance limit. The company routinely assesses the financial strength of its
customers and, as a consequence, believes that its trade accounts receivable
credit risk exposure is limited. Adjustments to the allowance for doubtful
accounts are made periodically (as circumstances warrant) based upon the
expected collectability of all such accounts.
INCOME TAXES:
The stockholders have elected to be taxed under sections of the Federal and
State of Ohio income tax laws which provide that, in lieu of corporate income
taxes, the stockholders separately account for Wayne Steel's items of income,
deductions, losses and credits on their individual income tax returns. State of
North Carolina and all city income taxes are paid by the corporation. As long as
the company's S Corporation election remains in effect, Wayne Steel may, from
time to time, pay dividends to its stockholders in amounts sufficient to enable
the stockholders to pay the Federal and Ohio taxes due on their allocated share
of the company's taxable income.
OTHER ASSETS:
Other assets consist primarily of financing costs associated with the
company's various industrial revenue bonds and are being amortized over the
lives of the related bonds using the straight line method. The company charged
1996 operations for $21 in amortization expense.
RECENT ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") in March 1995. SFAS 121
requires that long-lived assets and certain intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Wayne
Steel adopted SFAS No. 121 on January 1, 1996. The impact of adopting this
standard did not have a material impact on the results of operations.
2. INVENTORIES
At December 31, 1996 inventories consisted of the following:
Raw materials........................... $ 14,132
Work-in-process and finished goods...... 5,548
---------
$ 19,680
=========
F-117
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
ESTIMATED DECEMBER 31,
USEFUL LIVES 1996
------------ ------------
Land.................................... $ 211
Buildings and improvements.............. 12-40 years 6,709
Machinery and equipment................. 5-12 years 10,481
Trucks and automobiles.................. 5-7 years 428
Office equipment........................ 5-12 years 1,050
------------
18,879
Less: accumulated depreciation.......... 7,482
------------
$ 11,397
============
4. DETAIL OF ACCRUED LIABILITIES
At December 31, 1996 accrued liabilities consist of the following:
Accrued salaries and benefits........... $ 568
Accrued taxes other than income......... 405
Accrued profit sharing.................. 150
---------
$ 1,123
=========
5. LINE OF CREDIT
The Company has an unsecured line-of-credit with Bank One for $15,000
through May 31, 1997. Interest is paid monthly at 1% below the prime rate. Also,
the Company may borrow against this line for periods up to 180 days at a fixed
rate of 1% below the prime rate. The weighted average interest rate paid during
1996 was 7.26%.
F-118
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
BALANCE AT
CURRENT DECEMBER 31,
PORTION 1996
-------- ------------
Industrial Revenue Bonds:
1987 State of Ohio Industrial
Development Revenue Bonds, payable
in monthly installments with variable
interest averaging 4.28% per annum,
secured by real estate and equipment
acquired with proceeds from these
bonds with a book value of $1,115 at
December 31, 1996................ $ 86 $1,023
1990 Randolph County, North
Carolina Industrial Revenue Bonds,
payable in monthly installments with
variable interest averaging 4.41%
per annum, secured by real estate and
equipment acquired with proceeds
from these bonds with a book value of
$2,617 at December 31,
1996............................. 300 2,600
1995 Randolph County, North Carolina
Industrial Revenue Bonds, payable in
monthly installments with variable
interest averaging 4.40% per annum,
secured by real estate and equipment
acquired with proceeds from these
bonds with a book value of $4,371 at
December 31, 1996................ 100 4,400
-------- ------------
$ 486 $8,023
======== ============
Annual maturities on the above long-term debt are as follows:
1997................................. $ 486
1998................................. 797
1999................................. 893
2000................................. 897
2001................................. 893
Later years.......................... 4,057
---------
$ 8,023
=========
In addition, these credit facilities place various restrictions on the
Company, including but not limited to, maintenance of required insurance
coverage, maintenance of certain financial ratios, limits on capital
expenditures, maintenance of tangible net worth, etc.
7. EMPLOYEE BENEFIT PLANS
Employees of the Company participate in a 401(k) profit sharing plan
covering substantially all full-time employees. Participants are vested at a
varied rate commencing after three years of service and are fully vested after
seven years of service. The deferral portion of the plan allows employees to
elect to contribute a portion of their pay into the plan. The Company matches a
portion of the amount deferred by participating employees. Contributions for the
profit sharing portion of the plan are at the discretion of the Company's Board
of Directors. For the year ended December 31, 1996, the Company contributed $150
to the profit sharing portion and $98 in employer matching contributions to the
401(k) portion of the plan.
F-119
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS
Wayne Steel sells scrap steel to a scrap processing company owned by one of
its minority stockholders. Sales to the related company during 1996 totaled $755
and accounts receivable at December 31, 1996 amounted to $35.
The Company loaned $70 to one of its minority stockholder/employees during
1994. The installment note provides for annual payments of $17 plus interest at
7.05% per annum through August 15, 1998.
9. MAJOR CUSTOMERS
The Company has one customer representing in excess of 10% of annual sales.
Sales to this customer during 1996 approximated $10,850.
10. COMMITMENTS AND CONTINGENCIES
STOCK PURCHASE AGREEMENTS:
The Company reserved 4,500 shares of unissued Class B non-voting common
stock for sale to employees under stock purchase agreements. Each affected
employee has an option to purchase up to 500 shares of stock. To exercise the
option, each employee must agree to become a party to the Company's buy/sell
agreement discussed below. The number of shares to be made available for sale at
any time occur at the following intervals:
DATE SHARES
- ---------------------------------------- ------
July 1, 1996............................ 1,800
January 1, 1997......................... 900
January 1, 1998......................... 900
January 1, 1999......................... 900
------
4,500
======
The purchase price at any given date is the estimated fair market value as
established by a formula in the buy/sell agreement. Since the intent of all
parties is to establish the price as fair market value at the date of exercise,
no compensation element has been recorded or charged to operations as a result
of any sales.
At July 1, 1996 employees purchased 600 shares at $224.27 per share. On
January 1, 1997 an additional 500 shares were sold at $233.07 per share. Shares
available to any employee but not purchased at any given exercise date may be
purchased at the next exercise date at the then current fair market value per
share.
BUY/SELL AGREEMENT:
The Company has entered into an agreement with all of its shareholders
under which the Company is obligated to purchase the common stock of the
employee (and any family members) upon death, disability and termination of
employment, including retirement. The purchase price is the estimated fair
market value at the date of the terminating event, as established by a formula
in the agreement. Redemptions in excess of $750 allow for installment payments
of varying duration depending upon the total purchase price. Any installment
obligations created under the agreement will bear interest at the prime rate.
Under ASR 268, issued by the Securities and Exchange Commission, the normal
accounting treatment and presentation would be to record the potential mandatory
redemption liability in the basic financial statements at the current fair
market value, with a corresponding reduction in the permanent capital reported
as Stockholders' Equity. Since the formula price established in the agreement
always exceeds reported Stockholders' Equity, the result would be to permanently
report a deficit in Stockholders' Equity.
F-120
<PAGE>
WAYNE STEEL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
However, the definitive merger agreement with Metals USA, Inc. (See Note
12) specifically requires the cancellation of the employee stock purchase
agreements and the buy/sell agreements prior to the merger closing date. Since
the management and shareholders of Wayne Steel expect to consummate the merger,
the financial statements have been presented as though the agreements did not
exist.
11. DEFERRED COMPENSATION LIABILITY
In March 1996, the Company entered into a non-qualified retirement plan
with one of its minority stockholder/officers. The agreement provides for
monthly payments of $3 plus payment of continuing medical insurance and other
fringe benefits after early or normal retirement. Payments continue for the life
of the officer with a minimum payment of 10 years. The liability has been
recorded at the present value of anticipated future payments with interest
imputed at 7% per annum.
12. SUBSEQUENT EVENTS
On October 29, 1997 the Company and its shareholders entered into a
definitive agreement with a wholly-owned subsidiary of Metals USA, Inc., which
among other things calls for the merger of Wayne Steel with the Metals USA
subsidiary.
Subsequent to October 29, but prior to the closing date, the Company
intends to make a dividend distribution to its shareholders (of an as yet
undetermined amount) to cover the personal income tax liabilities created by the
Company's taxable income as an S Corporation through the closing date.
During 1997 Wayne Steel entered into various contracts for the construction
and equipment of a new manufacturing facility in Jeffersonville, Indiana. The
new facility is anticipated to cost $9,000 financed primarily through a new
Industrial Revenue Bond.
F-121
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interstate Steel Supply Co. and Affiliates
We have audited the accompanying combined balance sheets of Interstate
Steel Supply Co. and Affiliates as of December 31, 1995 and 1996, and the
related combined statements of operations, stockholders' equity and partners'
capital 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 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 these financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Interstate
Steel Supply Co. and Affiliates as of December 31, 1995 and 1996, 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.
ARTHUR ANDERSEN LLP
Houston, Texas
February 3, 1998
F-122
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents....... $ 83 $ 168 $ 385
Accounts receivable -- trade,
less allowance of $225, $300
and $351...................... 7,864 6,821 8,905
Inventories..................... 8,755 11,403 10,726
Prepaid expenses and other
current assets................ 69 191 754
--------- --------- -----------
Total current assets....... 16,771 18,583 20,770
Property and equipment, net.......... 3,447 3,325 3,331
Other assets......................... 987 1,116 1,225
--------- --------- -----------
Total assets............... $ 21,205 $ 23,024 $25,326
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................ $ 1,401 $ 1,866 $ 2,779
Accrued liabilities............. 941 1,051 782
Lines of credit................. 11,100 10,100 11,600
Current portion of long-term
debt.......................... 93 94 75
--------- --------- -----------
Total current
liabilities............. 13,535 13,111 15,236
Long-term debt....................... 817 723 581
--------- --------- -----------
Total liabilities.......... 14,352 13,834 15,817
--------- --------- -----------
Stockholders' equity:
Common stock; 200,000 shares,
$1.00 par value authorized,
35,500 issued and
outstanding................... 36 36 36
Common stock; 2,000 shares, no
par value authorized, 2,000
issued and outstanding........ 2 2 2
Additional paid-in capital...... 72 72 72
Retained earnings............... 6,739 9,072 9,237
Partners' capital............... 1,502 1,506 1,660
Treasury stock.................. (1,498) (1,498) (1,498)
--------- --------- -----------
Total stockholders'
equity.................. 6,853 9,190 9,509
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 21,205 $ 23,024 $25,326
========= ========= ===========
The accompanying notes are an integral part of these combined financial
statements.
F-123
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 49,299 $ 61,375 $ 66,806 $ 34,110 $ 35,774
Costs and expenses:
Cost of sales................... 37,283 44,868 47,902 24,303 26,161
Operating and delivery.......... 6,197 7,916 8,243 4,185 4,554
Selling, general and
administrative expenses....... 4,187 5,279 5,391 2,777 2,663
Depreciation and amortization... 483 561 550 280 193
--------- --------- --------- --------- ---------
Operating income................ 1,149 2,751 4,720 2,565 2,203
Other (income) expense:
Interest expense, net........... 792 908 936 474 426
Other, net...................... (1) 1 10 10 (2)
--------- --------- --------- --------- ---------
Income before income taxes........... 358 1,842 3,774 2,081 1,779
Provision for income taxes........... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income........................... $ 358 $ 1,842 $ 3,774 $ 2,081 $ 1,779
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-124
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
AND PARTNERS' CAPITAL
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
$1 PAR NO PAR PAID-IN RETAINED TREASURY PARTNERS'
VALUE VALUE CAPITAL EARNINGS STOCK CAPITAL TOTAL
------- ------- ----------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1994......................... $ 36 $ 2 $ 72 $ 5,688 $(1,498) $1,116 $5,416
Dividends and distributions............. -- -- -- (228) -- (80) (308)
Net income.............................. -- -- -- 239 -- 119 358
------- ------- ----------- --------- --------- -------- ------
Balance, December 31, 1994.............. 36 2 72 5,699 (1,498) 1,155 5,466
Dividends and distributions............. -- -- -- (705) -- -- (705)
Contributions........................... -- -- -- -- -- 250 250
Net income.............................. -- -- -- 1,745 -- 97 1,842
------- ------- ----------- --------- --------- -------- ------
Balance, December 31, 1995.............. 36 2 72 6,739 (1,498) 1,502 6,853
Dividends and distributions............. -- -- -- (1,437) -- -- (1,437)
Net income.............................. -- -- -- 3,770 -- 4 3,774
------- ------- ----------- --------- --------- -------- ------
Balance, December 31, 1996.............. 36 2 72 9,072 (1,498) 1,506 9,190
Dividends and distributions
(Unaudited)........................... -- -- -- (1,460) -- -- (1,460)
Net income (Unaudited).................. -- -- -- 1,625 -- 154 1,779
------- ------- ----------- --------- --------- -------- ------
Balance, June 30, 1997 (Unaudited)...... $ 36 $ 2 $ 72 $ 9,237 $(1,498) $1,660 $9,509
======= ======= =========== ========= ========= ======== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-125
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 358 $ 1,842 $ 3,774 $ 2,081 $ 1,779
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and
amortization................. 483 561 550 280 193
Loss (gain) on sale of
assets....................... 2 10 -- -- (6)
Changes in operating assets and
liabilities:
Accounts receivable, net... (695) (768) 1,041 611 (2,084)
Inventories................ (1,272) (1,315) (2,648) (5,352) 677
Prepaid expenses and other
assets................... 112 6 (121) (720) (672)
Accounts payable and
accrued liabilities...... (3) 158 575 1,495 644
Other assets............... (119) (178) (129) -- --
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating
activities............... (1,134) 316 3,042 (1,605) 531
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment......................... (571) (533) (428) (130) (193)
Proceeds from sales of property and
equipment......................... 10 6 -- -- --
Other, net.......................... 11 -- -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing
activities............... (550) (527) (428) (130) (193)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) on
line-of-credit.................... 1,225 750 (1,000) 2,950 1,500
Principal payments on long-term
obligations....................... (239) (259) (93) (48) (161)
Proceeds from issuance of long-term
obligations....................... 900 -- -- -- --
Distributions to shareholders and
partners.......................... (308) (564) (1,436) (1,138) (1,460)
Capital contributions............... -- 250 -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing
activities............... 1,578 177 (2,529) 1,764 (121)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (106) (34) 85 29 217
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ 223 117 83 83 168
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 117 $ 83 $ 168 $ 112 $ 385
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.............. $ 847 $ 964 $ 930 $ 449 $ 500
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-126
<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 entered into a definitive merger agreement with Metals USA,
Inc. ("Metals USA") pursuant to which all of Interstate's outstanding shares of
capital stock were 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.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of management, are necessary to present fairly the financial position of
Interstate at June 30, 1997, and the result of its operations and cash flows for
the six months ended June 30, 1996, and 1997. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents consist of highly liquid money market instruments with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out ("LIFO") method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation for buildings and equipment are based upon the estimated useful
lives of the various classes of assets, using the straight-line and the
declining balance method, respectively. Leasehold improvements are amortized
over the shorter of their useful lives or the term of the lease using the
straight-line method.
F-127
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
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-128
<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 depreciation and
amortization....................... (5,319) (5,818)
--------- ---------
$ 3,447 $ 3,325
========= =========
4. LINE-OF-CREDIT
Interstate has unsecured $14,500 demand line-of-credit facilities with two
banks. The line-of-credit facilities bear interest at rates between 6.75% and
8.25% at December 31, 1996. The line-of-credit agreements require Interstate to
meet and maintain certain nonfinancial covenants, including the maintenance of
life insurance policies on the sole stockholder of Interstate Steel Supply
Company in the amount of $3,000, with Interstate Steel Supply Company as the
designated beneficiary.
5. LONG-TERM DEBT
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Note payable to bank, interest at
prime plus 0.25% (8.50% at December
31, 1996), payable in monthly installments
of $6 (plus interest); matures in 2006;
secured by certain buildings and
equipment........................... $ 769 $ 694
Note payable to PIDC, interest at
7.0%, payable in installments of
$2; matures in 2006................ 141 123
--------- ---------
910 817
Less: current maturities............. (93) (94)
--------- ---------
$ 817 $ 723
========= =========
Long-term debt consists of notes payable issued by Warehouse Real Estate
Associates to purchase premises and equipment and to make improvements at the
facilities leased to the two operating companies; the buildings and equipment
are collateral. At December 31, 1996, future principal payments of long-term
debt are as follows:
1997................................. $ 94
1998................................. 95
1999................................. 97
2000................................. 98
2001................................. 100
Thereafter........................... 333
---------
$ 817
=========
6. EMPLOYEE BENEFIT PLANS
Interstate maintains profit-sharing plans which provide for voluntary
Company contributions at the discretion of the Board of Directors of up to 15%
of the salaries of eligible employees. Contributions of $260, $405 and $472 have
been charged to operations for the years ended December 31, 1994, 1995 and 1996,
respectively.
F-129
<PAGE>
INTERSTATE STEEL SUPPLY CO. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
7. MAJOR CUSTOMERS AND SUPPLIERS
During 1996, Interstate had two customers, each of which accounted for
approximately 10% of net sales. Interstate did not have any major customers that
accounted for more than 10% of net sales in 1995 or 1994.
Interstate primarily acquires structural and plate steel, its most
significant inventory, from three suppliers. Those suppliers made up 19%, 17%,
and 10%, respectively, in purchases for the fiscal year ending December 31,
1996. The same suppliers accounted for 10%, 13.5%, and 20%, respectively, in
total steel purchased for the year ended December 31, 1995.
8. SUBSEQUENT EVENT (UNAUDITED)
On July 11, 1997, Metals USA, Inc. purchased all of the issued and
outstanding equity securities of Interstate, through the issuance of common
stock and cash pursuant to a definitive merger agreement dated May 1997.
Prior to the merger, Interstate made a cash distribution of approximately
$5,250 which represented Interstate's estimated S Corporation accumulated
adjustment account. Had these distributions been made at December 31, 1996 or
June 30, 1997, the effect on Interstate's balance sheet would have been to
increase liabilities by $5,250, and decrease stockholder's equity by $5,250.
Interstate funded this distribution by using its existing credit facilities.
As described in Note 1, Warehouse Real Estate Associates will not be a
party to the merger. Following the sale of equipment described below,
approximately $1,800 of property and equipment, debt of $817 and other
obligations of approximately $133 which are included in the combined balance
sheet at December 31, 1996 will remain with Warehouse Real Estate Associates.
Concurrent with the merger, Interstate entered into agreements with Warehouse
Real Estate Associates to purchase certain equipment from Interstate Steel
Supply Company in exchange for an existing note receivable, having a carrying
value of $530 at December 31, 1996. The value of the equipment approximates the
value of the note. Additionally, an affiliate of Interstate entered into a 10
year lease with Warehouse Real Estate Associates with respect to certain real
property where Interstate conducts its operations for an annual lease payment of
$233. This annual lease amount will remain in effect for five years. At the end
of year five the annual rental will be redetermined. An affiliate of Interstate
has agreed to purchase the real estate at the end of year ten for the then
appraised fair market value of such property.
Prior to the merger, Interstate Steel Supply Company dividended a life
insurance policy to its sole stockholder, which had a book value at June 30,
1997 of approximately $1,183.
F-130
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pacific Metal Company
Portland, Oregon
We have audited the accompanying consolidated balance sheet of Pacific
Metal Company and Subsidiary as of December 31, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pacific
Metal Company and Subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As described in Note 13 to the financial statements, the Company has
restated its financial statements to correct an error in accounting for stock
appreciation rights.
PERKINS & COMPANY, P.C.
Portland, Oregon
February 26, 1997, except for Notes 13 and 14, as to which the date is
February 6, 1998
F-131
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ --------------
(UNAUDITED)
ASSETS
Current assets:
Cash............................ $ 255 $--
Trade accounts and notes
receivable, net of allowance
of $185 and $83............... 6,551 7,569
Inventories..................... 11,589 11,107
Refundable income taxes......... 110 --
Prepaid expenses................ 118 165
Deferred income taxes........... 915 1,016
------------ --------------
Total current assets....... 19,538 19,857
Property and equipment, net.......... 5,312 5,374
Other assets......................... 90 12
------------ --------------
Total assets............... $ 24,940 $ 25,243
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line-of-credit........ $ 7,050 $ 4,898
Checks drawn in excess of
deposits...................... 301 558
Current portion of long-term
debt.......................... 426 434
Accounts payable................ 5,049 5,432
Income taxes payable............ -- 50
Accrued liabilities............. 2,294 3,168
------------ --------------
Total current
liabilities............. 15,120 14,540
Long-term debt, net of current
portion.............................. 2,971 2,643
Deferred income taxes................ 465 465
Other long-term liabilities.......... 12 --
------------ --------------
Total liabilities.......... 18,568 17,648
Commitments and contingencies........
Stockholders' equity:
Common stock, $1 par value,
500,000 shares authorized,
177,250 shares issued and
outstanding................... 177 177
Additional paid-in capital...... 269 269
Unearned ESOP compensation...... (264) (222)
Retained earnings............... 6,190 7,371
------------ --------------
Total stockholders'
equity.................. 6,372 7,595
------------ --------------
Total liabilities and
stockholders' equity.... $ 24,940 $ 25,243
============ ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-132
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
Net sales............................ $ 84,261 $ 64,180 $ 65,021
Operating costs and expenses:
Cost of sales................... 65,236 50,215 50,445
Operating and delivery.......... 6,333 4,644 4,675
Selling, general and
administrative................ 8,870 6,769 7,177
Depreciation and amortization... 710 532 569
------------ --------- ---------
Operating income................ 3,112 2,020 2,155
Other (income) expense:
Interest expense................ 843 642 530
Other, net...................... (336) (337) (280)
------------ --------- ---------
507 305 250
------------ --------- ---------
Income before income taxes........... 2,605 1,715 1,905
Provision for income taxes........... 1,008 664 724
------------ --------- ---------
Net income........................... $ 1,597 $ 1,051 $ 1,181
============ ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-133
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED TOTAL
------------------ PAID-IN ESOP RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS EQUITY
------- ------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, as previously reported at
December 31, 1995.................. 174,900 $ 175 $ 169 $ (538) $ 5,411 $ 5,217
Prior-period adjustment -- error
in accounting for stock
appreciation rights........... -- -- -- -- (646) (646)
------- ------- ----------- ------------ --------- -------------
Balance, as restated at December 31,
1995............................... 174,900 175 169 (538) 4,765 4,571
Stock options exercised......... 2,350 2 83 -- -- 85
Increase in average fair value
of ESOT shares allocated...... -- -- 17 -- -- 17
Dividends declared.............. -- -- -- -- (177) (177)
Dividends on unallocated ESOT
shares expensed............... -- -- -- -- 5 5
Payments made toward principal
of ESOT obligation............ -- -- -- 274 -- 274
Net income...................... -- -- -- -- 1,597 1,597
------- ------- ----------- ------------ --------- -------------
Balance, December 31, 1996........... 177,250 177 269 (264) 6,190 6,372
Payments made toward principal
of ESOT obligation
(unaudited)................... -- -- -- 42 -- 42
Net income (unaudited).......... -- -- -- -- 1,181 1,181
------- ------- ----------- ------------ --------- -------------
Balance, September 30, 1997
(unaudited)........................ 177,250 $ 177 $ 269 $ (222) $ 7,371 $ 7,595
======= ======= =========== ============ ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-134
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,597 $ 1,051 $ 1,181
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for bad debts.......... 174 129 44
Depreciation and amortization.... 710 532 569
(Gain) loss on sale of
equipment...................... (98) (82) 7
Deferred income taxes............ 37 (96) (101)
Dividends accrued on unallocated
ESOT shares.................... 5 -- --
Increase in average value of ESOT
shares allocated............... 17 -- --
Deferred compensation............ (11) (8) (8)
Changes in operating assets and
liabilities:
Trade accounts and notes
receivable.................. 296 (718) (1,041)
Refundable income taxes........ (22) 87 110
Inventories.................... 1,349 1,071 482
Prepaid expenses............... 43 36 (47)
Accounts payable............... 323 733 383
Income taxes payable........... -- 72 50
Accrued liabilities............ 226 469 1,035
------------ --------- ---------
Net cash provided by
operating activities...... 4,646 3,276 2,664
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property
and equipment.................. 141 123 25
Purchase of property and
equipment...................... (1,491) (1,361) (663)
Other assets..................... (38) (21) 69
------------ --------- ---------
Net cash used in investing
activities................ (1,388) (1,259) (569)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of revolving
line-of-credit, net............ (2,825) (2,369) (2,152)
Net change in checks drawn in
excess of deposits............. (553) (114) 257
Borrowings on long-term notes.... 553 553 --
Repayment of long-term notes..... (196) (110) (262)
Payment of lease obligations..... (20) (15) (16)
Proceeds from stock options
exercised...................... 85 85 --
Dividends paid................... (87) (87) (177)
------------ --------- ---------
Net cash used in financing
activities................ (3,043) (2,057) (2,350)
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... 215 (40) (255)
CASH, beginning of period............ 40 40 255
------------ --------- ---------
CASH, end of period.................. $ 255 $ -- $ --
============ ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for --
Interest.................... $ 865 $ 655 $ 536
Income taxes................ 993 609 665
Noncash activities --
Reduction in unearned ESOP
compensation.............. 274 257 42
Dividends declared.......... 177 -- --
The accompanying notes are an integral part of these consolidated financial
statements.
F-135
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
Pacific Metal Company and its subsidiary operate as metal service centers
distributing principally flat-rolled, common alloy aluminum and steel from eight
branch locations in Oregon, Washington, Idaho, Montana and California. The
products are used predominately in construction, precision fabrication and in
the manufacturing of trucks and trailers, consumer durables, and machinery and
equipment. As a distributor, the Company has the ability to select from many
alternate sources of supply for its products.
Pacific Metal Company and its stockholders expect to enter into a
definitive merger agreement with Metals USA, Inc. pursuant to which all of
Pacific Metal's outstanding shares of common stock will be exchanged for cash
and shares of Metals USA, Inc. common stock. The agreement contemplates that the
transaction will be accounted for using the purchase method (See Note 14).
USE OF ESTIMATES AND ASSUMPTIONS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Pacific Metal
Company and its wholly owned subsidiary PMCC, Inc., dba Pacific Metal. All
material intercompany balances and transactions have been eliminated in
consolidation.
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 Pacific
Metal Company and Subsidiary at September 30, 1997, and the results of their
operations and cash flows for the nine months ended September 30, 1996 and 1997.
Accounting measurements at interim dates inherently involve greater reliance on
estimates than at year end. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for the
entire year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
Inventories are stated at the lower of cost or market principally the
last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. For financial reporting purposes, the costs of property and
equipment are depreciated over the estimated useful lives of the assets using
the declining-balance and straight-line methods. Capital leases are amortized
over the lease term.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of notes receivable approximates fair value at the
applicable balance sheet dates. The fair value of the notes was based on
expected cash flows discounted using current rates at which similar loans would
be made to borrowers with similar credit ratings. The carrying amount of the
revolving line-of-
F-136
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
credit and long-term debt approximate fair value at the applicable balance sheet
dates. The fair value of the line-of-credit and long-term debt are estimated
based on interest rates for the same or similar debt offered to Pacific Metal
Company having the same or similar remaining maturities and collateral
requirements.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash deposits, trade
accounts and notes receivable. The Company places its cash principally with one
large financial institution with balances in excess of Federal Deposit Insurance
Corporation limits. Concentrations of credit risk with respect to trade accounts
are within the machinists and fabricators, industrial/commercial contractors and
transportation equipment manufacturers industries. Generally, credit is extended
once appropriate credit history and references have been obtained. Adjustments
to the allowance for doubtful accounts are made periodically (as circumstances
warrant) based upon the expected collectibility of all such accounts. The
Company periodically reviews the credit history of its customers and generally
does not require collateral for the extension of credit.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES.
Under SFAS No. 109, deferred income taxes are recognized for the future tax
consequences of differences between tax bases of assets and liabilities and
their financial reporting amounts based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
represents the amount of taxes payable and the applicable changes in deferred
tax assets and liabilities.
ADVERTISING COSTS
The Company expenses advertising costs as incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF 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. The Company adopted
SFAS No. 121 on January 1, 1996. The impact of adopting this standard did not
have a material impact on the results of operations.
SFAS No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, allows entities to
choose between a new fair value based method of accounting for employee stock
options or similar equity instruments and the current intrinsic, value-based
method of accounting prescribed by Accounting Principles Board Opinion No. 25
("APB No. 25"). The Company has elected to follow APB No. 25 in accounting for
its employee stock options. Under APB No. 25, no compensation expense is
recognized when the exercise price of options equals the fair market value of
the stock on the date of grant.
F-137
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
2. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
1996
------------
Aluminum products.................... $ 8,437
Carbon plates and sheets............. 6,167
Carbon tubular products.............. 99
Rolled finished bars/shapes.......... 210
Stainless steel products............. 319
Other................................ 745
Less -- LIFO reserve................. (4,388)
------------
$ 11,589
============
The replacement cost of the Company's inventory exceeds the historical cost
of the inventory, computed using the LIFO method of valuation, as reported in
the accompanying financial statements. If the average cost method had been used
for all inventories, the carrying value would have been $15,977 at December 31,
1996. Additionally, net income would have been $955 for the year ended December
31, 1996.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
1996
------------
Land................................. $ 353
Buildings and improvements........... 3,272
Machinery and equipment.............. 7,321
Automobiles and trucks............... 162
------------
11,108
Less: accumulated depreciation and
amortization....................... (5,796)
------------
$ 5,312
============
4. REVOLVING LINE-OF-CREDIT
Under a loan agreement dated as of May 31, 1996, maturing April 30, 1998,
and as subsequently amended, the Company has a revolving line-of-credit of
$13,000. At Pacific Metal Company's option, funds are borrowed at either the
bank's prime rate or the London Interbank Offered Rate (LIBOR) plus 1.75%. At
December 31, 1996, the bank's prime rate was 8.25%, and the LIBOR rate was
5.69%. The Company's advances against the line of credit are limited to 80% of
its qualified accounts receivable and the lesser of 50% of its qualified
inventory or $6,500.
Under the credit agreement, which includes the $1,350 term loan (See Note
5), inventory, accounts receivable and equipment are pledged as collateral.
Also, the agreement contains provisions, among others, requiring the maintenance
of certain levels of working capital, tangible net worth and cash flow.
F-138
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
5. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
1996
------------
Note payable to United States National Bank of Oregon
through June 2001 consisting of monthly principal
payments of $25 plus accrued interest. For the
period June 1, 1996 to May 31, 2000, interest
is accrued at the Index rate (8.25%) on the principal
balance of $300. Interest is accrued at the Fixed
Interest Rate (2.12% over the constant maturity
auction average for One-year U.S. Treasury Bills
(5.32% until June 1, 1997)) on the remaining principal
balance. For the period June 1, 2000 until paid in full,
interest is accrued at the Index rate on the remaining
principal balance (See Note 4)............................ $1,350
Mortgage note payable to United States National Bank of
Oregon through 2003 in monthly installments of $16,
including interest at 8.25%. Property with a book
value of $957 is subject to the mortgage.................. 1,739
Guaranteed ESOP debt due in
decreasing annual installments
through 2002 at an average interest
rate of 7.61% (Note 10)............ 264
Capital lease obligation (Note 8).... 44
------------
3,397
Less current portion................. 426
------------
$2,971
============
As of December 31, 1996, future maturities of long-term debt for the next
five years, exclusive of capital lease obligations, are as follows:
1997................................. $ 405
1998................................. 407
1999................................. 412
2000................................. 418
2001................................. 272
6. DETAIL OF ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
1996
------------
Accrued salaries and benefits........ $ 701
Accrued stock appreciation rights.... 1,380
Accrued property and sales taxes..... 36
Other................................ 177
------------
$2,294
============
F-139
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
7. DEFERRED COMPENSATION
The Company has agreements with three retired management personnel which
provided for their employment until retirement and a monthly payment thereafter
for specified periods of time. All of the agreements provide that if the
employee dies before he has received retirement payments of $50 (except for one
person for whom the payments must exceed $75), his surviving spouse shall
receive the unpaid balance thereof in monthly installments. The estimated
liability under this agreement has been charged to expense over the period of
employment ending with the retirement date of each employee. These agreements
resulted in a charge to income of $22 for the year ended December 31, 1996.
8. COMMITMENTS
The Company leases land and buildings under long-term lease agreements
classified as operating leases. The lease for its Portland, Oregon distribution
facilities expires in 2001 with one five-year option for renewal. The lease is
subject to adjustment to fair market value rates, as defined, but not less than
the initial annual rental of $378. The lease for the PMCC, Inc. distribution
facilities expires in 1997 with three three-year options for renewal. This lease
is also subject to adjustment to fair market value rates. Leases for two branch
warehouse locations expire in 1998 and 2001. In addition to stated rentals, the
Company is responsible for property taxes, maintenance and insurance on the
PMCC, Inc. facility. The Company also leases automobiles, trucks, warehouse and
office equipment under operating leases expiring through 2002.
The Company has a capital lease for equipment. The amortization of this
lease has been included in the Company's depreciation expense. Cost and
accumulated amortization at December 31, 1996 was $143 and $120, respectively.
The following is a schedule, by years, of future minimum lease payments
under leases that have initial or remaining noncancelable lease terms in excess
of one year as of December 31, 1996, and the present value of net minimum lease
payments under the capital lease which is carried as a liability as of December
31, 1996:
OPERATING
CAPITAL LEASE LEASES
------------- ---------
Year ending December 31,
1997................................. $ 24 $ 1,003
1998................................. 23 788
1999................................. -- 731
2000................................. -- 652
2001................................. -- 461
Thereafter........................... -- 145
--- ---------
Total minimum payments required...... 47 $ 3,780
=========
Less amount representing interest.... 3
---
Present value of minimum payments.... $ 44
===
The total rental expense for all operating leases amounted to approximately
$1,300 for the year ended December 31, 1996.
The Company, as lessor, leases portions of its distribution facility in
Medford, Oregon. The facility is leased on a noncancelable operating lease
expiring in June 1997 with total minimum future rentals of $17 at December 31,
1996.
F-140
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The Company's warehouse employees and truck drivers at its Seattle,
Washington branch, comprising approximately 15% of the Company's employees, are
subject to collective bargaining agreements between the Company and the
International Brotherhood of Teamsters. The agreements are negotiated every
three years and were last negotiated on April 30, 1997.
The Company has entered into a construction agreement for an addition to
their Spokane facility. The estimated cost of this addition is approximately
$325.
9. INCOME TAXES
The provision for income taxes consists of the following:
YEAR ENDED
DECEMBER 31,
1996
------------
Federal --
Current......................... $ 823
Deferred........................ 47
------------
870
State --
Current......................... 148
Deferred........................ (10)
------------
138
------------
Total provision............ $1,008
============
The provision for income taxes differ from an amount computed at statutory
rates as follows:
YEAR ENDED
DECEMBER 31,
1996
------------
Federal income tax at statutory
rates.............................. $ 886
State income taxes, net of federal
income tax benefit................. 86
Nondeductible expenses and other,
net................................ 36
------------
$1,008
============
The significant items giving rise to the deferred tax assets (liabilities)
are as follows:
DECEMBER 31,
1996
------------
Deferred tax assets --
Allowance for doubtful
accounts....................... $ 71
Uniform capitalization of
inventory...................... 220
Deferred compensation........... 9
Accrued liabilities............. 616
Other........................... 7
------------
Total deferred tax
assets.................. 923
------------
Deferred tax liabilities --
Property and equipment.......... (473)
------------
Total deferred tax
liabilities............. (473)
------------
Net deferred tax assets.... $ 450
============
F-141
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a leveraged Employee Stock Ownership Plan (ESOP) that
covers employees with more than one year of service and whose employment is not
covered by a collective bargaining agreement. An Employee Stock Ownership Trust
(ESOT) was established in 1984 to fund the ESOP by obtaining financing to
acquire shares of common stock.
In 1994, the ESOT acquired 7,320 shares of common stock for $371 with the
proceeds of a $384 loan from Centennial Bank of Eugene. The loan is payable
through 2001 in monthly installments of $4 plus interest at the bank's prime
rate (8.25% at December 31, 1996) plus .75%. The Company has guaranteed the
repayment of the loans to the ESOT. Under the guarantee agreement, the Company
is obligated to make contributions to the ESOT to enable it to make similar
payments against the bank loans and, therefore, the unpaid balance is recorded
as long-term debt. An unearned ESOP compensation amount has been reported as an
offset to stockholder's equity of the same amount.
The ESOT regularly issues notes for shares repurchased from certain former
employees of the Company. Repurchase notes outstanding as of December 31, 1996
amounted to $3 and are payable in quarterly installments of $1 through 1997,
plus interest at 6.3%. The Company is committed to make future contributions to
the ESOT to enable it to make similar payments on the notes. This additional
ESOT obligation has been recorded as long-term debt with stockholders' equity
offset by the same amount.
Company contributions are determined annually by the Board of Directors,
but are not less than the amount necessary to enable the ESOT to make its
regularly scheduled payments of principal and interest due on its term loans
plus an amount sufficient to enable the ESOT to repurchase stock from terminated
ESOP participants to the extent not funded by the ESOT. Shares are allocated to
participants ratably over the life of the ESOT loans.
Dividends on allocated shares of the ESOT are paid to participants and are
reported as a reduction of retained earnings. Dividends on unallocated shares
are reported as compensation expense.
Compensation expense for shares acquired prior to January 1, 1994 is
determined based on the Company's contributions to the ESOT. For shares acquired
after December 31, 1993, the Company measures compensation expense in accordance
with Statement of Position 93-6 of the Accounting Standards Division of the
American Institute of Certified Public Accountants, which requires compensation
expense to be measured using the fair value of the shares when allocated to
participants.
Selected financial data pertaining to the ESOT is as follows:
YEAR ENDED
DECEMBER 31,
1996
------------
Contributions........................ $ 595
Dividends on unallocated shares
reported as expense.................. 5
Increase in average fair value of
ESOT shares allocated................ 17
------------
Total ESOP expense................... $ 617
============
Interest expense (included in ESOP
expense above)....................... $ 32
============
F-142
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31,
1996
------------
Allocated shares..................... 118,562
Unallocated shares, accounted for
under SOP 93-6..................... 5,213
------------
Total ESOT shares.................... 123,775
============
Fair value of unallocated ESOT shares
accounted for under SOP 93-6....... $ 354
Fair value of allocated ESOT shares
subject to repurchase by the
Company............................ $ 8,062
The fair value of the ESOT shares subject to repurchase by the Company
represents the best estimate of the fair value of Pacific Metal Company and its
subsidiary continuing to operate as an independent entity. In the event of a
complete sale of the Company or the Company's assets, the ultimate fair value
may be different.
The Company contributed $60 in 1996 to a multi-employer pension plan for a
portion of its employees covered by a collective bargaining agreement.
11. STOCK OPTIONS
The Company's non-qualified stock option plan provides for the issuance of
stock options to key executive employees covering up to 100,000 shares of the
Company's common stock. Any option granted under the plan may include a stock
appreciation right. A stock appreciation right (SAR) permits the optionee to
receive cash in an amount equal to the excess of the fair market value per share
of the common stock at the date the right is exercised over the option price per
share of the option exercised.
Options to purchase shares of the Company's common stock, together with an
equivalent number of stock appreciation rights, have been granted to four
employees, and these options become exercisable in two installments and expire
ten years after the date of grant. The first installment was effective January
1, 1989 and grants options to purchase 24,970 shares of common stock at a
purchase price of $35 per share. The second installment was effective December
31, 1989 and grants options to purchase 25,000 shares of common stock at a
purchase price of $43 per share.
The number of shares which may be purchased under these options will
automatically be changed to reflect any subsequent stock split, merger,
consolidation, reorganization, recapitalization or other event affecting the
outstanding common stock of the Company.
Upon exercise of stock options, the Company receives cash equal to the
number of options exercised multiplied by the per share option price. Common
stock is credited for the par value of the shares issued and additional paid-in
capital is credited for an amount equal to the option price of the shares
issued, less the amount credited to common stock. The difference between any
increase or decrease in the fair market value of the SARs and the option price
is recorded currently in the consolidated statement of income. Compensation
expense in connection with the SARs amounted to $381 for the year ended December
31, 1996.
A summary of stock option activity for the year ended December, 31, 1996 is
as follows:
NUMBER OF SHARES AVERAGE
UNDER OPTION PRICE
---------------- -------
Balance at December 31, 1995......... 46,100 $ 39.29
Exercised in 1996.................... (2,350) $ 36.19
--------
Balance at December 31, 1996......... 43,750 $ 39.45
========
At December 31, 1996 there were 19,400 options and SARs exercisable at $35 per
share and 24,350 options and SARs exercisable at $43 per share. All of those
options are fully vested.
F-143
<PAGE>
PACIFIC METAL COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
12. EXCHANGE OF LAND AND BUILDING
The Company constructed a new facility in Eugene, Oregon which was
completed in 1996. A portion of the new land and building was obtained through
an exchange of the previous facility in Eugene which had a book value of $105
and a fair value of $600. The Company incurred additional costs of $771 in 1996.
The new facility has been recorded in the amount of $876, which represents the
book value of the land and building exchanged, plus the additional costs
incurred in 1996.
13. PRIOR PERIOD ADJUSTMENT
The accompanying financial statements for 1996 have been restated to
correct an error in accounting for stock appreciation rights (SARs). Previously,
the Company recognized compensation expense when the SARs were exercised because
the Company did not expect a significant number of the related stock options to
be exercised. The financial statements have been restated to accrue compensation
expense as the fair market value of the Company's stock exceeds the exercise
price of the related options. The effect of the restatement was to decrease net
income for 1996 by $205, net of an income tax benefit of $128. Retained earnings
at December 31, 1995 has been adjusted for the effects of the restatement on
prior years.
14. SUBSEQUENT EVENTS
On December 22, 1997 the Company and certain stockholders executed a letter
of intent agreement with Metals USA, Inc. pursuant to which all of the Company's
outstanding shares of common stock will be exchanged for cash and shares of
Metals USA, Inc. common stock.
As a result of the expected merger agreement with Metals USA, Inc., the
Company will record compensation expense in connection with its outstanding
stock appreciation rights of $673, net of an income tax benefit of $412, for the
three months ending December 31, 1997.
In 1997 the Company closed its operations in Galt, California.
F-144
<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.................................... 10
Risk Factors................................... 14
Price Range of Common Stock.................... 19
Dividend Policy................................ 19
Capitalization................................. 20
Selected Financial Data........................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 23
Business....................................... 29
Management..................................... 38
Certain Transactions........................... 43
Principal Stockholders......................... 46
Description of Capital Stock................... 47
Shares Eligible for Future Sale................ 50
Legal Matters.................................. 51
Experts........................................ 51
Additional Information......................... 51
Index to Financial Statements.................. F-1
------------------
10,000,000 SHARES
[LOGO]
METALS USA, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
February , 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC which have been paid.
AMOUNT TO BE
PAID
-------------
SEC registration fee................. $ 42,046
Printing expenses.................... $ 50,000
Legal fees and expenses.............. $ 70,000
Accounting fees and expenses......... $ 100,000
Transfer Agent's and Registrar's
fees................................. $ 1,000
Miscellaneous........................ $ 91,954
-------------
Total........................... $ 355,000
=============
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the
Company against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, or agent who is successful on the merits in defense
of a suit against such person.
The Company has entered into Indemnity Agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
The Company has purchase liability insurance policies covering directors
and officers in certain circumstances.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 3, 1996, Metals USA issued and sold 1,000 shares of Common Stock to
Notre for a consideration of $1,000. This sale was exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.
On December 14, 1996, Metals USA issued and sold shares of Common Stock to
the following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act:
Arthur L. French -- 1,472.645 shares for a consideration of $2,000; J. Michael
Kirksey -- 736.322 shares for a consideration of $1,000; Stephen R.
Baur -- 736.322 shares for a consideration of $1,000; and Notre -- 23,798.718
shares for a consideration of $34,375.
On January 31, 1997, Metals USA issued and sold shares of Common Stock to
the following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act:
Terry Freeman -- 368.161 shares for a consideration of $500; Frank W.
Montfort -- 73.632 shares for a consideration of $100; Cary Vollintine -- 73.632
shares for a consideration of $100; Shellie Gray LePori -- 184.080 shares for a
consideration of $250; Fred Ferreira -- 73.632 shares for a consideration of
$100; Emmett E. Moore -- 368.161 shares for a consideration of $500; William J.
Lynch -- 36.816 shares for a consideration of $50; James George Lynch -- 36.816
shares for a consideration of $50; Leonard A. Potter -- 73.632 shares for a
consideration of $100; Dr. Bernard A. Millstein -- 36.816 shares for a
consideration of $50; Infoscope Partners, Inc. -- 7.363 shares for a
consideration of $10; Jennifer Summerford -- 73.632 shares for a consideration
of $100; Melinda Malek -- 7.363 shares for a consideration of $10; L. E.
Peterson -- 55.224 shares for a consideration of $75; and Don Shirtcliff --
73.632 shares for a consideration of $100.
On February 19, 1997, Metals USA issued and sold 368.161 shares of Common
Stock to Keith E. St. Clair for a consideration of $500. This sale was exempt
from registration under Section 4(2) of the Securities Act, no public offering
being involved.
On March 4, 1997, Metals USA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act: T.
William Porter -- 73.632 shares for a consideration of $100; Donald D.
Temperton -- 257.712 shares for a consideration of $350; and Kaye M.
Wiggins -- 36.816 shares for a consideration of $50.
On April 15, 1997, Metals USA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act:
John A. Hageman -- 552.242 shares for a consideration of $750; Robert
DuBose -- 18.408 shares for a consideration of $25; Cindy Barrientes -- 18.408
shares for a consideration of $25; Martha Spradley -- 18.408 shares for a
consideration of $25; Claudia Cedillo -- 18.408 shares for a consideration of
$25; Mark Alper -- 368.161 shares for a consideration of $500; Jonathan
Alper -- 184.080 shares for a consideration of $250; Lester Peterson -- 368.161
shares for a consideration of $500; Richard A. Singer -- 368.161 shares for a
consideration of $500; Arnold Bradburd -- 368.161 shares for a consideration of
$500; William B. Edge -- 368.161 shares for a consideration of $500; Patrick A.
Notestine -- 368.161 shares for a consideration of $500; Craig R.
Doveala -- 184.080 shares for a consideration of $250; Robert J.
McCluskey -- 184.080 shares for a consideration of $250; Michael E.
Christopher -- 368.161 shares for a consideration of $500; Arthur L.
French -- 441.793 shares for a consideration of $600; J. Michael
Kirksey -- 147.264 shares for a consideration of $200; Steven R. Baur -- 147.264
shares for a consideration of $200; Tommy E. Knight -- 73.632 shares for a
consideration of $100; Richard H. Kristinik -- 73.632 shares for a consideration
of $100; Keith E. St. Clair -- 73.632 shares for a consideration of $100; Terry
Freeman -- 73.632 shares for a consideration of $100; Cheryl Ketchie -- 110.448
shares for a consideration of $150; Kaye Wiggins -- 7.363 shares for a
consideration of $10; and Richard T. Howell -- 73.632 shares for a consideration
of $100.
Effective April 21, 1997, Metals USA effected a 135.81-to-1 stock split on
outstanding shares of Common Stock as of April 20, 1997.
II-2
<PAGE>
Effective April 21, 1997, Metals USA issued and sold 3,122,914 shares of
Restricted Common Stock to Notre in exchange for 3,122,914 shares of Common
Stock. This sale was exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.
On July 11, in connection with the IPO, the Company issued 10,128,609
shares of its Common Stock in connection with the Mergers of the Founding
Companies. Each of these transactions was completed without registration under
the Securities Act in reliance upon the exemption provided by Section 4(2) of
the Securities Act.
On September 26, 1997, the Company issued 4,023,583 shares of its Common
Stock in connection with certain of the Subsequent Acquisitions. This
transaction was completed without registration under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The exhibits listed below are filed as exhibits to this Registration
Statement and are filed herewith or are incorporated by reference as
indicated below:
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- ---------------------------------------------------------------- ------- ---------
<C> <S> <C> <C>
3.1 -- Amended and Restated Certificate of 3.1 333-26601
Incorporation of Metals USA, Inc., as
amended
3.2 -- Bylaws of Metals USA, Inc., as amended 3.2 333-26601
4.1 -- Form of certificate evidencing ownership 4.1 333-26601
of Common Stock of Metals USA, Inc.
4.2+ -- Indenture, dated February 11, 1998, by
and among Metals USA, Inc. as issuer and
the Guarantors named therein, and U.S.
Trust Company of California, N.A., as
Trustee regarding Metals USA, Inc.'s
8 5/8% Senior Subordinated Notes due
2008
4.3+ -- Purchase Agreement dated February 6,
1998 by and among Metals USA, Inc. and
BT Alex. Brown Incorporated, Bear
Stearns & Co., Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and
NationsBanc Montgomery Securities LLC
regarding Metals USA, Inc.'s 8 5/8%
Senior Subordinated Notes due 2008
4.4+ -- Registration Rights agreement dated
February 6, 1998 by and among Metals
USA, Inc. and BT Alex. Brown
Incorporated, Bear Stearns & Co., Inc.,
Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery
Securities LLC regarding Metals USA,
Inc.'s 8 5/8% Senior Subordinated Notes
due 2008
5.1 -- Opinion of Bracewell & Patterson, L.L.P. 5.1 333-35575
10.1 -- Metals USA, Inc. 1997 Long-Term 10.1 333-26601
Incentive Plan
10.2 -- Metals USA, Inc. 1997 Non-Employee 10.2 333-26601
Directors' Stock Plan
10.3 -- Agreement and Plan of Organization dated 10.3 333-26601
as of April 30, 1997, by and among
Metals USA, Inc., Affiliated Metals
Acquisition Corp., Affiliated Metals
Company and the Stockholders named
therein
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- ---------------------------------------------------------------- ------- ---------
<C> <S> <C> <C>
10.4 -- Agreement and Plan of Organization dated 10.4 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Interstate Steel I
Acquisition Corp., Interstate Steel II
Acquisition Corp., Interstate Steel III
Acquisition Corp., Interstate Steel IV
Acquisition Corp., Interstate Steel
Supply Company, Interstate Steel Supply
Company of Pittsburgh, Interstate Steel
Supply Company of Maryland, Interstate
Steel Processing Company and the
Stockholders named therein
10.5 -- Agreement and Plan of Organization dated 10.5 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Queensboro Steel I
Acquisition Corp., Queensboro Steel
Corporation and the Stockholders named
therein
10.6 -- Agreement and Plan of Organization dated 10.6 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Southern Alloy Acquisition
Corp., Southern Alloy of America, Inc.
and the Stockholders named therein
10.7 -- Agreement and Plan of Organization dated 10.7 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Steel Service Systems
Acquisition Corp., Steel Service
Systems, Inc. and the Stockholders named
therein
10.8 -- Agreement and Plan of Organization dated 10.8 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Texas Aluminum I Acquisition
Corp., Texas Aluminum II Acquisition
Corp., Texas Aluminum III Acquisition
Corp., Texas Aluminum IV Acquisition
Corp., Texas Aluminum V Acquisition
Corp., Texas Aluminum Industries, Inc.,
Cornerstone Metals Corporation,
Cornerstone Building Products, Inc.,
Cornerstone Aluminum Company, Inc.,
Cornerstone Patio Concepts, L.L.C. and
the Stockholders named therein
10.9 -- Agreement and Plan of Organization dated 10.9 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Uni-Steel Acquisition Corp.,
Uni-Steel, Inc. and the Stockholders
named therein
10.10 -- Agreement and Plan of Organization dated 10.10 333-26601
as of April 30, 1997 by and among Metals
USA, Inc., Williams Steel Acquisition
Corp., Williams Steel & Supply Co.,
Inc., and the Stockholders named therein
10.11 -- Form of Employment Agreement between 10.11 333-26601
Metals USA, Inc. and Arthur L. French
10.12 -- Form of Employment Agreement between 10.12 333-26601
Metals USA, Inc. and J. Michael Kirksey
10.13 -- Form of Employment Agreement between 10.13 333-26601
Metals USA, Inc. and Stephen R. Baur
10.14 -- Form of Employment Agreement between 10.14 333-26601
Metals USA, Inc. and John A. Hageman
10.15 -- Form of Employment Agreement between 10.15 333-26601
Metals USA, Inc. and Terry L. Freeman
10.16 -- Form of Employment Agreement between 10.16 333-26601
Metals USA, Inc. and Keith E. St. Clair
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- ---------------------------------------------------------------- ------- ---------
<C> <S> <C> <C>
10.17 -- Form of Founders' Employment Agreement 10.18 333-26601
between Interstate Steel Supply Company
of Maryland and Interstate Steel
Processing Company and Arnold W.
Bradburd
10.18 -- Form of Founders' Employment Agreement 10.20 333-26601
between Steel Service Systems, Inc. and
Craig R. Doveala
10.19 -- Form of Founders' Employment Agreement 10.21 333-26601
between Southern Alloy of America, Inc.
and William Bartley Edge
10.20 -- Form of Founders' Employment Agreement 10.23 333-26601
between Queensboro Steel Corporation and
Mark Alper
10.21 -- Form of Founders' Employment Agreement 10.25 333-26601
between Uni-Steel, Inc. and Richard A.
Singer
10.22 -- Form of Founders' Employment Agreement 10.26 333-26601
between Williams Steel & Supply Co.,
Inc. and Lester G. Peterson
10.23 -- Form of Founders' Employment Agreement 10.27 333-26601
between Texas Aluminum Industries, Inc.,
Cornerstone Metals Corporation,
Cornerstone Building Products, Inc.,
Cornerstone Aluminum Company, Inc.,
Cornerstone Patio Concepts, L.L.C. and
Michael E. Christopher
10.24 -- Form of Founders' Employment Agreement 10.28 333-26601
between Affiliated Metals Company and
Patrick A. Notestine
10.25 -- Form of Agreement among certain 10.29 333-26601
stockholders.
10.26 -- Indemnity Agreement with Notre Capital 10.30 333-35575
Ventures II, L.L.C.
10.27 -- Agreement dated September 26, 1997, by 10.31 333-35575
and among Metals USA, Inc., Harvey
Titanium, Ltd. and the Stockholders
named therein.
10.28 -- Agreement dated September 26, 1997, by 10.32 333-35575
and among Metals USA, Inc., Meier Metal
Servicecenters, Inc. and the
Stockholders named therein.
10.29 -- Agreement dated September 26, 1997, by 10.33 333-35575
and among Metals USA, Inc. Jeffreys
Steel Company, Inc. and the Stockholders
named therein.
10.30+ -- Form of Employment Agreement between
Jeffreys Steel Company, Inc. and Leon
Jeffreys
10.31+ Agreement dated December 17, 1997, by
and among Metals USA, Inc., Independent
Metals Co. Inc., and the Stockholders
named therein.
10.32+ -- Amended and Restated Credit Agreement
dated February 11, 1998, by and among
Metals USA, Inc., and The First National
Bank of Chicago, as agent.
21+ -- List of subsidiaries of Metals USA, Inc.
23.1+ -- Consent of Arthur Andersen LLP
23.2+ -- Consent of Ernst & Young LLP
23.3+ -- Consent of Perkins & Company, P.C.
23.4+ -- Consent of McGladrey & Pullen, LLP
23.5+ -- Consent of Rubin, Brown Gornstein & Co.
23.6+ -- Consent of Arthur Andersen LLP
23.7 -- Consent of Bracewell & Patterson, L.L.P.
(contained in Exhibit 5.1)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
REFERENCE TO THE
EXHIBIT AND THE
FILING WITH THE
COMMISSION INDICATED
BELOW.
--------------------
EXHIBIT EXHIBIT
NO. DESCRIPTION OF EXHIBIT NO. FILE NO.
- ---------------------------------------------------------------- ------- ---------
<C> <S> <C> <C>
23.8+ -- Consent of Klein, Bogakos and Robertson,
CPA's Inc.
23.9+ -- Consent of Meaden & Moore, Ltd.
25+ -- Form T-1 Statement of Eligibility of
U.S. Trust Company of California, N.A.,
as trustee
27+ -- Financial Data Schedule
</TABLE>
- ------------
Filed herewith
(b) Financial Statement Schedules
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the
consolidated financial statements, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; (ii) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b), if, in the aggregate, the changes
II-6
<PAGE>
in volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Metals USA,
Inc. has duly caused this Registration Statement or amendment thereto to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on November 14, 1997.
METALS USA, INC.
By: /s/ ARTHUR L. FRENCH
ARTHUR L. FRENCH
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON NOVEMBER 14, 1997.
SIGNATURE TITLE
--------- -----
/s/ARTHUR L. FRENCH Chairman of the Board; Chief
ARTHUR L. FRENCH Executive Officer and President
/s/J. MICHAEL KIRKSEY* Senior Vice President; Chief
J. MICHAEL KIRKSEY Financial Officer and Director
(Chief Accounting Officer)
/s/STEVEN S. HARTER* Director
STEVEN S. HARTER
/s/ARNOLD W. BRADBURD* Vice Chairman of the Board and
ARNOLD W. BRADBURD Director
/s/MICHAEL E. CHRISTOPHER* Senior Vice President and Director
MICHAEL E. CHRISTOPHER
/s/MARK ALPER* Director
MARK ALPER
/s/A. LEON JEFFREYS* Director
A. LEON JEFFREYS
/s/PATRICK S. NOTESTINE* Director
PATRICK A. NOTESTINE
/s/RICHARD A. SINGER* Director
RICHARD A. SINGER
/s/LESTER G. PETERSEN* Director
LESTER G. PETERSEN
/s/CRAIG R. DOVEALA* Director
CRAIG R. DOVEALA
/s/WILLIAM B. EDGE* Director
WILLIAM B. EDGE
/s/T. WILLIAM PORTER* Director
T. WILLIAM PORTER
/s/RICHARD H. KRISTINIK* Director
RICHARD H. KRISTINIK
/s/TOMMY E. KNIGHT* Director
TOMMY E. KNIGHT
*By:/s/ARTHUR L. FRENCH
ARTHUR L. FRENCH
ATTORNEY-IN-FACT
II-8
<PAGE>
EXHIBIT 4.2
INDENTURE
Dated as of February 11, 1998
------------------------
By and Among
METALS USA, INC.
AND
GUARANTORS, NAMED HEREIN,
AND
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
-----------------------
Up to $300,000,000
8 5/8% Senior Subordinated Notes due 2008
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE TABLE
TIA INDENTURE
SECTION SECTION
<S> <C>
310(a)(1). . . . . . . . . . . . . . . . . . . ... 8.10
310(a)(5). . . . . . . . . . . . . . . . . . . ... 8.10
310(b). . . . . . . . . . . . . . . . . . . . .. 8.10
310(b)(1). . . . . . . . . . . . . . . . . . . ... 8.10
311(a). . . . . . . . . . . . . . . . . . . . .. 8.11
311(b). . . . . . . . . . . . . . . . . . . . .. 8.11
312(b). . . . . . . . . . . . . . . . . . . . .. 13.3
312(c). . . . . . . . . . . . . . . . . . . . .. 13.3
313(a). . . . . . . . . . . . . . . . . . . . ... 8.6
313(b). . . . . . . . . . . . . . . . . . . . ... 8.6
313(c). . . . . . . . . . . . . . . . . . . . ... 8.6
314(a). . . . . . . . . . . . . . . . . . . . ... 5.9
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of
the Indenture.
</TABLE>
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE. . . . . . . . . . 1
Section 1.1. Definitions. . . . . . . . . . . . ...1
Section 1.2. Incorporation by Reference of TIA. . . . . . . 10
Section 1.3. Rules of Construction. . . . . . . . . . 10
ARTICLE II. THE SECURITIES. . . . . . . . . . . . . . . . ..10
Section 2.1. Form and Dating. . . . . . . . . . . ..10
Section 2.2. Execution and Authentication. . . . . . . . .10
Section 2.3. Registrar and Paying Agent. . . . . . . . ...10
Section 2.4. Paying Agent To Hold Assets in Trust. . . . . . .10
Section 2.5. Holder Lists. . . . . . . . . . . . .10
Section 2.6. Transfer and Exchange. . . . . . . . . . 10
Section 2.7. Replacement Securities. . . . . . . . . ...10
Section 2.8. Outstanding Securities. . . . . . . . . ...10
Section 2.9. Treasury Securities. . . . . . . . . . ..10
Section 2.10. Temporary Securities. . . . . . . . . . 10
Section 2.11. Cancellation. . . . . . . . . . . . 10
Section 2.12. Defaulted Interest. . . . . . . . . . ..10
Section 2.13. CUSIP Number. . . . . . . . . . . . 10
Section 2.14. Deposit of Monies. . . . . . . . . . ...10
Section 2.15. Restrictive Legends. . . . . . . . . . .10
Section 2.16. Book-Entry Provisions for Global Securities. . . . .10
Section 2.17. Special Transfer Provisions. . . . . . . . .10
Section 2.18. Additional Interest Under Registration Rights
Agreement. . . . . . . . . . . . 10
ARTICLE III. REDEMPTION. . . . . . . . . . . . . . . . . .10
Section 3.1. Notices to Trustee. . . . . . . . . . ...10
Section 3.2. Selection of Securities To Be Redeemed. . . . . ...10
Section 3.3. Optional Redemption. . . . . . . . . . ..10
Section 3.4. Notice of Redemption. . . . . . . . . . .10
Section 3.5. Effect of Notice of Redemption. . . . . . . ...10
Section 3.6. Deposit of Redemption Price. . . . . . . . ..10
Section 3.7. Securities Redeemed in Part. . . . . . . . ..10
ARTICLE IV. SUBORDINATION. . . . . . . . . . . . . . . . ...10
Section 4.1. Securities Subordinated to Senior Debt. . . . . ...10
Section 4.2. Suspension of Payment When Senior Debt in Default. . . 10
Section 4.3. Securities Subordinated to Prior Payment of All Senior
Debt on Dissolution, Liquidation or Reorganization
of Company. . . . . . . . . . . ...10
Section 4.4. Holders To Be Subrogated to Rights of Holders of
Senior Debt. . . . . . . . . . . ..10
Section 4.5. Obligations of the Company Unconditional. . . . . .10
Section 4.6. Trustee Entitled To Assume Payments Not Prohibited in
Absence of Notice. . . . . . . . . . 10
Section 4.7. Application by Trustee of Assets Deposited with It. . ...10
Section 4.8. No Waiver of Subordination Provisions. . . . . . 10
Section 4.9. Holders Authorize Trustee To Effectuate Subordination
of Securities. . . . . . . . . . . 10
Section 4.10. Right of Trustee To Hold Senior Debt. . . . . . 10
Section 4.11. No Suspension of Remedies. . . . . . . . ...10
Section 4.12. No Fiduciary Duty of Trustee to Holders of Senior
Debt. . . . . . . . . . . . . .10
ARTICLE V. COVENANTS. . . . . . . . . . . . . . . . . . 10
Section 5.1. Payment of Securities. . . . . . . . . . 10
Section 5.2. Maintenance of Office or Agency. . . . . . . ..10
Section 5.3. Limitation on Restricted Payments. . . . . . . 10
Section 5.4. Corporate Existence. . . . . . . . . . ..10
Section 5.5. Payment of Taxes and Other Claims. . . . . . . 10
Section 5.6. Maintenance of Properties and Insurance. . . . . ..10
Section 5.7. Compliance Certificate; Notice of Default. . . . . 10
Section 5.8. Compliance with Laws. . . . . . . . . . .10
Section 5.9. SEC Reports. . . . . . . . . . . . ..10
Section 5.10. Waiver of Stay, Extension or Usury Laws. . . . . .10
Section 5.11. Limitation on Transactions with Affiliates. . . . ..10
Section 5.12. Limitation on Incurrence of Additional Indebtedness
and Issuance of Preferred Stock of Restricted
Subsidiaries. . . . . . . . . . . .10
Section 5.13. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries. . ...10
Section 5.14. Limitation on Liens. . . . . . . . . . .10
Section 5.15. Limitation on Change of Control. . . . . . . .10
Section 5.16. Limitation on Asset Sales. . . . . . . . ...10
Section 5.17. Limitation on Other Senior Subordinated Debt. . . . 10
Section 5.18. Limitation on Restricted and Unrestricted
Subsidiaries. . . . . . . . . . . .10
Section 5.19. Conduct of Business. . . . . . . . . . .10
Section 5.20. Additional Subsidiary Guarantees. . . . . . . 10
ARTICLE VI. SUCCESSOR CORPORATION. . . . . . . . . . . . . . ...10
Section 6.1. Limitations on Mergers and Certain Other Transactions. . 10
Section 6.2. Successor Corporation Substituted. . . . . . . 10
ARTICLE VII. DEFAULT AND REMEDIES. . . . . . . . . . . . . . ...10
Section 7.1. Events of Default. . . . . . . . . . . 10
Section 7.2. Acceleration. . . . . . . . . . . . .10
Section 7.3. Other Remedies. . . . . . . . . . . ...10
Section 7.4. Waiver of Past Defaults. . . . . . . . . ..10
Section 7.5. Control by Majority. . . . . . . . . . ..10
Section 7.6. Limitation on Suits. . . . . . . . . . ..10
Section 7.7. Rights of Holders To Receive Payment. . . . . . .10
Section 7.8. Collection Suit by Trustee. . . . . . . . ...10
Section 7.9. Trustee May File Proofs of Claim. . . . . . . .10
Section 7.10. Priorities. . . . . . . . . . . . ..10
Section 7.11. Rights and Remedies Cumulative. . . . . . . ..10
Section 7.12. Delay or Omission Not Waiver. . . . . . . . 10
Section 7.13. Undertaking for Costs. . . . . . . . . ...10
ARTICLE VIII. TRUSTEE. . . . . . . . . . . . . . . . . ...10
Section 8.1. Duties of Trustee. . . . . . . . . . . 10
Section 8.2. Rights of Trustee. . . . . . . . . . . 10
Section 8.3. Individual Rights of Trustee. . . . . . . . .10
Section 8.4. Trustee's Disclaimer. . . . . . . . . . .10
Section 8.5. Notice of Default. . . . . . . . . . . 10
Section 8.6. Reports by Trustee to Holders. . . . . . . . 10
Section 8.7. Compensation and Indemnity. . . . . . . . ...10
Section 8.8. Replacement of Trustee. . . . . . . . . ...10
Section 8.9. Successor Trustee by Merger, Etc. . . . . . . .10
Section 8.10. Eligibility; Disqualification. . . . . . . ...10
Section 8.11. Preferential Collection of Claims Against Company. . ...10
ARTICLE IX. SATISFACTION AND DISCHARGE OF INDENTURE. . . . . . . . . . .10
Section 9.1. Termination of the Company's Obligations. . . . . .10
Section 9.2. Legal Defeasance and Covenant Defeasance. . . . . .10
Section 9.3. Application of Trust Money. . . . . . . . ...10
Section 9.4. Repayment to the Company or Guarantors. . . . . ...10
Section 9.5. Reinstatement. . . . . . . . . . . . 10
ARTICLE X. AMENDMENTS, SUPPLEMENTS AND WAIVERS. . . . . . . . . . . ..10
Section 10.1. Without Consent of Holders. . . . . . . . ..10
Section 10.2. With Consent of Holders. . . . . . . . . .10
Section 10.3. Compliance with TIA. . . . . . . . . . .10
Section 10.4. Revocation and Effect of Consents. . . . . . ...10
Section 10.5. Notation on or Exchange of Securities. . . . . ...10
Section 10.6. Trustee To Sign Amendments, Etc. . . . . . . .10
ARTICLE XI. GUARANTEE. . . . . . . . . . . . . . . . . ...10
Section 11.1. Unconditional Guarantee. . . . . . . . . .10
Section 11.2. Subordination of Guarantee. . . . . . . . ..10
Section 11.3. Severability. . . . . . . . . . . . 10
Section 11.4. Release of a Guarantor. . . . . . . . . ..10
Section 11.5. Limitation of Guarantor's Liability. . . . . . .10
Section 11.6. Guarantors May Consolidate, etc., on Certain Terms. . ..10
Section 11.7. Contribution. . . . . . . . . . . . 10
Section 11.8. Waiver of Subrogation. . . . . . . . . ...10
Section 11.9. Execution of Guarantee. . . . . . . . . ..10
Section 11.10. Waiver of Stay, Extension or Usury Laws. . . . . 10
ARTICLE XII. SUBORDINATION OF GUARANTEE OBLIGATIONS. . . . . . . . . . .10
Section 12.1. Guarantee Obligations Subordinated to Guarantor
Senior Debt. . . . . . . . . . . ..10
Section 12.2. Suspension of Guarantee Obligations When Guarantor
Senior Debt in Default. . . . . . . . ...10
Section 12.3. Guarantee Obligations Subordinated to Prior Payment
of All Guarantor Senior Debt on Dissolution,
Liquidation or Reorganization of Such Guarantor. . ..10
Section 12.4. Holders of Guarantee Obligations To Be Subrogated to
Rights of Holders of Guarantor Senior Debt. . . ...10
Section 12.5. Obligations of the Guarantors Unconditional. . . . .10
Section 12.6. Trustee Entitled To Assume Payments Not Prohibited in
Absence of Notice. . . . . . . . . . 10
Section 12.7. Application by Trustee of Assets Deposited with It. . ..10
Section 12.8. No Waiver of Subordination Provisions. . . . . ...10
Section 12.9. Holders Authorize Trustee To Effectuate Subordination
of Guarantee Obligations. . . . . . . . .10
Section 12.10. Right of Trustee To Hold Guarantor Senior Debt. . . .10
Section 12.11. No Suspension of Remedies. . . . . . . . ..10
Section 12.12. No Fiduciary Duty of Trustee to Holders of Guarantor
Senior Debt. . . . . . . . . . . ..10
ARTICLE XIII. MISCELLANEOUS. . . . . . . . . . . . . . . . .10
Section 13.1. TIA Controls. . . . . . . . . . . . 10
Section 13.2. Notices. . . . . . . . . . . . . .10
Section 13.3. Communications by Holders with Other Holders. . . . 10
Section 13.4. Certificate and Opinion as to Conditions Precedent. . ..10
Section 13.5. Statements Required in Certificate or Opinion. . . ...10
Section 13.6. Rules by Trustee, Paying Agent, Registrar. . . . ...10
Section 13.7. Legal Holidays. . . . . . . . . . . ..10
Section 13.8. Governing Law. . . . . . . . . . . ...10
Section 13.9. No Adverse Interpretation of Other Agreements. . . ...10
Section 13.10. No Recourse Against Others. . . . . . . . .10
Section 13.11. Successors. . . . . . . . . . . . .10
Section 13.12. Duplicate Originals. . . . . . . . . . 10
Section 13.13. Headings and Table of Contents. . . . . . . .10
Section 13.14. Severability. . . . . . . . . . . ...10
</TABLE>
EXHIBIT A FORM OF SECURITY
EXHIBIT B FORM OF LEGEND FOR GLOBAL SECURITIES
EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS
TO NON-QIB ACCREDITED INVESTORS
EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
<PAGE>
INDENTURE, dated as of February 11, 1998, among METALS USA, INC.,
a Delaware corporation (the "COMPANY"), the GUARANTORS (as defined herein), and
U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's
8 5/8% Senior Subordinated Notes due 2008 (the "SECURITIES"):
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of
its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time it merges or consolidates with the
Company or any of its Restricted Subsidiaries or assumed in connection with the
acquisition of assets from such Person and in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"AFFILIATE" means, with respect to any specified Person, any
other Person who directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
Person. The term "CONTROL" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "CONTROLLING" and "CONTROLLED" have meanings
correlative of the foregoing.
"AFFILIATE TRANSACTION" shall have the meaning provided in Section
5.11(a).
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"AGENT MEMBERS" has the meaning provided in Section 2.16.
"ASSET ACQUISITION" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in or purchase of any other Person pursuant
to which such Person shall become a Restricted Subsidiary of the Company or of
any Restricted Subsidiary of the Company, or shall be merged with or into the
Company or any Restricted Subsidiary of the Company, or (b) the acquisition by
the Company or any Restricted Subsidiary of the Company of the assets of any
Person (other than a Restricted Subsidiary of the Company) which constitute all
or substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than operating leases entered into in the
ordinary course of business), assignment or other transfer for value by the
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary
of the Company; or (b) any other property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; PROVIDED, HOWEVER, that Asset Sales shall not include (i) any
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $1.0
million and (ii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company as permitted under Section
6.1.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means, with respect to any Person, the Board
of Directors of such Person or of a subsidiary of such Person or any duly
authorized committee of that Board.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia of
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250.0 million; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "GROUP"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of this
Indenture); (ii) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of this Indenture); (iii) any
Person or Group other than one or more Permitted Holders shall become the owner,
directly or indirectly, beneficially or of record, of shares representing more
than 50% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company; or (iv) the replacement of a majority
of the Board of Directors of the Company over a two-year period from the
directors who constituted the Board of Directors of the Company at the beginning
of such period, and such replacement shall not have been approved by a vote of
at least a majority of the Board of Directors of the Company then still in
office who either were members of such Board of Directors at the beginning of
such period or whose election as a member of such Board of Directors was
previously so approved.
"CHANGE OF CONTROL OFFER" shall have the meaning provided in
Section 5.15(a).
"CHANGE OF CONTROL PAYMENT DATE" shall have the meaning provided
in Section 5.15(b).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" of any Person means any and all shares, interests
or other participations in, and other equivalents (however designated and
whether voting or non-voting) of such Person's common stock, whether outstanding
on the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"COMPANY" means Metals USA, Inc., a Delaware corporation, until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to
the extent Consolidated Net Income has been reduced thereby, (A) all income
taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions outside the ordinary course of business), (B) Consolidated
Interest Expense and (C) Consolidated Non-cash Charges LESS any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in accordance
with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to
any Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "FOUR QUARTER PERIOD") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "TRANSACTION DATE") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period; (ii) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (PROVIDED, that such Consolidated EBITDA shall be included
only to the extent includable pursuant to the definition of "Consolidated Net
Income") attributable to the assets which are the subject of the Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period; and (iii) in calculating Consolidated EBITDA for any period, without
duplicating any adjustments pursuant to clauses (i) and (ii) above, Consolidated
EBITDA for such period shall be calculated giving pro forma adjustments that
would be permitted by the Commission in any filing with the Commission and to
any one-time employee compensation expenses incurred before the Issue Date or in
connection with the Asset Acquisition giving rise for the need to make such
calculation. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
the operation of such agreements. In making such computations, the Consolidated
Fixed Charges attributable to interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily outstanding balance of such Indebtedness during such period.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person
for any period, the sum, without duplication, of (i) Consolidated Interest
Expense, plus (ii) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of such Person (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated federal, state and
local tax rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person
for any period, the sum of, without duplication: (i) the aggregate of the
interest expense (but excluding any write-off of deferred financing fees in
connection with any refinancing or retirement of Indebtedness) of such Person
and its Restricted Subsidiaries of such period determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount and deferred financing costs, (b) the net costs
under Interest Swap Obligations, (c) all capitalized interest and (d) the
interest portion of any deferred payment obligation; and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such Person and its Restricted Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for
any period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED, that there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the referent Person, except to the extent
of cash dividends or distributions paid to the referent Person or to a Wholly
Owned Restricted Subsidiary of the referent Person by such Person, (f) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any
Person, for any period, the aggregate depreciation, amortization and other
non-cash expenses of such Person and its Restricted Subsidiaries reducing
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such charges constituting an extraordinary item or loss or any such charge
which requires an accrual of or a reserve for cash charges for any future
period).
"CREDIT AGENT" means, at any time, the then-acting Agent as
defined in and under the Credit Agreement, which initially shall be The First
National Bank of Chicago. The Company shall promptly notify the Trustee of any
change in the Credit Agent.
"CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement dated as of February 11, 1998, between the Company, the lenders party
thereto in their capacities as lenders thereunder and The First National Bank of
Chicago, as agent, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder (PROVIDED, that such increase in borrowings is permitted by Section
5.12) or adding Restricted Subsidiaries of the Company as additional borrowers
or guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any Restricted Subsidiary of the Company against
fluctuations in currency values.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means an event or condition the occurrence of which is,
or with the lapse of time or the giving of notice or both would be, an Event of
Default.
"DEPOSITORY" shall mean The Depository Trust Company, New York,
New York, or a successor thereto registered under the Exchange Act or other
applicable statute or regulation.
"DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in
respect of the Credit Agreement and (ii) any other Indebtedness constituting
Senior Debt which, at the time of determination, has an aggregate principal
amount of at least $10.0 million and is specifically designated in the
instrument evidencing such Senior Debt as "Designated Senior Debt" by the
Company.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Securities.
"EVENT OF DEFAULT" shall have the meaning provided in Section
7.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto and the rules and
regulations promulgated by the Commission thereunder.
"EXCHANGE NOTES" means the 8 5/8% Senior Subordinated Notes due
2008, Series B, to be issued in exchange for the Initial Securities pursuant to
the Registration Rights Agreement or, with respect to the Initial Securities
issued under this Indenture subsequent to the Issue Date pursuant to Section
2.2, a registration rights agreement substantially identical to the Registration
Rights Agreement.
"EXCHANGE OFFER" has the meaning provided in the Registration
Rights Agreement.
"FAIR MARKET VALUE" means, with respect to any asset or property,
the price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of the
Board of Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
"GLOBAL SECURITY" shall mean a Security which is executed by the
Company and authenticated and delivered by the Trustee to the Depository or
pursuant to the Depository's instruction, all in accordance with this Indenture
and pursuant to a written order, which shall be registered in the name of the
Depository or its nominee and which, together with any other Global Security
representing Securities hereunder, shall represent, and shall be denominated in
an amount equal to the aggregate principal amount of, all of the outstanding
Securities.
"GUARANTEE" means the guarantee of each Guarantor set forth in
Article Eleven and any additional guarantee of the Securities executed by any
Restricted Subsidiary of the Company.
"GUARANTEE OBLIGATIONS" shall have the meaning provided in
Section 12.1.
"GUARANTOR" means (i) each of Affiliated Metals Company,
Cornerstone Aluminum Company, Inc., Cornerstone Building Products, Inc.,
Cornerstone Metals Corporation, Cornerstone Patio Concepts, L.L.C., Federal
Bronze Alloys Inc., Harvey Titanium, Ltd., Independent Metals Co., Inc.,
Interstate Steel Supply Company, Interstate Steel Supply Company of Maryland,
Interstate Steel Supply Company of Pittsburgh, Interstate Steel Processing
Company, Jeffreys Steel Company, Inc., Meier Metal Servicenters, Inc., Metals
USA Finance Corp., Metals USA Service Corporation, MUSA GP, Inc., MUSA LP, Inc.,
Queensboro Steel Corporation, R.J. Fabricating Inc., Royal Aluminum, Inc.,
Southern Alloy of America, Inc., Steel Service Systems, Inc., Texas Aluminum
Industries, Inc., Uni-Steel, Inc., Wayne Steel, Inc. and Williams Steel & Supply
Co., Inc. (ii) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary agrees to
be bound by the terms of this Indenture as a Guarantor; PROVIDED, that any
Person constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the terms
described herein.
"GUARANTOR PAYMENT BLOCKAGE PERIOD" shall have the meaning
provided in Section 12.2(b).
"GUARANTOR SENIOR DEBT" means with respect to any Guarantor, (i)
the principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing in respect of, (x) all monetary obligations of
every nature of the Company under the Credit Agreement guaranteed by a
Guarantor, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Debt"
shall not include (i) any Indebtedness of such Guarantor to a Restricted
Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such
Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of such Guarantor or any Restricted
Subsidiary of such Guarantor (including, without limitation, amounts owed for
compensation), (iii) Indebtedness to trade creditors and other amounts incurred
in connection with obtaining goods, materials or services, (iv) Indebtedness
represented by Disqualified Capital Stock, (v) any liability for federal, state,
local or other taxes owed or owing by such Guarantor, (vi) Indebtedness incurred
in violation of Section 5.12, (vii) Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United States
Code, is without recourse to the Company and (viii) any Indebtedness which is,
by its express terms, subordinated in right of payment to any other Indebtedness
of such Guarantor.
"HOLDER" means the Person in whose name a Security is
registered on the Registrar's books.
"IAI GLOBAL SECURITY" means, a permanent global security in
registered form representing the aggregate principal amount of the Securities
sold to Institutional Accredited Investors.
"INDEBTEDNESS" means with respect to any Person, without
duplication, (i) all Obligations of such Person for borrowed money, (ii) all
Obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all Capitalized Lease Obligations of such Person,
(iv) all Obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all Obligations under
any title retention agreement (but excluding trade accounts payable and other
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or more or are being contested in good faith), (v) all
Obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (vi) guarantees and other
contingent obligations in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below, (vii) all Obligations of any other
Person of the type referred to in clauses (i) through (vi) which are secured by
any lien on any property or asset of such Person, the amount of such Obligation
being deemed to be the lesser of the fair market value of such property or asset
or the amount of the Obligation so secured, (viii) all Obligations under
Currency Agreements and Interest Swap Obligations of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Capital Stock.
"INDENTURE" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not,
and whose directors, officers and employees or Affiliates do not, have a direct
or indirect financial interest in the Company (other than an interest in less
than 5% of the Company's Common Stock or any other publicly traded securities of
the Company) and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"INITIAL PURCHASERS" means, collectively, BT Alex. Brown
Incorporated, Bear, Stearns & Co. Inc., Donaldson, Lufkin, Jenrette Securities
Corporation and NationsBanc
Montgomery Securities LLC.
"INITIAL SECURITIES" means, collectively, (i) the 8 5/8% Senior
Subordinated Notes due 2008 of the Company issued on the Issue Date and (ii) one
or more series of additional 8 5/8% Senior Subordinated Notes due 2008 that are
issued under this Indenture subsequent to the Issue Date pursuant to Section
2.2, in each case for so long as such securities constitute Restricted
Securities.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is
an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"INTEREST PAYMENT DATE" means the stated maturity of an
installment of interest on the Securities.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or
indirect loan or other extension of credit (including, without limitation, a
guarantee) or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit by
the Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of Section 5.3, (i)
"Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated as an Unrestricted Subsidiary and shall exclude the fair market
value of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated as a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions in connection with such Investment or
any other amounts received in respect of such Investment; PROVIDED, that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition such entity is no longer a Restricted Subsidiary, the Company shall
be deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock or other equity interests of
such entity not sold or disposed of.
"INVESTMENT GRADE RATING" means a rating of BBB- or higher by S&P
and Baa3 or higher by Moody's or the equivalent of such rating by S&P and
Moody's or by any other Rating Agency selected as provided in the definition of
Rating Agency.
"ISSUE DATE" means February 11, 1998, the date of original
issuance of the Securities under this Indenture.
"LEGAL HOLIDAY" shall have the meaning provided in Section 13.7.
"LIEN" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"MATURITY DATE" means February 15, 2008.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions and discounts), (b) taxes paid or
payable after taking into account any reduction in consolidated tax liability
due to available tax credits or deductions and any tax sharing arrangements, (c)
repayment of Indebtedness that is required to be repaid in connection with such
Asset Sale and (d) appropriate amounts to be provided by the Company or any of
its Restricted Subsidiaries, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale and retained
by the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"NET PROCEEDS OFFER" shall have the meaning provided in Section
5.16(a).
"NET PROCEEDS OFFER AMOUNT" shall have the meaning provided in
Section 5.16(a).
"NET PROCEEDS OFFER PAYMENT DATE" shall have the meaning provided
in Section 5.16(a).
"NET PROCEEDS TRIGGER DATE" shall have the meaning provided in
Section 5.16(a).
"NON-PAYMENT DEFAULT" means any event (other than a Payment
Default) the occurrence of which entitles one or more persons to act to
accelerate the maturity of any Designated Senior Debt.
"NON-U.S. PERSON" means a person who is not a U.S. person, as
defined in Regulation S.
"NOTRE" means Notre Capital Ventures II, L.L.C.
"OBLIGATIONS" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"OFFERING MEMORANDUM" means the offering memorandum of the
Company dated February 6, 1998 relating to the Securities.
"OFFICER" means, with respect to any Person, the Chief Executive
Officer, the Chief Financial Officer, Treasurer or the Chief Accounting Officer
of such Person.
"OFFICERS' CERTIFICATE" means a certificate signed in the name of
and on behalf of the Company by the Chairman, a Vice Chairman, the President or
a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller
or an Assistant Controller, the Secretary or an Assistant Secretary of the
Company, and delivered to the Trustee and otherwise complying with the
requirements of Section 13.5.
"OPERATING LEASE" means any lease the obligations under which do
not constitute Capitalized Lease Obligations.
"OPINION OF COUNSEL" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee complying with the requirements of
Section 13.5. Unless otherwise required by the Trustee, the legal counsel may be
an employee of or counsel to the Company or the Trustee.
"PAYING AGENT" shall have the meaning provided in Section 2.3,
except that for the purposes of Articles Three and Nine and Sections 5.15 and
5.16, the Paying Agent shall not be the Company or an Affiliate of the Company.
"PAYMENT DEFAULT" means any default in the payment of principal,
premium, if any, or interest on any Designated Senior Debt or Guarantor Senior
Debt beyond any applicable grace period with respect thereto.
"PERMITTED HOLDER" means, as of the Issue Date, (i) any officer
or director of the Company, (ii) Notre, (iii) any officer or director of any
Subsidiary of the Company who holds 1% or more of the Company's Common Stock,
(iv) in the case of an entity, any Affiliates of the foregoing and (v) in the
case of an individual, any spouse, sibling, child or grandchild of the foregoing
(in each case, whether such relationship arises from birth, adoption or through
marriage).
"PERMITTED INDEBTEDNESS" means, without duplication, each of the
following:
(i) Indebtedness under the Securities, this Indenture and the
Guarantees;
(ii) Indebtedness incurred pursuant to the Credit Agreement or
any other credit agreement in an aggregate principal amount at any time
outstanding not to exceed $350.0 million with respect to the
Indebtedness under the Credit Agreement or any other credit agreement,
less the amount of all mandatory principal payments actually made by the
Company in respect of any Term Loan Facility (excluding any such
payments to the extent refinanced at the time of payment under a
replaced Credit Agreement);
(iii) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually
paid or permanent reductions thereon;
(iv) Interest Swap Obligations of the Company covering
Indebtedness of the Company or any of its Restricted Subsidiaries and
Interest Swap Obligations of any Restricted Subsidiary of the Company
covering Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER,
that such Interest Swap Obligations are entered into to protect the
Company and its Restricted Subsidiaries from fluctuations in interest
rates on Indebtedness incurred in accordance with this Indenture to the
extent the notional principal amount of such Interest Swap Obligation
does not exceed the principal amount of the Indebtedness to which such
Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; PROVIDED, that in the
case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnitees and compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company for so long as such Indebtedness is held by the Company or a
Wholly Owned Restricted Subsidiary of the Company, in each case subject
to no Lien held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary of the Company; PROVIDED, that if as of any date
any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company owns or holds any such indebtedness or holds a
Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by
the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company, in each case subject
to no Lien; PROVIDED, that (a) any Indebtedness of the Company to any
Wholly Owned Restricted Subsidiary of the Company is unsecured and
subordinated, pursuant to a written agreement, to the Company's
obligations under this Indenture and the Securities and (b) if as of any
date any Person other than a Wholly Owned Restricted Subsidiary of the
Company owns or holds any such Indebtedness or any Person holds a Lien
in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by
the Company;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; PROVIDED,
HOWEVER, that such indebtedness is extinguished within two business days
of incurrence;
(ix) Indebtedness of the Company or any of its Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations
in connection with self-insurance or similar requirements in the
ordinary course of business;
(x) Indebtedness in connection with one or more standby letters
of credit, guarantees, performance bonds or other reimbursement
obligations, in each case, issued in the ordinary course of business and
not in connection with the borrowing of money or the obtaining of
advances or credit (other than advances or credit on open account,
includible in current liabilities, for goods and services in the
ordinary course of business and on terms and conditions which are
customary in the business of the Company and its Restricted Subsidiaries
as existing on the Issue Date or in businesses reasonably related
thereto, and other than the extension of credit represented by such
letter of credit, guarantee or performance bond itself), not to exceed
in the aggregate at any given time 10% of the Consolidated Net Worth of
the Company and its Restricted Subsidiaries; PROVIDED, that any draw
under or call upon any of the foregoing is repaid in full within 30
days;
(xi) the incurrence by the Company or any of the Guarantors of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Guarantor, in an aggregate principal
amount not to exceed the greater of (a) $20.0 million or (b) 5% of the
Consolidated Net Worth of the Company at any one time outstanding;
(xii) Refinancing Indebtedness;
(xiii) Incurrence by the Company or any Guarantors of
Indebtedness owed to or guaranteed by any governmental agency,
instrumentality or other authority incurred to provide relief from
natural disasters or otherwise to provide economic development
incentives; and
(xiv) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed the greater
of (a) $20.0 million or (b) 5% of the Consolidated Net Worth of the
Company at any one time outstanding.
For purposes of determining whether any Indebtedness is Permitted
Indebtedness, (i) in the event that an item of Indebtedness meets the criteria
of more than one of the types of Indebtedness described above, the Company, in
its sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (ii) an item of Indebtedness may be divided and classified in more
than one of the types of Indebtedness described above.
"PERMITTED INVESTMENTS" means (i) Investments by the Company or
any Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company; (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED, that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Securities and this Indenture; (iii)
investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $5.0 million
at any one time outstanding; (v) Currency Agreements and Interest Swap
Obligations entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with this
Indenture; (vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or received in
settlement of debts created in the ordinary course of business or in
satisfaction of judgments; (vii) Investments made by the Company or its
Restricted Subsidiaries as a result of consideration received in connection with
an Asset Sale made in compliance with Section 5.16; and (viii) additional
Investments by the Company or any Restricted Subsidiary of the Company in an
aggregate amount, based on original cost, not to exceed $20.0 million at any one
time outstanding.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or
claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized
Lease Obligation; PROVIDED, that such Liens do not extend to any
property or assets which is not leased property subject to such
Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; PROVIDED, HOWEVER, that (A) the related
purchase money Indebtedness shall not exceed the cost of such property
or assets and shall not be secured by any property or assets of the
Company or any Restricted Subsidiary of the Company other than the
property and assets so acquired and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptance issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of
offset and set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under
this Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $10.0 million at any one time outstanding
and that (a) are not incurred in connection with the borrowing of money
or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Restricted
Subsidiary;
(xiv) Liens securing Acquired Indebtedness incurred in accordance
with Section 5.12; PROVIDED, that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company
and were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company and (B) such Liens do not extend to or cover
any property or assets of the Company or of any of its Restricted
Subsidiaries other than the property or assets that secured the Acquired
Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary of the Company
and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company;
and
(xv) Liens not permitted by clauses (i) through (xiv) that are
incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do
not exceed $10.0 million at any one time outstanding.
"PERSON" means an individual, partnership, corporation,
unincorporated organization, trust or joint venture, limited liability company,
or a governmental agency or political subdivision thereof.
"PHYSICAL SECURITIES" has the meaning provided in Section 2.1.
"PREFERRED STOCK" of any Person means any Capital Stock of such
Person that has preferential rights to any other Capital Stock of such Person
with respect to dividends or redemptions or upon liquidation.
"PRIVATE EXCHANGE NOTES" shall have the meaning provided in the
Registration Rights Agreement.
"PRIVATE PLACEMENT LEGEND" means the legend initially set forth
on the Securities in the form set forth in EXHIBIT A.
"PRO FORMA" means, with respect to any calculation made or
required to be made pursuant to the terms of this Indenture, a calculation in
accordance with Article 11 of Regulation S-X under the Securities Act, as
interpreted by the Company's chief financial officer or Board of Directors in
consultation with its independent certified public accountants.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of
Qualified Capital Stock of the Company, sold by the Company, after the Issue
Date pursuant to a registration statement filed with the Commission in
accordance with the Securities Act.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not
Disqualified Capital Stock.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" shall have the meaning
specified in Rule 144A.
"RATING AGENCY" means S&P and Moody's, or if S&P or Moody's or
both shall not make a rating on the Securities publicly available, a nationally
recognized statistical rating agency or agencies, as the case may be, selected
by the Company (as certified by a resolution of the Board of Directors of the
Company) which shall be substituted for S&P or Moody's or both, as the case may
be.
"RECORD DATE" means the record dates specified in the Securities;
PROVIDED, HOWEVER, that if any such date is a Legal Holiday, the Record Date
shall be the first day immediately preceding such specified day that is not a
Legal Holiday.
"REDEMPTION DATE," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and Paragraph 5 of the Securities.
"REDEMPTION PRICE," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and Paragraph 5 of the Securities.
"REFINANCE" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, pre-pay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "REFINANCED" and "REFINANCING"
shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company
or any Restricted Subsidiary of the Company of Indebtedness incurred in
accordance with Section 5.12 (other than pursuant to clause (ii), (iv), (v),
(vi), (vii), (viii), (ix), (x), (xi), (xiii) or (xiv) of the definition of
Permitted Indebtedness), in each case that does not (1) result in an increase in
the aggregate principal amount of Indebtedness of such Person as of the date of
such proposed Refinancing (plus the amount of any premium required to be paid
under the terms of the instrument governing such Indebtedness and plus the
amount of reasonable expenses incurred by the Company in connection with such
Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; PROVIDED, that (x) if such
Indebtedness being Refinanced is solely Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Securities,
then such Refinancing Indebtedness shall be subordinate to the Securities at
least to the same extent and in the same manner as the Indebtedness being
Refinanced.
"REGISTRAR" shall have the meaning provided in Section 2.3.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the Issue Date among the Company, the Guarantors and the
Initial Purchasers.
"REGULATION S" means Regulation S under the Securities Act.
"REGULATION S GLOBAL SECURITY" means a permanent global security
in registered form representing the aggregate principal amount of Securities
sold in reliance on Regulation S under the Securities Act.
"REPLACEMENT ASSETS" shall have the meaning provided in Section
5.16(a).
"REPRESENTATIVE" means the indenture trustee or other trustee,
agent or representative in respect of any Designated Senior Debt; PROVIDED, that
if, and for so long as, any Designated Senior Debt lacks such a representative,
then the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"RESTRICTED SECURITY" has the meaning assigned to such term in
Rule 144(a)(3) under the Securities Act; PROVIDED, HOWEVER, that the Trustee
shall be entitled to request and conclusively rely on an Opinion of Counsel with
respect to whether any Security constitutes a Restricted Security.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of
such Person which is not an Unrestricted Subsidiary.
"RULE 144A" means Rule 144A under the Securities Act.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"SECURITIES" means, collectively, (i) the Initial Securities,
(ii) the Private Exchange Notes, if any, and (iii) the Unrestricted Securities,
treated as a single class of securities, as amended or supplemented from time to
time in accordance with the terms hereof, that are issued pursuant to this
Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"SENIOR DEBT" means the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of (x) all monetary
obligations of every nature of the Company under the Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not
include (i) any Indebtedness of the Company to a Restricted Subsidiary of the
Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries,
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director,
officer or employee of the Company or any Restricted Subsidiary of the Company
(including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of
this Indenture provisions set forth under Section 5.12, (vii) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to the Company and (viii)
any Indebtedness which is, by its express terms, subordinated in right of
payment to any other Indebtedness of the Company.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule
1.02(v) of Regulation S-X under the Securities Act.
"SUBSIDIARY" with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances shall at the time be owned, directly or indirectly, by such Person
or (ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned by
such Person.
"SURVIVING ENTITY" shall have the meaning provided in Section
6.1(a)(i).
"TERM LOAN FACILITY" means any term loan facilities under the
Credit Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb), as amended, as in effect on the date this Indenture is
qualified under the TIA, except as otherwise provided in Section 10.3.
"TRUST OFFICER" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"TRUSTEE" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"UNRESTRICTED SECURITY(IES)" means one or more Securities that do
not and are not required to bear the Private Placement Legend in the form set
forth in EXHIBIT A, including, without limitation, the Exchange Notes (as
defined in the Registration Rights Agreement).
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary
of such Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; PROVIDED, that (x) the
Company certifies to the Trustee that such designation complies with Section 5.3
and (y) each Subsidiary to be so designated and each of its Subsidiaries has not
at the time of designation, and does not thereafter, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness pursuant to which the lender has recourse to any of the
assets of the Company or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (x) immediately after giving effect to such designation, the
Company is able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 5.12 and (y) immediately
before and immediately after giving effect to such designation, no Default or
Event of Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable
obligations of, or non-callable obligations guaranteed by, the United States of
America for the payment of which guarantee or obligation the full faith and
credit of the United States is pledged.
"U.S. LEGAL TENDER" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than in the case of a foreign Restricted Subsidiary,
directors' qualifying shares or an immaterial amount of shares required to be
owned by other Persons pursuant to applicable law) are owned by such Person or
any Wholly Owned Restricted Subsidiary of such Person.
Section 1.2. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"INDENTURE SECURITIES" means the Securities.
"INDENTURE SECURITY HOLDER" means a Holder.
"INDENTURE TO BE QUALIFIED" means this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee.
"OBLIGOR" on the indenture securities means the Company, any
Guarantor or any other obligor on the Securities or the Guarantees.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule and not otherwise defined herein have the meanings assigned to them
therein.
Section 1.3. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE II.
THE SECURITIES
Section 2.1. Form and Dating.
The Securities, the notation thereon relating to the Guarantee
and the Trustee's certificate of authentication shall be substantially in the
form of EXHIBIT A. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage. The Company and the Trustee shall
approve the form of the Securities and any notation, legend or endorsement on
them. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the Securities and the
Guarantees shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A, Securities
offered and sold to institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) and Securities offered and
sold in reliance on Regulation S shall be issued initially in the form of one or
more permanent Global Securities in registered form, substantially in the form
set forth in EXHIBIT A, deposited with the Trustee, as custodian for the
Depository, duly executed by the Company (and having an executed Guarantee
endorsed thereon) and authenticated by the Trustee as hereinafter provided and
shall bear the legend set forth in EXHIBIT B. The aggregate principal amount of
the Global Securities may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depository,
as hereinafter provided.
Securities issued in exchange for interests in a Global Security
pursuant to Section 2.16 may be issued and Securities offered and sold in
reliance on any other exemption from registration under the Securities Act other
than as described in the preceding paragraph shall be issued in the form of
permanent certificated Securities in registered form in substantially the form
set forth in EXHIBIT A (the "PHYSICAL SECURITIES").
All Securities offered and sold in reliance on Regulation S shall
remain in the form of a Global Security until the consummation of the Exchange
Offer pursuant to the Registration Rights Agreement; PROVIDED, HOWEVER, that all
of the time periods specified in the Registration Rights Agreement to be
complied with by the Company and the Guarantors have been so complied with.
Section 2.2. Execution and Authentication.
One Officer of the Company, whom shall have been duly authorized
by all requisite corporate actions, shall sign the Securities for the Company by
manual or facsimile signature. Each Guarantor shall execute the Guarantee in the
manner set forth in Section 11.9.
If an Officer whose signature is on a Security was an Officer at
the time of such execution but no longer holds that office or position at the
time the Trustee authenticates the Security, the Security shall be valid
nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate (i) the Initial Securities for
original issue in the aggregate principal amount not to exceed $300.0 million,
(ii) the Private Exchange Notes from time to time for issue only in exchange for
a like principal amount of the Initial Securities and (iii) Unrestricted
Securities from time to time only (A) in exchange for a like principal amount of
the Initial Securities or (B) in an aggregate principal amount of not more than
the excess of $300.0 million over the sum of the aggregate principal amount of
(x) the Initial Securities than outstanding, (y) the Private Exchange Notes then
outstanding and (z) the Unrestricted Securities issued in accordance with
(iii)(A) above, in each case upon a written order of the Company in the form of
an Officers' Certificate. The Officers' Certificate shall specify the amount of
Securities to be authenticated and the date on which the Securities are to be
authenticated, whether the Securities are to be the Initial Securities, Private
Exchange Notes or Unrestricted Securities and whether the Securities are to be
issued as Physical Securities or Global Securities or such other information as
the Trustee may reasonably request. The aggregate principal amount of Securities
outstanding at any time may not exceed $300.0 million (or such lesser amount as
is requested authenticated by the Trustee and issued by the Company on the Issue
Date), except as provided in Section 2.7. Such Securities shall be in the form
of one or more Global Securities, which (i) shall represent, and shall be
denominated in an amount equal to the aggregate principal amount of, the
outstanding Securities, (ii) shall be registered in the name of the Depository
for such Global Security or Securities or its nominee, (iii) shall be delivered
by the Trustee to the Depository or pursuant to the Depository's instruction and
(iv) shall bear a legend substantially to the following effect:
"Unless and until this Global Security is exchanged in whole or
in part for the individual Securities represented hereby, this
Global Security may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or by a Depository or any such
nominee to a successor Depository or a nominee of a successor
Depository."
In the event that the Company shall issue and the Trustee shall
authenticate any Securities issued under this Indenture subsequent to the Issue
Date pursuant to clauses (i) and (iii) of the first sentence of the immediately
preceding paragraph, the Company shall use its reasonable efforts to obtain the
same "CUSIP" number for such Securities as is printed on the Securities
outstanding at such time; PROVIDED, HOWEVER, that if any series of Securities
issued under this Indenture subsequent to the Issue Date is determined, pursuant
to an Opinion of Counsel of the Company in a form reasonably satisfactory to the
Trustee to be a different class of security than the Securities outstanding at
such time for federal income tax purposes, the Company may obtain a "CUSIP"
number for such Securities that is different than the "CUSIP" number printed on
the Securities then outstanding. Notwithstanding the foregoing, all Securities
issued under this Indenture shall vote and consent together on all matters as
one class and no series of Securities will have the right to vote or consent as
a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and integral multiples thereof.
Section 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("REGISTRAR"), (b)
Securities may be presented or surrendered for payment ("PAYING AGENT") and (c)
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office or agency in respect of clauses (a) and (b)
shall be the Trustee, c/o United States Trust Company of New York (770 Broadway,
13th Floor, New York, New York 10003, Attn: Corporate Trust Services), and the
office or agency in respect of clause (c) shall be the Trustee, c/o United
States Trust Company of New York (114 West 47th Street, New York, New York
10036, Attn: Corporate Trust Administration), unless in either case the Company
shall designate and maintain some other office or agency for one or more of such
purposes. The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Company may
act as its own Registrar or Paying Agent except that for the purposes of
Articles Three and Nine and Sections 5.15 and 5.16, neither the Company nor any
Affiliate of the Company shall act as Paying Agent. The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company, upon
notice to the Trustee, may have one or more co-Registrars and one or more
additional paying agents reasonably acceptable to the Trustee. The term "Paying
Agent" includes any additional paying agent. The Company initially appoints the
Trustee as Registrar and Paying Agent until such time as the Trustee has
resigned or a successor has been appointed.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee, in advance, of the name and address of any such Agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
Section 2.4. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that, subject to Article Four and Article Twelve,
each Paying Agent shall hold in trust for the benefit of Holders or the Trustee
all assets held by the Paying Agent for the payment of principal of, or interest
on, the Securities (whether such assets have been distributed to it by the
Company or any other obligor on the Securities), and shall notify the Trustee of
any Default by the Company (or any other obligor on the Securities) in making
any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund, subject to Article
Four and Article Twelve. The Company at any time may require a Paying Agent to
distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have been
delivered by the Company to the Paying Agent, the Paying Agent shall have no
further liability for such assets.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, which list
may be conclusively relied upon by the Trustee.
Section 2.6. Transfer and Exchange.
(a) Subject to Sections 2.16 and 2.17, when Securities are
presented to the Registrar or a co-Registrar with a request to register the
transfer of such Securities or to exchange such Securities for an equal
principal amount of Securities of other authorized denominations, the Registrar
or co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; PROVIDED, HOWEVER, that the
Securities surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar or co-Registrar, duly executed by the Holder thereof
or his or her attorney duly authorized in writing. To permit registrations of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Registrar's or co-Registrar's request. No service
charge shall be made for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchanges or
transfers pursuant to Sections 2.2, 2.7, 2.10, 3.7, 5.15, 5.16 or 10.5). The
Registrar or co-Registrar shall not be required to register the transfer of or
exchange of any Security (i) during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of Securities and
ending at the close of business on the day of such mailing and (ii) selected for
redemption in whole or in part pursuant to Article Three, except the unredeemed
portion of any Security being redeemed in part. A Global Security may be
transferred, in whole but not in part, in the manner provided in this Section
2.6(a), only to a nominee of the Depository for such Global Security, or to the
Depository, or a successor Depository for such Global Security selected or
approved by the Company, or to a nominee of such successor Depository.
(b) If at any time the Depository for the Global Security or
Securities notifies the Company that it is unwilling or unable to continue as
Depository for such Global Security or Securities or the Company becomes aware
that the Depository has ceased to be a clearing agency registered under the
Exchange Act, the Company shall appoint a successor Depository with respect to
such Global Security or Securities. If a successor Depository for such Global
Security or Securities has not been appointed within 120 days after the Company
receives such notice or becomes aware of such ineligibility, the Company shall
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of Securities, shall authenticate and deliver,
Securities in definitive form, in an aggregate principal amount at maturity
equal to the principal amount at maturity of the Global Security representing
such Securities, in exchange for such Global Security. The Company shall
reimburse the Registrar, the Depository and the Trustee for expenses they incur
in documenting such exchanges and issuances of Securities in definitive form.
The Company may at any time and in its sole discretion determine
that the Securities shall no longer be represented by such Global Security or
Securities. In such event the Company will execute, and the Trustee, upon
receipt of a written order for the authentication and delivery of individual
Securities in exchange in whole or in part for such Global Security or
Securities, will authenticate and deliver individual Securities in definitive
form in an aggregate principal amount equal to the principal amount of such
Global Security or Securities in exchange for such Global Security or
Securities.
In any exchange provided for in any of the preceding two
paragraphs, the Company will execute and the Trustee will authenticate and
deliver individual Securities in definitive registered form in authorized
denominations. Upon the exchange of a Global Security for individual Securities,
such Global Security shall be canceled by the Trustee. Securities issued in
exchange for a Global Security pursuant to this Section 2.6(b) shall be
registered in such names and in such authorized denominations as the Depository
for such Global Security, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall deliver
such Securities to the persons in whose names such Securities are so registered.
None of the Company, the Trustee, any Paying Agent or the
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Section 2.7. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge such Holder for its
reasonable out-of-pocket expenses in replacing a Security pursuant to this
Section 2.7, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
Section 2.8. Outstanding Securities.
Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee except those canceled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. A Security does not cease to be outstanding because the Company or
any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7.
If on a Redemption Date or the Maturity Date the Paying Agent
(other than the Company or a Subsidiary) holds U.S. Legal Tender or U.S.
Government Obligations sufficient to pay all of the principal and interest due
on the Securities payable on that date, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue unless,
pursuant to the provisions of Article Four and Article Twelve, the Paying Agent
is unable to make payments on the Securities to the Holders thereof.
Section 2.9. Treasury Securities.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or any of its Affiliates shall be disregarded,
except that, for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Securities
that the Trustee knows or has reason to know are so owned shall be disregarded.
Section 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities. Until
such exchange, temporary Securities shall be entitled to the same rights,
benefits and privileges as definitive Securities. Notwithstanding the foregoing,
so long as the Securities are represented by a Global Security, such Global
Security may be in typewritten form.
Section 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or a Subsidiary), and no one else, shall cancel and, at
the written direction of the Company, shall dispose of all Securities
surrendered for transfer, exchange, payment or cancellation. Subject to Section
2.7, the Company may not issue new Securities to replace Securities that it has
paid or delivered to the Trustee for cancellation. If the Company shall acquire
any of the Securities, such acquisition shall not operate as a redemption or
satisfaction of the Indebtedness represented by such Securities unless and until
the same are surrendered to the Trustee for cancellation pursuant to this
Section 2.11.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the
Securities, it shall, unless the Trustee fixes another record date pursuant to
Section 7.10, pay the defaulted interest, plus (to the extent lawful) any
interest payable on the defaulted interest, to the persons who are Holders on a
subsequent special record date, which date shall be the fifteenth day next
preceding the date fixed by the Company for the payment of defaulted interest or
the next succeeding Business Day if such date is not a Business Day. At least 15
days before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
Section 2.13. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number,
and if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; PROVIDED, HOWEVER, that any such notice
may state that no representation is made as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Securities, and that reliance
may be placed only on the other identification numbers printed on the
Securities.
Section 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest Payment
Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net
Proceeds Offer Payment Date, the Company shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date, Maturity Date, Redemption Date, Change
of Control Payment Date and Net Proceeds Offer Payment Date, as the case may be,
in a timely manner which permits the Paying Agent to remit payment to the
Holders on such Interest Payment Date, Maturity Date, Redemption Date, Change of
Control Payment Date and Net Proceeds Offer Payment Date, as the case may be.
Section 2.15. Restrictive Legends.
Each Global Security and Physical Security that constitutes a
Restricted Security shall bear the legend (the "PRIVATE PLACEMENT LEGEND") as
set forth in EXHIBIT A until after the second anniversary of the later of the
Issue Date and the last date on which the Company or any Affiliate of the
Company was the owner of such Security (or any predecessor security) (or such
shorter period of time as permitted by Rule 144(k) under the Securities Act or
any successor provision thereunder) (or such longer period of time as may be
required under the Securities Act or applicable state securities laws in the
opinion of counsel for the Company, unless otherwise agreed by the Company and
the Holder thereof).
Each Global Security shall also bear the legend as set forth in
EXHIBIT B.
Section 2.16. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear the legend as set
forth in EXHIBIT B.
Members of, or participants in, the Depository ("AGENT MEMBERS")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Securities, and the Depository may be treated by the Company,
the Trustee and any Agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any Agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Security.
(b) Transfers of a Global Security shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Security may be transferred
or exchanged for Physical Securities in accordance with the rules and procedures
of the Depository and the provisions of Section 2.17. In addition, Physical
Securities shall be transferred to all beneficial owners in exchange for their
beneficial interests in a Global Security if (i) the Depository notifies the
Company that it is unwilling or unable to continue as the Depository for the
Global Securities and a successor depository is not appointed by the Company
within 90 days of such notice or (ii) an Event of Default has occurred and is
continuing and the Registrar has received a written request from the Depository
to issue Physical Securities.
(c) In connection with any transfer or exchange of a portion of
the beneficial interest in a Global Security to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Securities are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of such Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute, the Guarantors shall execute Guarantees on, and the
Trustee shall authenticate and deliver, one or more Physical Securities of like
tenor and amount.
(d) In connection with the transfer of an entire Global Security
to beneficial owners pursuant to paragraph (b) of this Section 2.16, such Global
Security shall be deemed to be surrendered to the Trustee for cancellation, and
the Company shall execute, the Guarantors shall execute Guarantees on and the
Trustee shall authenticate and deliver, to each beneficial owner identified by
the Depository in exchange for its beneficial interest in the Global Security,
an equal aggregate principal amount of Physical Securities of authorized
denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) or (c) of this Section 2.16 shall, except as otherwise provided by
paragraphs (a)(i)(x) and (c) of Section 2.17, bear the Private Placement Legend.
(f) The Holder of a Global Security may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
Section 2.17. Special Transfer Provisions.
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS AND
NON-U.S. PERSONS. The following provisions shall apply with respect to the
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any
Security constituting a Restricted Security, whether or not such
Security bears the Private Placement Legend, if (x) the requested
transfer is after the second anniversary of the Issue Date (PROVIDED,
HOWEVER, that neither the Company nor any Affiliate of the Company has
held any beneficial interest in such Security, or portion thereof, at
any time on or prior to the second anniversary of the Issue Date) or (y)
(1) in the case of a transfer to an Institutional Accredited Investor
which is not a QIB (excluding Non-U.S. Persons), the proposed transferee
has delivered to the Registrar a certificate substantially in the form
of EXHIBIT C hereto or (2) in the case of a transfer to a Non-U.S.
Person, the proposed transferor has delivered to the Registrar a
certificate substantially in the form of EXHIBIT D hereto;
(ii) if the proposed transferee is an Agent Member and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in the IAI Global Security
or Regulation S Global Security, as the case may be, upon receipt by the
Registrar of (x) written instructions given in accordance with the
Depository's and the Registrar's procedures and (y) the appropriate
certificate, if any, required by clause (y) of paragraph (i) above, the
Registrar shall register the transfer and reflect on its books and
records the date and an increase in the principal amount of the IAI
Global Security or Regulation S Global Security, as the case may be, in
an amount equal to the principal amount of Physical Securities to be
transferred, and the Trustee shall cancel the Physical Securities so
transferred; and
(iii) if the proposed transferor is an Agent Member
seeking to transfer an interest in a Global Security, upon receipt by
the Registrar of (x) written instructions given in accordance with the
Depository's and the Registrar's procedures and (y) the appropriate
certificate, if any, required by clause (y) of paragraph (i) above, the
Registrar shall register the transfer and reflect on its books and
records the date and (A) a decrease in the principal amount of the
Global Security from which such interests are to be transferred in an
amount equal to the principal amount of the Securities to be transferred
and (B) an increase in the principal amount of the IAI Global Security
or the Regulation S Global Security, as the case may be, in an amount
equal to the principal amount of the Securities to be transferred.
(b) TRANSFERS TO QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer of any
Restricted Security if such transfer is being made by a proposed
transferor who has checked the box provided for on the form of the
Security stating, or has otherwise advised the Company and the Registrar
in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of the Security stating, or has otherwise
advised the Company and the Registrar in writing, that it is purchasing
the Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is
a QIB within the meaning of Rule 144A, and is aware that the sale to it
is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information
and that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A;
(ii) if the proposed transferee is an Agent Member, and
the Securities to be transferred consist of Physical Securities which
after transfer are to be evidenced by an interest in a Global Security,
upon receipt by the Registrar of written instructions given in
accordance with the Depository's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an
increase in the principal amount of such Global Security in an amount
equal to the principal amount of the Physical Securities to be
transferred, and the Trustee shall cancel the Physical Securities so
transferred; and
(iii) if the proposed transferor is an Agent Member
seeking to transfer an interest in the IAI Global Security or the
Regulation S Global Security, upon receipt by the Registrar of written
instructions given in accordance with the Depository's and the
Registrar's procedures, the Registrar shall register the transfer and
reflect on its books and records the date and (A) a decrease in the
principal amount of the IAI Global Security or the Regulation S Global
Security, as the case may be, in an amount equal to the principal amount
of the Securities to be transferred and (B) an increase in the principal
amount of the Global Security in an amount equal to the principal amount
of the Securities to be transferred.
(c) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL SECURITIES.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or any such
nominee to a successor Depository or a nominee of such successor Depository.
(d) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of the Securities not bearing the Private Placement Legend, the
Registrar shall deliver the Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of the Securities bearing the
Private Placement Legend, the Registrar shall deliver only the Securities that
bear the Private Placement Legend unless (i) the requested transfer is after the
second anniversary of the Issue Date (PROVIDED, HOWEVER, that neither the
Company nor any Affiliate of the Company has held any beneficial interest in
such Security, or portion thereof, at any time prior to or on the second
anniversary of the Issue Date), or (ii) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act.
(e) GENERAL. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.16 or this Section
2.17. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time during
the Registrar's normal business hours upon the giving of reasonable written
notice to the Registrar.
(f) TRANSFERS OF SECURITIES HELD BY AFFILIATES. Any certificate
(i) evidencing a Security that has been transferred to an Affiliate of the
Company within two years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered in
respect thereof or (ii) evidencing a Security that has been acquired from an
Affiliate of the Company (other than by an Affiliate of the Company) in a
transaction or a chain of transactions not involving any public offering, shall,
until two years after the last date on which the Company or any Affiliate of the
Company was an owner of such Security, in each case, bear the Private Placement
Legend, unless otherwise agreed by the Company (with written notice thereof to
the Trustee).
Section 2.18. Additional Interest Under Registration Rights Agreement.
Under certain circumstances, the Company shall be obligated to
pay, as liquidated damages, additional interest to the Holders, all as set forth
in Section 4 of the Registration Rights Agreement. The terms thereof are hereby
incorporated herein by reference.
ARTICLE III.
REDEMPTION
Section 3.1. Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph
5 of the Securities, it shall notify the Trustee, with a copy to the Credit
Agent, of the Redemption Date and the principal amount of Securities to be
redeemed and whether it wants the Trustee to give notice of redemption to the
Holders at least 35 days (unless a shorter notice shall be satisfactory to the
Trustee) but not more than 60 days before the Redemption Date. Any such notice
may be canceled at any time prior to notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
Section 3.2. Selection of Securities To Be Redeemed.
If fewer than all of the Securities are to be redeemed at any
time, the Trustee shall select the Securities to be redeemed in compliance with
the requirements of the principal national securities exchange, if any, on which
such Securities are listed or, if such Securities are not then listed on a
national securities exchange, on a PRO RATA basis, by lot or by such method as
the Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no
Securities of a principal amount of $1,000 or less shall be redeemed in part;
PROVIDED, FURTHER; that any partial redemption pursuant to Paragraph 5 of the
Securities with the proceeds of a Public Equity Offering shall be made on a pro
rata basis or on as nearly a pro rata basis as is practicable (subject to the
Depository's procedures), unless such method is otherwise prohibited.
The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption and shall promptly notify
the Company in writing of the Securities selected for redemption and, in the
case of any Security selected for partial redemption, the principal amount
thereof to be redeemed. Securities in denominations of $1,000 may be redeemed
only in whole. The Trustee may select for redemption portions (equal to $1,000
or integral multiples thereof) of the principal amount of Securities that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
Section 3.3. Optional Redemption.
(a) On or after February 15, 2003, the Securities may be redeemed
in whole at any time or in part from time to time, at the option of the Company,
upon not less than 30 nor more than 60 days notice, at a redemption price equal
to the applicable percentage of the principal amount thereof set forth below,
together with accrued and unpaid interest (if any) to the Redemption Date, if
redeemed during the twelve-month period commencing on February 15 of the year
set forth below:
<TABLE>
<CAPTION>
<S> <C> <C>
Redemption
Year Price
2003. . . . . . . . . . . . . 104.313%
2004. . . . . . . . . . . . . 102.875%
2005. . . . . . . . . . . . . 101.438%
2006 and thereafter. . . . . . . . . . 100.000%
</TABLE>
(b) OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any
time, or from time to time, on or prior to February 15, 2001, the Company may,
at its option, use the net cash proceeds of one or more Public Equity Offerings
to redeem the Securities at a Redemption Price equal to 108.625% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the Redemption Date; PROVIDED, that at least 65% of the principal amount of the
Securities originally issued remains outstanding immediately after any such
redemption. In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Public Equity Offering.
Section 3.4. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first class mail to each
Holder whose Securities are to be redeemed at such Holder's registered address,
with a copy to the Trustee and the Credit Agent. In order to effect a redemption
pursuant to Paragraph 5 of the Securities with the proceeds of a Public Equity
Offering, the Company shall send the redemption notice not later than 120 days
after the consummation of such Public Equity Offering. At the Company's request,
the Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. Each notice for redemption shall identify the Securities to
be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(5) that, unless (a) the Company defaults in making the
redemption payment on the Redemption Date or (b) such redemption payment is
prohibited pursuant to Article Four or Article Twelve hereof or otherwise,
interest on Securities called for redemption ceases to accrue on and after the
Redemption Date, and the only remaining right of the Holders of such Securities
is to receive payment of the Redemption Price upon surrender to the Paying Agent
of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the Redemption
Date, and upon surrender of such Security, a new Security or Securities in
aggregate principal amount equal to the unredeemed portion thereof will be
issued; and
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be redeemed,
as well as the aggregate principal amount of Securities to be redeemed and the
aggregate principal amount of Securities to be outstanding after such partial
redemption.
Section 3.5. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.4, Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender to the Trustee or Paying Agent,
such Securities called for redemption shall be paid at the Redemption Price
unless prohibited pursuant to Article Four or Article Twelve or otherwise
pursuant to this Indenture. Securities that are redeemed by the Company or that
are purchased by the Company pursuant to a Net Proceeds Offer as described in
Section 5.16 or pursuant to a Change of Control Offer as described in Section
5.15 or that are otherwise acquired by the Company will be surrendered to the
Trustee for cancellation.
Section 3.6. Deposit of Redemption Price.
On or before 11:00 a.m. New York City time on the Redemption
Date, the Company shall deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the Redemption Price of all Securities to be redeemed on that
date (other than Securities or portions thereof called for redemption on that
date which have been delivered by the Company to the Trustee for cancellation).
The Paying Agent shall promptly return to the Company any U.S. Legal Tender so
deposited which is not required for that purpose upon the written request of the
Company, except with respect to monies owed as obligations to the Trustee
pursuant to Article Eight and Article Twelve hereof.
If the Company complies with the preceding paragraph and payment
of the Securities called for redemption is not prohibited under Article Four or
Article Twelve or otherwise, then, unless the Company defaults in the payment of
such Redemption Price, interest on the Securities or portions thereof to be
redeemed will cease to accrue on and after the applicable Redemption Date,
whether or not such Securities are presented for payment.
Section 3.7. Securities Redeemed in Part.
Upon surrender and cancellation of a Security that is to be
redeemed in part, the Trustee shall authenticate for the Holder a new Security
or Securities equal in principal amount to the unredeemed portion of the
Security surrendered and canceled.
ARTICLE IV.
SUBORDINATION
Section 4.1. Securities Subordinated to Senior Debt.
Anything herein to the contrary notwithstanding, the Company, for
itself and its successors, and each Holder, by his or her acceptance of
Securities, agrees that the payment of all Obligations on the Securities is
subordinated, to the extent and in the manner provided in this Article Four, in
right of payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt.
This Article Four shall constitute a continuing offer to all
persons who become holders of, or continue to hold, Senior Debt, and such
provisions are made for the benefit of the holders of Senior Debt and such
holders are made obligees hereunder and any one or more of them may enforce such
provisions.
The obligations of the Company to the Trustee under Section 8.7
shall not be subject to the provisions of this Article Four.
Section 4.2. Suspension of Payment When Senior Debt in Default.
(a) Unless Section 4.3 shall be applicable, no direct or indirect
payment (other than payments by a trust previously established pursuant to
Article Nine) or distribution of any asset of the Company of any kind or
character by or on behalf of the Company of Obligations on the Securities or on
account of the purchase or redemption or other acquisition of the Securities
whether pursuant to the terms of the Securities or upon acceleration or
otherwise shall be made if, at the time of such payment or distribution, there
exists a default in the payment of all or any portion of principal of, premium,
if any, or interest on any Designated Senior Debt and such default shall not
have been cured or waived by or on behalf of the holders of such Designated
Senior Debt or shall have ceased to exist, until such default shall have been
cured or waived or shall have ceased to exist or such Designated Senior Debt
shall have been discharged or paid in full in cash or Cash Equivalents, after
which the Company shall resume making any and all required payments in respect
of the Securities, including any missed payments.
(b) Unless Section 4.3 shall be applicable, during the
continuance of any other event of default with respect to any Designated Senior
Debt pursuant to which the maturity thereof may be accelerated, upon the earlier
to occur of (a) receipt by the Trustee of written notice from the holders of a
majority of the outstanding principal amount of the Designated Senior Debt or
their Representative stating that such notice is a notice pursuant to Section
4.2 of this Indenture, or (b) if such event of default results from the
acceleration of the Securities, the date of such acceleration, no such payment
(other than payments by a trust previously established pursuant to Article Nine)
or distribution of any asset of the Company of any kind or character shall be
made by the Company upon or in respect of the Securities (including, without
limitation, on account of any principal of, premium, if any, or interest on the
Securities) or on account of the purchase or redemption or other acquisition of
Securities for a period ("PAYMENT BLOCKAGE PERIOD") commencing on the earlier of
the date of receipt of such notice or the date of such acceleration and ending
180 days thereafter (PROVIDED, that such Designated Senior Debt shall
theretofore not have been accelerated) (unless (x) such Payment Blockage Period
shall be terminated by written notice to the Trustee from the holders of a
majority of the outstanding principal amount of such Designated Senior Debt or
their Representative who delivered such notice or (y) such default is cured or
waived, or ceases to exist or such Designated Senior Debt is discharged or paid
in full in cash or Cash Equivalents), after which the Company shall promptly
notify the Trustee of such cure or waiver and resume making any and all required
payments in respect of the Securities, including any missed payments.
Notwithstanding anything herein to the contrary, in no event will a Payment
Blockage Period extend beyond 180 days from the date on which such Payment
Blockage Period was commenced. Not more than one Payment Blockage Period may be
commenced with respect to the Securities during any period of 360 consecutive
days. No event of default which existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Debt initiating such Payment Blockage Period shall be, or be made, the
basis for the commencement of a second Payment Blockage Period by the holders of
such Designated Senior Debt or their Representative whether or not within a
period of 360 consecutive days unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose).
(c) In the event that, notwithstanding the foregoing, the Trustee
or a Holder shall have received any payment prohibited by the foregoing
provisions of this Section 4.2, then and in such event such payment shall be
paid over and delivered forthwith to the Representative or as a court of
competent jurisdiction shall direct.
Section 4.3. Securities Subordinated to Prior Payment of All Senior Debt on
Dissolution, Liquidation or Reorganization of Company.
Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities to creditors, upon
any dissolution, winding-up, total or partial liquidation or reorganization of
the Company (including, without limitation, in bankruptcy, reorganization,
insolvency, receivership or other similar proceeding or upon any assignment for
the benefit of creditors or any other marshaling of the Company's assets and
liabilities), whether voluntary or involuntary:
(a) the holders of Senior Debt shall first be entitled to receive
payments in full in cash or Cash Equivalents, or such payment duly provided for
to the satisfaction of the holders of Senior Debt, of all amounts payable under
Senior Debt before the Holders will be entitled to receive any payment with
respect to the Securities, or for the acquisition of any of the Securities for
cash or property or otherwise; PROVIDED, HOWEVER, that no payment on any
Guarantee shall constitute payment on behalf of the Company for purposes of this
Section 4.3(a);
(b) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to which the Holders
or the Trustee on behalf of the Holders would be entitled except for the
provisions of this Article Four, shall be paid by the liquidating trustee or
agent or other person making such a payment or distribution, directly to the
holders of Senior Debt or their Representative, ratably according to the
respective amounts of Senior Debt remaining unpaid held or represented by each,
until all Senior Debt remaining unpaid shall have been paid in full in cash or
Cash Equivalents after giving effect to any concurrent payment or distribution
to the holders of such Senior Debt; and
(c) in the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, shall be received by the Trustee or the Holders or
any Paying Agent on account of principal of, premium, if any, or interest on the
Securities before all Senior Debt is paid in full in cash or Cash Equivalents,
such payment or distribution (subject to the provisions of Sections 4.6 and 4.7)
shall be received, segregated from other funds, and held by the Trustee or such
Holder or Paying Agent for the benefit of, and shall immediately be paid over
to, the holders of Senior Debt or their Representative, ratably according to the
respective amounts of Senior Debt held or represented by each, until all Senior
Debt remaining unpaid shall have been paid in full in cash or Cash Equivalents,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Debt. Notwithstanding anything to the contrary contained
herein, in the absence of its gross negligence or willful misconduct, the
Trustee shall have no duty to collect or retrieve monies previously paid by it
in good faith; PROVIDED, HOWEVER, that this sentence shall not affect the
obligation of any other party receiving such payment to hold such payment for
the benefit of, and to pay over such payment over to, the holders of Senior Debt
or their Representative.
The consolidation of the Company with, or the merger of the
Company with or into, another person or the liquidation or dissolution of the
Company following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another person upon the terms and conditions set
forth in Article Six shall not be deemed a dissolution, winding-up, liquidation,
reorganization, assignment for the benefit of creditors or marshaling of assets
and liabilities of the Company for the purposes of this Article Four if the
person formed by such consolidation or the surviving entity of such merger or
the person which acquires by conveyance, transfer or lease such properties and
assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, conveyance, transfer or lease, comply with the
conditions set forth in such Article Six.
The Company shall give prompt notice to the Trustee prior to any
dissolution, winding-up, total or partial liquidation or reorganization
(including, without limitation, in bankruptcy, insolvency, or receivership
proceedings or upon any assignment for the benefit of creditors or any other
marshaling of the Company's assets and liabilities).
Section 4.4. Holders To Be Subrogated to Rights of Holders of Senior Debt.
Subject to the payment in full in cash or Cash Equivalents of all
Senior Debt, Holders shall be subrogated to the rights of the holders of Senior
Debt to receive payments or distributions of assets of the Company applicable to
the Senior Debt until all amounts owing on the Securities shall be paid in full
in cash, and for the purpose of such subrogation no payments or distributions to
the holders of Senior Debt by or on behalf of the Company, or by or on behalf of
the Holders by virtue of this Article Four, which otherwise would have been made
to the Holders, shall, as between the Company and the Holders, be deemed to be
payment by the Company to or on account of the Senior Debt, it being understood
that the provisions of this Article Four are and are intended solely for the
purpose of defining the relative rights of the Holders, on the one hand, and the
holders of Senior Debt, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Four shall
have been applied, pursuant to the provisions of this Article Four, to the
payment of all amounts payable under the Senior Debt, then the Holders shall be
entitled to receive from the holders of such Senior Debt any payments or
distributions received by such holders of Senior Debt in excess of the amount
sufficient to pay all amounts payable under or in respect of the Senior Debt in
full in cash or Cash Equivalents.
Section 4.5. Obligations of the Company Unconditional.
Nothing contained in this Article Four or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company and the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the principal of and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Company other than the holders of the Senior Debt,
nor shall anything herein or therein prevent the Trustee or any Holder from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article Four, of the
holders of Senior Debt in respect of cash, property or securities of the Company
received upon the exercise of any such remedy. Upon any payment or distribution
of assets or securities of the Company referred to in this Article Four, the
Trustee, subject to the provisions of Sections 8.1 and 8.2, and the Holders
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which any dissolution, winding-up, liquidation or
reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidating trustee or agent or other person making any
payment or distribution to the Trustee or to the Holders for the purpose of
ascertaining the persons entitled to participate in such payment or
distribution, the holders of Senior Debt and other Indebtedness of the Company,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Four. Nothing
in this Section 4.5 shall apply to the claims of, or payments to, the Trustee
under or pursuant to Section 8.7.
Section 4.6. Trustee Entitled To Assume Payments Not Prohibited in Absence of
Notice.
The Trustee shall not at any time be charged with knowledge of
the existence of any facts that would prohibit the making of any payment to or
by the Trustee unless and until the Trustee shall have received written notice
thereof from the Company or from one or more holders of Senior Debt or from any
Representative therefor and, prior to the receipt of any such notice, the
Trustee, subject to the provisions of Sections 8.1 and 8.2, shall be entitled in
all respects conclusively to assume that no such fact exists.
Section 4.7. Application by Trustee of Assets Deposited with It.
U.S. Legal Tender or U.S. Government Obligations deposited in
trust with the Trustee pursuant to and in accordance with Section 9.2 shall be
for the sole benefit of Holders and, to the extent allocated for the payment of
Securities, shall not be subject to the subordination provisions of this Article
Four. Otherwise, any deposit of assets or securities by or on behalf of the
Company with the Trustee or any Paying Agent (whether or not in trust) for the
payment of principal of or interest on any Securities shall be subject to the
provisions of this Article Four; PROVIDED, HOWEVER, that if prior to the second
Business Day preceding the date on which by the terms of this Indenture any such
assets may become distributable for any purpose (including, without limitation,
the payment of principal of or premium or interest on any Security) the Trustee
or such Paying Agent shall not have received with respect to such assets the
notice provided for in Section 4.6, then the Trustee or such Paying Agent shall
have full power and authority to receive such assets and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary received by it on or after such date; PROVIDED, FURTHER,
that no payment on any Guarantee shall constitute payment on behalf of the
Company for purposes of this Section 4.7. The foregoing shall not apply to the
Paying Agent if the Company or any Subsidiary or Affiliate of the Company is
acting as Paying Agent. Nothing contained in this Section 4.7 shall limit the
right of the holders of Senior Debt to recover payments as contemplated by this
Article Four.
Section 4.8. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior Debt
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section 4.8, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders without incurring
responsibility to the Holders and without impairing or releasing the
subordination provided in this Article Four or the obligations hereunder of the
Holders to the holders of Senior Debt, do any one or more of the following: (1)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, Senior Debt or any instrument evidencing the same or any
agreement under which Senior Debt is outstanding; (2) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Debt; (3) release any person liable in any manner for the collection or payment
of Senior Debt; and (4) exercise or refrain from exercising any rights against
the Company and any other person; PROVIDED, HOWEVER, that in no event shall any
such actions limit the right of the Holders to take any action to accelerate the
maturity of the Securities pursuant to Article Seven or to pursue any rights or
remedies hereunder or under applicable laws if the taking of such action does
not otherwise violate the terms of this Indenture.
(c) Each Holder by accepting a Security agrees that the
Representative of any Senior Debt (including, without limitation, the Credit
Agent), in its discretion, without notice or demand and without affecting any
rights of any holder of Senior Debt under this Article Four, may foreclose any
mortgage or deed of trust covering interests in real property secured thereby,
by judicial or nonjudicial sale; and such Holder hereby waives any defense to
the enforcement by the Representative of any Senior Debt (including, without
limitation, the Credit Agent) or by any holder of any Senior Debt against such
Holder of this Article Four after a judicial or nonjudicial sale or other
disposition of its interests in real property secured by such mortgage or deed
of trust; and such Holder expressly waives any defense or benefits that may be
derived from comparable provisions of the laws of any jurisdiction or any
similar statute in effect in any jurisdiction.
Section 4.9. Holders Authorize Trustee To Effectuate Subordination of
Securities.
Each Holder by his or her acceptance of a Security authorizes and
expressly directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to effect the subordination provisions contained in
this Article Four, and appoints the Trustee his or her attorney-in-fact for such
purpose, including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company) tending towards liquidation
or reorganization of the business and assets of the Company, the immediate
filing of a claim for the unpaid balance of such Holder's Securities in the form
required in said proceedings and cause said claim to be approved. If the Trustee
does not file a proper claim or proof of debt in the form required in such
proceeding prior to 30 days before the expiration of the time to file such claim
or claims, then the holders of the Senior Debt or their Representative is hereby
authorized to file an appropriate claim for and on behalf of the Holders.
Nothing herein contained shall be deemed to authorize the Trustee or the holders
of Senior Debt or their Representative to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee or the holders of Senior Debt or their
Representative to vote in respect of the claim of any Holder in any such
proceeding.
Section 4.10. Right of Trustee To Hold Senior Debt.
The Trustee shall be entitled to all of the rights set forth in
this Article Four in respect of any Senior Debt at any time held by it to the
same extent as any other holder of Senior Debt, and nothing in this Indenture
shall be construed to deprive the Trustee of any of its rights as such holder.
Section 4.11. No Suspension of Remedies.
The failure to make a payment on account of principal of or
interest on the Securities by reason of any provision of this Article Four shall
not be construed as preventing the occurrence of a Default or an Event of
Default under Section 7.1.
Nothing contained in this Article Four shall limit the right of
the Trustee or the Holders to take any action to accelerate the maturity of the
Securities pursuant to Article Seven or to pursue any rights or remedies
hereunder or under applicable law, subject to the rights, if any, under this
Article Four of the holders, from time to time, of Senior Debt.
Section 4.12. No Fiduciary Duty of Trustee to Holders of Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders (other than
for its willful misconduct or gross negligence) if it shall in good faith
mistakenly pay over or deliver to the Holders or the Company or any other
person, money or assets to which any holders of Senior Debt shall be entitled by
virtue of this Article Four or otherwise. Nothing in this Section 4.12 shall
affect the obligation of any person other than the Trustee to hold such payment
for the benefit of, and to pay such payment over to, the holders of Senior Debt
or their Representative.
ARTICLE V.
COVENANTS
Section 5.1. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. An
installment of principal of or interest on the Securities shall be considered
paid on the date it is due if the Trustee or Paying Agent (other than the
Company or a Subsidiary) holds on that date U.S. Legal Tender designated for and
sufficient to pay the installment; PROVIDED, HOWEVER, that U.S. Legal Tender
held by the Trustee for the benefit of holders of Senior Debt or the payment of
which to the Holders is prohibited pursuant to the provisions of Article Four or
Article Twelve or otherwise shall not be considered to be designated for the
payment of any installment of principal or interest on the Securities within the
meaning of this Section 5.1.
The Company shall pay interest on overdue principal at the rate
borne by the Securities and it shall pay interest on overdue installments of
interest at the same rate, to the extent lawful.
Section 5.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City
of New York, the office or agency required under Section 2.3. The Company shall
give prior notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13.2.
Section 5.3. Limitation on Restricted Payments.
(a) The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Securities (other than the purchase, repurchase or other
acquisition of such Indebtedness purchased in anticipation of satisfying sinking
fund obligations, principal installments or final maturity, in each case due
within one year after the date of acquisition) or (d) make any Investment (other
than Permitted Investments) (each of the foregoing actions set forth in clauses
(a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the
time of such Restricted Payment or immediately after giving effect thereto, (i)
a Default of an Event of Default shall have occurred and be continuing or (ii)
the Company is not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the provisions of Section
5.12 or (iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market value
of such property as determined reasonably and in good faith by the Board of
Directors of the Company) shall exceed the sum of: (A) 50% of the cumulative
Consolidated Net Income (or if cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss) of the Company from January 1, 1998 to the end of
the most recent quarter for which financial statements are available (the
"REFERENCE DATE") (treating such period as a single accounting period);
PROVIDED, HOWEVER, that if the Securities achieve an Investment Grade Rating as
of the end of any fiscal quarter, the percentage for the fiscal quarter after
such fiscal quarter (and for any other fiscal quarter where, on the first day of
such fiscal quarter, the Securities shall have an Investment Grade Rating) will
be 100% of Consolidated Net Income during each fiscal quarter after such fiscal
quarter; PROVIDED, FURTHER, HOWEVER, that if such Restricted Payment is to be
made in reliance upon an additional amount permitted pursuant to the immediately
preceding proviso, the Securities must have an Investment Grade Rating at the
time such Restricted Payment is declared or, if not declared, made; plus (B)
100% of the aggregate net cash proceeds received by the Company from any Person
(other than a Subsidiary of the Company) from the issuance and sale subsequent
to the Issue Date and on or prior to the Reference Date of Qualified Capital
Stock of the Company; plus (C) without duplication of any amounts included in
clause (iii)(B) above, 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's Capital
Stock (excluding, in the case of clauses (iii)(B) and (C), any net cash proceeds
from a Public Equity Offering to the extent used to redeem the Securities); (D)
the amount by which Indebtedness of the Company or its Subsidiaries created
after the Issue Date is reduced on the Company's consolidated balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company or its
Subsidiaries for Qualified Capital Stock of the Company (less the amount of any
cash, or the fair value of any other property, distributed by the Company or its
Subsidiaries upon such conversion or exchange), whether pursuant to the terms of
such indebtedness or pursuant to an agreement with a creditor to engage in an
equity for debt exchange; (E) an amount equal to the sum of (i) the net
reduction in Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from Unrestricted Subsidiaries
(PROVIDED, that any amounts included hereunder shall not be included in
Consolidated Net Income), and (ii) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value (as determined in
good faith by the Company's Board of Directors) of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a
Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing sum shall not
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, the provisions set forth in
the immediately preceding paragraph do not prohibit: (1) the payment of any
dividend within 60 days after the date of declaration of such dividend if the
dividend would have been permitted on the date of declaration; (2) if no Default
or Event of Default shall have occurred and be continuing, the acquisition or
redemption of any shares of Capital Stock of the Company, either (i) solely in
exchange for shares of Qualified Capital Stock of the Company or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital Stock
of the Company; (3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Securities either (i) solely in
exchange for shares of Qualified Capital Stock of the Company, or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of (A) shares of Qualified Capital
Stock of the Company or (B) Refinancing Indebtedness; (4) so long as no Default
or Event of Default shall have occurred and be continuing, repurchases by the
Company of Capital Stock of the Company from employees of the Company or any of
its Subsidiaries or their authorized representatives upon the death, disability
or termination of employment of such employees, in an aggregate amount not to
exceed $1.0 million in any calendar year; and (5) other Restricted Payments in
an aggregate amount since the Issue Date not to exceed $10.0 million. In
determining the aggregate amount of Restricted Payments made subsequent to the
Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2) and (4) shall be
included in such calculation.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
Section 5.4. Corporate Existence.
Except as otherwise permitted by Article Six, the Company shall
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and the rights (charter and statutory) and
franchises of the Company; PROVIDED, HOWEVER, that the Company shall not be
required to preserve, with respect to itself, any right or franchise, if the
Board of Directors of the Company, as the case may be, shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company.
Section 5.5. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges (including withholding taxes and any penalties,
interest and additions to taxes) levied or imposed upon it or any of the
Restricted Subsidiaries or properties of it or any of the Restricted
Subsidiaries and (ii) all lawful claims for labor, materials and supplies that,
if unpaid, might by law become a Lien (other than a Permitted Lien) upon the
property of it or any of the Restricted Subsidiaries; PROVIDED, HOWEVER, that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim if either (a) the amount,
applicability or validity thereof is being contested in good faith by
appropriate proceedings and an adequate reserve has been established therefor to
the extent required by GAAP or (b) the failure to make such payment or effect
such discharge (together with all other such failures) would not have a material
adverse effect on the financial condition or results or operations of the
Company and the Restricted Subsidiaries taken as a whole.
Section 5.6. Maintenance of Properties and Insurance.
(a) The Company shall cause all properties used or useful to the
conduct of its business or the business of any of the Restricted Subsidiaries to
be maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in its
judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times unless the
failure to so maintain such properties (together with all other such failures)
would not have a material adverse effect on the financial condition or results
of operations of the Company and the Restricted Subsidiaries taken as a whole;
PROVIDED, HOWEVER, that nothing in this Section 5.6 shall prevent the Company or
any Restricted Subsidiary from discontinuing the operation or maintenance of any
of such properties, or disposing of any of them, if such discontinuance or
disposal is either (i) in the ordinary course of business, (ii) in the good
faith judgment of the Board of Directors of the Company or the Restricted
Subsidiary concerned, or of the senior officers of the Company or such
Restricted Subsidiary, as the case may be, desirable in the conduct of the
business of the Company or such Restricted Subsidiary, as the case may be, or
(iii) is otherwise permitted by this Indenture.
(b) The Company shall provide or cause to be provided, for itself
and each of the Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith opinion of the Company are adequate and appropriate for the conduct
of the business of the Company and the Restricted Subsidiaries in a prudent
manner, with reputable insurers or with the government of the United States of
America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be either (i) consistent with past
practices of the Company or the applicable Restricted Subsidiary or (ii)
customary, in the reasonable, good faith opinion of the Company, for
corporations similarly situated in the industry, unless the failure to provide
such insurance (together with all other such failures) would not have a material
adverse effect on the financial condition or results of operations of the
Company and the Restricted Subsidiaries, taken as a whole.
Section 5.7. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee within 120 days
after the end of the Company's fiscal year an Officers' Certificate stating that
a review of its activities and the activities of its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether it has kept, observed, performed and
fulfilled its obligations under this Indenture and further stating, as to each
such Officer signing such certificate, to the best of his or her knowledge the
Company's compliance with all conditions and covenants under this Indenture
without regard to any period of grace or requirement of notice provided under
this Indenture and, if such signers do know of any such non-compliance with any
conditions or covenants, the certificate shall describe such non-compliance and
its status with particularity. The Officers' Certificate shall also notify the
Trustee should the Company elect to change the manner in which it fixes its
fiscal year end.
(b) The Company shall deliver to the Trustee, forthwith upon
becoming aware, and in any event within 5 Business Days after the occurrence, of
(i) any Default or Event of Default or (ii) any event of default in respect of
any Designated Senior Debt, an Officers' Certificate specifying with
particularity such event.
Section 5.8. Compliance with Laws.
The Company shall comply, and shall cause each of the Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except such as are being contested in good faith and by appropriate
proceedings and except for such noncompliances as would not in the aggregate
have a material adverse effect on the financial condition or results of
operations of the Company and the Restricted Subsidiaries taken as a whole.
Section 5.9. SEC Reports.
The Company will deliver to the Trustee within 15 days after the
filing of the same with the Commission, copies of the quarterly and annual
reports and of the information, documents and other reports, if any, which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of TIA ss. 314(a).
Section 5.10. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
Section 5.11. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "AFFILIATE TRANSACTION"), other than (x) Affiliate Transactions
permitted under paragraph (b) below and (y) Affiliate Transactions on terms that
are no less favorable than those that might reasonably have been obtained in a
comparable transaction at such time on an arm's-length basis from a Person that
is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate
Transactions (and each series of related Affiliate Transactions which are
similar or part of a common plan) involving aggregate payments or other property
with a fair market value in excess of $5.0 million shall be approved by the
Board of Directors of the Company or such Restricted Subsidiary, as the case may
be, such approval to be evidenced by a Board Resolution stating that such Board
of Directors has determined that such transaction complies with the foregoing
provisions. If the Company or any Restricted Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $10.0 million, the Company or such Restricted Subsidiary, as the case may
be, shall, prior to the consummation thereof, obtain a favorable opinion as to
the fairness of such transaction or series of related transactions to the
Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to
(i) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors or senior management (including, without
limitation, any issuance of securities, grants of cash, securities, stock
options or otherwise, pursuant to, or the funding of, employment arrangements,
stock options and stock ownership plans approved by the Board of Directors of
the Company or the board of directors of the relevant Restricted Subsidiary, and
loans or advances in the ordinary course of business); (ii) transactions
exclusively between or among the Company and any of its Wholly Owned Restricted
Subsidiaries or exclusively between or among such Wholly Owned Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by this
Indenture; (iii) any agreement as in effect as of the Issue Date or any
amendment thereto or any transaction contemplated thereby (including pursuant to
any amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the Holders in
any material respect than the original agreement as in effect on the Issue Date;
(iv) the purchase of or payment of Indebtedness of or monies owed by the Company
or any of its Restricted Subsidiaries for goods or materials purchased, or
services received, in the ordinary course of business; (v) the purchase of or
payment of Indebtedness of or monies owed by the Company or any of its
Restricted Subsidiaries which if incurred after the Issue Date meets the
requirements of the provisions of paragraph (a) of this Section 5.11 and (vi)
Restricted Payments and Investments permitted by Section 5.3.
Section 5.12. Limitation on Incurrence of Additional Indebtedness and Issuance
of Preferred Stock of Restricted Subsidiaries.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "INCUR") any Indebtedness
(other than Permitted Indebtedness), and the Company will not permit any of its
Restricted Subsidiaries to issue any Preferred Stock (other than to the Company
or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person
(other than the Company or a Wholly Owned Restricted Subsidiary of the Company)
to own any Preferred Stock of any Restricted Subsidiary of the Company;
PROVIDED, HOWEVER, that if no Default or Event of Default shall have occurred
and be continuing at the time of or as a consequence of the incurrence of any
such Indebtedness or issuance of Preferred Stock, the Company or any of its
Restricted Subsidiaries may incur Indebtedness (including, without limitation,
Acquired Indebtedness) or issue Preferred Stock if on the date of the incurrence
of such Indebtedness or issuance of Preferred Stock, after giving effect to the
incurrence or issuance thereof, the Consolidated Fixed Charge Coverage Ratio of
the Company is (i) greater than 2.0 to 1.0 if such incurrence or issuance is on
or prior to February 15, 2000, (ii) greater than 2.25 to 1.0 if such incurrence
or issuance is after February 15, 2000 and is on or prior to February 15, 2002,
or (iii) greater than 2.50 to 1.0 if such incurrence or issuance occurs
thereafter.
Section 5.13. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) this Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date; or (6) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) above; PROVIDED, HOWEVER, that the provisions relating to
such encumbrance or restriction contained in any such Indebtedness are no less
favorable to the Company in any material respect as determined by the Board of
Directors of the Company in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (4) or (5).
Section 5.14. Limitation on Liens.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of the Company or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Securities, the Securities are
secured by Lien on such property, assets or proceeds that is senior in priority
to such Liens and (ii) in all other cases, the Securities are equally and
ratably secured, except for (A) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date; (B) Liens
securing Senior Debt; (C) Liens securing the Securities and the Guarantees; (D)
Liens of the Company or a Wholly Owned Restricted Subsidiary of the Company on
assets of any Subsidiary of the Company; (E) Liens securing Refinancing
Indebtedness which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under this Indenture and which has been incurred in
accordance with the provisions of this Indenture; PROVIDED, HOWEVER, that such
Liens (I) are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (II) do not extend to or cover any property or
assets of the Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and (F) Permitted Liens.
Section 5.15. Limitation on Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder will
have the right to require that the Company purchase all or a portion of such
Holder's Securities pursuant to the offer described below (the "CHANGE OF
CONTROL OFFER"), at a purchase price equal to 101% of the principal amount
thereof plus accrued interest to the date of purchase.
(b) No later than 30 days following the date upon which the
Change of Control occurred, the Company must send, by first class mail, a notice
to each Holder, with a copy to the Trustee, which notice shall govern the terms
of the Change of Control Offer. Notice of an event giving rise to a Change of
Control shall be given on the same date and in the same manner to all Holders.
Such notice shall state:
(1) that the Change of Control Offer is being made
pursuant to this Section 5.15 and that all Securities tendered will be accepted
for payment;
(2) the purchase price (including the amount of accrued
interest)and the purchase date (which shall be no earlier than 30 days nor later
than 45 days from the date such notice is mailed, other than as may be required
by law) (the "CHANGE OF CONTROL PAYMENT DATE");
(3) that any Security not tendered will continue to accrue
interest if interest is then accruing;
(4) that, unless (i) the Company defaults in making
payment therefor or (ii) such payment is prohibited pursuant to Article Four,
any Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased
pursuant to a Change of Control Offer will be required to surrender the Security
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day prior to the
Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than two Business Days prior to
the Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement that such Holder is
withdrawing his or her election to have such Security purchased;
(7) that Holders whose Securities are purchased only in
part will be issued new Securities equal in principal amount to the unpurchased
portions of the Securities surrendered; PROVIDED, that each Security purchased
and each Security issued shall be in an original principal amount of $1,000 or
integral multiples thereof;
(8) that each Change of Control Offer is required to remain
open for at least 20 Business Days or such longer period as may be required by
law and until 5:00 p.m. New York City time on the applicable Change of Control
Payment Date; and
(9) the circumstances and relevant facts regarding such
Change of Control.
(c) On or before the Change of Control Payment Date, the Company
shall (i) accept for payment Securities or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal
Tender sufficient to pay the purchase price of all Securities so tendered and
(iii) deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price (and the Trustee shall
promptly authenticate and mail to such Holders new Securities equal in principal
amount to any unpurchased portion of the Securities surrendered; PROVIDED, that
each such new Security shall be in the principal amount of $1,000 or integral
multiples thereof) unless such payment is prohibited pursuant to Article Four or
otherwise. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date. For purposes of this Section 5.15, the Trustee shall act as the Paying
Agent.
(d) Notwithstanding the foregoing, prior to the mailing of the
notice of a Change of Control Offer referred to above, within 30 days following
a Change of Control, the Company shall either (i) repay in full and terminate
all commitments under Indebtedness under the Credit Agreement and all other
Senior Debt the terms of which require repayment upon a Change of Control or
offer to repay in full and terminate all such commitments under all Indebtedness
under the Credit Agreement and all such other Senior Debt and to repay the
Indebtedness owed to each lender which has accepted such offer, or (ii) obtain
the requisite consents under the Credit Agreement and all other Senior Debt to
permit the repurchase of the Securities as provided above. The Company shall
first comply with the covenant in the immediately preceding sentence before it
shall be required to repurchase Securities pursuant to the provisions described
above.
(e) The Company must comply with Rule 14e-1 under the Exchange
Act and other provisions of state and federal securities laws or regulations
thereunder to the extent applicable in connection with the repurchase of
Securities pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 5.15, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
the provisions of this Section 5.15 by virtue thereof.
Section 5.16. Limitation on Asset Sales.
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or
the applicable Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors), (ii) at least 70% of the consideration received
by the Company or the Restricted Subsidiary, as the case may be, from such Asset
Sale shall be in the form of cash or Cash Equivalents; PROVIDED, HOWEVER, that
the amount of any Senior Debt of the Company (as shown on the Company's most
recent balance sheet) or any Indebtedness of any Restricted Subsidiary of the
Company (as shown on such Restricted Subsidiary's most recent balance sheet)
which is not expressly subordinated in right of payment to the Securities or to
any Guarantee of such Restricted Subsidiary, that is expressly assumed by the
transferee of any such assets or by operation of law shall be deemed to be cash
for purposes for this provision; and (iii) upon the consummation of an Asset
Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the
Net Cash Proceeds relating to such Asset Sale within 360 days of receipt thereof
either (A) to prepay any Senior Debt and, in the case of any Senior Debt under
any revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to make an investment in properties
and assets that replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that will be used in the business of the
Company and its Restricted Subsidiaries as existing on the Issue Date or in
businesses reasonably related thereto ("REPLACEMENT ASSETS"), or (C) a
combination of prepayment and investment permitted by the foregoing clauses
(iii)(A) and (iii)(B). On the 361st day after an Asset Sale or such earlier
date, if any, as the Board of Directors of the Company or of such Restricted
Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset
Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next
preceding sentence (each, a "NET PROCEEDS OFFER TRIGGER DATE"), such aggregate
amount of Net Cash Proceeds which have not been applied on or before such Net
Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and
(iii)(C) of the next preceding sentence (each a "NET PROCEEDS OFFER AMOUNT")
shall be applied by the Company or such Restricted Subsidiary to make an offer
to purchase (the "NET PROCEEDS OFFER") on a date (the "NET PROCEEDS OFFER
PAYMENT DATE") not less than 30 nor more than 45 days following the applicable
Net Proceeds Offer Trigger Date, from all Holders on a PRO RATA basis, that
amount of Securities equal to the Net Proceeds Offer Amount at a price equal to
100% of the principal amount of the Securities to be purchased, plus accrued and
unpaid interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER,
that if at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this Section 5.16. The Company may defer the Net Proceeds Offer until there is
an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10.0
million, shall be applied as required pursuant to this paragraph); PROVIDED,
that in no event will the net cash proceeds from an Asset Sale be subjected to
more than one offer to purchase Securities.
(b) In the event of the transfer of substantially all (but not
all) of the property and assets of the Company and its Restricted Subsidiaries
as an entirety to a Person in a transaction permitted under Section 6.1, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this Section 5.16, and shall comply with the provisions of this Section 5.16
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this Section 5.16.
(c) Notwithstanding Sections 5.16(a) and (b), the Company and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; PROVIDED, that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
Sections 5.16(a) and (b).
(d) Each Net Proceeds Offer will be mailed to the record Holders
as shown on the register of Holders of such Securities within 25 days following
the Net Proceeds Offer Trigger Date, with a copy to the Trustee. The notice
shall contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Net Proceeds Offer and shall state the
following terms:
(1) that the Net Proceeds Offer is being made pursuant to
Section 5.16 of this Indenture and that all Securities tendered will be accepted
for payment; PROVIDED, HOWEVER, that if the aggregate principal amount of
Securities tendered in a Net Proceeds Offer plus accrued interest at the
expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer,
the Company shall select the Securities to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000 or multiples thereof shall be purchased);
(2) the purchase price (including the amount of accrued
interest) and the Net Proceeds Offer Payment Date;
(3) that any Security not tendered will continue to accrue
interest if interest is then accruing;
(4) that, unless (i) the Company defaults in making
payment therefor or (ii) such payment is prohibited pursuant to Article Four or
otherwise, any Security accepted for payment pursuant to the Net Proceeds Offer
shall cease to accrue interest after the Net Proceeds Offer Payment Date;
(5) that Holders electing to have a Security purchased
pursuant to a Net Proceeds Offer will be required to surrender the Security,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day prior to the Net
Proceeds Offer Payment Date;
(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than two Business Days prior to
the Net Proceeds Offer Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement that such Holder is
withdrawing his or her election to have such Security purchased;
(7) that Holders whose Securities were purchased only in
part will be issued new securities equal in principal amount to the unpurchased
portion of the Securities surrendered; PROVIDED, HOWEVER, that each Security
purchased and each new Security issued shall be in an original principal amount
of $1,000 or integral multiples thereof; and
(8) that the Net Proceeds Offer shall remain open for a
period of 20 Business Days or such longer period as may be required by law.
(e) On or before the Net Proceeds Offer Payment Date, the Company
shall (i) accept for payment Securities or portions thereof tendered pursuant to
the Net Proceeds Offer which are to be purchased in accordance with item (b)(1)
above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the purchase price of all Securities to be purchased and (iii) deliver to the
Trustee Securities so accepted together with an Officers' Certificate stating
the Securities or portions thereof being purchased by the Company. The Paying
Agent shall promptly mail to the Holders of Securities so accepted payment in an
amount equal to the purchase price (and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Security equal in principal amount to
any unpurchased portion of the Security surrendered; PROVIDED, that each such
new Security shall be in the principal amount of $1,000 or integral multiples
thereof) unless such payment is prohibited pursuant to Article Four or
otherwise. The Company will publicly announce the results of the Net Proceeds
Offer on or as soon as practicable after the Net Proceeds Offer Payment Date.
For purposes of this Section 5.16, the Trustee shall act as the Paying Agent.
(f) Any amounts remaining after the purchase of Securities
pursuant to a Net Proceeds Offer shall be returned by the Trustee to the
Company.
(g) The Company must comply with Rule 14e-1 under the Exchange
Act and other provisions of state and federal securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Securities pursuant to a Net Proceeds Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Section 5.16, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the provisions of this Section 5.16 by virtue
thereof.
Section 5.17. Limitation on Other Senior Subordinated Debt.
The Company will not incur or suffer to exist Indebtedness that
is senior in right of payment to the Securities and subordinate in right of
payment to any other Indebtedness of the Company.
Section 5.18. Limitation on Restricted and Unrestricted Subsidiaries.
(a) The Board of Directors of the Company may, if no Default or
Event of Default shall have occurred and be continuing or would result
therefrom, designate any Restricted Subsidiary to be an Unrestricted Subsidiary
if such designation is at that time permitted under Section 5.3. The Board of
Directors of the Company may, if no Default or Event of Default shall have
occurred and be continuing or would result therefrom, designate an Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that (i) any such
redesignation shall be deemed to be an Incurrence as of the date of such
redesignation by the Company and the Restricted Subsidiaries of the Indebtedness
(if any) of such redesignated Subsidiary for purposes of Section 5.12; and (ii)
unless such redesignated Subsidiary shall not have any Indebtedness outstanding
(other than Indebtedness which would be Permitted Indebtedness), no such
designation shall be permitted if immediately after giving effect to such
redesignation and the Incurrence of any such Indebtedness, the Company could not
incur $1.00 of additional Indebtedness pursuant to the provisions of Section
5.12. Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by the filing with the Trustee of a Board Resolution of
the Company giving effect to such designation or redesignation and an Officers'
Certificate certifying that such designation or redesignation complied with the
foregoing conditions and setting forth in reasonable detail the underlying
calculations.
(b) Subsidiaries that are not designated by the Board of
Directors as Restricted or Unrestricted Subsidiaries will be deemed to be
Restricted Subsidiaries. The designation of a Restricted Subsidiary as an
Unrestricted Subsidiary shall be deemed to include a designation of all of the
subsidiaries of such Unrestricted Subsidiary as Unrestricted Subsidiaries.
Section 5.19. Conduct of Business.
The Company and its Restricted Subsidiaries will not engage in
any businesses which are not the same, similar or related or incidental to the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the Issue Date.
Section 5.20. Additional Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property to any Restricted Subsidiary that is not a Guarantor,
or if the Company or any of its Restricted Subsidiaries shall organize, acquire
or otherwise invest in another Restricted Subsidiary having total assets with a
book value in excess of $1.0 million, then such transferee or acquired or other
Restricted Subsidiary shall (i) promptly execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Securities and this Indenture on the terms set
forth in this Indenture and (ii) deliver to the Trustee an Opinion of Counsel
that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of this Indenture.
ARTICLE VI.
SUCCESSOR CORPORATION
Section 6.1. Limitations on Mergers and Certain Other Transactions.
(a) The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless:
(i) either (1) the Company shall be the surviving or
continuing corporation or (2) the Person (if other than the Company)
formed by such consolidation or into which the Company is merged or the
Person which acquires by sale, assignment, transfer, lease, conveyance
or other disposition the properties and assets of the Company and of the
Company's Restricted Subsidiaries substantially as an entirety (the
"SURVIVING ENTITY") (x) shall be a corporation organized and validly
existing under the laws of the United States or any State thereof or the
District of Columbia and (y) shall expressly assume, by supplemental
indenture (in form and substance satisfactory to the Trustee), executed
and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Securities
and the performance of every covenant of the Securities, this Indenture
and the Registration Rights Agreement on the part of the Company to be
performed or observed;
(ii) immediately after giving effect to such transaction
and the assumption contemplated by clause (i)(2)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be,
(1) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such
transaction and (2) shall be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section
5.12;
(iii) immediately before and immediately after giving
effect to such transaction and the assumption contemplated by clause
(i)(2)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and
(iv) the Company or the Surviving Entity shall have
delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of this
Indenture and that all conditions precedent in this Indenture relating
to such transaction have been satisfied.
(b) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries of the Company the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
(c) Each Guarantor (other than any Guarantor whose Guarantee is
to be released in accordance with the terms of the Guarantee and this Indenture
in connection with any transaction complying with the provisions of Section
5.16) will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Guarantor unless the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that: (i) the
entity formed by or surviving any such consolidation or merger (if other than
the Guarantor) or to which such sale, lease, conveyance or other disposition
shall have been made is a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia; (ii) such
entity assumes by supplemental indenture all of the obligations of the Guarantor
on the Guarantee; (iii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and (iv)
immediately after giving effect to such transaction and the use of any net
proceeds therefrom on a PRO FORMA basis, the Company could satisfy the
provisions of clause (a)(ii) of this Section 6.1. Any merger or consolidation of
a Guarantor with and into the Company (with the Company being the Surviving
Entity) or another Guarantor that is a Wholly Owned Restricted Subsidiary of the
Company need only comply with clause (a)(ii).
Section 6.2. Successor Corporation Substituted.
Upon any consolidation, combination or merger or any transfer of
all or substantially all of the assets of the Company in accordance with Section
6.1, in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Securities with the same effect as if such surviving
entity had been named as such.
ARTICLE VII.
DEFAULT AND REMEDIES
Section 7.1. Events of Default.
Each of the following events constitutes an "Event of Default":
(i) the failure to pay interest on any Securities when the
same becomes due and payable and the default continues for a period of
30 days (whether or not such payment shall be prohibited by Article Four
or Article Twelve);
(ii) the failure to pay the principal on any Securities,
when such principal becomes due and payable, at maturity, upon
redemption or otherwise (including the failure to make a payment to
purchase Securities tendered pursuant to a Change of Control Offer or a
Net Proceeds Offer) (whether or not such payment shall be prohibited by
Article Four or Article Twelve);
(iii) a default in the observance or performance of any
other covenant or agreement contained in this Indenture which default
continues for a period of 60 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Securities (except in the case of a
failure to comply with Section 6.1, which will constitute an Event of
Default with such notice requirement but without such passage of time
requirement);
(iv) the failure to pay at final maturity (giving effect
to any applicable grace periods and any extensions thereof) the
principal amount of any Indebtedness of the Company or any Restricted
Subsidiary of the Company, or the acceleration of the final stated
maturity of any such Indebtedness if the aggregate principal amount of
such Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity
or which has been accelerated, aggregates $15.0 million or more at any
time;
(v) one or more judgments in an aggregate amount in excess
of $10.0 million shall have been rendered against the Company or any of
its Restricted Subsidiaries and such judgments remain undischarged,
unpaid or unstayed for a period of 60 days after such judgment or
judgments become final and non-appealable;
(vi) the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law: (a) commences a
voluntary case or proceeding; (b) consents to the entry of an order for
relief against it in an involuntary case or proceeding; (c) consents to
the appointment of a Custodian of it or for all or substantially all of
its property; (d) makes a general assignment for the benefit of its
creditors; or (e) generally is not paying its debts as they become due;
(vii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (a) is for relief against the
Company or any of its Significant Subsidiaries in an involuntary case or
proceeding; (b) appoints a Custodian of the Company or any of its
Significant Subsidiaries, or for all or any substantial part of their
respective properties; or (c) orders the liquidation of the Company or
any of its Significant Subsidiaries, and in each case the order or
decree remains unstayed and in effect for 60 days;
(viii) the lenders under the Credit Agreement shall
commence judicial proceedings to foreclose upon any material portion of
the assets of the Company and its Subsidiaries; or
(ix) any of the Guarantees ceases to be in full force and
effect or any of the Guarantees is declared to be null and void and
unenforceable or any of the Guarantees is found to be invalid or any of
the Guarantors denies its liability under its Guarantee (other than by
reason of release of a Guarantor in accordance with the terms of this
Indenture).
Section 7.2. Acceleration.
(a) If an Event of Default (other than an Event of Default
specified in clauses (vi) or (vii) of Section 7.1 with respect to the Company)
shall occur and be continuing, the Trustee or the Holders of at least 25% in
principal amount of outstanding Securities may declare the principal of and
accrued interest on all the Securities to be due and payable by notice in
writing to the Company and the Trustee specifying the respective Event of
Default and that it is a "notice of acceleration" (the "ACCELERATION NOTICE"),
and the same (i) shall become immediately due and payable or (ii) if there are
any amounts outstanding under the Credit Agreement, shall become immediately due
and payable upon the first to occur of an acceleration under the Credit
Agreement or 5 Business Days after receipt by the Company and the Credit Agent
under the Credit Agreement of such Acceleration Notice. If an Event of Default
specified in clauses (vi) or (vii) of Section 7.1 with respect to the Company
occurs and is continuing, then all unpaid principal of, and premium, if any, and
accrued and unpaid interest on all of the outstanding Securities shall IPSO
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
(b) At any time after a declaration of acceleration with respect
to the Securities as described in Section 7.2(a), the Holders of a majority in
principal amount of the Securities may rescind and cancel such declaration and
its consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances and (v) in
the event of the cure or waiver of an Event of Default of the type described in
clauses (vi) or (vii) of Section 7.1, the Trustee shall have received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent Default or
impair any right consequent thereto.
(c) In the case of any Event of Default occurring by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Securities
pursuant to the optional redemption provisions of this Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Securities. If an Event of Default
occurs prior to February 15, 2003, by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of the Securities prior to February 15,
2003, then the premium specified in this Indenture shall also become immediately
due and payable to the extent permitted by law upon the acceleration of the
Securities.
(d) The Holders of a majority in principal amount of the
Securities may waive any existing Default or Event of Default under this
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any Securities.
(e) Holders of the Securities may not enforce this Indenture or
the Securities except as provided in this Indenture and under the TIA. Subject
to the provisions of Article Eight, the Trustee is under no obligation to
exercise any of its rights or powers under this Indenture at the request, order
or direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable indemnity. Subject to all provisions of Section 7.5 and
applicable law, the Holders of a majority in aggregate principal amount of the
then outstanding Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee.
(f) The Company is required to provide an Officers' Certificate
to the Trustee promptly upon any such officer obtaining knowledge of any Default
or Event of Default (PROVIDED, that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
Section 7.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Section 7.4. Waiver of Past Defaults.
Subject to Sections 7.7 and 10.2, the Holders of a majority in
principal amount of the outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of or interest on any Security as specified
in clauses (i) and (ii) of Section 7.1 (other than any such Default arising
solely by reason of acceleration of the Securities). When a Default or Event of
Default is waived, it is cured and ceases.
Section 7.5. Control by Majority.
Subject to Section 2.9, the Holders of a majority in principal
amount of the outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it, including, without limitation, any remedies
provided for in Section 7.3. Subject to Section 8.1, however, the Trustee may
refuse to follow any direction that conflicts with any law or this Indenture,
that the Trustee determines may be unduly prejudicial to the rights of another
Holder, or that may involve the Trustee in personal liability; PROVIDED,
HOWEVER, that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
Section 7.6. Limitation on Suits.
A Holder may not pursue any remedy with respect to this Indenture
or the Securities unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holder or Holders of at least 25% in principal amount of
the outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to be
incurred in compliance with such request;
(4) the Trustee does not comply with the request within 25 days
after receipt of the request and the offer of indemnity; and
(5) during such 25-day period the Holder or Holders of a majority
in principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
Section 7.7. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right
of any Holder to receive payment of principal of and interest on a Security, on
or after the respective due dates expressed in such Security, or to bring suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of the Holder.
Section 7.8. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest
specified in clause (i) or (ii) of Section 7.1 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or any other obligor on the Securities for the whole amount
of principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
borne by the Securities and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 7.9. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relating to the Company or any other
obligor upon the Securities, any of their respective creditors or any of their
respective property and shall be entitled and empowered to participate as a
member, voting or otherwise, of any official committee of creditors appointed in
such matter and to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian in
any such judicial proceedings is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agent and counsel, and any other amounts due the
Trustee under Section 8.7. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
The Trustee may enforce claims on behalf of Holders without possession of such
Holders' Securities.
Section 7.10. Priorities.
If the Trustee collects any money pursuant to this Article Seven,
it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 8.7;
Second: subject to Article Four and Article Twelve, to Holders
for interest accrued on the Securities, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Securities for
interest;
Third: subject to Article Four and Article Twelve, to Holders for
principal amounts due and unpaid on the Securities, ratably, without preference
or priority of any kind, according to the amounts due and payable on the
Securities for principal; and
Fourth: subject to Article Four and Article Twelve, to the
Company or the Guarantors, as their respective interests may appear.
The Trustee, upon prior notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 7.10.
Section 7.11. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 7.12. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article Seven or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 7.13. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 7.13 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 7.7, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Securities.
ARTICLE VIII.
TRUSTEE
The Company hereby appoints and employs the Trustee and the
Trustee hereby accepts the express trust imposed upon it by this Indenture and
covenants and agrees to perform the same, subject to the conditions and terms
hereof.
Section 8.1. Duties of Trustee.
(a) If an Event of Default of which a Trust Officer of the
Trustee is actually aware has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in its exercise thereof as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default of which
the Trust Officer of the Trustee is actually aware:
(1) The Trustee need undertake to perform only those
duties as are expressly and specifically set forth in this Indenture and no
covenants or obligations whatsoever shall be implied in this Indenture against
the Trustee.
(2) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture, but shall not be obligated
to verify the contents thereof.
(c) The Trustee shall have no liability except for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section 8.1.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 7.5.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 8.1.
(f) The Trustee shall not be liable for interest on any assets
received by it. Assets held in trust by the Trustee need not be segregated from
other assets except to the extent required by law.
Section 8.2. Rights of Trustee.
Subject to Section 8.1:
(a) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper Person, including, without
limitation, any Person purporting to be a holder of Senior Debt or a
Representative. The Trustee need not investigate any fact or matter stated in
the document or the status of any such Person delivering such document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require in addition to the receipt of written
direction(s) from the Company accompanied by an Officers' Certificate or an
Opinion of Counsel, which opinion or certificate shall conform to Sections 13.4
and 13.5 of this Indenture. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any attorney or
agent appointed with due care.
(d) The Trustee shall not be liable for any action that it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit; PROVIDED, HOWEVER, that in so doing the Trustee shall not be deemed to
undertake any liability or additional duty hereunder.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
Section 8.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee must comply with Sections 8.10 and 8.11.
Section 8.4. Trustee's Disclaimer.
The Trustee makes no representation or warranty and shall have no
liability whatsoever as to and for the validity or adequacy of this Indenture or
the Securities, it shall not be accountable for the Company's use of the
proceeds from the Securities, and it shall not be responsible for any statement
in the Securities or in any other document used in connection with the sale of
the Securities other than the Trustee's certificate of authentication.
Section 8.5. Notice of Default.
If a Default or an Event of Default occurs and is continuing and
if it is actually known to a Trust Officer of the Trustee, the Trustee shall
mail to each Holder notice of the Default or Event of Default within 90 days
after such Default or Event of Default occurs or if such Default or Event of
Default is known to a Trust Officer of the Trustee during such 90-day period,
promptly after such Default or Event of Default becomes known to a Trust Officer
of the Trustee; PROVIDED, HOWEVER, that, except in the case of a Default or
Event of Default in the payment of the principal of or interest on any Security,
including the failure to make payment on a Change of Control Payment Date
pursuant to a Change of Control Offer or payment when due pursuant to a Net
Proceeds Offer, the Trustee may withhold such notice if it in good faith
determines that withholding such notice is in the interest of the Holders.
Section 8.6. Reports by Trustee to Holders.
Within 60 days after each September 30 beginning with the first
September 30 following the date of this Indenture, the Trustee shall, to the
extent that any of the events described in TIA ss. 313(a) occurred within the
previous twelve months, but not otherwise, mail to each Holder a brief report
dated as of such September 30 that complies with TIA ss. 313(a). The Trustee
also shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders shall
be mailed to the Company and filed with the Commission and each stock exchange,
if any, on which the Securities are listed.
The Company shall notify the Trustee in writing if the Securities
become listed on any stock exchange.
Section 8.7. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability incurred by it except for such actions to the
extent caused by any negligence or willful misconduct on its part, arising out
of or in connection with the administration of this trust, including the costs
and expenses of enforcing this Indenture against the Company (including Section
8.7) and its rights or duties hereunder. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate in
the defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; PROVIDED, HOWEVER, that the
Company will not be required to pay such fees and expenses if it assumes the
Trustee's defense and there is no conflict of interest between the Company and
the Trustee in connection with such defense as reasonably determined by the
Trustee. The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld or delayed. The
Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 8.7,
the Trustee shall have a lien prior to the Securities on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 7.1(vi) or (vii) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 8.8. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders
of a majority in principal amount of the outstanding Securities may remove the
Trustee and appoint a successor trustee with the Company's consent, by so
notifying the Company and the Trustee.
The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 8.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall notify each Holder of
such event and shall promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of a majority in principal
amount of the Securities may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 8.7, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 8.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 8.8, the Company's obligations under Section 8.7 shall continue for the
benefit of the retiring Trustee.
Section 8.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
Section 8.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA ss.ss. 310(a)(1) and 310(a)(5). The Trustee shall have (or in
the case of a corporation trust company included in a bank holding company
system, the related bank holding company shall have) a combined capital and
surplus of at least $100.0 million as set forth in its most recent published
annual report of condition. The Trustee shall comply with TIA ss. 310(b);
PROVIDED, HOWEVER, that there shall be excluded from the operation of TIA ss.
310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA Section
310(b)(1) are met.
Section 8.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE IX.
SATISFACTION AND DISCHARGE OF INDENTURE
Section 9.1. Termination of the Company's Obligations.
The Company may terminate its obligations under the Securities
and this Indenture, and the obligations of any Guarantor shall terminate, except
those obligations referred to in the penultimate paragraph of this Section 9.1,
if
(1) either (a) all Securities theretofore authenticated and
delivered (except lost, stolen or destroyed Securities which have been replaced
or paid or Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section 9.4) have been
delivered to the Trustee for cancellation, or (b) all Securities not theretofore
delivered to the Trustee for cancellation have become due and payable and the
Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Securities not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Securities to the date of
deposit together with irrevocable instructions from the Company directing the
Trustee to apply such funds to the payment thereof at maturity or redemption, as
the case may be;
(2) the Company has paid all other sums payable by it hereunder;
and
(3) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's and any Guarantor's
obligations under the Securities and this Indenture have been complied with.
Such Opinion of Counsel shall also state that such satisfaction and discharge
does not result in a default under the Credit Agreement (if then in effect) or
any other agreement or instrument then known to such counsel that binds or
affects the Company.
Notwithstanding the foregoing paragraph, the Company's
obligations in Sections 2.5, 2.6, 2.7, 2.8, 5.1, 5.2 and 8.7 and any Guarantor's
obligations in respect thereof shall survive until the Securities are no longer
outstanding pursuant to the last paragraph of Section 2.8. After the Securities
are no longer outstanding, the Company's obligations in Sections 8.7, 9.4 and
9.5 any Guarantor's obligations in respect thereof shall survive.
After such delivery or irrevocable deposit the Trustee upon
request shall acknowledge in writing the discharge of the Company's and any
Guarantor's obligations under the Securities and this Indenture except for those
surviving obligations specified above.
Section 9.2. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option, and at any time, with respect
to the Securities, elect to have either paragraph (b) or paragraph (c) below be
applied to the outstanding Securities upon compliance with the conditions set
forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company and any Guarantor shall be deemed
to have been released and discharged from its obligations with respect to the
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "LEGAL DEFEASANCE"). For this purpose, legal defeasance means that
the Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Securities, which shall thereafter be deemed to
be "outstanding" only for the purposes of paragraph (e) below and the other
Sections of and matters under this Indenture referred to in (i) and (ii) below,
and to have satisfied all its other obligations under such Securities and this
Indenture insofar as such Securities are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), and Holders of the Securities and the Guarantees and any amounts
deposited under paragraph (d) below shall cease to be subject to any obligations
to, or the rights of, any holder of Senior Debt under Article Four or Article
Twelve or otherwise, except for the following which shall survive until
otherwise terminated or discharged hereunder: (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Securities when such payments are due, (ii) the Company's obligations
with respect to such Securities under Sections 2.6, 2.7, 2.10 and 5.2, (iii) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and the
Company's obligations in connection therewith and (iv) this Section 9.2 and
Section 9.5. Subject to compliance with this Section 9.2, the Company may
exercise its option under this paragraph (b) notwithstanding the prior exercise
of its option under paragraph (c) below with respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Article Four and Article
Six and in Sections 5.3, 5.5 through 5.9 and 5.11 through 5.20 with respect to
the outstanding Securities on and after the date the conditions set forth below
are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Securities shall
thereafter be deemed to be not "outstanding" for the purpose of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder and Holders of the Securities and
the Guarantees and any amounts deposited under paragraph (d) below shall cease
to be subject to any obligations to, or the rights of, any holder of Senior Debt
under Article Four or Article Twelve or otherwise. For this purpose, covenant
defeasance means that, with respect to the outstanding Securities, the Company
any Guarantor may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant listed above,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 7.1(iii),
but, except as specified above, the remainder of this Indenture and such
Securities shall be unaffected thereby.
(d) The following shall be the conditions to application of
either paragraph (b) or paragraph (c) above to the outstanding Securities:
(i) the Company must have irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section 8.10
who shall agree to comply with the provisions of this Section 9.2
applicable to it) in trust, for the benefit of the Holders, cash in U.S.
dollars, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of,
premium, if any, and interest on the Securities on the Maturity Date or
Redemption Date, as the case may be;
(ii) in the case of legal defeasance, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of this Indenture, there has been
a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm
that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such legal defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such legal
defeasance had not occurred;
(iii) in the case of covenant defeasance, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders
will not recognize income, gain or loss for federal income tax purposes
as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such covenant defeasance had not
occurred;
(iv) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit or insofar as clauses (vi)
or (vii) of Section 7.1 are concerned, at any time in the period ending
on the 91st day after the date of deposit;
(v) such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the legal defeasance or
the covenant defeasance have been complied with; and
(viii) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that, after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally.
(e) All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this paragraph (e), the "TRUSTEE") pursuant to
paragraph (d) above in respect of the outstanding Securities shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (other than the Company or any Affiliate of the Company), to the
Holders of such Securities of all sums due and to become due thereon in respect
of principal, premium and interest, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to paragraph (d) above or the principal, premium,
if any, and interest received in respect thereof other than any such tax, fee or
other charge which by law is for the account of the Holders of the outstanding
Securities. The Company's obligations to pay and indemnify the Trustee as set
forth in this paragraph shall survive the termination of this Indenture and the
Securities.
Anything in this Section 9.2 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request,
in writing, by the Company any money or U.S. Government Obligations held by it
as provided in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance.
Section 9.3. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Sections 9.1 and 9.2, and shall apply
the deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of, premium, if any, and
interest on the Securities.
Section 9.4. Repayment to the Company or Guarantors.
Subject to Sections 8.7, 9.1 and 9.2, the Trustee shall promptly
pay to the Company, or if deposited with the Trustee by any Guarantor, to such
Guarantor, upon receipt by the Trustee of an Officers' Certificate, any excess
money, determined in accordance with Section 9.2, held by it at any time. The
Trustee and the Paying Agent shall pay to the Company or any Guarantor, as the
case may be, upon receipt by the Trustee or the Paying Agent, as the case may
be, of an Officers' Certificate, any money held by it for the payment of
principal, premium, if any, or interest that remains unclaimed for two years
after payment to the Holders is required; PROVIDED, HOWEVER, that the Trustee
and the Paying Agent before being required to make any payment may, but need
not, at the expense of the Company cause to be published once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that after a date
specified therein, which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company or any Guarantor, as the
case may be, Holders entitled to money must look solely to the Company for
payment as general creditors unless an applicable abandoned property law
designates another person, and all liability of the Trustee or Paying Agent with
respect to such money shall thereupon cease.
Section 9.5. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with this Indenture by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then and only then the Company's and each Guarantor's, if any,
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had been made pursuant to this Indenture until
such time as the Trustee is permitted to apply all such money or U.S. Government
Obligations in accordance with this Indenture; PROVIDED, HOWEVER, that if the
Company or the Guarantors, as the case may be, has made any payment of principal
of, premium, if any, or interest on any Securities because of the reinstatement
of its obligations, the Company or the Guarantors, as the case may be, shall be
subrogated to the rights of the holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE X.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 10.1. Without Consent of Holders.
The Company and the Guarantors, when authorized by a Board
Resolution, and the Trustee, together, may amend or supplement this Indenture or
the Securities without notice to or consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency, so long as
such change does not, in the opinion of the Trustee, adversely affect the rights
of any of the Holders in any material respect; and
(2) to comply with Article Six.
In formulating its opinion on such matters, the Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an Opinion of Counsel.
Section 10.2. With Consent of Holders.
Subject to Section 7.7, the Company and each Guarantor, when
authorized by a Board Resolution, the Trustee and the Holders of not less than a
majority in aggregate principal amount of the Securities then outstanding, may
amend or supplement (or waive compliance with any provision of) this Indenture,
the Securities or any Guarantee without any notice to any other Holder, except
that without the consent of each Holder of the Securities affected, no such
amendment, supplement or waiver may:
(1) reduce the amount of the Securities whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture, the Securities or the Guarantees;
(2) reduce the rate of or change or have the effect of
changing the time for payment of interest, including defaulted interest, on any
Securities;
(3) reduce the principal of or change or have the effect
of changing the fixed maturity of any Securities, or change the date on which
any Securities may be subject to redemption or repurchase, or reduce the
redemption or repurchase price therefor;
(4) make any Securities payable in money other than that
stated in the Securities;
(5) make any changes in the provisions of this Indenture
protecting the right of each Holder to receive payment of principal of and
interest on such Securities on or after the due date thereof or to bring suit to
enforce such payment, or permitting the Holders of a majority in principal
amount of the Securities to waive Defaults or Events of Default; or
(6) modify or change any provision of this Indenture or
the related definitions affecting the Subordination or ranking of the Securities
or any Guarantee in a manner which adversely affects the Holders.
The Company and each Guarantor agrees that no amendment,
supplement or waiver under this Article Ten may make any change that adversely
affects the rights under Article Four or Twelve of any holders of any Senior
Debt unless the holders of such Senior Debt consent to the change.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
In connection with any amendment, supplement or waiver under this
Article Ten, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
Section 10.3. Compliance with TIA.
From the date on which this Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
Section 10.4. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his or her Security or portion of his or her Security by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Securities have consented (and not theretofore
revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in Section 10.2, in
which case, the amendment, supplement or waiver shall bind only each Holder of a
Security who has consented to it and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security; PROVIDED, HOWEVER, that any such waiver shall not impair or affect the
right of any Holder to receive payment of principal of and interest on a
Security, on or after the respective due dates expressed in such Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates without the consent of such Holder.
Section 10.5. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms.
Section 10.6. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Ten; PROVIDED, HOWEVER, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture.
ARTICLE XI.
GUARANTEE
Section 11.1. Unconditional Guarantee.
Each Guarantor hereby unconditionally guarantees (such guarantee
to be referred to herein as the "GUARANTEE"), on a senior subordinated basis,
jointly and severally, subject to Article Twelve, to each Holder of a Security
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, the Securities or the obligations of the Company hereunder or
thereunder, that: (i) the principal of and interest on the Securities will be
promptly paid in full when due, subject to any applicable grace period, whether
at maturity, by acceleration or otherwise and interest on the overdue principal,
if any, and interest on any interest, to the extent lawful, of the Securities
and all other obligations of the Company to the Holders or the Trustee hereunder
or thereunder will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and (ii) in case of any extension of time of
payment or renewal of any Securities or of any such other obligations, the same
will be promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, subject to any applicable grace period, whether at
stated maturity, by acceleration or otherwise, subject, however, in the case of
clauses (i) and (ii) above, to the limitations set forth in Section 11.5. Each
Guarantor hereby agrees that its obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the Securities or
this Indenture, the absence of any action to enforce the same, any waiver or
consent by any Holder of the Securities with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture and
in this Guarantee. If any Holder or the Trustee is required by any court or
otherwise to return to the Company, any Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company or any
Guarantor, any amount paid by the Company or any Guarantor to the Trustee or
such Holder, this Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor further agrees that, as
between each Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Seven for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article Seven, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Guarantor for the purpose of this Guarantee.
Section 11.2. Subordination of Guarantee.
The obligations of each Guarantor to the Holders of Securities
pursuant to the Guarantee and this Indenture are expressly subordinate and
subject in right of payment to the prior payment in full of all Guarantor Senior
Debt of such Guarantor, to the extent and in the manner provided in Article
Twelve.
Section 11.3. Severability.
In case any provision of this Guarantee shall be invalid, illegal
or unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 11.4. Release of a Guarantor.
Upon (i) the release by the lenders under the Credit Agreement,
related documents and future refinancings thereof of all guarantees of a
Guarantor and all Liens on the property and assets of such Guarantor relating to
such Indebtedness, or (ii) the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Guarantor (or all or substantially all
its assets) to an entity which is not a Subsidiary of the Company and which sale
or disposition is otherwise in compliance with the terms of this Indenture
(including, without limitation, Sections 5.16 and 6.1), such Guarantor shall be
deemed released from all obligations under this Article Eleven without any
further action required on the part of the Trustee or any Holder; PROVIDED,
HOWEVER, that any such termination shall occur only to the extent that all
obligations of such Guarantor under all of its guarantees of, and under all of
its pledges of assets or other security interests which secure, such
Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
The Trustee shall deliver an appropriate instrument evidencing
such release upon receipt of a request by the Company accompanied by an
Officers' Certificate certifying as to the compliance with this Section 11.4.
Any Guarantor not so released remains liable for the full amount of principal of
and interest on, and all other obligations under, the Securities as provided in
this Article Eleven.
Section 11.5. Limitation of Guarantor's Liability.
Each Guarantor and by its acceptance hereof each Holder hereby
confirms that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To
effectuate the foregoing intention, the Holders and such Guarantor hereby
irrevocably agree that the obligations of such Guarantor under the Guarantee
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor (including, but not limited
to, the Guarantor Senior Debt of such Guarantor) and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to Section 11.7, result in the obligations of such Guarantor under the
Guarantee not constituting such fraudulent transfer or conveyance under federal
or state law.
Section 11.6. Guarantors May Consolidate, etc., on Certain Terms.
(a) Nothing contained in this Indenture or in any of the
Securities shall prevent any consolidation or merger of a Guarantor with or into
the Company or another Guarantor or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety, to the
Company or another Guarantor. Upon any such consolidation, merger, sale or
conveyance, the Guarantee given by such Guarantor shall no longer have any force
or effect.
(b) Except as set forth in Article Five and Article Six hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Guarantor with or into a corporation or
corporations other than the Company or another Guarantor (whether or not
affiliated with the Guarantor); PROVIDED, HOWEVER, that, subject to Sections
11.4 and 11.6(a), (i) immediately after such transaction, and giving effect
thereto, no Default or Event of Default shall have occurred as a result of such
transaction and be continuing, and (ii) upon any such consolidation, merger,
sale or conveyance, the Guarantee set forth in this Article Eleven, and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed by such Guarantor, shall be expressly assumed
(in the event that the Guarantor is not the surviving corporation in the
merger), by supplemental indenture satisfactory in form to the Trustee, executed
and delivered to the Trustee, by the corporation formed by such consolidation,
or into which the Guarantor shall have merged, or by the corporation that shall
have acquired such property. In the case of any such consolidation, merger, sale
or conveyance and upon the assumption by the successor corporation, by
supplemental indenture executed and delivered to the Trustee and satisfactory in
form to the Trustee of the due and punctual performance of all of the covenants
and conditions of this Indenture to be performed by the Guarantor, such
successor corporation shall succeed to and be substituted for the Guarantor with
the same effect as if it had been named herein as a Guarantor; PROVIDED,
HOWEVER, that solely for purposes of computing amounts described in subclause
(c) of Section 5.3(a), any such successor corporation shall only be deemed to
have succeeded to and be substituted for any Guarantor with respect to periods
subsequent to the effective time of such merger, consolidation or transfer of
assets.
Section 11.7. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "FUNDING GUARANTOR") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Guarantor's obligations
with respect to the Guarantee. "ADJUSTED NET ASSETS" with respect to the
Guarantee of such Guarantor at any date shall mean the lesser of the amount by
which (x) the fair value of the property of such Guarantor exceeds the total
amount of liabilities, including, without limitation, contingent liabilities
(after giving effect to all other fixed and contingent liabilities incurred or
assumed on such date (other than liabilities of such Guarantor under
Indebtedness which is subordinated to such Guarantee)), but excluding
liabilities under the Guarantee, of such Guarantor at such date and (y) the
present fair salable value of the assets of such Guarantor at such date exceeds
the amount that will be required to pay the probable liability of such Guarantor
on its debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date (other than liabilities of such Guarantor under
Indebtedness which is subordinated to such Guarantee) and after giving effect to
any collection from any Subsidiary of such Guarantor in respect of the
obligations of such Subsidiary under the Guarantee), excluding debt in respect
of the Guarantee of such Guarantor, as they become absolute and matured.
Section 11.8. Waiver of Subrogation.
Each Guarantor hereby irrevocably waives any claim or other
rights which it may now or hereafter acquire against the Company that arise from
the existence, payment, performance or enforcement of such Guarantor's
obligations under the Guarantee and this Indenture, including, without
limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Holder of Securities against the Company, whether or not such claim, remedy or
right arises in equity, or under contract, statute or common law, including,
without limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Guarantor in violation of the preceding sentence and the
Securities shall not have been paid in full, such amount shall have been deemed
to have been paid to such Guarantor for the benefit of, and held in trust for
the benefit of, the Holders of the Securities, and shall, subject to the
provisions of Section 11.2, Article Four and Article Twelve, forthwith be paid
to the Trustee for the benefit of such Holders to be credited and applied upon
the Securities, whether matured or unmatured, in accordance with the terms of
this Indenture. Each Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this Indenture
and that the waiver set forth in this Section 11.8 is knowingly made in
contemplation of such benefits.
Section 11.9. Execution of Guarantee.
To evidence their guarantee to the Holders set forth in this
Article Eleven, the Guarantors hereby agree to execute the Guarantee in
substantially the form included in EXHIBIT A, which shall be endorsed on each
Security ordered to be authenticated and delivered by the Trustee. Each
Guarantor hereby agrees that its Guarantee set forth in this Article Eleven
shall remain in full force and effect notwithstanding any failure to endorse on
each Security a notation of such Guarantee. Each such Guarantee shall be signed
on behalf of each Guarantor by one Officer (whom shall have been duly authorized
by all requisite corporate actions) and the delivery of such Security by the
Trustee, after the authentication thereof hereunder, shall constitute due
delivery of such Guarantee on behalf of such Guarantor. Such signature upon the
Guarantee may be by manual or facsimile signature of such officer and may be
imprinted or otherwise reproduced on the Guarantee, and in case any such officer
who shall have signed the Guarantee shall cease to be such officer before the
Security on which such Guarantee is endorsed shall have been authenticated and
delivered by the Trustee or disposed of by the Company, such Security
nevertheless may be authenticated and delivered or disposed of as though the
person who signed the Guarantee had not ceased to be such officer of the
Guarantor.
Section 11.10. Waiver of Stay, Extension or Usury Laws.
Each Guarantor covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive each such Guarantor from
performing its Guarantee as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so) each such
Guarantor hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
ARTICLE XII.
SUBORDINATION OF GUARANTEE OBLIGATIONS
Section 12.1. Guarantee Obligations Subordinated to Guarantor Senior Debt.
Anything herein to the contrary notwithstanding, each of the
Guarantors, for itself and its successors, and each Holder, by his acceptance of
Guarantees, agrees, that any payment of Obligations by a Guarantor in respect of
its Guarantee (collectively, as to any Guarantor, its "GUARANTEE OBLIGATIONS")
is subordinated, to the extent and in the manner provided in this Article
Twelve, to the prior payment in full in cash or Cash Equivalents of all
Guarantor Senior Debt of such Guarantor.
This Article Twelve shall constitute a continuing offer to all
persons who become holders of, or continue to hold, Guarantor Senior Debt, and
such provisions are made for the benefit of the holders of Guarantor Senior Debt
and such holders are made obligees hereunder and any one or more of them may
enforce such provisions.
The obligations of the Guarantors to the Trustee under Section
8.7 shall not be subject to the provisions of this Article Twelve.
Section 12.2. Suspension of Guarantee Obligations When Guarantor Senior Debt in
Default.
(a) Unless Section 12.3 shall be applicable, upon (1) the
occurrence of a Payment Default with respect to any Designated Senior Debt or
Designated Senior Debt guaranteed by a Guarantor (which guarantee constitutes
Guarantor Senior Debt of such Guarantor) and (2) receipt by the Trustee, the
Company and such Guarantor from the Representatives of written notice of such
occurrence, then no payment (other than payments previously made pursuant to
Article Nine hereof) or distribution of any assets of such Guarantor of any kind
or character shall be made by such Guarantor on account of Obligations on the
Securities or on account of the purchase, redemption or other acquisition of
Securities or any of the obligations of such Guarantor under this Guarantee
unless and until such Payment Default shall have been cured or waived or shall
have ceased to exist or such Designated Senior Debt shall have been discharged
or paid in full cash or Cash Equivalents, after which such Guarantor shall
resume making any and all required payments in respect of its obligations under
this Guarantee.
(b) Unless Section 12.3 shall be applicable upon (1) the
occurrence of a Non-payment Default with respect to any Designated Senior Debt
guaranteed by a Guarantor (which guarantee constitutes Guarantor Senior Debt of
such Guarantor) and (2) the earlier of (i) receipt by the Trustee, the Company
and such Guarantor from the Representatives of written notice of such occurrence
stating that such notice is a "Payment Blockage Notice" pursuant to Sections
4.2(b) and 12.2(b) of this Indenture or (ii) if such Non-payment Default results
from the acceleration of the Securities, the date of the acceleration of the
Securities, no payment (other than payments previously made pursuant to Article
Nine hereof) or distribution of any assets of such Guarantor of any kind or
character shall be made by such Guarantor on account of principal, premium, if
any, or interest on the Securities or on account of the purchase, redemption or
other acquisition of Securities or on account of any of the other obligations of
such Guarantor under this Guarantee for a period ("GUARANTOR PAYMENT BLOCKAGE
PERIOD") commencing on the date of receipt by the Trustee of such notice or the
date of the acceleration referred to in clause (ii) above, as the case may be,
unless and until the earlier to occur of the following events: (w) 180 days
shall have elapsed since receipt of such written notice by the Trustee or the
date of the acceleration of the Securities, as the case may be (PROVIDED, that
such Guarantor Senior Debt shall theretofore not have been accelerated), (x)
such Non-payment Default shall have been cured or waived or shall have ceased to
exist, (y) such Guarantor Senior Debt shall have been discharged or paid in full
in cash or Cash Equivalents or (z) such Guarantor Payment Blockage Period shall
have been terminated by written notice to the Guarantor or the Trustee from the
Representative initiating such Guarantor Payment Blockage Period, or the holders
of at least a majority in principal amount of such issue of such Guarantor
Senior Debt, after which, in the case of clauses (w), (x), (y) or (z), the
Guarantor shall resume making any and all required payments in respect of its
obligations under this Guarantee. Notwithstanding any other provisions of this
Indenture, only one Guarantor Payment Blockage Period may be commenced within
any consecutive 360 day period and no Non-payment Default with respect to
Guarantor Senior Debt guaranteed by any Guarantor (which guarantee constitutes
Guarantor Senior Debt of such Guarantor) which existed or was continuing on the
date of the commencement of any Guarantor Payment Blockage Period shall be, or
be made, the basis for the commencement of a second Guarantor Payment Blockage
Period, whether or not within a period of 360 consecutive days, unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days. In no event shall a Guarantor Payment Blockage Period
extend beyond 180 days from the date of the receipt of the notice or the date of
the acceleration of the Securities referred to in clause (2) hereof.
(c) In the event that, notwithstanding the foregoing, the Trustee
or the Holder of any Security shall have received any payment prohibited by the
foregoing provisions of this Section 12.2, then and in such event such payment
shall be paid over and delivered forthwith to the Representatives or as a court
of competent jurisdiction shall direct.
Section 12.3. Guarantee Obligations Subordinated to Prior Payment of All
Guarantor Senior Debt on Dissolution, Liquidation or Reorganization of Such
Guarantor.
Upon any payment or distribution of assets of any Guarantor of
any kind or character, whether in cash, property or securities upon any
dissolution, winding up, total or partial liquidation or reorganization of such
Guarantor and whether voluntary or involuntary (including, without limitation,
in bankruptcy, insolvency or receivership proceedings or upon any assignment for
the benefit of creditors or any other marshaling of assets and liabilities of
such Guarantor and whether voluntary or involuntary):
(a) the holders of all Guarantor Senior Debt of such Guarantor
shall first be entitled to receive payments in full in cash or Cash Equivalents
of all amounts payable under Guarantor Senior Debt (including, with respect to
Designated Senior Debt guaranteed by such Guarantor, any interest accruing after
the commencement of any such proceeding at the rate specified in the applicable
Designated Senior Debt whether or not interest is an allowed claim enforceable
against the Company in any such proceeding) before the Holders will be entitled
to receive any payment with respect to the Guarantee, and until all Obligations
with respect to the Guarantor Senior Debt are paid in full in cash or Cash
Equivalents, any distribution to which the Holders would be entitled shall be
made to the holders of Guarantor Senior Debt; PROVIDED, HOWEVER, that no payment
by any other Guarantor or the Company shall constitute payment on behalf of such
Guarantee for purposes of this Section 12.3(a);
(b) any payment or distribution of assets of such Guarantor of
any kind or character, whether in cash, property or securities, to which the
Holders or the Trustee on behalf of the Holders would be entitled except for the
provisions of this Article Twelve, shall be paid by the liquidating trustee or
agent or other person making such a payment or distribution, directly to the
holders of Guarantor Senior Debt of such Guarantor or their Representative,
ratably according to the respective amounts of such Guarantor Senior Debt
remaining unpaid held or represented by each, until all such Guarantor Senior
Debt remaining unpaid shall have been paid in full in cash or Cash Equivalents
after giving effect to any concurrent payment or distribution to the holders of
such Guarantor Senior Debt;
(c) in the event that, notwithstanding the foregoing, any payment
or distribution of assets of such Guarantor of any kind or character, whether in
cash, property or securities, shall be received by the Trustee or the Holders or
any Paying Agent in respect of payment of the Guarantee before all Guarantor
Senior Debt of such Guarantor is paid in full in cash or Cash Equivalents, such
payment or distribution (subject to the provisions of Sections 12.6 and 12.7)
shall be received, segregated from other funds, and held by the Trustee or such
Holder or Paying Agent for the benefit of, and shall immediately be paid over
to, the holders of such Guarantor Senior Debt or their Representative, ratably
according to the respective amounts of such Guarantor Senior Debt held or
represented by each, until all such Guarantor Senior Debt remaining unpaid shall
have been paid in full in cash or Cash Equivalents, after giving effect to any
concurrent payment or distribution to the holders of Guarantor Senior Debt.
Notwithstanding anything to the contrary contained herein, in the absence of its
gross negligence or willful misconduct, the Trustee shall have no duty to
collect or retrieve monies previously paid by it in good faith; PROVIDED, that
this sentence shall not affect the obligation of any other party receiving such
payment to hold such payment for the benefit of, and to pay over such payment
over to, the holders of such Guarantor Senior Debt or their Representative.
Each Guarantor shall give prompt notice to the Trustee prior to
any dissolution, winding up, total or partial liquidation or total or
reorganization (including, without limitation, in bankruptcy, insolvency, or
receivership proceedings or upon any assignment for the benefit of creditors or
any other marshaling of such Guarantor's assets and liabilities).
Section 12.4. Holders of Guarantee Obligations To Be Subrogated to Rights of
Holders of Guarantor Senior Debt.
Subject to the payment in full in cash or Cash Equivalents of all
Guarantor Senior Debt, the Holders of Guarantee Obligations of a Guarantor shall
be subrogated to the rights of the holders of Guarantor Senior Debt of such
Guarantor to receive payments or distributions of assets of such Guarantor
applicable to such Guarantor Senior Debt until all amounts owing on or in
respect of the Guarantee Obligations shall be paid in full in cash, and for the
purpose of such subrogation no payments or distributions to the holders of such
Guarantor Senior Debt by or on behalf of such Guarantor, or by or on behalf of
the Holders by virtue of this Article Twelve, which otherwise would have been
made to the holders, shall, as between such Guarantor and the Holders, be deemed
to be payment by such Guarantor to or on account of such Guarantor Senior Debt,
it being understood that the provisions of this Article Twelve are and are
intended solely for the purpose of defining the relative rights of the Holders,
on the one hand, and the holders of such Guarantor Senior Debt, on the other
hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Twelve shall
have been applied, pursuant to the provisions of this Article Twelve, to the
payment of all amounts payable under such Guarantor Senior Debt, then the
Holders shall be entitled to receive from the holders of such Guarantor Senior
Debt any payments or distributions received by such holders of such Guarantor
Senior Debt in excess of the amount sufficient to pay all amounts payable under
or in respect of such Guarantor Senior Debt in full in cash or Cash Equivalents.
Section 12.5. Obligations of the Guarantors Unconditional.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Guarantees is intended to or shall impair, as between the
Guarantors and the Holders, the obligation of the Guarantors, which is absolute
and unconditional, to pay to the Holders all amounts due and payable under the
Guarantees as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Guarantors other than the holders of the Guarantor
Senior Debt, nor shall anything herein or therein prevent the Trustee or any
Holder from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
Twelve, of the holders of Guarantor Senior Debt in respect of cash, property or
securities of the Guarantors received upon the exercise of any such remedy. Upon
any payment or distribution of assets of any Guarantor referred to in this
Article Twelve, the Trustee, subject to the provisions of Sections 8.1 and 8.2,
and the Holders shall be entitled to rely upon any order or decree made by any
court of competent jurisdiction in which any dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
receiver, trustee in bankruptcy, liquidating trustee or agent or other person
making any payment or distribution to the Trustee or to the Holders for the
purpose of ascertaining the persons entitled to participate in such payment or
distribution, the holders of Guarantor Senior Debt and other Indebtedness of any
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
Twelve. Nothing in this Section 12.5 shall apply to the claims of, or payments
to, the Trustee under or pursuant to Section 8.7.
Section 12.6. Trustee Entitled To Assume Payments Not Prohibited in Absence of
Notice.
The Trustee shall not at any time be charged with knowledge of
the existence of any facts that would prohibit the making of any payment to or
by the Trustee unless and until the Trustee or any Paying Agent shall have
received notice thereof from the Company or any Guarantor or from one or more
holders of Guarantor Senior Debt or from any Representative therefor and, prior
to the receipt of any such notice, the Trustee, subject to the provisions of
Sections 8.1 and 8.2, shall be entitled in all respects conclusively to assume
that no such fact exists.
Section 12.7. Application by Trustee of Assets Deposited with It.
U.S. Legal Tender or U.S. Government obligations deposited in
trust with the Trustee pursuant to and in accordance with Sections 9.1 and 9.2
shall be for the sole benefit of Holders and, to the extent allocated for the
payment of Securities, shall not be subject to the subordination provisions of
this Article Twelve. Otherwise, any deposit of assets or securities by or on
behalf of a Guarantor with the Trustee or any Paying Agent (whether or not in
trust) for payment of the Guarantee shall be subject to the provisions of this
Article Twelve; PROVIDED, that if prior to the second Business Day preceding the
date on which by the terms of this Indenture any such assets may become
distributable for any purpose (including, without limitation, the payment of
either principal of or interest on any Security) the Trustee or such Paying
Agent shall not have received with respect to such assets the notice provided
for in Section 12.6, then the Trustee or such Paying Agent shall have full power
and authority to receive such assets and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary received by it on or after such date. The foregoing shall not apply to
the Paying Agent if the Company or any Subsidiary or Affiliate of the Company is
acting as Paying Agent. Nothing contained in this Section 12.7 shall limit the
right of the holders of Guarantor Senior Debt to recover payments as
contemplated by this Article Twelve.
Section 12.8. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Guarantor
Senior Debt to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of any
Guarantor or by any act or failure to act, in good faith, by any such holder, or
by any non-compliance by any Guarantor with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section 12.8, the holders of Guarantor Senior Debt may, at any time and from
time to time, without the consent of or notice to the Trustee or the Holders of
the Securities, without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in this
Article Twelve or the obligations hereunder of the Holders of the Securities to
the holders of Guarantor Senior Debt, do any one or more of the following: (1)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, Guarantor Senior Debt or any instrument evidencing the same
or any agreement under which Guarantor Senior Debt is outstanding; (2) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Guarantor Senior Debt; (3) release any person liable in any
manner for the collection or payment of Guarantor Senior Debt; and (4) exercise
or refrain from exercising any rights against the Company and any other person;
PROVIDED, HOWEVER, that in no event shall any such actions limit the right of
the Holders of the Securities to take any action to accelerate the maturity of
the Securities pursuant to Article Seven hereof or to pursue any rights or
remedies hereunder or under applicable laws if the taking of such action does
not otherwise violate the terms of this Indenture.
(c) Each Holder by accepting a Security agrees that the
Representative of any Guarantor Senior Debt (including, without limitation, the
Credit Agent), in its discretion, without notice or demand and without affecting
any rights of any holder of Guarantor Senior Debt under this Article Twelve, may
foreclose any mortgage or deed of trust covering interests in real property
secured thereby, by judicial or nonjudicial sale; and such Holder hereby waives
any defense to the enforcement by the Representative (including, without
limitation, the Credit Agent) of any Guarantor Senior Debt or by any holder of
any Guarantor Senior Debt against such Holder of this Article Twelve after a
Judicial or nonjudicial sale or other disposition of its interests in real
property secured by such mortgage or deed of trust; and such Holder expressly
waives any defense or benefits that may be derived from California Civil Code
ss.ss. 2808, 2809, 2810, 2819, 2845, 2849 or 2850, or California Code of Civil
Procedure ss.ss. 580a, 580d or 726, or comparable provisions of the laws of any
other jurisdiction or any similar statute in effect in any other jurisdiction.
Section 12.9. Holders Authorize Trustee To Effectuate Subordination of
Guarantee Obligations.
Each Holder of the Guarantee Obligations by his acceptance
thereof authorizes and expressly directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effect the subordination provisions
contained in this Article Twelve, and appoints the Trustee his attorney-in-fact
for such purpose, including, in the event of any dissolution, winding up,
liquidation or reorganization of any Guarantor (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or any other marshaling of assets and liabilities of any Guarantor)
tending towards liquidation or reorganization of the business and assets of any
Guarantor, the immediate filing of a claim for the unpaid balance under its or
his Guarantee obligations in the form required in said proceedings and cause
said claim to be approved. If the Trustee does not file a proper claim or proof
of debt in the form required in such proceeding prior to 30 days before the
expiration of the time to file such claim or claims, then the holders of the
Guarantor Senior Debt or their Representative is hereby authorized to file an
appropriate claim for and on behalf of the Holders of said Guarantee
Obligations. Nothing herein contained shall be deemed to authorize the Trustee
or the holders of Guarantor Senior Debt or their Representative to authorize or
consent to or accept or adopt on behalf of any holder of Guarantee Obligations
any plan of reorganization, arrangement, adjustment or composition affecting the
Guarantee Obligations or the rights of any Holder thereof, or to authorize the
Trustee or the holders of Guarantor Senior Debt or their Representative to vote
in respect of the claim of any holder of Guarantee Obligations in any such
proceeding.
Section 12.10. Right of Trustee To Hold Guarantor Senior Debt.
The Trustee shall be entitled to all of the rights set forth in
this Article Twelve in respect of any Guarantor Senior Debt at any time held by
it to the same extent as any other holder of Guarantor Senior Debt, and nothing
in this Indenture shall be construed to deprive the Trustee of any of its rights
as such holder.
Section 12.11. No Suspension of Remedies.
The failure to make a payment in respect of the Guarantees by
reason of any provision of this Article Twelve shall not be construed as
preventing the occurrence of a Default or an Event of Default under Section 7.1.
Nothing contained in this Article Twelve shall limit the right of
the Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Seven or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article Twelve of the holders, from time to time, of Guarantor Senior Debt.
Section 12.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Debt, and shall not be liable to any such holders
(other than for its willful misconduct or gross negligence) if it shall in good
faith mistakenly pay over or deliver to the holders of Guarantee Obligations or
the Company or any other person, money or assets to which any holders of
Guarantor Senior Debt shall be entitled by virtue of this Article Twelve or
otherwise. Nothing in this Section 12.12 shall affect the obligation of any
person other than the Trustee to hold such payment for the benefit of, and to
pay such payment over to, the holders of Guarantor Senior Debt or their
Representative.
ARTICLE XIII.
MISCELLANEOUS
Section 13.1. TIA Controls.
If any provision of this Indenture limits, qualifies, or
conflicts with the duties imposed by operation of the TIA, the TIA shall
control.
Section 13.2. Notices.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company or any Guarantor:
Metals USA, Inc.
Three Riverway, Suite 600
Houston, Texas 77056
Attention: Chief Executive Officer
with a copy to:
Bracewell & Patterson L.L.P.
Pennzoil Tower
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Attention: William Gutermuth, Esq.
if to the Trustee:
U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 2700
Los Angeles, California 90071-2291
Attention: Corporate Trust Services - Metals USA, Inc.
with a copy to:
Winston & Strawn
200 Park Avenue
New York, NY 10166-4193
Attention: Jeffrey H. Elkin, Esq.
if to the Credit Agent:
The First National Bank of Chicago
One First National Plaza
Suite 0324
Chicago, Illinois 60670-0324
Attention: Cory M. Olson
Each of the Company, the Trustee, the Guarantors and the Credit
Agent by written notice to each other such person may designate additional or
different addresses for notices to such person. Any notice or communication to
the Company, the Trustee, the Guarantors and the Credit Agent shall be deemed to
have been given or made as of the date so delivered if personally delivered;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
five (5) calendar days after mailing if sent by registered or certified mail,
postage prepaid (except that any notice or communication to the Trustee or a
notice of change of address shall not be deemed to have been given until
actually received by the Trustee or the addressee, as applicable).
Any notice or communication mailed to a Holder shall be mailed to
him or her by first class mail or other equivalent means at his or her address
as it appears on the registration books of the Registrar and shall be
sufficiently given to him or her if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
Section 13.3. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities. The
Company, the Guarantors, the Trustee, the Registrar and any other person shall
have the protection of TIA Section 312(c).
Section 13.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company, upon request, shall furnish
to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 13.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 5.7, shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary to enable him or her
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; PROVIDED, HOWEVER,
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
Section 13.6. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Paying Agent or Registrar may make reasonable rules for
its functions.
Section 13.7. Legal Holidays.
A "LEGAL HOLIDAY" used with respect to a particular place of
payment is a Saturday, a Sunday or a day on which banking institutions in New
York, New York, in the city in which the principal corporate trust office of the
Trustee is located or at such place of payment are not required to be open. If a
payment date is a Legal Holiday at such place, payment may be made at such place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
Section 13.8. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture.
Section 13.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of any of the Company or any of its Subsidiaries. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 13.10. No Recourse Against Others.
No director, officer, employee, stockholder or incorporator of
the Company or its Subsidiaries, as such, shall have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Security waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Securities.
Section 13.11. Successors.
All agreements of the Company and each Guarantor in this
Indenture and the Securities shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
Section 13.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
Section 13.13. Headings and Table of Contents.
The headings and table of contents contained in this Indenture
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Indenture.
Section 13.14. Severability.
In case any one or more of the provisions in this Indenture or in
the Securities shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions shall
be enforceable to the full extent permitted by law.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, all as of the date first written above.
METALS USA, INC.
By:/s/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: Senior Vice President
and Chief Financial Officer
(Signature Page Continues)
<PAGE>
GUARANTORS:
AFFILIATED METALS COMPANY, CORNERSTONE
ALUMINUM COMPANY, INC., CORNERSTONE BUILDING
PRODUCTS, INC., CORNERSTONE METALS
CORPORATION, CORNERSTONE PATIO CONCEPTS,
L.L.C., FEDERAL BRONZE ALLOYS INC., HARVEY
TITANIUM, LTD., INDEPENDENT METALS CO.,
INC., INTERSTATE STEEL PROCESSING COMPANY,
INTERSTATE STEEL SUPPLY COMPANY, INTERSTATE
STEEL SUPPLY COMPANY OF PITTSBURGH,
INTERSTATE STEEL SUPPLY COMPANY OF MARYLAND,
JEFFREYS STEEL COMPANY, INC., MEIER METAL
SERVICENTERS, INC., METALS USA FINANCE
CORP., METALS USA SERVICE CORPORATION, MUSA
GP, INC., MUSA LP, INC., QUEENSBORO STEEL
CORPORATION, R. J. FABRICATING INC., ROYAL
ALUMINUM, INC., SOUTHERN ALLOY OF AMERICA,
INC., STEEL SERVICE SYSTEMS, INC., TEXAS
ALUMINUM INDUSTRIES, INC., UNI-STEEL, INC.,
WAYNE STEEL, INC. and WILLIAMS STEEL &
SUPPLY CO., INC., as guarantors
By:/s/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: Vice President and Director
(for each of the above-listed guarantors)
(Signature Page Continues)
<PAGE>
U.S. TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee
By: /s/ PETER C. GERRER
Name: Peter C. Gerrer
Title: Authorized Signatory
<PAGE>
EXHIBIT A
FORM OF SECURITY
[FACE OF SECURITY]
METALS USA, INC.
8 5/8% Senior Subordinated Note due 2008
No. $_______________________
CUSIP No. 591234AA6
METALS USA, INC., a Delaware corporation (the "Company," which
term includes any successor corporation), for value received promises to pay to
____________________ or registered assigns, the principal sum of
________________ Dollars, on February 15, 2008.
Interest Payment Dates: February 15 and August 15 commencing
on August 15, 1998.
Record Dates: February 1 and August 1.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.
Dated: February 11, 1998
METALS USA, INC.
By: /s/J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: Senior Vice President and
Chief Financial Officer
Trustee's Certification of Authentication
This is one of the 8 5/8% Senior
Subordinated Notes Due 2008 described in
the within-mentioned Indenture
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:/s/ PETER C. GERRER
Authorized Signatory
<PAGE>
[REVERSE SIDE OF SECURITY]
METALS USA, INC.
8 5/8% SENIOR SUBORDINATED NOTE DUE 2008
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO
YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE ACT, (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE), OR (E) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S
UNDER THE ACT.
1. Interest.
METALS USA, INC. (the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above. The Company
will pay interest semi-annually on each February 15 and August 15 of each year
(the "Interest Payment Date"), commencing on August 15, 1998, to the Holders of
record on the immediately preceding February 1 and August 1. Interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of issuance of the Securities.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Company shall pay interest on overdue principal and interest
on overdue installments of interest, to the extent lawful, at a rate equal to
the rate of interest otherwise payable on the Securities.
2. Method of Payment.
The Company shall pay interest on the Securities (except
defaulted interest) to the persons who are the registered Holders at the close
of business on the Record Date immediately preceding the interest Payment Date
even if the Securities are canceled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by wire transfer of Federal funds, or
interest by its check payable in such U.S. Legal Tender. The Company may deliver
any such interest payment to the Paying Agent or to a Holder at the Holder's
registered address. Notwithstanding the foregoing, the Company shall pay or
cause to be paid all amounts payable with respect to non-DTC eligible Securities
by wire transfer of Federal funds to the account of the Holders of such
Securities.
3. Paying Agent and Registrar.
Initially, U.S. Trust Company of California, N.A. (the "Trustee")
will act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
February 11, 1998 (the "Indenture"), among the Company, the Guarantors and the
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and said Act for a statement of them. The
Securities are general unsecured obligations of the Company limited in aggregate
principal amount not to exceed $300.0 million, of which $200.0 million will be
offered as of the Issue Date and will mature on February 15, 2008. Payment on
each Security is guaranteed on a senior subordinated basis, jointly and
severally, by the Guarantors pursuant to Article Eleven of the Indenture.
5. Optional Redemption.
On or after February 15, 2003, the Securities may be redeemed in
whole at any time or in part from time to time, at the option of the Company,
upon not less than 30 nor more than 60 days notice, at a redemption price equal
to the applicable percentage of the principal amount thereof set forth below,
together with accrued and unpaid interest (if any) to the Redemption Date, if
redeemed during the twelve-month period commencing on February 15 of the year
set forth below:
Year Redemption Price
---- ----------------
2003 ............................... 104.313%
2004 ............................... 102.875%
2005 ............................... 101.438%
2006 and thereafter ................ 100.000%
In addition, on or prior to February 15, 2001, the Company may,
at its option, use the net cash proceeds of one or more Public Equity Offering
to redeem the Securities at a Redemption Price equal to 108.625% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the Redemption Date; PROVIDED, that at least 65% of the principal amount of
Securities originally issued remains outstanding immediately after any such
redemption. In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Public Equity Offering.
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's registered address. In order to effect a redemption
with the proceeds of a Public Equity Offering, the Company shall send the
redemption notice not later than 120 days after the consummation of such Public
Equity Offering. Securities in denominations larger than $1,000 may be redeemed
in part.
Except as set forth in the Indenture, from and after any
Redemption Date, if monies for the redemption of the Securities called for
redemption shall have been deposited with the Paying Agent for redemption on
such Redemption Date and payment of the Securities called for redemption is not
prohibited under Article Four or Article Twelve of the Indenture, then, unless
the Company defaults in the payment of such Redemption Price, the Securities
called for redemption will cease to bear interest and the only right of the
Holders of such Securities will be to receive payment of the Redemption Price.
7. Change of Control Offer.
Upon the occurrence of a Change of Control, each Holder shall
have the right to require the repurchase of such Holder's Securities pursuant to
a Change of Control Offer at a purchase price equal to 101% of the principal
amount thereof plus accrued interest, if any, to the date of purchase. The
Company shall not be required to repurchase Securities until it has complied
with its covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement and
all other such Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer or (ii) obtain the requisite consents under the
Credit Agreement and all other Senior Debt to permit the repurchase of the Notes
as provided below.
8. Limitation on Asset Sales.
Under certain circumstances the Company is required to apply the
net proceeds from Asset Sales to the repayment of Senior Debt, an investment in
properties and assets that replace the properties and assets that are the
subject of such Asset Sale, an investment in properties and assets that will be
used in the business of the Company and its Restricted Subsidiaries existing on
the Issue Date or in businesses reasonably related thereto or to purchase in a
Net Proceeds Offer (at a price equal to 100% of the aggregate principal amount
thereof, plus accrued interest to the date of purchase) such aggregate principal
amount of Securities which, when added to the accrued interest thereon, shall be
equal to the net proceeds required to be applied thereto.
9. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption.
10. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner
of it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee and the Paying Agents will pay the money
back to the Company at its request. After that, all liability of the Trustee and
such Paying Agents with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If the Company at any time deposits with the Trustee U.S. Legal
Tender or U.S. Government Obligations sufficient to pay the principal of and
interest on the Securities to redemption or maturity and complies with the other
provisions of the Indenture relating thereto, the Company will be discharged
from certain provisions of the Indenture and the Securities (including the
financial covenants, but excluding its obligation to pay the principal of and
interest on the Securities).
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and
the Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding except a
default in payment of the principal of or interest on any Securities. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Securities to, among other things, cure any ambiguity,
defect or inconsistency, comply with Article Six or Section 11.6 of the
Indenture, so long as such change does not adversely affect the rights of any of
the Holders in any material respect.
14. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments in respect of its Capital Stock and merge
or consolidate with any other person and sell, lease, transfer or otherwise
dispose of substantially all of its properties or assets. The limitations are
subject to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.
15. Subordination.
The Securities will be subordinated in right of payment to the
prior payment in full of all Senior Debt of the Company. The Guarantees are
subordinated in right of payment, in the manner and to the extent set forth in
the Indenture, to the prior payment in full of Guarantor Senior Debt. To the
extent and in the manner provided in the Indenture, Senior Debt, and in the case
of payment by a Guarantor, Guarantor Senior Debt, must be paid before any
payment may be made to any Holder of this Security. Any Holder by accepting this
Security agrees to the subordination and authorizes the Trustee to give it
effect.
16. Successors.
When a successor assumes all the obligations of its predecessor
under the Securities and the Indenture, the predecessor will be released from
those obligations.
17. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the Securities then
outstanding may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Securities notice of any continuing Default
or Event of Default (except a Default in payment of principal or interest) if it
determines that withholding notice is in their interest.
18. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
19. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of the Company shall have any liability for any obligation of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of, such obligations or their creation. Each Holder of a Security
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
20. Authentication.
This Security shall not be valid until the Trustee or
authenticating agent manually signs the certificate of authentication on this
Security.
21. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company will cause CUSIP numbers
to be printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
Metals USA, Inc., Three Riverway, Suite 600, Houston, Texas 77056, Attention:
Secretary.
<PAGE>
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
GUARANTEE
For value received, the undersigned hereby unconditionally
guarantees, as principal obligor and not only as a surety, to the Holder of this
Security the cash payments in United States dollars of principal of, premium, if
any, and interest on this Security (and including Additional Interest payable
thereon) in the amounts and at the times when due and interest on the overdue
principal, premium, if any, and interest, if any, of this Security, if lawful,
and the payment or performance of all other obligations of the Company under the
Indenture or the Securities, to the Holder of this Security and the Trustee, all
in accordance with and subject to the terms and limitations of this Security,
Article Twelve of the Indenture and this Guarantee. This Guarantee will become
effective in accordance with Article Twelve of the Indenture and its terms shall
be evidenced therein. The validity and enforceability of any Guarantee shall not
be affected by the fact that it is not affixed to any particular Security.
Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Indenture dated as of February 11, 1998, among
Metals USA, Inc., a Delaware corporation, the Guarantors named therein and U.S.
Trust Company of California, N.A., as trustee (the "Trustee"), as amended or
supplemented (the "Indenture").
The obligations of the undersigned to the Holder of this Security
and to the Trustee pursuant to this Guarantee and the Indenture are expressly
set forth in Article Twelve of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. Each Guarantor hereby agrees to submit to the jurisdiction of
the courts of the State of New York in any action or proceeding arising out of
or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth in
the Indenture.
(Signature Page Follows)
<PAGE>
GUARANTORS:
AFFILIATED METALS COMPANY, CORNERSTONE
ALUMINUM COMPANY, INC., CORNERSTONE BUILDING
PRODUCTS, INC., CORNERSTONE METALS
CORPORATION, CORNERSTONE PATIO CONCEPTS,
L.L.C., FEDERAL BRONZE ALLOYS INC.,
INDEPENDENT METALS CO., INC., INTERSTATE
STEEL PROCESSING COMPANY, INTERSTATE STEEL
SUPPLY COMPANY, INTERSTATE STEEL SUPPLY
COMPANY OF PITTSBURGH, INTERSTATE STEEL
SUPPLY COMPANY OF MARYLAND, HARVEY TITANIUM,
LTD., JEFFREYS STEEL COMPANY, INC., MEIER
METAL SERVICENTERS, INC., METALS USA FINANCE
CORP., METALS USA MANAGEMENT CO., L.P.,
METALS USA SERVICE CORPORATION, MUSA GP,
INC., MUSA LP, INC., QUEENSBORO STEEL
CORPORATION, R. J. FABRICATING INC., ROYAL
ALUMINUM, INC., SOUTHERN ALLOY OF AMERICA,
INC., STEEL SERVICE SYSTEMS, INC., TEXAS
ALUMINUM INDUSTRIES, INC., UNI-STEEL, INC.,
WAYNE STEEL, INC. and WILLIAMS STEEL &
SUPPLY CO., INC., as guarantors
By: /s/J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: Vice President and Director
(for each of the above-listed guarantors)
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Print or type assignee's name, address and zip code)
______________________________________________________________________________
(Print or type assignee's Social Security or other identifying number)
and irrevocably appoint ________________________________________________________
as agent to transfer this Security on the books of the Company. The agent
may substitute another to act for him or her.
Dated:____________________ Signature:_______________________________
(Sign exactly as your name appears on
the face of this Security)
Signature
Guarantee:______________________________
Note: Signature must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
In connection with any transfer of this Security occurring prior
to the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Security
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) the second anniversary of the Issue Date (PROVIDED,
HOWEVER, that neither the Company nor any affiliate of the Company has held any
beneficial interest in such Security, or portion thereof, at any time on or
prior to the second anniversary of the Issue Date), the undersigned confirms
that it has not utilized any general solicitation or general advertising in
connection with the transfer:
<PAGE>
[Check One]
(1) ____ to the Company or a Subsidiary thereof; or
(2) ____ pursuant to and in compliance with Rule 144A under the Securities
Act of 1933, as amended; or
(3) ____ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended) that has furnished to the Trustee a signed letter
containing certain representations and agreements (the form of
which letter can be obtained from the Trustee); or
(4) ____ outside the United states to a "foreign person" in compliance
with Rule 904 of Regulation S under the Securities Act of 1933,
as amended; or
(5) ____ pursuant to the exemption from registration provided by Rule 144
under the Securities Act of 1933, as amended; or
(6) ____ pursuant to an effective registration statement under the
Securities Act of 1933, as amended; or
(7) ____ pursuant to another available exemption from the
registration requirements of the Securities Act of 1933, as
amended.
and unless the box below is checked, the undersigned confirms that such Security
is not being transferred to an "affiliate"' of the Company as defined in Rule
144 under the Securities Act of 1933, as amended (an "Affiliate"):
[ ] The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; PROVIDED, HOWEVER, that if item (3), (4),
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Securities, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company have
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
If none of the foregoing items are checked, the Trustee or
Registrar shall not be obligated to register this Security in the name of any
person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 2.17 of the Indenture
shall have been satisfied.
Dated: ____________________ Signed: ________________________________
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee:________________________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, as amended and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has requested pursuant to
Rule 144A or has determined not to request such information and that it is aware
that the transferor is relying upon the undersigned's foregoing representations
in order to claim the exemption from registration provided by Rule 144A.
Dated:___________________ Signed:____________________________
NOTICE: To be executed by an executive officer
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 5.15 or 5.16 of the Indenture, check the box below:
[ ] Section 5.15 [ ] Section 5.16
If you want to elect to have only part of the Security purchased
by the Company pursuant to Section 5.15 or Section 5.16 of the Indenture, as the
case may be, state the amount you elect to have purchased: $_________________.
Date:_______________________
___________________________________
(Sign exactly as your name appears
on the face of this Security)
Tax Identification No:_____________
___________________________________
(Signature Guaranteed)
Note: Signature must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT B
[FORM OF LEGEND FOR GLOBAL SECURITIES]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR
BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO
A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.17 OF THE INDENTURE.
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
TRANSFERS TO NON-QIB ACCREDITED INVESTORS
------------- --, ----
[Address]
Re: METALS USA, INC. (the "Company") -
8 5/8% SENIOR SUBORDINATED NOTES DUE 2008 (THE "NOTES")
Ladies and Gentlemen:
In connection with our proposed purchase of 8 5/8% Senior
Subordinated Notes due 2008 (the "Notes") of METALS USA, INC. (the "Company"),
we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the indenture
relating to the Notes (the "Indenture") and the undersigned agrees to be bound
by, and not to resell, pledge or otherwise transfer the Notes except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act"), and all applicable State securities
laws.
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act or any other applicable securities law,
and that the Notes may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell any Notes, we will do
so only (i) to the Company or any subsidiary thereof, (ii) inside the United
States in accordance with Rule 144A under the Securities Act to a person who we
reasonably believe is a "qualified institutional buyer" (as defined in Rule 144A
promulgated under the Securities Act), (iii) inside the United States to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Trustee (as defined in the Indenture) a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Notes (the form of which letter can be obtained from the Trustee), (iv) outside
the United States in accordance with Rule 904 of Regulation S promulgated under
the Securities Act, (v) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available), or (vi) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing any of the Notes from us a notice advising
such purchaser that resales of the Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to the Trustee and the Company such certification,
legal opinions and other information as the Trustee and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will bear a
legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or their investment, as the case may be.
5. We are acquiring the Notes purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
6. We have received a copy of the Company's Offering Memorandum
dated February 6, 1998 and acknowledge that we have had access to such financial
and other information and have been afforded the opportunity to ask such
questions of representatives of the Company and receive answers thereto, as we
deem necessary in connection with our decision to purchase the Notes.
You, the Company, the Trustee, the Initial Purchasers and others
are entitled to rely upon this letter and are irrevocably authorized to produce
this letter or a copy hereof to any interested party in any administrative or
legal proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
______________________________________
[Name of Transferee]
By:____________________________________
Name:___________________________________
Title:___________________________________
<PAGE>
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
-------------- ---, -----
[Address]
Re: METALS USA, INC. (the "Company") -
8 5/8% SENIOR SUBORDINATED NOTES DUE 2008 (THE "NOTES")
Ladies and Gentlemen:
In connection with our proposed sale of $[_________] aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States, or
(b) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither we nor any person acting on
our behalf knows that the transaction has been prearranged with a buyer in the
United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
You, the Company, the Trustee and counsel for the Company are
entitled to rely upon this letter and are irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceedings or official inquiry with respect to the matters covered hereby.
Terms used in this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferee]
By:___________________________________
Authorized Signature
EXHIBIT 4.3
METALS USA, INC.
$200,000,000
8 5/8% SENIOR SUBORDINATED NOTES DUE 2008
PURCHASE AGREEMENT
February 6, 1998
BT ALEX. BROWN INCORPORATED
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
c/o BT Alex. Brown Incorporated
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Metals USA, Inc. (the "COMPANY"), a Delaware corporation, and the
Guarantors (as defined) hereby confirm their agreement with you (collectively,
the "INITIAL Purchasers"), as set forth below.
1. THE SECURITIES. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Initial Purchasers
$200,000,000 aggregate principal amount of the Company's 8 5/8% Senior
Subordinated Notes due 2008 (the "NOTES"). The Notes will be guaranteed
(collectively, the "GUARANTEES") on a senior subordinated basis by each of the
Company's Subsidiaries listed on the signature pages hereof (collectively, and
together with any subsidiary that in the future executes a supplemental
indenture pursuant to which such subsidiary agrees to guarantee the Notes, the
"GUARANTORS"). The Notes and the Guarantees are collectively referred to herein
as the "SECURITIES." The Securities are to be issued under an indenture (the
"INDENTURE") dated as of February 11, 1998 by and among the Company, the
Guarantors and U.S. Trust Company of California, N.A., as trustee (the
"TRUSTEE").
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum dated January 22, 1998 (the
"PRELIMINARY MEMORANDUM") and a final offering memorandum dated February 6, 1998
(the "FINAL MEMORANDUM," the Preliminary Memorandum and the Final Memorandum
each herein being referred to as a "MEMORANDUM") setting forth or including a
description of the terms of the Securities, the terms of the offering of the
Securities, a description of the Company and any material developments relating
to the Company occurring after the date of the most recent historical financial
statements included therein.
The Company understands that the Initial Purchasers propose to
make an offering of the Notes only on the terms and in the manner set forth in
the Final Memorandum and Section 8 hereof as soon as the Initial Purchasers deem
advisable after this Agreement has been executed and delivered to persons in the
United States whom the Initial Purchasers reasonably believe to be qualified
institutional buyers ("QUALIFIED INSTITUTIONAL BUYERS" or "QIBS") as defined in
Rule 144A under the Act (as defined), as such rule may be amended from time to
time ("RULE 144A") and outside the United States to certain persons in reliance
on Regulation S under the Securities Act of 1933, as amended (the "ACT").
The Initial Purchasers and their direct and indirect transferees
of the Securities will be entitled to the benefits of a Registration Rights
Agreement (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company
and the Guarantors have agreed, among other things, to file a registration
statement (the "REGISTRATION STATEMENT") with the Securities and Exchange
Commission (the "COMMISSION") registering the Exchange Notes (as defined in the
Registration Rights Agreement) under the Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company and
each of the Guarantors, subject to the limit on maximum liability contained in
the Guarantees, jointly and severally, represent and warrant to and agree with
the Initial Purchasers that:
(a) Neither the Final Memorandum nor any amendment or supplement
thereto as of the date thereof and at all times subsequent thereto up to
the Closing Date (as defined in Section 3 below) contained or contains
any untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this Section 2(a)
do not apply to statements or omissions made in reliance upon and in
conformity with information relating to the Initial Purchasers furnished
to the Company in writing by the Initial Purchasers expressly for use in
the Preliminary Memorandum, the Final Memorandum or any amendment or
supplement thereto.
(b) As of the Closing Date, the Company will have the authorized,
issued and outstanding capitalization set forth under the heading
"Capitalization" in the Final Memorandum; all of the outstanding shares
of capital stock of the Company and each of Affiliated Metals Company,
Cornerstone Aluminum Company, Inc., Cornerstone Building Products, Inc.,
Cornerstone Metals Corporation, Cornerstone Patio Concepts, L.L.C.,
Federal Bronze Alloys Inc., Harvey Titanium, Ltd., Independent Metals
Co., Inc., Interstate Steel Supply Company, Interstate Steel Supply
Company of Maryland, Interstate Steel Supply Company of Pittsburgh,
Interstate Steel Processing Company, Jeffreys Steel Company, Inc., Meier
Metal Servicenters, Inc., Metals USA Finance Corp., Metals USA Service
Corporation, MUSA GP, Inc., MUSA LP, Inc., Queensboro Steel Corporation,
R.J. Fabricating Inc., Royal Aluminum, Inc., Southern Alloy of America,
Inc., Steel Service Systems, Inc., Texas Aluminum Industries, Inc.,
Uni-Steel, Inc., Wayne Steel, Inc. and Williams Steel & Supply Co., Inc.
(collectively the "SUBSIDIARIES") have been, and as of the Closing Date
will be, duly authorized and validly issued, are fully paid and
nonassessable and were not issued in violation of any preemptive or
similar rights; all of the outstanding shares of capital stock of the
Subsidiaries will be free and clear of all liens, encumbrances, equities
and claims or restrictions on transferability (other than those created
pursuant to the Credit Agreement (as defined) and those imposed by the
Act and the securities or "Blue Sky" laws of certain jurisdictions) or
voting; except as set forth in the Final Memorandum, there are no (i)
options, warrants or other rights to purchase; (ii) agreements or other
obligations to issue or (iii) other rights to convert any obligation
into, or exchange any securities for, shares of capital stock of or
ownership interests in the Company or any of the Subsidiaries
outstanding. Except for the Company's direct and indirect interests in
the Subsidiaries and in other wholly owned subsidiaries, the Company
does not own, directly or indirectly, any shares of capital stock or any
other equity or long-term debt securities or have any equity interest in
any firm, partnership, joint venture or other entity other than as
described in the Final Memorandum, except securities of publicly traded
companies which in the aggregate are not material.
(c) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Final
Memorandum. Each of the Subsidiaries has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and authority to
own or lease its properties and conduct its business as described in the
Final Memorandum. As of the date hereof, the Company has no significant
subsidiaries within the meaning of Regulation S-X promulgated under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), other
than the Subsidiaries. The Company and each of the Subsidiaries are duly
qualified to transact business in all jurisdictions in which the conduct
of their respective businesses requires such qualification, except where
the failure to be so qualified would not have a material adverse effect
on the business and operations of the Company and the Subsidiaries taken
as a whole (any such event, a "MATERIAL ADVERSE EFFECT").
(d) Each of the Company and the Guarantors has all requisite
corporate power and authority to execute, deliver and perform each of
its obligations under the Notes, the Exchange Notes, the Private
Exchange Notes (each as defined in the Registration Rights Agreement and
the Indenture) and the Guarantees. The Notes, when issued, will be in
the form contemplated by the Indenture. The Notes, the Exchange Notes
and the Private Exchange Notes have each been duly and validly
authorized by the Company and, when executed by the Company and
authenticated by the Trustee in accordance with the provisions of the
Indenture and, in the case of the Notes, when delivered to and paid for
by the Initial Purchasers in accordance with the terms of this
Agreement, will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company
(assuming the due authorization, execution and delivery of the Indenture
by the Trustee and the due authorization and delivery of the Notes by
the Trustee in accordance with the Indenture), entitled to the benefits
of the Indenture, and enforceable against the Company in accordance with
its terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and (ii) general principles of equity and
the discretion of the court before which any proceeding therefor may be
brought (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(e) The Guarantees have been duly and validly authorized by each
Guarantor, and when executed and delivered by such Guarantor, will
constitute the valid and legally binding obligations of such Guarantor,
entitled to the benefits of the Indenture, enforceable against each of
them in accordance with its terms, except that the enforcement thereof
may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of
equity and the discretion of the court before which any proceeding
therefor may be brought (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(f) Each of the Company and the Guarantors has all requisite
corporate power and authority to execute, deliver and perform its
obligations under the Indenture. The Indenture meets the requirements
for qualification under the Trust Indenture Act of 1939, as amended (the
"TIA"). The Indenture has been duly and validly authorized by each of
the Company and the Guarantors and, when executed and delivered in
accordance with its terms (assuming the due authorization, execution and
delivery by the Trustee), will have been duly executed and delivered and
will constitute a valid and legally binding agreement of each of the
Company and the Guarantors, enforceable against each of them in
accordance with its terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of
equity and the discretion of the court before which any proceeding
therefor may be brought (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(g) Each of the Company and the Guarantors has all requisite
corporate power and authority to execute, deliver and perform its
obligations under the Registration Rights Agreement. The Registration
Rights Agreement has been duly and validly authorized by each of the
Company and the Guarantors and, when executed and delivered by the
Company and each of the Guarantors (assuming due authorization,
execution and delivery by the other parties thereto), will have been
duly executed and delivered and will constitute a valid and legally
binding agreement of each of the Company and the Guarantors, enforceable
against each of them in accordance with its terms, except that (A) the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and
(ii) general principles of equity and the discretion of the court before
which any proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding in equity or at law) and (B)
any rights to indemnity or contribution thereunder may be limited by
federal and state securities laws and public policy considerations.
(h) Each of the Company and the Guarantors has all requisite
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated under this Agreement. This Agreement and the consummation
by the Company and the Guarantors of the transactions contemplated under
this Agreement have been duly and validly authorized by each of the
Company and the Guarantors. This Agreement has been duly executed and
delivered by each of the Company and the Guarantors.
(i) No consent, approval, authorization or order of any court or
governmental agency or body, or third party is required for the
performance of this Agreement by the Company and the Guarantors or the
consummation by them of the other transactions contemplated hereby,
except such (i) as have been obtained or made, (ii) as would not have a
Material Adverse Effect, (iii) as would not materially adversely affect
the validity of this Agreement, the Notes, the Indenture or the
Registration Rights Agreement, and (iv) such as may be required under
state securities or "Blue Sky" laws in connection with the purchase and
resale of the Securities by the Initial Purchasers and except with
respect to the registration of the Exchange Notes and Private Exchange
Notes, if applicable, pursuant to the Registration Rights Agreement and
the qualification of the Indenture under the TIA. Neither the Company
nor any of the Subsidiaries is, or with the giving of notice or lapse of
time or both, will be, in violation of or in default under its
certificate of incorporation (or similar organizational document) or
bylaws or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a party or by which it, or any
of its properties, is bound and which default would have a Material
Adverse Effect.
(j) The execution, delivery and performance by the Company and
the Guarantors of this Agreement, the Indenture, the Notes, the
Guarantees, the Exchange Notes, the Private Exchange Notes, the
Registration Rights Agreement, the consummation of the transactions
herein contemplated and the fulfillment of the terms hereof will not
conflict with or result in a material breach of any of the terms or
provisions of, or constitute a material default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any of the Subsidiaries is a party, or of the certificate of
incorporation (or similar organizational document) or bylaws of the
Company or any of the Subsidiaries or any order, rule or regulation
applicable to the Company or any of the Subsidiaries of any court or,
assuming compliance with all applicable state securities or blue sky
laws, of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(k) Each of the Indenture, the Notes, the Exchange Notes, the
Guarantees and the Registration Rights Agreement conforms in all
material respects to the description thereof in the Final Memorandum.
(l) All of the financial statements of the Company and the
separate financial statements of the Subsidiaries, in each case together
with related notes and schedules, as set forth in the Final Memorandum,
present fairly in all material respects the financial position and the
results of operations and cash flows of the Company and of each of the
Subsidiaries, respectively, at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been
prepared in accordance with generally accepted principles of accounting,
consistently applied throughout the periods involved, except as
disclosed therein, and all adjustments necessary for a fair presentation
of results for such periods have been made. The summary historical and
pro forma financial and statistical data included in the Final
Memorandum present fairly the information shown therein and such data
have been compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company and the
Subsidiaries, as applicable.
(m) Arthur Andersen LLP, Ernst & Young LLP, Rubin, Brown,
Gornstein & Co. LLP, McGladrey & Pullen, LLP, Klein, Bogakos, and
Robertson, CPA's, Inc. and Meaden & Moore, Ltd., who have certified
certain of the financial statements as part of the Final Memorandum, are
independent public accountants as required by the Act and the rules and
regulations promulgated thereunder.
(n) (i) The pro forma financial statements (including the notes
thereto) included in the Final Memorandum (A) comply as to form in all
material respects with the applicable requirements of Regulation S-X
promulgated under Exchange Act and (B) have been properly computed on
the bases described therein, and (ii) the assumptions used in the
preparation of the pro forma financial statements included in the Final
Memorandum are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred
to therein.
(o) Except as set forth in the Final Memorandum, there is not
pending or, to the best knowledge of the Company, threatened any action,
suit, proceeding, inquiry or investigation to which the Company or any
of the Guarantors is a party, or to which any of its properties or
assets are subject, before or brought by any court, arbitrator or
governmental agency or body, which, if determined adversely to the
Company or any such Subsidiary, would, individually or in the aggregate,
have a Material Adverse Effect, or which seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale
of the Securities to be sold hereunder or the consummation of the other
transactions described in the Final Memorandum.
(p) The Company and each of the Subsidiaries hold all material
licenses, certificates and permits from governmental authorities which
are necessary to the conduct of their businesses; and neither the
Company nor any of the Subsidiaries has infringed any patents, patent
rights, trade names, trademarks or copyrights, which infringement is
material to the business of the Company or such Subsidiary. The Company
knows of no material infringement by others of patents, patent rights,
trade names, trademarks or copyrights owned by or licensed to the
Company or any of the Subsidiaries.
(q) Since the respective dates as of which information is given
in the Final Memorandum, as it may be amended or supplemented, there has
not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise), or prospects of the Company and the
Subsidiaries, taken as a whole, whether or not occurring in the ordinary
course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being
entered into by the Company or the Subsidiaries, other than transactions
in the ordinary course of business and changes and transactions
described in the Final Memorandum, as it may be amended or supplemented.
Neither the Company nor any of the Subsidiaries has (i) any material
contingent obligations which are not disclosed in the Company's or such
Subsidiary's financial statements, as applicable, included in the Final
Memorandum, or (ii) declared or paid any dividend or made any
distribution on any shares of its capital stock or redeemed, purchased
or otherwise acquired or agreed to redeem, purchase or otherwise acquire
any shares of its capital stock, except for the put options to the
Company pursuant to the Employee Stock Ownership Plan of Jeffreys Steel
Company, Inc. dated August 1, 1972, as amended.
(r) Each of the Company and the Subsidiaries has filed all
federal, state, local and foreign income tax returns which have been
required to be filed and have paid all taxes indicated by said returns
and all assessments received by it or any of them to the extent that
such taxes have become due and are not being contested in good faith.
All tax liabilities have been adequately provided for in the financial
statements of the Company and the Subsidiaries, as applicable.
(s) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which the Company
believes to be reliable and accurate.
(t) Neither the Company nor any of the Subsidiaries nor any agent
acting on its behalf has taken or will take any action that might cause
this Agreement or the sale of the Securities to violate Regulation G, T,
U or X of the Board of Governors of the Federal Reserve System, in each
case as in effect, or as the same may hereafter be in effect, on the
Closing Date.
(u) Each of the Company and the Subsidiaries has good title to
all personal property described in the Final Memorandum as being owned
by it, good and valid title to all real property described in the Final
Memorandum as being owned by it and good and valid title to the
leasehold estates in the real and personal property described in the
Final Memorandum as being leased by it free and clear of all liens,
charges, encumbrances or restrictions, except as described in the Final
Memorandum or to the extent the failure to have such title or the
existence of such liens, charges, encumbrances or restrictions would
not, individually or in the aggregate, have a Material Adverse Effect.
All leases, contracts and agreements to which the Company or any
Subsidiary is a party or by which the Company or such Subsidiary is
bound (i) are valid and enforceable against the Company or such
Subsidiary, (ii) to the knowledge of the Company, are valid and
enforceable against the other party or parties thereto and (iii) are in
full force and effect with only such exceptions as would not,
individually or in the aggregate, have a Material Adverse Effect.
(v) There are no legal or governmental proceedings involving or
affecting the Company, any of the Subsidiaries or any of their
respective properties or assets which would be required to be described
in a prospectus pursuant to the Act that are not described in the Final
Memorandum, nor are there any material contracts or other documents
which would be required to be described in a prospectus pursuant to the
Act that are not described in the Final Memorandum.
(w) Except as described in the Final Memorandum or as would not,
individually or in the aggregate, have a Material Adverse Effect, (A)
each of the Company and the Subsidiaries is in compliance with and not
subject to liability under applicable Environmental Laws, (B) each of
the Company and the Subsidiaries has and is in compliance with all
declarations and filings with, all federal, state, local and other
governmental authorities, all self-regulatory organizations and all
courts and other tribunals presently required or necessary to own or
lease, as the case may be, and to operate its properties and to carry on
its business as set forth in the Final Memorandum and required under any
applicable Environmental Laws and each of them is in full force and
effect, (C) there is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending or, to the
knowledge of the Company, threatened against the Company or any
Subsidiary under any Environmental Law, (D) no lien, charge, encumbrance
or restriction has been recorded under any Environmental Law with
respect to any assets, facility or property owned, operated, leased or
controlled by the Company or any Subsidiary, (E) neither the Company nor
any Subsidiary has received notice that it has been identified as a
potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"),
or any comparable state law and (F) no property or facility of the
Company or any Subsidiary is (i) listed or proposed for listing on the
National Priorities List under CERCLA or (ii) listed in the
Comprehensive Environmental Response, Compensation, Liability
Information System List promulgated pursuant to CERCLA, or on any
comparable list maintained by any state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state and local laws or
regulations, codes, orders, decrees, judgments or injunctions issued,
promulgated, approved or entered thereunder, relating to pollution or
protection of public or employee health and safety or the environment,
including, without limitation, laws relating to (i) emissions,
discharges, releases or threatened releases of hazardous materials, into
the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), (ii) the
manufacture, processing, distribution, use, generation, treatment,
storage, disposal, transport or handling of hazardous materials, and
(iii) underground and aboveground storage tanks, and related piping, and
emissions, discharges, releases or threatened releases therefrom.
(x) There is no strike, labor dispute, slowdown or work stoppage
with the employees of the Company or the Subsidiaries which is pending
or, to the knowledge of the Company, threatened, which would have a
Material Adverse Effect.
(y) The Company and each of the Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value of
their respective properties and as is customary for companies engaged in
similar industries.
(z) The Company and each of the Subsidiaries are in compliance in
all material respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which the Company or any of
the Subsidiaries would have any liability; neither the Company nor any
of the Subsidiaries has incurred nor expects to incur liability under
(i) Title IV of ERISA with respect to termination of, or withdrawal
from, any "pension plan," or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "CODE"); and each "pension
plan" for which the Company or any of the Subsidiaries would have any
liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification
(aa) The Company and each of the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(bb) Neither the Company nor any Subsidiary will be an
"investment company" or "promoter" or "principal underwriter" for an
"investment company," as such terms are defined in the Investment
Company Act of 1940, as amended, and the rules and regulations
thereunder.
(cc) Except as set forth in the Registration Rights Agreement, no
holder of securities of the Company (other than the Registrable Notes
(as defined in the Registration Rights Agreement)) will be entitled to
have such securities registered under the registration statements
required to be filed by the Company pursuant to the Registration Rights
Agreement other than as expressly permitted thereby.
(dd) Immediately after the consummation of the transactions
contemplated by this Agreement, the fair value and present fair saleable
value of the assets of the Company and the Subsidiaries, on a
consolidated basis, will exceed the sum of its consolidated stated
liabilities and identified contingent liabilities (after giving effect,
in the case of each of the Guarantors, to the limitations contained in
each Guarantee); neither the Company nor any of the Subsidiaries is, or
will be after giving effect to the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
hereby, (a) left with unreasonably small capital with which to carry on
its business as it is proposed to be conducted, (b) unable to pay its
debts (contingent or otherwise) as they mature or (c) otherwise
insolvent.
(ee) Neither the Company nor any of the Subsidiaries nor any of
its respective Affiliates (as defined in Rule 501(b) of Regulation D
under the Act) has directly, or through any agent (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of any
"security" (as defined in the Act) which is or could be integrated with
the sale of the Securities in a manner that would require the
registration under the Act of the Securities or (ii) engaged in any form
of general solicitation or general advertising (as those terms are used
in Regulation D under the Act) in connection with the offering of the
Securities or in any manner involving a public offering within the
meaning of Section 4(2) of the Act.
(ff) Assuming the accuracy of the representations and
warranties of the Initial Purchasers in Section 8 hereof, it is not
necessary in connection with the offer, sale and delivery of the
Securities to the Initial Purchasers in the manner contemplated by this
Agreement to register any of the Securities under the Act or to qualify
the Indenture under the TIA.
(gg) No securities of the Company are of the same class
(within the meaning of Rule 144A under the Act) as the Securities and
listed on a national securities exchange registered under Section 6 of
the Exchange Act, or quoted in a U.S. automated inter-dealer quotation
system.
(hh) Neither the Company nor any Subsidiary has taken, nor will
take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation
of the price of the Securities.
(ii) Neither the Company nor any of the Subsidiaries, nor any of
their respective Affiliates (as defined in Rule 501(b) of Regulation D
under the Act) or any person acting on any of its behalf (other than the
Initial Purchasers as to which the Company and the Subsidiaries make no
representation) has engaged in any directed selling efforts (as that
term is defined in Regulation S under the Act ("REGULATION S")) with
respect to the Securities; the Company and its respective Affiliates and
any person acting on any of its behalf (other than the Initial
Purchasers as to which the Company and the Subsidiaries make no
representation) have complied with the offering restrictions requirement
of Regulation S.
(jj) Toby L. Jeffreys, Thomas J. Shapiro, Barry C. Quinnies and
Barry Harvey are the only officers or directors of the Subsidiaries that
own more than 1% of the Common Stock of the Company.
Any certificate signed by any officer of the Company or any
Subsidiary and delivered to any Initial Purchasers or to counsel for the Initial
Purchasers shall be deemed a joint and several representation and warranty by
the Company and each of the Subsidiaries to each of the Initial Purchasers as to
the matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company and the
Guarantors agree to issue and sell to the Initial Purchasers, and the Initial
Purchasers agree to purchase the Securities, at 97.25% of their principal
amount.
One or more certificates in global form for the Securities that
the Initial Purchasers have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Initial Purchasers request upon notice to the Company at least 48 hours prior to
the Closing Date, shall be delivered by or on behalf of the Company to the
Initial Purchasers, against payment by or on behalf of the Initial Purchasers at
the purchase price therefor by wire transfer of immediately available funds
payable to such account or account as the Company shall specify prior to the
Closing Date, or by such means as the parties hereto shall agree prior to the
Closing Date. Such delivery of and payment for the Securities shall be made at
the offices of Bracewell & Patterson, LLP, Houston, Texas, at 10:00 A.M., New
York time, on February 11, 1998, or at such other place, time or date as the
Initial Purchasers and the Company may agree upon, such time and date of
delivery against payment being herein referred to as the "CLOSING DATE." The
Company will make such certificate or certificates for the Securities available
for checking and packaging by the Initial Purchasers at the offices of BT Alex.
Brown Incorporated in New York, New York or such other place as the Initial
Purchasers may designate, at least 24 hours prior to the Closing Date.
4. OFFERING BY THE INITIAL PURCHASERS. The Initial Purchasers
propose to make an offering of the Securities at the price and upon the terms
set forth in the Final Memorandum as soon as practicable after this Agreement is
entered into and as in the sole judgment of the Initial Purchasers is advisable.
5. COVENANTS OF THE COMPANY. The Company and the Guarantors
covenant and agree with the Initial Purchasers that:
(a) The Company will not amend or supplement the Final Memorandum
or any amendment or supplement thereto of which the Initial Purchasers
and counsel to the Initial Purchasers shall not previously have been
advised and furnished a copy for a reasonable period of time prior to
the proposed amendment or supplement and as to which the Initial
Purchasers shall not have given their consent, which consent shall not
be unreasonably withheld. The Company will promptly, upon the reasonable
request of the Initial Purchasers or counsel for the Initial Purchasers,
make any amendments or supplements to the Preliminary Memorandum or the
Final Memorandum that may be necessary or advisable in connection with
the resale of the Securities by the Initial Purchasers.
(b) The Company and the Guarantors will cooperate with the
Initial Purchasers in arranging for the qualification of the Securities
for offering and sale under the securities or "Blue Sky" laws of such
jurisdictions as the Initial Purchasers may designate and will continue
such qualification in effect for as long as may be necessary to complete
the resale of the Securities by the Initial Purchasers; PROVIDED,
HOWEVER, that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction or subject the Company to any tax
in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the distribution
by the Initial Purchasers of the Notes or the Private Exchange Notes,
any event occurs or information becomes known as a result of which the
Final Memorandum as then amended or supplemented would include an untrue
statement of a material fact, or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Final Memorandum in
order to comply with applicable law, the Company will promptly notify
the Initial Purchasers thereof and will prepare, at the Company's
expense, an amendment to the Final Memorandum that corrects such
statement or omission or effects such compliance.
(d) The Company will, without charge, provide to the Initial
Purchasers and to counsel for the Initial Purchasers as many copies of
the Preliminary Memorandum and the Final Memorandum or any amendment or
supplement thereto as the Initial Purchasers may reasonably request.
(e) The Company will apply the net proceeds from the sale of the
Securities substantially as set forth under "Use of Proceeds" in the
Final Memorandum.
(f) For so long as any Securities remain outstanding, the Company
will furnish to the Initial Purchasers copies of all reports and other
communications (financial or otherwise) furnished by the Company to the
Trustee or the holders of the Securities and, as soon as available,
copies of any reports or financial statements furnished to or filed by
the Company with the Commission or any national securities exchange on
which any class of securities of the Company may be listed.
(g) Prior to the Closing Date, the Company will furnish to the
Initial Purchasers, as soon as they have been prepared by or are
available to the Company, a copy of any unaudited interim consolidated
financial statements of the Company for any period subsequent to the
period covered by its most recent financial statements appearing in the
Final Memorandum.
(h) None of the Company, the Guarantors nor any of its respective
affiliates will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any "security" (as defined in the Act)
that could be integrated with the sale of the Securities in a manner
that would require the registration under the Act of the Securities.
(i) Neither the Company nor any Guarantor will, nor will the
Company permit any of the Subsidiaries to, engage in any form of general
solicitation or general advertising (as those terms are used in
Regulation D under the Act) in connection with the offering of the
Securities or in any manner involving a public offering within the
meaning of Section 4(2) of the Act.
(j) For so long as any of the Securities remain outstanding, the
Company will make available, upon request, to any holder of such
Securities and any prospective purchaser thereof the information
specified in Rule 144A(d)(4) under the Act, unless the Company is then
subject to Section 13 or 15(d) of the Exchange Act.
(k) Each of the Company and the Guarantors will use its best
efforts to (i) permit the Securities to be designated PORTAL securities
in accordance with the rules and regulations adopted by the National
Association of Securities Dealers, Inc. (the "NASD") relating to trading
in the Private Offerings, Resales and Trading through Automated Linkages
market (the "PORTAL MARKET") and (ii) permit the Securities to be
eligible for clearance and settlement through The Depository Trust
Company.
(l) In connection with any Notes offered and sold in an offshore
transaction (as defined in Regulation S), the Company will not register
any transfer of such Notes not made in accordance with the provisions of
Regulation S and will not, except in accordance with the provisions of
Regulation S, if applicable, issue any such Notes in the form of
definitive securities.
6. EXPENSES. The Company agrees to pay all costs and expenses
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 10 hereof, including all costs and expenses
incident to: (i) the printing, word processing or other production of documents
with respect to such transactions, including any costs of printing the
Preliminary Memorandum and the Final Memorandum and any amendments or
supplements thereto, and any "Blue Sky" memoranda, (ii) all arrangements
relating to the delivery to the Initial Purchasers of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by the Company, (iv) the preparation
(including printing), issuance and delivery to the Initial Purchasers of any
certificates evidencing the Securities, (v) the qualification of the Securities
under state securities and "Blue Sky" laws, including filing fees and reasonable
fees and disbursements of counsel for the Initial Purchasers relating thereto,
(vi) the expenses of the Company in connection with any meetings with
prospective investors in the Securities, (vii) the fees and expenses of the
Trustee, including fees and expenses of its counsel, (viii) all expenses and
listing fees incurred in connection with the application for quotation of the
Securities on the PORTAL Market and (ix) any fees charged by investment rating
agencies for the rating of the Securities. If the issuance and sale of the
Securities provided for herein is not consummated because any condition to the
obligation of the Initial Purchasers set forth in Section 7 hereof is not
satisfied, because this Agreement is terminated pursuant to Section 10 hereof or
because of any failure, refusal or inability on the part of the Company or any
Guarantor to perform all obligations and satisfy all conditions on its part to
be performed or satisfied hereunder (other than solely by reason of a default by
the Initial Purchasers of its obligations hereunder after all conditions
hereunder have been satisfied in accordance herewith), the Company will promptly
reimburse the Initial Purchasers upon demand for all reasonable out-of-pocket
expenses (including fees, disbursements and charges of Latham & Watkins, counsel
for the Initial Purchasers) that shall have been reasonably incurred by the
Initial Purchasers in connection with the proposed purchase and sale of the
Securities.
7. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The
obligation of the Initial Purchasers to purchase and pay for the Securities
shall, in their sole discretion, be subject to the satisfaction or waiver of the
following conditions on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchasers shall have
received the opinion, dated as of the Closing Date and addressed to the
Initial Purchasers, of Bracewell & Patterson L.L.P., counsel for the
Company, in form and substance satisfactory to counsel for the Initial
Purchasers, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own or
lease its properties and conduct its business as described in the
Final Memorandum; the Company is duly qualified to transact
business in each of the jurisdictions set forth on a schedule to
such opinion.
(ii) The Company has authorized capital stock as set forth
under the caption "Capitalization" in the Final Memorandum; all
of the outstanding shares of capital stock of the Subsidiaries
are owned, directly or indirectly, by the Company, free and clear
of all liens, encumbrances, equities and claims or restrictions
on transferability (other than those imposed by the Act and the
securities or "Blue Sky" laws of certain jurisdictions) or
voting, except as set forth in the Final Memorandum.
(iii) Except as described in or contemplated by the Final
Memorandum, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or exchangeable
into or evidencing the right to purchase or subscribe for any
shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its
capital stock or any securities convertible or exchangeable into
or evidencing the right to purchase or subscribe for any shares
of such stock. Except as described in the Final Memorandum or in
the Registration Rights Agreement, to the knowledge of such
counsel, no holder of any securities of the Company or any other
person has the right, contractual or otherwise, which has not
been satisfied or effectively waived, to have any securities of
the Company included in a registration statement pursuant to the
Registration Rights Agreement or the right, as a result of the
filing of a registration statement pursuant to the Registration
Rights Agreement, to require registration under the Act of any
securities of the Company.
(iv) Each of the Company and the Guarantors has all
requisite corporate power and authority to execute, deliver and
perform its obligations under the Indenture and, with respect to
the Guarantors, the Guarantees; the Indenture is in sufficient
form for qualification under the TIA; the Indenture has been duly
and validly authorized, executed and delivered by each of the
Company and the Guarantors, and (assuming the due authorization,
execution and delivery thereof by the Trustee) constitutes the
valid and legally binding agreement of the Company and each of
the Guarantors, enforceable against each of them in accordance
with its terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which
any proceeding therefor may be brought (regardless of whether
such enforcement is considered in a proceeding in equity or at
law).
(v) The Notes are in the form contemplated by the
Indenture. The Notes have each been duly and validly authorized,
executed and delivered by the Company and, when paid for by the
Initial Purchasers in accordance with the terms of the Purchase
Agreement (assuming the due authorization, execution and delivery
of the Indenture by the Trustee and due authentication and
delivery of the Notes by the Trustee in accordance with the
Indenture), will constitute the valid and legally binding
obligations of the Company, entitled to the benefits of the
Indenture, and enforceable against the Company in accordance with
its terms, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which
any proceeding therefor may be brought (regardless of whether
such enforcement is considered in a proceeding in equity or at
law).
(vi) The Guarantees are in the form contemplated by the
Indenture. The Guarantees have been duly and validly authorized,
executed and delivered by each Guarantor and (assuming the due
authorization, execution and delivery of the Indenture by the
Trustee and due authentication and delivery of the Notes by the
Trustee in accordance with the Indenture) constitute the valid
and legally binding obligations of each Guarantor, entitled to
the benefits of the Indenture, enforceable against each of them
in accordance with its terms, except that the enforcement thereof
may be subject to (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and
(ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought (regardless
of whether such enforcement is considered in a proceeding in
equity or at law).
(vii) The Exchange Notes, the Private Exchange Notes and
the Guarantees to be endorsed on them have been duly and validly
authorized by the Company and each of the Guarantors, as the case
may be, and when the Exchange Notes and the Private Exchange
Notes have been duly executed and delivered by the Company and
the Guarantees have been duly executed and delivered by the
Guarantors, each in accordance with the terms of the Registration
Rights Agreement and the Indenture (assuming the due
authorization, execution and delivery of the Indenture by the
Trustee and due authentication and delivery of the Exchange Notes
and the Private Exchange Notes by the Trustee in accordance with
the Indenture), will constitute the valid and legally binding
obligations of the Company and the Guarantors, respectively,
entitled to the benefits of the Indenture, and enforceable
against the Company and the Guarantors, respectively, in
accordance with their terms, except that the enforcement thereof
may be subject to (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and
(ii) general principles of equity and the discretion of the court
before which any proceeding therefor may be brought (regardless
of whether such enforcement is considered in a proceeding in
equity or at law).
(viii) Each of the Company and the Guarantors has all
requisite corporate power and authority to execute, deliver and
perform its obligations under the Registration Rights Agreement;
the Registration Rights Agreement has been duly and validly
authorized, executed and delivered by the Company and the
Guarantors, and (assuming due authorization, execution and
delivery thereof by the Initial Purchasers) constitutes the valid
and legally binding agreement of the Company and the Guarantors
enforceable against each of them in accordance with its terms,
except that (A) the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which
any proceeding therefor may be brought (regardless of whether
such enforcement is considered in a proceeding in equity or at
law) and (B) any rights to indemnity or contribution thereunder
may be limited by federal and state securities laws and public
policy considerations.
(ix) Each of the Company and the Guarantors has all
requisite corporate power and authority to execute, deliver and
perform its obligations under the Purchase Agreement and to
consummate the transactions contemplated hereby; the Purchase
Agreement and the consummation by the Company and the Guarantors
of the transactions contemplated under the Purchase Agreement
have been duly and validly authorized by the Company and the
Guarantors. The Purchase Agreement has been duly executed and
delivered by each of the Company and the Guarantors.
(x) The statements under the captions
"Business--Government Regulation and Environmental Matters,"
"Business--Risk Management, Insurance and Litigation,"
"Management--Directors' Compensation," "Management--Executive
Compensation; Employment Agreements; Covenants-Not-to-Compete,"
"Management--1997 Long-Term Incentive Plan," "Management--1997
Non-Employee Directors' Stock Plan," "Certain Transactions,"
"Description of Capital Stock" and "Description of Certain
Indebtedness" in the Final Memorandum, insofar as such statements
constitute a summary of documents referred to therein or matters
of law, are accurate summaries and fairly present in all material
respects the information called for with respect to such
documents and matters.
(xi) To the knowledge of such counsel, no legal or
governmental proceedings are pending or, to the knowledge of such
counsel, threatened to which the Company or any Guarantor is a
party or to which the property or assets of the Company or any
Guarantor is subject which would be required under the Act to be
described in a registration statement or in a prospectus and are
not described in the Final Memorandum, or which seek to restrain,
enjoin, prevent the consummation of or otherwise challenge the
issuance or sale of the Notes to be sold hereunder or the
consummation of the other transactions described in the Final
Memorandum.
(xii) To the knowledge of such counsel, the Company is not
in violation of its certificate of incorporation or bylaws,
except for any such breach, default, violation or event which
would not, individually or in the aggregate, have a Material
Adverse Effect.
(xiii) The execution, delivery and performance of this
Agreement, the Indenture, the Registration Rights Agreement, the
consummation of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and sale of the
Notes to the Initial Purchasers) do not and will not conflict
with or result in a breach of any of the terms or provisions of,
or constitute a default under (i) the certificate of
incorporation or bylaws of the Company, (ii) in any respect
material to the Company and the Subsidiaries, taken as a whole,
any agreement or instrument known to such counsel to which the
Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries may be bound, or (iii)
(assuming compliance with all applicable state securities or
"Blue Sky" laws and assuming the accuracy of the representations
and warranties of the Initial Purchasers in Section 8 hereof) any
statute, judgment, decree, order, rule or regulation known to
such counsel to be applicable to the Company or any Guarantor and
to transactions of the type contemplated by the Final Memorandum,
except for any such conflict, breach or violation which would
not, individually or in the aggregate, have a Material Adverse
Effect.
(xiv) To the knowledge of such counsel, no consent,
approval, authorization or order of any governmental authority is
required for the issuance and sale by the Company of the Notes to
the Initial Purchasers or the other transactions contemplated in
this Agreement, except (i) in connection with the registration
under the Act of the Notes, and the Private Exchange Notes, if
applicable, pursuant to the Registration Rights Agreement, (ii)
the qualification of the Indenture under the TIA in connection
with the issuance of the Exchange Notes, or (iii) such consents,
approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits (x) as have been obtained
and made, (y) as may be required under state securities or "Blue
Sky" laws, as to which such counsel need express no opinion, or
(z) as would not, if not obtained, have a Material Adverse
Effect.
(xv) The Company is not, nor immediately after the sale of
the Notes to be sold hereunder and the application of the
proceeds from such sale (as described in the Final Memorandum
under the caption "Use of Proceeds") will be, an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended.
(xvi) No registration under the Act of the Notes is
required in connection with the sale of the Notes to the Initial
Purchasers as contemplated by this Agreement and the Final
Memorandum or in connection with the initial resale of the Notes
by the Initial Purchasers in accordance with Section 8 of this
Agreement, and prior to the commencement of the Exchange Offer
(as defined in the Registration Rights Agreement) or the
effectiveness of the Shelf Registration Statement (as defined in
the Registration Rights Agreement), the Indenture is not required
to be qualified under the TIA, in each case assuming (i) that the
purchasers who buy such Notes in the initial resale thereof are
QIBs, or are outside the United States and sold in reliance on
Regulation S under the Act, (ii) the accuracy of the Initial
Purchasers' representations in Section 8 and those of the Company
contained in this Agreement regarding the absence of a general
solicitation in connection with the sale of such Notes to the
Initial Purchasers and the initial resale thereof, (iii) the due
performance by the Initial Purchasers of the agreements set forth
in Section 8 hereof and the offering and transfer procedures set
forth in the Final Memorandum, and (iv) the accuracy of the
representations made by each Accredited Investor who purchases
Notes in the initial resale as set forth in the Final Memorandum.
(xvii) Neither the consummation of the transactions
contemplated by this Agreement nor the sale, issuance, execution
or delivery of the Notes will violate Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System.
At the time the foregoing opinion is delivered, such counsel
shall additionally state that it has participated in conferences with
officers and other representatives of the Company, representatives of
the independent public accountants for the Company, representatives of
the Initial Purchasers and counsel for the Initial Purchasers, at which
conferences the contents of the Final Memorandum and related matters
were discussed, and, although it has not independently verified and is
not passing upon and assumes no responsibility for the accuracy,
completeness or fairness of the statements contained in the Final
Memorandum (except to the extent specified in subsection 7(a)(x)), no
facts have come to its attention which lead it to believe that the Final
Memorandum, on the date thereof or at the Closing Date, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
contained therein, in the light of the circumstances under which they
were made, not misleading (it being understood that such firm need
express no opinion with respect to the financial statements and related
notes thereto and the other financial, statistical and accounting data
included in the Final Memorandum). With respect to such statement of
belief, Bracewell & Patterson L.L.P. may state that their belief is
based upon the procedures set forth therein, but is without independent
check and verification. The opinion of such counsel described in this
Section shall be rendered to the Initial Purchasers at the request of
the Company and shall so state therein.
In rendering such opinion, Bracewell & Patterson L.L.P. may
provide that its opinion is limited to matters governed by the laws of
Texas and New York and the General Corporation law of the State of
Delaware, and the Federal securities laws of the United States and may
rely on counsel to one or more of the Subsidiaries with respect to
matters related to the Subsidiaries, provided that, in lieu of such
reliance, Bracewell & Patterson L.L.P. may provide separate opinions of
such counsel so long as such opinions are addressed to the Initial
Purchasers, and further provided that, in each case, Bracewell &
Patterson L.L.P. shall state that they believe that they and the Initial
Purchasers are justified in relying on such other counsel.
References to the Final Memorandum in this subsection (a) shall
include any amendment or supplement thereto prepared in accordance with
the provisions of this Agreement at the Closing Date.
(b) The Initial Purchasers shall have received an opinion, dated
the Closing Date, of Latham & Watkins, counsel for the Initial
Purchasers, with respect to certain legal matters relating to this
Agreement, and such other related matters as the Initial Purchasers may
reasonably require. In rendering such opinion, Latham & Watkins shall
have received and may rely upon such certificates and other documents
and information as they may reasonably request to pass upon such
matters.
(c) The Initial Purchasers shall have received from, on the date
hereof and the Closing Date, letters dated the date hereof and the
Closing Date, in form and substance satisfactory to the Initial
Purchasers, of Arthur Andersen LLP, Ernst & Young LLP, Rubin, Brown,
Gornstein & Co. LLP, McGladrey & Pullen, LLP, Klein, Bogakos, and
Robertson, CPA's, Inc. and Meaden & Moore, Ltd. confirming that they are
independent public accountants within the meaning of the Act and the
applicable published rules and regulations thereunder and stating that,
in their opinion, the financial statements and schedules of the Company
and the Subsidiaries examined by them and included in the Final
Memorandum comply in form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Initial
Purchasers with respect to such financial statements and certain
financial and statistical information contained in the Final Memorandum.
(d) The representations and warranties of the Company and the
Guarantors contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as if made on and as of
the Closing Date; each of the Company and the Guarantors shall have
performed in all material respects all covenants and agreements and
satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to the Closing Date; and, except as set forth in
the Final Memorandum (exclusive of any amendment or supplement thereto
after the date hereof) subsequent to the date of the most recent
financial statements in such Final Memorandum, there shall have been no
event or development that, individually or in the aggregate, has or
would be reasonably likely to have a Material Adverse Effect.
(e) The issuance and sale of the Securities pursuant to this
Agreement shall not be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued or
any action, suit or proceeding shall have been commenced with respect to
this Agreement before any court or governmental authority.
(f) The Initial Purchasers shall have received certificates,
dated the Closing Date, signed on behalf of the Company by its Executive
Vice President and its Secretary to the effect that:
(i) The representations and warranties of the Company and
the Guarantors in this Agreement are true and correct in all
material respects as if made on and as of the Closing Date, and
each of the Company and the Guarantors has performed in all
material respects all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at
or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since
the date of the most recent financial statements in the Final
Memorandum (exclusive of any amendment or supplement thereto
after the date hereof), no event or events have occurred, no
information has become known nor does any condition exist that,
individually or in the aggregate, would have a Material Adverse
Effect; and
(iii) The sale of the Securities hereunder has not been
enjoined (temporarily or permanently).
(g) On the Closing Date, the Initial Purchasers shall have
received the Registration Rights Agreement executed by the Company and
the Guarantors and such agreement shall be in full force and effect at
all times from and after the Closing Date.
(h) The Indenture shall have been duly executed and delivered by
the Company and the Trustee, and the Notes and the Guarantees shall have
been duly executed by the Company and the Guarantors, respectively, and
the Notes shall have been duly authenticated by the Trustee.
(i) The Initial Purchasers shall have received a true and correct
copy of the Company's Amended and Restated Credit Agreement, dated as of
February 11, 1998 (the "CREDIT AGREEMENT"), and there shall have been no
material amendments, alterations, modifications or waivers of any
provisions of the Credit Agreement, and there exists as of the date
hereof and on and as of the Closing Date (after giving effect to the
transactions contemplated by this Agreement and the application of the
proceeds received by the Company from the sale of the Notes) no
condition that would constitute a Default or an Event of Default (each
as defined in the Credit Agreement) under the Credit Agreement.
(j) On or before the Closing Date, the Initial Purchasers and
counsel for the Initial Purchasers shall have received such further
documents, certificates and schedules or instruments relating to the
business, corporate, legal and financial affairs of the Company as they
shall have heretofore reasonably requested from the Company and the
Guarantors.
All such documents, opinions, certificates and schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchasers and counsel for the Initial Purchasers. The Company shall
furnish to the Initial Purchasers such conformed copies of such documents,
opinions, certificates and schedules or instruments in such quantities as the
Initial Purchasers shall reasonably request.
8. OFFERING OF SECURITIES; RESTRICTIONS ON TRANSFER. The Initial
Purchasers represent and warrant that they are QIBs. Each of the Initial
Purchasers agrees with the Company that (i) it has not and will not solicit
offers for, or offer or sell, the Securities by any form of general solicitation
or general advertising (as those terms are used in Regulation D under the Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Act; and (ii) it has and will solicit offers for the Securities only
from, and will offer the Securities only to (A) in the case of offers inside the
United States, persons whom the Initial Purchasers reasonably believe to be QIBs
or, if any such person is buying for one or more institutional accounts for
which such person is acting as fiduciary or agent, only when such person has
represented to the Initial Purchasers that each such account is a QIB, to whom
notice has been given that such sale or delivery is being made in reliance on
Rule 144A, and, in each case, in transactions under Rule 144A, deliver to the
Trustee a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Notes (the form of which letter
can be obtained from such Trustee) and (B) in the case of offers outside the
United States, to persons other than U.S. persons ("FOREIGN PURCHASER," which
term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)); PROVIDED, HOWEVER, that in the case of this clause (B), in
purchasing such Securities such persons are deemed to have represented and
agreed as provided under the caption "Transfer Restrictions" contained in the
Final Memorandum.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Guarantors, jointly and severally, agree
to indemnify and hold harmless each Initial Purchaser and each person,
if any, who controls any Initial Purchaser within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Initial Purchaser or any such controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in any Memorandum or any amendment or
supplement thereto or any application or other document, or any
amendment or supplement thereto, executed by the Company or any
Guarantor or based upon written information furnished by or on behalf of
the Company or any Guarantor filed in any jurisdiction in order to
qualify the Securities under the securities or "Blue Sky" laws thereof
or filed with any securities association or securities exchange (each,
an "APPLICATION"), or (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse each
Initial Purchaser and each such controlling person upon demand for any
legal or other expenses reasonably incurred by such Initial Purchaser or
such controlling person in connection with investigating or defending
any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering
of the Securities, whether or not such Initial Purchaser or controlling
person is a party to any action or proceeding; PROVIDED, HOWEVER, that
the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement, or omission or alleged
omission made in any Memorandum or any such amendment or supplement, in
reliance upon and in conformity with written information furnished to
the Company by or through the Initial Purchasers specifically for use in
the preparation thereof. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
(b) Each Initial Purchaser severally and not jointly will
indemnify and hold harmless the Company and the Guarantors, their
respective affiliates, directors, officers, agents, representatives and
employees and each person, if any, who controls the Company and the
Guarantors within the meaning of the Act against any losses, claims,
damages or liabilities to which the Company or any Guarantor or any such
affiliate, director, officer, agent, representative, employee, or
controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact
contained in any Memorandum or any amendment or supplement thereto, or
any Application, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal
or other expenses reasonably incurred by the Company or any Guarantor or
any such affiliate, director, officer, agent, representative, employee
or controlling person in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; provided,
however, that each Initial Purchaser will be liable in each case to the
extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in any
Memorandum or such amendment or supplement, or any Application, in
reliance upon and in conformity with written information furnished to
the Company by or through the Initial Purchasers specifically for use in
the preparation thereof. This indemnity agreement will be in addition to
any liability which such Initial Purchaser may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 9, such person
(the "INDEMNIFIED PARTY") shall promptly notify the person against whom
such indemnity may be sought (the "INDEMNIFYING party") in writing. No
indemnification provided for in Section 9(a) or (b) shall be available
to any party who shall fail to give notice as provided in this Section
9(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially
prejudiced by the failure to give such notice, but the failure to give
such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for
contribution or otherwise than on account of the provisions of Section
9(a) or (b). In case any such proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and shall
pay as incurred the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as
incurred (or within 30 days of presentation) the fees and expenses of
the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying
party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in
the case of parties indemnified pursuant to Section 9(a) and by the
Company in the case of parties indemnified pursuant to Section 9(b). The
indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
In addition, the indemnifying party will not, without the prior written
consent of the indemnified party, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or
proceeding of which indemnification may be sought hereunder (whether or
not any indemnified party is an actual or potential party to such claim,
action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 9 is
unavailable to or insufficient to hold harmless an indemnified party
under Section 9(a) or (b) above (other than by reason of the exceptions
provided in such paragraphs) in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred
to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Initial
Purchasers on the other from the offering of the Securities. If,
however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and
the Initial Purchasers on the other in connection with the statements,
omissions or breaches of representations and warranties which resulted
in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Initial Purchasers on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received by the Initial
Purchasers. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company on the one hand or
the Initial Purchasers on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be
just and equitable if contributions pursuant to this Section 9(d) were
determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to above in this Section 9(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
above in this Section 9(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Initial
Purchaser shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Notes purchased
by such Initial Purchaser and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Initial Purchasers' obligations in
this Section 9(d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) In any proceeding relating to any Memorandum or any
supplement or amendment thereto, or any Application, each party against
whom contribution may be sought under this Section 9 hereby consents to
the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to
the service of such process and agrees that any other contributing party
may join him or it as an additional defendant in any such proceeding in
which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under this Section 9 shall be paid by the indemnifying
party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution
agreements contained in this Section 9 and the representations and
warranties of the Company set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, the Guarantors, any
of its officers or directors, the Initial Purchasers or any controlling
person referred to in this Section, (ii) delivery of and payment for the
Securities, and (iii) any termination of this Agreement. A successor to
any Initial Purchaser, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of
the indemnity, contribution and reimbursement agreements contained in
this Section 9.
10. TERMINATION.
(a) This Agreement may be terminated in the sole discretion of
the Initial Purchasers by notice to the Company given prior to the
Closing Date in the event that the Company or any of the Guarantors
shall have failed, refused or been unable to perform, in all material
respects, all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder at or prior thereto or, if at or prior
to the Closing Date:
(i) either (x) the Company or any Guarantor shall have
sustained any loss or interference with respect to its businesses
or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any
strike, labor dispute, slow down or work stoppage or any legal or
governmental proceeding, which loss or interference, in the
reasonable judgment of the Initial Purchasers, has had or has a
Material Adverse Effect, or (y) there shall have been, in the
reasonable judgment of the Initial Purchasers, any event or
development that, individually or in the aggregate, has or could
be reasonably likely to have a Material Adverse Effect (including
without limitation a change in control of the Company), except in
each case as described in the Final Memorandum (exclusive of any
amendment or supplement thereto);
(ii) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National
Market shall have been suspended or maximum or minimum prices
shall have been established on any such exchange or market;
(iii) a banking moratorium shall have been declared by New
York or United States authorities;
(iv) there shall have been (A) an outbreak or escalation
of hostilities between the United States and any foreign power,
or (B) an outbreak or escalation of any other insurrection or
armed conflict involving the United States or any other national
or international calamity or emergency or (C) any material change
in the financial markets of the United States that, in the case
of (A), (B) or (C) above and in the sole judgment of the Initial
Purchasers, makes it impracticable or inadvisable to proceed with
the offering or the delivery of the Securities as contemplated by
the Final Memorandum; or
(v) any securities of the Company shall have been
downgraded or placed on any "watch list" for possible downgrading
by any nationally recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 10
shall be without liability of any party to any other party except as
provided in Section 9(f) hereof.
11. INFORMATION SUPPLIED BY THE INITIAL PURCHASERS. The
statements set forth in the last paragraph of the cover page and the first,
second, third, fifth, sixth and seventh paragraphs of the section entitled
"Private Placement" constitute the only information furnished by the Initial
Purchasers to the Company for the purposes of Sections 2(a) and 9 hereof.
12. NOTICES. All communications hereunder shall be in writing
and, if sent to the Initial Purchasers, shall be mailed or delivered or
telecopied and confirmed in writing to BT Alex. Brown Incorporated, One Bankers
Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention: Corporate
Finance Department, and if sent to the Company or the Guarantors, shall be
mailed, delivered or telecopied and confirmed in writing to the Company at:
Metals USA, Inc., Three Riverway, Suite 600, Houston, Texas 77056, Attention:
Arthur L. French, Chief Executive Officer, with copies to Bracewell & Patterson
L.L.P., South Tower Pennzoil Place, 711 Louisiana Street, Suite 2900, Houston,
Texas 77002-2718, Attention: William D. Gutermuth, Esq. and John A. Hageman,
General Counsel, Metals USA, Inc., Three Riverway, Suite 600, Houston, Texas
77056.
13. SUCCESSORS. This Agreement shall inure to the benefit of and
be binding upon the Initial Purchasers, the Company, the Guarantors and their
respective successors, assigns and legal representatives, and nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
other person any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any provisions herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the Initial Purchasers, the Company, the Guarantors and
their respective successors, assigns and legal representatives and for the
benefit of no other person except that (i) the indemnities of the Company and
the Guarantors contained in Section 9 of this Agreement shall also be for the
benefit of the affiliates, directors, officers, agents, representatives and
employees of the Initial Purchasers and any person or persons who control the
Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in
Section 9 of this Agreement shall also be for the benefit of the affiliates,
directors, officers, agents, representatives and employees of the Company and
the Guarantors and any person or persons who control the Company or any
Guarantor within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of any of the Securities from the Initial Purchasers
will be deemed a successor because of such purchase.
14. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(signature page follows)
<PAGE>
S-2
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Company,
the Guarantors and the Initial Purchasers.
Very truly yours,
THE COMPANY:
METALS USA, INC.
By: /s/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: Senior Vice President and
Chief Financial Officer
THE GUARANTORS:
AFFILIATED METALS COMPANY, CORNERSTONE
ALUMINUM COMPANY, INC., CORNERSTONE BUILDING
PRODUCTS, INC., CORNERSTONE METALS
CORPORATION, CORNERSTONE PATIO CONCEPTS,
L.L.C., FEDERAL BRONZE ALLOYS INC., HARVEY
TITANIUM, LTD., INDEPENDENT METALS CO.,
INC., INTERSTATE STEEL SUPPLY COMPANY,
INTERSTATE STEEL SUPPLY COMPANY OF MARYLAND,
INTERSTATE STEEL SUPPLY COMPANY OF
PITTSBURGH, INTERSTATE STEEL PROCESSING
COMPANY, JEFFREYS STEEL COMPANY, INC., MEIER
METAL SERVICENTERS, INC., METALS USA FINANCE
CORP., METALS USA SERVICE CORPORATION, MUSA
GP, INC., MUSA LP, INC., QUEENSBORO STEEL
CORPORATION, R.J. FABRICATING INC., ROYAL
ALUMINUM, INC., SOUTHERN ALLOY OF AMERICA,
INC., STEEL SERVICE SYSTEMS, INC., TEXAS
ALUMINUM INDUSTRIES, INC., UNI-STEEL, INC.,
WAYNE STEEL, INC. AND WILLIAMS STEEL &
SUPPLY CO., INC., as guarantors
By: /s/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: Vice President and Director
<PAGE>
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
BT ALEX. BROWN INCORPORATED
By: /s/ MICHAEL R. DUCKWORTH
Name: Michael R. Duckworth
Title: Managing Director
BEAR, STEARNS & CO., INC.
By: /s/ SHELDON I. STEIN
Name: Sheldon I. Stein
Title: Senior Managing Director
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
By: /s/ JULIE E. SILCOCK
Name: Julie E. Silcock
Title: Managing Director
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ STUART B. GLEICHENHAUS
Name: Stuart B. Gleichenhaus
Title: Managing Director
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
DATED AS OF FEBRUARY 11, 1998
BY AND AMONG
METALS USA, INC.,
AFFILIATED METALS COMPANY, CORNERSTONE ALUMINUM COMPANY, INC., CORNERSTONE
BUILDING PRODUCTS, INC., CORNERSTONE METALS CORPORATION, CORNERSTONE PATIO
CONCEPTS, L.L.C., FEDERAL BRONZE ALLOYS INC., HARVEY TITANIUM, LTD.,
INDEPENDENT METALS CO., INC., INTERSTATE STEEL SUPPLY COMPANY, INTERSTATE
STEEL SUPPLY COMPANY OF MARYLAND, INTERSTATE STEEL SUPPLY COMPANY OF
PITTSBURGH, INTERSTATE STEEL PROCESSING COMPANY, JEFFREYS STEEL COMPANY,
INC., MEIER METAL SERVICENTERS, INC., METALS USA FINANCE CORP., METALS USA
SERVICE CORPORATION, MUSA GP, INC., MUSA LP, INC., QUEENSBORO STEEL
CORPORATION, R.J. FABRICATING INC., ROYAL ALUMINUM, INC., SOUTHERN ALLOY OF
AMERICA, INC., STEEL SERVICE SYSTEMS, INC., TEXAS ALUMINUM INDUSTRIES, INC.,
UNI-STEEL, INC., WAYNE STEEL, INC. AND WILLIAMS STEEL & SUPPLY CO., INC.
AND
BT ALEX. BROWN INCORPORATED,
BEAR, STEARNS & CO. INC.,
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION AND
NATIONSBANC MONTGOMERY SECURITIES LLC,
AS THE INITIAL PURCHASERS
$200,000,000
8 5/8% SENIOR SUBORDINATED NOTES DUE 2008
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS.......................................................1
SECTION 2. EXCHANGE OFFER....................................................5
SECTION 3. SHELF REGISTRATION................................................8
SECTION 4. ADDITIONAL INTEREST..............................................10
SECTION 5. REGISTRATION PROCEDURES..........................................11
SECTION 6. REGISTRATION EXPENSES............................................19
SECTION 7. INDEMNIFICATION..................................................20
SECTION 8. RULES 144 AND 144A...............................................24
SECTION 9. UNDERWRITTEN REGISTRATIONS.......................................24
SECTION 10. MISCELLANEOUS...................................................24
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is dated as of
February 11, 1998, by and among Metals USA, Inc., a Delaware corporation (the
"COMPANY"), the Subsidiary Guarantors (as defined) and BT Alex. Brown
Incorporated, Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities LLC (collectively, the
"INITIAL PURCHASERS").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of February 6, 1998 by and among the Company, the Subsidiary
Guarantors and the Initial Purchasers (the "PURCHASE AGREEMENT"), which provides
for the sale by the Company to the Initial Purchasers of $200,000,000 aggregate
principal amount of its 8 5/8% Senior Subordinated Notes due 2008 (the "NOTES").
In order to induce the Initial Purchasers to enter into the Purchase Agreement,
the Company has agreed to provide the registration rights set forth to the
Initial Purchasers and any subsequent holder or holders of the Notes. The
execution and delivery of this Agreement is a condition to the Initial
Purchasers' obligation to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
ADDITIONAL INTEREST: See Section 4(a) hereof.
ADVICE: See the last paragraph of Section 5 hereof.
AGREEMENT: See the introductory paragraphs hereto.
APPLICABLE PERIOD: See Section 2(b) hereof.
COMPANY: See the introductory paragraphs hereto.
EFFECTIVENESS DATE: With respect to (i) the Exchange Offer
Registration Statement, the 150th day after the Issue Date and (ii) any Shelf
Registration Statement, the 90th day after the Filing Date with respect thereto.
EFFECTIVENESS PERIOD: See Section 3(a) hereof.
EVENT DATE: See Section 4(b) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
EXCHANGE NOTES: See Section 2(a) hereof.
EXCHANGE OFFER: See Section 2(a) hereof.
EXCHANGE OFFER REGISTRATION STATEMENT: See Section 2(a) hereof.
FILING DATE: (A) If no Registration Statement has been filed by the
Company pursuant to this Agreement, the 60th day after the Issue Date; and (B)
in any other case (which may be applicable notwithstanding the consummation of
the Exchange Offer), the 60th day after the delivery of a Shelf Notice.
HOLDER: Any holder of a Registrable Note or Registrable Notes.
INDEMNIFIED PERSON: See Section 7(c) hereof.
INDEMNIFYING PERSON: See Section 7(c) hereof.
INDENTURE: Indenture, dated as of February 11, 1998, by and among
the Company, the Subsidiary Guarantors and U.S. Trust Company of California,
N.A., as the trustee.
INITIAL PURCHASERS: See the introductory paragraphs hereto.
INITIAL SHELF REGISTRATION: See Section 3(a) hereof.
INSPECTORS: See Section 5(n) hereof.
ISSUE DATE: February 11, 1998, the date of original issuance of the
Notes.
NASD: See Section 5(s) hereof.
NOTES: See the introductory paragraphs hereto.
PARTICIPANT: See Section 7(a) hereof.
PARTICIPATING BROKER-DEALER: See Section 2(a) hereof.
PERSON: An individual, trustee, corporation, partnership, joint
stock company, trust, unincorporated association, union, business association,
firm or other legal entity.
PRIVATE EXCHANGE: See Section 2(b) hereof.
PRIVATE EXCHANGE NOTES: See Section 2(b) hereof.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that include any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
under the Securities Act and any term sheet filed pursuant to Rule 434 under the
Securities Act), as amended or supplemented by any prospectus supplement, and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: See the introductory paragraph hereof.
RECORDS: See Section 5(n) hereof.
REGISTRABLE NOTES: Each Note upon its original issuance and at all
times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof
is applicable upon original issuance and at all times subsequent thereto and
each Private Exchange Note upon original issuance thereof and at a times
subsequent thereto, until (i) a Registration Statement (other than, with respect
to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the
Exchange Offer Registration Statement) covering such Note, Exchange Note or
Private Exchange Note has been declared effective by the SEC and such Note,
Exchange Note or such Private Exchange Note, as the case may be, has been
disposed of in accordance with such effective Registration Statement, (ii) such
Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or
Exchange Notes that may be resold without restriction under federal securities
laws, (iii) such Note, Exchange Note or Private Exchange Note, as the case may
be, ceases to be outstanding for purposes of the Indenture or (iv) such Note,
Exchange Note or Private Exchange Note, as the case may be, may be resold
without restriction pursuant to Rule 144 under the Securities Act.
REGISTRATION STATEMENT: Any registration statement of the Company
that covers any of the Notes, the Exchange Notes or the Private Exchange Notes
filed with the SEC under the Securities Act, including the Prospectus,
amendments and supplements to such registration statement, including
post-effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
RULE 144: Rule 144 promulgated under the Securities Act, as such
rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of the Company of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
RULE 144A: Rule 144A promulgated under the Securities Act, as such
rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
RULE 415: Rule 415 promulgated under the Securities Act, as such
rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
SHELF NOTICE: See Section 2(c) hereof.
SHELF REGISTRATION: See Section 3(b) hereof.
SHELF REGISTRATION STATEMENT: Any Registration Statement relating to
a Shelf Registration.
SUBSEQUENT SHELF REGISTRATION: See Section 3(b) hereof.
SUBSIDIARY GUARANTOR: (i) each of Affiliated Metals Company,
Cornerstone Aluminum Company, Inc., Cornerstone Building Products, Inc.,
Cornerstone Metals Corporation, Cornerstone Patio Concepts, L.L.C., Federal
Bronze Alloys Inc., Harvey Titanium, Ltd., Independent Metals Co., Inc.,
Interstate Steel Supply Company, Interstate Steel Supply Company of Maryland,
Interstate Steel Supply Company of Pittsburgh, Interstate Steel Processing
Company, Jeffreys Steel Company, Inc., Meier Metal Servicenters, Inc., Metals
USA Finance Corp., Metals USA Service Corporation, MUSA GP, Inc., MUSA LP, Inc.,
Queensboro Steel Corporation, R.J. Fabricating Inc., Royal Aluminum, Inc.,
Southern Alloy of America, Inc., Steel Service Systems, Inc., Texas Aluminum
Industries, Inc., Uni-Steel, Inc., Wayne Steel, Inc. and Williams Steel & Supply
Co., Inc. and (ii) each of the Company's Restricted Subsidiaries (as defined in
the Indenture) that in the future executes a supplemental indenture in which
such Restricted Subsidiary agrees to be bound by the terms of the Indenture as a
Subsidiary Guarantor; PROVIDED that any Person constituting a Subsidiary
Guarantor as described above shall cease to constitute a Subsidiary Guarantor
when its respective Guarantee (as defined in the Indenture) is released in
accordance with the terms of the Indenture.
TIA: The Trust Indenture Act of 1939, as amended.
TRUSTEE: The trustee under the Indenture.
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
SECTION 2. EXCHANGE OFFER
(a) To the extent not prohibited by applicable law or applicable
interpretation of the staff of the Division of Corporation Finance of the SEC,
the Company shall file with the SEC, no later than the Filing Date, a
Registration Statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an
appropriate registration form with respect to a registered offer (the "EXCHANGE
OFFER") to exchange any and all of the Registrable Notes for a like aggregate
principal amount of notes (the "EXCHANGE NOTES") of the Company that are
identical in all material respects to the Notes except that the Exchange Notes
shall contain no restrictive legend thereon. The Exchange Offer shall comply
with all applicable tender offer rules and regulations under the Exchange Act
and other applicable laws. The Company shall use its best efforts to (x) cause
the Exchange Offer Registration Statement to be declared effective under the
Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer
open for at least 30 days after the date that notice of the Exchange Offer is
mailed to Holders (or longer if required by applicable law); and (z) consummate
the Exchange Offer on or prior to the 195th day following the Issue Date. If,
after the Exchange Offer Registration Statement is initially declared effective
by the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder
is interfered with by any stop order injunction or other order or requirement of
the SEC or any other governmental agency or court, the Exchange Offer
Registration Statement shall be deemed not to have become effective for purposes
of this Agreement.
Each Holder that participates in the Exchange Offer will be required
to represent that (i) any Exchange Notes to be received by it will be acquired
in the ordinary course of its business, (ii) at the time of the consummation of
the Exchange Offer, such Holder will have no arrangement or understanding with
any Person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes in violation of the Securities Act, (iii)
such Holder is not an affiliate of the Company within the meaning of the
Securities Act, (iv) if such Holder is not a broker-dealer, such Holder is not
engaged in, and does not intend to engage in, the distribution of Exchange
Notes, and (v) if such Holder is a broker-dealer (a "PARTICIPATING
BROKER-DEALER") that will receive Exchange Notes for its own account in exchange
for Notes that were acquired as a result of market-making or other trading
activities, such Holder will deliver a prospectus in connection with any resale
of such Exchange Notes.
Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, solely with
respect to Registrable Notes that are Private Exchange Notes, Exchange Notes as
to which Section 2(c)(iv) is applicable and Exchange Notes held by Participating
Broker-Dealers, and the Company shall have no further obligation to register
Registrable Notes (other than Private Exchange Notes and other than in respect
of any Exchange Note as to which clause 2(c)(iv) hereof applies) pursuant to
Section 3 hereof. No securities other than the Exchange Note shall be included
in the Exchange Offer Registration Statement.
(b) The Company shall include within the Prospectus contained in the
Exchange Offer Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Holders, which shall contain a summary statement of
the positions taken or policies made by the staff of the SEC with respect to the
potential "underwriter" status of any broker-dealer that is the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by
such Participating Broker-Dealer in the Exchange Offer, whether such positions
or policies have been publicly disseminated by the staff of the SEC or such
positions or policies represent the prevailing views of the staff of the SEC.
Such "Plan of Distribution" section shall also expressly permit, to the extent
permitted by applicable policies and regulations of the SEC, the use of the
Prospectus by all Persons subject to the prospectus delivery requirements of the
Securities Act, including, to the extent permitted by applicable policies and
regulations of the SEC, all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may resell
the Exchange Notes in compliance with the Securities Act.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the Prospectus
contained therein in order to permit such Prospectus to be lawfully delivered by
all Persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as is necessary to comply with applicable law in
connection with any resale of the Exchange Notes covered thereby; PROVIDED,
HOWEVER, that such period shall not exceed 180 days after such Exchange Offer
Registration Statement is declared effective (or such longer period if extended
pursuant to the last paragraph of Section 5 hereof) (the "APPLICABLE PERIOD").
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Notes acquired by them that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Exchange
Offer, the Company upon the request of any such Holder shall simultaneously with
the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to
any such Holder, in exchange (the "PRIVATE EXCHANGE") for such Notes held by any
such Holder, a like principal amount of notes (the "PRIVATE EXCHANGE NOTES") of
the Company that are identical in all material respects to the Exchange Notes
(except that they may bear a customary legend with respect to restrictions on
transfer). The Private Exchange Notes shall be issued pursuant to the same
indenture as the Exchange Notes bear the same CUSIP number as the Exchange
Notes.
Interest on the Exchange Notes and the Private Exchange Notes will
accrue (A) from the later of (i) the last interest payment date on which
interest was paid on the Notes surrendered in exchange therefor, or (ii) if the
Notes are surrendered for exchange on a date subsequent to the record date for
an interest payment date to occur on or after the date of such exchange and as
to which interest will be paid, the date of such interest payment, or (B) if no
interest has been paid on the Notes, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail, or cause to be mailed, to each Holder entitled to
participate in the Exchange Offer a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) keep the Exchange Offer open for not less than 30 days
after the date that notice of the Exchange Offer is mailed to Holders (or longer
if required by applicable law);
(3) utilize the services of a depository for the Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(4) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last business day on which
the Exchange Offer shall remain open; and
(5) otherwise comply in all material respects with all
applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer and the
Private Exchange, if any, the Company shall:
(1) accept for exchange all Registrable Notes validly tendered
and not validly withdrawn pursuant to the Exchange Offer and the Private
Exchange, if any;
(2) deliver to the Trustee for cancellation all Registrable
Notes so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to
each Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may
be, equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Offer and the Private Exchange shall not be subject to
any conditions, other than that (i) the Exchange Offer or Private Exchange, as
the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) no action or proceeding shall have
been instituted or threatened in any court or by any governmental agency which
might materially impair the ability of the Company to proceed with the Exchange
Offer or the Private Exchange, no material adverse development shall have
occurred in any existing action or proceeding with respect to the Company and
(iii) all governmental approvals shall have been obtained, which approvals the
Company deems necessary for the consummation of the Exchange Offer or Private
Exchange.
The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture and which, in either case, has been qualified under the TIA or
is exempt from such qualification and shall provide that the Exchange Notes
shall not be subject to the transfer restrictions set forth in the Indenture.
The Indenture or such indenture shall provide that the Exchange Notes, the
Private Exchange Notes and the Notes shall vote and consent together on all
matters as one class and that none of the Exchange Notes, the Private Exchange
Notes or the Notes will have the right to vote or consent as a separate class on
any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the SEC, the Company is not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not consummated within 195 days
of the Issue Date, (iii) the Initial Purchasers or any holder of Private
Exchange Notes so request in writing to the Company at any time after the
consummation of the Exchange Offer, or (iv) in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive Exchange Notes
on the date of the exchange that may be sold without restriction under state and
federal securities laws (other than due solely to the status of such Holder as
an affiliate the Company within the meaning of the Securities Act), in the case
of each of clauses (i) to and including (iv) of this sentence, then the Company
shall (x) promptly deliver to the Holders and the Trustee written notice thereof
(the "SHELF NOTICE") and (y) at its sole expense, as promptly as practicable,
comply with the requirements for a Shelf Registration pursuant to Section 3
hereof.
SECTION 3. SHELF REGISTRATION
If at any time a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) SHELF REGISTRATION. The Company shall file with the SEC a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 covering all of the Registrable Notes (not permitted to be exchanged
in the Exchange Offer in accordance with the terms of this Agreement), Private
Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is applicable
(the "INITIAL SHELF REGISTRATION"). The Company shall use it best efforts to
file with the SEC the Initial Shelf Registration on or before the applicable
Filing Date. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Notes for resale by
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company shall not permit
any securities other than the Registrable Notes to be included in the Initial
Shelf Registration or any Subsequent Shelf Registration (as defined below).
The Company shall use its best efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act on or prior to
the Effectiveness Date and to keep the Initial Shelf Registration continuously
effective under the Securities Act until the date which is two years from the
Issue Date, subject to extension pursuant to the last paragraph of Section 5
hereof (the "EFFECTIVENESS PERIOD"), or such shorter period ending when all
Registrable Notes covered by the Shelf Registration have been sold in the manner
set forth and as contemplated in the Initial Shelf Registration or, if
applicable, a Subsequent Shelf Registration; PROVIDED, HOWEVER, that the
Effectiveness Period in respect of the Initial Shelf Registration shall be
extended to the extent required to permit dealers to comply with the applicable
prospectus delivery requirements of Rule 174 under the Securities Act and as
otherwise provided herein and shall be subject to reduction the extent that the
applicable provisions of Rule 144(k) are amended or revised to reduce the two
year holding period set forth therein.
No holder of Registrable Notes may include any of its Registrable
Notes in any Shelf Registration Statement pursuant to this Agreement unless and
until such holder furnishes to the Company in writing, within 15 business days
after receipt of a request therefor, such information as the Company may
reasonably request for use in connection with any Shelf Registration Statement
or Prospectus or preliminary prospectus included therein. No holder of
Registrable Notes shall be entitled to Additional Interest pursuant to Section 4
hereof unless and until such holder shall have provided all such reasonably
requested information. Each holder of Registrable Notes as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make information
previously furnished to the Company by such Holder not materially misleading.
(b) SUBSEQUENT SHELF REGISTRATIONS. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities registered thereunder), the Company shall use its
best efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 30 days of such cessation
of effectiveness amend the Initial Shelf Registration in a manner to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional Shelf Registration Statement pursuant to Rule 415 covering all of the
Registrable Notes covered by and not sold under the Initial Shelf Registration
or an earlier Subsequent Shelf Registration (each, a "SUBSEQUENT SHELF
REGISTRATION"). If a Subsequent Shelf Registration is filed, the Company shall
use its best efforts to cause the Subsequent Shelf Registration to be declared
effective under the Securities Act as soon as practicable after such filing and
to keep such Subsequent Shelf Registration continuously effective for a period
equal to the number of days in the Effectiveness Period less the aggregate
number of days during which the Initial Shelf Registration any Subsequent Shelf
Registration was previously continuously effective. As used herein the term
"SHELF REGISTRATION" means the Initial Shelf Registration and any Subsequent
Shelf Registration.
(c) SUPPLEMENTS AND AMENDMENTS. The Company shall promptly
supplement and amend any Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act or if reasonably requested
by the Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement or any underwriter of such
Registrable Notes.
SECTION 4. ADDITIONAL INTEREST
(a) The Company and the Initial Purchasers agree that the Holders
will suffer damages if the Company fails to fulfill its obligations under
Section 2 or Section 3 hereof and that it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, the Company agrees to pay as
liquidated damages, additional interest on the Notes ("ADDITIONAL INTEREST")
under the circumstances and to the extent set forth below (each of which shall
be given independent effect):
(i) If (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration has been filed on or prior to the Filing Date
applicable thereto or (B) notwithstanding that the Company has consummated or
will consummate the Exchange Offer, the Company is required to file a Shelf
Registration Statement and if such Shelf Registration Statement is not filed on
or prior to the Filing Date applicable thereto, then, commencing on the day
after any such Filing Date, Additional Interest shall accrue on the principal
amount of the Notes at a rate of 0.50% per annum for the first 90 days
immediately following such applicable Filing Date, and such Additional Interest
rate shall increase by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(ii) If (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration is declared effective by the SEC on or prior
to the Effectiveness Date applicable thereto or (B) notwithstanding that the
Company has consummated or will consummate the Exchange Offer, the Company is
required to file a Shelf Registration Statement and such Shelf Registration
Statement is not declared effective by the SEC on or prior to the Effectiveness
Date applicable to such Shelf Registration Statement, then, commencing on the
day after such Effectiveness Date, Additional Interest shall accrue on the
principal amount of the Notes at a rate of 0.50% per annum for the first 90 days
immediately following the day after such Effectiveness Date, and such Additional
Interest rate shall increase by an additional 0.50% per annum at the beginning
of each subsequent 90-day period; or
(iii) If (A) the Company has not exchanged Exchange Notes for
all Notes validly tendered in accordance with the terms of the Exchange Offer on
or prior to the 45th day after the date on which the Exchange Offer Registration
Statement relating thereto was declared effective or (B) if applicable, a Shelf
Registration has been declared effective and such Shelf Registration ceases to
be effective at any time during the Effectiveness Period (other than after such
time as all Notes have been disposed of thereunder), then Additional Interest
shall accrue on the principal amount of the Notes at a rate of 0.50% per annum
for the first 90 days commencing on the (x) 46th day after such effective date,
in the case of (A) above, or (y) the day such Shelf Registration ceases to be
effective in the case of (B) above, and such Additional Interest rate shall
increase by an additional 0.50% per annum at the beginning of each such
subsequent 90-day period;
PROVIDED, HOWEVER, that the Additional Interest rate on the Notes, as provided
under Section 4(a)(i), (ii) and (iii) above, may not exceed at any one time in
the aggregate 1.50% per annum; PROVIDED, FURTHER, HOWEVER, that (1) upon the
filing of the applicable Exchange Offer Registration Statement or the applicable
Shelf Registration Statement as required hereunder (in the case of clause (i)
above of this Section 4), (2) upon the effectiveness of the Exchange Offer
Registration Statement or the applicable Shelf Registration Statement as
required hereunder (in the case of clause (ii) of this Section 4), (3) upon the
exchange of the Exchange Notes for all Notes tendered (in the case of clause
(iii)(A) of this Section 4), or (4) upon the effectiveness of the applicable
Shelf Registration Statement which had ceased to remain effective (in the case
of (iii)(B) of this Section 4), Additional Interest on the Notes in respect of
which such events relate as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "EVENT DATE"). Any amounts of
Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section
4 will be payable in cash semi-annually on each February 15 and August 15 (to
the holders of record on the February 1 and August 1 immediately preceding such
dates), commencing with the first such date occurring after any such Additional
Interest commences to accrue. The amount of Additional Interest will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the Registrable Notes, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.
SECTION 5. REGISTRATION PROCEDURES
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Company shall effect such registrations to permit
the sale of the securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by the Company hereunder, the Company
shall:
(a) Prepare and file with the SEC prior to the applicable Filing
Date, a Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use its best efforts to cause each such Registration
Statement to become effective and remain effective as provided herein; PROVIDED,
HOWEVER, that, if (i) such filing is pursuant to Section 3 hereof or (ii) a
Prospectus contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period relating thereto, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company shall furnish
to and afford the Holders of the Registrable Notes covered by such Registration
Statement or each such Participating Broker-Dealer, as the case may be, their
counsel and the managing underwriters, if any, a reasonable opportunity to
review copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to be filed
(in each case at least five business days prior to such filing, or such later
date as is reasonable under the circumstances). The Company shall not file any
Registration Statement or Prospectus or any amendments or supplements thereto if
the Holders of a majority in aggregate principal amount of the Registrable Notes
covered by such Registration Statement, their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) (i) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration Statement or Exchange Offer
Registration Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period or
the Applicable Period or until consummation of the Exchange Offer, as the case
may be; (ii) cause the related Prospectus to be supplemented by any Prospectus
supplement required by applicable law, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) promulgated under
the Securities Act; and (iii) comply with the provisions of the Securities Act
and the Exchange Act applicable to it with respect to the disposition of all
securities covered by such Registration Statement as so amended or in such
Prospectus as so supplemented and with respect to the subsequent resale of any
securities being sold by a Participating Broker-Dealer covered by any such
Prospectus. The Company shall be deemed not to have used their diligent best
efforts to keep a Registration Statement effective during the Effective Period
or the Applicable Period, as the case may be, relating thereto if the Company
intentionally takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless (y) such action is required by
applicable law or (z) the Company complies with this Agreement, including
without limitation, the provisions of Section 5(k) or the last paragraph of this
Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period relating thereto from whom the Company has
received written notice that it will be a Participating Broker-Dealer in the
Exchange Offer, notify the selling Holders of Registrable Notes, or each such
Participating Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, promptly (but in any event within two business days), and
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective under the Securities Act (including in such notice a written statement
that any Holder may, upon request, obtain, at the sole expense of the Company,
one conformed copy of such Registration Statement or post-effective amendment
including financial statements and schedules, documents incorporated or deemed
to be incorporated by reference therein and exhibits), (ii) of the issuance by
the SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose, (iii) if at
any time when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Notes or resales of Exchange Notes by
Participating Broker-Dealers the representations and warranties of the Company
contained in any agreement (including any underwriting agreement) contemplated
by Section 5(m) hereof cease to be true and correct in all material respects,
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Notes or the Exchange Notes to
be sold by any Participating Broker-Dealer for offer or sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose, (v) of the happening of any event, the existence of any condition or
any information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in or amendments or supplements to such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any 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, and (vi) of the Company's determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) If (i) a Shelf Registration is filed pursuant to Section 3
hereof, or (ii) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, use its reasonable best efforts to prevent
the issuance of any order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any of the
Registrable Notes or the Exchange Notes to be sold by any Participating
Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued,
to use its best efforts to obtain the withdrawal of any such order at the
earliest possible date.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters, if any, the Holders of a
majority in aggregate principal amount of the Registrable Notes being sold in
connection with an underwritten offering or any Participating Broker-Dealer, (i)
promptly as practicable incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or underwriters, if any,
such Holders, any Participating Broker-Dealer or counsel for any of them
reasonably request to be included therein, (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment, and
(iii) supplement or make amendments to such Registration Statement.
(f) If (i) a Shelf Registration is filed pursuant to Section 3
hereof, or (ii) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, furnish to each selling Holder of
Registrable Notes and to each such Participating Broker-Dealer who so requests
and to their respective counsel and each managing underwriter, if any, at the
sole expense of the Company, one conformed copy of the Registration Statement or
Registration Statements and each post-effective amendment thereto, including
financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits.
(g) If (i) a Shelf Registration is filed pursuant to Section 3
hereof, or (ii) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, (A) deliver to each selling Holder of
Registrable Notes, or each such Participating Broker-Dealer, as the case may be,
their respective counsel, and the underwriters, if any, at the sole expense of
the Company, as many copies of the Prospectus or Prospectuses (including each
form of preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, (B) subject to the last paragraph of this Section 5, the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, and the underwriters or agents,
if any, and dealers, if any, in connection with the offering and sale of the
Registrable Notes covered by, or the sale by Participating Broker-Dealers of the
Exchange Notes pursuant to, such Prospectus and any amendment or supplement
thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Offer Registration Statement
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, (i) use its best efforts to register or qualify, and
cooperate with the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Notes for offer and sale under the securities
or Blue Sky laws of such jurisdictions within the United States as any selling
Holder, Participating Broker-Dealer, or the managing underwriter or underwriters
reasonably request in writing; PROVIDED, HOWEVER, that where Exchange Notes held
by Participating Broker-Dealers or Registrable Notes are offered other than
through an underwritten offering, the Company agrees to cause its counsel to
perform Blue Sky investigations and file registrations and qualifications
required to be filed pursuant to this Section 5(h); and (ii) keep each such
registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be kept effective and do any
and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Notes held by Participating
Broker-Dealers or the Registrable Notes covered by the applicable Registration
Statement; PROVIDED, HOWEVER, that the Company shall not be required to (A)
qualify generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C) subject
itself to taxation in excess of a nominal dollar amount in any such jurisdiction
where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
(i) cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company and (ii) enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or selling Holders of
Registrable Notes may request.
(j) Use its best efforts to cause the Registrable Notes covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be reasonably necessary to enable
the seller or sellers thereof or the managing underwriter or underwriters, if
any, to consummate the disposition of such Registrable Notes, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals.
(k) If (i) a Shelf Registration is filed pursuant to Section 3
hereof, or (ii) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable
prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole
expense of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Notes being sold thereunder or to the purchasers of the Exchange
Notes to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with certificates for
the Registrable Notes or Exchange Notes, as the case may be, in a form eligible
for deposit with The Depository Trust Company and (ii) provide a CUSIP number
for the Registrable Notes or Exchange Notes, as the case may be.
(m) In connection with any underwritten offering of Registrable
Notes pursuant to a Shelf Registration, enter into an underwriting agreement as
is customary in underwritten offerings of debt securities similar to the Notes
in form and substance reasonably satisfactory to the Company and take all such
other actions as are reasonably requested by the managing underwriter or
underwriters in order to expedite or facilitate the registration or the
disposition of such Registrable Notes and, in such connection, (i) make such
representations and warranties to, and covenants with, the managing underwriter
or underwriters with respect to the business of the Company and its subsidiaries
and the Registration Statement, Prospectus and documents, if any, incorporated
or deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to the managing underwriter or underwriters in
underwritten offerings of debt securities similar to the Notes, and confirm the
same in writing if and when requested in form and substance reasonably
satisfactory to the Company; (ii) obtain the written opinions of counsel to
Company and written updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters, addressed to the
underwriters covering the matters customarily covered in opinions of counsel
reasonably requested in underwritten offerings and such other matters as may be
reasonably requested by the managing underwriter or underwriters; (iii) use its
best efforts to obtain "cold comfort" letters and updates thereof in form, scope
and substance reasonably satisfactory to the managing underwriter or
underwriters from the independent certified public accountant of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to the
managing underwriter or underwriters, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings of debt securities similar to the Notes
and such other matters as reasonably requested by the managing underwriter or
underwriters as permitted by the Statement on Auditing Standards No. 72; and
(iv) if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the sellers,
managing underwriter or underwriters or agents, if any, than those set forth in
Section 7 hereof (or such other provisions and procedures acceptable to Holders
of a majority in aggregate principal amount of Registrable Notes covered by such
Registration Statement and the managing underwriter or underwriters or agents,
if any). The above shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, (i) make available for inspection by any
selling Holder of such Registrable Notes being sold, or each such Participating
Broker-Dealer, as the case may be, any underwriter participating in any such
disposition of Registrable Notes, if any, and any attorney, accountant or other
agent retained by any such selling Holder or each such Participating
Broker-Dealer, as the case may be, or underwriter (collectively, the
"INSPECTORS"), at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
instruments of the Company and its subsidiaries (collectively, the "RECORDS") as
shall be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities; and (ii) cause the officers, directors and employees
of the Company and their subsidiaries to supply all information reasonably
requested by any such Inspector in connection with such Registration Statement
and Prospectus. Each Inspector shall agree in writing that it will keep the
Records confidential and that it will not disclose any of the Records unless (A)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such Registration Statement or Prospectus, (B) the release of
such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, (C) disclosure of such information is necessary or
advisable, in the opinion of counsel for any Inspector, in connection with any
action, claim, suit or proceeding, directly or indirectly, involving or
potentially involving such Inspector and arising out of, based upon, relating
to, or involving this Agreement or the Purchase Agreement, or any transactions
contemplated hereby or thereby or arising hereunder or thereunder, or (D) the
information in such Records has been made generally available to the public.
Each selling Holder of such Registrable Notes and each such Participating
Broker-Dealer will be required to agree that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the Company
unless and until such is made generally available to the public. Each selling
Holder of such Registrable Notes and each such Participating Broker-Dealer will
be required to further agree that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential.
(o) (i) Provide an indenture trustee for the Registrable Notes or
the Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the first
Registration Statement relating to the Registrable Notes; (ii) in connection
therewith, cooperate with the trustee under any such indenture and the Holders
of the Registrable Notes, to effect such changes to such indenture as may be
required for such indenture to be so qualified in accordance with the terms of
the TIA; and (iii) execute, and use its best efforts to cause such trustee to
execute, all documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable such indenture
to be so qualified in a timely manner.
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to their respective security holders earnings
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of each fiscal quarter (or 90 days after the
end of any fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Notes are sold to underwriters in a firm commitment or best efforts
underwritten offering, or (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company after the
effective date of a Registration Statement, which statements shall cover said
fiscal quarters and years.
(q) If the Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by the Holders to the
Company (or to such other Person as directed by the Company) in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be, the Company
shall mark, or cause to be marked, on such Registrable Notes that such
Registrable Notes are being cancelled in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be; PROVIDED, that in no event shall
such Registrable Notes be marked as paid or otherwise satisfied.
(r) Use its best efforts to cause the Registrable Notes covered by a
Registration Statement or the Exchange Notes, as the case may be, to be rated
with the appropriate rating agencies, if so requested by the Holders of a
majority in aggregate principal amount of Registrable Notes covered by such
Registration Statement or the Exchange Notes, as the case may be, or the
managing underwriter or underwriters, if any.
(s) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each managing underwriter or underwriters, if any,
participating in the disposition of such Registrable Notes and their respective
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(t) Use its best efforts to take all other steps reasonably
necessary to effect the registration of the Exchange Notes and/or Registrable
Notes covered by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which
any registration is being effected to furnish to the Company such information
regarding such seller and distribution of such Registrable Notes as the Company
may, from time to time, reasonably request. The Company may exclude from such
registration the Registrable Notes of any seller so long as such seller fails to
furnish such information within a reasonable time after receiving such request.
Each seller as to which any Shelf Registration is being effected agrees to
furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such seller
not materially misleading.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be, that,
upon actual receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi)
hereof, such Holder will forthwith discontinue disposition of such Registrable
Notes covered by such Registration Statement or Prospectus or Exchange Notes to
be sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "ADVICE") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event that the Company shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Notes covered by such Registration Statement or Exchange Notes to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice.
SECTION 6. REGISTRATION EXPENSES
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company and the
Subsidiary Guarantors whether or not the Exchange Offer Registration Statement
or any Shelf Registration Statement is filed or becomes effective or the
Exchange Offer is consummated, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility of the
Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions (x) where the Holders of Registrable Notes are located, in the
case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the
case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses, including,
without limitation, expenses of printing certificates for Registrable Notes or
Exchange Notes in a form eligible for deposit with The Depository Trust Company
and of printing prospectuses if the printing of prospectuses is requested by the
managing underwriter or underwriters, if any, by the Holders of a majority in
aggregate principal amount of the Registrable Notes included in any Registration
Statement or in respect of Exchange Notes to be sold by any Participating
Broker-Dealer during the Applicable Period, as the case may be, (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and, in the case of a Shelf Registration, reasonable fees and
disbursements of one special counsel for all of the sellers of Registrable Notes
(exclusive of any counsel retained pursuant to Section 7 hereof), (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(m)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) Securities Act liability insurance, if the Company desires
such insurance, (vii) fees and expenses of all other Persons retained by the
Company, (viii) internal expenses of the Company (including, without limitation,
all salaries and expenses of officers and employees of the Company performing
legal or accounting duties), (ix) the expense of any annual audit, (x) the fees
and expenses incurred in connection with the listing of the securities to be
registered on any securities exchange, and the obtaining of a rating of the
securities, in each case, if applicable, and (xi) the expenses relating to
printing, word processing and distributing all Registration Statements,
underwriting agreements, indentures and any other documents necessary in order
to comply with this Agreement.
SECTION 7. INDEMNIFICATION
(a) The Company and the Subsidiary Guarantors, jointly and
severally, agree to indemnify and hold harmless each Holder of Registrable Notes
and each Participating Broker-Dealer selling Exchange Notes during the
Applicable Period, the officers, directors, employees and agents of each such
Person, and each Person, if any, who controls any such Person within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each, a "PARTICIPANT"), from and against any and all losses, claims, damages,
judgments, liabilities and expenses (including, without limitation, the
reasonable legal fees and other expenses actually incurred in connection with
any suit, action or proceeding or any claim asserted) caused by, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement (or any amendment thereto) or
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by,
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the case of the Prospectus in the light of the circumstances under
which they were made, not misleading, except insofar as such losses, claims,
damages or liabilities are caused by, arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information relating to any Participant furnished to
in writing by such Participant expressly for use therein; PROVIDED, HOWEVER,
that the Company and the Subsidiary Guarantors will not be liable if such untrue
statement or omission or alleged untrue statement or omission was contained or
made in any preliminary prospectus and corrected in the final Prospectus or any
amendment or supplement thereto and any such loss, liability, claim, or damage
or expense suffered or incurred by the Participants resulted from any action,
claim or suit by any Person who purchased Registrable Notes or Exchange Notes
which are the subject thereof from such Participant and it is established in the
related proceeding that such Participant failed to deliver or provide a copy of
the final Prospectus (as amended or supplemented) to such Person with or prior
to the confirmation of the sale of such Registrable Notes or Exchange Notes sold
to such Person if required by applicable law, unless such failure to deliver or
provide a copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Company and the Subsidiary Guarantors, their respective
directors, their respective officers who sign the Registration Statement and
each Person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Participant, but only with
reference to information relating to such Participant furnished to the Company
in writing by such Participant expressly for use in any Registration Statement
or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus. The liability of any Participant under this paragraph shall in no
event exceed the proceeds received by such Participant from sales of Registrable
Notes or Exchange Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "INDEMNIFIED Person") shall promptly
notify the Persons against whom such indemnity may be sought (the "INDEMNIFYING
PERSONS") in writing, and the Indemnifying Persons, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; PROVIDED, HOWEVER, that the failure to so notify the
Indemnifying Persons shall not relieve any of them of any obligation or
liability which any of them may have hereunder or otherwise except to the extent
it is materially prejudiced by such failure. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Persons and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Persons shall have failed
within a reasonable period of time to retain counsel reasonably satisfactory to
the Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both any Indemnifying Person and the
Indemnified Person or any affiliate thereof and representation of both parties
by the same counsel would be inappropriate due to actual or potential
conflicting interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons, the Indemnifying Persons shall not, in
connection with such proceeding or separate but substantially similar related
proceeding in the same jurisdiction arising out of the same general allegations,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be reimbursed promptly as they are incurred. Any such separate
firm for the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest of
Registrable Notes and Exchange Notes sold by all such Participants and any such
separate firm for the Company, their respective directors, their respective
officers and such control persons the Company shall be designated in writing by
the Company and shall be reasonably acceptable to the Holders. The Indemnifying
Persons shall not be liable for any settlement of any proceeding effected
without its prior written consent (which consent shall not be unreasonably
withheld or delayed), but if settled with such consent or if there be a final
non-appealable judgment for the plaintiff for which the Indemnified Person is
entitled to indemnification pursuant to this Agreement, each of the Indemnifying
Persons agrees to indemnify and hold harmless each Indemnified Person from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Person
shall have requested an Indemnifying Person to reimburse the Indemnified Person
for reasonable fees and expenses actually incurred by counsel as contemplated by
the third sentence of this paragraph, the Indemnifying Person agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement; PROVIDED,
HOWEVER, that the Indemnifying Person shall not be liable for any settlement
effected without its consent pursuant to this sentence if the Indemnifying
Person is contesting, in good faith, the request for reimbursement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Persons (which consent shall not be unreasonably withheld or delayed), effect
any settlement or compromise of any pending or threatened proceeding in respect
of which any Indemnified Person is or could have been a party, or indemnity
could have been sought hereunder by such Indemnified Person, unless such
settlement (A) includes an unconditional written release of such Indemnified
Person, in form and substance reasonably satisfactory to such Indemnified
Person, from all liability on claims that are the subject matter of such
proceeding and (B) does not include any statement as to an admission of fault,
culpability or failure to act by or on behalf of such Indemnified Person.
(d) If the indemnification provided for in clauses (a) and (b) of
this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other hand from the
offering of the Notes or (ii) if the allocation provided by the foregoing clause
(i) is not permitted by applicable law, not only such relative benefits but also
the relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other hand in connection with the
statements or omissions or alleged statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Participants on the other hand shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of discounts and commissions but before deducting expenses) of the Notes
received by the Company bears to the total proceeds received by such Participant
from the sale of Registrable Notes or Exchange Notes. The relative fault the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information on supplied by the
Company on the one hand or such Participant or such other Indemnified Person, as
the case may be, on the other, the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission,
and any other equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages, judgments, liabilities and expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the Indemnifying Party to the Indemnified Party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any person who controls a
Holder, the Company and their respective directors, officers, employees or
agents or any person controlling the Company and (ii) any termination of this
Agreement.
(g) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
SECTION 8. RULES 144 AND 144A
The Company covenants and agrees that, so long as Registrable Notes
remain outstanding, it will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder in a timely manner in accordance with the requirements of the
Securities Act and the Exchange Act and, if at any time the Company is not
permitted to file such reports, the Company will, upon the request of any Holder
or beneficial owner of Registrable Notes, make publicly available annual reports
and such information, documents and other reports of the type specified in
Sections 13 and 15(d) of the Exchange Act. The Company further covenants, for so
long as any Registrable Notes remain outstanding, to make available to any
Holder or beneficial owner of Registrable Notes in connection with any sale
thereof and any prospective purchaser of such Registrable Notes from such Holder
or beneficial owner the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Notes pursuant to
Rule 144A.
SECTION 9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Notes covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
SECTION 10. MISCELLANEOUS
(a) ADDITIONAL AMOUNTS OF NOTES. The Notes are limited in aggregate
principal amount to $300,000,000, of which $200,000,000 will be issued on the
date hereof. Additional amounts of Notes may be issued in one or more series
from time to time under the Indenture prior to the filing of any Registration
Statement. The Company shall provide the registration rights set forth under
this Agreement to the Initial Purchasers and any subsequent holder or holders of
such additional Notes.
(b) NO INCONSISTENT AGREEMENTS. As of the date hereof, the Company
has not entered into, and will not enter into, any agreement with respect to any
of its securities that is inconsistent with the rights granted to the Holders of
Registrable Notes in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of any of
the Company's other issued and outstanding securities. As of the date hereof,
the Company has not entered into, and will not enter into, any agreement with
respect to any of its securities which will grant to any Person piggyback
registration rights with respect to any Registration Statement required to be
filed by the Company pursuant to this Agreement.
(c) ADJUSTMENTS AFFECTING REGISTRABLE NOTES. The Company shall not,
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (i) the Company and (ii)(A) the Holders of not less than a majority
in aggregate principal amount of the then outstanding Registrable Notes, and (B)
in circumstances that would adversely affect the Participating Broker-Dealers,
the Participating Broker-Dealers holding not less than a majority in aggregate
principal amount of the Exchange Notes held by all Participating Broker-Dealers;
PROVIDED, HOWEVER, that Section 7 and this Section 10(d) may not be amended,
modified or supplemented without the prior written consent of each Holder and
each Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case
may be, disposed of pursuant to any Registration Statement) affected by any such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.
(e) NOTICES. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
(i) if to a Holder of the Registrable Notes or any
Participating Broker-Dealer, at the most current address of such Holder or
Participating Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture, with a copy in like manner to the Initial
Purchasers as follows:
BT Alex. Brown Incorporated
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Attention: Finance Transaction Management
Facsimile No.: (212) 250-7200
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Randall C. Bassett, Esq.
Facsimile No.: (213) 891-8763
(ii) All such notices and communications shall be deemed to
have been duly given: when delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed; one
business day after being timely delivered to a next-day air courier; and upon
receiving confirmation receipt by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address and in the manner specified in such Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, the Holders and the Participating Broker-Dealers; PROVIDED, that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Registrable Notes in violation of the terms of the Purchase Agreement or the
Indenture.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(j) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) SECURITIES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever the
consent or approval of the Holders of a specified percentage of Registrable
Notes is required hereunder, Registrable Notes held by the Company or any of
their affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
(l) THIRD PARTY BENEFICIARIES. The Holders of Registrable Notes and
the Participating Broker-Dealers are intended third party beneficiaries of this
Agreement, and this Agreement may be enforced by such Persons.
(signature page follows)
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
METALS USA, INC.
By: /s/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: Senior Vice President &
Chief Financial Officer
AFFILIATED METALS COMPANY,
CORNERSTONE ALUMINUM COMPANY, INC.,
CORNERSTONE BUILDING PRODUCTS, INC.,
CORNERSTONE METALS CORPORATION,
CORNERSTONE PATIO CONCEPTS, L.L.C.,
FEDERAL BRONZE ALLOYS INC.,
HARVEY TITANIUM, LTD.,
INDEPENDENT METALS CO., INC.,
INTERSTATE STEEL SUPPLY COMPANY,
INTERSTATE STEEL SUPPLY COMPANY OF MARYLAND,
INTERSTATE STEEL SUPPLY COMPANY OF PITTSBURGH,
INTERSTATE STEEL PROCESSING COMPANY,
JEFFREYS STEEL COMPANY, INC.,
MEIER METAL SERVICENTERS, INC.,
METALS USA FINANCE CORP.,
METALS USA SERVICE CORPORATION,
MUSA GP, INC.,
MUSA LP, INC.,
QUEENSBORO STEEL CORPORATION,
R.J. FABRICATING INC.,
ROYAL ALUMINUM, INC.,
SOUTHERN ALLOY OF AMERICA, INC.,
STEEL SERVICE SYSTEMS, INC.,
TEXAS ALUMINUM INDUSTRIES, INC.,
UNI-STEEL, INC.,
WAYNE STEEL, INC. and
WILLIAMS STEEL & SUPPLY CO., INC.
By: /s/ J. MICHAEL KIRKSEY
Name: J. Michael Kirksey
Title: Vice President and Director
BT ALEX. BROWN INCORPORATED
By: /s/ CHRISTINE M. CARDACE
Name: Christine M. Cardace
Title: Vice President
BEAR, STEARNS & CO. INC.
By: /s/ SHELDON I. STEIN
Name: Sheldon I. Stein
Title: Senior Managing Director
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
By: /s/ JULIE E. SILCOCK
Name: Julie E. Silcock
Title: Managing Director
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ STUART B. GLEICHENHAUS
Name: Stuart B. Gleichenhaus
Title: Managing Director
FOUNDERS' EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") dated this 26th day
of September, 1997 (the "Effective Date"), by and between Jeffreys Steel
Company, Inc., an Alabama corporation (the "Company") which is a wholly-owned
subsidiary of Metals USA, Inc., a Delaware corporation ("Metals") and Leon
Jeffreys ("Executive").
R E C I T A L S
A. As of the Effective Date, the Company and the other subsidiaries of
Metals are or will be engaged primarily in the business of providing metals
processing, metals fabrication and specialty metals services, including
brokering, manufacturing and distribution services; and
B. Executive is employed by the Company in a confidential relationship
wherein Executive, in the course of his employment with the Company, has and
will continue to become familiar with and aware of information as to the
Company's and Metals' customers, specific manner of doing business, including
the processes, techniques and trade secrets utilized by the Company and Metals,
and future plans with respect hereto, all of which has been and will be
established and maintained at great expense to the Company and Metals; this
information is a trade secret and constitute the valuable goodwill of the
Company and Metals; and
C. The parties desire to agree to the various matters described herein
and to memorialize those agreements herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as Chairman of the Board of
the Company. As such, Executive shall have responsibilities, duties and
authority reasonably accorded to, expected of, and consistent with Executive's
position and will report to the Board of Directors of the Company (the "Board").
Executive hereby accepts this employment upon the terms and conditions herein
contained and, subject to Section 3 hereof, agrees to devote substantially all
of his business time, attention and efforts to promote and further the business
of the Company and Metals.
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(b) Executive shall faithfully adhere to, execute and fulfill all
lawful policies established by the Company, as such policies may be changed from
time to time by the Company.
(c) Executive shall not be required to relocate from Mobile, Alabama.
2. COMPENSATION. For all services rendered by Executive, the Company
shall compensate Executive as follows:
(a) BASE SALARY. As of the Effective Date, the base salary payable to
Executive shall be $150,000 per year, payable on a regular basis in accordance
with the Company's standard payroll procedures but not less than monthly. On at
least an annual basis, the Board will review Executive's performance and may
make increases to such base salary if, in its discretion, any such increase is
warranted.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company and Metals in such form and to such extent as specified below:
(i) Admittance for participation for Executive and Executive's
dependent family members under health, hospitalization, disability,
dental, life and other insurance plans that the Company may have in
effect from time to time, with benefits provided to Executive under this
clause (i) to be at least equal to such benefits provided to Company
employees generally; provided, however, that in no event shall the
benefits described hereunder be reduced below the level of benefits
presently provided to Executive and Executive's dependent family members
by the Company.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Executive in the
performance of his services pursuant to this Agreement. All reimbursable
expenses shall be appropriately documented in reasonable detail by
Executive upon submission of any request for reimbursement, and in a
format and manner consistent with the Company's expense reporting
policy.
(iii) The Company and Metals shall provide Executive with other
executive perquisites as may be available to or deemed appropriate for
Executive by the Board or Metals and participation in all other
company-wide and Metals' employee benefits as are available from time to
time, including but not limited to any qualified and/or nonqualified
retirement plans, bonus plans and stock option plans that may be
sponsored by the Company or Metals.
(iv) The Company is currently maintaining a key man insurance
policy on one (1) key employee. The Company agrees to continue
maintaining said policy no. 200332941 and charging the cost of the same
against the base salary.
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3. NON-COMPETITION AGREEMENT.
(a) Executive shall not be engaged in any other business activity
pursued for gain, profit or other pecuniary advantage if such activity
interferes or conflicts in any respect with Executive's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Executive from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of this
Section 3. In addition, Executive shall not, during the period of his employment
by or with the Company, and for a period of one (1) year immediately following
the termination of his employment under this Agreement, for any reason
whatsoever, other than a termination by the Company without cause or by
Executive for Good Reason, directly or indirectly, for himself or on behalf of
or in conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with the Company
or Metals, within 200 miles of where the Company or any of Metals'
subsidiaries conducts business, including any territory serviced by the
Company or Metals or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company or Metals (including the
respective subsidiaries thereof) in a managerial capacity for the
purpose or with the intent of enticing such employee away from or out of
the employ of the Company or Metals (including the respective
subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of
the Company or Metals (including the respective subsidiaries thereof)
within the Territory for the purpose of soliciting or selling products
or services in direct competition with the Company or Metals within the
Territory;
(iv) call upon any prospective acquisition candidate, on
Executive's own behalf or on behalf of any competitor, which candidate
was, to Executive's actual knowledge after due inquiry, either called
upon by the Company or Metals (including the respective subsidiaries
thereof) or for which the Company or Metals made an acquisition
analysis, for the purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as an investment not more than one percent
(1%) of the capital stock of a competing business, whose stock is traded on a
national securities exchange or on an over-the-counter or similar market.
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<PAGE>
(b) Because of the difficulty of measuring economic losses to the
Company and Metals as a result of a breach of the foregoing covenant, and
because of the immediate and irreparable damage that could be caused to the
Company and Metals for which they would have no other adequate remedy, Executive
agrees that the foregoing covenant may be enforced by Metals or the Company in
the event of breach by him, by injunctions and restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
Section 3 impose a reasonable restraint on Executive in light of the activities
and business of the Company or Metals, as the case may be (including Metals'
other subsidiaries) on the date of execution of this Agreement and the current
plans of Metals (including Metals' other subsidiaries); but it is also the
intent of the Company and Executive that such covenants be construed and
enforced in accordance with the changing activities, business and locations of
the Company and Metals, as the case may be (including Metals' other
subsidiaries) throughout the term of this covenant, whether before or after the
date of termination of the employment of Executive. For example, if, during the
term of this Agreement, the Company or Metals, as the case may be (including
Metals' other subsidiaries) engages in new and different activities, enters a
new business or establishes new locations for its current activities or business
in addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Executive
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 200 miles of its then-established operating
location(s) through the term of this covenant. It is further agreed by the
parties hereto that, in the event that Executive shall cease to be employed
hereunder, and shall enter into a business or pursue other activities not in
competition with the Company or Metals (including Metals' other subsidiaries),
or similar activities or business in locations the operation of which, under
such circumstances, does not violate clause (a) of this Section 3, and in any
event such new business, activities or location are not in violation of this
Section 3 or of Executive's obligations under this Section 3, if any, Executive
shall not be chargeable with a violation of this Section 3 if the Company or
Metals (including Metals' other subsidiaries) shall thereafter enter the same,
similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
(d) The covenants in this Section 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and the
Agreement shall thereby be reformed.
(e) All of the covenants in this Section 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Metals, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Metals or the Company of such covenants. It is
specifically agreed that the period of one (1) year following termination of
employment stated at the beginning of this Section 3, during which the
agreements and covenants of Executive made in this Section 3 shall be effective,
shall be computed by excluding from such computation any time during which
Executive is in violation of any provision of this Section 3.
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4. TERM; TERMINATION; RIGHTS ON TERMINATION OF EMPLOYMENT.
(a) The term of this Agreement shall begin on the Effective Date and continue
for five (5) years (the "Initial Term"), unless terminated sooner as herein
provided, and shall continue thereafter on a year-to-year basis on the same
terms and conditions contained herein in effect as of the time of renewal. This
Agreement and Executive's employment may be terminated in any one of the
followings ways:
(i) DEATH. The death of Executive shall immediately terminate
this Agreement with no severance compensation due to Executive's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before
or after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period), the
Company may terminate Executive's employment hereunder provided
Executive is unable to resume his full-time duties with or without
reasonable accommodation at the conclusion of such notice period.
PROVIDED, HOWEVER, IF COMPANY'S THEN-EXISTING DISABILITY (SHORT/LONG
TERM) PROGRAM PROVIDES MORE BENEFITS, THEN COMPANY'S DISABILITY PROGRAM
SHALL CONTROL. Also, Executive may terminate his employment hereunder if
his health should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or mental
health or his life, provided that Executive shall have furnished the
Company with a written statement from a qualified doctor to such effect
and provided, further, that, at the Company's request made within thirty
(30) days of the date of such written statement, Executive shall submit
to an examination by a doctor selected by the Company who is reasonably
acceptable to Executive or Executive's doctor and such doctor shall have
concurred in the conclusion of Executive's doctor. In the event this
Agreement is terminated as a result of Executive's disability, Executive
shall receive from the Company, in a lump-sum payment due within ten
(10) days of the effective date of termination, the base salary at the
rate then in effect for whatever time period is remaining under the
Initial Term of this Agreement or for one (1) year, whichever amount is
greater; provided, however, that any such payments shall be reduced by
the amount of any disability insurance payments payable to the Executive
as a result of such disability.
(iii) GOOD CAUSE. The Company may terminate the Agreement upon
ten days for good cause, which shall be: (1) Executive's willful,
material and irreparable breach of this Agreement after ten (10) days
-5-
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prior written notice and Executive has not cured same; (2) Executive's
gross negligence in the performance or intentional nonperformance of any
of Executive's material duties and responsibilities hereunder after ten
(10) days prior written notice and Executive has not cured same; (3)
Executive's willful dishonesty, fraud or misconduct with respect to the
business or affairs of the Company or Metals which materially and
adversely affects the operations or reputation of the Company or Metals
after ten (10) days prior written notice and Executive has not cured
same; (4) Executive's conviction of a felony crime; or (5) confirmed
positive illegal drug test result (subject to Company's drug program, if
applicable). In the event of a termination for good cause, Executive
shall have no right to any severance compensation.
(iv) WITHOUT CAUSE. At any time after the commencement of
employment, Executive may, without cause, and without Good Reason (as
hereinafter defined) terminate this Agreement and Executive's
employment, effective thirty (30) days after written notice is provided
to the Company. Executive may only be terminated without cause by the
Company during the Term hereof if such termination is approved by at
least eighty percent (80%) of the members of the Board of Directors of
Metals (excluding the Executive if the Executive is then a member of the
Board of Directors of Metals). Should Executive be terminated by the
Company without cause or should Executive terminate with Good Reason
during the first four (4) years of the Term, Executive shall receive
from the Company, in a lump-sum payment due on the effective date of
termination, the base salary at the rate then in effect for whatever
time period is remaining under the Initial Term of this Agreement.
Should Executive be terminated by the Company without cause or should
Executive terminate with Good Reason after the fourth anniversary of
this Agreement, Executive shall receive from the Company, in a lump-sum
payment due on the effective date of termination, the base salary rate
then in effect equivalent to one (1) year of salary. Further, any
termination without cause by the Company or by the Executive for good
reason shall cause the terms of Section 3 to not apply whatsoever. If
Executive resigns or otherwise terminates his employment without Good
Reason, the provisions of Section 3 hereof shall apply, except that
Executive shall receive no severance compensation.
(b) DEFINITION OF "GOOD REASON". Executive shall have "Good Reason" to
terminate this Agreement and his employment hereunder upon the occurrence of any
of the following events: (a) Executive is demoted by means of a reduction in
authority, responsibilities or duties to a position of less stature or
importance within the Company than the position described in Section 1 hereof;
or (b) Executive's annual base salary as determined pursuant to Section 2 hereof
is reduced unless Executive has agreed in writing to that demotion or reduction;
or (c) Company materially breaches this Agreement.
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(c) CHANGE IN CONTROL OF METALS. In the event of a "Change in Control of
Metals" (as defined below) during the Initial Term, Section 11 below shall
apply.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Executive shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any, will be
due and payable to Executive only to the extent and in the manner expressly
provided herein. All other rights and obligations of the Company and Executive
under this Agreement shall cease as of the effective date of termination, except
that the Company's obligations under Section 8 herein and Executive's
obligations under Sections 3, 5, 6, 7 and 9 herein shall survive such
termination in accordance with their terms.
(e) CERTAIN TERMINATIONS. If Executive is terminated without cause or
terminates his employment hereunder with Good Reason, (1) the Company shall make
the insurance premium payments contemplated by COBRA for a period of 12 months
after such termination, (2) the Executive shall be entitled to receive a pro
rated portion of any annual bonus to which the Executive would have been
entitled for the year during which the termination occurred had the Executive
not been terminated and (3) all of Executive's options to purchase Metals stock
shall vest thereupon.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Metals or
their representatives, vendors or customers which pertain to the business of the
Company or Metals shall be and remain the property of the Company or Metals, as
the case may be, and be subject at all times to their discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans of
the Company or Metals which is collected by Executive shall be delivered
promptly to the Company without request by it upon termination of Executive's
employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that he will not, during or for a one
(1) year period after the termination of this Agreement with the Company,
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disclose the terms of the Company's or Metals' relationships or agreements with
their respective vendors or customers or any other trade secret of the Company
or Metals, whether in existence or proposed, to any person, firm, partnership,
corporation or business for any reason or purpose whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
or Metals against Executive), by reason of the fact that he is or was performing
services under this Agreement, then the Company shall indemnify Executive
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement, as actually and reasonably incurred by Executive in
connection therewith to the maximum extent permitted by applicable law. The
advancement of expenses shall be mandatory to the extent permitted by applicable
law. In the event that both Executive and the Company are made a party to the
same third-party action, complaint, suit or proceeding, the Company agrees to
engage counsel, and Executive agrees to use the same counsel, provided that if
counsel selected by the Company shall have a conflict of interest that prevents
such counsel from representing Executive, Executive may engage separate counsel
and the Company shall pay all reasonable attorneys' fees of such separate
counsel. The Company shall not be required to pay the fees of more than one law
firm except as described in the preceding sentence, and shall not be required to
pay the fees of more than two law firms under any circumstances. Further, while
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Company or Metals for errors or omissions made in good faith where Executive
has not exhibited gross, willful and wanton negligence and misconduct or
performed criminal and fraudulent acts which materially damage the business of
the Company or Metals.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Further, Executive agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Executive and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject to
the preceding two (2) sentences and the express provisions of Section 12 below,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties hereto and their respective heirs, legal representatives,
successors and assigns.
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11. CHANGE IN CONTROL.
(a) Unless Executive elects to terminate this Agreement pursuant to (c)
below, Executive understands and acknowledges that Metals and/or the Company may
be merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of Metals and/or the Company
hereunder or that the Company may undergo another type of Change in Control. In
the event such a merger or consolidation or other Change in Control is initiated
prior to the end of the Initial Term, then the provisions of this Section 11
shall be applicable.
(b) In the event of a pending Change in Control wherein Metals and/or
the Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Metals' and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Metals' and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Metals and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by
Metals and/or the Company without cause during the Initial Term and the
applicable portions Section 4(d) will apply; however, under such circumstances,
the amount of the lump-sum severance payment due to Executive shall be triple
the amount calculated under the terms of Section 4(d) and the non-competition
provisions of Section 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of Section 4(d) will apply as though the Company had terminated the
Agreement without cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of Section 4(d) and the
non-competition provisions of Section 3 shall all apply for a period of two (2)
years from the effective date of termination.
(d) For purposes of applying Section 4 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of his vested
options to purchase Metals Common Stock, such that he may convert the options to
shares of Metals Common Stock at or prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
-9-
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(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than Metals or an employee benefit plan of
Metals, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after
such acquisition such person is, directly or indirectly, the beneficial
owner of voting securities representing 50% or more of the total voting
power of all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Metals: (A) the individuals
who, as of the closing date of Metals' initial public offering,
constitute the Board of Directors of Metals (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of Directors
of Metals and whose election, or nomination for election, to the Board
of Directors of Metals was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of Metals and whose election, or nomination for election, to
the Board of Directors of Metals was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional Original
Directors then still in office (such directors also becoming "Additional
Original Directors" immediately following their election);
(iii) the stockholders of Metals shall approve a merger,
consolidation, recapitalization, or reorganization of Metals, a reverse
stock split of outstanding voting securities, or consummation of any
such transaction if stockholder approval is not obtained, other than any
such transaction which would result in at least 75% of the total voting
power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially Owned
by at least 75% of the holders of outstanding voting securities of
Metals immediately prior to the transaction, with the voting power of
each such continuing holder relative to other such continuing holders
not substantially altered in the transaction; or
(iv) the stockholders of Metals shall approve a plan of complete
liquidation of Metals or an agreement for the sale or disposition by
Metals of all or a substantial portion of Metals' assets (i.e., 50% or
more of the total assets of Metals).
(f) Executive must be notified in writing by the Company or Metals at
any time that the Company or any member of its Board anticipates that a Change
in Control may take place.
(g) Executive shall be reimbursed by the Company or its successor for
any excise taxes that Executive incurs under Section 4999 of the Internal
Revenue Code of 1986, as a result of any Change in Control. Such amount will be
due and payable by the Company or its successor within ten (10) days after
Executive delivers a written request for reimbursement accompanied by a copy of
his tax return(s) showing the excise tax actually incurred by Executive.
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12. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between the
Company and Executive. This Agreement is not a promise of future employment.
Executive has no oral representations, understandings or agreements with the
Company or any of its officers, directors or representatives covering the same
subject matter as this Agreement. This written Agreement is the final, complete
and exclusive statement and expression of the agreement between the Company and
Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the Company and
Executive, and no term of this Agreement may be waived except by writing signed
by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Jeffreys Steel Company, Inc.
c/o Metals USA, Inc.
Attn: Chairman of the Board
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: (713) 965-0990
Fax: (713) 965-0067
With a copy to: Metals USA, Inc.
John Hageman, General Counsel
Three Riverway, Suite 600
Houston, Texas 77056
Telephone: (713) 965-0990
Fax: (713) 965-0067
To Executive: Leon Jeffreys
5808 Fairfax Road N.
Mobile, Alabama 36608
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this Section 13.
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14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
Section headings herein are for reference purposes only and are not intended in
any way to describe, interpret, define or limit the extent or intent of the
Agreement or of any part hereof.
15. ARBITRATION. With the exception of Sections 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in, Mobile, Alabama in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Executive shall comply with the Company's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Executive was terminated without disability or good
cause, as defined in Sections 4(b) and 4(c), respectively, or that the Company
has otherwise materially breached this Agreement. A decision by a majority of
the arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expense of any
arbitration proceeding shall be borne by the Company.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Alabama.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
JEFFREYS STEEL COMPANY, INC.
By: /s/ TOBY JEFFREYS
--------------------------
Name: Toby Jeffreys
Title: President
EXECUTIVE:
/s/ LEON JEFFREYS
---------------------------
Leon Jeffreys
EXECUTION DRAFT
DECEMBER 17, 1997
AGREEMENT AND PLAN OF MERGER
dated as of December 17, 1997
by and among
METALS USA, INC.
IM ACQUISITION CORP.
(a subsidiary of Metals USA, Inc.)
INDEPENDENT METALS CO., INC.
and
the Stockholders named herein
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<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
Page
1. THE MERGER...........................................................................1
1.1 THE MERGER....................................................................1
----------
1.2 EFFECTIVE TIME................................................................1
--------------
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF SURVIVING
-------------------------------------------------------------------------
CORPORATION...................................................................2
-----------
1.4 EFFECT OF MERGER..............................................................2
----------------
1.5 NAME CHANGE...................................................................3
-----------
2. CONVERSION OF STOCK; CLOSING.........................................................3
2.1 MANNER OF CONVERSION..........................................................3
--------------------
2.2 CLOSING.......................................................................3
-------
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS...................................4
3.1 DUE ORGANIZATION..............................................................4
----------------
3.2 AUTHORIZATION.................................................................4
-------------
3.3 CAPITAL STOCK OF THE COMPANY..................................................5
----------------------------
3.4 SUBSIDIARIES..................................................................5
------------
3.5 FINANCIAL STATEMENTS..........................................................5
--------------------
3.6 LIABILITIES AND OBLIGATIONS...................................................6
---------------------------
3.7 ACCOUNTS AND NOTES RECEIVABLE.................................................6
-----------------------------
3.8 PERMITS AND INTANGIBLES.......................................................6
-----------------------
3.9 ENVIRONMENTAL MATTERS.........................................................7
---------------------
3.10 PERSONAL PROPERTY.............................................................7
-----------------
3.11 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.....................8
---------------------------------------------------------
3.12 REAL PROPERTY.................................................................8
-------------
3.13 INSURANCE.....................................................................9
---------
3.14 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS..................9
------------------------------------------------------------
3.15 EMPLOYEE BENEFIT PLANS........................................................9
----------------------
3.16 CONFORMITY WITH LAW; LITIGATION..............................................11
-------------------------------
3.17 TAXES........................................................................11
-----
3.18 NO VIOLATIONS; CONSENTS REQUIRED.............................................12
--------------------------------
3.19 GOVERNMENT CONTRACTS.........................................................13
--------------------
3.20 ABSENCE OF CHANGES...........................................................13
------------------
3.21 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY.........................................14
------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C>
3.22 COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS......................15
-------------------------------------------------------
3.23 DISCLOSURE...................................................................15
----------
3.24 PREEMPTIVE RIGHTS............................................................15
-----------------
3.25 CERTAIN BUSINESS PRACTICES...................................................15
--------------------------
4. REPRESENTATIONS OF METALS...........................................................15
4.1 DUE ORGANIZATION.............................................................15
----------------
4.2 AUTHORIZATION................................................................16
-------------
4.3 NO VIOLATIONS................................................................16
-------------
4.4 VALIDITY OF OBLIGATIONS......................................................16
-----------------------
4.5 METALS STOCK.................................................................16
------------
5. COVENANTS PRIOR TO CLOSING..........................................................17
5.1 COOPERATION..................................................................17
-----------
5.2 CONDUCT OF BUSINESS PENDING CLOSING..........................................17
-----------------------------------
5.3 PROHIBITED ACTIVITIES........................................................17
---------------------
5.4 NO SHOP......................................................................18
-------
5.5 FURTHER ASSURANCES...........................................................18
------------------
5.6 NOTICES AND CONSENTS.........................................................18
--------------------
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY.............................................................................18
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS...................18
6.2 SATISFACTION.................................................................18
6.3 CONSENTS AND APPROVALS.......................................................18
6.4 NO MATERIAL ADVERSE EFFECT...................................................19
6.5 TAX MATTERS..................................................................19
6.6 BORROWINGS...................................................................19
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF METALS AND
NEWCO...............................................................................19
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS...................19
7.2 NO MATERIAL ADVERSE EFFECT...................................................19
7.3 SATISFACTION.................................................................19
7.4 CONSENTS AND APPROVALS.......................................................19
8. DELIVERIES..........................................................................20
8.1 OPINION OF COUNSEL TO THE COMPANY............................................20
8.2 OPINION OF COUNSEL TO METALS.................................................20
</TABLE>
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<TABLE>
<S> <C> <C>
8.3 EMPLOYMENT AND CONSULTING AGREEMENTS................................................20
------------------------------------
8.4 GOOD STANDING CERTIFICATES...................................................20
--------------------------
8.5 ESCROW AGREEMENT.............................................................20
----------------
8.6 FIRPTA CERTIFICATE...........................................................20
------------------
8.7 RELATED PARTY TRANSACTIONS...................................................20
--------------------------
8.8 HSR FILINGS..................................................................21
-----------
8.9 STOCKHOLDERS' RELEASE........................................................21
---------------------
8.10 NONCOMPETITION AGREEMENT.....................................................21
------------------------
8.11 DELIVERY OF CONSIDERATION....................................................21
-------------------------
9. POST-CLOSING COVENANTS..............................................................21
9.1 PREPARATION AND FILING OF TAX RETURNS........................................21
-------------------------------------
9.2 FURTHER ASSURANCES...........................................................22
------------------
10. INDEMNIFICATION.....................................................................22
10.1 SURVIVAL OF STOCKHOLDERS' REPRESENTATIONS AND WARRANTIES. ..................22
--------------------------------------------------------
10.2 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS..................................22
-------------------------------------------
10.3 INDEMNIFICATION BY METALS....................................................23
-------------------------
10.4 THIRD PERSON CLAIMS..........................................................23
-------------------
10.5 METHOD OF PAYMENT............................................................24
-----------------
10.6 LIMITATIONS ON INDEMNIFICATION...............................................24
------------------------------
10.7 SOLE REMEDY..................................................................24
-----------
11. TERMINATION OF AGREEMENT............................................................24
11.1 TERMINATION..................................................................24
-----------
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...........................................25
12.1 GENERAL......................................................................25
-------
12.2 EQUITABLE RELIEF.............................................................25
----------------
12.3 SURVIVAL.....................................................................25
--------
13. INTENDED TAX TREATMENT
...................................................................................26
13.1 TAX-FREE REORGANIZATION......................................................26
-----------------------
14. SECURITIES LAW MATTERS..............................................................27
14.1 ECONOMIC RISK; SOPHISTICATION................................................27
-----------------------------
14.2 COMPLIANCE WITH LAW..........................................................27
-------------------
14.3 CONTRACTUAL RESTRICTIONS.....................................................27
------------------------
</TABLE>
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<TABLE>
<S> <C> <C>
15. GENERAL.............................................................................27
15.1 COOPERATION..................................................................27
-----------
15.2 SUCCESSORS AND ASSIGNS.......................................................28
----------------------
15.3 ENTIRE AGREEMENT.............................................................28
----------------
15.4 COUNTERPARTS.................................................................28
------------
15.5 BROKERS AND AGENTS...........................................................28
------------------
15.6 EXPENSES.....................................................................28
--------
15.7 NOTICES......................................................................28
-------
15.8 GOVERNING LAW................................................................29
-------------
15.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................................29
------------------------------------------
15.10 EFFECT OF INVESTIGATION; KNOWLEDGE...........................................29
----------------------------------
15.11 EXERCISE OF RIGHTS AND REMEDIES..............................................30
-------------------------------
15.12 TIME.........................................................................30
----
15.13 REFORMATION AND SEVERABILITY.................................................30
----------------------------
15.14 REMEDIES CUMULATIVE..........................................................30
-------------------
15.15 CAPTIONS.....................................................................30
--------
</TABLE>
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SCHEDULES
SCHEDULE 2.1 Share Value Calculation/Conversion
SCHEDULE 3.1. Due Organization
SCHEDULE 3.2. Authorization
SCHEDULE 3.3. Capital Stock of the Company
SCHEDULE 3.4. Subsidiaries
SCHEDULE 3.5. Financial Statements
SCHEDULE 3.6. Liabilities and Obligations
SCHEDULE 3.7. Accounts and Notes Receivable
SCHEDULE 3.8. Permits and Intangibles
SCHEDULE 3.9. Environmental Matters
SCHEDULE 3.10. Personal Property
SCHEDULE 3.11. Significant Customers; Material Contracts and Commitments
SCHEDULE 3.12. Real Property
SCHEDULE 3.13. Insurance
SCHEDULE 3.14. Compensation; Employment Agreements; Organized Labor Matters
SCHEDULE 3.15. Employee Benefit Plans
SCHEDULE 3.16. Conformity with Law; Litigation
SCHEDULE 3.17. Taxes
SCHEDULE 3.18. No Violations; No Consents Required
SCHEDULE 3.20. Absence of Changes
SCHEDULE 3.21. Deposit Accounts; Powers of Attorney
SCHEDULE 3.22. Competing Lines of Business; Related-party Transactions
SCHEDULE 4.2. Authorization
SCHEDULE 5.3. Prohibited Activities
SCHEDULE 8.3. Employment and Consulting Agreements
SCHEDULE 8.7. Related Party Transactions
SCHEDULE 10.6(e). Limitation on Indemnification
SCHEDULE 15.7. Notices
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ANNEXES
ANNEX I - FORM OF EMPLOYMENT AGREEMENTS
ANNEX II - FORM OF OPINION OF COUNSEL TO COMPANY AND
STOCKHOLDERS
ANNEX III - FORM OF OPINION OF COUNSEL TO METALS
ANNEX IV - FORM OF ESCROW AGREEMENT
ANNEX V - FORM OF NON COMPETITION AGREEMENT
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of
December 17, 1997, by and among METALS USA, INC., a Delaware corporation
("Metals"), IM ACQUISITION CORP., a Delaware corporation and wholly-owned
subsidiary of Metals ("Newco"), INDEPENDENT METALS CO., INC., a Wisconsin
corporation (the "Company"), and the stockholders identified on the signature
pages hereto (the "Stockholders"). The Stockholders are the only stockholders of
the Company.
WHEREAS, the respective Boards of Directors of Newco and the Company
(collectively called the "Constituent Corporations") deem it advisable and in
the best interests of the Constituent Corporations and their respective
stockholders that the Company merge with and into Newco pursuant to this
Agreement and the applicable provisions of the laws of the State of Delaware and
of the State of Wisconsin (the "State of Incorporation"); and
WHEREAS, the Boards of Directors of the Constituent Corporations have
approved and adopted this Agreement as a plan of reorganization under Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the mutual agreements,
representations and warranties herein contained, the parties hereto hereby agree
as follows:
1. THE MERGER
1.1 THE MERGER. On the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined below), the Company shall be merged
with and into Newco (the "Merger") and the separate existence of the Company
shall cease, all in accordance with the provisions of the law of the State of
Incorporation and the General Corporation Law of the State of Delaware (the
"DGCL"). Newco shall be the surviving corporation in the Merger and is sometimes
hereinafter called the "Surviving Corporation".
1.2 EFFECTIVE TIME. The Merger shall become effective at such time (the
"Effective Time") as certificates of merger, in form appropriate for filing, are
filed with the Secretaries of State (or other appropriate authorities) of the
State of Delaware and the State of Incorporation (the "Merger Filings"). The
Merger Filings shall be made simultaneously with or as soon as practicable after
the closing of the transactions contemplated by this Agreement.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time:
(i) the Certificate of Incorporation of Newco then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii)the By-laws of Newco then in effect shall be the By-laws of
the Surviving Corporation until they shall thereafter be duly amended;
(iii)the Board of Directors of the Surviving Corporation shall
consist of (a) the persons who were directors of the Company immediately prior
to the Effective Time, and (b) J. Michael Kirksey, who shall be appointed to the
Board of Directors of the Surviving Corporation effective immediately after the
Effective Time (and, if necessary, the size of the Board of Directors of the
Surviving Corporation shall be expanded so as to accommodate such appointment);
and
(iv)the officers of the Company immediately prior to the
Effective Time shall become officers of the Surviving Corporation in the same
capacity or capacities, and J. Michael Kirksey shall be appointed as an
additional Vice President, and Keith St. Clair shall be appointed as an
Assistant Treasurer, and John A. Hageman shall be appointed as an Assistant
Secretary, of the Surviving Corporation.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the DGCL 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 Newco shall
continue unaffected and unimpaired by the Merger and the corporate franchises,
existence and rights of the Company shall be merged with and into Newco, and
Newco, as the Surviving Corporation, shall be fully vested therewith. At the
Effective Time, the separate existence of the Company shall cease and, in
accordance with the terms of this Agreement, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public, as
well as of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
taxes, including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to the
Company and Newco shall be taken and deemed to be transferred to, and vested in,
the Surviving Corporation without further act or deed; and all property, rights
and privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Company and Newco; and the title to any real estate, or 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
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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 the
Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
1.5 NAME CHANGE. As a part of the Merger, Metals shall cause the
Surviving Corporation to change its name to "Independent Metals Co., Inc.".
2. CONVERSION OF STOCK; CLOSING
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, respectively,
into shares of (x) Metals Stock (as defined below) and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time:
(i) as set forth on SCHEDULE 2.1, each share of Company Stock
issued and outstanding immediately prior to the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, automatically
shall be converted into the right to receive its pro rata interest in the
aggregate consideration payable to all holders of Company Stock, which
consideration shall consist of (a) 607,079 shares of common stock, par value
$.01 per share, of Metals ("Metals Stock"), plus (b) $6,675,000 (payable by wire
transfer of immediately available funds), plus (c) $375,000 in cash and 26,549
shares of Metals Stock as may be distributed to the Stockholders in accordance
with the terms of the Escrow Agreement being entered into in connection
herewith;
(ii) all shares of Company Stock, if any, that are held by
the Company as treasury stock shall be canceled and retired and no shares of
Metals Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Newco Stock issued and outstanding
immediately prior to the Effective Time shall remain outstanding and shall
continue to be owned by Metals immediately after the Effective Time.
2.2 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place by exchange among the parties of
facsimiles of executed documents to be delivered at the Closing (with executed
originals to be exchanged by overnight courier service or other means acceptable
to the parties) on the date (the "Closing Date") on which the conditions set
forth herein to the obligations of the parties to consummate the transactions
described herein are satisfied or waived or on such other date and place as the
parties may mutually determine. At the Closing the Stockholders shall deliver to
Metals the certificates representing the Company Stock, duly endorsed in blank
by the Stockholders, or accompanied by duly executed blank stock powers.
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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.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Stockholders severally represent and warrant that all of the
following representations and warranties are true at the date of this Agreement.
For purposes of this Section 3, except as the context otherwise requires, the
term "Company" shall mean and refer to the Company and each of its subsidiaries,
including without limitation, Metal Ventures L.L.C., a Wisconsin limited
liability company. An item described on any Schedule referred to in any Section
of this Article 3 shall be considered to have been described on all other
Schedules referred to in this Article 3 without the necessity of duplication or
cross referencing, and not withstanding that certain matters are cross
referenced in such Schedules.
3.1 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing, and Metal Ventures L.L.C. is a limited
liability company duly formed and validly existing, under the laws of the State
of Incorporation, and each has all requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so authorized or qualified would not
be reasonably likely to have a material adverse effect on the business,
operations, properties, assets or financial condition 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 3.1 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
Bylaws, each as amended, of the Company (the "Charter Documents") are all
attached to SCHEDULE 3.1. The stock records of the Company, a copy of which is
attached to SCHEDULE 3.1, are correct and complete in all material respects.
There are no minutes for the past three years that have not been made available
to Metals, and all of such minutes are correct and complete in all material
respects.
3.2 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, all of which have been
unanimously approved by Stockholders and by the Board of Directors of the
Company. Copies of resolutions adopted by the Stockholders and the Board of
Directors of the Company approving this Agreement and the Merger, certified by
the Secretary or an Assistant Secretary of the Company, are attached hereto as
SCHEDULE 3.2. This Agreement has been validly executed and delivered by the
Company and the Stockholders and constitutes the legal, valid and
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binding obligation of each of them enforceable in accordance with its terms,
subject to the laws of bankruptcy, insolvency, moratorium, and other laws
generally affecting the enforcement of creditors' rights, and except that
enforcement is subject to general equitable principles.
3.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists solely of (i) 56,000 shares of common stock, par value $1.00
per share, of which 670 shares are issued and outstanding. The Company Stock is
owned of record and beneficially by the Stockholders in the amounts set forth on
SCHEDULE 3.3 and, except as set forth on SCHEDULE 3.3, and except as otherwise
provided by Section 180.0622(2)(b) of the Wisconsin Statutes, as judicially
interpreted, all of such shares are owned free and clear of all liens, security
interests, pledges, charges, voting trusts, restrictions, encumbrances and
claims of every kind; provided that each Stockholder is only making the
foregoing representation and warranty to the extent it applies to the Company
Stock shown as owned by such Stockholder on SCHEDULE 3.3. 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, except as otherwise
provided by Section 180.0622(2)(b) of the Wisconsin Statutes, as judicially
interpreted, and were offered, issued, sold and delivered by the Company in
compliance with all applicable state and federal laws concerning the issuance of
securities. None of such shares were issued in violation of any preemptive
rights or similar rights of any person. Except as set forth on SCHEDULE 3.3
which sets forth the existing options and option holders of Company, no option,
warrant, call, conversion right or commitment of any kind exists which obligates
the Company to issue any shares of its capital stock or obligates any
Stockholder to transfer any shares of Company Stock to any person except
pursuant to this Agreement.
3.4 SUBSIDIARIES. Except as set forth on SCHEDULE 3.4, the Company has
no subsidiaries and has not conducted business under any name except its exact
legal name set forth on its certificate or articles of incorporation. Except as
set forth in SCHEDULE 3.4, the Company does not own, of record or beneficially,
or control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation, association
or other business entity, and the Company is not, directly or indirectly, a
participant in any joint venture, partnership or other non-corporate entity.
3.5 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached as SCHEDULE 3.5:
(i) balance sheets of the Company as of December 31, 1996,
December 31, 1995 and September 30, 1994, and any related statements of
operations, stockholder's equity and cash flows for the years ended December 31,
1996, December 31, 1995 and September 30, 1994, together with any related notes
and schedules (the "Year-end Financial Statements"); and
(ii)balance sheet of the Company as of October 31, 1997 (the
"Balance Sheet Date"), and any related statements of operations, stockholder's
equity and cash flows for the ten-month period then ended, together with any
related notes and schedules (the "Interim Financial Statements"). The Year-end
Financial Statements and the Interim Financial Statements are collectively
referred to as the "Financial Statements".
Except as provided on SCHEDULE 3.5, the Financial Statements have been
prepared from the books and records of the Company in conformity with generally
accepted accounting principles applied on a basis consistent with preceding
years and throughout the periods involved ("GAAP") and present fairly the
financial position and results of operations of the Company as of the dates of
such statements and for the periods covered thereby. The books of account of the
Company have been kept accurately in all material respects in the ordinary
course of business, the transactions entered therein represent bona fide
transactions, and the revenues, expenses, assets and liabilities of the Company
have been properly recorded therein in all material respects.
3.6 LIABILITIES AND OBLIGATIONS. Except as and to the extent disclosed
and adequately provided for on the face of the Financial Statements (rather than
in any notes thereto) or on SCHEDULE 3.6 hereto, and except for liabilities and
obligations which have arisen since the Balance Sheet Date in the ordinary
course of business or in connection with the transaction contemplated hereby, to
the knowledge of the Stockholders or Company, the Company has no liabilities or
obligations of a type required by GAAP to be reflected on a balance sheet,
whether accrued, absolute, secured or unsecured, contingent or otherwise.
3.7 ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 3.7 sets forth an accurate
summary list of the accounts and notes receivable of the Company, as of the
Balance Sheet Date, and generated subsequent to the Balance Sheet Date to within
five business days of the date hereof. Receivables from and advances to
employees and the Stockholders and any entities or persons related to or
affiliated with the Stockholders are separately identified on SCHEDULE 3.7.
SCHEDULE 3.7 also sets forth an accurate aging analysis of all accounts as of
the Balance Sheet Date, showing amounts due in 30-day aging categories. Except
to the extent reflected on SCHEDULE 3.7, all such accounts, notes and other
receivables were incurred in the ordinary course of business.
3.8 PERMITS AND INTANGIBLES. To the knowledge of the Company and the
Stockholders, the Company holds all licenses, permits and other governmental
authorizations required in connection with the conduct of the Company's
business. SCHEDULE 3.8 sets forth an accurate list and summary description of
all such licenses, permits and other governmental authorizations, trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company (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
3.9). To the knowledge of the Company and the Stockholders, the licenses,
permits and other governmental authorizations listed on SCHEDULES 3.8 and 3.9
are valid, and the Company has not received any notice that any person intends
to cancel, terminate or not
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renew any such license, permit or other governmental authorization. To the
knowledge of the Company and the Stockholders, the Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in the licenses, permits and other governmental
authorizations listed on SCHEDULES 3.8 and 3.9 and is not in violation of any of
the foregoing. Except as specifically set forth on SCHEDULE 3.8 or 3.9, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company by, any such licenses, permits or government
authorizations.
3.9 ENVIRONMENTAL MATTERS. To the knowledge of the Company and the
Stockholders, except as set forth on SCHEDULE 3.9: (A) the Company is in
substantial compliance with all federal, state, and local statutes (civil and
criminal), laws, ordinances, regulations, rules, notices, permits, judgments,
orders and decrees relating to environmental protection (collectively
"Environmental Laws") including, without limitation, those relating to the
protection of air, water, land and the generation, storage, handling,
transportation, treatment or disposal of Hazardous Wastes (as defined in the
federal Resource Conservation and Recovery Act ("RCRA")), Hazardous Materials
(as defined in the federal Hazardous Materials Transportation Act ("HMTA")), and
Hazardous Substances (as defined in the federal Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA")), and petroleum and petroleum
products except to the extent that any noncompliance with any Environmental
Laws, individually, (i) has not had and is not reasonably likely to have a
Material Adverse Effect on the Company, and (ii) is not reasonably likely to
necessitate any material expenditure by or on behalf of the Company; (B) the
Company has obtained and is in substantial compliance with all necessary permits
and other approvals required under any Environmental Laws to treat, transport,
store, dispose of and otherwise handle Hazardous Wastes (as defined in RCRA),
Hazardous Materials (as defined in HMTA), and Hazardous Substances (as defined
in CERCLA), a list of all of which permits and approvals is set forth on
SCHEDULE 3.9; (C) there have been no releases (as defined in Environmental Laws)
at, from, or on any property owned or operated by the Company during the
Company's ownership or operation of such property except as permitted by
Environmental Laws; and (D) there is no on-site or off-site location at or to
which the Company has transported or disposed of or arranged for the
transportation of Hazardous Wastes (as defined in RCRA), Hazardous Materials (as
defined in HMTA) or Hazardous Substances (as defined in CERCLA) which is the
subject of any federal, state, or local 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, or property damage under any Environmental Laws.
3.10 PERSONAL PROPERTY. SCHEDULE 3.10 sets forth an accurate list of (a)
all personal property included in "plant and equipment" on the balance sheet of
the Company as of the Balance Sheet Date, (b) all other tangible personal
property other than inventory or supplies owned by the Company with an
individual value in excess of $10,000 (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date and (c) all leases of personal property,
including, in the case
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of each of (a), (b) and (c), an indication as to which assets are currently
owned, by the Stockholders, relatives of the Stockholders, or Affiliates of the
Company or the Stockholders. True, correct and complete copies of all of the
documents listed on SCHEDULE 3.10 have been delivered to Metals. Except as set
forth and specifically described on SCHEDULE 3.10, (i) all material tangible
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 3.10,
(ii) all of the personal property listed on SCHEDULE 3.10 is in a condition,
taken as a whole, which is adequate for the conduct of the Company's business
and is maintained by the Company in accordance with reasonable maintenance
practices and (iii) all leases included on SCHEDULE 3.10 are in full force and
effect and constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
3.11 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. SCHEDULE
3.11 sets forth a list of (i) all customers representing 1% or more of the
Company's revenues for (a) the year ended December 31, 1996, and (b) the period
from January 1, 1997 to the Balance Sheet Date, and (ii) to the knowledge of the
Company and the Stockholders, 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, but excluding
contracts, commitments and similar agreements with customers representing less
than 1% of the Company's revenues for the periods of January 1, 1997 to the
Balance Sheet Date). True, complete and correct copies of such agreements have
been provided to Metals. Except as described on SCHEDULE 3.11, (i) none of the
Company's customers identified on SCHEDULE 3.11 with respect to the period of
January 1, 1997 to the Balance Sheet Date have canceled or substantially reduced
or, to the knowledge of the Company and the Stockholders, are currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company, and (ii) the Company has
complied with all material commitments and obligations pertaining to it, and is
not in default, under any contracts or agreements listed on SCHEDULE 3.11 and no
notice of default under any such contract or agreement has been received by the
Company. SCHEDULE 3.11 also includes a summary description of all plans or
projects involving the opening of new operations, expansion of existing
operations, the acquisition of any property, business or assets requiring, in
any event, the payment in the aggregate of more than $10,000 by the Company.
3.12 REAL PROPERTY. SCHEDULE 3.12 includes a list of all real property
owned or leased by the Company at the date hereof, and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on SCHEDULE 3.12, the Company has good and marketable title in fee simple to the
real property it purports to own, subject to no encumbrances except encumbrances
that do not interfere with the use of such property, and has good and valid
leasehold interests in the real property it purports to lease. True, complete
and correct copies of all leases and agreements in respect of real property
leased by the Company have been furnished to Metals. Except
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as set forth on SCHEDULE 3.12, all of such leases included on SCHEDULE 3.12 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
3.13 INSURANCE. SCHEDULE 3.13 sets forth an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company and an
accurate list of all insurance loss runs or workers compensation claims received
for the past three policy years. True, complete and correct copies of all
insurance policies currently in effect have been provided to Metals. Such
insurance policies evidence all of the insurance that the Company is required to
carry pursuant to all of its contracts and other agreements and, to the
knowledge of the Company and the Stockholders, pursuant to all applicable laws.
None of such policies is a "claims made" policy. All of such insurance policies
are currently in full force and effect.
3.14 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
SCHEDULE 3.14 sets forth an accurate list showing all officers and directors of
the Company, and management personnel of the Company with annual salaries of
$50,000 or more, listing all employment agreements with such officers, directors
and management personnel and their annual salaries, bonuses payable and other
compensation payable other than fringe benefits as of (i) the Balance Sheet Date
and (ii) the date hereof. Attached to SCHEDULE 3.14 are true, complete and
correct copies of any employment agreements for the persons listed on SCHEDULE
3.14 and all other employment and other agreements of any nature containing any
provision that could require the Company to make any payment to any person as a
result of the transactions contemplated by this Agreement. Since the Balance
Sheet Date, except as set forth on SCHEDULE 3.14, there have been no increases
in the compensation payable or any special bonuses to any officer, director, or
other employee, except ordinary salary and wage increases implemented on a basis
consistent with past practices.
Except as set forth on SCHEDULE 3.14, (i) the Company is not bound by or
subject to (and none of its 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 and the Stockholders, no
campaign to establish such representation is in progress and (iv) there is no
pending or, to the knowledge of the Company and the Stockholders, threatened,
labor dispute involving the Company and any group of its employees. The Company
has not experienced any labor interruptions over the past five years.
3.15 EMPLOYEE BENEFIT PLANS. SCHEDULE 3.15 sets forth an accurate
schedule showing all employee benefit plans of Company, including all agreements
or arrangements (other than agreements or arrangements set forth on SCHEDULE
3.14) containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of such
plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date. Except for the employee
benefit plans, if any, described on SCHEDULE 3.15, the Company does not sponsor,
maintain or contribute to any plan
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program, fund or arrangement that constitutes an "employee pension benefit
plan," nor does the Company have any obligation to contribute to or accrue or
pay any benefits under any deferred compensation or retirement funding
arrangement on behalf of any employee or employees (such as, for example, and
without limitation, any individual retirement account or annuity, any "excess
benefit plan" (within the meaning of Section 3(36) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on SCHEDULE 3.15, and is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's employees.
The Company is not now, and cannot as a result of its past activities
become, liable to the Pension Benefit Guaranty Corporation or to any multi
employer employee pension benefit plan under the provisions of Title IV of
ERISA. To the knowledge of the Company and the Stockholders, all employee
benefit plans listed on SCHEDULE 3.15 and the administration thereof are in
compliance in all material respects with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable federal, state and local statutes, ordinances and regulations.
Except as set forth on SCHEDULE 3.15, all accrued contribution obligations of
Company with respect to any plan listed on SCHEDULE 3.15 have either been
fulfilled in their entirety or are fully reflected on the balance sheet of the
Company as of the Balance Sheet Date. All plans listed on SCHEDULE 3.15 that are
intended to qualify (the "Qualified Plans") under Section 401(a) of the Code
are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of the determination letters relating
thereto are included as part of SCHEDULE 3.15. Except as disclosed on SCHEDULE
3.15, all reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies of the most recent provisions thereof are included as
part of SCHEDULE 3.15. To the knowledge of the Company and the Stockholders,
neither the Stockholders, any plan listed in SCHEDULE 3.15 nor the Company has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No plan listed in SCHEDULE 3.15 has incurred
an accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service or any liability to
the Pension Benefit Guaranty Corporation. There have been no terminations,
partial terminations or discontinuance of contributions to any such Qualified
Plan intended to qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service; no plan listed in SCHEDULE 3.15
subject to the provisions of Title IV of ERISA has been terminated; there have
been no "reportable events" (as that phrase is defined in Section 4043 of ERISA)
with respect to any such plan listed in SCHEDULE 3.15; the Company has not
incurred liability under Section 4062 of ERISA; and no circumstances exist
pursuant to which the Company could have any
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direct or indirect liability whatsoever (including, but not limited to, any
liability to any multi employer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the Company.
3.16 CONFORMITY WITH LAW; LITIGATION. Except as set forth on SCHEDULE
3.16, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company and the Stockholders, threatened against or affecting
the Company, at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over the Company. Except as set forth on
SCHEDULE 3.16, no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the Company during the last three
years (except customer claims received in the ordinary course of business) and,
to the knowledge of the Company and the Stockholders, there is no basis
therefor. Except as set forth on SCHEDULE 3.16, to the knowledge of the Company
and the Stockholders, the Company has conducted for the past three years and now
conducts its business in material compliance with all laws, regulations, writs,
injunctions, decrees and orders applicable to the Company or its assets. To the
knowledge of the Company and the Stockholders, the Company is not in violation
of any law or regulation or any order of any court or federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them.
3.17 TAXES. For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, license, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States or
any state, local or foreign government or subdivision or agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest, fines, penalties or additional amounts
attributable to or imposed with respect to any such taxes, charges, fees, levies
or other assessments.
To the knowledge of the Company and the Stockholders (which qualifier
applies to all of this sentence), and except as set forth on SCHEDULE 3.17, all
Tax returns ("Returns") required to be filed with respect to any Tax for which
the Company is liable have been duly and timely filed with the appropriate
taxing authority, each Tax shown to be payable on each such Return has been
paid, each Tax payable by the Company by assessment has been timely paid in the
amount assessed to the extent due. Except as set forth on SCHEDULE 3.17, the
Company is not, and never has been, liable for any Tax payable by reason of the
income or property of a Person other than the Company or Metal Ventures L.L.C.
To the knowledge of the Company and the Stockholders, the Company has timely
filed true, correct and complete declarations of estimated Tax in each
jurisdiction in which any such
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declaration is required to be filed by it. To the knowledge of the Company and
the Stockholders, no liens for Taxes exist upon the assets of the Company except
liens for Taxes which are not yet due. The Company is not, and never has been,
subject to Tax in any jurisdiction outside the United States. Except as set
forth on SCHEDULE 3.17, no litigation with respect to any Tax for which the
Company is asserted to be liable is pending or, to the knowledge of the Company
and the Stockholders, threatened, and, to the knowledge of the Company and the
Stockholders, no basis exists on which any claim for any such Tax can be
asserted against the Company. There are no requests for rulings or
determinations in respect of any Taxes pending between the Company and any
taxing authority. Except as set forth on SCHEDULE 3.17, no extension of any
period during which any Tax may be assessed or collected and for which the
Company is or may be liable has been granted to any taxing authority. The
Company is not, and has not been, party to any tax allocation or sharing
agreement. To the knowledge of the Company and the Stockholders, all amounts
required to be withheld by the Company and paid to governmental agencies for
income, social security, unemployment insurance, sales, excise, use and other
Taxes have been collected or withheld and paid to the proper taxing authority to
the extent payment is due. The Company has made all deposits required by law to
be made with respect to employees' withholding and other employment Taxes.
Neither the Company nor any stockholder is a "foreign person," as that term is
referred to in Section 1445(f)(3) of the Code. The Company has not filed a
consent pursuant to Section 341 (f) of the Code or any comparable provision of
any other tax statute and has not agreed to have Section 341 (f)(2) of the Code
or any comparable provision of any other Tax statute apply to any disposition of
an asset. The Company has not made, is not obligated to make and is not a party
to any agreement that could require it to make any payment that is not
deductible under Section 280G of the Code. Except as provided on SCHEDULE 3.17,
no asset of the Company is subject to any provision of applicable law which
eliminates or reduces the allowance for depreciation or amortization in respect
of that asset below the allowance generally available to an asset of its type.
Except as set forth on SCHEDULE 3.17, no accounting method changes of the
Company exist or are proposed or, to the knowledge of the Company and the
Stockholders, threatened which could give rise to an adjustment under Section
481 of the Code.
The Stockholders made a valid election under the provisions of
Subchapter S of the Code, and the Company has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code.
3.18 NO VIOLATIONS; CONSENTS REQUIRED. The Company is not in violation
of any of its Charter Documents. Except as set forth on Schedule 3.18, to the
knowledge of the Stockholders or Company, neither the Company nor any other
party thereto, is in default under any lease, instrument, license, permit or
material agreement to which the Company is a party or by which its properties
are bound (the "Material Documents") that would have a Material Adverse Effect
on the Company. Except as set forth on SCHEDULE 3.18, 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
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the Material Documents or the Charter Documents, and the rights and benefits of
the Company under the Material Documents will not be adversely affected by the
transactions contemplated hereby. Except as set forth on SCHEDULE 3.18, none of
the Material Documents requires notice to, or any consent or approval that has
not been obtained 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. Except as set forth on SCHEDULE 3.18, consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit. None of
the Material Documents prohibits or restricts the Company from freely providing
services to any other person.
3.19 GOVERNMENT CONTRACTS. The Company is not a party to any
governmental contracts subject to price redetermination or renegotiation.
3.20 ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company has
conducted its operations in the ordinary course of business and, except as set
forth on SCHEDULE 3.20, there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of the
Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant of
any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents;
(vi) any work interruptions, labor grievances or claims filed
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 (other than inventory) to any
person, including, without limitation, the Stockholders and their affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholder, customer or any affiliate
thereof, other than adjustments of amounts owed by customers which, in the
aggregate, are not materially different than those experienced by the Company in
the ordinary course of its business;
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(ix) any plan, agreement or arrangement entered into 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 entered into to purchase or acquire, any property, rights or assets
outside of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company,
provided, however, that this shall not be deemed to apply to ordinary
adjustments of bills with customers consistent with past practice;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii) any transaction by the Company outside the ordinary course
of its business;
(xiv) any cancellation or termination of a material contract with
a customer or client prior to the scheduled termination date; or
(xv) any distribution of property or assets by the Company other
than in the ordinary course of business.
(xvi) any change in the Company's Articles of Incorporation or
By-laws;
(xvii) any contract, commitment or liability entered into or
incurred or any capital expenditures made except in the normal course of
business consistent with past practice in an individual amount not in excess of
$10,000 and in an aggregate amount not in excess of $200,000;
(xviii) any mortgage, pledge or other lien or encumbrance upon
any assets or properties created, 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
business 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;
(xix) any transfer or disposition of any property or equipment
except in the normal course of business;
(xx) any other transaction outside the ordinary course of its
business or prohibited hereunder; or
(xxi) any increase or commitment to any increase in the salary,
bonus, commission or other compensation of any officer, director, employee or
agent of the Company except for ordinary salary and wage increases implemented
on a basis consistent with past practices.
3.21 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 3.21 sets forth a
schedule as of the date of this Agreement of: (i) the name of each financial
institution in which the Company has accounts or safe deposit boxes, (ii) the
names in which the accounts or boxes are held, (iii) the type of account and
account number, and (iv) the name of each person authorized to draw thereon or
have access thereto. SCHEDULE 3.21 also sets forth the name of each person,
corporation, firm or other
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entity holding any general or special power of attorney from the Company and a
description of the terms of each such power.
3.22 COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth on SCHEDULE 3.22, neither the Stockholders nor any other affiliate of
the Company owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of or otherwise receives remuneration from, any
business which is a competitor, lessor, lessee, customer or supplier of the
Company, except for ownership of less than 1% of the outstanding stock of any
publicly traded company in which such person has no management or other similar
position. Except as set forth on SCHEDULE 3.22, no officer, director or
stockholder of the Company has any interest in any property, real or personal,
tangible or intangible, used in or pertaining to the Company's business.
3.23 DISCLOSURE. To the knowledge of the Company and the Stockholders,
no representation or warranty contained in this Agreement contains any untrue
statement or omits to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
3.24 PREEMPTIVE RIGHTS. The Stockholders do not have, and hereby waive,
any preemptive or other right to acquire shares of the Company's capital stock
that the Stockholders have or may have had. No other person has any preemptive
or other right to acquire any shares of the Company's capital stock.
3.25 CERTAIN BUSINESS PRACTICES. To the knowledge of the Company and the
Stockholders, neither the Company nor any person acting on behalf of the
Company, has given or offered anything of value to any governmental official,
political party or candidate for government office nor has it or any of them
otherwise taken any action which would cause the Company to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect.
4. REPRESENTATIONS OF METALS
Metals represents and warrants that all of the following representations
and warranties in this Section 4 are true at the date of this Agreement.
4.1 DUE ORGANIZATION. Metals and Newco are each corporations duly
incorporated, 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.
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4.2 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 the Merger.
Copies of resolutions adopted by the Board of Directors of Metals and Newco and
Metals as the sole stockholder of Newco approving this Agreement and the Merger,
certified by the secretary or an assistant secretary of each of Metals and
Newco, are attached hereto as SCHEDULE 4.2.
4.3 NO VIOLATIONS. The execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under any of the terms or provisions of (i) the Restated Certificate of
Incorporation, as amended, of Metals or the Amended and Restated Bylaws of
Metals or the Certificate of Incorporation or Bylaws of Newco; or (ii) any
lease, instrument, license, permit or material agreement to which Metals or
Newco is a party or by which any of their properties are bound.
4.4 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 by Metals as the sole shareholder of
Newco and this Agreement has been duly and validly authorized by all necessary
corporate action. This Agreement has been validly executed and delivered by
Metals and Newco and constitutes the legal, valid and binding obligation of
Metals and Newco enforceable in accordance with its terms, subject to the laws
of bankruptcy, insolvency, moratorium and other laws affecting the rights of
creditors generally.
4.5 METALS STOCK. At the time of issuance thereof, the Metals Stock to
be delivered to the Stockholders pursuant to this Agreement will constitute
valid and legally issued, fully paid and nonassessable shares of Metals. The
offer and sale of the Metals Stock to be delivered to the Stockholders pursuant
to this Agreement have been registered on Metals' Registration Statement on Form
S-1 originally filed with the Securities and Exchange Commission on September
12, 1997 (Registration No. 333-35575) (such Registration Statement, as amended
at the time of the delivery of the Metals Stock to the Stockholders pursuant to
this Agreement, being herein called the "Registration Statement"; and the
Prospectus contained therein being herein called the "Prospectus"). The shares
of Metals Stock to be delivered to the Stockholders have been approved for
listing on The New York Stock Exchange, subject to official notice of issuance.
4.6 FINANCIAL STATEMENTS. Metals has previously delivered to each
stockholder copies of the Prospectus. There has been no change since the date of
such Prospectus which has had a material adverse affect on the business,
operations or financial condition of Metals and its subsidiaries.
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4.7 BUSINESS CONTINUITY. It is the present intention of Metals and Newco
for the Surviving Corporation to continue at least one significant historic
business line of the Company, or to use are least significant portion of the
Company's historic business assets in a business, in each case within the
meaning of Reg. Section 1.368-1(d) under the Code.
5. COVENANTS PRIOR TO CLOSING
5.1 COOPERATION. Between the date of this Agreement and the Closing
Date, the Company and Metals will cooperate with one another and their
respective auditors and counsel in the preparation of any documents or other
material which may be required in connection with this Agreement. Metals, Newco,
the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement as
confidential in accordance with the confidentiality agreements previously
executed by the parties.
5.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing Date, the Company will, use commercially reasonable
efforts to 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.
5.3 PROHIBITED ACTIVITIES. Except as set forth on SCHEDULE 5.3, between
the date hereof and the Closing Date, the Company will not, without prior
written consent of Metals, which will not be unreasonably withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock (other than the declaration and payment of $2.5 million of
dividends to the Stockholders) whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(v) negotiate for the acquisition of any business or the start-up
of any new business;
(vi) merge or consolidate or agree to merge
or consolidate with or into any other corporation or other entity;
(vii) enter into any other transaction outside the ordinary
course of its business or prohibited hereunder except that the Company may
borrow funds in order to pay a $2.5 million dividend to the Stockholders; or
(viii) increase or commit to any increase in the salary, bonus,
commission or other compensation of any officer, director, employee or agent of
the Company outside of the ordinary course of business.
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5.4 NO SHOP. Neither the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than 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 involving the Company.
5.5 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.
5.6 NOTICES AND CONSENTS. The Company will use commercially reasonable
best efforts to give any notices to third parties, and obtain any third party
consents, that may be necessary to consummate the transactions contemplated
hereby.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of the 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.
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Metals contained in Section 6 shall be true
and correct in all material respects as of the Closing Date as though such
representations and warranties had been made as of that time; all of the terms,
covenants and conditions of this Agreement to be complied with and performed by
Metals and Newco on or before the Closing Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date and signed by the President or any Vice President
of Metals shall have been delivered to the Stockholders.
6.2 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.
6.3 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated
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herein shall have been obtained and made and no action or proceeding shall have
been instituted or threatened to restrain or prohibit the Merger and no
governmental agency or body shall have taken any other action or made any
request of the Company as a result of which the Company deems it inadvisable to
proceed with the transactions hereunder.
6.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to Metals that would constitute a Material Adverse Effect.
6.5 TAX MATTERS. Tax advisors to the Stockholders shall have delivered
an opinion to the Stockholders that the Merger will constitute a reorganization
under Sections 368(a)(1)(A) and (a)(2)(D) of the Code.
6.6 BORROWINGS. Company shall have paid a $2.5 million dividend to the
Stockholders before the Closing Date.
7. 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.
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date; all of the terms, covenants and conditions
of this Agreement to be complied with or performed by the Stockholders and the
Company on or before the Closing Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Metals certificates dated the Closing Date to such effect.
7.2 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, no
event or circumstance shall have occurred with respect to the Company which
would constitute a Material Adverse Effect.
7.3 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall be reasonably
satisfactory to Metals and its counsel.
7.4 CONSENTS AND APPROVALS. As of the Closing Date, the Company shall
have delivered all material consents as set forth on Schedule 3.18. 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 (including the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976) shall have been obtained
and made 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.
8. DELIVERIES
8.1 OPINION OF COUNSEL TO THE COMPANY. On the Closing Date, counsel to
the Company and the Stockholders shall deliver to Metals an opinion dated as of
the Closing Date in the form of ANNEX II.
8.2 OPINION OF COUNSEL TO METALS. On the Closing Date, counsel to Metals
shall deliver to the Company an opinion dated as of the Closing Date in the form
of ANNEX III.
8.3 EMPLOYMENT AND CONSULTING AGREEMENTS. On the Closing Date, the
Surviving Corporation and Barry C. Quinnies shall enter into the Employment
Agreement in the form of Annex I-A hereto. On the Closing Date, the Surviving
Corporation shall enter into an Employment Agreement in the form of Annex I-B
with those persons listed on Schedule 8.3 who desire to enter into such an
agreement..
8.4 GOOD STANDING CERTIFICATES. On the Closing Date, the Company shall
deliver to Metals a certificate, dated as of a date no earlier than twenty days
prior to the Closing Date, duly issued by the appropriate governmental authority
in the State of Incorporation and in each state in which the Company is
authorized to do business, showing the Company is in good standing and
authorized to do business.
8.5 ESCROW AGREEMENT. On the Closing Date, the persons identified in the
form of Escrow Agreement attached hereto as ANNEX IV shall enter into an escrow
agreement in the form of such ANNEX IV, which provides for a post-Closing
balance sheet review as described therein.
8.6 FIRPTA CERTIFICATE. On the Closing Date, each Stockholder shall
deliver 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.
8.7 RELATED PARTY TRANSACTIONS. Except as set forth on SCHEDULE 8.7, on
the Closing Date all existing leases, agreements and arrangements between the
Company and any Stockholder or any affiliate of any Stockholder (including
without limitation any stockholders agreements, voting agreements, voting
trusts, options, warrants and employment agreements between the Company and any
employee except as specifically approved in writing by Metals) are either being
canceled or the terms thereof are being renegotiated on an arm's length basis
satisfactory to Metals.
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8.8 HSR FILINGS. Metals shall bear all filing fees for all filings
required by the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") in connection with the transactions contemplated hereby.
Metals shall bear all of its expenses of preparing its filings under the HSR
Act, and the Company shall bear all of the Company's expenses of preparing the
Company's filings under the HSR Act.
8.9 STOCKHOLDERS' RELEASE. On the Closing Date, the Stockholders shall
deliver to Metals an instrument dated as of the Closing Date releasing the
Company from (i) any and all claims of the Stockholders against the Company and
(ii) obligations of the Company to the Stockholders, except for (x) rights to
indemnification under the Company's Charter, Bylaws and applicable state
statutes, (y) continuing obligations to Stockholders relating to employment by
the Company and salary and fringe benefits owed with respect to employment prior
to the Closing Date and (z) obligations arising under this Agreement.
8.10 NONCOMPETITION AGREEMENT. Barry C. Quinnies shall enter into and
deliver to Metals a Noncompetition Agreement in the form of ANNEX V hereto as of
the Closing Date.
8.11 DELIVERY OF CONSIDERATION. On the Closing Date, Metals shall
deliver and pay to the Stockholders the shares of Metals Stock and cash provided
for at Sections 2.1(i)(a) and (b).
9. POST-CLOSING COVENANTS
9.1 PREPARATION AND FILING OF TAX RETURNS.
(i) At the expense of the Surviving Corporation, the Stockholders
shall file or cause to be filed all income tax returns for the Company for all
taxable periods that end on or before the Closing Date, but in each case only
after furnishing Metals a copy of the return to be filed at least five business
days before the filing thereof. All such filings shall be consistent with the
Company's filings for the three preceding years except for the Company's current
year election to be treated as a dealer in securities pursuant to Internal
Revenue Code Section 475. The Stockholders shall control all matters pertaining
to income taxes and returns for periods when the Company was an S corporation
for tax purposes, including, without limitation, audits and refund claims, and
shall be solely responsible for any and all income taxes owed, but shall not
amend any return without the consent of Metals, which consent shall not be
unreasonably withheld. In the event of an audit, Company shall bear the expenses
of such audit, including any appeal within the applicable tax authority, but
Stockholders shall bear the costs of any litigation resulting from such audit.
(ii) Metals shall file or cause to be filed all other tax returns
for the Surviving Corporation and the Company.
(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 tax returns,
amended tax returns or claim for refund, determining a liability for
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<PAGE>
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 tax 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. Metals and the Surviving Corporation shall make their employees
reasonably available on a mutually convenient basis at their cost to provide
explanation of any documents or information so provided. Metals and the
Surviving Corporation shall bear all costs of filing such tax returns.
9.2 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.
10. INDEMNIFICATION
The Stockholders, Metals and Newco each make the following covenants
that are applicable to them, respectively:
10.1 SURVIVAL OF STOCKHOLDERS' REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties of the Stockholders made
in this Agreement and in the documents and certificates delivered in connection
herewith shall survive the Merger for a period of one year after the Closing
Date, except that the representations and warranties relating to tax matters
shall survive for a period of four years after the Closing Date, and the
representations and warranties relating to environmental matters shall survive
for a period of three years after the Closing Date; provided, however, that
representations and warranties and indemnification obligations with respect to
which a claim is made within the applicable survival period shall survive until
such claim is finally determined and paid.
(b) The representations and warranties of Metals and Newco made
in this Agreement and in the certificates delivered in connection herewith shall
survive the Merger for a period of two years after the date hereof, provided,
however, that representations and warranties (and related indemnification
obligations) with respect to which a claim is made within such period shall
survive until such claim is finally determined and paid.
(c) The date on which a representation or warranty expires as
provided herein is herein called the "Expiration Date." No claim for
indemnification may be made with respect to a representation or warranty after
the Expiration Date, other than claims based on fraud.
10.2 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
severally covenant and agree to indemnify, defend, protect, and hold harmless
Metals and the Surviving Corporation
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(the "Metals Indemnitees") at all times from and after the date of this
Agreement until the Expiration Date from and against all claims, damages
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and expenses of investigation) (collectively "Damages") incurred by such
indemnified person as a result of or incident to (i) any breach of any
representation or warranty of the Stockholders set forth herein, and (ii) any
breach or nonfulfillment of any covenant or agreement by the Company or the
Stockholders under this Agreement, provided, however, that the payment of any
amount of Damages shall be reduced by any tax, insurance, or other third party
recovery benefit accruing to the Indemnified Party as a result of the event
giving rise to such Damages, even though such benefit may arise after the
Expiration Date. Notwithstanding the foregoing, the term "Damages" shall not
include any punitive damages. Each Indemnified Party agrees in good faith to
make insurance claims for all matters which are covered by insurance.
10.3 INDEMNIFICATION BY METALS. Metals covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date from and against
all Damages incurred by the Stockholders as a result of (i) any breach of any
representation or warranty of Metals or Newco set forth herein or in the
certificates delivered in connection herewith; or (ii) any breach or
nonfulfillment of any covenant or agreement by Metals, Newco or the Surviving
Corporation under this Agreement.
10.4 THIRD PERSON CLAIMS. Promptly after any party hereto (the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person") or the commencement of any
action or proceeding by a Third Person that may give rise to a right of
indemnification hereunder, such Indemnified Party shall give to the party
obligated to provide indemnification hereunder (an "Indemnifying Party") written
notice of such claim or the commencement of such action or proceeding; provided,
however, that the failure to give such notice will not relieve such Indemnifying
Party from liability under this Section with respect to such claim, action or
proceeding, except to the extent that the Indemnifying Party has been actually
prejudiced as a result of such failure. The Indemnifying Party (at its own
expense) may assume the primary defense of such claim, suit or proceedings. The
Indemnified Party will cooperate with and make available to the Indemnifying
Party such assistance and materials as may be reasonably requested of it without
charge, and the Indemnified Party shall have the right, at its expense, to
participate in the defense. The Indemnifying Party shall have the right to
settle and compromise such claim, action, or proceeding; provided, however, that
no settlement or compromise of any claim shall be made without the consent of
the Indemnified Party, which consent shall not be unreasonably withheld or
delayed, unless such settlement or compromise results in the complete release of
all claims against the Indemnified Party with respect to such claim, action or
proceeding. In the event the indemnifying Party declines to conduct the defense
against any such claim, action or proceeding, then the Indemnified Party shall
have the right to conduct the defense against such claim, action or proceeding
and shall have the right to settle or compromise such claim, action or
proceeding upon five days notice to, but without the consent of, the
Indemnifying Party.
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10.5 METHOD OF PAYMENT. All claims for indemnification shall be paid in
cash. Any indemnification payment by the Stockholders under this Section 10 will
be treated as an adjustment to the exchange consideration for tax purposes
unless a final determination with respect to the Indemnified Party or any of its
affiliates causes such payment not to be treated as an adjustment to the
exchange consideration for United States federal income tax purposes.
10.6 LIMITATIONS ON INDEMNIFICATION. (a) The Metals Indemnitees shall
not be entitled to indemnification with respect to any matter under Section
10.2(i) until the total amount of Damages that the Metals Indemnitees are
entitled to indemnification under Section 10.2(i), but for this Section 10.6(a)
exceeds $250,000 (the "Indemnification Basket"), and then only for the excess
over the Indemnification Basket. The Stockholders shall not be entitled to
indemnification with respect to any matter under Section 10.3(i) until the total
amount of Damages that the Stockholders are entitled to indemnification under
Section 10.3(i), but for this Section 10.6(a), exceeds the Indemnification
Basket, then only for the excess over the Indemnification Basket. No person
shall be entitled to indemnification under this Section 10 if and to the extent
that such person's claim for indemnification is directly or indirectly caused by
a breach by such person of any representation, warranty, covenant or other
agreement set forth is this Agreement.
(b) The aggregate liability of the Stockholders in connection with their
indemnification obligations under Section 10.2 shall not exceed $6,375,000.
(c) If the Metals Indemnitees bring any claim for indemnification
against any Stockholder pursuant to this Section 10, such Stockholder shall only
be liable to pay a percentage of the aggregate amount payable to the Metals
Indemnities hereunder as a result of the matter giving rise to such
indemnification claim, which is equal to the percentage set forth opposite such
Stockholder's name on SCHEDULE 10.6(C).
(d) The Metals Indemnitees shall not be entitled to indemnification
under Section 10.2(i) with respect to a breach of a representation or warranty,
if, on the date hereof, Arthur L. French, Stephen R.. Baur, Keith St. Clair,
John A. Hageman, Keith Stubbs or Craig Doveala had actual (and not constructive
or implied) knowledge of such breach.
10.7 SOLE REMEDY. The sole remedy of the Metals Indemnitees for any
claim for monetary damages resulting or arising in any manner from or with
respect to the transactions contemplated by this Agreement shall be a claim for
indemnity made pursuant to, and subject to the limitations contained in, this
Section 10.
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11. TERMINATION OF AGREEMENT
11.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) by mutual consent of Metals and the Company;
(ii) by Metals or by the Company, if the transactions
contemplated by this Agreement to take place at the Closing shall not have been
consummated by January 15, 1998 (the "Termination Date"), unless the failure of
such transactions to be consummated is due to the willful failure of the party
seeking to terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date; or
(iii) by Metals or by the Company, 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 within ten days after
written notice thereof is delivered to the breaching or defaulting party by the
other party.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
12.1 GENERAL. The Stockholders recognize and acknowledge that they may
have had in the past, may currently have, and in the future may possibly have,
access to certain confidential information of the Company and/or Metals, such as
operational policies, pricing and cost policies, and other information, that are
valuable, special and unique assets of the Company and/or Metals. The
Stockholders agree not to 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 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,
unless (i) such information becomes known to the public generally through no
fault of the Stockholders, or (ii) disclosure is required by law or the order of
any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Stockholders shall,
if possible, give prior written notice thereof to Metals and provide Metals with
the opportunity to contest such disclosure. In the event of a breach or
threatened breach by the Stockholders of the provisions of this Section, Metals
shall be entitled to injunctive or other equitable relief restraining the
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.
12.2 EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which Metals would
have no other adequate remedy, the Stockholders agree that the foregoing
covenants may be enforced by injunctions, restraining orders and other
appropriate equitable relief.
12.3 SURVIVAL. The obligations of the parties under this Article shall
survive the termination of this Agreement for a period of five years.
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13. INTENDED TAX TREATMENT
13.1 TAX-FREE REORGANIZATION.
(a) Metals and the Stockholders are entering into this Agreement
with the intention that the Merger qualify as a tax-free reorganization for
federal income tax purposes, except to the extent of any "boot" received, and
the Stockholders will not take any actions that disqualify the Merger for such
treatment. The Stockholders represent and warrant that:
(i) the Company operates at least one historic business line,
or owns at least a significant portion of its historic business assets, in each
case within the meaning of Reg. 1.368-1(d) under the Code; and
(ii) the Stockholders have no present plan, intention or
arrangement to dispose of any of the Metals Stock to be received in the Merger
in a manner that would cause the Merger to violate the continuity of shareholder
interest requirements set forth in Reg. Section 1.368-1 under the Code.
(iii) In the Merger, Metals and Newco will acquire
"substantially all of the properties" of the Company within the meaning of
Section 368(a)(2)(D) of the Code (that is, in the Merger, Metals and Newco will
acquire at least 90% of the fair market value of the net assets and at least 70%
of the gross assets held by the Company immediately prior to the Effective
Time). For purposes of the preceding sentence, amounts paid by the Company to
dissenters, amounts paid by the Company to shareholders who receive cash or
other property and the Company assets used to pay its reorganization expenses
and all redemptions and distributions (except for regular, normal dividends)
made by the Company immediately preceding the Effective Time, pursuant to this
Agreement or otherwise as part of the plan of the Merger provided for herein,
will be included as assets of the Company held immediately prior to the Merger.
(b) Metals and Newco covenant and agree as follows:
(i) The Surviving Corporation will continue at least one
significant historic business line of the Company, or use at least a significant
portion of the Company's historic business assets in a business, in each case
within the meaning of Reg. Section 1.368-(1)(d) of the Code.
(ii) Neither Metals nor the Surviving Corporation shall take
or cause to be taken any action which would disqualify the Merger as a
reorganization under Sections 368(a)(1)(A) and (a)(2)(D) of the Code.
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14. SECURITIES LAW MATTERS
14.1 ECONOMIC RISK; SOPHISTICATION. Each Stockholder acknowledges and
confirms that he or she has received and reviewed a Prospectus from Metals
relating to his or her acquisition of shares of Metals Stock hereunder and fully
understands the nature, scope and duration of any limitations on transfer
described in this Agreement. Barry C. Quinnies represents that he has such
knowledge, sophistication and experience in business and financial matters that
he is capable of evaluating the merits and risks of an investment in the shares
of Metals Stock, and that he can bear the economic risk of an investment in the
shares of Metals Stock. Each Stockholder has had an adequate opportunity to ask
questions and receive answers from the officers of Metals concerning any and all
matters relating to the transactions described herein including without
limitation the background and experience of the officers and directors of
Metals, the plans for the operations of the business of Metals, the business,
operations and financial condition of Metals, and any plans for additional
acquisitions and the like. Each Stockholder has asked any and all questions in
the nature described in the preceding sentence and all questions have been
answered to his or her satisfaction.
14.2 COMPLIANCE WITH LAW. Each Stockholder covenants that none of the
Metals Stock will be offered, sold, assigned, hypothecated, transferred or
otherwise disposed of by such Stockholder except in full compliance with all
applicable provisions of the Securities Act of 1933, as amended (the "Act") and
the rules and regulations of the Securities and Exchange Commission.
14.3 CONTRACTUAL RESTRICTIONS Each Stockholder agrees that he or she
will not offer, sell, assign, pledge, hypothecate, transfer or otherwise dispose
of or reduce his or her risk with respect to any of the shares of Metals Stock
issued to such Stockholder pursuant to this Agreement prior to the date one year
after the date hereof. Certificates representing the Metals Stock issued to the
Stockholders shall bear a legend or legends reflecting the foregoing restriction
as well as the restrictions referred to in Section 14.2 hereof.
15. GENERAL
15.1 COOPERATION. The Company, the Stockholders, Metals and Newco shall
each deliver or cause to be delivered to the other after the date hereof 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 date hereof 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 date hereof.
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15.2 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.
15.3 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, duly authorized by their
respective Boards of Directors.
15.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
15.5 BROKERS AND AGENTS. The Stockholders agree to pay all fees and
other amounts, if any, due to any broker, if any, engaged by the Stockholders or
the Company, and agree 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. Metals
agrees to pay all fees and other amounts, if any, due to any broker, if any,
engaged by Metals or Newco, and Metals 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 Metals.
15.6 EXPENSES. Except as otherwise provided herein, whether or not the
transactions herein contemplated shall be consummated, Metals will pay the fees
and expenses of Metals' representatives, accountants and counsel incurred in
connection herewith, and the Company will pay the fees and expenses of the
Stockholders' and the Company's representatives, accountants and counsel
incurred in connection herewith. Metals or the Company shall pay any sales, use,
transfer, real property transfer, recording, gains, stock transfer and other
similar taxes and fees ("Transfer Taxes") imposed in connection with the Merger.
Metals or the Company shall file all necessary documentation and Returns with
respect to such Transfer Taxes. The Stockholders acknowledge that the
Stockholders, and not the Company or Metals, will pay all taxes, if any, due
upon receipt of the consideration payable to the Stockholders pursuant to this
Agreement.
15.7 NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to
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be notified, postage prepaid and registered or certified with return receipt
requested, or by delivering the same in person or by facsimile to an officer or
agent of such party, as follows:
(a) If to Metals or Newco, addressed to it at:
Metals USA, Inc.
Three Riverway, Suite 600
Houston, Texas 77056
Attn: General Counsel
Facsimile No. 713-965-0067
(b) If to the Company or the Stockholders, addressed to it or
them at:
Independent Metals Co., Inc.
P.O. Box 247
Germantown, WI 53022-0247
Attention Barry C. Quinnies
Facsimile No. 414-255-2989
with a copy to:
Robert A. Teper, Esq.
Michael Best & Fredrich L.L.P.
100 Wisconsin Avenue
Milwaukee, WI 53202
Facsimile No. 414-277-0656
or to such other address or counsel as any party hereto shall specify pursuant
to this Section from time to time.
15.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Wisconsin other than its principles governing conflicts
of laws.
15.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein or in writing
delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the applicable Expiration Date.
15.10 EFFECT OF INVESTIGATION; KNOWLEDGE. When a representation or
warranty contained herein or in any certificate or other document delivered in
connection herewith is made to the "knowledge" of the Company and the
Stockholders, the phrase "to the knowledge of the Company
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and the Stockholders" means the actual (and not constructive or implied)
knowledge of Barry C. Quinnies, LeRoy E. Feireisen, Gavin Quinnies, John
Schoonover and James D. Zimmermann.
15.11 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
15.12 TIME. Time is of the essence with respect to this Agreement.
15.13 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
15.14 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive but each shall be cumulative
with all other rights, remedies and elections available at law or in equity.
15.15 CAPTIONS. The headings of this Agreement are inserted for
convenience only, and shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
METALS USA, INC.
By:______________________________
Arthur L. French
Chairman & Chief Executive Officer
IM ACQUISITION CORP.
By:______________________________
Arthur L. French
President
INDEPENDENT METALS CO., INC.
By:______________________________
Barry C. Quinnies
Chairman
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Stockholders:
____________________________
Barry C. Quinnies
____________________________
LeRoy E. Feiereisen
____________________________
Donald H. Birney
____________________________
Mark M. Rogers
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EXHIBIT 10.32
AMENDED AND RESTATED
CREDIT AGREEMENT
Originally Dated as of July 15, 1997
Amended and Restated as of February 11, 1998
among
METALS USA, INC.
THE INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO AS LENDERS
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
SECTION PAGE
<S> <C> <C>
ARTICLE I: DEFINITIONS...................................................................................................1
1.1 Certain Defined Terms.......................................................................................1
1.2 References.................................................................................................22
1.3 Amendment and Restatement of Original Credit Agreement.....................................................22
ARTICLE II: THE LOAN FACILITIES.........................................................................................23
2.1 Loans.....................................................................................................23
2.2 Rate Options for all Advances.............................................................................25
2.3 Optional Payments; Mandatory Prepayments..................................................................25
(A) Optional Payments.................................................................................25
(B) Mandatory Prepayments.............................................................................25
2.4 Reduction of Commitments..................................................................................25
2.5 Method of Borrowing.......................................................................................26
2.6 Method of Selecting Types and Interest Periods for Advances...............................................26
2.7 Minimum Amount of Each Advance............................................................................26
2.8 Method of Selecting Types and Interest Periods for Conversion and Continuation of
Advances...............................................................................................26
(A) Right to Convert..................................................................................26
(B) Automatic Conversion and Continuation.............................................................26
(C) No Conversion Post-Default or Post-Unmatured Default..............................................27
(D) Conversion/Continuation Notice....................................................................27
2.9 Default Rate..............................................................................................27
2.10 Method of Payment.........................................................................................27
2.11 Revolving Notes, Telephonic Notices.......................................................................27
2.12 Promise to Pay; Interest and Commitment Fees; Interest Payment Dates; Interest and Fee
Basis; Taxes; Loan and Control Accounts................................................................28
(A) Promise to Pay....................................................................................28
(B) Interest Payment Dates............................................................................28
(C) Commitment Fees...................................................................................28
(D) Interest and Fee Basis; Applicable Eurodollar Margin, Applicable Floating Rate
Margin and Applicable Commitment Fee Percentage...............................................28
(F) Loan Account......................................................................................32
(G) Control Account...................................................................................33
(H) Entries Binding...................................................................................33
2.13 Notification of Advances, Interest Rates, Prepayments and Aggregate Commitment
Reductions.............................................................................................33
2.14 Lending Installations.....................................................................................33
2.15 Non-Receipt of Funds by the Agent.........................................................................33
2.16 Termination Date..........................................................................................34
2.17 Replacement of Certain Lenders............................................................................34
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ARTICLE III: THE LETTER OF CREDIT FACILITY...............................................................................35
3.1 Obligation to Issue........................................................................................35
3.2 Types and Amounts..........................................................................................35
3.3 Conditions.................................................................................................35
3.4 Procedure for Issuance of Letters of Credit................................................................36
3.5 Letter of Credit Participation.............................................................................36
3.6 Reimbursement Obligation...................................................................................37
3.7 Letter of Credit Fees......................................................................................37
3.8 Issuing Bank Reporting Requirements........................................................................37
3.9 Indemnification; Exoneration...............................................................................38
3.10 Cash Collateral...........................................................................................39
ARTICLE IV: CHANGE IN CIRCUMSTANCES.....................................................................................39
4.1 Yield Protection...........................................................................................39
4.2 Changes in Capital Adequacy Regulations....................................................................40
4.3 Availability of Types of Advances..........................................................................41
4.4 Funding Indemnification....................................................................................41
4.5 Lender Statements; Survival of Indemnity...................................................................41
ARTICLE V: CONDITIONS PRECEDENT.........................................................................................42
5.1 Initial Advances and Letters of Credit.....................................................................42
5.2 Each Advance and Letter of Credit..........................................................................43
ARTICLE VI: REPRESENTATIONS AND WARRANTIES..............................................................................43
6.1 Organization; Corporate Powers.............................................................................44
6.2 Authority..................................................................................................44
6.3 No Conflict; Governmental Consents.........................................................................44
6.4 Financial Statements.......................................................................................45
6.5 No Material Adverse Change.................................................................................46
6.6 Taxes......................................................................................................46
(A) Tax Examinations..................................................................................46
(B) Payment of Taxes..................................................................................46
6.7 Litigation; Loss Contingencies and Violations..............................................................46
6.8 Subsidiaries...............................................................................................46
6.9 ERISA......................................................................................................47
6.10 Accuracy of Information...................................................................................48
6.11 Securities Activities.....................................................................................48
6.12 Material Agreements.......................................................................................48
6.13 Compliance with Laws......................................................................................48
6.14 Assets and Properties.....................................................................................48
6.15 Statutory Indebtedness Restrictions.......................................................................49
6.16 Insurance.................................................................................................49
6.17 Labor Matters.............................................................................................49
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
6.18 Environmental Matters..................................................................................49
6.19. Benefits...............................................................................................50
6.20. Senior Subordinated Note Issuance......................................................................50
ARTICLE VII : COVENANTS.................................................................................................50
7.1 Reporting..................................................................................................50
(A) Financial Reporting...............................................................................50
(B) Notice of Default.................................................................................51
(C) Lawsuits..........................................................................................52
(D) ERISA Notices.....................................................................................52
(E) Labor Matters.....................................................................................53
(F) Other Indebtedness................................................................................53
(g) Other Reports.....................................................................................54
(H) Environmental Notices.............................................................................54
(I) Other Information.................................................................................54
7.2 Affirmative Covenants......................................................................................54
(A) Corporate Existence, Etc..........................................................................54
(B) Corporate Powers; Conduct of Business.............................................................54
(C) Compliance with Laws, Etc.........................................................................54
(D) Payment of Taxes and Claims; Tax Consolidation....................................................55
(E) Insurance.........................................................................................55
(F) Inspection of Property; Books and Records; Discussions............................................55
(G) ERISA Compliance..................................................................................55
(H) Maintenance of Property...........................................................................56
(I) Environmental Compliance..........................................................................56
(J) Use of Proceeds...................................................................................56
(K) Addition of Guarantors; Addition of Pledged Capital Stock.........................................56
7.3 Negative Covenants.........................................................................................57
(A) Indebtedness......................................................................................57
(B) Sales of Assets...................................................................................58
(C) Liens.............................................................................................59
(D) Investments.......................................................................................59
(E) Non-Guarantor Subsidiaries or Non-Pledged Subsidiaries............................................60
(F) Restricted Payments...............................................................................60
(G) Conduct of Business; Subsidiaries; Acquisitions...................................................61
(H) Transactions with Shareholders and Affiliates.....................................................63
(I) Restriction on Fundamental Changes................................................................63
(J) Sales and Leasebacks..............................................................................63
(K) Margin Regulations................................................................................63
(L) ERISA.............................................................................................63
(M) Issuance of Equity Interests......................................................................64
(N) Corporate Documents...............................................................................64
</TABLE>
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<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
(O) Fiscal Year.......................................................................................64
(P) Subsidiary Covenants..............................................................................64
(Q) Hedging Obligations...............................................................................65
(R) Other Indebtedness................................................................................65
7.4 Financial Covenants........................................................................................65
(A) Fixed Charge Coverage Ratio.......................................................................66
(B) Total Debt to EBITDA Ratio........................................................................66
(C) Minimum Consolidated Net Worth....................................................................66
(D) Senior Debt to EBITDA Ratio.......................................................................66
(E) Capital Expenditures..............................................................................67
ARTICLE VIII: DEFAULTS..................................................................................................67
8.1 Defaults...................................................................................................67
ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS
AND REMEDIES....................................................................................................70
9.1 Termination of Commitments; Acceleration...................................................................70
9.2 Defaulting Lender..........................................................................................70
9.3 Amendments.................................................................................................71
9.4 Preservation of Rights.....................................................................................72
ARTICLE X: GENERAL PROVISIONS...........................................................................................73
10.1 Survival of Representations...............................................................................73
10.2 Governmental Regulation...................................................................................73
10.3 Performance of Obligations................................................................................73
10.4 Headings..................................................................................................73
10.5 Entire Agreement..........................................................................................74
10.6 Several Obligations; Benefits of this Agreement...........................................................74
10.7 Expenses; Indemnification.................................................................................74
(A) Expenses..........................................................................................74
(B) Indemnity.........................................................................................74
(C) Waiver of Certain Claims; Settlement of Claims....................................................75
(D) Survival of Agreements............................................................................75
10.8 Numbers of Documents......................................................................................76
10.9 Accounting................................................................................................76
10.10 Severability of Provisions...............................................................................76
10.11 Nonliability of Lenders..................................................................................76
10.12 GOVERNING LAW............................................................................................76
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL..................................................76
(A) EXCLUSIVE JURISDICTION............................................................................76
(B) OTHER JURISDICTIONS...............................................................................77
(C) SERVICE OF PROCESS................................................................................77
(D) WAIVER OF JURY TRIAL..............................................................................77
</TABLE>
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<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
(E) WAIVER OF BOND....................................................................................77
(F) ADVICE OF COUNSEL.................................................................................78
10.14 No Strict Construction...................................................................................78
10.15 Subordination of Intercompany Indebtedness...............................................................78
10.16. Usury Not Intended.......................................................................................79
10.17. Business Loans...........................................................................................80
ARTICLE XI: THE AGENT...................................................................................................80
11.1 Appointment; Nature of Relationship.......................................................................80
11.2 Powers....................................................................................................80
11.3 General Immunity..........................................................................................80
11.4 No Responsibility for Loans, Creditworthiness, Collateral, Recitals, Etc..................................81
11.5 Action on Instructions of Lenders.........................................................................81
11.6 Employment of Agents and Counsel..........................................................................81
11.7 Reliance on Documents; Counsel............................................................................81
11.8 The Agent's Reimbursement and Indemnification.............................................................81
11.9 Rights as a Lender........................................................................................82
11.10 Lender Credit Decision....................................................................................82
11.11 Successor Agent...........................................................................................82
11.12 Collateral Documents......................................................................................83
ARTICLE XII: SETOFF; RATABLE PAYMENTS...................................................................................83
12.1 Setoff....................................................................................................83
12.2 Ratable Payments..........................................................................................84
12.3 Application of Payments...................................................................................84
12.4 Relations Among Lenders...................................................................................85
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS.........................................................85
13.1 Successors and Assigns....................................................................................85
13.2 Participations............................................................................................86
(A) Permitted Participants; Effect....................................................................86
(B) Voting Rights.....................................................................................86
(C) Benefit of Setoff.................................................................................86
13.3 Assignments...............................................................................................87
(A) Permitted Assignments.............................................................................87
(B) Effect; Effective Date............................................................................87
(C) The Register......................................................................................88
13.4 Confidentiality...........................................................................................88
13.5 Dissemination of Information..............................................................................88
ARTICLE XIV: NOTICES....................................................................................................88
14.1 Giving Notice.............................................................................................88
14.2 Change of Address.........................................................................................88
ARTICLE XV: COUNTERPARTS................................................................................................89
</TABLE>
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EXHIBITS AND SCHEDULES
EXHIBITS
EXHIBIT A -- Form of Assignment Agreement
(Definitions, Sections 2.17 and 13.3)
EXHIBIT B -- Commitments
(Definitions)
EXHIBIT C -- Form of Revolving Note
(Definitions)
EXHIBIT D -- Form of Swing Line Note
(Definitions)
EXHIBIT E -- Form of Borrowing Notice (Section 2.6)
EXHIBIT F -- Form of Request for Letter of Credit
(Section 3.3)
EXHIBIT G -- Form of Borrower's Counsel's Opinion
(Section 5.1)
EXHIBIT H -- Form of Officer's Certificate
(Sections 5.2 and 7.1(a)(iii))
EXHIBIT I -- Form of Compliance Certificate
(Sections 5.2 and 7.1(a)(iii))
EXHIBIT J -- Form of Guaranty Supplement
(Section 7.3(g)(ii))
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SCHEDULES
Schedule 1.1.1 -- Founding Companies (Definitions)
Schedule 1.1.2 -- Initial Shareholders (Definitions)
Schedule 1.1.3 -- Permitted Existing Indebtedness (Definitions)
Schedule 1.1.4 -- Permitted Existing Investments (Definitions)
Schedule 1.1.5 -- Permitted Existing Liens (Definitions)
Schedule 6.8 -- Subsidiaries (Section 6.8)
Schedule 7.3 -- Subordination Terms (Section 7.3(a))
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AMENDED AND RESTATED
CREDIT AGREEMENT
This Amended and Restated Credit Agreement dated as of February 11, 1998
is entered into among Metals USA, Inc., a Delaware corporation, the institutions
from time to time parties hereto as Lenders, whether by execution of this
Agreement or an Assignment Agreement pursuant to SECTION 13.3, and The First
National Bank of Chicago, in its capacity as contractual representative for
itself and the other Lenders to amend and restate the "Original Credit
Agreement" (as defined below) which is hereby amended and restated in its
entirety. The parties hereto agree as follows:
ARTICLE I: DEFINITIONS
1.1 CERTAIN DEFINED TERMS. In addition to the terms defined above, the
following terms used in this Agreement shall have the following meanings,
applicable both to the singular and the plural forms of the terms defined.
As used in this Agreement:
"ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the Original Closing Date, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage of voting power) of the
outstanding equity interests of another Person.
"ACQUISITION DOCUMENTS" means all material documents, instruments and
agreements entered into in connection with the Initial Acquisitions.
"ADVANCE" means a borrowing hereunder consisting of the aggregate amount
of the several Revolving Loans made by the Lenders to the Borrower of the same
Type and, in the case of Eurodollar Rate Advances, for the same Interest Period.
"AFFECTED LENDER" is defined in SECTION 2.17 hereof.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person is the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of greater than ten percent (10%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
Capital Stock, by contract or otherwise.
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"AGENT" means First Chicago in its capacity as contractual representative
for itself and the Lenders pursuant to ARTICLE XI hereof and any successor Agent
appointed pursuant to ARTICLE XI hereof.
"AGGREGATE COMMITMENT" means the aggregate of the Commitments of all the
Lenders, as amended from time to time pursuant to the terms hereof. The initial
Aggregate Commitment is Three Hundred Million and 00/100 Dollars
($300,000,000.00).
"AGREEMENT" means this Amended and Restated Credit Agreement, as it may be
amended, restated or otherwise modified and in effect from time to time.
"AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting
principles in effect from time to time, applied in a manner consistent with that
used in preparing the financial statements referred to in SECTION 6.4(a) hereof,
PROVIDED, HOWEVER, that with respect to the calculation of financial ratios and
other financial tests required by this Agreement, "Agreement Accounting
Principles" means generally accepted accounting principles as in effect as of
the Original Closing Date, applied in a manner consistent with that used in
preparing the financial statements referred to in SECTION 6.4(a) hereof;
PROVIDED, FURTHER, HOWEVER, all PRO FORMA financial statements reflecting
Acquisitions shall be prepared in accordance with the requirements established
by the Commission for acquisition accounting for reporting acquisitions by
public companies (whether or not such Acquisitions are required to be publicly
reported).
"ALTERNATE BASE RATE" means, for any day, a fluctuating rate of interest
per annum equal to the higher of (i) the Corporate Base Rate for such day and
(ii) the sum of (a) the Federal Funds Effective Rate for such day and (b)
one-half of one percent (0.5%) per annum.
"APPLICABLE COMMITMENT FEE PERCENTAGE" means, as at any date of
determination, the rate per annum then applicable in the determination of the
amount payable under SECTION 2.12(c)(i) hereof, determined in accordance with
the provisions of SECTION 2.12(d)(ii) hereof.
"APPLICABLE EURODOLLAR MARGIN" means, as at any date of determination, the
rate per annum then applicable to Eurodollar Rate Loans, determined in
accordance with the provisions of SECTION 2.12(d)(ii) hereof.
"APPLICABLE FLOATING RATE MARGIN" means, as at any date of determination,
the rate per annum then applicable to Floating Rate Loans, determined in
accordance with the provisions of SECTION 2.12(d)(ii) hereof.
"APPLICABLE L/C FEE PERCENTAGE" means, with respect to any Letter of
Credit and as at any date of determination, a rate per annum equal to the
Applicable Eurodollar Margin in effect on such date.
"ARRANGER" means First Chicago Capital Markets, Inc., in its capacity as
the arranger for the loan transaction evidenced by this Agreement.
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"ASSET SALE" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-leaseback transaction and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such Person).
"ASSIGNMENT AGREEMENT" shall mean an assignment and acceptance agreement
entered into in connection with an assignment pursuant to SECTION 13.3 hereof in
substantially the form of EXHIBIT A.
"AUTHORIZED OFFICER" means any of the chief executive officer, president,
chief financial officer, treasurer or assistant treasurer of the Borrower,
acting singly.
"BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of
ERISA (other than a Multiemployer Plan) in respect of which the Borrower or any
other member of the Controlled Group is, or within the immediately preceding six
(6) years was, an "employer" as defined in Section 3(5) of ERISA.
"BORROWER" means Metals USA, Inc., a Delaware corporation, together with
its successors and assigns, including a debtor-in-possession on behalf of the
Borrower.
"BORROWING DATE" means a date on which an Advance or Swing Line Loan is
made hereunder.
"BORROWING NOTICE" is defined in SECTION 2.6 hereof.
"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
selection of Loans bearing interest at the Eurodollar Rate, a day (other than a
Saturday or Sunday) on which banks are open for business in Chicago, Illinois
and on which dealings in Dollars are carried on in the London interbank market
and (ii) for all other purposes a day (other than a Saturday or Sunday) on which
banks are open for business in Chicago, Illinois.
"CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures (whether paid in cash or accrued as liabilities, including
Capitalized Leases and Permitted Purchase Money Indebtedness) (other than in
connection with Permitted Acquisitions) by the Borrower and its Subsidiaries
during that period that, in conformity with Agreement Accounting Principles, are
required to be included in or reflected by the property, plant, equipment or
similar fixed asset accounts reflected in the consolidated balance sheet of the
Borrower and its Subsidiaries.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
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"CAPITALIZED LEASE" of a Person means any lease of property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, any foreign bank, or its branches or agencies (fully protected against
currency fluctuations for any such deposits with a term of more than ten (10)
days); (iii) shares of money market, mutual or similar funds having assets in
excess of $100,000,000 and the investments of which are limited to investment
grade securities (i.e., securities rated at least Baa by Moody's Investors
Service, Inc. or at least BBB by Standard & Poor's Ratings Group); (iv)
commercial paper of United States and foreign banks and bank holding companies
and their subsidiaries and United States and foreign finance, commercial
industrial or utility companies which, at the time of acquisition, are rated A-1
(or better) by Standard & Poor's Ratings Group or P-1 (or better) by Moody's
Investors Services, Inc.; (v) corporate bonds, mortgage-backed securities and
municipal bonds in each case of a domestic issuer rated at the date of
acquisition not less than Aaa by Moody's Investor Services, Inc. or AAA by
Standard & Poor's Ratings Group with maturities of no more than two (2) years
from the date of acquisition; (vi) repurchase agreements secured by debt
securities of the type described in part (i) above, the market value of which,
including accrued interest, is not less than 100% of the amount of the
repurchase agreement, with maturities of no more than two years from the date of
acquisition, issued by or acquired from or through any Lender or any bank or
trust company organized under the laws of the United States or any state thereof
and having capital and surplus aggregating at least $100,000,000.00; and (vii)
money market funds with respect to which not less than 90% of such funds are
invested in the type of investments specified in clauses (i) through (v) above;
PROVIDED, unless the context otherwise requires, that the maturities of such
Cash Equivalents shall not exceed 365 days.
"CHANGE" is defined in SECTION 4.2 hereof.
"CHANGE OF CONTROL" means an event or series of events by which:
(i) any "person" or "group" (as such terms are used in SECTIONS
13(d) and 14(d) of the Exchange Act), other than the Initial Shareholders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 30% or more of the combined
voting power of the Borrower's Capital Stock ordinarily having the right
to vote at an election of directors;
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(ii) during any period of 24 consecutive calendar months,
individuals:
(a) who were directors of the Borrower on the first day of such
period, or
(b) whose election or nomination for election to the board of
directors of the Borrower was recommended or approved by at
least a majority of the directors then still in office who
were directors of the Borrower on the first day of such
period, or whose election or nomination for election was so
approved,
shall cease to constitute a majority of the board of directors of the
Borrower;
(iii) the Borrower consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of
its property to any Person, or any corporation consolidates with or merges
into the Borrower, in either event pursuant to a transaction in which the
outstanding Capital Stock of the Borrower is reclassified or changed into
or exchanged for cash, securities or other property;
(iv) other than as a result of a transaction permitted under the
terms of this Agreement, the Borrower shall cease to own, of record and
beneficially, with sole voting and dispositive power, (a) 100% of the
outstanding shares of Capital Stock of each of the Founding Companies, (b)
80% of the outstanding shares of Capital Stock of each of the other
Guarantors or (c) shall cease to have the power, directly or indirectly,
to elect a majority of the members of the board of directors of each of
the Guarantors; or
(v) a "Change of Control" (as defined in the Indenture) shall have
occurred.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time, or any successor statute.
"COLLATERAL" means any property owned by the Borrower or any of its
Subsidiaries and pledged to the Agent to the Pledge Agreements to secure the
Secured Obligations.
"COMMISSION" means the Securities and Exchange Commission and any Person
succeeding to the functions thereof.
"COMMITMENT" means, for each Lender, the obligation of such Lender to make
Revolving Loans and to purchase participations in Letters of Credit not
exceeding the amount set forth on EXHIBIT B to this Agreement opposite its name
thereon under the heading "Commitment" or on Schedule 1 of the Assignment
Agreement by which it became a Lender, as such amount may be modified from time
to time pursuant to the terms of this Agreement or to give effect to any
applicable Assignment Agreement.
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"CONSOLIDATED NET WORTH" means, at a particular date, all amounts which
would be included under shareholders' equity for the Borrower and its
consolidated Subsidiaries determined in accordance with Agreement Accounting
Principles.
"CONSOLIDATED TANGIBLE ASSETS" means the total assets of the Borrower and
its Subsidiaries on a consolidated basis, but excluding therefrom all items that
are treated as intangibles under Agreement Accounting Principles.
"CONTAMINANT" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBS"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
"CONTINGENT OBLIGATION", as applied to any Person, means any Contractual
Obligation, contingent or otherwise, of that Person with respect to any
Indebtedness of another or other obligation or liability of another, including,
without limitation, any such Indebtedness, obligation or liability of another
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including Contractual Obligations (contingent or
otherwise) arising through any agreement to purchase, repurchase, or otherwise
acquire such Indebtedness, obligation or liability or any security therefor, or
to provide funds for the payment or discharge thereof (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain solvency, assets, level of income, or other financial condition, or to
make payment other than for value received.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of
any equity or debt securities issued by that Person or any indenture, mortgage,
deed of trust, security agreement, pledge agreement, guaranty, contract,
undertaking, agreement or instrument, in each case in writing, to which that
Person is a party or by which it or any of its properties is bound, or to which
it or any of its properties is subject.
"CONTROLLED GROUP" means the group consisting of (i) any corporation which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower; (ii) a partnership or other trade
or business (whether or not incorporated) which is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member
of the same affiliated service group (within the meaning of Section 414(m) of
the Code) as the Borrower, any corporation described in CLAUSE (i) above or any
partnership or trade or business described in CLAUSE (ii) above.
"CONTROLLED SUBSIDIARY" of any Person means a Subsidiary of such Person
(i) 90% or more of the total Equity Interests or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more wholly-owned Subsidiaries of such Person and (ii)
of which such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies, whether through the ownership
of voting securities, by agreement or otherwise.
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"CONVERSION/CONTINUATION NOTICE" is defined in SECTION 2.8(d) hereof.
"CORPORATE BASE RATE" means the corporate base rate of interest announced
by First Chicago from time to time, changing when and as said corporate base
rate changes.
"CURE LOAN" is defined in SECTION 9.2(iii) hereof.
"CUSTOMARY PERMITTED LIENS" means:
(i) Liens with respect to the payment of taxes, assessments or
governmental charges in all cases which are not yet due or (if
foreclosure, distraint, sale or other similar proceedings shall not have
been commenced) which are being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with respect
to which adequate reserves or other appropriate provisions are being
maintained in accordance with Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other similar Liens
imposed by law created in the ordinary course of business for amounts not
yet due or which are being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with respect
to which adequate reserves or other appropriate provisions are being
maintained in accordance with Agreement Accounting Principles;
(iii) Liens incurred or deposits made, in each case, in the ordinary
course of business in connection with worker's compensation, unemployment
insurance or other types of social security benefits or to secure the
performance of bids, tenders, sales, contracts (other than for the
repayment of borrowed money), surety, appeal and performance bonds;
PROVIDED that (A) all such Liens do not in the aggregate materially
detract from the value of the Borrower's or such Subsidiary's assets or
property taken as a whole or materially impair the use thereof in the
operation of the businesses taken as a whole, and (B) with respect to
Liens securing bonds to stay judgments or in connection with appeals do
not secure at any time an aggregate amount which if paid at such time
would result in the occurrence or existence of a Default;
(iv) Liens arising with respect to zoning restrictions, easements,
licenses, reservations, covenants, rights-of-way, utility easements,
building restrictions and other similar charges or encumbrances on the use
of real property which do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of the Borrower or any of its Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments, writs
or warrants of attachment, or similar process against the Borrower or any
of its Subsidiaries which do not constitute a Default under SECTION 8.1(h)
hereof; and
(vi) any interest or title of the lessor in the property subject to
any operating lease entered into by the Borrower or any of its
Subsidiaries in the ordinary course of business.
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"DEFAULT" means an event described in ARTICLE VIII hereof.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the Termination Date.
"DOL" means the United States Department of Labor and any Person
succeeding to the functions thereof.
"DOLLAR" and "$" means dollars in the lawful currency of the United
States.
"EBITDA" means, for any period, on a consolidated basis for the Borrower
and its Subsidiaries, the sum of the amounts for such period, without
duplication, of:
(i) Net Income,
PLUS (ii) Interest Expense,
PLUS (iii) charges against income for foreign, federal, state and
local taxes, to the extent deducted in computing Net Income,
PLUS (iv) depreciation expense, to the extent deducted in computing Net
Income,
PLUS (v) amortization expense, including, without limitation,
amortization of goodwill, other intangible assets and
Transaction Costs, to the extent deducted in computing Net
Income,
PLUS (vi) other non-cash charges classified as long-term deferrals
in accordance with Agreement Accounting Principles, to the
extent deducted in computing Net Income,
MINUS (vii) Net Extraordinary Gains,
PLUS (viii) non-cash extraordinary losses (and any non-cash
nonrecurring unusual losses arising in or outside of the
ordinary course of business not included in extraordinary
losses determined in accordance with Agreement Accounting
Principles) but only to the extent such amounts were not
utilized to offset gains in calculating Net Extraordinary
Gains,
PLUS (ix) for the fiscal quarters ending September 30, 1997 through
the fiscal quarter ending June 30, 1998, all non-cash
compensation expenses of the Borrower associated with the
issuance of the Borrower's common stock to management of the
Borrower or the Founding Companies and consultants to the
Borrower,
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PLUS (x) for the fiscal quarters ending September 30, 1997 through
the fiscal quarter ending June 30, 1998, the PRO FORMA
adjustments which are consistent with the Commission's
regulations and practices as of the Original Closing Date
(whether or not applicable) to account for adjustments to
historical EBITDA for the Founding Companies as described in
the Initial Registration Statement,
PLUS (xi) for the fiscal quarters ending December 31, 1997 and
March 31, 1998, the $175,000 non-cash charge for recurring
salary expenses of management reflected in Note 4 to the
Borrower's unaudited pro forma combined financial statements
contained in the Initial Registration Statement, and
PLUS (xii) any PRO FORMA adjustments which are consistent with the
Commission's regulations and practices as of the Original
Closing Date (whether or not applicable) to account for
adjustments to historical EBITDA for an acquired entity (other
than the Founding Companies) and which are realizable as a
result of negotiated and executed contractual arrangements.
As used herein "NET EXTRAORDINARY GAINS" shall mean the sum of, but only if
positive, extraordinary gains (and any nonrecurring unusual gains arising in or
outside of the ordinary course of business not included in extraordinary gains
determined in accordance with Agreement Accounting Principles which have been
included in the determination of Net Income) MINUS extraordinary losses (and any
nonrecurring unusual losses arising in or outside of the ordinary course of
business not included in extraordinary losses determined in accordance with
Agreement Accounting Principles). EBITDA shall be calculated for any period by
including the actual amount for the applicable period ending on such day,
including the EBITDA attributable to Permitted Acquisitions occurring during
such period on a PRO FORMA basis for the period from the first day of the
applicable period through the date of the closing of each Permitted Acquisition,
utilizing (a) where available or required pursuant to the terms of this
Agreement, historical audited and/or reviewed unaudited financial statements
obtained from the seller, broken down by fiscal quarter in the Borrower's
reasonable judgment or (b) unaudited financial statements (where no audited or
reviewed financial statements are required pursuant to the terms of this
Agreement) reviewed internally by the Borrower, broken down by fiscal quarter in
the Borrower's reasonable judgment.
"EFFECTIVE DATE" shall mean February 11, 1998.
"ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 ET SEQ., the Occupational Safety and Health Act of 1970,
29 U.S.C. ss. 651 ET SEQ., and the Resource Conservation and Recovery Act of
1976, 42 U.S.C. ss. 6901 ET SEQ., in each casE including any amendments thereto,
any successor statutes, and any regulations or guidance promulgated thereunder,
and any state or local equivalent thereof.
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"ENVIRONMENTAL LIEN" means a lien in favor of any Governmental Authority
for (a) any liability under Environmental, Health or Safety Requirements of Law,
or (b) damages arising from, or costs incurred by such Governmental Authority in
response to, a Release or threatened Release of a Contaminant into the
environment.
"ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable requirement of
law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act" or "Responsible Property Transfer Act."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"EURODOLLAR BASE RATE" means, with respect to a Eurodollar Rate Loan for
the relevant Interest Period, the rate determined by the Agent to be the
arithmetic average of the respective rates at which deposits in Dollars are
offered by First Chicago to first-class banks in the London interbank market at
approximately 11 a.m. (London time) two Business Days prior to the first day of
such Interest Period, in the approximate amounts of the portions of the relevant
Eurodollar Rate Loan of First Chicago, and having a maturity approximately equal
to such Interest Period, as adjusted for Reserves.
"EURODOLLAR RATE" means, with respect to a Eurodollar Rate Loan for the
relevant Interest Period, the Eurodollar Base Rate applicable to such Interest
Period PLUS the then Applicable Eurodollar Margin. The Eurodollar Rate shall be
rounded to the next higher multiple of 1/100 of 1% if the rate is not such a
multiple.
"EURODOLLAR RATE ADVANCE" means an Advance which bears interest at the
Eurodollar Rate.
"EURODOLLAR RATE LOAN" means a Loan, or portion thereof, which bears
interest at the Eurodollar Rate.
"EXISTING LETTER OF CREDIT" means that certain letter of credit issued by
NationsBank, N.A. for the benefit of Raffles Insurance Limited and expiring on
May 20, 1998 with an amount available for drawing as of the Closing Date of
$394,640.00 Notwithstanding anything else to the contrary set forth in this
Agreement, for purposes of this Agreement (a) all payments to and from the
Issuing Bank with respect to the Existing Letter of Credit shall be made to
NationsBank of Texas, N.A. as a Lender hereunder and its shall be the
responsibility of NationsBank of Texas, N.A. to settle the payment of such
amounts with NationsBank, N.A. as the actual issuing bank with respect to such
Existing Letter
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of Credit and (b) all references herein to "Issuing Banks" as relates to the
Existing Letter of Credit shall be to NationsBank of Texas, N.A. as the
representative for NationsBank, N.A.
"FAIR VALUE" means (a) with respect to the Capital Stock of the Borrower,
the closing price for such Capital Stock on the trading date immediately
preceding the date of the applicable acquisition agreement; PROVIDED, such
amount may be discounted to the extent such discount is permitted by Agreement
Accounting Principles and (b) with respect to other assets, the value of the
relevant asset as of the date of acquisition or sale determined in an
arm's-length transaction conducted in good faith between an informed and willing
buyer and an informed and willing seller under no compulsion to buy.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"FIRST CHICAGO" means The First National Bank of Chicago, in its
individual capacity, and its successors.
"FIXED CHARGE COVERAGE RATIO" is defined in SECTION 7.4(a) hereof.
"FLOATING RATE" means, for any day for any Loan, a rate per annum equal to
the Alternate Base Rate for such day PLUS the then Applicable Floating Rate
Margin, changing and as the Alternate Base Rate or Applicable Floating Rate
Margin changes.
"FLOATING RATE ADVANCE" means an Advance which bears interest at the
Floating Rate.
"FLOATING RATE LOAN" means a Loan, or portion thereof, which bears
interest at the Floating Rate.
"FOUNDING COMPANIES" means each of the Persons listed on SCHEDULE 1.1.1
hereto.
"GOVERNMENTAL ACTS" is defined in SECTION 3.9(a) hereof.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GROSS NEGLIGENCE" means recklessness, the absence of the slightest care
or the complete disregard of consequences. Gross Negligence does not mean the
absence of ordinary care or diligence, or an inadvertent act or inadvertent
failure to act. If the term "gross negligence" is used
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with respect to the Agent or any Lender or any indemnitee in any of the other
Loan Documents, it shall have the meaning set forth herein.
"GUARANTORS" means all of the Borrower's Subsidiaries (which shall include
the Founding Companies) as of the Effective Date and any other New Subsidiaries
which have satisfied the provisions of SECTION 7.3(g)(ii) hereof, and their
respective successors and assigns.
"GUARANTY" means that certain Subsidiary Guaranty dated as of February 11,
1998, executed by the Guarantors in favor of the Agent, for the ratable benefit
of the Lenders, as it may be amended, modified, supplemented and/or restated
(including to add new Guarantors), and as in effect from time to time.
"HEDGING OBLIGATIONS" of a Person means any and all obligations of such
Person, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"INDEBTEDNESS" of any Person means, without duplication, such Person's (a)
obligations for borrowed money, (b) obligations representing the deferred
purchase price of property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (c) obligations, whether or not assumed, secured by Liens or payable out
of the proceeds or production from property or assets now or hereafter owned or
acquired by such Person, (d) obligations which are evidenced by notes,
acceptances or other instruments, (e) Capitalized Lease Obligations, (f)
reimbursement obligations with respect to letters of credit (other than
commercial letters of credit) issued for the account of such Person, (g) Hedging
Obligations, (h) Off Balance Sheet Liabilities and (i) Contingent Obligations in
respect of obligations of another Person of the type described in the foregoing
clauses (a) through (h). The amount of Indebtedness of any Person at any date
shall be without duplication (i) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such Contingent Obligations at such date and (ii) in the case of Indebtedness of
others secured by a Lien to which the property or assets owned or held by such
Person is subject, the lesser of the fair market value at such date of any asset
subject to a Lien securing the Indebtedness of others and the amount of the
Indebtedness secured.
"INDEMNIFIED MATTERS" is defined in SECTION 10.7(b) hereof.
"INDEMNITEES" is defined in SECTION 10.7(b) hereof.
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"INDENTURE" means that certain Indenture dated as of February 11, 1998
between the Borrower and U.S. Trust Company of California, N.A., as Trustee, as
amended, supplemented or modified in accordance with SECTION 7.3(R) hereof.
"INFORMATION MEMORANDUM" is defined in SECTION 6.4(a).
"INITIAL ACQUISITIONS" means the acquisition by the Borrowers in separate
merger transactions (the "MERGERS"), in exchange for cash and shares of its
common stock, of the Founding Companies.
"INITIAL REGISTRATION STATEMENT" means the Registration Statement on Form
S-1 filed by the Borrower with the Commission on May 7, 1997, with respect to
the initial public offerings of its common stock, $.01 par value, as filed on
such date.
"INITIAL SHAREHOLDERS" means the Persons set forth on SCHEDULE 1.1.2
hereto.
"INTEREST EXPENSE" means, for any period, the total interest expense of
the Borrower and its consolidated Subsidiaries, whether paid or accrued
(including the interest component of Capitalized Leases, commitment and letter
of credit fees), but excluding interest expense not payable in cash (including
amortization of discount), all as determined in conformity with Agreement
Accounting Principles.
"INTEREST PERIOD" means, with respect to a Eurodollar Rate Loan, a period
of one (1), two (2), three (3), or six (6) months commencing on a Business Day
selected by the Borrower pursuant to this Agreement. Such Interest Period shall
end on (but exclude) the day which corresponds numerically to such date one,
two, three or six months thereafter; PROVIDED, HOWEVER, that if there is no such
numerically corresponding day in such next, second, third or sixth succeeding
month, such Interest Period shall end on the last Business Day of such next,
second, third or sixth succeeding month. If an Interest Period would otherwise
end on a day which is not a Business Day, such Interest Period shall end on the
next succeeding Business Day, PROVIDED, HOWEVER, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"INVESTMENT" means, with respect to any Person, (i) any purchase or other
acquisition by that Person of any Indebtedness, Equity Interests or other
securities, or of a beneficial interest in any Indebtedness, Equity Interests or
other securities, issued by any other Person, (ii) any purchase by that Person
of all or substantially all of the assets of a business conducted by another
Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees and similar items made or incurred in the
ordinary course of business) or capital contribution by that Person to any other
Person, including all Indebtedness to such Person arising from a sale of
property by such Person other than in the ordinary course of its business.
"IRS" means the Internal Revenue Service and any Person succeeding to the
functions thereof.
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"ISSUING BANKS" means (a) NationsBank of Texas, N.A. as representative for
NationsBank, N.A. with respect to the Existing Letter of Credit and (b) First
Chicago and any other Lender which, at the Borrower's request, agrees, in each
such Lender's sole discretion, to become an Issuing Bank for the purpose of
issuing Letters of Credit, and their respective successors and assigns, in each
case in such Lender's separate capacity as an issuer of Letters of Credit
pursuant to SECTION 3.1. The designation of any Lender as an Issuing Bank after
the date hereof shall be subject to the prior written consent of the Agent.
"L/C DRAFT" means a draft drawn on an Issuing Bank pursuant to a Letter of
Credit.
"L/C INTEREST" shall have the meaning ascribed to such term in SECTION 3.5
hereof.
"L/C OBLIGATIONS" means, without duplication, an amount equal to the sum
of (i) the aggregate of the amount then available for drawing under each of the
Letters of Credit, (ii) the face amount of all outstanding L/C Drafts
corresponding to the Letters of Credit, which L/C Drafts have been accepted by
the applicable Issuing Bank, (iii) the aggregate outstanding amount of all
Reimbursement Obligations at such time and (iv) the aggregate face amount of all
Letters of Credit requested by the Borrower but not yet issued (unless the
request for an unissued Letter of Credit has been denied).
"LENDERS" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"LENDING INSTALLATION" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"LETTER OF CREDIT" means (a) the Existing Letter of Credit and (b) the
letters of credit issued by the Issuing Banks pursuant to SECTION 3.1 hereof.
"LEVERAGE RATIO" is defined in SECTION 7.4(b) hereof.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, encumbrance or security agreement or preferential
arrangements of any kind or nature whatsoever (including, without limitation,
the interest of a vendor or lessor under any conditional sale, Capitalized Lease
or other title retention agreement).
"LOAN(S)" means, with respect to a Lender, such Lender's portion of any
Advance made pursuant to SECTION 2.1(a) hereof (individually a "REVOLVING LOAN"
and collectively, the "REVOLVING LOANS"), and in the case of the Swing Line
Bank, any Swing Line Loan made pursuant to SECTION 2.1(b) hereof, and
collectively all such Revolving Loans and Swing Line Loans, whether made or
continued as or converted to Floating Rate Loans or Eurodollar Rate Loans.
"LOAN ACCOUNT" is defined in SECTION 2.12(f) hereof.
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"LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranty, the Pledge
Agreements, and all other documents, instruments and agreements executed in
connection therewith or contemplated thereby, as the same may be amended,
restated or otherwise modified and in effect from time to time.
"MARGIN STOCK" shall have the meaning ascribed to such term in Regulation
U.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance or
properties of the Borrower, or the Borrower and its Subsidiaries, taken as a
whole, (b) the ability of the Borrower or any of its Subsidiaries to perform
their respective obligations under the Loan Documents in any material respect or
(c) the ability of the Lenders or the Agent to enforce in any material respect
their rights with respect to the Collateral.
"MATERIAL SUBSIDIARY" means (a) any "Significant Subsidiary" as defined in
Regulation S-X issued pursuant to the Securities Act and the Exchange Act and
(b) any other Subsidiary of the Borrower which at any time comprises ten percent
(10%) or more of the Borrower's Consolidated Tangible Assets.
"MAXIMUM RATE" means the maximum nonusurious interest rate under
applicable law. To the extent Texas law may apply to this Agreement, the maximum
lawful rate under this Agreement shall be the weekly indicated rate ceiling
under Article 5069-1.04 of the Texas Revised Civil Statutes, unless any other
lawful rate ceiling exceeds the rate ceiling so determined, and then the higher
rate ceiling shall apply.
"MERGER(S)" is defined in the definition of Initial Acquisitions above.
"MULTIEMPLOYER PLAN" means a "Multiemployer Plan" as defined in Section
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by either the Borrower or any member of the Controlled
Group.
"NET INCOME" means, for any period, the net earnings (or loss) after taxes
of the Borrower and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with Agreement
Accounting Principles.
"NEW SUBSIDIARY" is defined in SECTION 7.3(g)(ii).
"NON PRO RATA LOAN" is defined in SECTION 9.2 hereof.
"NOTICE OF ASSIGNMENT" is defined in SECTION 13.3(b) hereof.
"NOTES" means the Revolving Notes and the Swing Line Note.
"OBLIGATIONS" means all Loans, advances, debts, liabilities, obligations,
covenants and duties owing by the Borrower to the Agent, any Lender, the Swing
Line Bank, the Arranger, any Affiliate of the Agent or any Lender, or any
Indemnitee, of any kind or nature, present or future, arising under
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this Agreement, the Notes or any other Loan Document, whether or not evidenced
by any note, guaranty or other instrument, whether or not for the payment of
money, whether arising by reason of an extension of credit, loan, guaranty,
indemnification, or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising and however acquired. The term includes, without
limitation, all interest, charges, expenses, fees, attorneys' fees and
disbursements, paralegals' fees (in each case whether or not allowed), and any
other sum chargeable to the Borrower under this Agreement or any other Loan
Document.
"OFF BALANCE SHEET LIABILITIES" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any liability under any sale and leaseback Transactions which do not create
a liability on the consolidated balance sheet of such Person, (c) any liability
under any financing lease or so-called "synthetic" lease transaction, or (d) any
obligations arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the consolidated balance sheets of such Person and its
Subsidiaries.
"OTHER TAXES" is defined in SECTION 2.12(e)(ii) hereof.
"ORIGINAL CLOSING DATE" means July 15, 1997.
"ORIGINAL CREDIT AGREEMENT" means the Credit Agreement dated as of July
15, 1997 among the Borrower, the financial institutions parties thereto and the
Agent.
"PARTICIPANTS" is defined in SECTION 13.2(a) hereof.
"PAYMENT DATE" means the last Business Day of each March, June, September
and December.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"PERMITTED ACQUISITION" is defined in SECTION 7.3(g)(iii) hereof.
"PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the Borrower
and its Subsidiaries identified as such on SCHEDULE 1.1.3 to this Agreement.
"PERMITTED EXISTING INVESTMENTS" means the Investments of the Borrower and
its Subsidiaries identified as such on SCHEDULE 1.1.4 to this Agreement.
"PERMITTED EXISTING LIENS" means the Liens on assets of the Borrower and
its Subsidiaries identified as such on SCHEDULE 1.1.5 to this Agreement.
"PERMITTED PURCHASE MONEY INDEBTEDNESS" is defined in SECTION 7.3(a)(ix)
hereof.
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"PERMITTED REFINANCING INDEBTEDNESS" means any replacement, renewal,
refinancing or extension of any Indebtedness (other than the Senior Subordinated
Notes) permitted by this Agreement that (i) does not exceed the aggregate
principal amount (plus associated fees and expenses) of the Indebtedness being
replaced, renewed, refinanced or extended, (ii) does not rank at the time of
such replacement, renewal, refinancing or extension senior to the Indebtedness
being replaced, renewed, refinanced or extended, and (iii) does not contain
terms (including, without limitation, terms relating to security, amortization,
maturity, interest rate, premiums, fees, covenants, event of default and
remedies) materially less favorable to the Borrower or to the Lenders than those
applicable to the Indebtedness being replaced, renewed, refinanced or extended.
"PERMITTED SUBORDINATED INDEBTEDNESS" is defined in SECTION 7.3(a)(iii)
hereof.
"PERSON" means any individual, corporation, firm, enterprise, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company or other entity of any kind, or any
government or political subdivision or any agency, department or instrumentality
thereof.
"PLAN" means an employee benefit plan defined in Section 3(3) of ERISA in
respect of which the Borrower or any member of the Controlled Group is, or
within the immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA.
"PLEDGE AGREEMENTS" means (a) the Pledge Agreement dated as of February
11, 1998 executed by the Borrower in favor of the Agent and (b) any pledge
agreement executed by any Subsidiary with respect to the Capital Stock of any
other Subsidiary executed pursuant to the terms of SECTION 7.2(k), in each case,
as amended, modified, supplemented and/or restated (including to add additional
pledged Capital Stock of additional Subsidiaries.
"PRO RATA SHARE" means, with respect to any Lender, the percentage
obtained by dividing (A) such Lender's Commitment at such time (as adjusted from
time to time in accordance with the provisions of this Agreement) by (B) the sum
of the Aggregate Commitments at such time; PROVIDED, HOWEVER, if the Commitments
are terminated pursuant to the terms of this Agreement, then "Pro Rata Share"
means the percentage obtained by dividing (x) the sum of such Lender's L/C
Obligations and Revolving Loans, and in the case of the Swing Line Bank, Swing
Line Loans by (y) the aggregate amount of all Revolving Loans, Swing Line Loans
and L/C Obligations.
"PUBLIC OFFERINGS" means the offerings by the Borrower (i) initially of
5,900,000 shares of its common stock, $.01 par value, pursuant to the Initial
Registration Statement and (ii) of 10,000,000 shares of its common stock, $.01
par value, pursuant to the Registration Statement.
"PUBLIC OFFERING DOCUMENTS" means the Initial Registration Statement, the
Registration Statement, the Underwriting Agreements, and all other material
instruments and agreements, if any, executed or obtained by the Borrower or any
of its Subsidiaries pursuant to or in connection with the Public Offerings.
"PURCHASERS" is defined in SECTION 13.3(a) hereof.
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"RATE OPTION" means the Eurodollar Rate or the Floating Rate.
"REGISTER" is defined in SECTION 13.3(c) hereof.
"REGISTRATION STATEMENT" means the Registration Statement on Form S-1
filed by the Borrower with the Commission on November 14, 1997.
"REGULATION G" means Regulation G of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by nonbank, nonbroker lenders for the purpose of purchasing
or carrying margin stock (as defined therein).
"REGULATION T" means Regulation T of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by and to brokers and dealers of securities for the purpose
of purchasing or carrying margin stock (as defined therein).
"REGULATION U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying Margin
Stock applicable to member banks of the Federal Reserve System.
"REGULATION X" means Regulation X of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by foreign lenders for the purpose of purchasing or carrying
margin stock (as defined therein).
"REIMBURSEMENT OBLIGATION" is defined in SECTION 3.6 hereof.
"RELATED TRANSACTIONS" means the Initial Acquisitions, the Mergers and the
Public Offerings.
"RELEASE" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, including the movement of Contaminants through or in the
air, soil, surface water or groundwater.
"RENTALS" of a Person means the aggregate fixed amounts payable by such
Person under any lease of real or personal property but does not include any
amounts payable under Capitalized Leases of such Person.
"REPLACEMENT LENDER" is defined in SECTION 2.17 hereof.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days after
such event occurs, PROVIDED, HOWEVER, that a failure to meet the
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minimum funding standards of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"REQUIRED LENDERS" means Lenders whose Pro Rata Shares, in the aggregate,
are equal to or greater than fifty-one percent (51%); PROVIDED, HOWEVER, that,
if any of the Lenders shall have failed to fund its Pro Rata Share of any
Revolving Loan requested by the Borrower, or any Swing Line Loan as requested by
the Agent, which such Lenders are obligated to fund under the terms of this
Agreement and any such failure has not been cured, then for so long as such
failure continues, "REQUIRED LENDERS" means Lenders (excluding all Lenders whose
failure to fund their respective Pro Rata Shares of such Revolving Loans or
Swing Line Loans has not been so cured) whose Pro Rata Shares represent at least
fifty-one percent (51%) of the aggregate Pro Rata Shares of such Lenders;
PROVIDED FURTHER, HOWEVER, that, if the Commitments have been terminated
pursuant to the terms of this Agreement, "REQUIRED LENDERS" means Lenders
(without regard to such Lenders' performance of their respective obligations
hereunder) whose aggregate ratable shares (stated as a percentage) of the
aggregate outstanding principal balance of all Loans and L/C Obligations are
equal to or greater than fifty-one percent (51%).
"REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws or
other organizational or governing documents of such Person, and any law, rule or
regulation, or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject including,
without limitation, the Securities Act of 1933, the Securities Exchange Act of
1934, Regulations G, T, U and X, ERISA, the Fair Labor Standards Act, the Worker
Adjustment and Retraining Notification Act, Americans with Disabilities Act of
1990, and any certificate of occupancy, zoning ordinance, building,
environmental or land use requirement or permit or environmental, labor,
employment, occupational safety or health law, rule or regulation, including
Environmental, Health or Safety Requirements of Law.
"RESERVES" shall mean the maximum reserve requirement, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) with
respect to "Eurocurrency liabilities" or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurodollar Rate Loans is determined or category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution, direct
or indirect, on account of any Equity Interests of the Borrower now or hereafter
outstanding, except a dividend payable solely in the Borrower's Capital Stock
(other than Disqualified Stock) or in options, warrants or other rights to
purchase such Capital Stock, (ii) any redemption, retirement, purchase or other
acquisition for value, direct or indirect, of any Equity Interests of the
Borrower or any of its Subsidiaries now or hereafter outstanding, other than in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Borrower) of other Equity Interests of the
Borrower (other than Disqualified Stock), (iii) any redemption, purchase,
retirement, defeasance, prepayment or other acquisition for value, direct or
indirect, of any Permitted Subordinated Indebtedness, and (iv) any payment of a
claim for the rescission of the purchase or sale
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of, or for material damages arising from the purchase or sale of, any Permitted
Subordinated Indebtedness or any Equity Interests of the Borrower or any of the
Borrower's Subsidiaries, or of a claim for reimbursement, indemnification or
contribution arising out of or related to any such claim for damages or
rescission.
"REVOLVING CREDIT AVAILABILITY" means, at any particular time, the amount
by which the Aggregate Commitment at such time exceeds the Revolving Credit
Obligations at such time.
"REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum of
(i) the outstanding principal amount of the Loans (including the Swing Line
Loans) at such time, PLUS (ii) the L/C Obligations at such time.
"REVOLVING LOAN" is defined in the definition of "Loans" above.
"REVOLVING NOTE" means a promissory note, in substantially the form of
EXHIBIT C hereto, duly executed by the Borrower and payable to the order of a
Lender in the amount of its Commitment, including any amendment, restatement,
modification, renewal or replacement of such Revolving Note.
"RISK-BASED CAPITAL GUIDELINES" is defined in SECTION 4.2 hereof.
"SECURED OBLIGATIONS" means, collectively, (i) the Obligations and (ii)
all Hedging Obligations owing to any Lender or any affiliate of any Lender under
agreements with respect thereto entered into with any Lender or any affiliate of
any Lender.
"SENIOR SUBORDINATED NOTES" means those certain 8-5/8% Senior Subordinated
Notes due February 15, 2008, issued by the Borrower in the aggregate principal
amount of up to $300,000,000 pursuant to the Indenture, as amended, supplemented
or modified in accordance with SECTION 7.3(R) hereof.
"SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"SWING LINE BANK" means First Chicago or any other Lender as a successor
Swing Line Bank.
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"SWING LINE COMMITMENT" means the obligation of the Swing Line Bank to
make Swing Line Loans up to a maximum principal amount of $15,000,000 at any one
time outstanding.
"SWING LINE LOAN" means (a) any Swing Line Loan made pursuant to the
Original Credit Agreement and outstanding on the Effective Date and (b) a Loan
made available to the Borrower by the Swing Line Bank pursuant to SECTION 2.1(b)
hereof.
"SWING LINE NOTE" means a promissory note, in substantially the form of
EXHIBIT D hereto, duly executed by the Borrower and payable to the order of the
Swing Line Bank in the amount of its Swing Line Commitment, including any
amendment, restatement, modification, renewal or replacement of such Swing Line
Note.
"SYNDICATION PERIOD" is defined in SECTION 2.2 hereof.
"TAXES" is defined in SECTION 2.12(e)(i) hereof.
"TERMINATION DATE" means the earlier of (a) February 11, 2003 and (b) the
date of termination of the Aggregate Commitment pursuant to SECTION 2.4 hereof
or the Commitments pursuant to SECTION 9.1 hereof.
"TERMINATION EVENT" means (i) a Reportable Event with respect to any
Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Borrower or
such Controlled Group member was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the cessation of operations which results in the
termination of employment of twenty percent (20%) of Benefit Plan participants
who are employees of the Borrower or any member of the Controlled Group; (iii)
the imposition of an obligation on the Borrower or any member of the Controlled
Group under Section 4041 of ERISA to provide affected parties written notice of
intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to
terminate a Benefit Plan; (v) any event or condition which might constitute
grounds under Section 4042 of ERISA for the Termination of, or the appointment
of a trustee to administer, any Benefit Plan; or (vi) the partial or complete
withdrawal of the Borrower or any member of the Controlled Group from a
Multiemployer Plan.
"TOTAL DEBT" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of Indebtedness of the Borrower and its
Subsidiaries, other than Hedging Obligations.
"TRANSACTION COSTS" means the fees, costs and expenses payable by the
Borrower in connection with the execution, delivery and performance of the
Transaction Documents, the Public Offerings, the issuance of the Senior
Subordinated Notes, and the consummation of the Initial Acquisitions and the
Related Transactions.
"TRANSACTION DOCUMENTS" means the Loan Documents, the Public Offering
Documents, the Acquisition Documents, the Indenture, the other material
documents executed in connection with the
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Senior Subordinated Notes, the Senior Subordinated Notes and the other material
documents executed in connection with the Related Transactions.
"TRANSFEREE" is defined in SECTION 13.5 hereof.
"TYPE" means, with respect to any Loan, its nature as a Floating Rate Loan
or a Eurodollar Rate Loan.
"UNDERWRITING AGREEMENT" means that certain Underwriting Agreement from
the Borrower confirmed and accepted by Alex. Brown & Sons Incorporated for
itself and certain other underwriters in connection with each Public Offering.
"UNFUNDED LIABILITIES" means (i) in the case of Single Employer Plans, the
amount (if any) by which the present value of all vested nonforfeitable benefits
under all Single Employer Plans exceeds the fair market value of all such Plan
assets allocable to such benefits, all determined as of the then most recent
valuation date for such Plans, and (ii) in the case of Multiemployer Plans, the
withdrawal liability that would be incurred by the Controlled Group if all
members of the Controlled Group completely withdrew from all Multiemployer
Plans.
"UNMATURED DEFAULT" means an event which, but for the lapse of time or the
giving of notice, or both, would constitute a Default.
Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in accordance with
generally accepted accounting principles in existence as of the Original Closing
Date hereof.
1.2 REFERENCES. The existence throughout the Agreement of references to
the Borrower's Subsidiaries is for a matter of convenience only. Any references
to Subsidiaries of the Borrower set forth herein shall (i) with respect to
representations and warranties which deal with historical matters be deemed to
include each of the Founding Companies and their respective subsidiaries,
together with the businesses acquired pursuant to the Initial Acquisitions; and
(ii) shall not in any way be construed as consent by the Agent or any Lender to
the establishment, maintenance or acquisition of any Subsidiary, except as may
otherwise be permitted hereunder.
1.3 AMENDMENT AND RESTATEMENT OF ORIGINAL CREDIT AGREEMENT. The Borrower,
the Lenders, the Agent, the Swing Line Bank and the Issuing Banks agree that,
upon (i) the execution and delivery of this Agreement by each of the parties
hereto and (ii) satisfaction (or waiver by the Agent and all of the Lenders) of
the conditions precedent set forth in SECTION 5.1, the terms and provisions of
the Original Credit Agreement shall be and hereby are amended, superseded and
restated in their entirety by the terms and provisions of this Agreement. This
Agreement is not intended to and shall not constitute a novation of the Original
Credit Agreement or the indebtedness created thereunder. The Existing Letter of
Credit shall continue as a Letter of Credit under (and shall be governed by the
terms of) this Agreement. All "Swing Line Loans" made to the Borrower under the
Original Credit Agreement which remain outstanding on the Effective Date shall
constitute and shall continue as Swing Line Loans under (and shall be governed
by the terms of) this Agreement. All other Loans
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made under the Original Credit Agreement shall be repaid on the Effective Date.
The commitments of each Lender that is a party to the Original Credit Agreement
shall, on the Effective Date, automatically be deemed amended to constitute such
Lender's Commitment hereunder.
ARTICLE II: THE LOAN FACILITIES
2.1 LOANS. (a) REVOLVING LOANS. Upon the satisfaction of the conditions
precedent set forth in SECTIONS 5.1 and 5.2, from and including the Effective
Date and prior to the Termination Date, each Lender severally and not jointly
agrees, on the terms and conditions set forth in this Agreement, to make
Revolving Loans to the Borrower from time to time, in Dollars, in an amount not
to exceed such Lender's Pro Rata Share of Revolving Credit Availability at such
time; PROVIDED, HOWEVER, at no time shall the Revolving Credit Obligations
exceed the Aggregate Commitment at such time. Subject to the terms of this
Agreement, the Borrower may borrow, repay and reborrow Revolving Loans at any
time prior to the Termination Date. The Revolving Loans made on the Effective
Date shall initially be Floating Rate Loans and thereafter may be continued as
Floating Rate Loans or converted into Eurodollar Rate Loans in the manner
provided in SECTION 2.8 and subject to the other conditions and limitations
therein set forth and set forth in this ARTICLE II. On the Termination Date, the
Borrower shall repay in full the outstanding principal balance of the Loans.
Each Advance under this SECTION 2.1(a) shall consist of Revolving Loans made by
each Lender ratably in proportion to such Lender's respective Pro Rata Share.
(b) SWING LINE LOANS.
(i) AMOUNT OF SWING LINE LOANS. Upon the satisfaction of the
conditions precedent set forth in SECTION 5.1 and 5.2, from and including
the Effective Date and prior to the Termination Date, the Swing Line Bank
agrees, on the terms and conditions set forth in this Agreement, to make
swing line loans to the Borrower from time to time, in Dollars, in an
amount not to exceed the Swing Line Commitment (each, individually, a
"SWING LINE LOAN" and collectively, the "SWING LINE LOANS"); PROVIDED,
HOWEVER, at no time shall the Revolving Credit Obligations exceed the
Aggregate Commitment; and PROVIDED, FURTHER, that at no time shall the sum
of (a) the outstanding amount of the Swing Line Loans, PLUS (b) the
outstanding amount of Revolving Loans made by the Swing Line Bank pursuant
to SECTION 2.1(a) (after giving effect to any concurrent repayment of
Loans), exceed the Swing Line Bank's Commitment at such time. Subject to
the terms of this Agreement, the Borrower may borrow, repay and reborrow
Swing Line Loans at any time prior to the Termination Date.
(ii) BORROWING NOTICE. The Borrower shall deliver to the Agent and
the Swing Line Bank a Borrowing Notice, signed by it, not later than 10:00
a.m. (Chicago time) on the Borrowing Date of each Swing Line Loan,
specifying (i) the applicable Borrowing Date (which shall be a Business
Day), and (ii) the aggregate amount of the requested Swing Line Loan. The
Swing Line Loans shall at all times be Floating Rate Loans, which shall be
an amount not less than $250,000 and increments of $100,000 in excess
thereof. The Agent shall promptly notify each Lender of such request.
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(iii) MAKING OF SWING LINE LOANS. Promptly after receipt of the
Borrowing Notice under SECTION 2.1(b)(ii) in respect of Swing Line Loans,
the Agent shall notify each Lender by telex or telecopy, or other similar
form of transmission, of the requested Swing Line Loan. Not later than
2:00 p.m. (Chicago time) on the applicable Borrowing Date, the Swing Line
Bank shall make available its Swing Line Loan, in funds immediately
available in Chicago to the Agent at its address specified pursuant to
ARTICLE XIV. The Agent will promptly make the funds so received from the
Swing Line Bank available to the Borrower at the Agent's aforesaid
address.
(iv) REPAYMENT OF SWING LINE LOANS. The Swing Line Loans shall be
evidenced by the Swing Line Note, and each Swing Line Loan shall be paid
in full by the Borrower on or before the fifth Business Day after the
Borrowing Date for such Swing Line Loan. The Borrower may at any time pay,
without penalty or premium, all outstanding Swing Line Loans or, in a
minimum amount and increments of $100,000, any portion of the outstanding
Swing Line Loans, upon notice to the Agent and the Swing Line Bank. In
addition, the Agent (i) may at any time in its sole discretion with
respect to any outstanding Swing Line Loan, or (ii) shall on the fifth
Business Day after the Borrowing Date of any Swing Line Loan, require each
Lender (including the Swing Line Bank) to make a Revolving Loan in the
amount of such Lender's Pro Rata Share of such Swing Line Loan, for the
purpose of repaying such Swing Line Loan. Not later than 2:00 p.m.
(Chicago time) on the date of any notice received pursuant to this SECTION
2.1(b)(iv), each Lender shall make available its required Revolving Loan
or Revolving Loans, in funds immediately available in Chicago to the Agent
at its address specified pursuant to ARTICLE XIV. Revolving Loans made
pursuant to this SECTION 2.1(b)(iv) shall initially be Floating Rate Loans
and thereafter may be continued as Floating Rate Loans or converted into
Eurodollar Rate Loans in the manner provided in SECTION 2.8 and subject to
the other conditions and limitations therein set forth and set forth in
this ARTICLE II. Unless a Lender shall have notified the Swing Line Bank,
prior to its making any Swing Line Loan, that any applicable condition
precedent set forth in SECTIONS 5.1 and 5.2 had not then been satisfied,
such Lender's obligation to make Revolving Loans pursuant to this SECTION
2.1(b)(iv) to repay Swing Line Loans shall be unconditional, continuing,
irrevocable and absolute and shall not be affected by any circumstances,
including, without limitation, (A) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against the Agent, the
Swing Line Bank or any other Person, (B) the occurrence of continuance of
a Default or Unmatured Default, (C) any adverse change in the condition
(financial or otherwise) of the Borrower, or (D) any other circumstances,
happening or event whatsoever. In the event that any Lender fails to make
payment to the Agent of any amount due under this SECTION 2.1(b)(iv), the
Agent shall be entitled to receive, retain and apply against such
obligation the principal and interest otherwise payable to such Lender
hereunder until the Agent receives such payment from such Lender or such
obligation is otherwise fully satisfied. In addition to the foregoing, if
for any reason any Lender fails to make payment to the Agent of any amount
due under this SECTION 2.1(b)(iv), such Lender shall be deemed, at the
option of the Agent, to have unconditionally and irrevocably purchased
from the Swing Line Bank, without recourse or warranty, an undivided
interest and participation in the applicable Swing Line Loan in the amount
of such Revolving Loan, and such interest and participation may be
recovered from such Lender together with interest
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thereon at the Federal Funds Effective Rate for each day during the period
commencing on the date of demand and ending on the date such amount is
received. On the Termination Date, the Borrower shall repay in full the
outstanding principal balance of the Swing Line Loans.
2.2 RATE OPTIONS FOR ALL ADVANCES. The Revolving Loans may be Floating
Rate Advances or Eurodollar Rate Advances, or a combination thereof, selected by
the Borrower in accordance with SECTION 2.8. The Borrower may select, in
accordance with SECTION 2.8, Rate Options and Interest Periods applicable to
portions of the Revolving Loans; PROVIDED that there shall be no more than seven
(7) Interest Periods in effect with respect to all of the Revolving Loans at any
time; and PROVIDED, FURTHER, HOWEVER, notwithstanding anything herein to the
contrary, the Borrower may not select the Eurodollar Rate for any Loans without
the Agent's consent during the period from the Effective Date through the
earlier to occur of (i) the date that is 60 days after the Effective Date and
(ii) the date on which the Arranger notifies the Borrower that the primary
syndication of the Loans and Commitments has been completed (the "SYNDICATION
PERIOD"). The Swing Line Loans shall at all times be Floating Rate Loans.
2.3 OPTIONAL PAYMENTS; MANDATORY PREPAYMENTS.
(A) OPTIONAL PAYMENTS. The Borrower may from time to time repay or prepay,
without penalty or premium all or any part of outstanding Floating Rate
Advances; PROVIDED, that the Borrower may not so prepay Floating Rate Advances
unless it shall have provided at least one Business Day's written notice to the
Agent of such prepayment. Eurodollar Rate Advances may be voluntarily repaid or
prepaid prior to the last day of the applicable Interest Period, subject to the
indemnification provisions contained in SECTION 4.4, PROVIDED, that the Borrower
may not so prepay Eurodollar Rate Advances unless it shall have provided at
least two (2) Business Days' written notice to the Agent of such prepayment.
(B) MANDATORY PREPAYMENTS. If at any time and for any reason the Revolving
Credit Obligations are greater than the Aggregate Commitment, the Borrower shall
immediately make a mandatory prepayment of the Obligations in an amount equal to
such excess. In addition, if Revolving Credit Availability is at any time less
than the amount of contingent L/C Obligations outstanding at any time, the
Borrower shall deposit cash collateral with the Agent in an amount equal to the
amount by which such L/C Obligations exceed such Revolving Credit Availability.
All of the mandatory prepayments made under this SECTION 2.3(b) shall be applied
first to Floating Rate Loans and to any Eurodollar Rate Loans maturing on such
date and then to subsequently maturing Eurodollar Rate Loans in order of
maturity.
2.4 REDUCTION OF COMMITMENTS. The Borrower may permanently reduce the
Aggregate Commitment in whole, or in part ratably among the Lenders, in an
aggregate minimum amount of $5,000,000 and integral multiples of $5,000,000 in
excess of that amount (unless the Aggregate Commitment is reduced in whole),
upon at least three (3) Business Days' written notice to the Agent, which notice
shall specify the amount of any such reduction; PROVIDED, HOWEVER, that the
amount of the Aggregate Commitment may not be reduced below the aggregate
principal amount of the outstanding Revolving Credit Obligations. All accrued
commitment fees shall be payable on the
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effective date of any partial or complete termination of the obligations of the
Lenders to make Revolving Loans hereunder.
2.5 METHOD OF BORROWING. Not later than 2:00 p.m. (Chicago time) on each
Borrowing Date, each Lender shall make available its Revolving Loan, in funds
immediately available in Chicago to the Agent at its address specified pursuant
to ARTICLE XIV. The Agent will promptly make the funds so received from the
Lenders available to the Borrower at the Agent's aforesaid address.
2.6 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR ADVANCES. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Rate Advance, the Interest Period applicable to each Advance from time to time.
The Borrower shall give the Agent irrevocable notice in substantially the form
of EXHIBIT E hereto (a "BORROWING NOTICE") not later than 10:00 a.m. (Chicago
time) (a) on the Borrowing Date of each Floating Rate Advance and (b) three
Business Days before the Borrowing Date for each Eurodollar Rate Advance,
specifying: (i) the Borrowing Date (which shall be a Business Day) of such
Advance; (ii) the aggregate amount of such Advance; (iii) the Type of Advance
selected; and (iv) in the case of each Eurodollar Rate Advance, the Interest
Period applicable thereto. Each Floating Rate Advance and all Obligations other
than Loans shall bear interest from and including the date of the making of such
Advance to (but not including) the date of repayment thereof at the Floating
Rate, changing when and as such Floating Rate changes. Changes in the rate of
interest on that portion of any Advance maintained as a Floating Rate Loan will
take effect simultaneously with each change in the Alternate Base Rate. Each
Eurodollar Rate Advance shall bear interest from and including the first day of
the Interest Period applicable thereto to (but not including) the last day of
such Interest Period at the interest rate determined as applicable to such
Eurodollar Rate Advance.
2.7 MINIMUM AMOUNT OF EACH ADVANCE. Each Advance (other than an Advance to
repay Swing Line Loans pursuant to SECTION 2.1(b)(iv) or a Reimbursement
Obligation pursuant to SECTION 3.6) shall be in the minimum amount of $5,000,000
(and in multiples of $1,000,000 if in excess thereof), PROVIDED, HOWEVER, that
any Floating Rate Advance may be in the amount of the unused Aggregate
Commitment.
2.8 METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR CONVERSION AND
CONTINUATION OF ADVANCES.
(A) RIGHT TO CONVERT. The Borrower may elect from time to time, subject to
the provisions of SECTION 2.2 and this SECTION 2.8, and, for any conversion of a
Eurodollar Rate Advance other than at the end of an Interest Period, subject to
payment of amounts payable under SECTION 4.4, to convert all or any part of a
Revolving Loan of any Type into any other Type or Types of Loans.
(B) AUTOMATIC CONVERSION AND CONTINUATION. Floating Rate Loans shall
continue as Floating Rate Loans unless and until such Floating Rate Loans are
converted into Eurodollar Rate Loans. Eurodollar Rate Loans shall continue as
Eurodollar Rate Loans until the end of the then applicable Interest Period
therefor, at which time such Eurodollar Rate Loans shall be automatically
converted into Floating Rate Loans unless the Borrower shall have given the
Agent notice in accordance with
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SECTION 2.8(d) requesting that, at the end of such Interest Period, such
Eurodollar Rate Loans continue as a Eurodollar Rate Loan.
(C) NO CONVERSION POST-DEFAULT OR POST-UNMATURED DEFAULT. Notwithstanding
anything to the contrary contained in SECTION 2.8(a) or SECTION 2.8(b), no
Revolving Loan may be converted into or continued as a Eurodollar Rate Loan
(except with the consent of the Required Lenders) when any Default or Unmatured
Default has occurred and is continuing.
(D) CONVERSION/CONTINUATION NOTICE. The Borrower shall give the Agent
irrevocable notice (a "CONVERSION/CONTINUATION NOTICE") of each conversion of a
Floating Rate Loan into a Eurodollar Rate Loan or continuation of a Eurodollar
Rate Loan not later than 10:00 a.m. (Chicago time) three (3) Business Days prior
to the date of the requested conversion or continuation, specifying: (1) the
requested date (which shall be a Business Day) of such conversion or
continuation; (2) the amount and Type of the Loan to be converted or continued;
and (3) the amount of Eurodollar Rate Loan(s) into which such Loan is to be
converted or continued and the duration of the Interest Period applicable
thereto.
2.9 DEFAULT RATE. After the occurrence and during the continuance of a
Default, at the option of the Agent or at the direction of the Required Lenders,
the interest rate(s) applicable to the Obligations shall be equal to the
Floating Rate PLUS two percent (2.0%) per annum and fees payable under SECTION
3.7 with respect to standby Letters of Credit shall be increased by two percent
(2.0%) per annum.
2.10 METHOD OF PAYMENT. All payments of principal, interest, and fees
hereunder shall be made, without setoff, deduction or counterclaim, in
immediately available funds to the Agent at the Agent's address specified
pursuant to ARTICLE XIV, or at any other Lending Installation of the Agent
specified in writing by the Agent to the Borrower, by 2:00 p.m. (Chicago time)
on the date when due and shall be made ratably among the Lenders (unless such
amount is not to be shared ratably in accordance with the terms hereof). Each
payment delivered to the Agent for the account of any Lender shall be delivered
promptly by the Agent to such Lender in the same type of funds which the Agent
received at its address specified pursuant to ARTICLE XIV or at any Lending
Installation specified in a notice received by the Agent from such Lender. The
Borrower authorizes the Agent to charge the account of the Borrower maintained
with First Chicago for each payment of principal, interest, fees and other
amounts as it becomes due hereunder.
2.11 REVOLVING NOTES, TELEPHONIC NOTICES. Each Lender is authorized to
record the principal amount of each of its Revolving Loans and each repayment
with respect to its Revolving Loans on the schedule attached to its respective
Revolving Note; PROVIDED, HOWEVER, that the failure to so record shall not
affect the Borrower's obligations under any such Revolving Note. The Borrower
authorizes the Lenders and the Agent to extend Advances, effect selections of
Types of Advances and to transfer funds based on telephonic notices made by any
person or persons the Agent or any Lender in good faith believes to be acting on
behalf of the Borrower. The Borrower agrees to deliver promptly to the Agent a
written confirmation, signed by an Authorized Officer, if such confirmation is
requested by the Agent or any Lender, of each telephonic notice. If the written
confirmation differs in any material respect from the action taken by the Agent
and the Lenders, (i) the telephonic notice
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shall govern absent manifest error and (ii) the Agent or the Lender, as
applicable, shall promptly notify the Authorized Officer who provided such
confirmation of such difference.
2.12 PROMISE TO PAY; INTEREST AND COMMITMENT FEES; INTEREST PAYMENT DATES;
INTEREST AND FEE BASIS; TAXES; LOAN AND CONTROL ACCOUNTS.
(A) PROMISE TO PAY. The Borrower unconditionally promises to pay when due
the principal amount of each Loan and all other Obligations incurred by it, and
to pay all unpaid interest accrued thereon, in accordance with the terms of this
Agreement and the Notes.
(B) INTEREST PAYMENT DATES. Interest accrued on each Floating Rate Loan
shall be payable on each Payment Date, commencing with the first such date to
occur after the date hereof and at maturity (whether by acceleration or
otherwise). Interest accrued on each Eurodollar Rate Loan shall be payable on
the last day of its applicable Interest Period, on any date on which the
Eurodollar Rate Loan is prepaid, whether by acceleration or otherwise, and at
maturity; PROVIDED, HOWEVER, interest accrued on each Eurodollar Rate Loan
having an Interest Period longer than three months shall also be payable on the
last day of each three-month interval during such Interest Period. Interest
accrued on the principal balance of all other Obligations shall be payable in
arrears (i) on the last day of each calendar month, commencing on the first such
day following the incurrence of such Obligation, (ii) upon repayment thereof in
full or in part, and (iii) if not theretofore paid in full, at the time such
other Obligation becomes due and payable (whether by acceleration or otherwise).
(C) COMMITMENT FEES. (i) The Borrower shall pay to the Agent, for the
account of the Lenders in accordance with their Pro Rata Shares, from and after
the Effective Date until the date on which the Aggregate Commitment shall be
terminated in whole, a commitment fee accruing at the rate of the then
Applicable Commitment Fee Percentage, on the amount by which (A) the Aggregate
Commitment in effect from time to time exceeds (B) the Revolving Credit
Obligations in effect from time to time. All such commitment fees payable under
this CLAUSE (C) shall be payable quarterly in arrears on each Payment Date
occurring after the Effective Date (with the first such payment being calculated
for the period from the Effective Date and ending on such Payment Date), and, in
addition, on the date on which the Aggregate Commitment shall be terminated in
whole.
(ii) The Borrower agrees to pay to the Agent for the sole account of the
Agent and the Arranger (unless otherwise agreed between the Agent or the
Arranger and any Lender) the fees set forth in the letter agreements between the
Agent and the Borrower dated June 12, 1997 and January 8, 1998, payable at the
times and in the amounts set forth therein.
(D) INTEREST AND FEE BASIS; APPLICABLE EURODOLLAR MARGIN, APPLICABLE
FLOATING RATE MARGIN AND APPLICABLE COMMITMENT FEE PERCENTAGE.
(i) Interest and fees shall be calculated for actual days elapsed on the
basis of a 360-day year. Interest shall be payable for the day an Obligation is
incurred but not for the day of any payment on the amount paid if payment is
received prior to 2:00 p.m. (Chicago time) at the place of payment. If any
payment of principal of or interest on a Loan or any payment of any other
Obligations shall become due on a day which is not a Business Day, such payment
shall be made on the next
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succeeding Business Day and, in the case of a principal payment, such extension
of time shall be included in computing interest in connection with such payment.
(ii) The Applicable Eurodollar Margin, Applicable Floating Rate Margin and
Applicable Commitment Fee Percentage shall be determined from time to time by
reference to the table set forth below, on the basis of the then applicable
Leverage Ratio as described in this SECTION 2.12(d)(ii); PROVIDED, HOWEVER, for
the period from the Effective Date until the Applicable Eurodollar Margins,
Applicable Floating Rate Margin and Applicable Commitment Fee Percentage are
first adjusted pursuant to this CLAUSE (D), it shall be assumed that the
Leverage Ratio is greater than 3.25 to 1.00 and less than or equal to 3.50 to
1.00; PROVIDED, FURTHER, HOWEVER,if utilizing the Leverage Ratio instead of the
"Adjusted Leverage Ratio" (as defined below) would result in lowering the
Applicable Eurodollar Margin, Applicable Floating Rate Margin and Applicable
Commitment Fee Percentage by more than one Level as set forth in the table
below, then the Applicable Eurodollar Margin, Applicable Floating Rate Margin
and Applicable Commitment Fee Percentage shall be the Level that is one Level
lower than the Level determined using the Adjusted Leverage Ratio. For purposes
hereof "Adjusted Leverage Ratio" shall mean the Leverage Ratio calculated
utilizing EBITDA WITHOUT taking into account the adjustments set forth in
clauses (x), and (xii) in the definition thereof.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Level I Level II Level III Level IV Level V Level VI
------- -------- --------- -------- ------- --------
Leverage Ratio: less than or greater than greater than 2.75 greater than 3.00 greater than 3.25 greater than 3.50
equal to 2.50 to 1.00 and to 1.00 and to 1.00 and to 1.00 and to 1.00 and
2.50 to 1 less than or equal less than or equal less than or equal less than or equal less than or equal
to 2.75 to 1.00 to 3.00 to 1.00 to 3.25 to 1.00 to 3.50 to 1.00 to 3.75 to 1.00
Applicable
Commitment 0.20% 0.225% 0.25% 0.25% 0.30% 0.30%
Fee Percentage
Applicable
Eurodollar 0.625% 0.75% 0.875% 1.00% 1.125% 1.25%
Rate Margin
and Applicable
L/C Fee
Percentage
Applicable
Floating Rate
Margin 0% 0% 0% 0% 0% 0%
- ------------ ---------- ----------- ---------- ----------- ---------- --------
</TABLE>
LEVEL VII
---------
Leverage Ratio: greater than 3.75
to 1.00
Applicable
Commitment 0.35%
Fee Percentage
Applicable
Eurodollar 1.375%
Rate Margin
and Applicable
L/C Fee
Percentage
Applicable
Floating Rate
Margin 0%
--------
For purposes of this SECTION 2.12(d)(ii), the Leverage Ratio shall be determined
as of the last day of each fiscal quarter based upon (a) for Total Debt, Total
Debt as of the last day of each such fiscal quarter; and (b) for EBITDA, EBITDA
for the twelve-month period ending on such day calculated as set forth in the
definition thereof. Upon receipt of the financial statements delivered pursuant
to SECTIONS 7.1(a)(i) (subject to adjustment for upon receipt of the financial
statements delivered pursuant to SECTION 7.1(a)(ii)), the Applicable Eurodollar
Margin, Applicable Floating Rate Margin and Applicable Commitment Fee Percentage
shall be adjusted, such adjustment being effective five (5) Business Days
following the Agent's receipt of such financial statements and the compliance
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certificate required to be delivered in connection therewith pursuant to SECTION
7.1(a)(iii); PROVIDED, that if the Borrower shall not have timely delivered its
financial statements in accordance with SECTION 7.1(a)(i) or (ii), as
applicable, then commencing on the date upon which such financial statements
should have been delivered and continuing until such financial statements are
actually delivered, it shall be assumed for purposes of determining the
Applicable Eurodollar Margin, Applicable Floating Rate Margin and Applicable
Commitment Fee Percentage that the Leverage Ratio was greater than 3.75 to 1.0.
(E) TAXES.
(i) Any and all payments by the Borrower hereunder shall be made
free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings or any
liabilities with respect thereto including those arising after the
Original Closing Date hereof as a result of the adoption of or any change
in any law, treaty, rule, regulation, guideline or determination of a
Governmental Authority or any change in the interpretation or application
thereof by a Governmental Authority but excluding, in the case of each
Lender and the Agent, such taxes (including income taxes, franchise taxes
and branch profit taxes) as are imposed on or measured by such Lender's or
Agent's, as the case may be, income by the United States of America or any
Governmental Authority of the jurisdiction under the laws of which such
Lender or Agent, as the case may be, is organized (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings, and liabilities
which the Agent or a Lender determines to be applicable to this Agreement,
the other Loan Documents, the Commitments, the Loans or the Letters of
Credit being hereinafter referred to as "TAXES"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the other Loan Documents to any Lender or the Agent
(other than due to a Lender's failure to comply with SECTION
2.12(e)(vii)), (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions
applicable to additional sums payable under this SECTION 2.12(e)) such
Lender or the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions, and (iii) the Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law. If a withholding tax of the United
States of America or any other Governmental Authority shall be or become
applicable (y) after the Original Closing Date, to such payments by the
Borrower made to the Lending Installation or any other office that a
Lender may claim as its Lending Installation, or (z) after such Lender's
selection and designation of any other Lending Installation, to such
payments made to such other Lending Installation, such Lender shall use
reasonable efforts to make, fund and maintain its Loans through another
Lending Installation of such Lender in another jurisdiction so as to
reduce the Borrower's liability hereunder, if the making, funding or
maintenance of such Loans through such other Lending Installation of such
Lender does not, in the judgment of such Lender, otherwise adversely
affect such Loans, or obligations under the Commitments or such Lender.
(ii) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges,
or similar levies which arise
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from any payment made hereunder, from the issuance of Letters of Credit
hereunder, or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement, the other Loan Documents, the
Commitments, the Loans or the Letters of Credit (hereinafter referred to
as "OTHER TAXES").
(iii) The Borrower indemnifies each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any Governmental Authority on amounts
payable under this SECTION 2.12(e)) paid by such Lender or the Agent (as
the case may be) and any liability (including penalties, interest, and
expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within thirty (30) days after the date such
Lender or the Agent (as the case may be) makes written demand therefor. A
certificate as to any additional amount payable to any Lender or the Agent
under this SECTION 2.12(e) submitted to the Borrower and the Agent (if a
Lender is so submitting) by such Lender or the Agent shall show in
reasonable detail the amount payable and the calculations used to
determine such amount and shall, absent manifest error, be final,
conclusive and binding upon all parties hereto. With respect to such
deduction or withholding for or on account of any Taxes and to confirm
that all such Taxes have been paid to the appropriate Governmental
Authorities, the Borrower shall promptly (and in any event not later than
thirty (30) days after receipt) furnish to each Lender and the Agent such
certificates, receipts and other documents as may be required (in the
judgment of such Lender or the Agent) to establish any tax credit to which
such Lender or the Agent may be entitled.
(iv) Within thirty (30) days after the date of any payment of Taxes
or Other Taxes by the Borrower, the Borrower shall furnish to the Agent
the original or a certified copy of a receipt evidencing payment thereof.
(v) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower
contained in this SECTION 2.12(e) shall survive the payment in full of
principal and interest hereunder, the termination of the Letters of Credit
and the termination of this Agreement.
(vi) Without limiting the obligations of the Borrower under this
SECTION 2.12(e), each Lender that is not created or organized under the
laws of the United States of America or a political subdivision thereof
shall deliver to the Borrower and the Agent on or before the Effective
Date, or, if later, the date on which such Lender becomes a Lender
pursuant to SECTION 13.3, a true and accurate certificate executed in
duplicate by a duly authorized officer of such Lender, in a form
satisfactory to the Borrower and the Agent, to the effect that such Lender
is capable under the provisions of an applicable tax treaty concluded by
the United States of America (in which case the certificate shall be
accompanied by two executed copies of Form 1001 of the IRS) or under
Section 1442 of the Code (in which case the certificate shall be
accompanied by two copies of Form 4224 of the IRS) of receiving payments
of interest hereunder without deduction or withholding of United States
federal income tax. Each such Lender further agrees to deliver to the
Borrower and the Agent from time to time a true and accurate certificate
executed in duplicate by a duly authorized officer of such
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Lender substantially in a form satisfactory to the Borrower and the Agent,
before or promptly upon the occurrence of any event requiring a change in
the most recent certificate previously delivered by it to the Borrower and
the Agent pursuant to this SECTION 2.12(e)(vi). Further, each Lender which
delivers a certificate accompanied by Form 1001 of the IRS covenants and
agrees to deliver to the Borrower and the Agent within fifteen (15) days
prior to January 1, 1999, and every third (3rd) anniversary of such date
thereafter on which this Agreement is still in effect, another such
certificate and two accurate and complete original signed copies of Form
1001 (or any successor form or forms required under the Code or the
applicable regulations promulgated thereunder), and each Lender that
delivers a certificate accompanied by Form 4224 of the IRS covenants and
agrees to deliver to the Borrower and the Agent within fifteen (15) days
prior to the beginning of each subsequent taxable year of such Lender
during which this Agreement is still in effect, another such certificate
and two accurate and complete original signed copies of IRS Form 4224 (or
any successor form or forms required under the Code or the applicable
regulations promulgated thereunder). Each such certificate shall certify
as to one of the following:
(a) that such Lender is capable of receiving payments of
interest hereunder without deduction or withholding of United States
of America federal income tax;
(b) that such Lender is not capable of receiving payments of
interest hereunder without deduction or withholding of United States
of America federal income tax as specified therein but is capable of
recovering the full amount of any such deduction or withholding from
a source other than the Borrower and will not seek any such recovery
from the Borrower; or
(c) that, as a result of the adoption of or any change in any
law, treaty, rule, regulation, guideline or determination of a
Governmental Authority or any change in the interpretation or
application thereof by a Governmental Authority after the date such
Lender became a party hereto, such Lender is not capable of
receiving payments of interest hereunder without deduction or
withholding of United States of America federal income tax as
specified therein and that it is not capable of recovering the full
amount of the same from a source other than the Borrower.
Each Lender shall promptly furnish to the Borrower and the Agent such
additional documents as may be reasonably required by the Borrower or the
Agent to establish any exemption from or reduction of any Taxes or Other
Taxes required to be deducted or withheld and which may be obtained
without undue expense to such Lender.
(F) LOAN ACCOUNT. Each Lender shall maintain in accordance with its usual
practice an account or accounts (a "LOAN ACCOUNT") evidencing the Obligations of
the Borrower to such Lender owing to such Lender from time to time, including
the amount of principal and interest payable and paid to such Lender from time
to time hereunder and under the Notes.
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(G) CONTROL ACCOUNT. The Register maintained by the Agent pursuant to
SECTION 13.3(c) shall include a control account, and a subsidiary account for
each Lender, in which accounts (taken together) shall be recorded (i) the date
and amount of each Advance made hereunder, the type of Loan comprising such
Advance and any Interest Period applicable thereto, (ii) the effective date and
amount of each Assignment Agreement delivered to and accepted by it and the
parties thereto pursuant to SECTION 13.3, (iii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder or under the Notes, (iv) the amount of any sum received by the
Agent from the Borrower hereunder and each Lender's share thereof and (v) all
other appropriate debits and credits as provided in this Agreement, including,
without limitation, all fees, charges, expenses and interest.
(H) ENTRIES BINDING. The entries made in the Register and each Loan
Account shall be conclusive and binding for all purposes, absent manifest error,
unless the Borrower objects to information contained in the Register and each
Loan Account within thirty (30) days of the Borrower's receipt of such
information.
2.13 NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND AGGREGATE
COMMITMENT REDUCTIONS. Promptly after receipt thereof, the Agent will notify
each Lender of the contents of each Aggregate Commitment reduction notice,
Commitment Increase Notice, Borrowing Notice, Continuation/Conversion Notice,
and repayment notice received by it hereunder. The Agent will notify each Lender
of the interest rate applicable to each Eurodollar Rate Loan promptly upon
determination of such interest rate and will give each Lender prompt notice of
each change in the Alternate Base Rate.
2.14 LENDING INSTALLATIONS. Each Lender may book its Loans at any Lending
Installation selected by such Lender and may change its Lending Installation
from time to time. All terms of this Agreement shall apply to any such Lending
Installation and the Revolving Notes shall be deemed held by each Lender for the
benefit of such Lending Installation. Each Lender may, by written or facsimile
notice to the Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.15 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (i) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day or (ii) in the case of payment by the
Borrower, the interest rate applicable to the relevant Loan.
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2.16 TERMINATION DATE. This Agreement shall be effective until the
Termination Date. Notwithstanding the termination of this Agreement on the
Termination Date, until all of the Obligations (other than contingent indemnity
obligations) shall have been fully and indefeasibly paid and satisfied, all
financing arrangements among the Borrower and the Lenders in connection with
this Agreement shall have been terminated (other than under agreements with
respect to Hedging Obligations) and all of the Letters of Credit shall have
expired, been canceled or terminated, all of the rights and remedies under this
Agreement and the other Loan Documents shall survive and the Agent shall be
entitled to retain its security interest in and to all existing and future
Collateral.
2.17 REPLACEMENT OF CERTAIN LENDERS. In the event a Lender ("AFFECTED
LENDER") shall have: (i) failed to fund its Pro Rata Share of any Advance
requested by the Borrower, or to fund a Revolving Loan in order to repay Swing
Line Loans pursuant to SECTION 2.1(b)(iv), which such Lender is obligated to
fund under the terms of this Agreement and which failure has not been cured,
(ii) requested compensation from the Borrower under SECTIONS 2.12(e), 4.1 or 4.2
to recover Taxes, Other Taxes or other additional costs incurred by such Lender
which are not being incurred generally by the other Lenders, (iii) delivered a
notice pursuant to SECTION 4.3 claiming that such Lender is unable to extend
Eurodollar Rate Loans to the Borrower for reasons not generally applicable to
the other Lenders or (iv) has invoked SECTION 10.2, then, in any such case, the
Borrower or the Agent may make written demand on such Affected Lender (with a
copy to the Agent in the case of a demand by the Borrower and a copy to the
Borrower in the case of a demand by the Agent) for the Affected Lender to
assign, and such Affected Lender shall use its best efforts to assign pursuant
to one or more duly Assignment Agreements five (5) Business Days after the date
of such demand, to one or more financial institutions that comply with the
provisions of SECTION 13.3(a) which the Borrower or the Agent, as the case may
be, shall have engaged for such purpose ("REPLACEMENT LENDER"), all of such
Affected Lender's rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitment, all Loans owing to it,
all of its participation interests in existing Letters of Credit, and its
obligation to participate in additional Letters of Credit hereunder) in
accordance with SECTION 13.3. The Agent agrees, upon the occurrence of such
events with respect to an Affected Lender and upon the written request of the
Borrower, to use its reasonable efforts to obtain the Commitments from one or
more financial institutions to act as a Replacement Lender. The Agent is
authorized to execute one or more of such assignment agreements as
attorney-in-fact for any Affected Lender failing to execute and deliver the same
within five (5) Business Days after the date of such demand. Further, with
respect to such assignment the Affected Lender shall have concurrently received,
in cash, all amounts due and owing to the Affected Lender hereunder or under any
other Loan Document, including, without limitation, the aggregate outstanding
principal amount of the Loans owed to such Lender, together with accrued
interest thereon through the date of such assignment, amounts payable under
SECTIONS 2.12(e), 4.1, and 4.2 with respect to such Affected Lender and
compensation payable under SECTION 2.12(c) in the event of any replacement of
any Affected Lender under CLAUSE (II) or CLAUSE (III) of this SECTION 2.17;
PROVIDED that upon such Affected Lender's replacement, such Affected Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of SECTIONS 2.12(e), 4.1, 4.2, 4.4, and 10.7, as well as to any fees
accrued for its account hereunder and not yet paid, and shall continue to be
obligated under SECTION 11.8. Upon the replacement of any Affected Lender
pursuant to this SECTION 2.17, the provisions of SECTION 9.2 shall continue to
apply with respect to Advances which
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are then outstanding with respect to which the Affected Lender failed to fund
its Pro Rata Share and which failure has not been cured.
ARTICLE III: THE LETTER OF CREDIT FACILITY
3.1 OBLIGATION TO ISSUE. Subject to the terms and conditions of this
Agreement and in reliance upon the representations, warranties and covenants of
the Borrower herein set forth, each Issuing Bank hereby agrees to issue for the
account of the Borrower through such Issuing Bank's branches as it and the
Borrower may jointly agree, one or more Letters of Credit in accordance with
this ARTICLE III, from time to time during the period, commencing on the
Effective Date and ending on the Business Day prior to the Termination Date. On
the Effective Date, each Existing Letter of Credit shall be treated for all
purposes as a Letter of Credit originally issued under the terms of this
Agreement.
3.2 TYPES AND AMOUNTS. No Issuing Bank shall have any obligation to and no
Issuing Bank shall:
(i) issue any Letter of Credit if on the date of issuance, before or
after giving effect to the Letter of Credit requested hereunder, (a) the
Revolving Credit Obligations at such time would exceed the Aggregate
Commitment at such time, or (b) the aggregate outstanding amount of the
L/C Obligations would exceed $50,000,000; or
(ii) issue any Letter of Credit which has an expiration date later
than the date which is the earlier of one (1) year after the date of
issuance thereof or five (5) Business Days immediately preceding the
Termination Date.
3.3 CONDITIONS. In addition to being subject to the satisfaction of the
conditions contained in SECTIONS 5.1 and 5.2, the obligation of an Issuing Bank
to issue any Letter of Credit is subject to the satisfaction in full of the
following conditions:
(i) the Borrower shall have delivered to the applicable Issuing Bank
at such times and in such manner as such Issuing Bank may reasonably
prescribe, a request for issuance of such Letter of Credit in
substantially the form of EXHIBIT F hereto, duly executed applications for
such Letter of Credit, and such other documents, instructions and
agreements as may be reasonably required pursuant to the terms thereof,
and the proposed Letter of Credit shall be reasonably satisfactory to such
Issuing Bank as to form and content; and
(ii) as of the date of issuance no order, judgment or decree of any
court, arbitrator or Governmental Authority shall purport by its terms to
enjoin or restrain the applicable Issuing Bank from issuing such Letter of
Credit and no law, rule or regulation applicable to such Issuing Bank and
no request or directive (whether or not having the force of law) from a
Governmental Authority with jurisdiction over such
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Issuing Bank shall prohibit or request that such Issuing Bank refrain from
the issuance of Letters of Credit generally or the issuance of that Letter
of Credit.
If any provision in a letter of credit application delivered in connection with
the foregoing is inconsistent with or more restrictive than a provision
contained in this Agreement, the provisions contained in this Agreement shall
control.
3.4 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. (a) Subject to the terms
and conditions of this ARTICLE III and provided that the applicable conditions
set forth in SECTIONS 5.1 and 5.2 hereof have been satisfied, the applicable
Issuing Bank shall, on the requested date, issue a Letter of Credit on behalf of
the Borrower in accordance with such Issuing Bank's usual and customary business
practices and, in this connection, such Issuing Bank may assume that the
applicable conditions set forth in SECTION 5.2 hereof have been satisfied unless
it shall have received notice to the contrary from the Agent or a Lender or has
knowledge that the applicable conditions have not been met.
(b) The applicable Issuing Bank shall give the Agent written or telex
notice, or telephonic notice confirmed promptly thereafter in writing, of the
issuance of a Letter of Credit, PROVIDED, HOWEVER, that the failure to provide
such notice shall not result in any liability on the part of such Issuing Bank.
(c) No Issuing Bank shall extend or amend any Letter of Credit unless the
requirements of this SECTION 3.4 are met as though a new Letter of Credit was
being requested and issued.
3.5 LETTER OF CREDIT PARTICIPATION. Unless a Lender shall have notified
the Issuing Bank, prior to its issuance of a Letter of Credit, that any
applicable condition precedent set forth in SECTIONS 5.1 and 5.2 had not then
been satisfied, (a) upon the Effective Date with respect to the Existing Letter
of Credit and (b) immediately upon the issuance of each other Letter of Credit
hereunder, each Lender shall be deemed to have automatically, irrevocably and
unconditionally purchased and received from the applicable Issuing Bank an
undivided interest and participation in and to such Letter of Credit, the
obligations of the Borrower in respect thereof, and the liability of such
Issuing Bank thereunder (collectively, an "L/C INTEREST") in an amount equal to
the amount available for drawing under such Letter of Credit multiplied by such
Lender's Pro Rata Share. Each Issuing Bank will notify each Lender promptly upon
presentation to it of an L/C Draft or upon any other draw under a Letter of
Credit. On or before the Business Day on which an Issuing Bank makes payment of
each such L/C Draft or, in the case of any other draw on a Letter of Credit, on
demand by the Agent, each Lender shall make payment to the Agent, for the
account of the applicable Issuing Bank, in immediately available funds in an
amount equal to such Lender's Pro Rata Share of the amount of such payment or
draw. The obligation of each Lender to reimburse the Issuing Banks under this
SECTION 3.5 shall be unconditional, continuing, irrevocable and absolute;
PROVIDED, HOWEVER, the obligation of each Lender shall not extend to payments
made under a Letter of Credit resulting from the Issuing Bank's Gross Negligence
or willful misconduct in honoring any L/C Draft. In the event that any Lender
fails to make payment to the Agent of any amount due under this SECTION 3.5, the
Agent shall be entitled to receive, retain and apply against such obligation the
principal and interest otherwise payable to such Lender hereunder until the
Agent receives such payment from such Lender or such obligation is otherwise
fully satisfied; PROVIDED, HOWEVER, that nothing contained in this
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sentence shall relieve such Lender of its obligation to reimburse the applicable
Issuing Bank for such amount in accordance with this SECTION 3.5.
3.6 REIMBURSEMENT OBLIGATION. The Borrower agrees unconditionally,
irrevocably and absolutely to pay immediately to the Agent, for the account of
the Lenders, the amount of each advance which may be drawn under or pursuant to
a Letter of Credit or an L/C Draft related thereto (such obligation of the
Borrower to reimburse the Agent for an advance made under a Letter of Credit or
L/C Draft being hereinafter referred to as a "REIMBURSEMENT OBLIGATION" with
respect to such Letter of Credit or L/C Draft). If the Borrower at any time
fails to repay a Reimbursement Obligation pursuant to this SECTION 3.6, the
Borrower shall be deemed to have elected to borrow Revolving Loans from the
Lenders, as of the date of the advance giving rise to the Reimbursement
Obligation, equal in amount to the amount of the unpaid Reimbursement
Obligation. Such Revolving Loans shall be made as of the date of the payment
giving rise to such Reimbursement Obligation, automatically, without notice and
without any requirement to satisfy the conditions precedent otherwise applicable
to an Advance of Revolving Loans. Such Revolving Loans shall constitute a
Floating Rate Advance, the proceeds of which Advance shall be used to repay such
Reimbursement Obligation. If, for any reason, the Borrower fails to repay a
Reimbursement Obligation on the day such Reimbursement Obligation arises and,
for any reason, the Lenders are unable to make or have no obligation to make
Revolving Loans, then such Reimbursement Obligation shall bear interest from and
after such day, until paid in full, at the interest rate applicable to a
Floating Rate Advance.
3.7 LETTER OF CREDIT FEES. The Borrower agrees to pay (i) quarterly, in
arrears, on each Payment Date to the Agent for the ratable benefit of the
Lenders, except as set forth in SECTION 9.2, a letter of credit fee at a rate
per annum equal to the Applicable L/C Fee Percentage on the average daily
outstanding face amount available for drawing under all Letters of Credit, (ii)
quarterly in arrears to the Agent for the sole account of the Issuing Banks, a
fronting fee at such percentage rate per annum as shall be agreed between the
Borrower and each such Issuing Bank on the aggregate average daily outstanding
amount available for drawing under each such Issuing Bank's Letters of Credit,
payable quarterly in arrears, and (iii) to the Agent for the benefit of each
Issuing Bank, all customary fees and other issuance, amendment, document
examination, negotiation and presentment expenses and related charges in
connection with the issuance, amendment, presentation of L/C Drafts, and the
like customarily charged by the Issuing Banks with respect to standby and
commercial Letters of Credit, including, without limitation, standard
commissions with respect to commercial Letters of Credit, payable at the time of
invoice of such amounts. With respect to the Existing Letter of Credit, the
provisions of this SECTION 3.7 shall supersede any existing fee agreements with
respect to such Existing Letter of Credit.
3.8 ISSUING BANK REPORTING REQUIREMENTS. In addition to the notices
required by SECTION 3.4(c), each Issuing Bank shall, no later than the tenth
Business Day following the last day of each month, provide to the Agent, upon
the Agent's request, schedules, in form and substance reasonably satisfactory to
the Agent, showing the date of issue, account party, amount, expiration date and
the reference number of each Letter of Credit issued by it outstanding at any
time during such month and the aggregate amount payable by the Borrower during
such month. In addition, upon the request of the Agent, each Issuing Bank shall
furnish to the Agent copies of any Letter of Credit and any application for or
reimbursement agreement with respect to a Letter of Credit to which the Issuing
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Bank is party and such other documentation as may reasonably be requested by the
Agent. Upon the request of any Lender, the Agent will provide to such Lender
information concerning such Letters of Credit.
3.9 INDEMNIFICATION; EXONERATION. (a) In addition to amounts payable as
elsewhere provided in this ARTICLE III, the Borrower hereby agrees to protect,
indemnify, pay and save harmless the Agent, each Issuing Bank and each Lender
from and against any and all liabilities and costs which the Agent, such Issuing
Bank or such Lender may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of any Letter of Credit other than, in the case of
the applicable Issuing Bank, as a result of its Gross Negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, or (ii) the failure of the applicable Issuing Bank to honor a
drawing under a Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future DE JURE or DE FACTO Governmental
Authority (all such acts or omissions herein called "GOVERNMENTAL ACTS").
(b) As among the Borrower, the Lenders, the Agent and the Issuing Banks,
the Borrower assumes all risks of the acts and omissions of, or misuse of such
Letter of Credit by, the beneficiary of any Letters of Credit. In furtherance
and not in limitation of the foregoing, subject to the provisions of the Letter
of Credit applications and Letter of Credit reimbursement agreements executed by
the Borrower at the time of request for any Letter of Credit, neither the Agent,
any Issuing Bank nor any Lender shall be responsible (in the absence of Gross
Negligence or willful misconduct in connection therewith, as determined by the
final judgment of a court of competent jurisdiction): (i) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
the Letters of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of a
Letter of Credit to comply duly with conditions required in order to draw upon
such Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex, or
other similar form of teletransmission or otherwise; (v) for errors in
interpretation of technical trade terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; and (viii) for any consequences arising
from causes beyond the control of the Agent, the Issuing Banks and the Lenders,
including, without limitation, any Governmental Acts. None of the above shall
affect, impair, or prevent the vesting of any Issuing Bank's rights or powers
under this SECTION 3.9.
(c) In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any Issuing
Bank under or in connection with the Letters of Credit or any related
certificates shall not, in the absence of Gross Negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, put the applicable Issuing Bank, the Agent or any Lender under any
resulting liability to the Borrower or relieve the Borrower of any of its
obligations hereunder to any such Person.
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(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 3.9 shall survive the payment in full of principal and interest
hereunder, the termination of the Letters of Credit and the termination of this
Agreement.
3.10 CASH COLLATERAL. Notwithstanding anything to the contrary herein or
in any application for a Letter of Credit, after the occurrence and during the
continuance of Default, the Borrower shall, upon the Agent's demand, deliver to
the Agent for the benefit of the Lenders and the Issuing Banks, cash, or other
collateral of a type satisfactory to the Required Lenders, having a value, as
determined by such Lenders, equal to the aggregate outstanding L/C Obligations.
In addition, if the Revolving Credit Availability is at any time less than the
amount of contingent L/C Obligations outstanding at any time, the Borrower shall
deposit cash collateral with the Agent in an amount equal to the amount by which
such L/C Obligations exceed such Revolving Credit Availability. Any such
collateral shall be held by the Agent in a separate account appropriately
designated as a cash collateral account in relation to this Agreement and the
Letters of Credit and retained by the Agent for the benefit of the Lenders and
the Issuing Banks as collateral security for the Borrower's obligations in
respect of this Agreement and each of the Letters of Credit and L/C Drafts. Such
amounts shall be applied to reimburse the Issuing Banks for drawings or payments
under or pursuant to Letters of Credit or L/C Drafts, or if no such
reimbursement is required, to payment of such of the other Obligations as the
Agent shall determine. If no Default shall be continuing, amounts remaining in
any cash collateral account established pursuant to this SECTION 3.10 which are
not to be applied to reimburse an Issuing Bank for amounts actually paid or to
be paid by such Issuing Bank in respect of a Letter of Credit or L/C Draft,
shall be returned to the Borrower (after deduction of the Agent's expenses
incurred in connection with such cash collateral account).
ARTICLE IV: CHANGE IN CIRCUMSTANCES
4.1 YIELD PROTECTION. If any law or any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) adopted after the Original Closing Date and having general
applicability to all banks within the jurisdiction in which such Lender operates
(excluding, for the avoidance of doubt, the effect of and phasing in of capital
requirements or other regulations or guidelines passed prior to the Original
Closing Date), or any interpretation or application thereof by any Governmental
Authority charged with the interpretation or application thereof, or the
compliance of any Lender therewith,
(i) to the extent not otherwise covered pursuant to the provisions
of SECTION 2.12(e), subjects any Lender or any applicable Lending
Installation to any tax, duty, charge or withholding on or from payments
due from the Borrower (excluding, in the case of each Lender and the
Agent, such taxes (including income taxes, franchise taxes and branch
profit taxes) as are imposed on or measured by such Lender's or Agent's,
as the case may be, income by the United States of America or any
Governmental Authority of the jurisdiction under the laws of which such
Lender or Agent, as the case may be, is organized), or changes the basis
of taxation of payments to any Lender in respect of its Loans, its L/C
Interests, the Letters of Credit or other amounts due it hereunder, or
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(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended
by, any Lender or any applicable Lending Installation (other than reserves
and assessments taken into account in determining the interest rate
applicable to Eurodollar Rate Loans) with respect to its Loans, L/C
Interests or the Letters of Credit, or
(iii) imposes any other condition the result of which is to increase
the cost to any Lender or any applicable Lending Installation of making,
funding or maintaining the Loans, the L/C Interests or the Letters of
Credit or reduces any amount received by any Lender or any applicable
Lending Installation in connection with Loans or Letters of Credit, or
requires any Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of Loans or L/C Interests
held or interest received by it or by reference to the Letters of Credit,
by an amount deemed material by such Lender;
and the result of any of the foregoing is to increase the cost to that Lender of
making, renewing or maintaining its Loans, L/C Interests or Letters of Credit or
to reduce any amount received under this Agreement, then, within 15 days after
receipt by the Borrower of written demand by such Lender pursuant to SECTION
4.5, the Borrower shall pay such Lender that portion of such increased expense
incurred or reduction in an amount received which such Lender determines is
attributable to making, funding and maintaining its Loans, L/C Interests,
Letters of Credit and its Commitment.
4.2 CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender determines (i)
the amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a "Change" (as defined below), and (ii) such
increase in capital will result in an increase in the cost to such Lender of
maintaining its Loans, L/C Interests, the Letters of Credit or its obligation to
make Loans hereunder, then, within 15 days after receipt by the Borrower of
written demand by such Lender pursuant to SECTION 4.5, the Borrower shall pay
such Lender the amount necessary to compensate for any shortfall in the rate of
return on the portion of such increased capital which such Lender determines is
attributable to this Agreement, its Loans, its L/C Interests, the Letters of
Credit or its obligation to make Loans hereunder (after taking into account such
Lender's policies as to capital adequacy). "CHANGE" means (i) any change after
the Original Closing Date of this Agreement in the "Risk-Based Capital
Guidelines" (as defined below) excluding, for the avoidance of doubt, the effect
of any phasing in of such Risk-Based Capital Guidelines or any other capital
requirements passed prior to the Original Closing Date hereof, or (ii) any
adoption of or change in any other law, governmental or quasi-governmental rule,
regulation, policy, guideline, interpretation, or directive (whether or not
having the force of law) after the Original Closing Date and having general
applicability to all banks and financial institutions within the jurisdiction in
which such Lender operates which affects the amount of capital required or
expected to be maintained by any Lender or any Lending Installation or any
corporation controlling any Lender. "RISK-BASED CAPITAL GUIDELINES" means (i)
the risk-based capital guidelines in effect in the United States on the Original
Closing Date, including transition rules, and (ii) the corresponding capital
regulations promulgated by regulatory authorities outside the United States
implementing the July 1988 report of the Basle Committee on Banking Regulation
and Supervisory Practices Entitled "International Convergence of Capital
Measurements and Capital
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Standards," including transition rules, and any amendments to such regulations
adopted prior to the Original Closing Date.
4.3 AVAILABILITY OF TYPES OF ADVANCES. If (i) any Lender determines that
maintenance of its Eurodollar Rate Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation or directive, whether or not
having the force of law, or (ii) the Required Lenders determine that (x)
deposits of a type and maturity appropriate to match fund Eurodollar Rate
Advances are not available or (y) the interest rate applicable to a Type of
Advance does not accurately reflect the cost of making or maintaining such an
Advance, then the Agent shall suspend the availability of the affected Type of
Advance and, in the case of any occurrence set forth in clause (i) require any
Advances of the affected Type to be converted to Floating Rate Loans until the
circumstances giving rise to such suspension no longer exist.
4.4 FUNDING INDEMNIFICATION. If any payment of a Eurodollar Rate Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment, or otherwise, or a Eurodollar Rate
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, or a Eurodollar Rate Advance is converted on a day
other than the last day of the applicable Interest Period, the Borrower
indemnifies each Lender for any loss or cost incurred by it resulting therefrom
(including loss of profit other than loss of profit represented by the
Applicable Eurodollar Margin which would have been payable for such Interest
Period), including, without limitation, any loss or cost in liquidating or
employing deposits acquired to fund or maintain the Eurodollar Rate Advance. In
connection with (a) any assignment by any Lender of any portion of the Loans
made pursuant to SECTION 13.3 and made during the Syndication Period, and if,
notwithstanding the provisions of SECTION 2.2, the Borrower has requested and
the Agent has consented to the use of the Eurodollar Rate and (b) the
reallocation of the Commitments on the Effective Date, the Borrower shall be
deemed to have repaid all outstanding Eurodollar Rate Advances as of the
effective date of such assignment or the Effective Date, as applicable, and
reborrowed such amount as a Floating Rate Advance and/or Eurodollar Rate Advance
(chosen in accordance with the provisions of SECTION 2.2) and the
indemnification provisions under this SECTION 4.4 shall apply.
4.5 LENDER STATEMENTS; SURVIVAL OF INDEMNITY. If reasonably possible, each
Lender shall designate an alternate Lending Installation with respect to its
Eurodollar Rate Loans to reduce any liability of the Borrower to such Lender
under SECTIONS 4.1 and 4.2 or to avoid the unavailability of a Type of Advance
under SECTION 4.3, so long as such designation is not disadvantageous to such
Lender. Each Lender requiring compensation pursuant to SECTION 2.12(e) or to
this ARTICLE IV shall use its reasonable efforts to notify the Borrower and the
Agent in writing of any Change, law, policy, rule, guideline or directive giving
rise to such demand for compensation not later than ninety (90) days following
the date upon which the responsible account officer of such Lender knows or
should have known of such Change, law, policy, rule, guideline or directive;
PROVIDED, HOWEVER, that the failure to so notify the Borrower shall not affect
the Borrower's obligations under this SECTION 4.5. Any demand for compensation
pursuant to this ARTICLE IV shall be in writing and shall state the amount due,
if any, under SECTION 4.1, 4.2 or 4.4 and shall set forth in reasonable detail
the calculations upon which such Lender determined such amount. Such written
demand shall be rebuttably presumed correct for all purposes. Determination of
amounts payable under such Sections
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in connection with a Eurodollar Rate Loan shall be calculated as though each
Lender funded its Eurodollar Rate Loan through the purchase of a deposit of the
type and maturity corresponding to the deposit used as a reference in
determining the Eurodollar Rate applicable to such Loan, whether in fact that is
the case or not. The obligations of the Borrower under SECTIONS 4.1, 4.2 and 4.4
shall survive payment of the Obligations and termination of this Agreement.
ARTICLE V: CONDITIONS PRECEDENT
5.1 INITIAL ADVANCES AND LETTERS OF CREDIT. The Lenders shall not be
required to make the initial Loans or issue any Letters of Credit or purchase
any participations therein unless (i) such initial Loans are made not later than
February 20, 1998; (ii) the Lenders shall be satisfied that the Borrower issued
Senior Subordinated Notes in an aggregate principal amount of not less than
$150,000,000; (iii) no law, regulation, order, judgment or decree of any
Governmental Authority shall, and the Agent shall not have received any notice
that litigation is pending or threatened which is likely to, (A) enjoin,
prohibit or restrain the making of the initial Loans on the Effective Date or
(B) impose or result in the imposition of a Material Adverse Effect; (iv) there
shall have occurred no material adverse change in the primary and secondary loan
syndication markets or capital markets generally; and (v) the Borrower has
furnished to the Agent each of the following, with sufficient copies for the
Lenders, all in form and substance satisfactory to the Agent and the Lenders:
(a) Copies, certified by the Secretary or Assistant Secretary of the
Borrower and each Guarantor, of its articles or certificate of
incorporation (which copies for the Borrower shall be certified as of a
recent date by the appropriate governmental officer in its respective
jurisdiction of incorporation), its by-laws and of its Board of Directors'
resolutions (and resolutions of other bodies, if any are deemed necessary
by counsel for any Lender) authorizing the execution of the Loan
Documents;
(b) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower and each Guarantor, which shall
identify by name and title and bear the signature of the officers of the
Borrower and Guarantors authorized to sign the Loan Documents and, in the
case of the Borrower, to request Loans and Letters of Credit hereunder,
upon which certificate the Lenders shall be entitled to rely until
informed of any change in writing by the Borrower;
(c) A certificate, in form and substance satisfactory to the Agent,
signed by the chief financial officer or treasurer of the Borrower, (i)
stating that on the Effective Date no Default or Unmatured Default has
occurred and is continuing, (ii) setting forth the calculation of the
Leverage Ratio as of December 31, 1997 but including in the calculation
thereof the indebtedness evidenced by the Senior Subordinated Notes and
(iii) certifying receipt of the net proceeds from the issuance of not less
than $150,000,000 of Senior Subordinated Notes;
(d) A written opinion of the Borrower's and Guarantors' general
counsel and outside counsel, addressed to the Agent and the Lenders, in
substantially the forms attached as EXHIBIT G hereto;
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(e) Revolving Notes payable to the order of each of the applicable
Lenders;
(f) A Swing Line Note payable to the order of First Chicago;
(g) Written money transfer instructions reasonably requested by the
Agent, addressed to the Agent and signed by an Authorized
Officer;
(h) The Guaranty executed by each of the Guarantors;
(i) The Pledge Agreement executed by the Borrower in connection with
which the Borrower shall have delivered stock certificates,
stock powers and UCC-1 financing statements; and
(j) Such other documents as the Agent or any Lender or its counsel
may have reasonably requested.
5.2 EACH ADVANCE AND LETTER OF CREDIT. The Lenders shall not be required
to make any Advance, issue any Letter of Credit or purchase any participation
therein, unless on the applicable Borrowing Date, or in the case of a Letter of
Credit, the date on which the Letter of Credit is to be issued:
(i) There exists no Default or Unmatured Default; and
(ii) The representations and warranties contained in ARTICLE VI are
true and correct as of such Borrowing Date (unless such representation and
warranty expressly relates to an earlier date or is no longer true solely
as a result of transactions permitted by this Agreement).
Each Borrowing Notice with respect to each such Advance and the letter of
credit application with respect to a Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions contained in
SECTIONS 5.2(i) and (ii) have been satisfied. If any Lender has a reasonable
basis for believing a Default or Unmatured Default may have occurred and is
continuing or that the Borrower is not able to make one or more of the
representations and warranties set forth in ARTICLE VI, such Lender may require
a duly completed officer's certificate in substantially the form of EXHIBIT H
hereto and/or a duly completed compliance certificate in substantially the form
of EXHIBIT I hereto as a condition to making an Advance or the issuance of any
Letter of Credit.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows to each Lender and the
Agent as of the Effective Date, giving effect to the Initial Acquisitions, the
consummation of the Mergers, the consummation of the Public Offerings, the
issuance of the Senior Subordinated Notes and the consummation of the other
transactions contemplated by the Transaction Documents on the Effective Date,
and thereafter on each date as required by SECTION 5.2:
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6.1 ORGANIZATION; CORPORATE POWERS. The Borrower and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) is duly
qualified to do business and is in good standing under the laws of each
jurisdiction in which failure to be so qualified and in good standing could not
reasonably be expected to have a Material Adverse Effect and (iii) has all
requisite corporate power and authority to own, operate and encumber its
property and to conduct its business as presently conducted and as proposed to
be conducted.
6.2 AUTHORITY.
(A) The Borrower and each of its Subsidiaries has the requisite power and
authority (i) to execute, deliver and perform each of the Transaction Documents
which are to be executed by it in connection with the Initial Acquisitions, the
Mergers, the Public Offerings and the Related Transactions or which have been
executed by it as required by this Agreement on or prior to the Effective Date
and (ii) to file the Transaction Documents which must be filed by it in
connection with the Initial Acquisitions, the Mergers, the Public Offerings and
the Related Transactions or which have been filed by it as required by this
Agreement on or prior to the Effective Date with any Governmental Authority.
(B) The execution, delivery, performance and filing, as the case may be,
of each of the Transaction Documents which must be executed or filed by the
Borrower or any of its Subsidiaries in connection with the Initial Acquisitions,
the Mergers, the Public Offerings and the Related Transactions or which have
been executed or filed as required by this Agreement on or prior to the
Effective Date and to which the Borrower or any of its Subsidiaries is party,
and the consummation of the transactions contemplated thereby, have been duly
approved by the respective boards of directors and, if necessary, the
shareholders of the Borrower and its Subsidiaries, and such approvals have not
been rescinded. No other corporate action or proceedings on the part of the
Borrower or its Subsidiaries are necessary to consummate such transactions.
(C) Each of the Transaction Documents to which the Borrower or any of its
Subsidiaries is a party has been duly executed, delivered or filed, as the case
may be, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, is in full force and effect
and no material term or condition thereof has been amended, modified or waived
from the terms and conditions described in the Initial Registration Statement
without the prior written consent of the Required Lenders, and the Borrower and
its Subsidiaries have, and, to the best of the Borrower's and its Subsidiaries'
knowledge, all other parties thereto have, performed and complied with all the
material terms, provisions, agreements and conditions set forth therein and
required to be performed or complied with by such parties on or before the
Effective Date, and no unmatured default, default or breach of any material
covenant by any such party exists thereunder.
6.3 NO CONFLICT; GOVERNMENTAL CONSENTS. The execution, delivery and
performance of each of the Loan Documents and other Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not (i)
conflict with the certificate or articles of incorporation or by-laws of the
Borrower or any such Subsidiary, (ii) with respect to the Transaction Documents
other than the Loan Documents, to the Borrower's knowledge after diligent
inquiry of all relevant
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Persons constitute a tortious interference with any Contractual Obligation of
any Person or conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under any Requirement of Law
(including, without limitation, any Environmental Property Transfer Act) or
Contractual Obligation of the Borrower or any such Subsidiary, or require
termination of any Contractual Obligation, except such interference, breach,
default or termination which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, (iii) with respect to
the Loan Documents, constitute a tortious interference with any Contractual
Obligation of any Person or conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under any
Requirement of Law (including, without limitation, any Environmental Property
Transfer Act) or Contractual Obligation of the Borrower or any such Subsidiary,
or require termination of any Contractual Obligation, except such interference,
breach, default or termination which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, (iv) result in or
require the creation or imposition of any Lien whatsoever upon any of the
property or assets of the Borrower or any such Subsidiary, other than Liens
permitted by the Loan Documents, or (v) require any approval of the Borrower's
or any such Subsidiary's shareholders except such as have been obtained. The
execution, delivery and performance of each of the Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by any Governmental Authority, including under any
Environmental Property Transfer Act, except filings, consents or notices which
have been made, obtained or given, or which, if not made, obtained or given,
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
6.4 FINANCIAL STATEMENTS.
(A) The PRO FORMA financial statements of the Borrower and its
Subsidiaries contained in the Registration Statement, present on a PRO FORMA
basis the financial condition of the Borrower and such Subsidiaries as of the
dates contained therein, and reflect on a PRO FORMA basis those liabilities
reflected in the notes thereto and resulting from consummation of the Initial
Acquisitions, the Mergers, the Public Offerings and the Related Transactions and
the other transactions contemplated by this Agreement, and the payment or
accrual of all Transaction Costs payable with respect to any of the foregoing.
The projections and assumptions contained under Tab 7 of the confidential
information memorandum entitled "Metals USA $300,000,000 Senior Revolving Credit
Facility" dated January 1998 and furnished on behalf of the Borrower to
financial institutions invited to participate in the credit facility evidenced
by this Agreement (the "INFORMATION MEMORANDUM") were prepared in good faith and
on the basis of assumptions and information that the Borrower believed to be
reasonable at the time so furnished.
(B) The historical financial statements of the Borrower and each of the
Founding Companies included in the Initial Registration Statement and in the
Registration Statement, were prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods covered
thereby (except as otherwise expressly noted therein), (ii) to the Borrower's
knowledge, after diligent inquiry, fairly present the financial condition of
each of the Borrower and the Founding Companies as of the dates thereof and the
results of operations for the periods covered thereby; and
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(iii) show all material indebtedness and other liabilities, direct or
contingent, of each of the Borrower and the Founding Companies as of the dates
thereof.
6.5 NO MATERIAL ADVERSE CHANGE. Since September 30, 1997, there has
occurred no event or circumstance which has had or could reasonably be expected
to have a Material Adverse Effect.
6.6 TAXES.
(A) TAX EXAMINATIONS. All material deficiencies which have been asserted
against the Borrower or any of the Borrower's Subsidiaries as a result of any
federal, state, local or foreign tax examination for each taxable year in
respect of which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith, and as of the Closing Date
no issue has been raised by any taxing authority in any such examination which,
by application of similar principles, reasonably can be expected to result in
assertion by such taxing authority of a material deficiency for any other year
not so examined which has not been reserved for in the Borrower's consolidated
financial statements to the extent, if any, required by Agreement Accounting
Principles.
(B) PAYMENT OF TAXES. All tax returns and reports of the Borrower and its
Subsidiaries required to be filed have been timely filed, and all taxes,
assessments, fees and other governmental charges thereupon and upon their
respective property, assets, income and franchises which are shown in such
returns or reports to be due and payable have been paid except those items which
are being contested in good faith and have been reserved for in accordance with
Agreement Accounting Principles or for which the failure to file could not
reasonably be expected to have a Material Adverse Effect. The Borrower has no
knowledge of any proposed tax assessment against the Borrower or any of its
Subsidiaries that will have or could reasonably be expected to have a Material
Adverse Effect.
6.7 LITIGATION; LOSS CONTINGENCIES AND VIOLATIONS. There is no action,
suit, proceeding, arbitration or (to the Borrower's knowledge after diligent
inquiry) investigation before or by any Governmental Authority or private
arbitrator pending or, to the Borrower's knowledge after diligent inquiry,
threatened against the Borrower or any of its Subsidiaries or any property of
any of them (i) challenging the validity or the enforceability of any material
provision of the Transaction Documents or (ii) which will have or could
reasonably be expected to have a Material Adverse Effect. There is no material
loss contingency within the meaning of Agreement Accounting Principles which has
not been reflected in the consolidated financial statements of the Borrower and
its Subsidiaries prepared and delivered pursuant to SECTION 7.1(a) for the
fiscal period during which such material loss contingency was incurred. Neither
the Borrower nor any of its Subsidiaries is (A) in violation of any applicable
Requirements of Law which violation will have or could reasonably be expected to
have a Material Adverse Effect, or (B) subject to or in default with respect to
any final judgment, writ, injunction, restraining order or order of any nature,
decree, rule or regulation of any court or Governmental Authority which will
have or could reasonably be expected to have a Material Adverse Effect.
6.8 SUBSIDIARIES. SCHEDULE 6.8 to this Agreement (i) contains a
description as of the Closing Date (or as of the date of any supplement thereto)
of the corporate structure of, the Borrower and
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its Subsidiaries and any other Person in which the Borrower or any of its
Subsidiaries holds an Equity Interest; and (ii) accurately sets forth as of the
Effective Date (or as of the date of any supplement thereto) (A) the correct
legal name, the jurisdiction of incorporation and the jurisdictions in which
each of the Borrower and the Subsidiaries of the Borrower is qualified to
transact business as a foreign corporation, (B) for each Subsidiary of the
Borrower which is not a wholly-owned Subsidiary, the authorized, issued and
outstanding shares of each class of Capital Stock of such Subsidiaries and the
owners of such shares (both as of the Effective Date and on a fully-diluted
basis), and (C) a summary of the direct and indirect partnership, joint venture,
or other Equity Interests, if any, of the Borrower and each Subsidiary of the
Borrower in any Person that is not a corporation. After the formation or
acquisition of any New Subsidiary permitted under SECTION 7.3(g)(ii), if
requested by the Agent, the Borrower shall provide a supplement to SCHEDULE 6.8
to this Agreement. None of the issued and outstanding Capital Stock of the
Borrower or any of its Subsidiaries is subject to any redemption or repurchase
agreement. The outstanding Capital Stock of the Borrower and each of the
Borrower's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable. The Borrower has no Subsidiaries other (i) the Subsidiaries set
forth on SCHEDULE 6.8 and (ii) any Subsidiaries acquired in connection with a
Permitted Acquisition, in connection with which the Borrower shall have provided
all of the documents, instruments and agreements as required by this Agreement.
6.9 ERISA. No Benefit Plan has incurred any material accumulated funding
deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code)
whether or not waived. Neither the Borrower nor any member of the Controlled
Group has incurred any material liability to the PBGC which remains outstanding
other than the payment of premiums, and there are no premium payments which have
become due which are unpaid. Schedule B to the most recent annual report filed
with the IRS with respect to each Benefit Plan and, if so requested, furnished
to the Lenders, is complete and accurate. Since the date of each such Schedule
B, there has been no material adverse change in the funding status or financial
condition of the Benefit Plan relating to such Schedule B. Neither the Borrower
nor any member of the Controlled Group has (i) failed to make a required
contribution or payment to a Multiemployer Plan or (ii) made a complete or
partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer
Plan, in either event which could result in any material liability. Neither the
Borrower nor any member of the Controlled Group has failed to make a required
installment or any other required payment under Section 412 of the Code, in
either case involving any material amount, on or before the due date for such
installment or other payment. Neither the Borrower nor any member of the
Controlled Group is required to provide security to a Benefit Plan under Section
401(a)(29) of the Code due to a Plan amendment that results in an increase in
current liability for the plan year. Neither the Borrower nor any of its
Subsidiaries maintains or contributes to any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA which provides benefits to employees
after termination of employment other than as required by Section 601 of ERISA.
Each Plan which is intended to be qualified under Section 401(a) of the Code as
currently in effect is so qualified, and each trust related to any such Plan is
exempt from federal income tax under Section 501(a) of the Code as currently in
effect. The Borrower and all Subsidiaries are in compliance in all material
respects with the responsibilities, obligations and duties imposed on them by
ERISA and the Code with respect to all Plans. Neither the Borrower nor any of
its Subsidiaries nor any fiduciary of any Plan has engaged in a nonexempt
prohibited transaction described in Sections 406 of ERISA or 4975 of the Code
which could reasonably be expected to subject the Borrower or
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any Guarantor to material liability. Neither the Borrower nor any member of the
Controlled Group has taken or failed to take any action which would constitute
or result in a Termination Event, which action or inaction could reasonably be
expected to subject the Borrower to material liability. Neither the Borrower nor
any Subsidiary is subject to any liability under Sections 4063, 4064, 4069, 4204
or 4212(c) of ERISA and no other member of the Controlled Group is subject to
any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA which
could reasonably be expected to subject the Borrower or any Guarantor to
material liability. Neither the Borrower nor any of its Subsidiaries has, by
reason of the transactions contemplated hereby, any obligation to make any
payment to any employee pursuant to any Plan or existing contract or
arrangement. For purposes of this SECTION 6.9 "material" means any noncompliance
or basis for liability which could reasonably be likely to subject the Borrower
or any of its Subsidiaries to liability individually or in the aggregate for all
such matters in excess of $10,000,000.
6.10 ACCURACY OF INFORMATION. The information, exhibits and reports
furnished by or on behalf of the Borrower and any of its Subsidiaries to the
Agent or to any Lender in connection with the negotiation of, or compliance
with, the Loan Documents, including, without limitation, the Information
Memorandum (other than the projections contained under Tab 7 thereof), the
representations and warranties of the Borrower and its Subsidiaries contained in
the Transaction Documents, and all certificates and documents delivered to the
Agent and the Lenders pursuant to the terms thereof, taken as a whole, do not
contain as of the date furnished any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained
herein or therein, taken as a whole, in light of the circumstances under which
they were made, not misleading.
6.11 SECURITIES ACTIVITIES. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
6.12 MATERIAL AGREEMENTS. Neither the Borrower nor any of its Subsidiaries
is a party to any Contractual Obligation or subject to any charter or other
corporate restriction which individually or in the aggregate will have or could
reasonably be expected to have a Material Adverse Effect. Neither the Borrower
nor any of its Subsidiaries has received notice or has knowledge that (i) it is
in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Contractual Obligation
applicable to it, or (ii) any condition exists which, with the giving of notice
or the lapse of time or both, would constitute a default with respect to any
such Contractual Obligation, in each case, except where such default or
defaults, if any, individually or in the aggregate will not have or could not
reasonably be expected to have a Material Adverse Effect.
6.13 COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries are in
compliance with all Requirements of Law applicable to them and their respective
businesses, in each case where the failure to so comply individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
6.14 ASSETS AND PROPERTIES. The Borrower and each of its Subsidiaries has
good and marketable title to all of its assets and properties (tangible and
intangible, real or personal) owned by
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it or a valid leasehold interest in all of its leased assets (except insofar as
marketability may be limited by any laws or regulations of any Governmental
Authority affecting such assets), except where the failure to have any such
title will not have or could not reasonably be expected to have a Material
Adverse Effect, and all such assets and property are free and clear of all
Liens, except Liens permitted under SECTION 7.3(c). Substantially all of the
assets and properties owned by, leased to or used by the Borrower and/or each
such Subsidiary of the Borrower are in adequate operating condition and repair,
ordinary wear and tear excepted. Neither this Agreement nor any other
Transaction Document, nor any transaction contemplated under any such agreement,
will affect any right, title or interest of the Borrower or such Subsidiary in
and to any of its assets in a manner that will have or could reasonably be
expected to have a Material Adverse Effect.
6.15 STATUTORY INDEBTEDNESS RESTRICTIONS. Neither the Borrower nor any of
its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the
Investment Company Act of 1940, or any other federal, state or local statute,
ordinance or regulation which limits its ability to incur indebtedness or its
ability to consummate the transactions contemplated hereby or in connection with
Initial Acquisitions, the Mergers, the Public Offerings and the Related
Transactions.
6.16 INSURANCE. The Borrower's and its Subsidiaries' insurance policies
and programs reflect coverage that is reasonably consistent with prudent
industry practice.
6.17 LABOR MATTERS. As of the Effective Date, to the Borrower's and its
Subsidiaries' knowledge, there are no material labor disputes to which the
Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities.
6.18 ENVIRONMENTAL MATTERS. (a)(i) The operations of the Borrower and its
Subsidiaries comply in all material respects with Environmental, Health or
Safety Requirements of Law;
(ii) the Borrower and its Subsidiaries have all material permits,
licenses or other authorizations required under Environmental, Health or
Safety Requirements of Law and are in material compliance with such
permits;
(iii) neither the Borrower, any of its Subsidiaries nor any of their
respective present property or operations, or, to the best of, the
Borrower's or any of its Subsidiaries' knowledge, any of their respective
past property or operations, are subject to or the subject of, any
investigation known to the Borrower or any of its Subsidiaries, any
judicial or administrative proceeding, order, judgment, decree, settlement
or other agreement respecting: (A) any material violation of
Environmental, Health or Safety Requirements of Law; (B) any material
remedial action; or (C) any material claims or liabilities arising from
the Release or threatened Release of a Contaminant into the environment;
(iv) there is not now, nor to the best of the Borrower's or any of
its Subsidiaries' knowledge has there ever been on or in the property of
the Borrower or any of its Subsidiaries any landfill, waste pile,
underground storage tanks, aboveground storage tanks, surface impoundment
or hazardous waste storage facility of any kind, any polychlorinated
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biphenyls (PCBs) used in hydraulic oils, electric transformers or other
equipment, or any asbestos containing material that in the case of any of
the foregoing could be reasonably expected to result in any material
claims or liabilities; and
(v) neither the Borrower nor any of its Subsidiaries has any
material Contingent Obligation in connection with any Release or
threatened Release of a Contaminant into the environment.
(b) For purposes of this SECTION 6.18 "material" means any noncompliance
or basis for liability which could reasonably be expected individually or in the
aggregate to have a Material Adverse Effect.
6.19. BENEFITS. Each of the Borrower and its Subsidiaries will benefit
from the financing arrangement established by this Agreement. The Agent and the
Lenders have stated and the Borrower acknowledges that, but for the agreement by
each of the Guarantors to execute and deliver the Guaranty, the Agent and the
Lenders would not have made available the credit facilities established hereby
on the terms set forth herein.
6.20. SENIOR SUBORDINATED NOTE ISSUANCE. As of the Effective Date and
immediately prior to the making of the initial Loans under this Agreement, the
Borrower has issued the Senior Subordinated Notes in an aggregate original
principal amount of not less than $150,000,000 and received the net proceeds
thereof, and the subordination provisions of the Indenture are enforceable
against the holders of the Senior Subordinated Notes.
ARTICLE VII : COVENANTS
The Borrower covenants and agrees that so long as any Commitments are
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations), unless the Required Lenders shall
otherwise give prior written consent:
7.1 REPORTING. The Borrower shall:
(A) FINANCIAL REPORTING. Furnish to the Lenders:
(i) QUARTERLY REPORTS. As soon as practicable, and in any event
within forty-five (45) days after the end of each of the first three
quarters in each fiscal year, the consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such period and the related
consolidated statements of income and cash flows of the Borrower and its
Subsidiaries for such fiscal quarter and for the period from the beginning
of the then current fiscal year to the end of such fiscal quarter,
certified by the chief financial officer of the Borrower on behalf of the
Borrower as fairly presenting the consolidated financial position of the
Borrower and its Subsidiaries as at the dates indicated and the results of
their operations and cash flows for the periods indicated in accordance
with Agreement Accounting Principles, subject to normal year end
adjustments. In addition, as soon as practicable, and in any event within
forty-five
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(45) days after the end of the fourth fiscal quarter in each fiscal year,
such financial statements and information as shall be reasonably
acceptable to the Agent as sufficient for the calculation of the Leverage
Ratio as of the end of such fiscal quarter, certified by the chief
financial officer of the Borrower.
(ii) ANNUAL REPORTS. As soon as practicable, and in any event within
ninety (90) days after the end of each fiscal year, (a) the consolidated
balance sheet of the Borrower and its Subsidiaries as at the end of such
fiscal year and the related consolidated statements of income,
stockholders' equity and cash flows of the Borrower and its Subsidiaries
for such fiscal year, and in comparative form the corresponding figures
for the previous fiscal year and (b) an audit report on the items listed
in CLAUSE (A) hereof of independent certified public accountants of
recognized national standing, which audit report shall be unqualified and
shall state that such financial statements fairly present the consolidated
financial position of the Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and cash flows for the
periods indicated in conformity with Agreement Accounting Principles and
that the examination by such accountants in connection with such
consolidated financial statements has been made in accordance with
generally accepted auditing standards. The deliveries made pursuant to
this CLAUSE (II) shall be accompanied by any management letter prepared by
the above-referenced accountants.
(iii) OFFICER'S CERTIFICATE. Together with each delivery of any
financial statement (a) pursuant to CLAUSES (I)and (II) of this SECTION
7.1(a), an Officer's Certificate of the Borrower, substantially in the
form of EXHIBIT H attached hereto and made a part hereof, stating that no
Default or Unmatured Default exists, or if any Default or Unmatured
Default exists, stating the nature and status thereof and (b) pursuant to
CLAUSES (I) and (II) of this SECTION 7.1(a), a compliance certificate,
substantially in the form of EXHIBIT I attached hereto and made a part
hereof, signed by the Borrower's chief financial officer or treasurer,
setting forth calculations for the period then ended, which demonstrate
compliance, when applicable, with the provisions of SECTION 7.4, and which
calculate the Leverage Ratio for purposes of determining the then
Applicable Eurodollar Margin, Applicable Floating Rate Margin and
Applicable Commitment Fee Percentage.
(iv) BUDGETS; BUSINESS PLANS; FINANCIAL PROJECTIONS. Not less
frequently than once during each 12-month period following the Effective
Date, a copy of the plan and forecast (including a projected balance
sheet, income statement and statement of cash flow) of the Borrower and
its Subsidiaries for the upcoming 12-month period prepared in such detail
as shall be reasonably satisfactory to the Agent.
(B) NOTICE OF DEFAULT. Promptly upon any of the chief executive officer,
chief operating officer, chief financial officer, treasurer or controller of the
Borrower obtaining knowledge (i) of any condition or event which constitutes a
Default or Unmatured Default, or becoming aware that any Lender or Agent has
given any written notice with respect to a claimed Default or Unmatured Default
under this Agreement, or (ii) that any Person has given any written notice to
the Borrower or any Subsidiary of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to in
SECTION 8.1(e), deliver to the Agent and the Lenders a notice
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specifying (a) the nature and period of existence of any such claimed default,
Default, Unmatured Default, condition or event, (b) the notice given or action
taken by such Person in connection therewith, and (c) what action the Borrower
has taken, is taking and proposes to take with respect thereto.
(C) LAWSUITS. (i) Promptly upon the Borrower obtaining knowledge of the
institution of, or written threat of, any action, suit, proceeding, governmental
investigation or arbitration against or affecting the Borrower or any of its
Subsidiaries or any property of the Borrower or any of its Subsidiaries, which
action, suit, proceeding, governmental investigation or arbitration exposes, or
in the case of multiple actions, suits, proceedings, governmental investigations
or arbitrations arising out of the same general allegations or circumstances
which could reasonably be expected to have a Material Adverse Effect, give
written notice thereof to the Agent and provide such other information as may be
reasonably available to enable each Lender and the Agent and its counsel to
evaluate such matters; and (ii) in addition to the requirements set forth in
CLAUSE (I) of this SECTION 7.1(c), upon request of the Agent or the Required
Lenders, promptly give written notice of the status of any action, suit,
proceeding, governmental investigation or arbitration covered by a report
delivered pursuant to CLAUSE (I) above or disclosed in any filing with the
Commission and provide such other information as may be reasonably available to
it that would not violate any attorney-client privilege by disclosure to the
Lenders to enable each Lender and the Agent and its counsel to evaluate such
matters.
(D) ERISA NOTICES. Deliver or cause to be delivered to the Agent and the
Lenders, at the Borrower's expense, the following information and notices as
soon as reasonably possible, and in any event:
(i) (a) within ten (10) Business Days after the Borrower obtains
knowledge that a Termination Event has occurred, a written statement of
the chief financial officer of the Borrower describing such Termination
Event and the action, if any, which the Borrower has taken, is taking or
proposes to take with respect thereto, and when known, any action taken or
threatened by the IRS, DOL or PBGC with respect thereto and (b) within ten
(10) Business Days after any member of the Controlled Group obtains
knowledge that a Termination Event has occurred which could reasonably be
expected to subject the Borrower or any member of the Controlled Group to
liability individually or in the aggregate in excess of $1,000,000, a
written statement of the chief financial officer of the Borrower
describing such Termination Event and the action, if any, which the member
of the Controlled Group has taken, is taking or proposes to take with
respect thereto, and when known, any action taken or threatened by the
IRS, DOL or PBGC with respect thereto;
(ii) within ten (10) Business Days after the Borrower or any of its
Subsidiaries obtains knowledge that a prohibited transaction (defined in
Sections 406 of ERISA and Section 4975 of the Code) has occurred which
could result in material liability , a statement of the chief financial
officer of the Borrower describing such transaction and the action which
the Borrower or such Subsidiary has taken, is taking or proposes to take
with respect thereto;
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(iii) within ten (10) Business Days after the Borrower or any of its
Subsidiaries receives notice of any unfavorable determination letter from
the IRS regarding the qualification of a Plan under Section 401(a) of the
Code, copies of each such letter;
(iv) within ten (10) Business Days after the filing thereof with the
IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by the Borrower or a member
of the Controlled Group with respect to such request;
(v) within ten (10) Business Days after receipt by the Borrower or
any member of the Controlled Group of the PBGC's intention to terminate a
Benefit Plan or to have a trustee appointed to administer a Benefit Plan,
copies of each such notice;
(vi) within ten (10) Business Days after receipt by the Borrower or
any member of the Controlled Group of a notice from a Multiemployer Plan
regarding the imposition of withdrawal liability, copies of each such
notice;
(vii) within ten (10) Business Days after the Borrower or any member
of the Controlled Group fails to make a required installment or any other
required payment under Section 412 of the Code on or before the due date
for such installment or payment, a notification of such failure; and
(viii) within ten (10) Business Days after the Borrower or any
member of the Controlled Group knows or has reason to know that (a) a
Multiemployer Plan has been terminated, (b) the administrator or plan
sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan,
or (c) the PBGC has instituted or will institute proceedings under Section
4042 of ERISA to terminate a Multiemployer Plan.
For purposes of this SECTION 7.1(d), the Borrower, any of its Subsidiaries and
any member of the Controlled Group shall be deemed to know all facts known by
the Administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor.
(E) LABOR MATTERS. Notify the Agent and the Lenders in writing, promptly
upon the Borrower's learning thereof, of (i) any material labor dispute to which
the Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities and (ii) any material liability incurred under the
Worker Adjustment and Retraining Notification Act with respect to the closing of
any plant or other facility of the Borrower or any of its Subsidiaries.
(F) OTHER INDEBTEDNESS. Deliver to the Agent (i) a copy of each notice or
communication regarding potential or actual defaults (including any accompanying
officer's certificate) delivered by or on behalf of the Borrower or any of its
Subsidiaries to the holders of funded Indebtedness pursuant to the terms of the
agreements governing such Indebtedness, such delivery to be made at the same
time and by the same means as such notice or other communication is delivered to
such holders, and (ii) a copy of each notice or other communication regarding
potential or actual defaults received by the Borrower or any of its Subsidiaries
from the from the holders of funded Indebtedness pursuant
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to the terms of such Indebtedness, such delivery to be made promptly after such
notice or other communication is received by the Borrower or any such
Subsidiary.
(G) OTHER REPORTS. Deliver or cause to be delivered to the Agent and the
Lenders copies of all financial statements, reports and notices, if any, sent or
made available generally by the Borrower to its securities holders or filed with
the Commission by the Borrower, all press releases made available generally by
the Borrower or any of the Borrower's Subsidiaries to the public concerning
material developments in the business of the Borrower or any such Subsidiary and
all notifications received from the Commission by the Borrower or its
Subsidiaries pursuant to the Securities Exchange Act of 1934 and the rules
promulgated thereunder (other than customary comment letters received in
connection with registration statements or other routine communications between
the Commission and the Borrower).
(H) ENVIRONMENTAL NOTICES. As soon as possible and in any event within ten
(10) days after receipt by the Borrower or any of its Subsidiaries, a copy of
(i) any notice or claim to the effect that the Borrower or any of its
Subsidiaries is or may be liable to any Person as a result of the Release by the
Borrower, any of its Subsidiaries, or any other Person of any Contaminant into
the environment, and (ii) any notice alleging any violation of any
Environmental, Health or Safety Requirements of Law by the Borrower or any of
its Subsidiaries if, in either case, such notice or claim relates to an event
which could reasonably be expected to have a Material Adverse Effect.
(I) OTHER INFORMATION. Promptly upon receiving a request therefor from the
Agent or any Lender, prepare and deliver to the Agent and the Lenders such other
information with respect to the Borrower, any of its Subsidiaries or the
Collateral as from time to time may be reasonably requested by the Agent or any
Lender.
7.2 AFFIRMATIVE COVENANTS.
(A) CORPORATE EXISTENCE, ETC. Except for mergers permitted pursuant to
SECTION 7.3(i), the Borrower shall, and shall cause each of the Guarantors to,
at all times maintain its corporate existence and preserve and keep, or cause to
be preserved and kept, in full force and effect its rights and franchises
material to its businesses.
(B) CORPORATE POWERS; CONDUCT OF BUSINESS. The Borrower shall, and shall
cause each of its Subsidiaries to, qualify and remain qualified to do business
in each jurisdiction in which the nature of its business requires it to be so
qualified and where the failure to be so qualified will have or could reasonably
be expected to have a Material Adverse Effect. The Borrower will, and will cause
each Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted.
(C) COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall cause its
Subsidiaries to, (a) comply with all Requirements of Law and all restrictive
covenants affecting such Person or the business, properties, assets or
operations of such Person, and (b) obtain as needed all Permits necessary for
its operations and maintain such Permits in good standing unless failure to
comply or obtain could not reasonably be expected to have a Material Adverse
Effect.
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(D) PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Borrower shall
pay, and cause each of its Subsidiaries to pay, (i) all taxes, assessments and
other governmental charges imposed upon it or on any of its properties or assets
or in respect of any of its franchises, business, income or property before any
penalty or interest accrues thereon, and (ii) all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a Lien (other
than a Lien permitted by SECTION 7.3(c)) upon any of the Borrower's or such
Subsidiary's property or assets, prior to the time when any penalty or fine
shall be incurred with respect thereto; PROVIDED, HOWEVER, that no such taxes,
assessments and governmental charges referred to in CLAUSE (I) above or claims
referred to in CLAUSE (II) above (and interest, penalties or fines relating
thereto) need be paid if being contested in good faith by appropriate
proceedings diligently instituted and conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with Agreement
Accounting Principles shall have been made therefor. The Borrower will not, nor
will it permit any of its Subsidiaries to, file or consent to the filing of any
consolidated income tax return with any other Person other than the consolidated
return of the Borrower.
(E) INSURANCE. The Borrower shall maintain for itself and its
Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force
and effect, insurance policies and programs reflecting coverage that is
reasonably consistent with prudent industry practice.
(F) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Borrower
shall permit and cause each of the Borrower's Subsidiaries to permit, any
authorized representative(s) designated by either the Agent or any Lender to
visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, to examine, audit, check and make copies of their respective
financial and accounting records, books, journals, orders, receipts and any
correspondence and other data relating to their respective businesses or the
transactions contemplated hereby or by the Initial Acquisitions (including,
without limitation, in connection with environmental compliance, hazard or
liability), and to discuss their affairs, finances and accounts with their
officers and independent certified public accountants, all upon reasonable
notice and at such reasonable times during normal business hours, as often as
may be reasonably requested; PROVIDED, that while no Default exists, all of the
foregoing shall be at the expense of the Agent or Lenders, as applicable. The
Borrower shall keep and maintain, and cause each of the Borrower's Subsidiaries
to keep and maintain, in all material respects, proper books of record and
account in which entries in conformity with Agreement Accounting Principles
shall be made of all dealings and transactions in relation to their respective
businesses and activities. If a Default has occurred and is continuing, the
Borrower, upon the Agent's request, shall turn over any such records to the
Agent or its representatives.
(G) ERISA COMPLIANCE. The Borrower shall, and shall cause each of the
Borrower's Subsidiaries to, establish, maintain and operate all Plans to comply
in all material respects with the provisions of ERISA, the Code, all other
applicable laws, and the regulations and interpretations thereunder and the
respective requirements of the governing documents for such Plans, except where
the failure to comply will not or could not reasonably be expected to subject
the Borrower and its Subsidiaries to liability individually or in the aggregate
in excess of $10,000,000.
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(H) MAINTENANCE OF PROPERTY. The Borrower shall cause all property used or
useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Borrower may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this SECTION 7.2(h) shall prevent the
Borrower from discontinuing the operation or maintenance of any of such property
if such discontinuance is, in the judgment of the Borrower, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Agent or the Lenders.
(I) ENVIRONMENTAL COMPLIANCE. The Borrower and its Subsidiaries shall
comply with all Environmental, Health or Safety Requirements of Law, except
where noncompliance could not reasonably be expected to have a Material Adverse
Effect. Neither the Borrower nor any of its Subsidiaries shall be the subject of
any proceeding or investigation pertaining to (i) the Release by the Borrower or
any of its Subsidiaries of any Contaminant into the environment or (ii) the
liability of the Borrower or any of its Subsidiaries arising from the Release by
any other Person of any Contaminant into the environment, which, in either case,
has or is reasonably likely to have a Material Adverse Effect.
(J) USE OF PROCEEDS. The Borrower shall use the proceeds of the Loans to
(i) repay certain existing Indebtedness of the Founding Companies, (ii) provide
funds for the additional working capital needs and other general corporate
purposes of the Borrower and its Subsidiaries and (iii) fund Permitted
Acquisitions. The Borrower will not, nor will it permit any Subsidiary to, use
any of the proceeds of the Loans to purchase or carry any "Margin Stock" or to
make any Acquisition, other than any Permitted Acquisition pursuant to SECTION
7.3(g).
(K) ADDITION OF GUARANTORS; ADDITION OF PLEDGED CAPITAL STOCK. The
Borrower shall cause (i) each Subsidiary that is, at any time, a Material
Subsidiary, and (ii) each other Subsidiary necessary for the Borrower to comply
with the requirements set forth in SECTION 7.3(e), to deliver to the Agent an
executed Guaranty Supplement to become a Guarantor under the Guaranty in the
form of EXHIBIT J attached hereto and appropriate corporate resolutions,
opinions and other documentation in form and substance reasonably satisfactory
to the Agent, such Guaranty Supplement and other documentation to be delivered
to the Agent as promptly as possible but in any event within thirty (30) days of
determination that a Subsidiary is a Material Subsidiary or otherwise needs to
be added as a Guarantor. Simultaneously with any Subsidiary becoming a
Guarantor, the Borrower shall (or, if the Capital Stock of such Subsidiary is
owned by another Subsidiary, shall cause such other Subsidiary to) deliver to
the Agent an executed supplement to the Pledge Agreement or a Pledge Agreement,
together with appropriate corporate resolutions, opinions, stock certificates,
UCC filings or amendments and other documentation, in each case in form and
substance reasonably satisfactory to the Agent and the Agent shall be reasonably
satisfied that it has a first priority perfected pledge of all of the Capital
Stock of such Guarantor owned by the Borrower and its Subsidiaries.
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7.3 NEGATIVE COVENANTS.
(A) INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) Permitted Existing Indebtedness and Permitted Refinancing
Indebtedness;
(iii) (A) the Indebtedness evidenced by the Senior Subordinated
Notes and (B) other unsecured subordinated indebtedness incurred by the
Borrower (including in connection with any Permitted Acquisition) that (x)
does not have a stated maturity before the Termination Date in effect as
of the date such indebtedness is incurred, (y) has terms that are no more
restrictive than the terms of this Agreement and the other Loan Documents,
and (z) is subordinated to the Obligations on terms at least as favorable
to the Lenders as the terms set forth on SCHEDULE 7.3 attached hereto,
with such changes thereto as may be agreed to by the Agent (such
Indebtedness under clauses (A) and (B) being referred to herein
collectively as "PERMITTED SUBORDINATED INDEBTEDNESS");
(iv) Indebtedness in respect of obligations secured by Customary
Permitted Liens;
(v) Indebtedness constituting Contingent Obligations in respect of
Indebtedness otherwise permitted hereunder;
(vi) Indebtedness arising from intercompany loans from the Borrower
to any Controlled Subsidiary or from any Subsidiary to the Borrower or any
Controlled Subsidiary; PROVIDED that in each case such Indebtedness is
subordinated upon terms satisfactory to the Agent to the obligations of
the Borrower and its Subsidiaries with respect to the Obligations;
(vii) guaranties by the Borrower of Indebtedness permitted to be
incurred by any Subsidiary;
(viii) Indebtedness in respect of Hedging Obligations permitted
under SECTION 7.3(Q);
(ix) secured or unsecured purchase money Indebtedness (including
Capitalized Leases) incurred by the Borrower or any of its Subsidiaries
after the Original Closing Date (including, as a result of the assumption
of any such Indebtedness in connection with a Permitted Acquisition) to
finance the acquisition of fixed assets, if (1) at the time of such
incurrence, no Default or Unmatured Default has occurred and is continuing
or would result from such incurrence, (2) such Indebtedness has a
scheduled maturity and is not due on demand, (3) such Indebtedness does
not exceed the lower of the fair market value or the cost of the
applicable fixed assets on the date acquired, (4) such Indebtedness does
not exceed in the aggregate at any time an amount equal to the sum of (a)
$10,000,000 PLUS (b) an amount equal to 1.5% of consolidated revenues of
the Borrower and its Subsidiaries for each
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fiscal year, commencing with the fiscal year ending December 31, 1997, (5)
any Lien securing such Indebtedness is permitted under SECTION 7.3(c) and
(6) such Indebtedness is incurred in compliance with CLAUSE (XIV) below
(such Indebtedness being referred to herein as "PERMITTED PURCHASE MONEY
INDEBTEDNESS");
(x) Indebtedness with respect to surety, appeal and performance
bonds obtained by the Borrower or any of its Subsidiaries in the ordinary
course of business;
(xi) Indebtedness arising under the Guaranty;
(xii) Indebtedness of a Subsidiary consisting of tax-advantaged
industrial revenue bond, industrial development bond or other similar
financings assumed in connection with (but not incurred in connection with
or in anticipation of) a Permitted Acquisition;
(xiii) other Indebtedness (other than working capital financing)
existing at a New Subsidiary at the time of the Permitted Acquisition
thereof (but not incurred in connection or in anticipation of such
Permitted Acquisition) the outstanding principal balance of which does not
exceed ten percent (10%) of the book value of the assets acquired as a
result of such Permitted Acquisition and such Indebtedness is incurred in
compliance with the provisions of CLAUSE (XIV) below; and
(xiv) other Indebtedness in addition to that referred to elsewhere
in this SECTION 7.3(a) incurred by the Borrower provided that (A) the
aggregate amount of such other Indebtedness together with the aggregate
amount of Permitted Purchase Money Indebtedness and Indebtedness incurred
under CLAUSE (XIII) above shall not at any time exceed $50,000,000; (B)
the aggregate amount of such other Indebtedness which is secured by a Lien
permitted under the terms of this Agreement together with the aggregate
amount of secured Permitted Purchase Money Indebtedness and secured
Indebtedness incurred under CLAUSE (XIII) above shall not at any time
exceed $25,000,000; and (C) no Default or Unmatured Default shall have
occurred and be continuing at the date of such incurrence or would result
therefrom.
(B) SALES OF ASSETS. Neither the Borrower nor any of its Subsidiaries
shall sell, assign, transfer, lease, convey or otherwise dispose of any property
(including the stock of any Subsidiary), whether now owned or hereafter
acquired, or any income or profits therefrom, or enter into any agreement to do
so, except:
(i) sales of inventory in the ordinary course of business;
(ii) the disposition in the ordinary course of business of equipment
that is obsolete, excess or no longer useful in the Borrower's or its
Subsidiaries' business; and
(iii) sales, assignments, transfers, leases, conveyances or other
dispositions of other assets (including sales of stock of a Subsidiary) if
such transaction (a) is for consideration consisting of at least 80% of
cash, (b) is for not less than Fair Value, and (c) when combined with all
such other transactions (each such transaction being valued at book value)
(i) during
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the immediately preceding twelve-month period, represents the disposition
of not greater than ten percent (10.0%) of the Borrower's Consolidated
Tangible Assets at the end of the fiscal year immediately preceding that
in which such transaction is proposed to be entered into, and (ii) during
the period from the Original Closing Date to the date of such proposed
transaction, represents the disposition of not greater than twenty percent
(20.0%) of the Borrower's Consolidated Tangible Assets at the end of the
fiscal year immediately preceding that in which such transaction is
proposed to be entered into.
(C) LIENS. Neither the Borrower nor any of its Subsidiaries shall directly
or indirectly create, incur, assume or permit to exist any Lien on or with
respect to any of their respective property or assets except:
(i) Permitted Existing Liens;
(ii) Customary Permitted Liens;
(iii) purchase money Liens (including the interest of a lessor under
a Capitalized Lease and Liens to which any property is subject at the time
of the Borrower's acquisition thereof) securing Permitted Purchase Money
Indebtedness; PROVIDED that such Liens shall not apply to any property of
the Borrower or its Subsidiaries other than that purchased or subject to
such Capitalized Lease;
(iv) Liens securing Indebtedness assumed in connection with a
Permitted Acquisition and permitted pursuant to CLAUSE (XII) or CLAUSE
(XIII) of SECTION 7.3(a); PROVIDED that such Liens shall not apply to any
property of the Borrower or its Subsidiaries other than that purchased or
directly financed in connection with such Indebtedness;
(v) Liens securing the Obligations or Secured Obligations; and
(vi) Liens (other than on the stock of any Subsidiaries) securing
other obligations not exceeding $25,000,000 in the aggregate at any time
outstanding.
In addition, neither the Borrower nor any of its Subsidiaries shall become a
party to any agreement, note, indenture or other instrument, or take any other
action, which would prohibit the creation of a Lien on any of its properties or
other assets in favor of the Agent for the benefit of itself and Lenders, as
collateral for the Obligations; PROVIDED that any agreement, note, indenture or
other instrument in connection with Liens permitted pursuant to CLAUSES (I),
(III) and (IV) above may prohibit the creation of a Lien in favor of the Agent
for the benefit of itself and the Lenders on the items of property subject to
such Lien.
(D) INVESTMENTS. Except to the extent permitted pursuant to PARAGRAPH (G)
below, neither the Borrower nor any of its Subsidiaries shall directly or
indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
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(ii) Permitted Existing Investments in an amount not greater than
the amount thereof on the Original Closing Date;
(iii) Investments in trade receivables or received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(iv) Investments consisting of deposit accounts maintained by the
Borrower or its Subsidiaries in the ordinary course of business in
connection with its cash management system;
(v) Investments consisting of non-cash consideration from a sale,
assignment, transfer, lease, conveyance or other disposition of property
permitted by SECTION 7.3(b);
(vi) Investments consisting of intercompany loans from any
Subsidiary to the Borrower or any other Subsidiary permitted by SECTION
7.3(a)(vi);
(vii) Investments in any Controlled Subsidiary of the Borrower;
(viii) Investments constituting Permitted Acquisitions; and
(ix) Investments in addition to those referred to elsewhere in this
SECTION 7.3(d) in an amount not to exceed $1,000,000 in the aggregate at
any time outstanding;
PROVIDED, HOWEVER, that the Investments described in CLAUSES (V), (VIII) and
(IX) above shall not be permitted if either a Default or Unmatured Default shall
have occurred and be continuing on the date thereof or would result therefrom.
(E) NON-GUARANTOR SUBSIDIARIES OR NON-PLEDGED SUBSIDIARIES. The Borrower
shall not permit the total assets of the Subsidiaries which are not Guarantors
or the Capital Stock of which is not pledged (excluding therefrom all items that
are treated as intangibles under Agreement Accounting Principles) to be equal to
or greater than ten percent (10%) of Consolidated Tangible Assets.
(F) RESTRICTED PAYMENTS. Neither the Borrower nor any of its Subsidiaries
shall declare or make any Restricted Payment, except:
(i) the defeasance, redemption, repurchase or prepayment of any
Permitted Subordinated Indebtedness (other than the Senior Subordinated
Notes) with the net cash proceeds of Permitted Refinancing Indebtedness;
(ii) the defeasance, redemption, repurchase or prepayment of any
Permitted Subordinated Indebtedness (other than the Senior Subordinated
Notes) PROVIDED the aggregate amount so defeased, redeemed, repurchased or
prepaid after the Original Closing Date shall not exceed an amount equal
to ten percent (10%) of the Aggregate Commitment;
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(iii) in connection with the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests held by
departing officers, directors and employees; PROVIDED, that the aggregate
purchase price of all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $1,000,000 in the aggregate since the
Original Closing Date or such larger amount as may be agreed to by the
Required Lenders; and
(iv) where the consideration therefor consists solely of Equity
Interests (but excluding Disqualified Stock) of the Borrower or its
Subsidiaries provided no Change of Control would occur as a result
thereof;
PROVIDED, HOWEVER, that the Restricted Payments described in CLAUSES(I), (II)
and (III) above shall not be permitted if either a Default shall have occurred
and be continuing at the date of declaration or payment thereof or would result
therefrom.
(G) CONDUCT OF BUSINESS; SUBSIDIARIES; ACQUISITIONS. (i) Neither the
Borrower nor any of its Subsidiaries shall engage in any business other than the
businesses engaged in by the Borrower on the Original Closing Date and any
business or activities which are substantially similar, related or incidental
thereto.
(ii) The Borrower may create, acquire and/or capitalize any
Subsidiary (a "NEW SUBSIDIARY") after the date hereof pursuant to any
transaction that is permitted by or not otherwise prohibited by this Agreement;
PROVIDED that upon the creation or acquisition of each New Subsidiary, the
Borrower shall cause each New Subsidiary that is a Material Subsidiary to
promptly deliver to the Agent an executed counterpart of a Guaranty Supplemental
to become a Guarantor under the Guaranty in the form of EXHIBIT J attached
hereto and appropriate corporate resolutions, opinions and other documentation
in form and substance satisfactory to the Agent, and all New Subsidiaries that
are Material Subsidiaries shall be Controlled Subsidiaries.
(iii) The Borrower shall not make any Acquisitions, other than the
Initial Acquisitions and other Acquisitions meeting the following requirements
(each such Acquisition constituting a "PERMITTED ACQUISITION"):
(a) no Default or Unmatured Default shall have occurred and be
continuing or would result from such Acquisition or the incurrence of any
Indebtedness in connection therewith;
(b) in the case of an Acquisition of Equity Interests of an entity,
such Acquisition shall be of at least ninety percent (90%) of the Equity
Interests of such entity;
(c) the businesses being acquired shall be substantially similar,
related or incidental to the businesses or activities engaged in by the
Borrower and its Subsidiaries on the Original Date;
(d) the Indebtedness incurred by the Borrower to the Seller as part
of the consideration therefor (other than Indebtedness assumed in
connection therewith and
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permitted pursuant to CLAUSES (IX), (XII) or (XIII) of SECTION 7.3(a))
shall be Permitted Subordinated Indebtedness under SECTION 7.3(a);
(e) prior to each such Acquisition, the Borrower shall deliver to
the Agent and the Lenders a certificate from one of the Authorized
Officers, (1) calculating the purchase price and EBITDA for purposes of
CLAUSE (H) below; and (2) certifying that after giving effect to such
Acquisition and the incurrence of any Indebtedness hereunder and permitted
by SECTION 7.3(a) in connection therewith, on a PRO FORMA basis, as if the
Acquisition and such incurrence of Indebtedness had occurred on the first
day of the twelve-month period ending on the last day of the Borrower's
most recently completed fiscal quarter, the Borrower would have been in
compliance with all of the covenants contained in this Agreement,
including, without limitation, the financial covenants set forth in
SECTION 7.4;
(f) the purchase is consummated pursuant to a negotiated acquisition
agreement on a non-hostile basis;
(g) after giving effect to such Acquisition, the representations and
warranties set forth in ARTICLE VI hereof shall be true and correct in all
material respects on and as of the date of such Acquisition with the same
effect as though made on and as of such date; and
(h) the written consent of the Required Lenders shall have been
obtained in connection with any Acquisition if (1) the aggregate, without
duplication, of (a) the cash portion of the purchase price, PLUS (b) the
difference (if positive) of (i) Indebtedness incurred or assumed in
connection with such Acquisition MINUS (ii) cash acquired in such
Acquisition is greater than $35,000,000 or (2) the aggregate purchase
price (including, without limitation or duplication, cash, stock,
Indebtedness assumed (net of any cash acquired), and transaction related
contractual payments, including amounts payable under non-compete,
consulting or similar agreements)(valuing all non-cash consideration at
Fair Value) is equal to or greater than (a) $10,000,000 and (b) eight (8)
times the EBITDA of the target entity for the last 12- month period
preceding such Acquisition for which financial statements are available.
With respect to any Acquisition where the target entity's assets are equal to or
greater than five percent (5.0%) of the Borrower's and its Subsidiaries'
consolidated assets, the Borrower shall (a) have obtained (and shall have based
the calculations set forth above on) historical audited financial statements for
the target and/or reviewed unaudited financial statements for the target for a
period of not less than two years, obtained from the seller or provided by
independent certified public accountants retained for the purposes of such
Acquisition, broken down by fiscal quarter in the Borrower's reasonable
judgment, copies of which shall be provided to the Agent and the Lenders and (b)
at the request of the Required Lenders (such request not to be made more
frequently than once in any fiscal quarter) provide such financial information
as shall be reasonably acceptable to the Agent and the Required Lenders
demonstrating the Borrower's PRO FORMA compliance with the covenants after
taking into account such Acquisition and the incurrence of any Indebtedness in
connection therewith.
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(H) TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Neither the Borrower
nor any of its Subsidiaries shall directly or indirectly enter into or permit to
exist any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with any holder or
holders of any of the Equity Interests of the Borrower, or with any Affiliate of
the Borrower which is not its Subsidiary, on terms that are less favorable to
the Borrower or any of its Subsidiaries, as applicable, than those that might be
obtained in an arm's length transaction at the time from Persons who are not
such a holder or Affiliate, except for Restricted Payments permitted by SECTION
7.3(f).
(I) RESTRICTION ON FUNDAMENTAL CHANGES. Neither the Borrower nor any of
its Subsidiaries shall enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of the Borrower's or any such
Subsidiary's business or property, whether now or hereafter acquired, except (i)
transactions permitted under SECTIONS 7.3(b) or 7.3(g) (ii) the merger of a
Subsidiary of the Borrower into a Person acquired in connection with a Permitted
Acquisition; (iii) the merger of a wholly-owned Subsidiary of the Borrower with
and into the Borrower; and (iv) the merger of a Subsidiary of the Borrower with
another Subsidiary of the Borrower; PROVIDED, HOWEVER, (i) with respect to any
such permitted mergers involving any Guarantor, the surviving corporation in the
merger shall also be or become a Guarantor; and (ii) after the consummation of
any such transaction, the Borrower shall be in compliance with the provisions of
SECTIONS 7.2(k) and 7.3(e).
(J) SALES AND LEASEBACKS. Other than the lease transactions disclosed in
the Registration Statement, neither the Borrower nor any of its Subsidiaries
shall become liable, directly, by assumption or by Contingent Obligation, with
respect to any lease, whether an operating lease or a Capitalized Lease, of any
property (whether real or personal or mixed) (i) which it or one of its
Subsidiaries sold or transferred or is to sell or transfer to any other Person,
or (ii) which it or one of its Subsidiaries intends to use for substantially the
same purposes as any other property which has been or is to be sold or
transferred by it or one of its Subsidiaries to any other Person in connection
with such lease, unless (i) the sale involved is not prohibited under SECTION
7.3(b), (ii) the lease does not involve Indebtedness prohibited under SECTION
7.3(a) and (iii) the aggregate amount of all obligations incurred by the
Borrower and its Subsidiaries in connection therewith does not exceed
$10,000,000 outstanding at any time.
(K) MARGIN REGULATIONS. Neither the Borrower nor any of its Subsidiaries,
shall use all or any portion of the proceeds of any credit extended under this
Agreement to purchase or carry Margin Stock.
(L) ERISA. The Borrower shall not
(i) engage, or permit any of its Subsidiaries to engage, in any
prohibited transaction described in Sections 406 of ERISA or 4975 of the
Code for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the DOL;
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(ii) permit to exist any accumulated funding deficiency (as defined
in Sections 302 of ERISA and 412 of the Code), with respect to any Benefit
Plan, whether or not waived;
(iii) fail, or permit any Controlled Group member to fail, to pay
timely required contributions or annual installments due with respect to
any waived funding deficiency to any Benefit Plan;
(iv) terminate, or permit any Controlled Group member to terminate,
any Benefit Plan which would result in any liability of the Borrower or
any Controlled Group member under Title IV of ERISA;
(v) fail to make any contribution or payment to any Multiemployer
Plan which the Borrower or any Controlled Group member may be required to
make under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto;
(vi) fail, or permit any Controlled Group member to fail, to pay any
required installment or any other payment required under Section 412 of
the Code on or before the due date for such installment or other payment;
or
(vii) amend, or permit any Controlled Group member to amend, a Plan
resulting in an increase in current liability for the plan year such that
the Borrower or any Controlled Group member is required to provide
security to such Plan under Section 401(a)(29) of the Code,
except where such transactions, events, circumstances, or failures will not have
or is not reasonably likely to subject the Borrower and its Subsidiaries to
liability individually or in the aggregate in excess of $10,000,000.
(M) ISSUANCE OF EQUITY INTERESTS. The Borrower shall not issue any Equity
Interests if as a result of such issuance a Change of Control shall occur. None
of the Borrower's Subsidiaries shall issue any Equity Interests other than to
the Borrower.
(N) CORPORATE DOCUMENTS. Neither the Borrower nor any of its Subsidiaries
shall amend, modify or otherwise change any of the terms or provisions in any of
their respective constituent documents as in effect on the Effective Date hereof
in any manner adverse in any material respect to the interests of the Lenders,
without the prior written consent of the Required Lenders.
(O) FISCAL YEAR. Neither the Borrower nor any of its consolidated
Subsidiaries shall change its fiscal year for accounting or tax purposes from a
period consisting of the 12-month period ending on December 31 of each calendar
year.
(P) SUBSIDIARY COVENANTS. The Borrower will not, and will not permit any
Subsidiary to, create or otherwise cause to become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to pay
dividends or make any other distribution on its stock, or make any other
Restricted Payment, pay any Indebtedness or other Obligation owed to the
Borrower or
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any other Subsidiary, make loans or advances or other Investments in the
Borrower or any other Subsidiary, or sell, transfer or otherwise convey any of
its property to the Borrower or any other Subsidiary.
(Q) HEDGING OBLIGATIONS. The Borrower shall not and shall not permit any
of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap, collar, cap or similar agreements evidencing Hedging
Obligations, other than interest rate, foreign currency or commodity exchange,
swap, collar, cap or similar agreements entered into by the Borrower or a
Subsidiary pursuant to which the Borrower or such Subsidiary has hedged its
actual interest rate, foreign currency or commodity exposure.
(R) OTHER INDEBTEDNESS. The Borrower shall not amend, modify or
supplement, or permit any Subsidiary to amend, modify or supplement (or consent
to any amendment, modification or supplement of), the Senior Subordinated Notes,
the Indenture or any other document, agreement or instrument evidencing the
Senior Subordinated Notes (or any replacements, substitutions or renewals
thereof) or pursuant to which the Senior Subordinated Notes are issued, or make
any payment required as a result of such an amendment, modification or
supplement, where such amendment, modification or supplement provides for the
following or which has any of the following effects:
(i) increases the overall principal amount of the Senior
Subordinated Notes or increases the amount of any single scheduled
installment of principal or interest;
(ii) shortens or accelerates the date upon which any installment of
principal or interest becomes due or adds any additional mandatory
redemption provisions;
(iii) shortens the final maturity date of the Senior Subordinated
Notes or otherwise accelerates the amortization schedule with respect
thereto;
(iv) increases the rate of interest accruing on the Senior
Subordinated Notes;
(v) provides for the payment of additional fees or increases
existing fees;
(vi) amends or modifies any financial or negative covenant (or
covenant which prohibits or restricts the Borrower or a Subsidiary of the
Borrower from taking certain actions) in a manner which is more onerous or
more restrictive to the Borrower (or any Subsidiary of the Borrower) or
which is otherwise materially adverse to the Borrower and/or the Lenders
or, in the case of adding covenants, which places additional restrictions
on the Borrower (or a Subsidiary of the Borrower) or which requires the
Borrower or any such Subsidiary to comply with more restrictive financial
ratios or which requires the Borrower to better its financial performance
from that set forth in the existing financial covenants; or
(vii) amends, modifies or adds any affirmative covenant in a manner
which, when taken as a whole, is materially adverse to the Borrower and/or
the Lenders.
7.4 FINANCIAL COVENANTS. The Borrower shall comply with the following:
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(A) FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain a ratio
("FIXED CHARGE COVERAGE RATIO") of (i) the sum of (a) EBITDA, MINUS (b)
depreciation expense, to the extent included in the calculation of EBITDA, PLUS
(c) Rentals of the Borrower and its consolidated Subsidiaries to (ii) the sum of
(a) Interest Expense, PLUS (b) Rentals PLUS (c) scheduled amortization of the
principal portion of any Indebtedness, in each case for the Borrower and its
consolidated Subsidiaries of at least 2.50 to 1.00 for each fiscal quarter
commencing with the fiscal quarter ending March 31, 1998 and each fiscal quarter
thereafter. In each case the Fixed Charge Coverage Ratio shall be determined as
of the last day of each fiscal quarter for the four-quarter period ending on
such day. For purposes of the calculation of Rentals, Interest Expense and
amortization of Indebtedness for any period under this SECTION 7.4(a), such
amounts shall be calculated for any such period by including the actual amount
for the applicable period ending on such day, including the Rentals, Interest
Expense and amortization of assumed Indebtedness attributable to Permitted
Acquisitions occurring during such period on an actual basis for assumed
Indebtedness and on a PRO FORMA basis for Rentals and Interest Expense for the
period from the first day of the applicable period through the date of the
closing of each Permitted Acquisition, utilizing (a) where available or required
pursuant to the terms of this Agreement, historical audited and/or reviewed
unaudited financial statements obtained from the seller, broken down by fiscal
quarter in the Borrower's reasonable judgment or (b) unaudited financial
statements (where no audited or reviewed financial statements are required
pursuant to the terms of this Agreement) reviewed internally by the Borrower,
broken down by fiscal quarter in the Borrower's reasonable judgment, utilizing,
without duplication, (A) for the Founding Companies, the PRO FORMA adjustments
which are consistent with the Commission's regulations and practices as of the
Original Closing Date (whether or not applicable) to account for adjustments to
historical Rentals and Interest Expense for the Founding Companies as described
in the Initial Registration Statement and (B) any PRO FORMA adjustments which
are consistent with the Commission's regulations and practices as of the
Original Closing Date (whether or not applicable) to account for adjustments to
historical Rentals or Interest Expense for an acquired entity (other than the
Founding Companies).
(B) TOTAL DEBT TO EBITDA RATIO. The Borrower shall not at any time permit
the ratio (the "LEVERAGE RATIO") of (i) Total Debt of the Borrower and its
consolidated Subsidiaries to (ii) EBITDA of the Borrower and its consolidated
Subsidiaries, to be greater than 4.00 to 1.00. The Leverage Ratio shall be
calculated, in each case, determined as of the last day of each fiscal quarter
(commencing with the fiscal quarter ending March 31, 1998 and each fiscal
quarter thereafter) based upon (a) for Total Debt, Total Debt as of the last day
of each such fiscal quarter; and (b) for EBITDA, EBITDA for the twelve-month
period ending on such day, calculated as set forth in the definition thereof.
(C) MINIMUM CONSOLIDATED NET WORTH. The Borrower shall not permit its
Consolidated Net Worth at any time to be less than the sum of (a) $160,000,000
PLUS (b) fifty percent (50%) of Net Income (if positive) calculated separately
for each fiscal quarter ending after September 30, 1997, PLUS (c) seventy-five
percent (75%) of the adjustment to stockholder's equity made in connection with
the issuance of any Capital Stock.
(D) SENIOR DEBT TO EBITDA RATIO. The Borrower shall not at any time permit
the ratio of (i) Total Debt of the Borrower and its Consolidated Subsidiaries
MINUS Permitted Subordinated
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Indebtedness of the Borrower to (ii) EBITDA of the Borrower and its Consolidated
Subsidiaries, to be greater than 2.75 to 1.00. Such ratio shall be calculated,
in each case, determined as of the last day of each fiscal quarter (commencing
with the fiscal quarter ending March 31, 1998 and each fiscal quarter
thereafter) based upon (a) for Total Debt and Permitted Subordinated
Indebtedness, Total Debt and Permitted Subordinated Indebtedness as of the last
day of each such fiscal quarter; and (b) for EBITDA, EBITDA for the twelve-month
period ending on such day, calculated as set forth in the definition thereof.
(E) CAPITAL EXPENDITURES. The Borrower will not, nor will it permit any
Subsidiary to, expend, or be committed to expend, for Capital Expenditures in
the acquisition of fixed assets, during any period of four fiscal quarters, on a
non-cumulative basis except as provided herein, in the aggregate for the
Borrower and its Subsidiaries, in excess of three percent (3%) of consolidated
revenues of the Borrower and its Subsidiaries for the immediately preceding four
fiscal quarters.
ARTICLE VIII: DEFAULTS
8.1 DEFAULTS. Each of the following occurrences shall constitute a Default
under this Agreement:
(a) FAILURE TO MAKE PAYMENTS WHEN DUE. The Borrower shall (i) fail to pay
when due any of the Obligations consisting of principal with respect to the
Loans or (ii) shall fail to pay within three (3) Business Days of the date when
due any of the other Obligations under this Agreement or the other Loan
Documents.
(b) BREACH OF CERTAIN COVENANTS. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under:
(i) SECTION 7.1(i) or 7.2(b) and such failure shall continue
unremedied for fifteen (15) days;
(ii) SECTIONS 7.1(a), 7.2(c), 7.2(d), 7.2(e), 7.2(g) and including
7.2(i) and such failure shall continue unremedied for five (5) Business
Days; or
(iii) SECTIONS 7.1(b),7.2(a), 7.2(f), 7.2(j), 7.3 or 7.4.
(c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty
made or deemed made by the Borrower to the Agent or any Lender herein or by the
Borrower or any of its Subsidiaries in any of the other Loan Documents or in any
written statement or certificate at any time given by any such Person pursuant
to any of the Loan Documents shall be false or misleading in any material
respect on the date as of which made (or deemed made).
(d) OTHER DEFAULTS. The Borrower shall default in the performance of or
compliance with any term contained in this Agreement (other than as covered by
PARAGRAPHS (A), (B) or (C) of this SECTION 8.1), or the Borrower or any of its
Subsidiaries shall default in the performance of or compliance with
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any term contained in any of the other Loan Documents, and such default shall
continue for thirty (30) days after the occurrence thereof.
(e) DEFAULT AS TO OTHER INDEBTEDNESS. The Borrower or any of its
Subsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to the Senior Subordinated Notes or any other Indebtedness the outstanding
principal amount of which Indebtedness is in excess of $10,000,000; or any
breach, default or event of default shall occur, or any other condition shall
exist under any instrument, agreement, the Indenture or any other indenture
pertaining to any such Indebtedness, if the effect thereof is to cause an
acceleration, mandatory redemption, a requirement that the Borrower offer to
purchase such Indebtedness or other required repurchase of such Indebtedness, or
permit the holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or otherwise
repurchased by the Borrower or any of its Subsidiaries (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof.
(f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) An involuntary case shall be commenced against the Borrower or
any of the Borrower's Subsidiaries and the petition shall not be
dismissed, stayed, bonded or discharged within sixty (60) days after
commencement of the case; or a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the Borrower or any
of the Borrower's Subsidiaries in an involuntary case, under any
applicable bankruptcy, insolvency or other similar law now or hereinafter
in effect; or any other similar relief shall be granted under any
applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the
Borrower or any of the Borrower's Subsidiaries or over all or a
substantial part of the property of the Borrower or any of the Borrower's
Subsidiaries shall be entered; or an interim receiver, trustee or other
custodian of the Borrower or any of the Borrower's Subsidiaries or of all
or a substantial part of the property of the Borrower or any of the
Borrower's Subsidiaries shall be appointed or a warrant of attachment,
execution or similar process against any substantial part of the property
of the Borrower or any of the Borrower's Subsidiaries shall be issued and
any such event shall not be stayed, dismissed, bonded or discharged within
sixty (60) days after entry, appointment or issuance.
(g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Borrower or
any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any such
law, (iii) consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property, (iv)
make any assignment for the benefit of creditors or (v) take any corporate
action to authorize any of the foregoing.
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(h) JUDGMENTS AND ATTACHMENTS. Any money judgment(s), writ or warrant of
attachment, or similar process against the Borrower or any of its Subsidiaries
or any of their respective assets involving in any single case or in the
aggregate an amount in excess of $5,000,000 is or are entered and shall remain
undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or
in any event later than fifteen (15) days prior to the date of any proposed sale
thereunder.
(i) DISSOLUTION. Any order, judgment or decree shall be entered against
the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or
split up and such order shall remain undischarged and unstayed for a period in
excess of sixty (60) days; or the Borrower or any of its Subsidiaries shall
otherwise dissolve or cease to exist except as specifically permitted by this
Agreement.
(j) LOAN DOCUMENTS; FAILURE OF SECURITY. At any time, for any reason, (i)
any Loan Document as a whole that materially affects the ability of the Agent,
or any of the Lenders to enforce the Obligations or enforce their rights against
the Collateral ceases to be in full force and effect or the Borrower or any of
the Borrower's Subsidiaries party thereto seeks to repudiate its obligations
thereunder or the Liens intended to be created thereby are, or the Borrower or
any such Subsidiary seeks to render such Liens, invalid or unperfected, or (ii)
any Lien on the Capital Stock of any Material Subsidiary shall, at any time, for
any reason, be invalidated or otherwise cease to be in full force and effect, or
such Lien shall not have the priority contemplated by this Agreement or the Loan
Documents.
(k) TERMINATION EVENT. Any Termination Event occurs which is reasonably
likely to subject the Borrower or any of its Subsidiaries to liability
individually or in the aggregate in excess of $10,000,000.
(l) WAIVER OF MINIMUM FUNDING STANDARD. If the plan administrator of any
Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and any Lender believes the
substantial business hardship upon which the application for the waiver is based
could reasonably be expected to subject either the Borrower or any Controlled
Group member to liability individually or in the aggregate in excess of
$1,000,000.
(m) CHANGE OF CONTROL. A Change of Control shall occur.
(n) HEDGING AGREEMENTS. Nonpayment by the Borrower or any Subsidiary of
any obligation under any contract with respect to Hedging Obligations entered
into by the Borrower or such Subsidiary with any Lender (or Affiliate thereof)
or the breach by the Borrower or Subsidiary of any other term, provision or
condition contained in any agreement and such nonpayment or breach shall
continue for ten (10) days after the occurrence thereof.
(o) GUARANTOR DEFAULT OR REVOCATION. Any Guaranty shall fail to remain in
full force or effect or any action shall be taken by the Borrower or any
Subsidiary to discontinue or to assert the invalidity or unenforceability of any
Guaranty, or any Guarantor shall fail to comply with any of the terms or
provisions of any Guaranty to which it is a party, or any Guarantor denies that
it has any further liability under any Guaranty to which it is a party, or gives
notice to such effect.
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(p) FAILURE OF SUBORDINATION. The subordination provisions of the
documents and instruments evidencing the Senior Subordinated Notes or any other
Permitted Subordinated Indebtedness in an individual or aggregate principal
amount outstanding in excess of $10,000,000 shall, at any time, be invalidated
or otherwise cease to be in full force and effect.
A Default shall be deemed "continuing" until cured or until waived in
writing in accordance with SECTION 9.3.
ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS
AND REMEDIES
9.1 TERMINATION OF COMMITMENTS; ACCELERATION. If any Default described in
SECTION 8.1(f) or 8.1(g) occurs with respect to the Borrower, the obligations of
the Lenders to make Loans hereunder and the obligation of the Agent to issue
Letters of Credit hereunder shall automatically terminate and the Obligations
shall immediately become due and payable without any election or action on the
part of the Agent or any Lender. If any other Default occurs, the Required
Lenders may terminate or suspend the obligations of the Lenders to make Loans
hereunder and the obligation of the Issuing Banks to issue Letters of Credit
hereunder, or declare the Obligations to be due and payable, or both, whereupon,
after written notice to the Borrower, the Obligations shall become immediately
due and payable, without presentment, demand, protest or other notice of any
kind, all of which the Borrower expressly waives.
9.2 DEFAULTING LENDER. In the event that any Lender fails to fund its Pro
Rata Share of any Advance requested or deemed requested by the Borrower, which
such Lender is obligated to fund under the terms of this Agreement (the funded
portion of such Advance being hereinafter referred to as a "NON PRO RATA LOAN"),
until the earlier of such Lender's cure of such failure and the termination of
the Commitments, the proceeds of all amounts thereafter repaid to the Agent by
the Borrower and otherwise required to be applied to such Lender's share of all
other Obligations pursuant to the terms of this Agreement shall be advanced to
the Borrower by the Agent on behalf of such Lender to cure, in full or in part,
such failure by such Lender, but shall nevertheless be deemed to have been paid
to such Lender in satisfaction of such other Obligations. Notwithstanding
anything in this Agreement to the contrary:
(i) the foregoing provisions of this SECTION 9.2 shall apply only
with respect to the proceeds of payments of Obligations and shall not
affect the conversion or continuation of Loans pursuant to SECTION 2.8;
(ii) any such Lender shall be deemed to have cured its failure to
fund its Pro Rata Share of any Advance at such time as an amount equal to
such Lender's original Pro Rata Share of the requested principal portion
of such Advance is fully funded to the Borrower, whether made by such
Lender itself or by operation of the terms of this SECTION 9.2, and
whether or not the Non Pro Rata Loan with respect thereto has been repaid,
converted or continued;
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(iii) amounts advanced to the Borrower to cure, in full or in part,
any such Lender's failure to fund its Pro Rata Share of any Advance ("CURE
LOANS") shall bear interest at the rate applicable to Floating Rate Loans
in effect from time to time, and for all other purposes of this Agreement
shall be treated as if they were Floating Rate Loans;
(iv) regardless of whether or not a Default has occurred or is
continuing, and notwithstanding the instructions of the Borrower as to its
desired application, all repayments of principal which, in accordance with
the other terms of this Agreement, would be applied to the outstanding
Floating Rate Loans shall be applied FIRST, ratably to all Floating Rate
Loans constituting Non Pro Rata Loans, SECOND, ratably to Floating Rate
Loans other than those constituting Non Pro Rata Loans or Cure Loans and,
THIRD, ratably to Floating Rate Loans constituting Cure Loans;
(v) for so long as and until the earlier of any such Lender's cure
of the failure to fund its Pro Rata Share of any Advance and the
termination of the Commitments, the term "Required Lenders" for purposes
of this Agreement shall mean Lenders (excluding all Lenders whose failure
to fund their respective Pro Rata Shares of such Advance have not been so
cured) whose Pro Rata Shares represent at least fifty-one percent (51%) of
the aggregate Pro Rata Shares of such Lenders; and
(vi) for so long as and until any such Lender's failure to fund its
Pro Rata Share of any Advance is cured in accordance with SECTION 9.2(ii),
(A) such Lender shall not be entitled to any commitment fees with respect
to its Commitment and (B) such Lender shall not be entitled to any letter
of credit fees, which commitment fees and letter of credit fees shall
accrue in favor of the Lenders which have funded their respective Pro Rata
Share of such requested Advance, shall be allocated among such performing
Lenders ratably based upon their relative Commitments, and shall be
calculated based upon the average amount by which the aggregate
Commitments of such performing Lenders exceeds the sum of (I) the
outstanding principal amount of the Loans owing to such performing
Lenders, PLUS (II) the outstanding Reimbursement Obligations owing to such
performing Lenders, PLUS (III) the aggregate participation interests of
such performing Lenders arising pursuant to SECTION 3.5 with respect to
undrawn and outstanding Letters of Credit.
9.3 AMENDMENTS. Subject to the provisions of this ARTICLE IX, the Required
Lenders (or the Agent with the consent in writing of the Required Lenders) and
the Borrower may enter into agreements supplemental hereto for the purpose of
adding or modifying any provisions to the Loan Documents or changing in any
manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; PROVIDED, HOWEVER, that no such supplemental agreement shall,
without the consent of Lenders whose Pro Rata Shares, in the aggregate, are
equal to or greater than sixty-six and two-thirds percent (66-2/3%) permit the
ratio of (i) Total Debt of the Borrower and its Consolidated Subsidiaries MINUS
Permitted Subordinated Indebtedness of the Borrower to (ii) EBITDA of the
Borrower and its Consolidated Subsidiaries, to be greater than 3.25 to 1.00;
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PROVIDED, FURTHER, HOWEVER, that no such supplemental agreement shall, without
the consent of each Lender affected thereby:
(i) Postpone or extend the Termination Date or any other date fixed
for any payment of principal of, or interest on, the Loans, the
Reimbursement Obligations or any fees or other amounts payable to such
Lender (except with respect to (a) any modifications of the provisions
relating to prepayments of Loans and other Obligations and (b) a waiver of
the application of the default rate of interest pursuant to SECTION 2.9
hereof);
(ii) Reduce the principal amount of any Loans or L/C Obligations, or
reduce the rate or extend the time of payment of interest or fees thereon;
(iii) Reduce the percentage specified in the definition of Required
Lenders or any other percentage of Lenders specified to be the applicable
percentage in this Agreement to act on specified matters;
(iv) Increase the amount of the Commitment of any Lender hereunder;
(v) Permit the Borrower to assign its rights under this Agreement;
(vi) Amend this SECTION 9.3;
(vii) Other than in connection with a transaction permitted under
the terms of the Agreement release any guarantor of the Obligations;
(viii) Other than in connection with a transaction permitted under
the terms of the Agreement, release all or substantially all of the
Collateral; or
(ix) Amend the terms of SECTION 12.2.
No amendment of any provision of this Agreement relating to (a) the Agent shall
be effective without the written consent of the Agent, (b) Swing Line Loans
shall be effective without the written consent of the Swing Line Bank and (c)
Letters of Credit shall be effective without the written consent of the Issuing
Banks. The Agent may waive payment of the fee required under SECTION 13.3(b)
without obtaining the consent of any of the Lenders.
9.4 PRESERVATION OF RIGHTS. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan or the issuance of a Letter of Credit notwithstanding the
existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Loan or issuance of such Letter of Credit shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to SECTION 9.3, and then only
to the extent in such writing
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specifically set forth. All remedies contained in the Loan Documents or by law
afforded shall be cumulative and all shall be available to the Agent and the
Lenders until the Obligations have been paid in full.
ARTICLE X: GENERAL PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes and
the making of the Loans herein contemplated.
10.2 GOVERNMENTAL REGULATION. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
10.3 PERFORMANCE OF OBLIGATIONS. The Borrower agrees that the Agent may,
but shall have no obligation to (i) at any time, pay or discharge taxes, liens,
security interests or other encumbrances levied or placed on or threatened
against any Collateral and (ii) after the occurrence and during the continuance
of a Default, make any other payment or perform any act required of the Borrower
under any Loan Document or take any other action which the Agent in its
discretion deems necessary or desirable to protect or preserve the Collateral or
enhance the likelihood of repayment of the Obligations. The Agent shall use its
reasonable efforts to give the Borrower and the Lenders notice of any action
taken under this SECTION 10.3 prior to the taking of such action or promptly
thereafter provided the failure to give such notice shall not affect the
Borrower's or Lenders' obligations in respect thereof. The Borrower agrees to
pay the Agent, upon demand, the principal amount of all funds advanced by the
Agent under this SECTION 10.3, together with interest thereon at the rate from
time to time applicable to Floating Rate Loans from the date of such advance
until the outstanding principal balance thereof is paid in full. If the Borrower
fails to make payment in respect of any such advance under this SECTION 10.3
within one (1) Business Day after the date the Borrower receives written demand
therefor from the Agent, the Agent shall promptly notify each Lender and each
Lender agrees that it shall thereupon make available to the Agent, in Dollars in
immediately available funds, the amount equal to such Lender's Pro Rata Share of
such advance. If such funds are not made available to the Agent by such Lender
within one (1) Business Day after the Agent's demand therefor, the Agent will be
entitled to recover any such amount from such Lender together with interest
thereon at the Federal Funds Effective Rate for each day during the period
commencing on the date of such demand and ending on the date such amount is
received. The failure of any Lender to make available to the Agent its Pro Rata
Share of any such unreimbursed advance under this SECTION 10.3 shall neither
relieve any other Lender of its obligation hereunder to make available to the
Agent such other Lender's Pro Rata Share of such advance on the date such
payment is to be made nor increase the obligation of any other Lender to make
such payment to the Agent. All outstanding principal of, and interest on,
advances made under this SECTION 10.3 shall constitute Obligations for purposes
hereof.
10.4 HEADINGS. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
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10.5 ENTIRE AGREEMENT. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent and the Lenders and supersede all
prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof.
10.6 SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other Lender (except to the extent to which
the Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
10.7 EXPENSES; INDEMNIFICATION.
(A) EXPENSES. The Borrower shall reimburse the Agent for any reasonable
costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' and paralegals' fees and time charges of attorneys and paralegals for
the Agent, which attorneys and paralegals may be employees of the Agent) paid or
incurred by the Agent in connection with the preparation, negotiation,
execution, delivery, syndication, review, amendment, modification, and
administration of the Loan Documents. The Borrower also agrees to reimburse the
Agent and the Lenders for any costs, internal charges and out-of-pocket expenses
(including attorneys' and paralegals' fees and time charges of attorneys and
paralegals for the Agent and the Lenders, which attorneys and paralegals may be
employees of the Agent or the Lenders) paid or incurred by the Agent or any
Lender in connection with the collection of the Obligations and enforcement of
the Loan Documents. In addition to expenses set forth above, the Borrower agrees
to reimburse the Agent, promptly after the Agent's request therefor, for each
audit or other business analysis performed by or for the benefit of the Lenders
in connection with this Agreement or the other Loan Documents at a time when a
Default exists in an amount equal to the Agent's then reasonable and customary
charges for each person employed to perform such audit or analysis, plus all
costs and expenses (including without limitation, travel expenses) incurred by
the Agent in the performance of such audit or analysis. Agent shall provide the
Borrower with a detailed statement of all reimbursements requested under this
SECTION 10.7(a).
(B) INDEMNITY. The Borrower further agrees to defend, protect, indemnify,
and hold harmless the Agent and each and all of the Lenders and each of their
respective Affiliates, and each of such Agent's, Lender's, or Affiliate's
respective officers, directors, employees, attorneys and agents (including,
without limitation, those retained in connection with the satisfaction or
attempted satisfaction of any of the conditions set forth in ARTICLE V)
(collectively, the "INDEMNITEES") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses of any kind or nature whatsoever (including, without limitation,
the fees and disbursements of counsel for such Indemnitees in connection with
any investigative, administrative or judicial proceeding, whether or not such
Indemnitees shall be designated a party thereto), imposed on, incurred by, or
asserted against such Indemnitees in any manner relating to or arising out of:
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(i) this Agreement, the other Loan Documents or any of the
Transaction Documents, or any act, event or transaction related or
attendant thereto or to the Initial Acquisitions, any Permitted
Acquisition, the Mergers, the Public Offerings or the Related
Transactions, the making of the Loans, and the issuance of and
participation in Letters of Credit hereunder, the management of such Loans
or Letters of Credit, the use or intended use of the proceeds of the Loans
or Letters of Credit hereunder, or any of the other transactions
contemplated by the Transaction Documents; or
(ii) any liabilities, obligations, responsibilities, losses,
damages, personal injury, death, punitive damages, economic damages,
consequential damages, treble damages, intentional, willful or wanton
injury, damage or threat to the environment, natural resources or public
health or welfare, costs and expenses (including, without limitation,
attorney, expert and consulting fees and costs of investigation,
feasibility or remedial action studies), fines, penalties and monetary
sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future relating to violation of any
Environmental, Health or Safety Requirements of Law arising from or in
connection with the past, present or future operations of the Borrower,
its Subsidiaries or any of their respective predecessors in interest, or,
the past, present or future environmental, health or safety condition of
any respective property of the Borrower or its Subsidiaries, the presence
of asbestos-containing materials at any respective property of the
Borrower or its Subsidiaries or the Release or threatened Release of any
Contaminant into the environment (collectively, the "INDEMNIFIED
MATTERS");
PROVIDED, HOWEVER, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters caused by or resulting from (y) a
dispute among the Lenders or a dispute between any Lender and the Agent, or (z)
the willful misconduct or Gross Negligence of such Indemnitee or breach of
contract by such Indemnitee with respect to the Loan Documents, in each case, as
determined by the final non-appealed judgment of a court of competent
jurisdiction. If the undertaking to indemnify, pay and hold harmless set forth
in the preceding sentence may be unenforceable because it is violative of any
law or public policy, the Borrower shall contribute the maximum portion which it
is permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Matters incurred by the Indemnitees.
(C) WAIVER OF CERTAIN CLAIMS; SETTLEMENT OF CLAIMS. The Borrower further
agrees to assert no claim against any of the Indemnitees on any theory of
liability for consequential, special, indirect, exemplary or punitive damages.
No settlement shall be entered into by the Borrower or any if its Subsidiaries
with respect to any claim, litigation, arbitration or other proceeding relating
to or arising out of the transactions evidenced by this Agreement, the other
Loan Documents or in connection with the Initial Acquisitions, any Permitted
Acquisition, the Mergers, the Public Offerings or Related Transactions (whether
or not the Agent or any Lender or any Indemnitee is a party thereto) unless such
settlement releases all Indemnitees from any and all liability with respect
thereto.
(D) SURVIVAL OF AGREEMENTS. The obligations and agreements of the Borrower
under this SECTION 10.7 shall survive the termination of this Agreement.
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10.8 NUMBERS OF DOCUMENTS. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Agent with sufficient counterparts
so that the Agent may furnish one to each of the Lenders.
10.9 ACCOUNTING. Except as provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with Agreement Accounting Principles.
10.10 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
10.11 NONLIABILITY OF LENDERS. The relationship between the Borrower and
the Lenders and the Agent shall be solely that of borrower and lender. Neither
the Agent nor any Lender shall have any fiduciary responsibilities to the
Borrower. Neither the Agent nor any Lender undertakes any responsibility to the
Borrower to review or inform the Borrower of any matter in connection with any
phase of the Borrower's business or operations.
10.12 GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER AND THE AGENT, ANY
LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL
LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE
STATE OF NEW YORK.
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (b), EACH OF
THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER
ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY
BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL
DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (a) ANY OBJECTION THAT IT MAY HAVE
TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
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(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE AGENT, ANY LENDER OR
ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS
PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL
JURISDICTION OVER THE BORROWER OR (2) ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS
COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (b).
(C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY
PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS,
PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY
THE AGENT OR THE LENDERS BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE BORROWER ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE
DEEMED TO LIMIT THE ABILITY OF THE AGENT OR THE LENDERS TO SERVE ANY SUCH WRITS,
PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW THE
BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY
JURISDICTION SET FORTH ABOVE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(E) WAIVER OF BOND. THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO REALIZE ON THE COLLATERAL ENFORCE
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ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE
BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT
INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY
HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF
THIS SECTION 10.13, WITH ITS COUNSEL.
10.14 NO STRICT CONSTRUCTION. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
10.15 SUBORDINATION OF INTERCOMPANY INDEBTEDNESS. The Borrower agrees that
any and all claims of the Borrower against any Guarantor, any endorser or any
other guarantor of all or any part of the Obligations, or against any of its
properties, including, without limitation, pursuant to the any intercompany
Indebtedness permitted under SECTION 7.3(a)(vi), shall be subordinate and
subject in right of payment to the prior payment, in full and in cash, of all
Obligations. Notwithstanding any right of the Borrower to ask, demand, sue for,
take or receive any payment from any Guarantor, all rights, liens and security
interests of the Borrower, whether now or hereafter arising and howsoever
existing, in any assets of any Guarantor shall be and are subordinated to the
rights, if any, of the Lenders and the Agent in those assets. The Borrower shall
have no right to possession of any such asset or to foreclose upon any such
asset, whether by judicial action or otherwise, unless and until all of the
Obligations shall have been paid in full in cash and satisfied and all financing
arrangements under this Agreement and the other Loan Documents between the
Borrower and the Agent and the Lenders have been terminated. If, during the
continuance of a Default, all or any part of the assets of any Guarantor, or the
proceeds thereof, are subject to any distribution, division or application to
the creditors of any Guarantor, whether partial or complete, voluntary or
involuntary, and whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding, then, and in any such event, any payment or distribution of any kind
or character, either in cash, securities or other property, which shall be
payable or deliverable upon or with respect to any indebtedness of any Guarantor
to the Borrower, including, without limitation, pursuant to the any intercompany
Indebtedness permitted under SECTION 7.3(a)(vi) ("INTERCOMPANY INDEBTEDNESS")
shall be paid or delivered directly to the Agent for application on any of the
Obligations, due or to become due, until such Obligations shall have first been
paid in full in cash and satisfied; PROVIDED, HOWEVER, ordinary course payments
or distributions made by any Guarantor to the Borrower shall be required to be
paid or delivered to the Agent only upon the Agent's request. The Borrower
irrevocably authorizes and empowers the Agent to demand, sue for, collect and
receive every such payment or distribution and give acquittance therefor and to
make and present for and on behalf of the Borrower such proofs of claim and take
such other action, in the Agent's own name or in the name of the Borrower or
otherwise, as the Agent may deem necessary or advisable for the enforcement of
this SECTION 10.15. The Agent may vote such proofs of claim in any such
proceeding, receive and collect any and all dividends or other payments or
disbursements
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made thereon in whatever form the same may be paid or issued and apply the same
on account of any of the Obligations. Should any payment, distribution, security
or instrument or proceeds thereof be received by the Borrower upon or with
respect to the Intercompany Indebtedness during the continuance of a Default and
prior to the satisfaction of all of the Obligations and the termination of all
financing arrangements under this Agreement and the other Loan Documents between
the Borrower and the Agent and the Lenders, the Borrower shall receive and hold
the same in trust, as trustee, for the benefit of the Agent and the Lenders and
shall forthwith deliver the same to the Agent, for the benefit of the Agent and
the Lenders, in precisely the form received (except for the endorsement or
assignment of the Borrower where necessary), for application to any of the
Obligations, due or not due, and, until so delivered, the same shall be held in
trust by the Borrower as the property of the Agent and the Lenders; PROVIDED,
HOWEVER, ordinary course payments or distributions made by any Guarantor to the
Borrower shall be required to be paid or delivered to the Agent only upon the
Agent's request. If the Borrower fails to make any such endorsement or
assignment to the Agent, the Agent or any of its officers or employees are
irrevocably authorized to make the same. The Borrower agrees that until the
Obligations have been paid in full in cash and satisfied and all financing
arrangements under this Agreement and the other Loan Documents between the
Borrower and the Agent and the Lenders have been terminated, the Borrower will
not assign or transfer to any Person (other than the Agent) any claim the
Borrower has or may have against any Guarantor.
10.16.USURY NOT INTENDED. It is the intent of the Borrower and each Lender
in the execution and performance of this Agreement and the other Loan Documents
to contract in strict compliance with applicable usury laws, including conflicts
of law concepts, governing the Advances of each Lender including such applicable
laws of the State of Texas and the United States of America from time-to-time in
effect. In furtherance thereof, the Lenders and the Borrower stipulate and agree
that none of the terms and provisions contained in this Agreement or the other
Loan Documents shall ever be construed to create a contract to pay, as
consideration for the use, forbearance or detention of money, interest at a rate
in excess of the Maximum Rate and that for purposes hereof "interest" shall
include the aggregate of all charges which constitute interest under such laws
that are contracted for, charged or received under this Agreement; and in the
event that, notwithstanding the foregoing, under any circumstances the aggregate
amounts taken, reserved, charged, received or paid on the Advances, include
amounts which by applicable law are deemed interest which would exceed the
Maximum Rate, then such excess shall be deemed to be a mistake and each Lender
receiving same shall credit the same on the principal of its Notes (or if such
Notes shall have been paid in full, refund said excess to the Borrower). In the
event that the maturity of the Notes are accelerated by reason of any election
of the holder thereof resulting from any Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the Maximum
Rate and excess interest, if any, provided for in this Agreement or otherwise
shall be canceled automatically as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited on the applicable Notes
(or, if the applicable Notes shall have been paid in full, refunded to the
Borrower of such interest). In determining whether or not the interest paid or
payable under any specific contingencies exceeds the Maximum Rate, the Borrower
and the Lenders shall to the maximum extent permitted under applicable law
amortize, prorate, allocate and spread in equal parts during the period of the
full stated term of the Notes all amounts considered to be interest under
applicable law at any time contracted for, charged, received or
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reserved in connection with the Obligations. The provisions of this Section
shall control over all other provisions of this Agreement or the other Loan
Documents which may be in apparent conflict herewith.
10.17.BUSINESS LOANS. The Borrower warrants and represents that the Loans
evidenced by the Notes are and shall be for business, commercial, investment or
other similar purposes and not primarily for personal, family, household or
agricultural use, as such terms are used in Chapter One ("Chapter One") of the
Texas Credit Code. At all such times, if any, as Chapter One shall establish a
Maximum Rate, the Maximum Rate shall be the "indicated rate ceiling" (as such
term is defined in Chapter One) from time to time in effect.
ARTICLE XI: THE AGENT
11.1 APPOINTMENT; NATURE OF RELATIONSHIP. The First National Bank of
Chicago is appointed by the Lenders as the Agent hereunder and under each other
Loan Document, and each of the Lenders irrevocably authorizes the Agent (for so
long as the Agent remains in such capacity under this Agreement) to act as the
contractual representative of such Lender with only the rights and duties
expressly set forth herein and in the other Loan Documents. The Agent agrees to
act as such contractual representative upon the express conditions contained in
this ARTICLE XI. Notwithstanding the use of the defined term "Agent," it is
expressly understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement and that the Agent is
merely acting as the representative of the Lenders with only those duties as are
expressly set forth in this Agreement and the other Loan Documents. In its
capacity as the Lenders' contractual representative, the Agent (i) does not
assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of
the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code
and (iii) is acting as an independent contractor, the rights and duties of which
are limited to those expressly set forth in this Agreement and the other Loan
Documents. Each of the Lenders agrees to assert no claim against the Agent on
any agency theory or any other theory of liability for breach of fiduciary duty,
all of which claims each Lender waives.
11.2 POWERS. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties or fiduciary duties to the Lenders, or any
obligation to the Lenders to take any action hereunder or under any of the other
Loan Documents except any action specifically provided by the Loan Documents
required to be taken by the Agent.
11.3 GENERAL IMMUNITY. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is found in a final judgment by a court of
competent jurisdiction to have arisen solely from (i) the Gross Negligence or
willful misconduct of such Person or (ii) breach of contract by such Person with
respect to the Loan Documents.
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11.4 NO RESPONSIBILITY FOR LOANS, CREDITWORTHINESS, COLLATERAL, RECITALS,
ETC. Neither the Agent nor any of its directors, officers, agents or employees
shall be responsible for or have any duty to ascertain, inquire into, or verify
(i) any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document; (iii) the
satisfaction of any condition specified in ARTICLE V, except receipt of items
required to be delivered solely to the Agent; (iv) the existence or possible
existence of any Default or (v) the validity, effectiveness or genuineness of
any Loan Document or any other instrument or writing furnished in connection
therewith. The Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein or in any of the other Loan
Documents, for the perfection or priority of any of the Liens on any of the
Collateral, or for the execution, effectiveness, genuineness, validity,
legality, enforceability, collectibility, or sufficiency of this Agreement or
any of the other Loan Documents or the transactions contemplated thereby, or for
the financial condition of any guarantor of any or all of the Obligations, the
Borrower or any of its Subsidiaries.
11.5 ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders (or any other percentage of Lenders specified to be the
applicable percentage in this Agreement or any other Loan Document to act on
specified matters), and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
11.6 EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of its
duties as the Agent hereunder and under any other Loan Document by or through
employees, agents, and attorney-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
11.7 RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
11.8 THE AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Loan Documents,
(ii) for any other expenses incurred by the Agent on behalf of the Lenders, in
connection with the preparation, execution, delivery, administration and
enforcement of the Loan Documents and (iii) for any liabilities, obligations,
losses, damages, penalties, actions, judgments,
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suits, costs, expenses or disbursements of any kind and nature whatsoever which
may be imposed on, incurred by or asserted against the Agent in any way relating
to or arising out of the Loan Documents or any other document delivered in
connection therewith or the transactions contemplated thereby, or the
enforcement of any of the terms thereof or of any such other documents, provided
that no Lender shall be liable for any of the foregoing to the extent any of the
foregoing is found in a final non-appealable judgment by a court of competent
jurisdiction to have arisen solely from the Gross Negligence or willful
misconduct of the Agent.
11.9 RIGHTS AS A LENDER. With respect to its Commitment, Loans made by it
and the Notes issued to it, the Agent shall have the same rights and powers
hereunder and under any other Loan Document as any Lender and may exercise the
same as through it were not the Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent may accept deposits from, lend money to, and generally
engage in any kind of trust, debt, equity or other transaction, in addition to
those contemplated by this Agreement or any other Loan Document, with the
Borrower or any of its Subsidiaries in which such Person is not prohibited
hereby from engaging with any other Person.
11.10 LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
11.11 SUCCESSOR AGENT. The Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower, and the Agent may be removed at
any time with or without cause by written notice received by the Agent from the
Required Lenders. Upon any such resignation or removal, the Required Lenders
shall have the right to appoint, on behalf of the Borrower and the Lenders, a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders and shall have accepted such appointment within thirty days
after the retiring Agent's giving notice of resignation, then the retiring Agent
may appoint, on behalf of the Borrower and the Lenders, a successor Agent.
Notwithstanding anything herein to the contrary, so long as no Default has
occurred and is continuing, each such successor Agent shall be subject to
approval by the Borrower, which approval shall not be unreasonably withheld.
Such successor Agent shall be a commercial bank having capital and retained
earnings of at least $50,000,000. Upon the acceptance of any appointment as the
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder and under the other Loan Documents. After any
retiring Agent's resignation hereunder as Agent, the provisions of this ARTICLE
XI shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder and under
the other Loan Documents.
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11.12 COLLATERAL DOCUMENTS. (a) Each Lender authorizes the Agent to enter
into the Pledge Agreements and each of the other Collateral documents
contemplated thereby (collectively, the "Collateral Documents") to which it is a
party and to take all action contemplated by such documents. Each Lender agrees
that no Holder of Secured Obligations (other than the Agent) shall have the
right individually to seek to realize upon the security granted by any
Collateral Document, it being understood and agreed that such rights and
remedies may be exercised solely by the Agent for the benefit of the Holders of
Secured Obligations upon the terms of the Collateral Documents.
(b) In the event that any Collateral is hereafter pledged by any Person as
collateral security for the Obligations, the Agent is hereby authorized to
execute and deliver on behalf of the Holders of Secured Obligations any Loan
Documents necessary or appropriate to grant and perfect a Lien on such
Collateral in favor of the Agent on behalf of the Holders of Secured
Obligations.
(c) The Lenders hereby authorize the Agent, at its option and in its
discretion, to (y) release any Lien granted to or held by the Agent upon any
Collateral and/or (z) release any Guarantor from its obligations under the
Guaranty (i) upon termination of the Commitments and payment and satisfaction of
all of the Obligations at any time arising under or in respect of this Agreement
or the Loan Documents or the transactions contemplated hereby or thereby; (ii)
in connection with any transaction permitted by, but only in accordance with,
the terms of the applicable Loan Document; or (iii) in connection with any
transaction approved, authorized or ratified in writing by the Required Lenders,
unless such release is required to be approved by all of the Lenders hereunder.
Upon request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this SECTION 11.12(c).
(d) Upon any sale or transfer of assets constituting Collateral which is
permitted pursuant to the terms of any Loan Document, or consented to in writing
by the Required Lenders or all of the Lenders, as applicable, or consummation of
any transaction involving the sale of all or substantially all of the assets of
a Guarantor and upon at least five Business Days' prior written request by the
Borrower, the Agent shall (and is hereby irrevocably authorized by the Lenders
to) execute such documents as may be necessary to evidence the release of the
Liens granted to the Agent for the benefit of the Holders of Secured Obligations
herein or pursuant hereto upon the Collateral that was sold or transferred or
evidence the release of the applicable Guarantor from its obligations under the
Guaranty; PROVIDED, HOWEVER, that (i) the Agent shall not be required to execute
any such document on terms which, in the Agent's opinion, would expose the Agent
to liability or create any obligation or entail any consequence other than the
release of such Liens without recourse or warranty, and (ii) such release shall
not in any manner discharge, affect or impair the Secured Obligations any other
Guarantor's obligations under the Guaranty or any Liens upon (or obligations of
the Borrower or any Subsidiary in respect of) all interests retained by the
Borrower or any Subsidiary, including (without limitation) the proceeds of the
sale, all of which shall continue to constitute part of the Collateral.
ARTICLE XII: SETOFF; RATABLE PAYMENTS
12.1 SETOFF. In addition to, and without limitation of, any rights of the
Lenders under applicable law, if any Default occurs and is continuing, any
indebtedness from any Lender to the
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Borrower (including all account balances, whether provisional or final and
whether or not collected or available) may be offset and applied toward the
payment of the Obligations owing to such Lender, whether or not the Obligations,
or any part hereof, shall then be due.
12.2 RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Loans (other than payments received pursuant to
SECTIONS 4.1, 4.2 or 4.4) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligation or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to the obligations owing to them. In case any such payment is
disturbed by legal process, or otherwise, appropriate further adjustments shall
be made.
12.3 APPLICATION OF PAYMENTS. Subject to the provisions of SECTION 9.2,
(i) prior to the occurrence of a Default, the Agent shall apply all payments and
prepayments in respect of the Obligations in such order as shall be specified by
the Borrower and (ii) after the occurrence of a Default, the Agent shall, unless
otherwise specified at the direction of the Required Lenders which direction
shall be consistent with the last sentence of this SECTION 12.3, apply all
payments and prepayments in respect of any Obligations and all proceeds of
Collateral in the following order:
(A) first, to pay interest on and then principal of any portion of
the Loans which the Agent may have advanced on behalf of any Lender for
which the Agent has not then been reimbursed by such Lender or the
Borrower;
(B) second, to pay interest on and then principal of any advance
made under SECTION 10.3 for which the Agent has not then been paid by the
Borrower or reimbursed by the Lenders;
(C) third, to pay Obligations in respect of any fees, expense
reimbursements or indemnities then due to the Agent;
(D) fourth, to pay Obligations in respect of any fees, expenses,
reimbursements or indemnities then due to the Lenders and the Issuing
Banks;
(E) fifth, to pay interest due in respect of Swing Line Loans;
(F) sixth, to pay interest due in respect of Loans (other than Swing
Line Loans) and L/C Obligations;
(G) seventh, to the ratable payment or prepayment of principal
outstanding on Swing Line Loans;
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(H) eighth, to the ratable payment or prepayment of principal
outstanding on Loans (other than Swing Line Loans) and Reimbursement
Obligations in such order as the Agent may determine in its sole
discretion;
(I) ninth, to provide required cash collateral, if required pursuant
to SECTION 3.10 and
(J) tenth, to the ratable payment of all other Obligations.
Unless otherwise designated (which designation shall only be applicable prior to
the occurrence of a Default) by the Borrower, all principal payments in respect
of Loans (other than Swing Line Loans) shall be applied FIRST, to repay
outstanding Floating Rate Loans, and THEN to repay outstanding Eurodollar Rate
Loans with those Eurodollar Rate Loans which have earlier expiring Interest
Periods being repaid prior to those which have later expiring Interest Periods.
The order of priority set forth in CLAUSE (II) of this SECTION 12.3 and the
related provisions of this Agreement are set forth solely to determine the
rights and priorities of the Agent, the Swing Line Bank, and the Issuing Banks
as among themselves. The order of priority set forth in CLAUSES (D) through (J)
of this SECTION 12.3 may at any time and from time to time be changed by the
Required Lenders without necessity of notice to or consent of or approval by the
Borrower, or any other Person; PROVIDED, that the order of priority of payments
in respect of Swing Line Loans may be changed only with the prior written
consent of the Swing Line Bank. The order of priority set forth in CLAUSES (A)
through (C) of this SECTION 12.3 may be changed only with the prior written
consent of the Agent.
12.4 RELATIONS AMONG LENDERS.
(a) Except with respect to the exercise of set-off rights of any Lender in
accordance with SECTION 12.1, the proceeds of which are applied in accordance
with this Agreement, and except as set forth in the second sentence of CLAUSE
(B) below, each Lender agrees that it will not take any action, nor institute
any actions or proceedings, against the Borrower or any other obligor hereunder
or with respect to any Collateral or any Loan Document, without the prior
written consent of the Required Lenders or, as may be provided in this Agreement
or the other Loan Documents, at the direction of the Agent.
(b) The Lenders are not partners or co-venturers, and no Lender shall be
liable for the acts or omissions of, or (except as otherwise set forth herein in
case of the Agent) authorized to act for, any other Lender. Notwithstanding the
foregoing, and subject to SECTION 12.2, any Lender shall have the right to
enforce on an unsecured basis the payment of the principal of and interest on
any Loan made by it after the date such principal or interest has become due and
payable pursuant to the terms of this Agreement.
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations
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under the Loan Documents and (ii) any assignment by any Lender must be made in
compliance with SECTION 13.3 hereof. Notwithstanding clause (ii) of this SECTION
13.1, any Lender may at any time, without the consent of the Borrower or the
Agent, assign all or any portion of its rights under this Agreement and its
Notes to a Federal Reserve Bank; PROVIDED, HOWEVER, that no such assignment
shall release the transferor Lender from its obligations hereunder. The Agent
may treat the payee of any Note as the owner thereof for all purposes hereof
unless and until such payee complies with SECTION 13.3 hereof in the case of an
assignment thereof or, in the case of any other transfer, a written notice of
the transfer is filed with the Agent. Any assignee or transferee of a Note
agrees by acceptance thereof to be bound by all the terms and provisions of the
Loan Documents. Any request, authority or consent of any Person, who at the time
of making such request or giving such authority or consent is the holder of any
Note, shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
13.2 PARTICIPATIONS.
(A) PERMITTED PARTICIPANTS; EFFECT. Subject to the terms set forth in this
SECTION 13.2, any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("PARTICIPANTS") participating interests in any Loan owing to such
Lender, any Note held by such Lender, any Commitment of such Lender, any L/C
Interest of such Lender or any other interest of such Lender under the Loan
Documents on a pro rata or non-pro rata basis. Notice of such participation to
the Agent shall be required prior to any participation becoming effective with
respect to a Participant which is not a Lender or an Affiliate of a Lender. In
the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Loan Documents shall remain
unchanged, such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, such Lender shall remain the
holder of any such Note for all purposes under the Loan Documents, all amounts
payable by the Borrower under this Agreement shall be determined as if such
Lender had not sold such participating interests, and the Borrower and the Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under the Loan Documents except that, for
purposes of ARTICLE IV hereof, the Participants shall be entitled to the same
rights as if they were Lenders.
(B) VOTING RIGHTS. Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan or Commitment in which such Participant has an
interest which requires the consent of all of the affected Lenders pursuant to
the terms of SECTION 9.3.
(C) BENEFIT OF SETOFF. The Borrower agrees that each Participant shall be
deemed to have the right of setoff provided in SECTION 12.1 hereof in respect to
its participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under the Loan Documents, PROVIDED that each Lender shall retain the
right of setoff provided in SECTION 12.1 hereof with respect to the amount of
participating interests sold to each Participant except to the extent such
Participant exercises its right of setoff. The Lenders agree to share with each
Participant, and each Participant, by exercising the right of setoff provided
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in SECTION 12.1 hereof, agrees to share with each Lender, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with SECTION 12.2 as if each Participant were a Lender.
13.3 ASSIGNMENTS.
(A) PERMITTED ASSIGNMENTS. Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time assign to one or
more banks or other entities ("PURCHASERS") all or a portion of its rights and
obligations under this Agreement (including, without limitation, its Commitment,
all Loans owing to it, all of its participation interests in existing Letters of
Credit, and its obligation to participate in additional Letters of Credit
hereunder) in accordance with the provisions of this SECTION 13.3. Each
assignment shall be of a constant, and not a varying, ratable percentage of all
of the assigning Lender's rights and obligations under this Agreement. Such
assignment shall be effected through an Assignment Agreement substantially in
the form of EXHIBIT A hereto and shall not be permitted hereunder unless such
assignment is either for all of such Lender's rights and obligations under the
Loan Documents or, without the prior written consent of the Agent, involves
Loans and Commitments in an aggregate amount of at least $5,000,000. The consent
of the Agent and, prior to the occurrence of a Default or Unmatured Default, the
Borrower (which consent, in each such case, shall not be unreasonably withheld),
shall be required prior to an assignment becoming effective with respect to a
Purchaser which is not a Lender or an Affiliate thereof. Notwithstanding the
foregoing, any Lender may at any time, without the consent of the Borrower or
the Agent, assign all or any portion of its rights under this Agreement and its
Notes to a Federal Reserve Bank; PROVIDED, HOWEVER, that no such assignment
shall release the transferor Lender from its obligations hereunder.
(B) EFFECT; EFFECTIVE DATE. Upon (i) delivery to the Agent of a notice of
assignment, substantially in the form attached as APPENDIX I to EXHIBIT A hereto
(a "NOTICE OF ASSIGNMENT"), together with any consent required by SECTION
13.3(a) hereof, and (ii) payment of a $3,500 fee to the Agent for processing
such assignment, such assignment shall become effective on the effective date
specified in such Notice of Assignment. The Notice of Assignment shall contain a
representation by the Purchaser to the effect that none of the consideration
used to make the purchase of the Commitment, Loans and L/C Obligations under the
applicable assignment agreement are "plan assets" as defined under ERISA and
that the rights and interests of the Purchaser in and under the Loan Documents
will not be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser, if not already a Lender, shall for all purposes be a
Lender party to this Agreement and any other Loan Documents executed by the
Lenders and shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and no
further consent or action by the Borrower, the Lenders or the Agent shall be
required to release the transferor Lender with respect to the percentage of the
Aggregate Commitment, Loans and Letter of Credit participations assigned to such
Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to
this SECTION 13.3(b), the transferor Lender, the Agent and the Borrower shall
make appropriate arrangements so that replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate, replacement Notes, are
issued to such Purchaser, in each case in principal amounts reflecting their
Commitments, as adjusted pursuant to such assignment.
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(C) THE REGISTER. The Agent shall maintain at its address referred to in
SECTION 14.1 a copy of each Assignment Agreement delivered to and accepted by it
pursuant to this SECTION 13.3 and a register (the "REGISTER") for the
recordation of the names and addresses of the Lenders and the Commitment of and
principal amount of the Loans owing to, each Lender from time to time and
whether such Lender is an original Lender or the assignee of another Lender
pursuant to an assignment under this SECTION 13.3. The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower and each of its Subsidiaries, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
13.4 CONFIDENTIALITY. Subject to SECTION 13.5, the Agent and the Lenders
shall hold all nonpublic information obtained pursuant to the requirements of
this Agreement and identified as such by the Borrower in accordance with such
Person's customary procedures for handling confidential information of this
nature and in accordance with safe and sound banking practices and in any event
may make disclosure reasonably required by a prospective Transferee in
connection with the contemplated participation or assignment or as required or
requested by any Governmental Authority or representative thereof or pursuant to
legal process and shall require any such Transferee to agree (and require any of
its Transferees to agree) to comply with this SECTION 13.4. In no event shall
the Agent or any Lender be obligated or required to return any materials
furnished by the Borrower; PROVIDED, HOWEVER, each prospective Transferee shall
be required to agree that if it does not become a participant or assignee it
shall return all materials furnished to it by or on behalf of the Borrower in
connection with this Agreement.
13.5 DISSEMINATION OF INFORMATION. The Borrower authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any
prospective Transferee any and all information in such Lender's possession
concerning the Borrower and its Subsidiaries and the Collateral; PROVIDED that
prior to any such disclosure, such prospective Transferee shall agree to
preserve in accordance with SECTION 13.4 the confidentiality of any confidential
information described therein.
ARTICLE XIV: NOTICES
14.1 GIVING NOTICE. Except as otherwise permitted by SECTION 2.11 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Documents shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by telex or facsimile, shall be deemed
given when transmitted (answerback confirmed in the case of telexes).
14.2 CHANGE OF ADDRESS. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
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ARTICLE XV: COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Agent and the Lenders
and each party has notified the Agent by telex or telephone, that it has taken
such action.
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IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the Effective Date.
METALS USA, INC., as the Borrower
By:/s/ KEITH E. ST. CLAIR
Name: Keith E. St. Claire
Title: Vice President and Treasurer
Address:
3 Riverway
Suite 600
Houston, TX 77056
Attention: Chief Financial Officer
Telephone No.: 713/965-0990
Facsimile No.: 713/965-0067
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent and as a Lender
By:/s/ BRIAN J. ZIMMER
Name: Brian J. Zimmer
Title: Authorized Agent
Address:
One First National Plaza
Suite 0324
Chicago, Illinois 60670-0324
Attention: Cory M. Olson
Telephone No.: 312/732-1706
Facsimile No.: 312/732-2991
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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BANKERS TRUST COMPANY, as a Lender
By:/s/ MARY JO JOLLY
Name: Mary Jo Jolly
Title: Assistant Vice President
Address:
One Bankers Trust Plaza, 14th Floor
New York, New York 10006
Attention: Hsing Huang
Telephone No.: 212/250-2431
Facsimile No.: 212/250-6029
With a copy to:
300 South Grand Avenue, 41st Floor
Los Angeles, CA 90071
Attn: Wade T. Winter
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Lender
By:/s/ PAUL A. O'MARA
Name: Paul A. O'Mara
Title: Senior Vice President
Address:
231 South LaSalle Street, 6th Floor
Chicago, IL 60697
Attention: June Courtney
Telephone No.: 312/828-3961
Facsimile No.: 312/974-2109
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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BANK ONE, TEXAS, N.A., as a Lender
By:/s/ JEFFREY T. STADLER
Name: Jeffrey T. Stadler
Title: Vice President
Address:
910 Travis
Houston, TX 77002-5860
Attention: Jeffrey Stadler
Telephone No.: 713/751-6232
Facsimile No.: 713/751-6199
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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CHASE BANK OF TEXAS, N.A., as a Lender
By:/s/ MICHAEL ONDRUCH
Name: Michael Ondruch
Title: Vice President
Address:
712 Main Street, 5-CBBE-78
Houston, TX 77002
Attention: Michael Ondruch
Telephone No.: 713/216-5324
Facsimile No.: 713/216-6004
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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GUARANTY FEDERAL BANK, F.S.B.,
as a Lender
By:/s/ KEVIN J. HANIGAN
Name: Kevin J. Hanigan
Title: Vice President
Address:
333 Clay Street, Suite 4430
Houston, TX 77002
Attention: Kevin J. Hanigan
Telephone No.: 713/759-1576
Facsimile No.: 713/759-0765
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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NATIONSBANK OF TEXAS, N.A., as a Lender
By:/s/ JOHN J. O'NEILL
Name: John J. O'Neill
Title: Senior Vice President
Address:
700 Louisiana Street
Houston, TX 77002
Attention: John J. O'Neill
Telephone No.: 713/247-6679
Facsimile No.: 713/247-6360
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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PNC BANK, NATIONAL ASSOCIATION, as a
Lender
By:/s/ LYNN KONCZ
Name: Lynn Koncz
Title: Vice President
Address:
249 Fifth Avenue, 2nd Floor
Pittsburgh, PA 15222
Attention: Lynn Koncz
Telephone No.: 412/762-3207
Facsimile No.: 412/762-7986
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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SOUTHTRUST BANK, NATIONAL
ASSOCIATION, as a Lender
By:/s/ ALLAN P. CAUSEY
Name: Allan P. Causey
Title: Vice President
Address:
420 North 20th Street
Birmingham, AL 35203
Attention: Allan P. Causey
Telephone No.: 205/254-5972
Facsimile No.: 205/254-5022
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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UNION BANK OF CALIFORNIA, N.A., as a
Lender
By: /s/ CORINNE HEYNING
Name:
Title:
Address:
445 South Figueroa Street, 16th Floor
Los Angeles, CA 90071
Attention: Corinne Heyning
Telephone No.: 213/236-6566
Facsimile No.: 213/236-7636
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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WACHOVIA BANK, N.A., as a Lender
By:/s/ STEVEN M. TAKEI
Name: Steven M. Takei
Title: Senior Vice President
Address:
191 Peachtree N.E.
Atlanta, GA 30303
Attention: Steven M. Takei
Telephone No.: 404/332-4251
Facsimile No.: 404/332-6898
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
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WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION, as a Lender
By:/s/ JONATHAN C. HOMEYER
Name: Jonathan C. Homeyer
Title: Vice President
Address:
1000 Louisiana, 3rd Floor
Houston, TX 77002
Attention: Jonathan C. Homeyer
Telephone No.: 713/250-4833
Facsimile No.: 713/250-7041
Signature Page to Metals USA, Inc.
Credit Agreement dated as of February 11, 1998
397909 Execution Copy
EXHIBIT 21
METALS USA, INC.
SUBSIDIARY LIST
Affiliated Metals Company
Federal Bronze Alloys Inc.
Harvey Titanium, Ltd.
Independent Metals Co., Inc.
Interstate Steel Supply Company
Interstate Steel Supply Company of Pittsburg
Interstate Steel Supply Company of Maryland
Interstate Steel Processing Company
Jeffreys Steel Company, Inc.
Jeffreys Real Estate Corp.
Meier Metal Servicenters, Inc.
Metals USA Management Co., L.P.
MUSA GP, Inc.
MUSA LP, Inc.
Metals USA Services Corporation
Metals USA Finance Corporation
Queensboro Steel Corporation
Royal Aluminum, Inc.
R.J. Fabricating, Inc.
Southern Alloy of America, Inc.
Steel Service Systems, Inc.
Texas Aluminum Industries, Inc.
Cornerstone Metals Corporation
Cornerstone Building Products, Inc.
Cornerstone Aluminum Company, Inc.
Cornerstone Patio Concepts, L.L.C.
Uni-Steel, Inc.
Wayne Steel, Inc.
Williams Steel & Supply Co., Inc.
WSS Transportation, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
February 19, 1998
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 Post-Effective Amendment
No. 2 to the Registration Statement (Form S-1 No. 333-35575) of Metals USA, Inc.
for the registration of 10,000,000 shares of Metals USA, Inc.'s common stock.
Ernst & Young LLP
St. Louis, Missouri
February 19, 1998
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 February 26, 1997, except for Notes 13 and 14, as
to which the date is February 6, 1998, on the consolidated financial statements
of Pacific Metal Company and Subsidiary as of December 31, 1996 and for the year
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.
PERKINS & COMPANY, P.C.
Portland, Oregon
February 19, 1998
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 25, 1997, except for Note 11 as to which the date is
April 18, 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
February 20, 1998
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
February 20, 1998
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
February 19, 1998
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated September 23, 1997, relating to the financial statements of
Harvey Titanium, Ltd. We also consent to the reference to our Firm under the
caption "Experts" in the Prospectus.
KLEIN, BOGAKOS AND ROBERTSON, CPA'S INC.
Santa Monica, California
February 19, 1998
EXHIBIT 23.9
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated February 28, 1997, relating to the financial statements of
Wayne Steel, Inc. We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus.
MEADEN & MOORE, LTD.
Wooster, Ohio
February 19, 1998
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
(Exact name of trustee as specified in its charter)
95-4311476
(I.R.S. employer
identification No.)
515 South Flower Street, Suite 2700
Los Angeles, CA 90071
(Address of principal (Zip Code)
executive offices)
DWIGHT LIU
515 South Flower Street, Suite 2700
Los Angeles, California 90071
(213) 861-5000
(Name, address, including zip code and telephone number of agent for service)
----------------------------
Metals USA, Inc.
(Exact name of obligor as specified in its charter)
DELAWARE 76-0533626
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Three Riverway, Suite 600
Houston, TX 77057
(Address of principal chief executive offices)
Affiliated Metals Company
(Exact name of guarantor as specified in its charter)
MISSOURI 43-1186503
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Cornerstone Patio Concepts, L.L.C.
NEVADA 95-4582177
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Cornerstone Metals Corporation
NEVADA 76-0464804
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Cornerstone Aluminum Company, Inc.
NEVADA 76-0525604
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Cornerstone Building Products, Inc.
NEVADA 76-0464805
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Federal Bronze Alloys Inc.
DELAWARE 22-3539530
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Independent Metals Co., Inc.
DELAWARE 39-1917866
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Interstate Steel Supply Company of Pittsburg
PENNSYLVANIA 25-1712304
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
InterstateSteel Supply Co.
PENNSYLVANIA 23-2088211
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Interstate Steel Processing Company
PENNSYLVANIA 23-2179458
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Interstate Steel Supply Company of Maryland
MARYLAND 52-1684672
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Harvey Titanium, Ltd.
DELAWARE 95-4666092
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Jeffreys Steel Company, Inc.
ALABAMA 63-0518679
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Meier Metal Servicenters, Inc..
MICHIGAN 38-2614040
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Metals USA Finance Corporation
DELAWARE 76-0549340
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Metals USA Service Corporation
DELAWARE 76-0549339
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Cornerstone Patio Concepts, L.L.C.
NEVADA 95-4582177
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Musa GP, Inc.
DELAWARE 76-0541470
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Queensboro Steel Corporation
NORTH CAROLINA 56-0568221
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
R.J. Fabricating, Inc.
WISCONSIN 39-1732008
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Royal Aluminum, Inc.
DELAWARE 52-2068077
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Southern Alloy of America, Inc.
NORTH CAROLINA 56-1182532
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Steel Service Systems, Inc.
WISCONSIN 39-1667843
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Texas Aluminum Industries, Inc.
TEXAS 74-1491550
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Uni-Steel, Inc.
OKLAHOMA 73-1309371
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Wayne Steel, Inc.
OHIO 34-0891223
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Williams Steel & Supply Co., Inc.
WISCONSIN 39-1839956
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8 5/8% Senior Subordinated Notes
Due 2008
<PAGE>
GENERAL
1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
490 L'Enfant Plaza East, S.W.
Washington, D.C. 20219
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Federal Reserve Bank (12th District)
San Francisco, California
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
The obligor currently is not in default under any of its outstanding
securities for which U.S. Trust Company of California, N.A. is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15
of Form T-1 are not required under General Instruction B.
<PAGE>
16. LIST OF EXHIBITS
T-1.1 - A copy of the Articles of Association of U.S. Trust Company of
California, N.A. currently in effect; incorporated herein by reference to
Exhibit T-1.1 filed with Form T-1 Statement, Registration No. 33-33031.
T-1.2 - Included in Exhibit T-1.1
T-1.3 - Included in Exhibit T-1.1
T-1.4 - A copy of the By-Laws of U.S. Trust Company of California, N.A.,
as amended to date; incorporated by reference to Exhibit T-1.4 filed with Form
T-1 Statement, Registration No. 33-54136.
T-1.6 - The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939; incorporated herein by reference to Exhibit T-1.6 filed
with Form T-1 Statement, Registration No. 33-33031.
T-1.7 - A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority
NOTE
As of April 22, 1996 the Trustee had 20,000 shares of Capital Stock outstanding,
all of which are owned by U.S. Trust Corporation
The responses to Items 2, 5, 6, 7, 8, 9, 10, 11 and 14 set forth the information
requested as though U. S. Trust Company of California, N.A. and U.S. Trust
Corporation were the "trustee."
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
<PAGE>
Pursuant to the requirements of the Trust Indenture of Act of 1939, the trustee,
U.S. Trust Company of California, N.A., a corporation organized and existing
under the laws of the State of California, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Los Angeles, and State of
California, on the 23rd day of April 1996.
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
Trustee
By:___________________________________________
Deborah Young
Authorized Signatory
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 12/31/97 ST-BK: 06-0784 FFIEC 033
515 SOUTH FLOWER STREET, SUITE 2700 Vendor ID: D Cert #: 33332 Page RC-1
LOS ANGELES, CA 90071 Transit #: 12204024 [9]
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
C200 <-
DOLLAR AMOUNTS IN THOUSANDS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS RCON
1. Cash and balances due from depository institutions (from Schedule RC-A)
a. Noninterest-bearing balances and currency and coin (1)__________________ ____ ______ 0081 7,614 1.a
b. Interest bearing balances (2)___________________________________________ ____ ______ 0071 239 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)______________ ____ ______ 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)____________ ____ ______ 1773 178,381 2.b
3. Federal funds sold and securities purchased under agreements to resell______ ____ ______ 1350 60,000 3.
4. Loans and lease financing receivables: RCON
a. Loans and leases, net of unearned income (from Schedule RC-C)____________ 2122 55706 4.a
b. LESS: Allowance for loan and lease losses_______________________________ 3123 1,000 4.b
c. LESS: Allocated transfer risk reserve___________________________________ 3128 0 4.c
d. Loans and leases, net of unearned income, allowance, and reserve RCON
(item 4.a minus 4.b and 4.c)____________________________________________ ____ ______ 2125 54,706 4.d
5. Trading assets______________________________________________________________ ____ ______ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)____________________ ____ ______ 2145 6,801 6.
7. Other real estate owned (from Schedule RC-M)________________________________ ____ ______ 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)________________________________________________________ ____ ______ 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding________________ ____ ______ 2155 0 9.
10. Intangible assets (from Schedule RC-M)______________________________________ ____ ______ 2143 2,380 10.
11. Other assets (from Schedule RC-F)___________________________________________ ____ ______ 2160 5,307 11.
12. Total assets (sum of items 1 through 11)____________________________________ ____ ______ 2170 315,428 12.
</TABLE>
- -------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. TRUST COMPANY OF CALIFORNIA, N.A. Call Date: 12/31/97 ST-BK: 06-0784 FFIEC 033
515 SOUTH FLOWER STREET, SUITE 2700 Vendor ID: D Cert #: 33332 Page RC-2
LOS ANGELES, CA 90071 Transit #: 12204024 [10]
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
DOLLAR AMOUNTS IN THOUSANDS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of RCON
columns A and C from Schedule RC-E)____________________________________ 2200 277,226 13.a
RCON
(1) Noninterest-bearing (1)___________________________________________ 6631 33,806 13.a.
(2) Interest-bearing _________________________________________________ 6636 243,420
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing________________________________________________
(2) Interest-bearing___________________________________________________
14. Federal funds purchased(2) and securities sold under agreements to repurchase: RCON
2800 0 14
15. a. Demand notes issued to the U.S. Treasury________________________________ ____ _______ 2840 0 15.a
b. Trading liabilities_____________________________________________________ ____ _______ 3548 0 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. WITH A REMAINING MATURITY OF ONE YEAR OR LESS___________________________ ____ _______ 2332 0 16.a
B. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR THROUGH THREE YEARS_____ ____ _______ A547 0 16.b
C. WITH A REMAINING MATURITY OF MORE THAN THREE YEARS_______________________ ____ _______ A548 0 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding____________________ ____ _______ 2920 0 18.
19. Subordinated notes and debentures___________________________________________ ____ _______ 3200 0 19.
20. Other liabilities (from Schedule RC-G)______________________________________ ____ _______ 2930 8,609 20.
21. Total liabilities (sum of items 13 through 20)______________________________ ____ _______ 2948 285,835 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus_______________________________ ____ _______ 3838 5,000 23.
24. Common stock________________________________________________________________ ____ _______ 3230 2,000 24.
25. Surplus (exclude all surplus related to preferred stock)____________________ ____ _______ 3839 12,745 25.
26. a. Undivided profits and capital reserves__________________________________ ____ _______ 3632 8,609 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities__ ____ _______ 8434 1,239 26.b
27. Cumulative foreign currency translation adjustments_________________________ ____ _______
28. a. Total equity capital (sum of items 23 through 27)_______________________ ____ _______ 3210 29,593 28.
29. Total liabilities and equity capital (sum of items 21and 28)________________ ____ _______ 3300 315,428 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the RCON
bankby independent external auditors as of any date during 1996___________________________ 6724 N/A M.1
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated holding
company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ---------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited life preferred stock and related surplus.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF METALS USA, INC. AS OF AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,173
<SECURITIES> 0
<RECEIVABLES> 99,324
<ALLOWANCES> 0
<INVENTORY> 147,038
<CURRENT-ASSETS> 266,340
<PP&E> 71,192
<DEPRECIATION> 0
<TOTAL-ASSETS> 466,482
<CURRENT-LIABILITIES> 87,280
<BONDS> 0
0
0
<COMMON> 312
<OTHER-SE> 215,228
<TOTAL-LIABILITY-AND-EQUITY> 466,482
<SALES> 264,391
<TOTAL-REVENUES> 269,391
<CGS> 228,254
<TOTAL-COSTS> 286,748
<OTHER-EXPENSES> (252)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,484
<INCOME-PRETAX> 7,411
<INCOME-TAX> 6,096
<INCOME-CONTINUING> 1,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,315
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
</TABLE>
