<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-14203
MERIDIAN NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 34-1470518
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
805 Chicago Street, Toledo, Ohio 43611
(Address of principal executive offices) (Zip Code)
(419) 729-3918
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value
Series B Convertible Voting Preferred Stock, $.001 par value
Common Stock Purchase Warrants expiring 1999
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of May 31, 1999, 3,717,552 shares of Meridian National Corporation
common stock were outstanding, and the aggregate market value of voting stock
(based upon the average bid and ask price on the OTC Bulletin Board) held by
non-affiliates was approximately $422,000 for common stock and $142,000 for
Series B convertible voting preferred stock.
<PAGE>
PART I
ITEM 1. Description of Business
Meridian National Corporation ("Meridian National" or the "Company", which,
unless otherwise indicated, refers to Meridian National and its subsidiaries) is
engaged in the steel distribution and processing business through its
subsidiary, Ottawa River Steel Company ("Ottawa River Steel") and in the waste
management business through its subsidiary, Environmental Purification
Industries Company ("EPI").
General Development of Business
Meridian National was incorporated as a Delaware corporation in 1985.
Shortly thereafter, the Company acquired from certain present and former members
of management, who were also principal stockholders of the Company, all of the
outstanding capital stock of Ottawa River Steel, and three other companies whose
operations were either later combined with Ottawa River Steel or discontinued.
The operations of these acquired companies formed the foundation of its current
steel distribution and processing business.
In January 1994, the Company acquired real property and equipment located
in Detroit, Michigan which was previously operated by the seller as a steel
service center. The acquisition expanded the Company's steel processing
services to the end-user market, primarily serving customers which supply the
automotive industry.
In November 1995, the Company acquired the business and assets of a steel
service center located in Gary, Indiana. This facility supplied steel products
to primarily non-automotive markets. In the fourth quarter of fiscal year ended
February 28, 1999, the Company significantly reduced its operations at this
location due to continuing losses resulting from the inability to generate
sufficient sales volume in this competitive market. The Company has sublet the
facility to an unrelated company and either sold or transferred to the Company's
location in Toledo, Ohio the steel service center equipment. The Company
maintains a small sales office at this location.
In 1989 the Company formed National Purification, Inc. ("National
Purification") as a wholly-owned subsidiary to enter into a general partnership
with Haden Purification, Inc. ("Haden Purification"). The partnership, EPI,
was formed to own and operate one or more facilities for the recycling of paint
waste using a proprietary paint waste drying system (DryPure/TM/) developed by
Haden Environmental Corporation ("Haden Environmental"), an affiliate of Haden
Purification, and for the marketing of the reclaimed solids. EPI's first paint
waste recycling facility started commercial operations in March 1991. National
Purification and Haden Purification were equal partners in EPI and were
otherwise unaffiliated. In 1992 Haden Purification terminated and abandoned its
interest in EPI, and EPI became wholly-owned by the Company through its
subsidiaries National Purification and MEPI Corp. ("MEPI"), which was formed in
1992. In September 1995, EPI entered into a license agreement with Aster, Inc.
("Aster") which developed a new paint waste recycling process known as the
Polymeric Recovery System (the "PRS system"). The Company completed a building
and equipment expansion of its Toledo, Ohio facility in April 1997 which
utilizes the PRS system. In the fourth quarter of fiscal 1999, the Company
recorded restructuring charges of $2,703,000 to write down certain assets and
accrue certain liabilities related to the PRS system. The Company had intended
to use this system to produce a product using recycled paint waste, which would
be marketed as a lower cost replacement for traditional, virgin materials used
in formulated products in the sealant, coating and adhesive industries. The
Company has been unable to market this product in a commercially viable manner
and therefore will discontinue processing of paint waste through this system.
The Company will continue to recycle paint waste using the DryPure(TM) system.
2
<PAGE>
In February 1996, Meridian National formed EPI Technologies, Inc., ("EPI
Technologies"), as a wholly-owned subsidiary. In November 1996, the Company
transferred all of its shares in National Purification and MEPI to EPI
Technologies. After the transfer, EPI Technologies effectively owned 100% of
EPI, the general partnership which operates Meridian National's paint waste
recycling facility. Concurrent with the transfers, EPI Technologies issued
shares of its common stock representing a 20% ownership interest, equally to
three investors, for $600,000, effectively reducing the Company's ownership
interest in its paint waste recycling operation to 80%.
The Company's principal executive offices are located at 805 Chicago
Street, Toledo, Ohio 43611 and its telephone number is (419) 729-3918.
3
<PAGE>
Financial Information about Industry Segments
The Company's operations are classified within two separate industry
segments. The steel distribution and processing segment handles flat-rolled
steel products primarily for the automotive, truck and appliance industries.
The waste management segment recycles paint wastes for companies in the
automotive and waste management industries, as well as arranging for disposal of
paint wastes at third-party disposal sites. Prior to July 1996, the waste
management segment provided similar services for the recycling and disposal of
spent acids.
For financial information about the Company's industry segments, see Note
11 to the consolidated financial statements of the Company which are included
elsewhere in this report as listed in PART IV, ITEM 14.
Narrative Description of Business
Steel Distribution and Processing Segment
Steel service centers and steel distributors represent a major market for
primary steel producers ("steel mills"), serving as a source of supply for
smaller manufacturers whose product requirements make purchasing directly from
the steel mills unfeasible or for companies whose production processes require
steel to be pre-processed before being placed into production. Companies
operating in this industry generally are classified as steel service centers
when they operate facilities that process steel products. Companies that
acquire steel products for warehousing and/or direct redistribution to other
steel consumers are generally classified as distributors. Steel service centers
and distributors acquire steel products from steel mills and from other
distributors. It is not uncommon for steel products to pass through the hands
of one or more steel distributors and/or steel service centers before reaching
an end user. Steel service centers and distributors normally specialize in
particular grades of steel products. The majority of the companies operating in
this industry are small to medium in size with no single company or group of
companies exercising control over the industry. The products handled by the
Company's steel distribution and processing business are carbon steel coils,
sheets and bars.
Steel Distribution During fiscal years ended February 28, 1999, February
28, 1998 and February 28, 1997, 36%, 35% and 38%, respectively, of the Company's
net sales were generated through its steel distribution operations. The
Company's steel distribution operations involve purchasing, storing and
reselling steel products in their original form. The Company acquires steel
from domestic steel mills under various steel purchase programs. Some of these
programs involve the purchase of steel which did not meet order specifications
of customers of the steel mills for whom the steel was originally intended. The
Company also acquires steel products from steel mills under excess steel
purchase programs. In times of low steel consumption, steel mills will make
offerings of steel to distributors to maintain higher production rates at the
steel mills. Ottawa River Steel is among the oldest companies operating as a
steel distributor and has attained a good reputation and name identification in
its industry. Historically, Ottawa River Steel has maintained strong
relationships with a number of steel mills. These relationships and a broad
base of steel suppliers have historically allowed Ottawa River Steel access to
steel supplies when steel availability within the industry has been limited due
to high demand. As further discussed in Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Company in recent months has
experienced a reduction in the availability of steel from its suppliers due to
insufficient availability of cash and credit facilities to fulfill all of its
steel purchasing needs.
Steel Processing During fiscal years ended February 28, 1999, February 28,
1998 and February 28, 1997, 56%, 60% and 57%, respectively, of the Company's net
sales were generated by processed steel products and processing services. The
Company provides slitting, cut-to-length, and batch pickling for steel products.
These services are provided to customers as a value-added process to the
Company's inventory for sale to end-user customers or to customers for customer-
owned material (toll processing).
* Slitting and Cut-to-length Flat rolled steel products are generally
manufactured by the steel mills in wide coil form. Consumers of these flat
rolled products may require the steel to be cut into several coils of narrower
widths. The steel slitting process involves the passing of the coil through
roller
4
<PAGE>
knives which cut the steel into the desired widths. Additionally, others
may require coils to be cut-to-length into sheets prior to taking delivery.
* Pickling When steel is produced at the steel mills, it is rolled at
high temperatures which creates a scaly surface on the steel. This scale must
be removed for surface sensitive steel applications which require polishing,
plating or other finished surfaces. The pickling process removes this scale by
the immersion of the steel in acid. This process can be performed while the
steel is in coil form through a continuous pickling process or when the steel is
in either the coil or sheet form through a batch pickling process. Generally,
hydrochloric acid is used in the continuous pickling process and sulfuric acid
is used in the batch pickling process. After pickling, the steel is rinsed in
baths of neutralizer and water and then is coated with oil to prevent rust.
Customers The Company's steel distribution and processing services are
marketed to the automotive, truck, building, appliance, furniture and
agriculture industries and to companies servicing these industries in the upper
midwest, as well as other areas east of the Mississippi River. The majority of
North American car and truck final assembly plants and primary metal industries
are located within a 500-mile radius of the Company's facilities. Sales to a
steel stamping customer, Production Stamping, Inc., accounted for 12%, 14% and
14% of the Company's net sales in fiscal 1999, 1998 and 1997, respectively.
Competition In the steel distribution and processing business, competitive
factors include quality of service, timeliness and cost. The Company's success
in this business depends on its ability to continue to provide quality products
and services on a timely basis at a competitive cost.
The steel service center industry is highly fragmented and intensely
competitive within localized areas or regions. Accordingly, the Company faces
substantial competition in the steel distribution and processing business from
other independent steel distributors and processors as well as from steel mills
and customers that perform these functions internally. Among the Company's
competitors and potential competitors are numerous companies that have
substantially greater financial and other resources than the Company.
Raw Materials The raw materials required for the Company's steel
processing operations are acids, oils and banding supplies. All materials are
readily available from a number of suppliers.
Waste Management Segment
In early 1989, the Company became aware of the magnitude of the disposal
problems facing generators of paint wastes and learned of a unique process for
the handling of these wastes. The process, known as DryPure/TM/ and patented by
Haden Environmental, heats the paint wastes, driving off liquids and volatile
organic compounds, resulting in a dry inert powder that represents a reduction
in volume of paint waste by up to 90%. Originally DryPure/TM/ systems were sold
directly to automobile manufacturers which disposed of the resultant dry powder
from the process in landfills. The Company recognized that small and mid-size
paint waste generators presented a market for the DryPure/TM/ system. In
addition, the Company began exploring the possibility of marketing the resultant
dry powder, EPI-PURE/TM/ and was successful in finding commercial applications
for it. In 1989, as a result of the Company's success in finding uses and
markets for EPI-PURE/TM/, Haden Purification and the Company formed EPI as a
general partnership for the purpose of constructing and operating commercial
facilities to recycle paint wastes. EPI commenced commercial operations at its
newly-constructed paint waste recycling facility in Toledo, Ohio in March 1991.
In 1992, Haden Purification terminated its 50% partnership interest in EPI and
National Purification and MEPI, wholly-owned subsidiaries of the Company, became
sole general partners of EPI.
In September 1995, EPI entered into a license agreement with Aster which
developed the PRS system. EPI completed a building and equipment expansion of
its Toledo, Ohio facility in April 1997 to commercialize the PRS system. In the
fourth quarter of fiscal 1999, the Company recorded restructuring charges of
$2,703,000 to write down certain assets and accrue certain liabilities related
to the PRS system. The Company had intended to use this system to produce a
product using recycled paint waste, which
5
<PAGE>
would be marketed as a lower cost replacement for traditional, virgin materials
used in formulated products in the sealant, coating and adhesive industries. The
Company has been unable to market this product in a commercially viable manner
and therefore will discontinue processing of paint waste through this system.
The Company will continue to recycle paint waste using the DryPure(TM) system.
Paint Waste Recycling 8% of the Company's net sales in the fiscal year
ended February 28, 1999 and 5% in each of the fiscal years ended February 28,
1998 and 1997 was generated by the paint waste recycling business.
Paint wastes, because of their stickiness and leaching characteristics, are
one of the most difficult wastes to legally dispose of and therefore pose a
significant disposal problem for their generators. Approximately 40% to 60% of
the paint used in industrial spray painting processes becomes waste that
requires disposal or recycling. Currently, the only legal disposal methods
available for paint wastes are landfill and incineration. While the short-term
costs associated with landfilling (currently the most widely-used disposal
method) are less than the short-term costs of incineration, generators using
this method of paint waste disposal could be "potentially responsible parties"
for liabilities associated with remediation of landfills where their paint waste
has been disposed. Additionally, there continues to be a trend in the
regulatory environment toward greater restrictions and liabilities associated
with landfilling, including the disposal of paint wastes. As a result, many
generators are electing to use incineration which is a more expensive disposal
process than direct disposal into landfills. Incineration involves either (i)
fuel blending, which is the commingling of various waste streams into a fuel
supplement for use as an alternative fuel in the manufacture of cement,
reducing, in the process, but not eliminating the generator's liability, or
(ii) direct thermal destruction of waste streams which results in the generation
of an ash residue which may contain heavy metals or other hazardous
constituents. Ash residue containing hazardous constituents must be disposed in
a fully permitted hazardous waste landfill thereby continuing the generator's
potential long-term liability connected with the disposal of hazardous wastes.
Recycling of waste materials is considered by the U.S. EPA to be a
desirable means of reducing waste. According to the U.S. EPA's definition,
recycle is a broad term that includes "to use, reuse, or reclaim." A material
is reclaimed if it is processed to recover a useful product or if it is
regenerated. When customers send paint waste to the Company's facility, the
Company reclaims the paint waste by processing it to recover a useful product.
The U.S. EPA encourages this type of waste management because it preserves
limited landfill space. Avoiding the need to place hazardous paint waste in
landfills also allows generators to significantly reduce the threat of incurring
liability under the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), also known as Superfund liability.
The DryPure/TM/ process heats the paint wastes, driving off liquids and
volatile organic compounds, resulting in a dry, inert powder that represents a
reduction in the volume of paint waste by up to 90%. Originally DryPure/TM/
systems were sold directly to automobile manufacturers which disposed of the
resultant dry powder from the process in landfills. In the PRS system, patented
technology is used to process paint waste in a reaction vessel under low heat to
drive off the volatile organic compounds and moisture. The resin, pigment and
fillers that remain are not cured but are further compounded with proprietary
additives producing a putty-like material trademarked as EPI-MER(TM), a recycled
product that can be formulated as an additive, plasticizer, resin extender or
filler in vinyl or butyl adhesive and sealant applications. The formulated
material has substantially the same performance characteristics as virgin
materials but has a substantially lower formulation cost. The Company has not
been able to sell any EPI-MER(TM), although the product is being tested by
several sealant and adhesive manufacturers for automotive industry applications.
Trials for other uses of any EPI-MER(TM) are also in process for non-automotive
applications. Although testing and trials for this product are being conducted
by prospective customers, the development of a market for this product is
uncertain and therefore processing of paint waste through the PRS system will be
discontinued.
Acid Waste Recycling and Disposal In July 1996 the Company exited the
business of recycling and disposal of spent acids when the property and
equipment used in this business was sold. This business was in a decline as it
was substantially dependent on one customer which ceased operations in March
1996.
6
<PAGE>
Customers The Company markets its paint waste recycling services to
businesses that have spray painting operations. The Company's marketing
activities are concentrated in the midwest region of the United States where
over 80% of its revenues are generated, with the majority of annual revenues
derived from customers in the automotive assembly business. The Company's
customers generally are environmentally conscientious and demand that the
Company maintain stringent quality controls. The Company has built its
reputation in the industry through consistent customer service by addressing
these customer needs. Since one of the primary benefits of using the Company's
services is the elimination of the potential long-term liability associated with
landfill disposal of paint waste, many customers conduct thorough reviews and
audits of the Company's operations, including the Company's compliance with
environmental laws and regulations.
Competition Presently, approximately 99% of paint waste nationally is
disposed of through landfills or by incineration, and approximately 1% is
processed and recycled by methods utilized by the Company and its other
competitors. The Company is aware of only three other companies that compete
directly with the Company by providing processing and recycling services to
generators of paint waste. These competitors utilize similar methods of thermal
drying to those of the Company; however, over the years the Company believes it
has developed the capability to process a broader range of paint waste than its
competitors.
Competitive factors in paint waste processing or disposal include price,
service and the elimination of the potential long-term liability associated with
paint waste generation and disposal. While paint wastes generally can be
landfilled or incinerated at a lower initial cost than recycling, these disposal
methods expose the generators to potential long-term liability under stringent
federal and state regulations. On the other hand, although the costs of the
Company initially are greater than landfill or incineration, the Company's
recycling process substantially eliminates continuing generator liability.
Landfill and incineration are provided by national, regional and local
companies, many of which have substantially greater resources than the Company.
In addition, the Company's direct recycling competitors have substantially
greater financial, marketing and other resources than the Company. There can be
no assurance that one of the Company's competitors or a new company will not
develop a method of recycling paint waste which is more efficient and less
costly than the methods currently employed by the Company. Additionally, there
can be no assurance that large industrial customers or other waste management
companies will not attempt to develop their own methods of recycling or
otherwise minimizing, treating or disposing of wastes.
Raw Materials In the DryPure/TM/ system, trap rock (a small, inexpensive
stone) is used to facilitate heat transfer, to keep paint waste from adhering to
the equipment and to reduce the size of the EPI-PURE/TM/ particles. Trap rock
is readily available at reasonable prices.
Backlog
The steel distribution and processing business typically processes orders
within a relatively short time of receipt. Accordingly there is not a
significant backlog of unfilled orders at any time.
The paint waste recycling business typically processes shipments within a
relatively short time of receipt. Accordingly, no large volume of paint waste
is stored at the Company's Toledo, Ohio facility at any time. Because the
generators and the Company need to carefully control the shipment and processing
of paint waste, upon execution of a sales contract, the Company establishes a
long-term schedule for delivery and processing of the customer's paint waste at
the Company's facility. Accordingly, the Company normally has its maximum
processing capacity scheduled for one to three months in advance.
Seasonality
The Company primarily provides products and services to the automotive,
truck and appliance industries. Therefore, the Company's results are affected
by cycles in such industries. Traditionally, many automotive plants operate at
reduced levels during June and July due to holiday and vacation schedules and
are closed during the last part of December which adversely affects the
Company's revenues
7
<PAGE>
for those periods. The operations of EPI are generally unaffected by seasonality
factors since it has been operating at near capacity for several years.
Employees
As of May 31, 1999, the Company had 110 employees, of whom 76 were employed
in steel distribution and processing (includes 23 leased employees), 28 were
employed in waste management, with the remainder serving in executive and
administrative capacities. Approximately 29 of the Company's employees are
covered by collective bargaining agreements. The Company believes that its
relations with its own employees and with the leased employees presently
employed at its facilities are good.
ITEM 2. Properties
The Company's corporate offices are located in Toledo, Ohio and occupy
approximately one-half of an 8,500 square foot building pursuant to a lease with
Greenbelt Associates which expired in February 1997 and is now leased on a
month-to-month basis. Greenbelt is a general partnership owned by William D.
Feniger, Yale M. Feniger and Real P. Remillard, who are current or former
officers and/or stockholders in the Company. The Company leases the remainder
of the building for the offices of its steel distribution and steel processing
operations under identical terms and conditions. The monthly rent on each such
lease is $3,672 at February 28, 1999.
On a site adjacent to its corporate offices, the Company maintains office
space and its active steel pickling operation in a 23,000 square foot building.
Also on the site the Company utilizes an additional 45,000 square feet in a
building for steel warehousing and a steel slitting operation. The facilities
at this site, including an additional 60,000 square feet of outside storage
space, is leased pursuant to a lease executed in July 1997 for an initial term
of 120 months with Chicago Investors, with three additional one-year options.
Chicago Investors is a general partnership which is owned, in turn, by two other
partnerships. One of these partnerships is Champlain Investors, a general
partnership, which is owned by William D. Feniger, and Yale M. Feniger. The
other partnership is unrelated to the Company. The lease provides for a monthly
rent of $14,255 through the June 30, 2007 lease termination date. The monthly
rental for the option periods is $17,106. Chicago Investors has granted a
mortgage secured by the leased premises to a bank. Should the debt service on
this mortgage debt increase from the amount of debt service required as of the
lease commencement date, the Company is obligated under the lease to pay, at the
request of Chicago Investors, 50% of the increase in the debt service. Chicago
Investors, under an oral arrangement, has agreed to defer the rental increase
which was due to commence on March 1, 1998 and to maintain the monthly rent at
$12,255, at the option of Chicago Investors. The Company also sub-leases
another 22,000 square feet of warehouse space used for steel storage at this
site from an affiliate of the unrelated partnership.
The Company's steel service center in Detroit, Michigan is housed in two
adjacent buildings situated on approximately two acres of land. The main
building consists of 58,500 square feet, including 8,500 square feet of office
space. The second building consists of 8,000 square feet and is being used for
steel storage. This property is subject to a mortgage having an outstanding
balance of $608,000 at February 28, 1999.
In November 1995, the Company acquired the business and assets of a steel
service center located in Gary, Indiana, which operated in a 60,000 square foot
facility in a common building in an industrial park pursuant to a lease expiring
in November 2001 with one renewal option of three years. As of December 15,
1998, the Company has sublet this facility to an unaffiliated company on
substantially the same terms as those contained in the Company's lease. The
Company maintains only a small sales office in the sublet space for a monthly
rental of $500.
In March 1996 the Company shut down a steel pickling operation in Detroit,
Michigan. The Company leased the majority of this facility, encompassing
220,000 square feet, to a company which is a shareholder in the Company and
whose majority owner is a director of Meridian National. This facility was
subject to a lease purchase obligation covering industrial revenue bonds. In
August 1998 the Company sold this facility and related equipment to the company
which was leasing it pursuant to a purchase option contained in the lease, and
paid off the remaining lease purchase obligation.
8
<PAGE>
The Company conducts its paint waste recycling operations in an 19,500
square foot building in Toledo, Ohio, which includes a 2,500 square foot
addition completed in April 1997. This property, along with certain recycling
equipment, is owned by EPI and is subject to a mortgage of which 50% of the
obligation has been assumed by the former partner of EPI. EPI's obligation with
respect to this mortgage was $682,000 at February 28, 1999.
In addition, an adjacent 14,000 square foot building is leased by EPI from
Chicago Investors where the recycled powder from the DryPure/TM/ process is
screened, packaged and warehoused prior to shipment. The term of the lease ran
through February 28, 1998, but provides for three one-year option periods
extending to February 28, 2001. The lease provides for monthly rental of $1,375
through February 28, 1998 at which time the rent was scheduled to increase to
$1,550 per month, subject to annual increases thereafter. In December 1996,
Chicago Investors agreed to reduce rents to the present rental of $1,175 per
month.
The Company believes that its existing facilities and properties are
adequate for its current operations.
ITEM 3. Legal Proceedings
There are no material legal proceedings pending against the Company.
ITEM 4. Submission of Matters to Vote of Security Holders
There were no matters submitted to a vote of security holders during the
last quarter of the Company's fiscal year ended February 28, 1999.
PART II
ITEM 5. Market for Common Stock and Related Stockholder Matters
The Common Stock of the Company has traded on the OTC Bulletin Board
maintained by the National Association of Securities Dealers under the symbol
"MRCO" since December 4, 1997. Prior to December 4, 1997, the Company's Common
Stock was traded in the SmallCap Market of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the same symbol.
On December 4, 1997, the Company's Common Stock was delisted by NASDAQ based on
the failure to maintain the $1 per share minimum bid price and capital and
surplus of at least $1,000,000. The following table sets forth, for the
quarterly periods indicated, the high and low bid prices while the Company's
Common Stock was quoted on the OTC Bulletin Board and the high and low sales
price for the Common Stock while traded on the NASDAQ SmallCap Stock Market.
Such quotations on the OTC Bulletin Board represent bids between dealers without
adjustment for retail mark-ups, mark-downs, or commissions and may not
necessarily represent actual transactions.
Year ended February 28, 1999
- ----------------------------
First Quarter $ .656 $.406
Second Quarter .540 .406
Third Quarter .406 .125
Fourth Quarter .200 .125
Year Ended February 28, 1998 High Low
- ---------------------------- ---- ---
First Quarter $1.188 $.625
Second Quarter .938 .625
9
<PAGE>
Third Quarter 1.563 .813
Fourth Quarter 1.000 .125
As of May 31, 1999 there were approximately 500 stockholders of record of
the Company's Common Stock.
To date, the Company has not paid any dividends on its Common Stock. The
payment by the Company of dividends, if any, in the future rests within the
discretion of its Board of Directors and will depend, among other things, on the
Company's earnings, its capital requirements and its financial condition, as
well as other relevant factors. The Board does not presently intend to pay any
dividends on its Common Stock in the immediate future, but it intends to retain
all earnings for use in its business operations. Pursuant to a current credit
agreement with a bank, the Company cannot pay dividends on its Common Stock.
ITEM 6. Selected Financial Data
The selected financial data of the Company set forth below should be read
in conjunction with the audited consolidated financial statements, the notes
thereto and other financial information included elsewhere in this report and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Year ended February 28 or 29
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------
Operations Statement Data:
<S> <C> <C> <C> <C> <C>
Net sales $49,291,003 $70,683,989 $66,511,224 $54,672,987 $50,638,763
Gross margin 3,973,144 6,284,309 7,988,913 5,659,971 7,453,251
Loss from continuing operations
before extraordinary gain (5,533,982)(4) (2,617,911)(3) (619,465) (1,728,196) (1,563,880)(2)
Net (loss) income (5,533,982)(4) (2,617,911)(3) 4,392 (1,349,608) (1,126,366)(2)
Loss applicable
to common stock (1) (5,657,700)(4) (2,763,101)(3) (131,967) (1,479,370) (1,262,744)(2)
Loss per common share -
Basic and diluted :
Loss from continuing operations
before extraordinary gain $(1.54)(4) $(0.78)(3) $(0.23) $(0.71) $(0.70)(2)
Net loss (1.54)(4) (0.78)(3) (0.04) (0.56) (0.52)(2)
Weighted average common shares:
Basic 3,678,082 3,532,195 3,241,349 2,638,126 2,423,864
Diluted 3,678,082 3,532,195 3,241,349 2,638,126 2,423,864
Balance Sheet Data:
Working capital (deficiency) $(10,141,118) $(7,511,001) $(1,866,090) $(1,443,113) $1,254,643
Total assets 22,122,626 32,924,546 33,700,810 26,546,797 26,627,261
Long-term debt 1,169,705 2,983,375 6,586,293 6,847,416 6,602,417
Stockholders' (deficit) equity (7,040,026) (1,431,271) 1,198,162 546,581 1,767,098
</TABLE>
___________
(1) Represents net (loss) income reduced by dividends paid on preferred stock
in cash and in shares of common stock. To date, the Company has not paid
any dividends on its common stock.
(2) Includes a $2,285,548 charge or 94 cents per share, net of income tax, from
write-down of noncurrent assets.
(3) Includes a $169,465 charge or 5 cents per share, net of income tax, from
write-down of noncurrent assets.
(4) Includes a $2,702,764 charge or 73 cents per share, net of income tax, from
restructuring charges.
10
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
As further discussed in Note 5 to the accompanying Consolidated Financial
Statements, in July 1996 the Company sold all of the property and equipment of
its waste acid recycling and disposal business. Accordingly, fiscal 1997
operating results for the Company have been restated to separately report the
operating results of this discontinued operation. Discussions of results of
operations that follow pertain only to continuing operations.
Results of Operations
Year Ended February 28, 1999 Compared to Year Ended February 28, 1998
Fiscal 1999 sales of $49.3 million represented a decrease of 30% from fiscal
1998 sales. The Company reported a net loss of $5.5 million for fiscal 1999
compared to a net loss of $2.6 million for fiscal 1998. The fiscal 1999 loss
includes $2.7 million of restructuring charges related to the paint waste
recycling business, as further discussed below. The steel operations were
adversely affected by a number of factors, including a major automotive strike
in the summer of 1998 and an overabundance of steel product on the market, due
in part to the flooding of the U.S. steel market with low-price foreign steel.
Steel Distribution and Processing Segment The Company's steel distribution and
processing operations reported net sales of $45.4 million for fiscal 1999, a
decrease of $21.5 million or 32% from the prior year. The sales decrease
resulted primarily from the pervasive effects on the steel industry and many of
the Company's customers of a major automotive strike in the summer of 1998. Also
a sharp decline in demand for steel products at reasonable pricing was
experienced in the latter half of the fiscal year as a result of the large
supply of low-priced foreign steel entering the domestic steel market.
Operating profits for this segment amounted to $12,000 for fiscal 1999, a
decrease of $1,074,000 from the prior year. Gross margin (net sales less cost
of sales) as a percentage of net sales was 7.4% in fiscal 1999 compared to 8.2%
in the prior year. Gross margin percentages have decreased due to pricing
pressures resulting from a softening of demand in the steel markets.
Waste Management Segment This segment reflects the results of the operations
of the Company's paint waste recycling operation. Net sales for paint waste
recycling increased slightly to $3,872,000 in fiscal 1999 from $3,719,000 in the
prior year. For the past several years, this business has operated at or near
its processing capacity.
This segment reported a $3,174,000 operating loss for fiscal 1999, compared
to a $1,067,000 operating loss for the prior year. The operating results for
this segment includes operating costs related to the commencement of the start-
up period for the Polymeric Recovery System, which uses the new paint waste
recycling technology. In fiscal 1999, the Company recorded restructuring
charges of $2,703,000 to write down certain assets, principally impaired
equipment, and accrue certain liabilities related to the Polymeric Recovery
System. The Company had intended to use this system to produce a product using
recycled paint waste, which would be marketed as a lower cost replacement for
traditional, virgin materials used in formulated products in the sealant,
coating and adhesive industries. The Company has been unable to market this
product in a commercially viable manner and therefore will discontinue
processing of paint waste through this system. The operating loss in fiscal
1998 also includes $462,000 of costs written off relating to a proposed public
offering for this segment. The funding for this expansion was to have been
provided from the proceeds of an initial pubic offering of an approximate 50%
interest in EPI Technologies. The proposed offering was abandoned due to
weakness in the public market for the offering and other matters
Selling, General and Administrative Expenses The $1,090,000 decrease in
selling, general and administrative expenses is primarily attributable to
reduced personnel and administration costs in response to the significant
decline in the Company's sales in fiscal 1999 and the closing of the steel
processing center in Gary, Indiana.
11
<PAGE>
Interest Expense Interest expense decreased $66,000 or 4% in fiscal 1999. The
decrease is due primarily to lower interest rates during fiscal 1999.
Year Ended February 28, 1998 Compared to Year Ended February 28, 1997
Fiscal 1998 sales of $70.7 million represented record sales volume. The
sales increase of 6% over fiscal 1997 was primarily the result of continued
growth of the Company's steel processing operations.
Despite the continued growth in sales, the Company's loss from continuing
operations before extraordinary gain increased to $2,618,000 in fiscal 1998 from
$619,000 in the prior year. Significant factors contributing to the increased
loss included smaller gross margins generated from the steel operations,
continued costs associated with the expansion of the paint waste recycling
operations, and a 12% increase in financing costs. Additionally, expenses
amounted to $462,000 in fiscal 1998 and $276,000 in fiscal 1997 were incurred in
conjunction with abandoned public offerings of the Company's paint waste
recycling operations as further discussed below.
Steel Distribution and Processing Segment The Company's steel distribution and
processing operations reported net sales of $67.0 million for fiscal 1998, an
increase of $3.9 million or 6% over the prior year. The sales increase resulted
primarily from the continuing growth of the Company's steel processing
operations in the Detroit and Chicago markets.
Operating profits for this segment amounted to $1,086,000 for fiscal 1998, a
decrease of $1,402,000 from the prior year. Gross margin (net sales less cost
of sales) as a percentage of net sales was 8.2% in fiscal 1998 compared to 11.1%
in the prior year. Gross margin percentages have decreased due to pricing
pressures resulting from a softening of demand in the steel markets.
Waste Management Segment This segment reflects the results of the operations
of the Company's paint waste recycling operation and excludes the discontinued
operations of the waste acid recycling and disposal operation. Net sales for
paint waste recycling increased slightly to $3,719,000 in fiscal 1998 from
$3,417,000 in the prior year.
This segment reported a $1,067,000 operating loss for fiscal 1998, compared
to a $629,000 operating loss for the prior year. The operating results for this
segment includes costs incurred in the development and implementation of a new
paint waste recycling technology and, in fiscal 1998, operating costs related to
the commencement of the start-up period for the Polymeric Recovery System, which
uses the new paint waste recycling technology. The operating loss also includes
$462,000 in fiscal 1998 and $276,000 in fiscal 1997 of costs written off
relating to proposed public offerings for this segment in each year. The
funding for this expansion was to have been provided from the proceeds of an
initial pubic offering of an approximate 50% interest in EPI Technologies. The
proposed offerings were abandoned due to weakness in the public market for the
offerings and other matters
Selling, General and Administrative Expenses The $259,000 decrease in selling,
general and administrative expenses is primarily attributable to lower corporate
personnel and administration costs in fiscal 1998.
Interest Expense Interest expense increased $192,000 or 12% in fiscal 1998. A
significant portion of the increase is due to increased borrowings necessary to
finance the expansion of the paint waste recycling business with the
installation of the Polymeric Recovery System, as further discussed in the
Liquidity and Capital Resources section following. Additionally, the Company's
average outstanding borrowings under its revolving credit line rose as a result
of an increase in working capital requirements, mainly associated with costs of
implementing the Polymeric Recovery System and the expansion of the steel
processing business.
12
<PAGE>
Liquidity and Capital Resources
The Company had a $10,141,000 working capital deficit at February 28, 1999,
reflecting a $2,630,000 decrease in working capital from February 28, 1998.
This decrease results from the funding of losses generated during fiscal 1999.
Certain components of working capital, including accounts receivable,
inventories, notes payable and accounts payable, historically may fluctuate
significantly based upon market conditions, sales volume and steel purchasing
strategies of the Company's steel operations.
The Company's primary source of liquidity is a $13.5 million revolving credit
line with a bank. Borrowing availability under the revolving credit line is
determined using a formula based upon eligible accounts receivable and
inventories. During fiscal 1999, the bank permitted the Company to exceed the
eligible borrowing amount based on the lending formula by $2,350,000 (the
"overadvance"). As of February 28, 1999, the outstanding balance of the
revolving credit line amounted to $11,812,000 and unused availability, after
considering the allowed overadvance, amounted to $900,000. The revolving
credit line agreement prohibits the payment of cash dividends on the Company's
common stock and allows the payment of cash dividends on the Company's preferred
stock issues only if the Company is not in default of any provisions in the loan
agreement and payment of such dividend would not result in any defaults.
In addition to the revolving credit line facility, the bank has previously
provided financing which primarily funded the purchase and installation of the
PRS system. This financing was intended to be interim financing until the
Company was able to provide permanent funding anticipated to be raised through
an initial public offering of the Company's paint waste business. The Company
was unable to complete the public offering and therefore was unable to make the
final scheduled payment due to the bank in March 1998 of $2,035,000. The bank
has allowed the Company to continue to make monthly principal payments on the
debt of $21,000 plus interest. The outstanding obligation under this financing
amounted to $1,783,000 at February 28, 1999.
As a result of the Company's inability to make payment of sums due and
maintain the terms and covenants of the original loan agreements, the Company
entered into a forbearance agreement with the bank in May 1999, expiring on June
30, 1999. Under the terms of the forbearance agreement, the bank has required
the Company to reduce the permitted overadvance by applying approximately
$800,000 the Company held in a certificate of deposit, which represented a
portion of the proceeds from the sale of a building earlier in the year. Also on
June 15, 1999, the allowed overadvance was reduced an additional $50,000,
bringing this amount of allowed overadvance to approximately $1,500,000. During
the forbearance period the bank has agreed not to exercise its right to demand
immediate payment of obligations due, and the right to foreclose, take
possession of, and liquidate all collateral. The bank also will not enforce the
default interest rate during the forbearance period. The Company has requested
from the bank an extension of the June 30, 1999 expiration of the forbearance
period. The bank has not granted such an extension and there can be no assurance
such extension will be granted.
As a result of losses incurred, requirements for servicing the Company's debt
financings and the large working capital deficiency, the Company's cash flow
generated from operations and availability under the revolving credit line with
the bank has been inadequate to timely meet the Company's obligation to its
suppliers. In recent months, the availability of steel product from suppliers
has been reduced impacting the Company's ability to obtain sufficient inventory
and resulting in lower sales volume for the steel distribution business.
13
<PAGE>
As a result of the foregoing and other issues, there exists substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements of the Company have been prepared assuming the Company will
continue as a going concern. The ability of the Company to continue as a going
concern is dependent upon the Company having sufficient funds available to meet
its financing requirements and to generate sufficient revenues to sustain
operations and operate at a profitable level. The Company has taken a number of
actions to improve its operating results, including closing down unprofitable
operations.
Management's future plans with regards to these matters include:
. Renegotiation or refinancing obligations with its primary lender.
. Assess current and future opportunities, which may include outside debt
infusion, raising additional equity capital or the sale or merger of all or
part of the Company's operations.
. Continued focus on its core steel processing and distribution business.
. Reduce operating and administrative costs.
Year 2000
The Company uses computer hardware and financial and manufacturing software
that it purchased from third party suppliers. Such suppliers have confirmed to
the Company that such products are Year 2000 compliant or will be in the near
future. Consequently, the Company does not expect to incur any significant
costs to become Year 2000 compliant. The Company has no information concerning
the Year 2000 compliance status of its suppliers or customers. If any of the
Company's significant suppliers or customers does not successfully and timely
become Year 2000 compliant, the Company's business or operations could be
adversely affected. The Company has not generated any disaster contingency
plans related to the Year 2000 compliance issue, because operations are not
heavily dependent on computer software, and management believes that alternative
means of operating can be utilized in the event a Year 2000 problem occurs.
Forward-Looking Statements
This Form 10-K, other SEC filings, and other pronouncements made from time to
time by the Company may include a number of forward-looking statements,
including, but not limited to, statements with respect to the Company's future
financial performance, operating results, plans and objectives. Such statements
are made pursuant to the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based upon
the Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual results
may differ materially from those anticipated by such statements, as a result of
a variety of factors, including among others, regulatory or economic influences.
In light of these risks and uncertainties, there can be no assurance that any
forward-looking information contained herein will in fact transpire or prove to
be accurate. The Company undertakes no responsibility to update any forward-
looking statement that may be made to reflect events or circumstances occurring
after the dates the statements were made or to reflect the occurrence of
unanticipated events.
ITEM 8. Financial Statements and Supplementary Data
Consolidated financial statements of the Company are included elsewhere in
this report as listed in Part IV, ITEM 14.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
14
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Set forth below is certain information regarding the directors and executive
officers of the Company. Directors serve until the next Annual Meeting of
Stockholders and until his successor is elected and qualified. Officers are
elected by and serve at the pleasure of the Board of Directors.
William D. Feniger, age 52 Chairman of the Board of Directors and Chief
Executive Officer since August 1995. President
since March 1991.
Wayne Gardenswartz, age 52 Director since August 1985. Mr. Gardenswartz is
a certified public accountant and has been a
partner in the accounting firm of Gardenswartz
& Suber, P.C., Denver, Colorado, for more than
the past five years .
Jeffrey A. Slade, age 58 Director since February 1995. For more than the
past five years Mr. Slade has been President of
Slade Investment Management, an investment
advisory firm.
Larry Berman, age 59 Director since June 1996. Mr. Berman is a
majority owner of MNP Corporation of Utica,
Michigan and has served as Chairman of the
Board and President of MNP Corporation for more
than the past five years. MNP Corporation is a
diversified metals fastener manufacturing firm.
James L Rosino, age 44 Chief Financial Officer and Vice President-
Finance since February 1996. Secretary and
Treasurer since May 1996. Mr. Rosino served as
Corporate Controller from May 1988 through
February 1996.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% beneficial owners are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms which they file
with the SEC.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during and with respect to the fiscal year ended February
28, 1999, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with except that
each of Messrs. Feniger, Gardenswartz, Slade and Berman had one late filing
related to
15
<PAGE>
the issuance of stock options and Mr. Feniger had one late filing
related to a purchase of 30,000 shares of common stock.
ITEM 11. Executive Compensation
The following table sets forth the annual and long-term compensation paid or
accrued by the Company for the three fiscal years ended February 28, 1999, 1998
and 1997. for the Company's Chief Executive Officer.
<TABLE>
<CAPTION>
Long-Term All Other
Annual Compensation Compensation Compensation
------------------- ------------ ------------
Restricted
Name and Other Annual Stock Options
Principal Position Year Salary Bonus Compensation Awards (in shares)
- ------------------ ---- ------ ----- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
William D. Feniger 1999 $230,000 --- --- --- --- $3,364
Chairman, President 1998 $240,000 --- --- --- --- $4,529
and Chief Executive 1997 $193,325 --- --- --- 200,000 $6,581
Officer
</TABLE>
Employment Agreements
William D. Feniger has an employment agreement with the Company, which
extends to July 31, 2002. The agreement provides for automatic renewals for an
additional 12 months upon each anniversary date of the agreement. Commencing
July 31, 2002 and on each anniversary date thereafter, the agreement provides
for termination of employment by either party upon not less than 120 days prior
written notice. The agreement provides that Mr. Feniger is to receive such
annual salary as may be determined by the Board of Directors, plus employment
privileges and benefits but in no event is the annual salary to be lower than
$240,000. Mr. Feniger's annual salary, as part of a cost reduction program
implemented by the Company's management effective May 1998, was reduced from
$240,000 to $228,000 indefinitely. The agreement also provides that in the
event of Mr. Feniger's death during the term of the employment agreement, the
current salary is to be continued by payment for three years to Mr. Feniger's
surviving spouse while she is living, otherwise to his estate. In the event of
Mr. Feniger's permanent disability, the agreement provides for a continuation of
salary for a period of 12 months, less, however, any payments received by Mr.
Feniger directly from any insurer under any insurance policy of health or
disability, the premiums for which have been paid by the Company.
Option Exercises and Fiscal 1999 Year End Values
The following table sets forth information with respect to (i) options
to purchase shares of the Company's Common Stock granted under the Company's
Stock Option Plan, which were exercised by the named executive officers during
fiscal 1999, and (ii) unexercised options to purchase shares of the Company's
Common Stock granted under the Company's Stock Option Plan to the named
executive officers and held by them at February 28, 1999.
<TABLE>
<CAPTION>
Value of Unexercised
Unexercised Options In-the-Money Options
Held at 2/28/99 at 2/28/99 (1)
-------------------- ----------------------
Shares
Acquired
on
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William D. Feniger --- --- 128,000 132,000 (2) (2)
</TABLE>
16
<PAGE>
(1) The dollar values are calculated by determining the difference between the
fair market value of the shares of the Company's Common Stock underlying the
options and the exercise price of such options at February 28, 1999.
(2) None of Mr. Feniger's options are in-the-money.
Tax Deferred Savings and Retirement Plan
The Company's Tax Deferred Savings and Retirement Plan (the "401(k)
Plan") consists of a defined contribution profit sharing plan with a cash or
deferred arrangement. Each employee of the Company is eligible to participate
in the 401(k) Plan after the person has both attained age 20-1/2 and completes
six months of service. Subject to limitations prescribed by the tax laws, a
participant may elect to make a pretax salary deferral contribution to the
401(k) Plan of up to 15% of the participant's compensation. Unless the
Company's Board of Directors determines otherwise, the Company makes matching
contributions equal to 25% of the first 6% of compensation contributed by each
participant as a salary deferral. For any year, the Company may also make a
discretionary profit sharing contribution of an amount determined by the
Company's Board of Directors. Profit sharing contributions are allocated among
eligible participant on the basis of each participant's compensation during the
year for which the contribution is made.
All salary deferral contributions are 100% vested. The Company's
matching contributions and profit sharing contributions vests on an incremental
basis after three completed years of service and become fully vested after seven
years of completed service. In addition, a participant is fully vested upon
attainment of age 65, death or disability, provided he is in the employ of the
Company at the time such event occurs.
For the plan year ended February 28, 1999, the Company made a matching
contribution to the account of William D. Feniger in the amount of $289 under
the 401(k) Plan. The Company made no discretionary contribution to the 401(k)
Plan during fiscal year ended February 28, 1999. Mr. Feniger is fully vested.
Director Compensation
Each director who is not an employee of the Company is entitled to
receive a fee of $2,000 ($1,000 for telephonic meetings) plus travel expenses
for each directors' meeting attended. Directors receive a fee of $1,000 for
attending committee meetings which are held separately from directors' meetings.
Under a nonemployee directors' stock option plan, eligible directors who have
served twelve consecutive months are annually granted options to purchase 2,500
shares of the Company's Common Stock. Options are granted at an exercise price
equal to the market value on the date of grant and are exercisable for a period
not exceeding ten years from the date of the grant.
17
<PAGE>
ITEM 12. Security Ownership of Management and Certain Beneficial Owners
Security Ownership of Management
The following tables set forth information, as of May 31, 1999,
regarding the beneficial ownership of each director of the Company, each named
executive officer and all current directors and executive officers of the
Company as a group, of the Company's Common Stock. None of such persons
beneficially owns any of the Company's Series B Preferred Stock. Additionally,
there are 4,000 shares of non-voting $100 Series A Preferred Stock ("Series A
Stock"), $.001 par value, of the Company outstanding as of May 31, 1999, of
which William D. Feniger owns 1,334 shares.
<TABLE>
<CAPTION>
Officers and Directors
----------------------
Number of Shares Percentage
Name of Beneficial Owner Beneficially Owned (1) Ownership
------------------------ ----------------------- ---------
<S> <C> <C> <C>
William D. Feniger 993,802 (2)(3)(4) 25.4%
Wayne Gardenswartz 32,865 (5)(6) *
Jeffrey A. Slade 17,500 (5) *
Larry Berman 295,581 (5)(7) 7.9%
All directors and executive 1,363,748 (8) 34.1%
officers as a group (5 persons)
</TABLE>
__________________
*Less than 1% of the outstanding Common Stock of the Company.
(1) Except as otherwise indicated, each director and officer has sole voting and
investment power over the shares he beneficially owns.
(2) Includes 17,643 shares issuable upon conversion of a Convertible
Subordinated Note and 5,500 shares issuable upon the exercise of Common
Stock Purchase Warrants held by William D. Feniger.
(3) Includes 7,500 shares held by William D. Feniger as trustee pursuant to a
voting trust agreement over which he has no investment power, 500 shares
held by Mr. Feniger's wife, as to which Mr. Feniger disclaims beneficial
interest and 1,500 shares held by Mr. Feniger as custodian for his minor
children.
(4) Includes options held by William D. Feniger granted under the Stock Option
Plan to purchase 176,000 shares which are exercisable currently.
(5) Includes options to purchase 30,500 shares granted to Wayne Gardenswartz,
17,500 shares granted to Jeffrey A. Slade and 15,000 shares granted to Larry
Berman under the Directors' Plan, which are exercisable currently.
(6) Includes 2,365 shares held by Mr. Gardenswartz as trustee under a trust
agreement over which Mr. Gardenswartz has no investment power.
(7) Includes 280,581 shares, which Mr. Berman may be deemed to beneficially own,
held by MNP Corporation, a Michigan corporation. Mr. Berman is a majority
owner of MNP Corporation and is the Chairman of the Board and President of
MNP Corporation.
(8) Includes options granted to officers and directors of the Company under the
Stock Option Plan and Directors' Plan, which are exercisable currently.
18
<PAGE>
Other Principal Stockholders
As of May 31, 1999, the following person, other than the directors and
officers of the Company (or their affiliates), is known to be a beneficial owner
of more than 5% of the outstanding shares of Common Stock:
5% Holders
----------
Name and Address Number of Shares Percentage
Beneficial Owner Beneficially Owned Ownership
---------------- ------------------ ---------
George Hofmeister 272,921 7.3%
700 Highland Road
Salem, OH 44460
ITEM 13. Certain Relationships and Related Transactions
In connection with the 1985 purchase by the Company of stock of four
companies controlled in part by William D. Feniger and Yale M. Feniger (William
D. Feniger's father), the Company issued, as part of the purchase price, a
series of non-negotiable subordinated promissory notes, each due on September
15, 1995, and bearing interest at the rate of 9% per annum (the "Notes").
William D. Feniger received a Note in the amount of $770,720, and Yale M.
Feniger received a Note in the amount of $943,424 (which Note Yale M. Feniger
transferred to his wife). In July 1989, William D. Feniger converted his Note
into a like amount of convertible subordinated notes (the "Convertible
subordinated Note"). In June 1994, Mrs. Yale Feniger and the Company entered
into an agreement whereby Mrs. Feniger accepted $305,738, or 50% of the
outstanding balance of her Note, in full satisfaction of the Note.
The Convertible Subordinated Note payable to William D. Feniger, having a
balance of $275,232 at February 28, 1999, bears interest at a rate equal to 9%
per annum. Mr. Feniger agreed to defer the principal payment on the Note to
March 1, 2000. The outstanding principal balance of the Note held by Mr.
Feniger is convertible, at his option, into Common Stock, at any time, at a
conversion price of $15.60 per share. In May 1996 the Board of Directors
authorized the issuance to Mr. Feniger of 600,000 shares of the Corporation's
Common Stock in exchange for a $300,000 reduction of the Convertible
Subordinated Note held by Mr. Feniger, which balance in May 1996 was $596,822.
The Company, as of May 31, 1996, reduced the principal amount of the Convertible
Subordinated due to William D. Feniger by an additional $21,590, by way of an
offset for principal and interest due on the notes payable to the Company by Mr.
Feniger as disclosed below. The Company has agreed, at its expense, to register
under the Securities Act of 1933, on one occasion, and at the expense of the
holder of such Convertible Subordinated Note on other occasions, the Convertible
Subordinated Note and/or the underlying securities at the request of the holder
thereof. The Company has also agreed to certain "piggy-back" registration
rights for the Convertible Subordinated Note and the securities issuable on
exercise thereof.
At the end of fiscal year 1999, William D. Feniger was indebted to the
Company in the amount of $109,581 which consisted of $93,400 evidenced by notes
receivable and $16,181 of accrued interest on the notes. The first note, in an
original amount of $97,000, was executed in May 1994 and bears interest at 6%
and requires annual principal payments of $5,000. A second note for $6,400 was
executed in November 1994 and bears interest at 6%. At May 31, 1996, the
principal payments and interest payments due on the notes were offset by
payments owed by the Company to Mr. Feniger under the Convertible Subordinated
Note as disclosed above. The final maturities of these notes receivable will be
extended to May 31, 2000.
19
<PAGE>
The Company and one of its subsidiaries lease office space in Toledo, Ohio,
pursuant to two separate lease agreements with Greenbelt Associates, a general
partnership in which Messrs. William D. Feniger and Yale M. Feniger, a former
executive officer and shareholder of the Company, are general partners. William
D. Feniger and Yale M. Feniger own a controlling interest in the partnership.
Each lease expired on February 14, 1997 and the properties are now leased on a
month-to-month basis. During the year ended February 28, 1999, the Company paid
$67,025 to Greenbelt Associates.
The Company leases plant and office space, including some equipment, in
Toledo, Ohio for certain of its processing and storage operations pursuant to
two separate lease agreements with Chicago Investors, a general partnership.
Champlain Investors, also a general partnership, has 50% interest in Chicago
Investors. William D. Feniger and Yale M. Feniger own Champlain Investors. One
of the leases, entered into on July 1, 1997, has an initial term of 120 months
with options to renew for three one-year periods upon certain conditions. The
lease provides for monthly rent of $12,255 through February 28, 1998 and monthly
rent of $14,255 from March 1, 1998 through the lease termination date, June 30,
2007. The monthly rent for each of the renewal options is $17,106. Chicago
Investors has granted a mortgage secured by the leased premises to a bank.
Should the debt service on this mortgage debt increase from the amount of debt
service required as of the lease commencement date, the Company is obligated
under the lease to pay, at the request of Chicago Investors, 50% of the increase
in the debt service. Chicago Investors, under an oral arrangement, has agreed to
defer the rental increase which was due to commence on March 1, 1998 and to
maintain the monthly rent at $12,255 at the option of Chicago Investors. The
Company also leases a 14,000 square foot building from Chicago Investors
pursuant to a lease, which became effective March 1, 1996. The lease expired on
February 28, 1998 and is now extended pursuant to three one-year option periods
extending to February 28, 2001. This lease provides for monthly rental of $1,375
through February 1998 at which time the rent was scheduled to increased to
$1,550 per month, subject to annual increases thereafter. In December 1996,
Chicago Investors agreed to reduce the rents, at its option, to the present
rental of $1,175 per month. During the year ending February 28, 1999, the
Company paid $118,591 to Chicago Investors pursuant to these arrangements.
On June 1, 1995 National Metal Processing, Inc., a wholly-owned subsidiary
of the Company, and MNP Corporation entered into a three-year lease pursuant to
which MNP leases space from the Company. Larry Berman, a director of the
Company, is the majority stock- holder and Chairman of the Board and President
of MNP Corporation. The annual rental is $271,514. In August 1998, MNP
Corporation exercised an option to purchase the facility and property adjacent
to the facility for an aggregate purchase price of $1,500,000, which resulted in
a gain by the Company of approximately $960,000.
Management of the Company believes that the terms of each of the foregoing
transactions are at least favorable as those that could have been obtained from
independent third parties.
20
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. The following consolidated financial statements of the Company are
submitted pursuant to the requirements of ITEM 8:
Reports of Independent Auditors F-1, F-2
Consolidated Balance Sheets at February 28, 1999
and February 29,1998 F-3
Consolidated Statements of Operations for each of
the three years in the period ended February 28, 1999 F-5
Consolidated Statements of Stockholders' (Deficit)
Equity for each of the three years in the period
ended February 28, 1999 F-6
Consolidated Statements of Cash Flows for each of
the three years in the period ended February 28, 1999 F-7
Notes to Consolidated Financial Statements F-8
2. All schedules required pursuant to the requirements of ITEM 14 (d)
are omitted because they are not applicable, not material, not
required or the required information is included in the applicable
financial statements or notes thereto.
3. EXHIBITS
3.1(a)* Certificate of Incorporation of the Company
(incorporated herein by reference from the Company's
Registration Statement on Form 8-A, dated January 31, 1986).
3.1(b)* Amendment to the Certificate of Incorporation of the Company,
effective September 30, 1986 (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1987).
3.1(c)* Amendment to the Certificate of Incorporation of the Company,
effective August 1, 1988 (incorporated herein by reference
from the Company's Registration Statement on Form S-1, filed
April 15, 1989, File No. 33-27955).
3.1(d)* Amendment to the Certificate of Incorporation of the Company,
effective August 18, 1993 (incorporated herein by reference
from the Company's Report on Form 10-Q for the quarterly
period ended August 31, 1993).
3.2(a)* Certificate of Designation, Preferences and Rights of the
Company (incorporated herein by reference from the Company's
Registration Statement on Form S-1, filed September 16, 1989,
File No. 33-27955).
3.2(b)* Amendment to the Certificate of Designation, Preferences and
Rights of the Company, effective August 25, 1993
(incorporated herein by reference from the Company's Report
on Form 10-Q for the quarterly period ended August 31, 1993).
3.3(a)* By-Laws of the Company (incorporated herein by reference from
the Company's Registration Statement on Form 8-A, dated
January 31, 1986).
21
<PAGE>
3.3(b)* Certificate of Amendment of By-Laws of the Company
(incorporated herein by reference from the Company's Report on
Form 10-K for fiscal year ended February 28, 1990).
4.1* Specimen Stock Certificate (incorporated herein by reference
from the Company's Registration Statement on Form 8-A, dated
January 31, 1986).
4.2* Registration Statement on Form 8-A, dated January 31, 1986
(incorporated herein by reference to File No. 0-14203).
4.3* Form of Series B Preferred Stock (incorporated herein by
reference from the Company's Registration on Form S-1, filed
June 4, 1989, File No. 33-27955).
4.4* Warrant Agreement dated as of July 22, 1994 among the Company,
Continental and Whale (incorporated herein by reference from
the Company's registration Statement on Form S-3, filed
January 17, 1995, File No. 33-83590).
4.5* Form of Warrant Agreement among the Company, Continental and
Whale (incorporated herein by reference from the Company's
Registration Statement on Form S-3, filed January 17, 1995,
File No. 33-83590).
10.01(a)* Loan and Security Agreement, dated December 6, 1989, among the
Company, certain of its subsidiaries and Bank of New England,
N.A. (incorporated herein by reference from the Company's
Report on Form 10-K for fiscal year ended February 28, 1990).
10.01(b)* Demand Note for $7,000,000 dated December 6, 1989, of the
Company to Bank of New England, N.A. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1990).
10.01(c)* Amendment No. 1 to Loan and Security Agreement, dated March
27, 1990, among the Company, certain of its subsidiaries and
Bank of New England, N.A. (incorporated herein by reference
from the Company's Report on Form 10-K for fiscal year ended
February 28, 1990).
10.01(d)* Amendment No. 2 to the Loan and Security Agreement, dated
September 14, 1990, among the Company, certain of its
subsidiaries and National Canada Finance Corp. (incorporated
herein by reference from the Company's Report on Form 10-K for
fiscal year ended February 28, 1991).
10.01(e)* Amendment No. 3 to the Loan and Security Agreement, dated May
31, 1991, among the Company, certain of its subsidiaries and
National Canada Finance Corp. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1991).
10.01(f)* Amendment No. 4 to the Loan and Security Agreement, dated June
22, 1992, among the Company, certain of its subsidiaries and
National Canada Finance Corp. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1993).
10.01(g)* Amendment No. 5 to the Loan and Security Agreement, dated May
11, 1993, among the Company, certain of its subsidiaries and
National Canada Finance Corp. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1993).
22
<PAGE>
10.01(h)* Amendment No. 6 to the Loan and Security Agreement, dated
October 20, 1993, among the Company, certain of its
subsidiaries and National Canada Finance Corp. (incorporated
herein by reference from the Company's Report on Form 10-K for
fiscal year ended February 28, 1994).
10.01(i)* Amendment No. 7 to the Loan and Security Agreement, dated
January 31, 1994, among the Company, certain of its
subsidiaries and National Canada Finance Corp. (incorporated
herein by reference from the Company's Report on Form 10-K for
fiscal year ended February 28, 1994).
10.01(j)* Term Note for $300,000, dated January 31, 1994, of the Company
to National Canada Finance Corp. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1994).
10.01(k)* Amendment No. 8 to the Loan and Security Agreement, dated
November 30, 1994 among the Company, certain of its
subsidiaries and National Canada Finance Corp. (incorporated
herein by reference from the Company's Report on Form 10-K for
fiscal year ended February 28, 1995).
10.01(l)* Amendment No. 9 to the Loan and Security Agreement, dated
February 14, 1995 among the Company, certain of its
subsidiaries and National Canada Finance Corp. (incorporated
herein by reference from the Company's Report on Form 10-K for
fiscal year ended February 28, 1995).
10.01(m)* Amendment No. 10 to the Loan and Security Agreement, dated May
25, 1995, among the Company, certain of its subsidiaries and
National Canada Finance Corp. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 29, 1996).
10.01(n)* Amendment No. 11 to the Loan and Security Agreement, dated
February 29, 1996, among the Company, certain of its
subsidiaries and National Canada Finance Corp. (incorporated
herein by reference from the Company's Report on Form 10-K for
fiscal year ended February 29, 1996).
10.01(o)* Term Note for $300,000, dated February 29, 1996, of the
Company and Environmental Purification Industries, Inc. to
National Canada Finance Corp. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 29, 1996).
10.01(p)* Amendment No. 12 to the Loan and Security Agreement, dated
July 25, 1996, among the Company, certain of its subsidiaries
and National Canada Finance Corp. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1997).
10.01(q)* Term Note for $350,000, dated July 25, 1996, of the Company
and Environmental Purification Industries, Inc. to National
Canada Finance Corp. (incorporated herein by reference from
the Company's Report on Form 10-K for fiscal year ended
February 28, 1997).
10.01(r)* Amendment No. 13 to the Loan and Security Agreement, dated
November 4, 1996, among the Company, certain of its
subsidiaries and National Canada Finance Corp. (incorporated
herein by reference from the Company's Report on Form 10-K for
fiscal year ended February 28, 1997).
10.01(s)* Term Note for $1,700,000, dated November 4, 1996, of the
Company and Environmental Purification Industries, Inc. to
National Canada Finance Corp. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1997).
23
<PAGE>
10.01(t)* Amendment No. 14 to the Loan and Security Agreement, dated May
12, 1996, among the Company, certain of its subsidiaries and
National Canada Finance Corp. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1997).
10.01(u) Forbearance Agreement, dated May 7, 1999, among the Company,
certain of its subsidiaries and National Bank of Canada.
10.02(a)* Form of Amended and Restated Non-negotiable Promissory Note
for $596,822.79 issued to William D. Feniger (incorporated
herein by reference from the Company's Registration Statement
on Form S-1, filed June 9, 1989, File No. 33-27955).
10.02(b)* Escrow Agreement, dated January 4, 1990, by and among Yale M.
Feniger, William D. Feniger, Melvin G. DeGrazia, Ted R. Meyers
and David A. Katz (incorporated herein by reference from the
Company's Report on Form 10-K for fiscal year ended February
28, 1990).
10.02(c)* Amendment to Non-negotiable Promissory Note, dated November 1,
1992, between the Company and William D. Feniger (incorporated
herein by reference from the Company's Report on Form 10-K for
fiscal year ended February 28, 1993).
10.02(d)* Subscription Agreement, dated May 31, 1996, between the
Company and William D. Feniger. (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 29, 1996).
10.03(a)* Lease between the Company and Greenbelt Associates, dated
February 14, 1992 (incorporated herein by reference from the
Company's Report on Form 10-K for fiscal year ended February
29, 1992).
10.03(b)* Lease between Ottawa River Steel and Greenbelt Associates,
dated February 14, 1992 (incorporated herein by reference from
the Company's Report on Form 10-K for fiscal year ended
February 29, 1992).
10.04(a)* Lease between Ottawa River Steel Co. and Chicago Investors,
dated March 1, 1996 (incorporated herein by reference from the
Company's Report on Form 10-K for fiscal year ended February
29, 1996).
10.04(b)* Lease between Environmental Purification Industries Company
and Chicago Investors, dated March 1, 1996 (incorporated
herein by reference from the Company's Report on Form 10-K for
fiscal year ended February 29, 1996).
10.05(a)* Lease Purchase Agreement, dated June 30, 1986, between The
Economic Development Corporation of the City of Detroit and
National Metal (incorporated herein by reference from the
Company's Report on Form 10-K for fiscal year ended February
28, 1987).
10.05(b)* Form of Bond No. R-1 (Roney & Co.) and Bond No R-2 (SeaGate
Corporation), dated June 30, 1986, (incorporated herein by
reference from the Registrant's Report on Form 10-K for fiscal
year ended February 28, 1987).
10.05(c)* Guaranty Agreement, dated June 30, 1986, between National
Metal and The Toledo Trust Company (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1987).
10.06(a)* Meridian National Corporation 1990 Non-Qualified and Incentive
Stock Option Plan, dated August 20, 1990 (incorporated herein
by reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1991).
24
<PAGE>
10.06(b)* Amendment No. 1 to the Meridian National Corporation 1990 Non-
Qualified and Incentive Stock Option Plan, effective May 12,
1994 (incorporated herein by reference from the Company's
Report on Form 10-K for fiscal year ended February 29, 1996).
10.06(c)* Amendment No. 2 to the Meridian National Corporation 1990 Non-
Qualified and Incentive Stock Option Plan, effective June 6,
1995 (incorporated herein by reference from the Company's
Report on Form 10-K for fiscal year ended February 29, 1996).
10.07(a)* Amended and Restated 1987 Non-Employee Directors' Stock Option
Plan of Meridian National Corporation, dated August 20, 1990
(incorporated herein by reference from the Company's Report on
Form 10-K for fiscal year ended February 28, 1991).
10.07(b)* Amendment No. 1 to the Amended and Restated 1987 Non-Employee
Directors' Stock Option Plan of Meridian National Corporation,
effective May 27, 1993 (incorporated herein by reference from
the Company's Report on Form 10-K for fiscal year ended
February 28, 1994).
10.07(c)* Amendment No. 2 to the Amended and Restated 1987 Non-Employee
Directors' Stock Option Plan of Meridian National Corporation,
effective May 12, 1994 (incorporated herein by reference from
the Company's Report on Form 10-K for fiscal year ended
February 29, 1996).
10.07(d)* Amendment No. 3 to the Amended and Restated 1987 Non-Employee
Directors' Stock Option Plan of Meridian National Corporation,
effective June 6, 1995 (incorporated herein by reference from
the Company's Report on Form 10-K for fiscal year ended
February 29, 1996).
10.08* Meridian National Corporation Tax Deferred Retirement and
Savings Plan , as amended and restated (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1995).
10.09* Employment Agreement of William D. Feniger, dated July 31,
1997 (incorporated herein by reference from the Company's
Report on Form 10-K for fiscal year ended February 28, 1998).
10.10(a)* Bond Purchase Agreement, dated February 12, 1990, between the
Company, EPI, Haden MacLellan Holdings, plc, Miller &
Schroeder Financial, Inc. and The Toledo-Lucas County Port
Authority (incorporated herein by reference from the Company's
Report on Form 10-K for fiscal year ended February 28, 1990).
10.10(b)* Guaranty Agreement, dated as of December 15, 1989, between the
Company and Society Bank & Trust, Trustee (incorporated herein
by reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1990).
10.10(c)* Loan Agreement, dated as of December 15, 1989 (including the
Note as an Exhibit thereto) between Toledo-Lucas County Port
Authority and EPI (incorporated herein by reference from the
Company's Report on Form 10-K for fiscal year ended February
28, 1990).
10.10(d)* Open-End Mortgage and Security Agreement, dated as of December
15, 1989, between EPI and Society Bank & Trust, Trustee
(incorporated herein by reference from the Company's Report on
Form 10-K for fiscal year ended February 28, 1990).
25
<PAGE>
10.11* Amended and Restated Partnership Agreement of Environmental
Purification Industries Company (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1994).
10.12* Mortgage Note and Promissory Note and related agreements,
dated January 26, 1994, between Ottawa River Steel and
Klockner Namasco Corporation (incorporated herein by reference
from the Company's Report on Form 10-K for fiscal year ended
February 28, 1994).
10.13* Agreement dated April 20, 1995 between Company and The Wall
Street Group, Inc. (incorporated herein by reference from the
Company's Report on Form 10-K for fiscal year ended February
28, 1995).
10.14* Lease between National Metal Processing, Inc. and MNP
Corporation, dated June 1, 1995 (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 29, 1996).
10.15(a)* Loan and Security Agreement, dated November 17, 1995, between
Ottawa River Steel Co. and FINOVA Capital Corporation
(incorporated herein by reference from the Company's Report on
Form 10-K for fiscal year ended February 29, 1996).
10.15(b)* Lease Agreement, dated October 31, 1995, between Ottawa River
Steel Company and USL Capital Corporation (incorporated herein
by reference from the Company's Report on Form 10-K for fiscal
year ended February 29, 1996).
10.15(c)* Industrial Building Lease, dated November 10, 1995, between
Ottawa River Steel Co. and Centerpoint Properties Corporation
(incorporated herein by reference from the Company's Report on
Form 10-K for fiscal year ended February 29, 1996).
10.15(d) Second Lease Amendment dated December 15, 1998, between Ottawa
River Steel Co., Meridian National Corporation and Great Lakes
Industrial Partners L.P.
10.15(e) Sublease Agreement, effective as of December 15, 1998, between
Ottawa River Steel Co. and Centennial Steel Processing, LLC.
10.16* License Agreement, dated September 7, 1995, between
Environmental Purification Industries Company and Aster, Inc.
(incorporated herein by reference from the Company's Report on
Form 10-K for fiscal year ended February 29, 1996).
10.17(a)* Stock Purchase Agreement, dated November 19, 1996, among
Environmental Purification Industries, Inc., Spencer Browne,
MNP Corporation and Elliot Smith (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1997).
10.17(b)* Registration Rights Agreement, dated November 19, 1996, among
Environmental Purification Industries, Inc., Spencer Browne,
MNP Corporation and Elliot Smith (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1997).
10.17 (c)* Stockholders Agreement, dated November 19, 1996, among
Environmental Purification Industries, Inc., Spencer Browne,
MNP Corporation and Elliot Smith (incorporated herein by
reference from the Company's Report on Form 10-K for fiscal
year ended February 28, 1997).
26
<PAGE>
10.18(a) Cognovit Demand Promissory Note for $618,000, dated February
4, 1999, of Ottawa River Steel Co. to William D. Feniger.
10.18(b) Open-end Mortgage, dated February 4, 1999, between Ottawa
River Steel Co. and William D. Feniger.
10.18(c) Security Agreement, dated February 4, 1999, between Ottawa
River Steel Co. and William D. Feniger.
21 List of Subsidiaries of Registrant
23.01 Consent of Independent Auditors
23.02 Consent of Independent Auditors
27 Financial Data Schedule
(b) Reports filed on Form 8-K.
There were no reports filed on Form 8-K during the fourth quarter of the
Company's 1999 fiscal year.
________________________
* Indicates an exhibit previously filed with the Securities and Exchange
Commission and incorporated herein by reference.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 18th day of
June, 1999.
MERIDIAN NATIONAL CORPORATION
By: /s/ William D. Feniger
----------------------
William D. Feniger
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signature Title Date
--------- ------ ----
/s/ William D. Feniger Chairman of the Board June 18, 1999
- --------------------------- of Directors, President
William D. Feniger and Chief Executive Officer
(Principal Executive Officer)
/s/ James L. Rosino Vice President - Finance June 18, 1999
- --------------------------- (Principal Financial and
James L. Rosino Accounting Officer)
/s/ Wayne Gardenswartz Director June 18, 1999
- ---------------------------
Wayne Gardenswartz
/s/ Jeffrey A. Slade Director June 18, 1999
- ---------------------------
Jeffrey A. Slade
/s/ Larry Berman Director June 18, 1999
- ---------------------
Larry Berman
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
June 18, 1999
To the Board of Directors and Stockholders
MERIDIAN NATIONAL CORPORATION AND SUBSIDIARIES
Toledo, Ohio
We have audited the accompanying consolidated balance sheets of Meridian
National Corporation and Subsidiaries as of February 28, 1999 and 1998, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the years 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 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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
Meridian National Corporation and Subsidiaries as of February 28, 1999 and 1998,
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has sustained losses in recent
years, has a working capital deficiency and total liabilities exceed total
assets. These conditions raise substantial doubt about its ability to continue
as a going concern. Management's plans regarding those matters also are
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Rehmann Robson P.C.
Farmington Hills, MI
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Meridian National Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Meridian National Corporation for the
year ended February 28, 1997. 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 consolidated results of Meridian National
Corporation's operations and its cash flows for the year ended February 28,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Toledo, Ohio
June 20, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------
ASSETS February 28
-----------------------------------------
1 9 9 9 1 9 9 8
----------- --------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 825,437 $ 21,260
Accounts receivable, net of allowance for doubtful
accounts of $448,000 ($149,500 in 1998) 8,021,764 11,219,600
Inventories 8,281,272 11,928,955
Other current assets 723,356 691,626
----------- --------------
Total current assets 17,851,829 23,861,441
----------- --------------
Property and equipment, at cost:
Buildings, building improvements and
leasehold improvements 1,263,209 2,988,916
Machinery and equipment 4,825,722 8,382,085
Office furniture and equipment 815,466 887,657
Land and land improvements 163,592 179,085
Construction in progress 26,350 200,028
----------- --------------
7,094,339 12,637,771
Less accumulated depreciation and amortization 3,514,601 4,946,160
----------- --------------
Net property and equipment 3,579,738 7,691,611
----------- --------------
Other assets 691,059 1,371,494
----------- --------------
Total assets $ 22,122,626 $ 32,924,546
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT February 28
---------------------------------------
1 9 9 9 1 9 9 8
------------- -------------
<S> <C> <C>
Current liabilities
Short-term bank borrowings $ 11,811,627 $ 13,153,473
Accounts payable and accrued liabilities 12,528,463 14,024,728
Current portion of long-term debt:
Loans payable affiliate 607,811 4,194,241
Other 3,045,046 -
------------- -------------
Total current liabilities 27,992,947 31,372,442
------------- -------------
Long-term debt due after one year:
Affiliate 275,232 275,232
Other 894,473 2,708,143
------------- -------------
Total long-term debt due after one year 1,169,705 2,983,375
------------- -------------
Total liabilities 29,162,652 34,355,817
------------- -------------
Commitments and contingencies (Note 7)
Stockholders' deficit:
Preferred stock, $.001 par value,
authorized 5,000,000 shares:
$100 Series A, 5,000 shares authorized,
4,000 shares issued and outstanding 400,000 400,000
$3.75 Series B, 1,375,000 shares authorized,
206,752 shares issued and outstanding 775,320 775,320
Common stock, $.01 par value, authorized 20,000,000
shares, issued and outstanding, 3,717,552 shares
(3,625,203 in 1998) 37,176 36,252
Additional paid in capital 10,998,866 10,950,845
Accumulated deficit (19,251,388) (13,593,688)
------------- -------------
Total stockholders' deficit (7,040,026) (1,431,271)
------------- -------------
Total liabilities and stockholders' deficit $ 22,122,626 $ 32,924,546
============= ============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended February 28
-------------------------------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
-------------- -------------- ---------------
<S> <C> <C> <C>
Net sales $ 49,291,003 $ 70,683,989 $ 66,511,224
Cost of sales 45,317,859 64,399,680 58,522,311
-------------- -------------- ---------------
Gross margin 3,973,144 6,284,309 7,988,913
-------------- -------------- ---------------
Other costs and expenses (income):
Selling, general and administrative 5,811,642 6,901,510 7,160,131
Interest 1,720,719 1,786,465 1,594,788
Restructuring charges 2,702,764 - -
Gain on disposal of property
and equipment (501,327) - -
Cost of abandoned registrations - 462,414 275,908
Minority interests - (96,600) (101,189)
Miscellaneous - net (226,672) (151,569) (321,260)
-------------- -------------- ---------------
Total other costs and expenses 9,507,126 8,902,220 8,608,378
-------------- -------------- ---------------
Loss from continuing operations before
extraordinary gain (5,533,982) (2,617,911) (619,465)
Discontinued operations:
Income from operations - - 90,924
Gain upon disposal - - 203,654
-------------- -------------- ---------------
Loss before extraordinary gain (5,533,982) (2,617,911) (324,887)
Extraordinary gain on early
extinguishment of debt - - 329,279
------------- -------------- ---------------
Net (loss) income $ (5,533,982) $ (2,617,911) $ 4,392
============= ============== ===============
Loss applicable to common stock $ (5,657,700) $ (2,763,101) $ (131,967)
============= ============== ===============
Earnings (loss) per common share -
basic and diluted:
Income (loss) before extraordinary gain:
Continuing operations $ (1.54) $ (0.78) $ (0.23)
Discontinued operations - - 0.09
Extraordinary gain - - 0.10
------------- -------------- ---------------
Net loss $ (1.54) $ (0.78) $ (0.04)
============= ============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
$100 $3.75
Series A Series B Additional
Preferred Preferred Common Paid in Accumulated
Stock Stock Stock Capital Deficit
---------- --------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at March 1, 1996 $ 400,000 $ 775,320 $ 27,551 $ 10,042,327 $ (10,698,617)
Net income for 1997 4,392
Dividends:
Cash dividends on Series A preferred stock - - - - (36,000)
Cash dividends on Series B preferred stock - - - - (68)
133,101 shares of common stock issued to holders
of Series B preferred stock - - 1,331 98,961 (100,292)
600,000 shares of common stock issued in exchange for a
$300,000 reduction in a convertible note payable - - 6,000 294,000 -
Issuance of common stock of subsidiary - - - 383,257 -
---------- --------- -------- ------------ -------------
Balance at February 28, 1997 400,000 775,320 34,882 10,818,545 (10,830,585)
Net loss for 1998 - - - - (2,617,911)
Dividends:
Cash dividends on Series A preferred stock - - - - (36,000)
Cash dividends on Series B preferred stock - - - - (22)
136,957 shares of common stock issued to holders
of Series B preferred stock - - 1,370 107,300 (109,170)
Issuance of warrants for purchase of common stock of subsidiary - - - 25,000 -
---------- --------- -------- ------------ -------------
Balance at February 28, 1998 400,000 775,320 36,252 10,950,845 (13,593,688)
Net loss for 1999 - - - - (5,533,982)
Dividends:
Cash dividends on Series A preferred stock - - - - (36,000)
Cash dividends on Series B preferred stock - - - - (7)
92,349 shares of common stock issued to holders
of Series B preferred stock - - 924 48,021 (48,945)
Accrued dividends on Series B preferred stock - - - - (38,766)
---------- --------- -------- ------------ --------------
Balance at February 28, 1999 $ 400,000 $ 775,320 $ 37,176 $ 10,998,866 $ (19,251,388)
========== ========= ======== ============ ==============
Total
-------------
<S> <C>
Balance at March 1, 1996 $ 546,581
Net income for 1997 4,392
Dividends:
Cash dividends on Series A preferred stock (36,000)
Cash dividends on Series B preferred stock (68)
133,101 shares of common stock issued to holders
of Series B preferred stock -
600,000 shares of common stock issued in exchange for a
$300,000 reduction in a convertible note payable 300,000
Issuance of common stock of subsidiary 383,257
------------
Balance at February 28, 1997 1,198,162
Net loss for 1998 (2,617,911)
Dividends:
Cash dividends on Series A preferred stock (36,000)
Cash dividends on Series B preferred stock (22)
136,957 shares of common stock issued to holders
of Series B preferred stock (500)
Issuance of warrants for purchase of common stock of subsidiary 25,000
------------
Balance at February 28, 1998 (1,431,271)
Net loss for 1999 (5,533,982)
Dividends:
Cash dividends on Series A preferred stock (36,000)
Cash dividends on Series B preferred stock (7)
92,349 shares of common stock issued to holders
of Series B preferred stock -
Accrued dividends on Series B preferred stock (38,766)
------------
Balance at February 28, 1999 $ (7,040,026)
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MERIDIAN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28
----------------------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss) income $ (5,533,982) $ (2,617,911) $ 4,392
Adjustments to reconcile net (loss) income
to net cash provided by (used in)
continuing operating activities:
Depreciation and amortization 974,160 856,332 810,397
Restructuring charges 2,702,764 - -
Extraordinary gain - - (329,279)
Minority interest - (96,600) (101,189)
Discontinued operations - - (294,578)
Write-down of inventory 830,000 - -
Write-down of noncurrent assets - 169,463 -
Gain on disposal of property and equipment (501,327) - (5,161)
Changes in operating assets and
liabilities which provided (used) cash:
Accounts receivable 3,176,784 (17,124) (2,975,085)
Inventories 2,817,683 154,577 (3,222,958)
Other current assets (31,730) (13,122) (8,789)
Accounts payable and accrued liabilities (1,935,031) 786,517 3,931,939
------------- ------------ -------------
Net cash provided by (used in) continuing operations 2,499,321 (777,868) (2,190,311)
Net cash provided by discontinued operations - - 117,049
------------- ------------ -------------
Net cash provided by (used in) operating activities 2,499,321 (777,868) (2,073,262)
------------- ------------ -------------
Cash flows from investing activities
Additions to property and equipment (486,591) (331,277) (2,288,008)
Proceeds from disposals of property and equipment 2,119,811 - 558,143
Changes in other assets 24,543 (17,221) (8,894)
------------- ------------ -------------
Net cash provided by (used in) investing activities 1,657,763 (348,498) (1,738,759)
------------- ------------ -------------
Cash flows from financing activities
Net short-term bank borrowings (repayments) (1,341,846) 2,015,219 2,132,072
Payments on long-term debt (1,975,054) (1,123,349) (1,374,918)
Issuance of common stock of subsidiary - - 581,046
Cash dividends paid (36,007) (36,022) (36,068)
Proceeds from long-term debt - 250,000 2,350,000
Net proceeds from exchange of warrants - 25,000 -
------------- ------------ -------------
Net cash (used in) provided by financing activities (3,352,907) 1,130,848 3,652,132
------------- ------------ -------------
Increase (decrease) in cash and cash equivalents 804,177 4,482 (159,889)
Cash and cash equivalents, at beginning of year 21,260 16,778 176,667
------------- ------------ -------------
Cash and cash equivalents, at end of year $ 825,437 $ 21,260 $ 16,778
============= ============ =============
Supplemental cash flows information:
Cash paid for interest, net of
amount capitalized $ 1,718,983 $ 1,915,035 $ 1,489,843
============= ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
----------
Meridian National Corporation and its subsidiaries (the "Company") are
engaged in the trading and processing of steel products for the automotive,
truck and appliance industries and the recycling or disposal of paint
wastes for generators of such wastes in the automotive industries located
primarily in the Midwest Region of the United States.
Basis of Presentation
---------------------
The financial statements have been presented on the basis that the Company
is a going concern. Such basis assumes the realization of assets and the
satisfaction of liabilities, each in the normal course of business. The
Company has sustained losses in recent years, has a working capital
deficiency, and total liabilities exceed total assets. Additionally, the
Company has been unable to meet certain payment obligations to a bank as
they became due and has been unable to maintain certain financial ratios
and covenants required under lending agreements with a bank. Continued
operations are dependent upon the Company's ability to meet its financing
requirements and the success of its future operations. The accompanying
consolidated financial statements do not include any adjustments to the
carrying values of assets or to the amount or classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
Management's plans with regard to these matters include:
. Renegotiations or refinancing obligations with its primary lender,
which are currently in default, as further described in Note 2.
. Assess current and future opportunities, which may include outside
debt infusion, raising additional equity capital or the sale or
merger of all or part of the Company's operations.
. Continued focus on its core steel processing and distribution
business.
. Reduce certain operating and administrative costs.
Restructuring of the Paint Waste Business
-----------------------------------------
During the year ended February 28, 1999, the Company recorded restructuring
charges of $2,702,764 to write down certain assets, principally impaired
equipment, and accrue certain liabilities related to the Polymeric Recovery
System of the paint waste business unit. The Company had intended to use
this system to produce a product using recycled paint waste, which would be
marketed as a lower cost replacement for traditional, virgin materials used
in formulated products in the sealant, coating, and adhesive industries.
The Company has been unable to market this product in a commercially viable
manner. The Company will continue to
F-8
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
recycle paint waste using the DryPure system, which generates an inert dry
powder, used as a filler in the formulation of certain building and
construction products.
Management believes this restructuring will enable the paint waste business
to generate sufficient cash flows to cover normal operating costs and
contribute to its debt service requirement. There is no assurance,
however, that the business will be a viable operation in the future.
Concentration Risks
-------------------
Substantially all of the Company's accounts receivable as of February 28,
1999 and 1998 are due from businesses, which operate in the automotive,
truck and appliance industries. The Company extends credit based on an
evaluation of credit reports, payment practices and, in most cases,
financial condition. Generally, collateral or letters of credit are not
required. Allowances for credit losses are provided for in the financial
statements and such losses consistently have been within management's
expectations.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Meridian
National Corporation and all subsidiaries in which it has in excess of a
50% ownership interest. All material intercompany transactions and
balances have been eliminated.
Use of Estimates
----------------
The preparation of consolidated financial statements in accordance 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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may
differ from these estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of demand deposits in banks, cash on
hand, and certificates of deposit with original maturities when purchased
of less than three months.
Inventory Valuation
-------------------
Inventories are carried at the lower of cost, using the specific
identification method, or market. At February 28, 1999, the Company
recorded an $830,000 charge to cost of sales for inventory write downs to
their estimated net realizable value.
F-9
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Revenue Recognition
-------------------
Sales are generally recognized at the time of shipment of products or
performance of services.
Property and Equipment and Depreciation
---------------------------------------
Property and equipment are stated at cost. Major improvements and renewals
are capitalized while ordinary maintenance and repairs are expensed.
Depreciation and amortization are provided, principally by means of
accelerated methods, except for the paint waste recycling subsidiary for
which all assets are depreciated using the straight-line method, based on
the following estimated useful lives:
<TABLE>
<S> <C> <C> <C>
Land improvements 15 to 20 years
Buildings, building improvements and
leasehold improvements 32 to 40 years
Machinery and equipment 5 to 15 years
Office furniture and equipment 5 to 10 years
</TABLE>
Capitalized Interest
--------------------
Interest costs of approximately $36,000 in 1998 were capitalized as a cost
of the expansion of the Company's paint waste recycling facility.
Fair Value of Financial Instruments
-----------------------------------
Based on the Company's financial condition, the collateral securing
outstanding debt and the frequently redetermined interest rates associated
with the majority of the Company's debt instruments, the Company believes
that the aggregate fair values of short-term notes payable and long-term
debt approximate the carrying values.
Intangible Assets
-----------------
The Company evaluates the recoverability of long-lived assets based on
undiscounted projected cash flows, excluding interest and taxes, when
factors indicate that an impairment may exist. The Company wrote off in
fiscal 1998 all of the remaining goodwill associated with the acquisition
of the common stock of certain subsidiaries in the amount of approximately
$169,000, primarily due to operating losses incurred in fiscal 1998.
F-10
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Earnings (Loss) Per Common Share
--------------------------------
Earnings (loss) per share is computed using the weighted average number of
common shares outstanding during the year. The Company adopted Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share",
effective March 1, 1997. This statement requires a dual presentation and
reconciliation of "basic" and "diluted" per share amounts. Diluted
reflects the potential dilution of all common stock equivalents. At
February 28, 1999, 1998 and 1997 options to purchase 427,750, 497,750, and
503,300 shares, respectively, were excluded from the computation of
earnings per share because the options' exercise prices were greater than
the average market price of the common shares. Common shares issued for
dividends on preferred stock are included in weighted average shares
outstanding beginning on the date issued. The effects of options and
warrants are excluded from earnings per share calculations when the effect
would be anti-dilutive. The weighted average number of common and common
equivalent shares used to compute earnings (loss) per share for each year
is:
<TABLE>
<S> <C> <C> <C>
1 9 9 9 1 9 9 8 1 9 9 7
--------- --------- ---------
Basic and diluted 3,678,082 3,532,195 3,241,349
========= ========= =========
</TABLE>
Cash dividends on preferred stock and the value of common shares issued as
dividends on Series B preferred stock ($123,718 in 1999, $145,192 in 1998
and $136,359 in 1997) are deducted in arriving at loss applicable to common
shares.
Stock Options
-------------
All options have been granted at prices not less than the market price on
the date granted. Accordingly, the Company recognizes no compensation
expense related to these options in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No.
25).
2. SHORT-TERM BANK BORROWINGS
The Company has a $13,500,000 revolving demand line of credit with a bank
under a Loan and Security Agreement with interest at 1% above the bank's
prime rate (effective rate of 8.75% at February 28, 1999). The agreement
allows borrowings under a lending formula based upon eligible accounts
receivable and inventories less outstanding letters of credit issued under
the agreement. The revolving credit line agreement prohibits the payment
of cash dividends on the Company's common stock and allows the payment of
cash dividends on the Company's preferred stock issues only if the Company
is not in default of any provisions in the loan agreement and payment of
such dividend would not result in any defaults.
F-11
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
As a result of the Company's inability to make payments of sums due and
maintain the terms and covenants of the original loan agreements, the
Company entered into a forbearance agreement with the bank in May 1999
which expires June 30, 1999. Under the forbearance agreement, the bank has
agreed not to exercise its right to demand immediate payment of obligations
due, and the right to foreclose, take possession of, and liquidate all
collateral. The bank has also agreed to permit the Company to exceed the
eligible borrowing amount based on the lending formula by approximately
$2,350,000 (the "overadvance") and not enforce the default interest rate
during the forbearance period.
At February 28, 1999, approximately $900,000 was available under the
revolving demand line after considering the allowable overadvance. The
agreement provides for a commitment fee equal to .25% of the excess of
$13,500,000 over average daily borrowings and is secured by substantially
all of the Company's personal property not otherwise pledged.
Weighted average interest rates at year end were 9.00% in 1999, 9.48% in
1998 and 9.33% in 1997.
3. LONG-TERM DEBT
Long-term debt consists of the following obligations at February 28:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------------- -------------
<S> <C> <C>
8.5% mortgage note payable to trustee bank, due in monthly
installments, including interest of approximately $73,000
until final maturity in November 2000. $ 1,363,750 $ 2,063,750
Notes payable to bank collateralized by certain equipment,
due in monthly installments of $21,000, plus interest at
1.5% above prime (effective rate of 9.25% at February 28,
1998), with a final payment of $2,035,000 which was due
March 1998 and is currently in default. 1,783,000 2,035,000
Note payable to an officer and stockholder, due in monthly
installments of $15,000, including interest at 9.25% with
balance due in July 1999. The note is guaranteed by the
Company, and by a security interest in certain machinery and
equipment. 607,811 -
Note payable, collateralized by certain machinery and
equipment, due in monthly installments of $17,675
including interest at 11.7% through December 2000. 348,444 496,681
</TABLE>
F-12
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
---------- ----------
<S> <C> <C> <C>
Convertible note payable to an officer and stockholder,
interest payable quarterly at 9%, secured by a pledge of
common stock of certain subsidiaries. The note is
subordinate to bank borrowings and is convertible into
shares of common stock at a conversion price of $15.60 per
share. $ 275,232 $ 275,232
Unsecured promissory note, due August 1998, and currently
in default, plus interest at 18% per annum. 250,000 250,000
Mortgage and other notes payable to bank, repaid during the
year ended February 28, 1999. - 750,915
Obligations under long-term capital leases:
Lease purchase obligations, repaid during the year ended
February 28, 1999. - 1,053,151
Lease purchase obligation payable in monthly installments
of $2,315 including interest at 5% through May 2002. 83,855 103,165
Lease purchase obligation payable in monthly installments
of $1,992 including interest at 8.53% through June 2002. 67,769 101,140
Other 42,701 48,582
---------- ----------
Total long-term debt 4,822,562 7,177,616
Less amounts due within one year 3,652,857 4,194,241
---------- ----------
Long-term debt due after one year $1,169,705 $2,983,375
========== ==========
</TABLE>
An officer and stockholder of the Company has personally guaranteed the
Company's borrowings from the bank, aggregating $13,594,627 at February 28,
1999.
An officer and stockholder of the Company has agreed to defer payment of a
convertible note payable of $275,232 until after February 28, 2000. The
note was scheduled to mature in September 1995. Accordingly, the note
payment has been excluded from long-term debt due within one year in the
accompanying consolidated balance sheets. In May 1996 the Board of
Directors authorized the issuance of 600,000 shares of the Company's common
stock to the officer and stockholder in exchange for a reduction of
$300,000 to the convertible note payable to the officer and stockholder.
F-13
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Effective July 1, 1992, Environmental Purification Industries Company
("EPI") became a wholly-owned subsidiary of the Company when, pursuant to a
Termination Agreement, Haden Purification, Inc. ("Haden Purification")
terminated and abandoned its 50% partnership interest in EPI. Under the
Termination Agreement, Haden Purification assumed liability for one-half of
the remaining principal, interest and fee payments due under the Company's
8.5% mortgage note payable and was assigned 50% of the amount held in trust
to meet future debt service requirements. Haden Purification makes
principal, interest and fee payments directly to the trustee bank. As
such, these payments are excluded from the statement of cash flows.
Interest expense in the accompanying consolidated statements of operations
excludes interest and fee payments made by Haden Purification amounting to
$91,600 in 1999, $120,100 in 1998, and $140,407 in 1997.
In June 1996, the Company executed an agreement (the "Compromise
Agreement") to repay a note payable to Haden Purification. The terms of
the Compromise Agreement included, among other things, settlement of the
note payable for a payment of $350,000 made in July 1996. The Company is
required to continue to pay, through July 1, 1998, Haden Environmental
Corporation, an affiliate of Haden Purification, a throughput charge of $10
per cubic yard of paint waste processed through EPI's current recycling
system. Prior to execution of the Compromise Agreement, payments of the
throughput charge were credited towards amounts due under the note payable
to Haden Purification. The gain of $329,279 on early extinguishment of
debt during fiscal 1997 is reflected as an extraordinary gain. Throughput
charges subsequent to July 1, 1996 are reported as operating expenses as
incurred.
Scheduled maturities of long-term debt in each of the five fiscal years
subsequent to February 28, 1999, including the principal portion of minimum
payments under long-term lease obligations, are approximately as follows:
<TABLE>
<S> <C> <C>
2000 $ 3,653,000
2001 1,101,000
2002 55,000
2003 13,562
-----------
Total $ 4,822,562
===========
</TABLE>
These amounts include principal payments to be made by Haden Purification,
as follows:
<TABLE>
<S> <C> <C>
1999 $ 380,000
2000 301,875
----------
Total $ 681,875
==========
</TABLE>
F-14
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. LEASE COMMITMENTS
Capitalized Leases
------------------
The Company leases certain property and equipment under long-term
agreements classified as capital leases. The property and equipment can be
purchased at the expiration of the leases for nominal amounts.
The cost and accumulated amortization of property leased under capital
leases are as follows as of February 28:
<TABLE>
<S> <C> <C>
1 9 9 9 1 9 9 8
---------- ----------
Buildings $ - $ 634,383
Machinery and equipment 328,521 1,249,209
---------- ----------
328,521 1,883,592
Less accumulated amortization 153,875 735,030
---------- ----------
$ 174,646 $1,148,562
=========== ==========
</TABLE>
Future minimum payments and their present value under these leases at
February 28, 1999 are approximately as follows:
<TABLE>
<S> <C> <C>
2000 $ 83,000
2001 61,000
2002 58,000
2003 12,000
-----------
Total minimum lease payments 214,000
Less amount representing interest at imputed rates
ranging from 5% to 12.83% 20,000
-----------
Present value of net minimum lease payments
included in long-term debt $ 194,000
===========
</TABLE>
Certain property and equipment leased under a capital lease with a cost and
accumulated amortization of $742,983 and $468,000, respectively, were sold
in August 1998. The present value of the lease payments were paid at the
time of the sale of the property in full satisfaction of this lease
purchase obligation.
Operating Leases
----------------
The Company leases certain property and equipment under agreements
classified as operating leases. Total rent expense charged to operations
for 1999, 1998 and 1997 approximated $588,000, $620,000, and $610,000,
respectively, which included $253,000, $249,000, and $290,000,
respectively, to related parties. Minimum future rental commitments under
F-15
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
noncancelable operating leases at February 28, 1999, including aggregate
payments of $897,000 to an affiliate of an officer and certain
stockholders, are $443,000 in 2000, $437,000 in 2001, $334,000 in 2002,
$171,000 in 2003, and $171,000 in 2004.
5. DISCONTINUED OPERATIONS
On July 5, 1996, the Company sold all of the property and equipment of
Meridian Environmental Services, Inc. ("MES"), a wholly-owned subsidiary
which operated the Company's waste acid recycling and disposal business.
The assets were sold for $700,000 to a new company formed by former MES
management. Of the $700,000 sales price, $200,000 was represented by notes
due from the purchaser, receivable in varying installments over a period of
five years. Due to the uncertainty of the collectibility of the notes,
recognition of $185,000 of the gain on the sale, representing the balance
of the unpaid notes, has been deferred at February 28, 1999.
The accompanying consolidated financial statements separately report the
operating results of this discontinued operation. Net sales of the
discontinued operation were approximately $458,000 through the disposal
date in fiscal 1997.
6. SUBSIDIARY STOCK
During fiscal 1997, 25 shares of common stock (a 20% interest) of EPI
Technologies, Inc. were issued to outside investors for $581,046 in cash,
net of related offering costs. Proceeds of the sale were credited to
minority interest, based on the carrying value of the subsidiary, with the
remainder credited to capital in excess of stated value. EPI Technologies,
previously a wholly-owned subsidiary, holds the Company's interest in EPI,
the Company's paint waste recycling operation.
7. COMMITMENTS AND CONTINGENCIES
License Agreement
-----------------
EPI has entered into a license agreement with Aster, Inc. ("Aster") whereby
Aster has granted the Company the exclusive right, except in Mexico, to use
certain patented processes and technology in its paint recycling process.
EPI has agreed to pay Aster royalties and other fees for ongoing work
performed by Aster to commercialize and to continue to refine the
processes, formulae and technology. During fiscal 1999, the minimum
monthly payments required by the agreement were reduced from $20,000 to
$10,000.
F-16
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Litigation and Regulatory Matters
---------------------------------
The Company is involved in certain litigation and claims incidental to its
business. In one such claim, the Company is involved in a labor relations
matter in which the National Labor Relations Board has instituted a claim
against companies which leased employees to the Company. The amount of the
claim is $1.3 million. The ultimate outcome with respect to such
proceedings currently cannot be predicted. However, the Company believes,
based on its examination and review of such matters and consultation with
outside legal counsel, that there are meritorious defenses available to the
Company.
In April 1999, the Company received a notice from the United States
Environmental Protection Agency concerning the Agency's intent to file an
administrative complaint. The complaint, if filed, could seek civil
penalties against EPI. The Company has answered the notice and believes
the ultimate outcome of the matter will not result in material liability to
the Company.
Employment Agreement
--------------------
The Company and its President have an employment agreement which provides
for annual automatic renewals through July 31, 2002. The agreement also
provides that in the event of the officer's death during the term of the
employment agreement, the current salary is to be continued by payment for
three years to his surviving spouse or estate.
8. CAPITAL STOCK
The Series B preferred stock has a mandatory dividend payable semiannually
at an annual rate of $.375 per share, if paid in cash, or, at the Company's
option, $.4875 per share if paid in shares of common stock based on the
average market value of the common stock for the 20 days prior to the
record date. At February 28, 1999, preferred stock dividends of $38,766
have been accrued but not paid. Holders of the Series B preferred stock
are entitled to one-tenth vote for each share held and, subject to certain
conditions, vote together with the holders of common stock as a single
class. Each share of the Series B preferred stock is convertible, at the
option of the holder into .25 shares of common stock, subject to adjustment
under certain circumstances. The Series B preferred stock may be redeemed
by the Company, in whole or in part, at a redemption price of $4.875 per
share if the average of the closing prices of the common stock has been at
least $22.50 per share during twenty consecutive trading days.
During the period from June 22 to July 26, 1994, the Company extended a
special offer to holders of its Series B preferred stock to exchange for
each 100 shares of Series B preferred stock, one unit, consisting of 90
newly issued shares of common stock and 100 warrants (the "1999 Warrants")
to purchase 1.2 shares of common stock each at an exchange price of $2.35
per share, as adjusted, subject to further adjustment in certain
circumstances. The 1999 Warrants are exercisable through June 1999. A
total of 1,041,249 shares, or 83% of the Series B preferred
F-17
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
shares outstanding, were validly tendered for exchange. The number of 1999
Warrants outstanding at February 28, 1999 was 1,040,300.
Holders of the Series A preferred stock are entitled to receive quarterly,
cumulative dividends of $2.25 per share. The Series A preferred stock does
not have voting rights and is redeemable at the Company's discretion for
$100 plus accrued and unpaid dividends.
Common shares reserved for future issuance at February 28, 1999 aggregated
2,072,582 and related to the following instruments:
<TABLE>
<CAPTION>
<S> <C>
Common stock purchase warrants 1,271,031
Stock options 732,220
Convertible debt 17,643
Convertible preferred stock 51,688
</TABLE>
9. COMMON STOCK OPTIONS
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees", in accounting for its employee and non-employee director
stock options. The alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123), requires use of option valuation models
that were not developed for use in valuing employee stock options. Under
APB No. 25 no compensation expense is recognized because the exercise price
of the Company's employee stock options equals or exceeds the market price
of the underlying stock at the date of the grant.
In the opinion of management, the existing fair value models do not provide
a reliable measure of the fair value of employee stock options. The Black-
Scholes option valuation model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. The Company's employee and non-employee director stock
options have characteristics significantly different from those of traded
options. In addition, option valuation models require highly subjective
assumptions. Changes in these assumptions can materially affect the fair
value estimate.
SFAS No. 123 requires, if APB No. 25 is followed, disclosure of pro forma
information regarding net income and earnings per share determined as if
the Company accounted for its stock options under the fair value method.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively; a risk-free interest
rate of 6.5%; a dividend yield of 0%; expected volatility of the Company's
common stock .929, .484, and .484; and a weighted-average expected life of
the options of 7 years.
F-18
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The weighted-average fair value of options granted in 1999, 1998 and 1997
was $0.43, $0.49, and $0.47, respectively. For purposes of pro forma
disclosures, the estimated fair value of options is amortized to expense
over the option's vesting period. Amortization attributable to grants
awarded in both 1999, 1998 and 1997 impact the pro forma results. The
Company's reported and pro forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C>
Net income (loss):
Reported $ (5,533,982) $ (2,617,911) $ 4,392
Pro forma (5,551,390) (2,670,322) (83,018)
Loss per share:
Reported (1.54) (0.78) (0.04)
Pro forma (1.55) (0.80) (0.07)
</TABLE>
The Company has a nonqualified and incentive stock option plan for its
officers and key employees under which 600,000 shares of common stock may
be issued. Incentive stock options issued to stockholders possessing more
than ten percent of the combined voting rights of the Company may be
granted at an exercise price of not less than 110 percent of the fair
market value of the common stock at the date of the grant and are
exercisable for a period not exceeding five years from the date of the
grant. All other options under the plan may be granted at amounts not less
than the market value of the common stock at the date of the grant and are
exercisable for a period not exceeding ten years from the date of the
grant.
The Company has also established a non-employee directors' stock option
plan under which 150,000 shares of common stock may be issued. Under this
plan, eligible directors who have served twelve consecutive months are
annually granted options to purchase 2,500 shares. Under the plan, options
may be granted at an exercise price equal to the market value on the date
of grant and are exercisable for a period not exceeding ten years from the
date of grant.
F-19
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Summary information on stock options is as follows:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8 1 9 9 7
---------------------------- ---------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 497,750 $ 1.48 503,300 $ 1.48 229,800 $ 2.25
Granted 7,500 .52 7,500 .78 315,000 1.00
Terminated (77,500) 1.74 (13,050) 1.34 (41,500) 2.07
--------- ----------- --------- ----------- --------- -----------
Outstanding,
end of year 427,750 $ 1.41 497,750 $ 1.48 503,300 $ 1.48
========= =========== ========= =========== ========= ===========
Options exercisable,
end of year 248,300 $ 1.57 213,050 $ 1.74 133,450 $ 1.99
========= =========== ========= =========== ========= ===========
Weighted average fair value of
options granted during the year $ 0.43 $ 0.49 $ 0.47
=========== =========== ===========
</TABLE>
The weighted average remaining contractual life of options outstanding at
February 28, 1999 is 6.6 years. Exercise prices for outstanding options at
February 28, 1999 range from $0.52 to $4.00 per share.
10. INCOME TAXES
The Company has net operating loss, alternative minimum tax credit and
business credit carryforwards for federal income tax purposes of
approximately $11,326,000, $9,000 and $18,000, respectively, available for
the reduction of future federal taxable income and income taxes. Net
operating loss carryforwards begin expiring in fiscal 2005.
The effective income tax rate, excluding extraordinary gains and
discontinued operations for 1999, 1998 and 1997 differs from the statutory
U.S. federal income tax rate due to the following:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Tax (benefit) based on statutory (34.0)% (34.0)% (34.0)%
U.S. federal income tax rate
Change in valuation allowance 38.6 27.2 28.2
Meals and entertainment 1.0 3.7 6.4
State and local tax effects (6.6) (4.5) (4.2)
Amortization of goodwill - - 0.3
Writedown of goodwill - 6.3 -
Other 1.0 1.3 3.3
------ ------ ------
Effective rate - % - % - %
======= ====== ======
</TABLE>
F-20
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Deferred income taxes are measured based on temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as
follows as of February 28:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 4,530,000 $ 3,464,000
Inventory 545,000 238,000
Property and equipment 690,000 -
Other 300,000 180,000
------------ ------------
Total deferred tax assets 6,065,000 3,882,000
Valuation allowance (5,494,000) (3,373,000)
------------ ------------
Net deferred tax assets 571,000 509,000
------------ ------------
Deferred tax liabilities:
Property and equipment (566,000) (505,000)
Other (5,000) (4,000)
------------ ------------
Total deferred tax liabilities (571,000) (509,000)
------------ ------------
Net deferred tax assets and liabilities $ - $ -
============ ============
</TABLE>
Change in the valuation allowance equals the change in net deferred taxes.
11. INDUSTRY SEGMENT INFORMATION
The Company has two operating segments which are in separate industries.
The steel distribution and processing segment handles flat-rolled steel
products for the automotive, truck and appliance industries. The waste
management segment recycles paint wastes for companies in the automotive
industry.
Net sales by segment includes sales to unaffiliated customers and
intersegment sales at prices which the Company believes approximate market.
Intersegment sales represent services provided by the waste management
segment for the steel distribution and processing segment. Corporate
charges incurred on behalf of the segments are allocated based on the
percentage of time devoted to segment business by corporate personnel.
Operating profit (loss) by segment excludes unallocated general corporate
expenses and net interest expense. Corporate assets consist primarily of
cash and other short-term assets.
Net sales of the steel distribution and processing segment include
$5,878,000, $10,101,000, and $9,176,000 in 1999, 1998 and 1997,
respectively, for slitting of coil steel for a steel stamping customer. The
accounts receivable balances from this customer at February 28, 1999 and
1998 were approximately $1,079,000 and $2,074,000, respectively.
F-21
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The following summarizes the Company's operations and identifiable assets:
<TABLE>
<S> <C> <C> <C>
1 9 9 9 1 9 9 8 1 9 9 7
-------------- -------------- --------------
Net sales:
Steel distribution and
processing $ 45,418,511 $ 66,965,409 $ 63,103,554
Waste management 3,872,492 3,718,580 3,417,070
Eliminations - - (9,400)
-------------- -------------- --------------
Total net sales $ 49,291,003 $ 70,683,989 $ 66,511,224
============== ============== ==============
Operating profit (loss):
Steel distribution and
processing $ 12,326 $ 1,085,575 $ 2,487,412
Waste management (a) (3,174,435) (1,066,514) (629,107)
-------------- -------------- --------------
Total operating profit (loss) (a) (3,162,109) 19,061 1,858,305
General corporate expenses (651,154) (850,507) (938,624)
Interest expense - net (1,720,719) (1,786,465) (1,539,146)
Loss from continuing operations -------------- -------------- --------------
before income taxes and
extraordinary gain. (a) $ (5,533,982) $ (2,617,911) $ (619,465)
============== ============= =============
1 9 9 9 1 9 9 8 1 9 9 7
-------------- -------------- --------------
Identifiable assets:
Steel distribution and $ 18,063,893 $ 26,772,489 $ 27,003,764
Processing
Waste management 2,833,790 5,655,891 6,130,291
Corporate and discontinued 1,227,567 739,202 647,263
operations
Eliminations (2,624) (243,036) (80,508)
-------------- -------------- --------------
Total assets $ 22,122,626 $ 32,924,546 $ 33,700,810
============== ============= =============
</TABLE>
(a) Includes restructuring charge of $2,702,764 in fiscal 1999 and
costs of withdrawn registrations of $462,000 and $267,000 for
1998 and 1997, respectively.
F-22
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8 1 9 9 7
------------ ------------ --------------
<S> <C> <C> <C>
Depreciation and amortization:
Steel distribution and
processing $ 423,936 $ 436,313 $ 436,435
Waste management 522,675 389,724 338,690
Corporate assets 27,549 30,292 37,116
------------ ------------ --------------
Total depreciation and
amortization $ 974,160 $ 856,329 $ 812,241
============ ============ ==============
Capital expenditures:
Steel distribution and
processing $ 258,260 $ 355,294 $ 135,336
Waste management 228,331 315,732 2,193,270
Corporate assets and
discontinued operations - 3,505 5,135
------------ ------------ --------------
Total capital expenditures $ 486,591 $ 674,531 $ 2,333,741
============ ============ ==============
</TABLE>
12. COSTS OF ABANDONED REGISTRATIONS
During 1998 and 1997, the Company incurred expenses in conjunction with
proposed initial public offerings of approximately 50% of a subsidiary
which includes the Company's paint waste recycling operation. Due to
weakness in the public market and to other matters, the planned offerings
were ultimately abandoned. The Company charged to operations in the fourth
quarters of fiscal 1998 and 1997 approximately $462,000 and $276,000,
respectively, of legal, accounting and other costs related to the
unsuccessful offerings. Such costs exclude the impact, if any, of certain
services billed to the Company in amounts in excess of what management
believes are reasonable under the circumstances. The ultimate settlement
amount of these contested billings cannot be predicted and accordingly, no
provision for additional costs, if any, have been made in the financial
statements.
F-23
<PAGE>
MERIDIAN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS
In August 1998, the Company sold property and equipment located in Detroit,
Michigan for $1,500,000 in cash, which resulted in a gain of approximately
$960,000. The proceeds were used to pay off existing debt on the building
and also to make payments against the Company's bank borrowings. The
property and equipment sold were previously leased to the purchaser of the
property. The purchaser is a company which is a stockholder in the Company
and one of its subsidiaries. One of the Company's directors has a majority
ownership position in the purchaser.
During fiscal 1999, the Company entered into an agreement whereby it was
advanced approximately $700,000 from an affiliate to purchase steel. In
return, the Company paid the affiliate interest on unpaid advances at a
rate of 7.75% plus 50% of the gross profit resulting from the related sale
of steel products. Total interest and gross profit through year end was
$20,325, subsequent to year end amounts owed under the agreement were
substantially repaid.
* * * * *
F-24
<PAGE>
MERIDIAN NATIONAL CORPORATION
FORM 10-K
INDEX TO EXHIBITS
10.01(u) Forbearance Agreement, dated May 7, 1999, among the Company,
certain of its subsidiaries and National Bank of Canada.
10.15(d) Second Lease Amendment dated December 15, 1998, between Ottawa
River Steel Co., Meridian National Corporation and Great Lakes
Industrial Partners L.P.
10.15(e) Sublease Agreement, effective as of December 15, 1998, between
Ottawa River Steel Co. and Centennial Steel Processing, LLC.
10.18(a) Cognovit Demand Promissory Note for $618,000, dated February 4,
1999, of Ottawa River Steel Co. to William D. Feniger.
10.18(b) Open-end Mortgage, dated February 4, 1999, between Ottawa River
Steel Co. and William D. Feniger.
10.18(c) Security Agreement, dated February 4, 1999, between Ottawa River
Steel Co. and William D. Feniger.
21 List of Subsidiaries of Registrant
23.01 Consent of Independent Auditors
23.02 Consent of Independent Auditors
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.01(u)
May 7, 1999
Meridian National Corporation
Ottawa River Steel Co.
National Metal Processing, Inc.
Interstate Metal Processing, Inc.
Precise Pac, Inc.
Meridian Environmental Services, Inc.
EEC Technologies, Inc.
Environmental Purification Industries Company
c/o Meridian National Corporation
805 Chicago Street
Toledo, 01-1 43611
Attn: William D. Feniqer, President
Gentlemen:
Reference is made to that certain Loan and Security Agreement, dated as of
December 6, 1989, by and among National Bank of Canada, a Canadian chartered
bank (the "Bank") on the one hand, and, on the other hand, Meridian National
Corporation, a Delaware corporation ("MNC") , Ottawa River Steel Co., an Ohio
corporation ("ORS") , National Metal Processing, Inc., a Michigan corporation
("NMP") , Interstate Metal Processing, Inc., an Ohio corporation ("IMP"),
Precise Pac, Inc. (f/k/a National Metal Shearing Corp.), a Michigan corporation
("PPI"), and Meridian Environmental Services, Inc., a Michigan corporation
("MES" and collectively with MNC, ORS, NMP, IMP, and PPI, the "Revolving
Borrowers"), as amended by Amendment No. 1 to the Loan and Security Agreement
dated March, 1990 through Amendment No. 14 to the Loan and Security Agreement
dated as of May 12, 1997 (collectively, the "Loan Agreement"). Reference also
is made to the "EPI Term Notes" as such term is defined in the Loan Agreement.
Initial capitalized terms used herein, unless otherwise defined, shall have the
meaning ascribed to such terms in the Loan Agreement.
As you know, events have occurred, each of which either constitutes an
Event of Default, or with passage of time after notice or demand would, unless
cured, constitute an Event of Default (the "Current Defaults") - The Current
Defaults include, among other things, the failure of the makers of the EDT Term
Notes to make payment of sums due and owing thereunder, and the failure of the
Revolving Borrowers to perform, keep or observe the terms and covenants set
forth at. Sections 2.3(A) (Revolving Loan shall not exceed Revolving Loan
Borrowing Base), 7.1(I) (required financial information), 7.1 (N) (Tangible Net
Worth) , 7.1 (0) (Debt to Tangible Net
<PAGE>
Worth Ratio), 7.1(P) (Working Capital) and 7.1(Q) (Cash Flow Ratio) of the Loan
Agreement. Neither the Revolving Borrowers nor the makers of the EPT Term Notes
(collectively, the "Borrowers") are able to cure any of the Current Defaults
within the applicable cure periods, if any. The Bank presently has the right to
accelerate the Obligations and demand immediate payment thereof, and the right
to foreclose upon, take possession of, and liquidate all Collateral. The Bank
has applied all Cash Collateral to reduction of the "Overadvance" (as defined
hereinbelow) . The Borrowers and Bank have discussed possible restructuring of
the Obligations. The Bank is investigating under what terms and conditions, if
any, it may be willing to continue to provide financing to the Borrowers.
Notwithstanding the foregoing, subject to the terms of this letter agreement,
the Bank continues to have the unfettered right to accelerate the Obligations
and enforce all of its rights and remedies.
Borrowers have requested that the Bank forbear in the exercise and
enforcement of the Bank's rights, powers and remedies under the Loan Agreement,
the other Credit Documents or otherwise existing under applicable law. Borrowers
also have requested that the Bank agree to permit the balance of the Revolving
Loan to exceed the Revolving Loan Borrowing Base by an amount not to exceed the
"Maximum Overadvance" (as such term is defined hereinbelow). Borrowers also
have requested that the Bank suspend effectiveness of Section 3 of the Loan
Agreement (the "Default Interest Provision") and of Sections 7.1(N), (0), (P)
and (Q) of the Loan Agreement (collectively, the "Financial Covenants") . The
Bank is willing to (i) forbear for the time period expressly set forth herein in
the exercise and enforcement of such rights, powers and remedies, (ii) permit
the balance of the Revolving Loan to exceed the Revolving Loan Borrowing Ease by
an amount not to exceed the Maximum Overadvance, and (iii) suspend for the time
period expressly set forth herein the effectiveness of the Default Interest
Provision and the Financial Covenants, but only upon full and complete
compliance and fulfillment by Borrowers of the following terms and conditions:
1. ACKNOWLEDGMENTS. Each of Borrowers hereby acknowledges and agrees
that: (a) pursuant to that certain Assignment dated as of June 1, 1998, between
National Canada Finance Corp., as Assignor, and Bank, as Assignee, Bank is the
successor-in-interest, assignee and owner of all right, title and interest of
Bank of New England, N.A. and National Canada Finance Corp. in and to the Loan
Agreement, the Obligations, the Collateral and the other Credit Documents; (b)
the Current Defaults have occurred and are continuing and Borrowers are unable
to cure any of such Current Defaults which have a cure period; (c) Bank has not
heretofore expressly or impliedly waived any of the Current Defaults; (d) absent
the effectiveness of this letter agreement, the Default Interest Provision and
the Financial Covenants would be in full force and effect; (e) Bank has the
right to accelerate and immediately enforce payment of all Obligations and, in
connection therewith, to immediately enforce its security interests in, and
liens on, the Collateral and exercise all other rights, powers and remedies
provided to Bank under the Credit Documents and applicable law; (f) it has no
grounds for disputing the validity or enforceability of the Credit Documents or
any of its obligations thereunder, or the validity, priority, enforceability or
extent of
<PAGE>
Bank's security interests in or liens against any item of Collateral;
(g) the principal and interest portion of the Obligations comprises the
following:
Principal Accrued Unpaid
as of Interest
3/19/99 Thru 3/19/99 Total
--------- -------------- -----
i. Revolving Loan $ 11,376,369.40 $60,882.75 $11,437,252.15
ii. EPI First Term Loan 300,000.00 1,618.75 301,618.75
iii EPI Second Term Loan 350,000.00 1,888.54 351,888.54
iv. EPI Third Term Loan 1,112,000.00 6,000.17 1,118,000.17
--------------- ---------- --------------
Total at 3/19/99 $13 138,369.40 70,390.21 $13,208,759.61
---------
and (h) the balance of the Revolving Loan exceeds the Revolving Loan Borrowing
Base in violation of Section 2.3(A) of the Loan Agreement. The portion of the
balance of the Revolving Loan in excess of the Revolving Loan Borrowing Base is
referred to herein as the "Overadvance."
2. LIMITED FORBEARANCE. (a) During the Forbearance Period (defined
hereinbelow) , so long as no Forbearance Event of Default shall have occurred
and be continuing and subject to compliance by Borrowers with the terms and
conditions of this letter agreement and the other Credit Documents, Bank hereby
agrees that it shall (i) forbear in the exercise of its rights, powers and
remedies afforded under the Credit Documents or applicable law, (ii) permit the
balance of the Revolving Loan to exceed the Revolving Loan Borrowing Base by an
amount not to exceed the Maximum Overadvance, and (iii) suspend the
effectiveness of the Default Interest Provision and the Financial Covenants
during the Forbearance Period. The "Forbearance Period" means the period
commencing on the date this letter agreement becomes effective and ending on the
earliest to occur of (i) the date of termination of the Forbearance Period
pursuant to Section 5 of this letter agreement or otherwise, (ii) the date on
which all of the Obligations have been paid in full and the Loan Agreement has
been terminated, (iii) the date, if any, on which the Loan Agreement is further
amended to extend the Forbearance period or otherwise modify the Bank's existing
right to accelerate and immediately enforce payment of all Obligations, and in
connection therewith, to immediately enforce its security interests in and liens
on the Collateral and exercise all other rights, powers and remedies under the
Credit Documents and applicable law, or (iv) June 30, 1999.
(b) The Bank's forbearance is further expressly subject to and conditioned
upon Borrowers' strict compliance with each and every term and provision of this
letter agreement, and, except with respect to the Default Interest Provision and
the Financial Covenants, Borrowers' strict compliance with each and every term
and provision of the Credit Documents.
<PAGE>
3. CONDITIONS TO EFFECTIVENESS OF LETTER AGREEMENT. The effectiveness of
this letter agreement and the Bank's forbearance herein shall be subject to and
conditioned upon delivery of the following documents to Bank in form and
substance satisfactory to Bank, and the fulfillment and satisfaction of the
following terms and conditions:
(a) Letter Agreement. Bank shall have received four (4) executed copies of
this letter agreement executed by each Borrower;
(b) Extension Fee. Borrowers shall have paid to Bank a fee (the "Extension
Fee") in the amount of thirty thousand dollars ($30,000.00) in consideration of
Bank's forbearance and other financial accommodations provided herein and under
the Loan Agreement including, without limitation, the Overadvance, and also to
reimburse Bank for Costs and Expenses incurred in connection with this
Agreement, including legal fees and expenses;
(c) Reaffirmation of Current. Bank shall have received an executed copy of
a Reaffirmation of Guaranty in form and substance acceptable to Bank executed by
William D. Feniger in respect of that certain Guaranty, dated November 4, 1990,
executed by William D. Feniger in favor of the Bank; and
(d) Other Documents. Bank shall have received from Borrowers such other
documents and agreements as Bank may reasonably request.
4. ADDITIONAL COVENANTS OF BORROWERS. Borrowers
acknowledge, covenant and agree that:
(a) Delivery of Financial Statements. Borrowers will furnish to Bank within
30 days after the end of each month, commencing with March 1999, in addition to
the financial statements required at Section 7.1(I) (2) of the Loan Agreement,
unaudited interim cash flow statements prepared in accordance with Generally
Accepted Accounting Principles (excepting footnotes and subject to normal year-
end adjustments) for such month, for each of Borrowers and their respective
related affiliates, each certified by its chief financial officer that, to the
best of his or her knowledge, such statements fairly present the results of
operations of such Borrower for the period covered thereby.
(b) Perfection Certificate. Bank shall have received from Borrowers on or
before May 10, 1999, a Perfection Certificate in form and substance satisfactory
to Bank certifying the identity and locations of each of the Borrowers and all
locations of the Collateral;
(c) Delivery of Other Financial Information. Borrowers will furnish to
Bank, in addition to the information Borrowers already are obligated to deliver
to Bank under the Loan Agreement, (i) a weekly report setting forth the amount
of the Revolving Loan Borrowing Base, including the amount of Eligible Accounts
(less the maximum discounts, credits and allowances
<PAGE>
which may be taken by or granted to Account Debtors in connection therewith) ,
the amount of Eligible Inventory (stated at lower of cost or market value) , and
such other information as may be necessary for calculation of the Revolving Loan
Borrowing Base, and (ii) a weekly report, to be delivered to Bank no later than
2:00 p.m. EST the Wednesday following each week during the Forbearance Period,
detailing the Inventory, including the location of all Inventory, and indicating
the lower of cost or market value of all Inventory.
(d) Revolving Loan Payments. The Current Defaults include the existence of
the Overadvance. Borrowers shall reduce the amount of the Overadvance of this
letter agreement) by paying on or prior to June 15, 1999, the sum of $50,000.00.
The amount of the Maximum Overadvance shall be correspondingly reduced by
$50,000.00 on June 15, 1999.
(e) Inventory Audit/Equipment Appraisal. Bank has informed Borrowers
that during the Forbearance Period, Bank intends to exercise its rights under
Section 4.5 of the Loan Agreement to inspect the Inventory and the Fixed
Collateral. Borrowers acknowledge the Bank's right of inspection under Section
4.5 of the Loan Agreement. Borrowers further covenant and agree to instruct
appropriate personnel to provide Bank (including without limitation, any third
party auditors or appraisers retained by Bank or its counsel) access to all
Inventory and Fixed Collateral locations and otherwise assist Bank and such
other Persons with such physical inspection, including without limitation,
identifying for Dank and such other Persons any personal property at any
location of Borrowers that is not owned by Borrowers or that otherwise does not
constitute Collateral. Borrowers further acknowledge, covenant and agree that
all fees, costs and expenses Bank incurs in connection with such inspection and
any audit report or appraisal prepared in connection with such inspection shall
constitute Costs and Expenses. Bank shall make a copy of the last written report
of any such audit or appraisal of the Collateral available for inspection by
Borrowers.
(f) Material Changes. Borrowers shall promptly provide Bank with written
notice of all material changes in the business, properties, prospects,
operations or condition (financial or otherwise) of any Borrower including,
without limitation, information related to the sale or proposed sale of the
capital stock or assets of any Borrower.
(g) Continued Compliance. During the Forbearance Period, except as
otherwise provided herein, Borrowers shall continue to perform and comply with
each term, condition and provision of this letter agreement, the Loan Agreement
and the other Credit Documents (including, without limitation, the monthly
obligation to pay interest on the unpaid principal balance of the Revolving
Loan) and no Event of Default or Forbearance Event of Default shall occur under
this letter agreement, the Loan Agreement or any other Credit Document.
(h) Automatic Acceleration. Subject to Bank's rights under Section 5 of
this letter agreement and Section 10 of the Loan Agreement, all outstanding
obligations shall be due and payable in immediately available funds on June 30,
1999 and in the event that Bank does not receive
<PAGE>
such payment on June 30, 1999, Bank shall have the undisputed and absolute right
to exercise and enforce all other rights, powers and remedies which may exist
pursuant to the Credit Documents or under applicable law, all without further
demand or notice or legal process of any kind, all of which are hereby waived by
Borrowers.
(i) Additional Deliveries. On or prior to May 10, 1999:
(i) any guarantor of the Obligations shall deliver to Bank
personal financial statements showing his or her financial condition as of
December 31, 1998, or a later date, as attested to by such guarantor;
(ii) Borrowers shall deliver to Bank a complete listing of
all real property owned or occupied by any of Borrowers, and the respective
Affiliates of any of them, which listing shall include or have attached to
it the common address of each parcel of real property, a legal description
of such real property, identity of the owner of such real property, identity
of the occupant(s) of such real property, a copy of any lease(s) for such
real property, a copy of any mortgages or other agreements, instruments or
documents conveying or otherwise establishing a lien against such real
property, and the identity of any Person known to hold a lien against such
real property; and
(iii) Borrowers, Bank and the Depository Bank shall amend
the existing Depository Agreement or enter into a new Depository Agreement
to effect the purposes of Sections 5.1(A) and 5.1(C) of the Loan Agreement.
On or prior to May 10, 1999, Borrowers shall deliver to Bank cash flow
projections that include elimination of the Overadvance and payoff of the DPI
Term Notes. On or prior to Monday, May 10, 1999, Bank shall have received copies
of the corporate resolution of each of Borrowers affirming and ratifying the
execution and delivery of, and the consummation of the transactions contemplated
by, this letter agreement and all other documents or instruments to be executed
and delivered in conjunction herewith, certified by the Secretary of each
Borrower as of the date of Borrowers' execution of this letter agreement as
being in full force and effect without modification or amendment.
(j) Insider Compensation. Borrowers shall not increase any salaries,
benefits or other compensation payable to directors, officers or other salaried
employees who are shareholders of any of Borrowers, creditors of any of
Borrowers, or both (collectively, "Insiders") . Borrowers shall not pay any
bonus or other discretionary compensation to Insiders. Borrowers shall pay only
market rents with respect to any real estate in which Insiders have an ownership
or other interest and that is leased to any of Borrowers.
<PAGE>
(k) Cooperation. Borrowers shall execute, deliver to and otherwise
cooperate with Bank concerning any other agreements, instruments or other
documents as may be required or as Dank may reasonably request to establish,
acknowledge and perfect the Obligations and the liens and security interests of
Bank in the Collateral.
5. FORBEARANCE EVENTS OF DEFAULT. A Forbearance Event of Default shall
mean the occurrence of any one or more of the following events:
(a) Any of Borrowers shall fail to pay any of the Obligations when due
under this letter agreement, the Loan Agreement (as amended hereby) or any of
the other Credit Documents;
(b) Borrowers shall flail to observe or perform any term, covenant or
agreement binding on it contained in this letter agreement, or any agreement,
instrument or document executed in connection herewith, subject to the same
notice and ten (10) day cure period for non-monetary defaults as is set forth in
Section 10.1(C) of the Loan Agreement;
(c) A material adverse change in the business, properties, prospects,
condition (financial or otherwise), assets or results of operation of any of
Borrowers shall have occurred after the date of Borrowers' execution of this
letter agreement;
(d) An Event of Default, other than the Current Defaults, shall have
occurred and be continuing; or
(e) Any instrument, document, report, schedule, agreement, representation
or warranty, oral or written, made or delivered to Bank by any of Borrowers in
connection with this letter agreement is untrue or incorrect in any material
respect when made or delivered.
Upon the occurrence of any Forbearance Event of Default, the Bank may
immediately terminate the Forbearance Period; provided, however, that upon the
occurrence of any Forbearance Event of Default described in Section 5(d) with
respect to an Event of Default under subsections 10.1(H), (I) or (J) of the Loan
Agreement, the Forbearance Period shall automatically terminate and all
Obligations shall automatically become immediately due and payable, without
notice or demand of any kind. Upon the termination or expiration of the
Forbearance Period, Bank shall be entitled to exercise all of its rights, powers
and remedies under the Credit Documents and applicable law, including, without
limitation, the right to declare all of the Obligations to be immediately due
and payable (if such Obligations are not otherwise automatically immediately due
and payable as provided herein or in the Credit Documents) and to enforce its
liens on, and security interests in, the Collateral. The occurrence of any
Forbearance Event of Default shall constitute an Event of Default under the Loan
Agreement.
6. AMENDMENT TO CREDIT DOCUMENTS. Each of the parties hereto recognizes,
acknowledges and agrees that this letter agreement shall constitute an amendment
to the
<PAGE>
Loan Agreement and a Credit Document, and shall be deemed to be a part of
the Loan Agreement as if it were part of the same document. In addition to all
other provisions of this letter agreement, the Loan Agreement is further
specifically amended as follows:
(a) The definition of the `Revolving Loan Borrowing Base" in Section 1.1 of
the Loan Agreement is amended and restated in its entirety to read as follows:
Revolving Loan Borrowing Base - Subject to the provisions of Section 2.2(2)
hereof an amount equal to the sum of (a) eighty percent (80%) of the unpaid
face amount of Eligible Accounts (less the maximum discounts, credits and
allowances which may be taken by or granted to Account Debtors in
connection therewith) ; plus (b) fifty percent (50%) of the lesser of the
cost (determined on a first-in, first-out basis) or market value of
Eligible Inventory, such fifty percent of Eligible Inventory not to exceed
the amount of $6,000,000.00; minus (c) the face amount of all Letters of
Credit issued by Bank on behalf of any Borrower or Borrowers.
(b) Section 2.3(A) of the Loan Agreement is amended by deleting the last
line of such Section and inserting in lieu thereof the following:
lesser of:
(1) the Revolving Loan Borrowing Base plus the amount of the Maximum
Overadvance, or
(2) $13,500,000.00
The Maximum Overadvance shall be $1,552,918.69 through June 15, 1999, and
$1,502,918.69 from June 15 through June 30, 1999.
(c) Section 11 of the Loan Agreement is amended to add the following at the
end of such Section:
The relationship of Bank and Borrowers shall at all times be that of
creditor and debtor and not as joint ventures or partners. Nothing
contained herein or in any instrument, document or agreement delivered in
connection herewith, the Loan Agreement or any of the other Credit
Documents shall be deemed or construed to create a fiduciary relationship
between or among the parties, provided that nothing contained in any of the
foregoing shall constitute a waiver or release of the implied obligation of
good faith and fair dealing, if any.
(d) Section 12.2 of the Loan Agreement is amended to: (i) insert the phrase
"and whether prior or subsequent to the commencement of a case concerning
any of Borrowers under title 11, United
<PAGE>
States Code, 11 U.S.C. (S)(S) 101 et seq., and" between the comma and the word
"regardless" in the second line of such Section and (ii) add the following
sentence at the end of such Section:
In addition to reasonable attorneys' fees, costs and expenses payable as
set forth above, Borrowers shall pay or, if paid by Bank, reimburse Bank
for all reasonable out-of-pocket fees, costs and expenses incurred by Bank
arising out of or in any way related to the Obligations, the Collateral,
the Credit Documents or the relationship between any of Borrowers and the
Bank, whether or not Bank incurs such fees, costs and expenses before or
after the commencement of a case concerning any of Borrowers under title
11, United States Code, 11 U.S.C. (S)(S) 101 et seq. ,including, without
limitation, reasonable attorneys' fees, costs and expenses paid or incurred
by Bank as set forth above, and, whether or not Bank employs counsel, any
reasonable environmental consultant fees, costs and expenses paid or
incurred by Bank in connection with evaluation of the Collateral and any
other reasonable professional fees, costs and expenses paid or incurred by
Bank in connection with auditing, appraising, evaluating or otherwise
monitoring the Collateral or other credit support for the Obligations (all
such fees, costs and expenses, hereinafter referred to as "Costs and
Expenses") . All Costs and Expenses shall be due and payable immediately
upon Borrowers' receipt of invoices from Bank reflecting the Costs and
Expenses and Bank may (but shall not be required to) satisfy Borrowers
obligation for such Costs and Expenses pursuant to Section 2.6 of the Loan
Agreement.
(e) Section 12.3 of the Loan Agreement is amended to add the following
sentence at the end of such Section:
Any obligation of Bank to forbear from exercise or enforcement of Bank's
rights, powers and remedies under the Credit Documents or applicable law
shall be set forth in a writing duly executed by Bank and Borrowers and
shall be limited precisely as written and, except as expressly set forth in
such writing, neither the fact of Bank's forbearance nor any other term or
provision in such writing shall, or shall be deemed or construed to, (I) be
a consent to any forbearance, waiver, amendment or modification of any
term, provision or condition of any Credit Documents, (ii) affect, impair,
operate as a waiver of, or prejudice any right, power or remedy which Bank
may then or thereafter have pursuant to any Credit Documents or any other
document, agreement, security agreement or instrument executed by any
Person in connection with or related to the Credit Documents, or at law or
in equity or by statute including, without limitation, with regard to any
then existing or thereafter arising Event of Default, (iii) impose upon
Bank any obligation, express or implied, to consent to any amendment or
further modification of any Credit Documents, or (iv) be a consent to any
waiver of any then existing Event of Default. Any such obligation of Bank
to forbear shall remain subject to Bank's reservation of all rights,
<PAGE>
powers and remedies specifically given to it under the Credit Documents or
applicable law.
(f) Section 12.10 of the Loan Agreement is amended to designate the
following address for any future notices:
(A) If to Bank, at:
National Bank of Canada
Suite 1100
225 West Washington Street
Chicago, IL 60606
Attn: Allen C. Balk
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: John B. Griffith, Esq.
(B) If to Borrowers, at:
Meridan National Corporation
805 Chicago Street
Toledo, OH 43611
Attn: William B. Feniger
with a copy to:
John W. Hilbert, II, Esq.
Shumaker, Loop & Kendrick
1000 Jackson Street
Toledo, OH 43624
Notwithstanding Section 12.6 of the Loan Agreement, to the extent that any
provisions of this letter agreement conflict with provisions of the Loan
Agreement or other Credit Documents, the provisions of this letter agreement
shall govern. Except as specifically set forth in this letter agreement, the
Loan Agreement and all other Credit Documents shall remain unaltered and in full
force and effect and the respective terms, conditions, representations and
warranties, covenants and continuing agreements and miscellaneous provisions
thereof are hereby in all respects ratified, confirmed and made applicable to
this letter agreement.
<PAGE>
7. REPRESENTATIONS AND WARRANTIES Borrowers expressly reaffirm that each
of the representations and warranties set forth in Section 6 of the Loan
Agreement (except for any representation or warranty limited by its terms to a
specific date or pertaining to a material adverse change) continues to be
accurate and complete in all material respects, and hereby remakes and
incorporates herein by reference each such representation and warranty as though
made on the date of this letter agreement. In addition, each of Borrowers
represents and warrants that, except for the Current Defaults, no Event of
Default has occurred and is continuing. All of Borrowers' representations and
warranties in this letter agreement shall survive the execution, delivery and
acceptance of this letter agreement by the parties hereto.
8. RELEASE. Each of Borrowers for itself and any other Person who may
claim an interest through such Borrower, hereby releases and discharges, with
prejudice, Bank, its directors, officers, employees, agents, attorneys and
representatives from any and every claim, right, cause, action, cause of action,
damage, liability and other matter or proceeding arising from, relating to or in
connection with any acts or omissions of Bank, its directors, officers,
employees, agents, attorneys and representatives prior to the date of execution
of this letter agreement. This provision shall survive and continue in full
force and effect whether or not (i) each of Borrowers shall satisfy all other
provisions of this letter agreement or the other Credit Documents, including
payment in full by Borrowers of all Obligations, (ii) this letter agreement
otherwise is terminated, or (iii) Bank's forbearance ceases or is terminated
pursuant to Section 5 of this letter agreement.
9. COUNTERPARTS. This letter agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10. INTEGRATION. This letter agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written negotiations, agreements and
understandings of the parties with respect to the subject matter hereof, except
the agreements embodied in the Credit Documents (as modified herein)
If the foregoing is acceptable to Borrowers, please have each of Borrowers
execute in the places indicated below and deliver to Bank flour execution copies
as provided in Section 3(a) above.
NATIONAL CANADA
By: /s/ Allen C. Balk
-----------------
Title: Vice President
and Manager
<PAGE>
Acknowledged and Agreed this
10th day of May, 1999 by
the undersigned:
MERIDIAN NATIONAL CORPORATION OTTAWA RIVER STEEL COMPANY
By:/s/ William D. Feniger By:/s/ William D. Feniger
-------------------------- ----------------------
Title: President Title: President
----------------------- -------------------
NATIONAL METAL PROCESSING, INC. INTERSTATE METAL PROCESSING, INC.
By:/s/ William D. Feniger By:/s/ William D. Feniger
---------------------------- ------------------------------
Title: President Title: President
------------------------- ---------------------------
PRECISE PAC, INC. MERIDIAN ENVIRONMENTAL
SERVICES INC.
By:/s/ William D. Feniger By:/s/ William D. Feniger
---------------------------- ------------------------------
Title: President Title: President
------------------------- ---------------------------
EPI TECHNOLOGIES, INC. ENVIRONMENTAL PURIFICATION
INDUSTRIES COMPANY
By:/s/ William D. Feniger By:/s/ William D. Feniger
---------------------------- ------------------------------
Title: Vice-President Title: Vice-President
------------------------- ---------------------------
<PAGE>
EXHIBIT 10.15(d)
SECOND LEASE AMENDMENT
----------------------
THIS SECOND LEASE AMENDMENT ("Amendment") is dated as of December 15,
1998 by and between GREAT LAKES INDUSTRIAL PARTNERS L.P., an Indiana limited
partnership ("Landlord"), OTTAWA RIVER STEEL CO., INC., an Ohio corporation
("Tenant") and MERIDIAN NATIONAL CORPORATION, an Ohio corporation ("Guarantor").
RECITALS
--------
A. CenterPoint Properties Corporation, a Maryland corporation ("Original
Landlord") and Tenant have entered into that certain Industrial Building Lease
date November 10, 1995 (the "Original Lease") for certain premises located at
201 Mississippi Street, Gary, Indiana as more particularly described in the
Lease. The Original Lease was previously modified pursuant to the terms of that
certain Lease Amendment ("First Amendment"). The Original Lease and the First
Amendment are sometimes referred to herein collectively as the "Lease".
B. Guarantor has guaranteed Tenant's obligations under the Lease pursuant
to that certain Guaranty of Lease dated November 10, 1995 (the "Guaranty").
C. Tenant has not paid all sums due under the terms of the Lease for the
period commencing as of July 1, 1998 and continuing through the date hereof.
The total amount past due as of the date hereof is $74.166/32 ("Unpaid Amount").
D. Tenant has requested and Landlord has agreed that tenant may pay the
Unpaid Amount to Landlord in accordance with the terms hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Recitals. The Recitals are incorporated into this Amendment as if
--------
fully set forth in this Section 1.
2. Definitions. All terms used herein, unless otherwise specified, shall
-----------
have the meaning ascribed to them in the Lease.
3. Unpaid Amount. The term "Rent" under the Lease shall be deemed to
-------------
include the Unpaid Amount. The Unpaid Amount shall be paid to Landlord as
follows:
a. The sum of $21,807.93 representing Rent due on December 1, 1998 shall
be paid contemporaneously with the execution and delivery of this
Agreement.
b. The sum of $26,179.20 representing one-half of the remaining Unpaid
Amount shall be paid contemporaneously with the execution and delivery of
this Agreement.
c. The sum of $26,179.19, representing the balance of the Unpaid Amount
shall be deemed to be Additional Rent under the Lease and shall be paid in
equal monthly
<PAGE>
installments of $6,544.80, due on the first day of each month commencing on
January 1, 1999 and continuing through April 1, 1999.
4. No Other Modifications. The Lease is only modified as set forth herein
----------------------
and in all other respect remains in full force and effect.
5. Consent of Guarantor. Guarantor hereby consents to the terms of this
--------------------
Amendment as well as the consent to Sublease of even date herewith executed by
Landlord, Tenant and Centennial Steel Processing, LLC and acknowledges that the
Lease and the Guaranty remain in full force and effect. Nothing contained
herein shall be deemed to waive, modify or release any obligation of Guarantor
under the Guaranty.
6. No Default. Tenant acknowledges that the Lease is in full force and
-------------
effect and, except for the Unpaid Amount, there are no defaults thereunder or
any conditions which with only the passage of time or giving of notice or both
would become a default thereunder.
7. Successors and Assigns. This Amendment shall be binding upon and shall
----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
8. Modification. This Amendment may not be modified or amended except by
------------
written agreement executed by the parties hereto.
9. Governing Law. The validity, meaning and effect of this Amendment
-------------
shall be determined in accordance with the laws of the State of Illinois.
10. Counterparts. This Amendment may be executed in two counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
11. Severability. The parties hereto intend and believe that each
------------
provision in this Amendment comports with all applicable local, state and
federal laws and judicial decisions. However, if any provision in this
Amendment is found by a court of law to be in violation of any applicable
ordinance, statue, law, administrative or judicial decision, or public policy,
and if such court should declare such provision to be illegal, void or
unenforceable as written, then such provision shall be given force to the
fullest possible extent that the same is legal, valid and enforceable and the
remainder of this amendment shall be construed as if such provision was not
contained therein.
12. Construction. The headings of this Amendment are for convenience only
------------
and shall not define or limit the provisions hereof. Where the context so
requires, words used in singular shall include the plural and vice versa, and
words of one gender shall include all other genders. In the event of a conflict
between the terms and conditions of the Lease and the terms and conditions of
this Amendment, the terms and conditions of this Amendment shall prevail.
13. No Third Party Beneficiaries. This Amendment shall inure to the sole
----------------------------
benefit of the parties hereto. Nothing contained herein shall create, or be
construed to create, any right in any person not a party to this Amendment.
2
<PAGE>
14. Legal Review. The parties hereto acknowledge that they have been
------------
advised by legal counsel of their choice in connection with the interpretation,
negotiation, drafting and effect of this Amendment and they are satisfied with
such legal counsel and the advice which they have received.
15. Facsimile Signatures. The parties hereto agree that the use of
--------------------
facsimile signature for the negotiation and execution of this Amendment shall be
legal and binding and shall have the same full force and effect as if originally
signed.
16. No Commissions. The parties hereto acknowledge and agree that no real
--------------
estate brokerage commission or finder's fee shall payable by either party in
connection this Amendment.
In witness whereof, the parties hereto have executed this Amendment as of
the date set forth above.
LANDLORD: GREAT LAKES INDUSTRIAL PARTNERS
L.P., an Indiana limited partnership
BY: CP Financing Trust, its general partner
By: /s/ Michael M. Mullen
------------------------------------
Its: Vice President
------------------------------------
By: /s/ Paul S. Fisher
------------------------------------
Its: Vice President Secretary & Treasurer
------------------------------------
TENANT: OTTAWA RIVER STEEL CO., INC., an Ohio
corporation
By: /s/ William D. Feniger
------------------------------------
Its: President
------------------------------------
By: /s/ James L. Rosino
------------------------------------
Its: Vice President- Finance
------------------------------------
GUARANTOR: MERIDIAN NATIONAL CORPORATION,
a Delaware-corporation
By: /s/ William D. Feniger
------------------------------------
Its: President
------------------------------------
By: /s/ James L. Rosino
------------------------------------
Its: Vice President-Finance
------------------------------------
3
<PAGE>
EXHIBIT 10.15(e)
SUBLEASE AGREEMENT
This SUBLEASE AGREEMENT ("Sublease") is made effective as of the
15th day of December, 1998, between Ottawa River Steel Co., Inc., an Ohio
corporation ("Sublandlord") and Centennial Steel Processing, LLC, an Indiana
limited liability corporation ("Subtenant").
R E C I T A L S
A. Sublandlord executed a certain lease with Centerpoint
Properties Corporation, a Maryland corporation ("Landlord") dated as of November
10, 1995 (together with any amendments, addenda or extensions, the "Lease") for
the real property commonly referred to as Bays 11A and 11B ("Leased Property")
located on the land commonly known as 201 Mississippi Street, Gary, Indiana and
further described in the Lease. The Lease was amended through a certain lease
amendment dated June 1, 1996 ("Amendment").
B. Sublandlord desires to sublease and give to Subtenant and
Subtenant desires to sublease and take from Sublandlord the Leased Property.
C. All capitalized terms shall have the same meaning as set forth
in the Lease unless otherwise defined or stated herein.
NOW, THEREFORE, in consideration of the foregoing recitals and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Sublease. Sublandlord subleases and gives to Subtenant, and
Subtenant subleases and takes from Sublandlord, the Leased Property, together
with all rights, easements, licenses and privileges appurtenant thereto or
granted to Sublandlord pursuant to the Lease.
2. Term. The term of this Sublease ("Lease Term") shall commence
on December 15, 1998 ("Commencement Date") and expire on the Termination Date as
extended by the Amendment, and as may be extended by the exercise of the second
Renewal Term as stated therein.
3. Rent. Subtenant shall pay directly to Landlord during the
Lease Term, the Base Rent, any Additional Rent and any other costs and charges
required to be paid by Sublandlord under the Lease from and after the
Commencement Date of this Sublease (collectively, "Rent").
4. Assumption. Insofar as the provisions of the Lease do not
conflict with specific provisions contained in this Sublease, Subtenant shall be
bound by and shall perform all of Sublandlord's covenants, duties and
obligations under the Lease, which provisions shall be enforceable by
Sublandlord as well as Landlord.
Subtenant represents that Subtenant has read and is familiar with
the terms of the Lease.
<PAGE>
5. Use. Subtenant shall use the Leased Property only for the
purposes permitted under the Lease.
6. Insurance.
(a) Subtenant shall, at its sole cost and expense, obtain and
maintain the insurance policies required under the Lease. Subtenant shall be
bound by the terms of the Lease with respect to such insurance requirements, and
shall name Sublandlord as an additional insured and/or loss payee as
Sublandlord's interest may appear.
(b) Sublandlord and Subtenant release each other from any and
all liability to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to the Leased Property suffered
by or caused by any of the perils covered by any casualty insurance policy. Each
party shall request that its insurer provide such waiver, and each party shall
obtain any special endorsements that may be required to evidence compliance with
the aforementioned waiver.
1. Compliance With Laws. Subtenant shall not violate and shall,
at its expense, comply with applicable laws and regulations relating to
Subtenant's use and occupancy of the Leased Property, including, but not limited
to, all laws and regulations relating to the protection of human health or the
environment.
2. Default by Subtenant. If Subtenant (i) fails to pay any Rent
when due; (ii) fails to perform or observe any other agreement or obligation
under this Sublease within ten (10) days after receipt of written notice from
the Sublandlord of such failure, unless such failure cannot be cured within the
ten (10) day period, in which case the Subtenant shall have begun to cure the
failure within the ten (10) day period and proceeded with diligence and in good
faith to accomplish the cure; or (iii) vacates or abandons the Leased Property
and leaves the same vacated or abandoned for a period of ten (10) days, then
Sublandlord may terminate this Sublease immediately and may exercise any and all
other rights and remedies available under applicable law.
3. Indemnification.
(a) In addition to any indemnification contained in the Lease,
Subtenant shall indemnify, defend and hold Sublandlord harmless from and against
any and all injuries, damages, claims, causes of action, suits, losses,
liabilities, costs or expenses, including reasonable attorneys' fees, caused by
or arising out of (i) Subtenant's use and occupancy of the Leased Property or
the Land; (ii) any act or omission of the Subtenant or its officers, directors,
employees, agents, licensees or invitees; or (iii) Subtenant's failure to fully
perform any agreement or obligation under the Lease or this Sublease.
(b) The indemnity obligations set forth herein shall survive
the termination of this Sublease.
1. Lease Status. This Sublease is subordinate and subject in all
respects to the Lease. If any agreement or obligation contained herein is
inconsistent with the Lease,
2
<PAGE>
the Lease shall be controlling. If the Lease terminates for any reason
whatsoever, this Sublease shall terminate on the same date that the Lease
terminates.
2. Notices. All notices or other communications required or
permitted under the terms of this Sublease shall be in writing and, unless and
until otherwise specified in a written notice by the party to whom notice is
intended to be given, shall be sent to the parties at the following respective
addresses:
If intended for Sublandlord: If intended for Subtenant:
Ottawa River Steel Co., Inc. Centennial Steel Processing, LLC
805 Chicago Street 201 Mississippi Street, Bays 11A & 11B
Toledo, Ohio 43611 Gary, Indiana
Attn: Joseph Klobuchar, Jr. Attn: Mike Wieler
Centennial Steel, Inc.
170 Jackson Blvd.
Berlin, New Jersey 08009
Attn: Mike Wieler
With a copy to: With copy to:
Shumaker, Loop & Kendrick, LLP George Sykulski, Esq.
North Courthouse Square 3156 Abington Drive
1000 Jackson Square Beverly Hills, California 90210
Toledo, Ohio 43624-1573
Attn: Jack W. Hilbert, Esq.
Notices may be given on behalf of any party by its legal counsel. Each notice or
other communication shall be deemed to have been properly given for all purposes
if (i) delivered against a written receipt of delivery, (ii) delivered to a
nationally recognized overnight courier service for next business day delivery,
to its addressee at such party's address as set forth above. Each such notice or
other communication shall be deemed to have been given upon actual receipt or
refusal by the addressed.
3. Representations, Warranties and Covenants of Sublandlord.
Sublandlord makes the following representations, warranties and agreements:
(a) Attached hereto as Exhibit "A" is a true, complete and
correct copy of the Lease and all amendments thereto.
(b) Sublandlord shall comply with all of its obligations as
tenant under the Lease.
3
<PAGE>
1. Binding Effect. This Sublease and all of the agreements and
obligations herein contained shall be binding upon and shall inure to the
benefit of the legal and personal representatives, successors and assigns of
each of the parties.
2. Incorporation by Reference. All recitals, exhibits, amendments
and addenda attached hereto are hereby incorporated into this Sublease by
reference and made a part hereof.
3. Counterparts. This Sublease may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall be but one and the same document.
4. Governing Law. This Sublease shall be construed and enforced
in accordance with the laws of the state where the Leased Property is located.
5. Force Majeure. If either party hereto is delayed in or
prevented from performing any act required hereunder by reason of strikes,
lockouts, labor troubles, inability to procure materials, failure of power,
restrictive governmental laws or regulations, riots, insurrection, war or other
reason not the fault of the party delayed in performing work or doing acts
required under this Sublease, then performance of such acts shall be excused for
the period of the delay and the period for the performance of any such acts
shall be extended for a period equivalent to the period of such delay.
6. Conditions Precedent. This Sublease is expressly contingent
upon the satisfaction of the following conditions precedent:
(a) Landlord shall have given its written consent to this
Sublease;
(b) Sublandlord, Subtenant, Meridian National Corporation, a
Delaware corporation ("Meridian"), and Consolidated Fabricators Corp., a
California corporation ("Consolidated"), shall have entered into a certain
Purchase and Sale Agreement for the sale of certain equipment located at the
Leased Property from Sublandlord to Subtenant ("Purchase and Sale Agreement") as
guaranteed absolutely and unconditionally by Meridian; and
(c) Consolidated shall have entered into a certain Corporate
Guaranty Agreement ("Guaranty") in favor of Sublandlord, absolutely and
unconditionally guaranteeing Subtenant's performance under this Sublease and
under the Purchase and Sale Agreement.
If any of the conditions precedent listed in this section are not
satisfied within thirty (30) days after the date of the last signature of this
Sublease, this Sublease, the Purchase and Sale Agreement and the Guaranty shall
be deemed null and void and no party hereto or thereto shall have any further
obligation or liability hereunder or thereunder.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Sublease effective as of the date first above written.
Signed and acknowledged in the
presence of: OTTAWA RIVER STEEL CO., INC.
Sign here /s/ Cheryl Mittelstaedt By: /s/ William D. Feniger
---------------------------- ------------------------------
Print here Cheryl Mittelstaedt Title: President
----------------------------
Sign here /s/ James L. Rosino Date: 12/7/98
---------------------------- ------------------------------
Print here James L. Rosino
----------------------------
CENTENNIAL STEEL PROCESSING, LLC
Sign here /s/ Anthony J. Knox By: /s/ Michael P. Weiler
---------------------------- ------------------------------
Print here Anthony J. Knox
----------------------------
Title: General Manager
--------------------
Sign here /s/ Marie A. Deola
----------------------------
Print here Marie A. Deola Date: 11/30/98
---------------------------- --------------------
STATE OF OHIO )
) SS.
COUNTY OF LUCAS )
The foregoing instrument was acknowledged before me this 7th day
of December, 1998 by William D. Feniger, the President of Ottawa River Steel
Co., Inc., an Ohio corporation, on behalf of the corporation.
/s/ Laura M. Contes (Kenyon)
--------------------------------
Notary Public
My Commission Expires: 9/11/99 (SEAL)
STATE OF NEW JERSEY )
) SS.
COUNTY OF CAMDEN )
The foregoing instrument was acknowledged before me this 30th day
of November, 1998 by Michael P. Wieler, the General Manager of Centennial Steel
Processing, LLC, an Indiana limited liability corporation, on behalf of the
corporation.
/s/ Lynn Ives
--------------------------------
Notary Public
My Commission Expires: 12/11/2001 (SEAL)
5
<PAGE>
EXHIBIT 10.18(a)
COGNOVIT DEMAND
PROMISSORY NOTE
$618,000.00 February 4, 1999
Toledo, Ohio
OTTAWA RIVER STEEL CO., an Ohio corporation, having an address at 805
Chicago St., Toledo, Ohio 43611 ("Borrower"), shall pay upon demand to the order
of WILLIAM D. FENIGER, having an address c/o Meridian National Corporation, 805
Chicago St., Toledo, Ohio 43611 ("Lender"), the principal sum of Six Hundred
Eighteen Thousand and 00/100 Dollars ($618,000.00), plus interest on the
outstanding balance which shall accrue at an annual rate of nine and one-quarter
percent (9 1/4%) per annum, unless the Default Rate is applicable, as set forth
below.
1. Payments Prior to Demand. Prior to the making of any demand for
payment, the Borrower shall make monthly payments to Lender on the 1st day of
each month, commencing March 1, 1999, in the amount of Fifteen Thousand and
00/100 Dollars ($15,000.00). Such payments shall be credited first to accrued
interest, then to reimbursement for a $1,000 per month fee being paid under the
NCB Loan (as hereinafter defined), then to principal.
2. Place of Payment. Borrower shall make all payments on this Note to
Lender at 805 Chicago St., Toledo, Ohio 43611, or at such other place as the
holder hereof may designate.
3. Default Rate of Interest. If the Borrower does not pay the full
amount of principal and accrued interest immediately upon demand, then,
commencing with the date of demand, all principal and interest then due and
owing pursuant to this Note shall bear interest at a default rate the ("Default
Rate") of interest of thirteen and one-quarter percent (13 1/4%) per annum.
Additionally, if the Borrower fails to make all or any portion of any payment
required by Section 1 by the 10th day of any month, then the amount not paid
shall be subject to a late fee equal to the greater of twenty dollars ($20.00)
or five percent (5%) of the unpaid amount.
4. Prepayment. Borrower may prepay this Note in whole or in part at any
time without penalty.
5. Limitation on Lender's Demand for Payment. The parties acknowledge
that, on the date hereof, the Lender has obtained from National City Bank
("NCB") a loan (the "NCB Loan") in the amount of Six Hundred Eighteen Thousand
and 00/100 Dollars ($618,000.00), the proceeds of which are being used to make
the loan to the Borrower pursuant to this Note. The Lender agrees not to demand
payment pursuant to this Note until the earlier to occur of: (a) the NCB Loan
matures by its terms, including any extension or extensions of the maturity date
that may be agreed to between the Lender and NCB; (b) NCB exercises any right of
acceleration under the documents evidencing the NCB loan; or (c) the Borrower is
in default of any obligation under this Note or any Collateral Document (as
hereinafter defined).
<PAGE>
6. Waivers. None of the following shall be a course of dealing,
estoppel, waiver or the like on which any party to this Note or any Collateral
Document may rely: (a) Lender's acceptance of one or more late or partial
payments; (b) Lender's forbearance from exercising any right or remedy under
this Note or any Collateral Document; or (c) Lender's forbearance from
exercising any right or remedy under this Note or any Collateral Document on any
one or more occasions. Lender's exercise of any rights or remedies or a part of
a right or remedy on one or more occasions shall not preclude Lender from
exercising the right or remedy at any other time. Lender's rights and remedies
under this Note, the Collateral Documents, and the law and equity are cumulative
to, but independent of, each other.
7. Representations. Borrower: (a) acknowledges that Lender would not
have extended the credit evidenced by this Note and will not continue to extend
the credit but for its obligations herein; (b) warrants that it has executed
this Note or Collateral Document to induce Lender to extend and to continue to
extend the credit; (c) warrants that it has received good and valuable
consideration for executing this Note or any Collateral Document; (d) warrants
that it has not executed this Note or any Collateral Document in reliance upon
the existence of any security for or guaranty or promise of the payment of this
Note; and (e) warrants that the execution, delivery and performance of this Note
have been approved by all requisite corporate action on the part of the
Borrower.
8. Indulgences. Without notice, Lender may do or refrain from doing
anything affecting this Note or any Collateral Document, as many times as Lender
desires, including the following (a) granting or not granting any indulgences to
anyone liable for payment of this Note or to anyone liable under any Collateral
Document; (b) releasing any security or anyone or any property from liability on
this Note or any Collateral Document; and (c) entering into an agreement with
Borrower to amend this Note or any Collateral Document, including extending the
time for payment of this Note.
9. No Release of Liability. No obligations of any party to this Note
shall be affected by (a) any default in this Note or any Collateral Document
when accepted by Lender or arising any time thereafter; (b) the unenforceability
of or defect in this Note or in any Collateral Document or any interest conveyed
by any Collateral Document; (c) any decline in the value of any interest in any
property conveyed by any Collateral Document; or (d) the insolvency,
dissolution, liquidation or winding up of affairs of any party to this Note or
any Collateral Document or the start of insolvency proceedings by or against any
such party. EACH PARTY TO THIS NOTE AND EACH COLLATERAL DOCUMENT WAIVES ALL
SURETYSHIP AND OTHER SIMILAR DEFENSES. No party to this Note or any Collateral
Document may enforce any right of subrogation or contribution unless and until
this Note is paid in full and waives all rights of subrogation against any party
that is subject to insolvency proceedings.
10. Security. This Note is secured by the following documents, dated of
even date herewith: Unconditional Guaranty of Meridian National Corporation, a
Delaware corporation;
2
<PAGE>
Security Agreement of the Borrower in favor of the Lender; and Mortgage of the
Borrower in favor of the Lender (herein referred to collectively as the
"Collateral Documents").
11. Representation and Warranty Regarding Business Purpose. Borrower
represents and warrants that the loan evidenced by this Note is for business
purposes and constitutes a business loan as that term is used in Section 1343.01
of the Ohio Revised Code and is not primarily for personal, family, household,
or agricultural purposes and does not constitute a "consumer loan" or a
"consumer transaction".
12. Waiver of Demands. AS TO THIS NOTE, THE COLLATERAL DOCUMENTS, AND
ANY OTHER INSTRUMENT WHICH MAY SECURE THIS NOTE, BORROWER WAIVES ALL APPLICABLE
EXEMPTION RIGHTS, WHETHER UNDER THE STATE CONSTITUTION, HOMESTEAD LAWS OR
OTHERWISE, AND ALSO WAIVES VALUATION AND APPRAISEMENT, PROTEST, PRESENTMENT AND
DEMAND, NOTICE OF PROTEST, DEMAND AND DISHONOR AND NONPAYMENT OF THIS NOTE, AND
EXPRESSLY AGREES THAT THE MATURITY DATE OF THIS NOTE, OR ANY PAYMENT DUE
HEREUNDER, MAY BE EXTENDED FROM TIME TO TIME AND THAT ANY SECURITY HELD FOR
PAYMENT HEREOF MAY BE SUBSTITUTED OR RELEASED AT ANY TIME AND FROM TIME TO TIME
WITHOUT IN ANY WAY AFFECTING THE LIABILITY OF THE BORROWER.
13. Notices. All notices, demands, requests and consents (hereinafter
"notices") given or made pursuant to this Note shall be in writing, shall be
addressed to the addresses set forth in the introductory paragraph hereof or
such other address as either party may designate for itself by a notice
complying with this Section, and shall be served by: (i) personal delivery; (ii)
United States mail, postage prepaid; (iii) facsimile ("fax") transmission, or
(iv) nationally recognized overnight courier service. All notices shall be
deemed to be given upon the earlier of actual receipt, three (3) business days
after mailing or one (1) business day after deposit with the overnight courier.
Any notices meeting the requirements of this Section shall be effective,
regardless of whether or not actually received.
14. WAIVER OF TRIAL BY JURY. THE BORROWER HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1)
ARISING UNDER THIS NOTE OR ANY INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY
3
<PAGE>
COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS NOTE MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
15. Attorneys' Fees and Expenses. Borrower shall pay to Lender all
reasonable costs and expenses incurred by Lender in enforcing or preserving
Lender's rights under this Note, or any Collateral Document, including but not
limited to, (a) attorneys' and paralegals' fees and disbursements; (b) the fees
and expenses of any litigation, administrative, bankruptcy, insolvency,
receivership and any other similar proceeding; (c) court costs; (d) the expenses
of Lender, its employees, agents, attorneys and witnesses in preparing for
litigation, administrative, bankruptcy, insolvency and other proceedings and for
lodging, travel, and attendance at meetings, hearings, depositions, and trials;
and (e) consulting and witness fees incurred by Lender in connection with any
litigation or other proceeding.
16. Governing Law. This Note is made at Toledo, Ohio and is being
signed in Lucas County, Ohio and shall be construed under the laws of the State
of Ohio.
17. Assignment. Borrower shall not assign its rights nor delegate its
obligations under this Note, except with the written consent of the Lender.
Borrower acknowledges that this Note will be assigned with recourse to National
City Bank and, further, the Borrower acknowledges and agrees that all rights and
benefits under this Agreement shall inure to the benefit of National City Bank.
18. Amendment. This Note may be amended only through a writing signed
by the Borrower and the Lender, and with the written consent of National City
Bank.
19. Warrant of Attorney. With full knowledge of all constitutional
rights under the Constitutions of the State of Ohio and the United States of
America, Borrower irrevocably authorizes any attorney at law, including, but not
limited to, the attorney for Lender to appear in any court of record in the
State of Ohio, or in any other state or territory of the United States, or in
any court of the United States, after the indebtedness hereunder becomes due; to
waive the issuing and service of process; to confess judgment against Borrower
and against any such surety, guarantor or endorser hereof in favor of any holder
of the Note, for the indebtedness then due hereunder, together with costs of
suit, and thereupon to release all errors and waive all rights of appeal and
stay of execution. Borrower with full knowledge and understanding of its rights
under the Constitutions of the State of Ohio and the United States of America
voluntarily and knowingly (a) waives any conflict of interest that may arise
from Lender's attorney confessing judgment on behalf of Borrower; (b) consents
to the payment of a fee by Lender to the attorney who confesses judgment on
behalf of Borrower; and (c) waives right to notice and hearing prior to a
judgment being confessed against it if it should default under the terms hereof.
No judgment based on the non-payment of less than all of the amount due shall be
a bar to a subsequent judgment based on non-payment of the remainder or other
portions of the amount due.
4
<PAGE>
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
OTTAWA RIVER STEEL CO.
By: /s/ James L. Rosino
-----------------------------
James L. Rosino,
Vice President, Finance
5
<PAGE>
EXHIBIT 10.18(b)
OPEN-END MORTGAGE
KNOW ALL MEN BY THESE PRESENTS, That: OTTAWA RIVER STEEL CO., an Ohio
corporation ("Grantor"), in consideration of the sum of Six Hundred Eighteen
Thousand Dollars ($618,000.00), to Grantor paid or to be paid by WILLIAM D.
FENIGER, 805 Chicago Street, Toledo, Ohio 43611 ("Grantee"), the receipt of
which is hereby acknowledged, which amounts are unconditionally guaranteed by
Grantor, hereby grants, bargains, sells and conveys to Grantee, his heirs,
executors, successors and assigns, the following described real estate (the
"Premises"):
For legal description, see Exhibit A which is attached hereto
and incorporated herein by reference.
TOGETHER with all and singular the easements, rights-of-way, licenses,
privileges and appurtenances thereunto belonging, and all the rents, issues and
profits therefrom; and, also, all the estate, right, title, and interest of
Grantor, either at law or in equity, of, in and to the Premises herein
described, and every part thereof;
TOGETHER with all rents, income and other benefits to which the Grantor may now
or hereafter be entitled from the Premises and all of Grantor's right, title and
interest in and to any and all leases now or hereafter on or affecting the
Premises, and all security deposits, contract rights, general intangibles,
actions and rights of actions, and unearned insurance premiums relating to such
leases or the Premises, including, but not limited to, all rights conferred by
Act. No 210 of the Michigan Public Acts of 1953 as amended by Act No. 151 of the
Michigan Public Acts of 1966 (MCLA 554.231 et seq.), and Act No. 228 of the
Michigan Public Acts of 1925 as amended by Act No. 55 of the Michigan Public
Acts of 1933 (MCLA 554.211 et seq.));
TOGETHER with all right, title and interest, if any, of Grantor, in and to the
land lying within any street or roadway adjoining the above described real
estate; and all right, title and interest, if any, of Grantor in and to any
strips and gores adjoining the above described real estate;
TOGETHER with all buildings, structures and improvements now or hereafter
erected thereon; and, also, all fixtures, machinery, apparatus, equipment and
articles of personal property of every kind and nature whatsoever, now or
hereafter located in or upon or affixed to the said Premises, or any part
thereof, and used or usable in connection with any present or future operation
of said Premises, and now owned or hereafter acquired by Grantor, including, but
without limitation of the generality of the foregoing, all heating, lighting,
incinerating, refrigerating, ventilating, air conditioning, air cooling,
lighting, fire extinguishing, plumbing, cleaning, communications, and power
equipment and apparatus; all gas, water and electrical equipment; and all
elevators, escalators, switchboards, engines, motors, tanks, pumps, screens,
storm doors, storm windows, shades, awnings,
<PAGE>
floor coverings, carpeting, ranges, stoves, refrigerators, washers, dryers, wall
beds, cabinets, partitions, conduits, ducts and compressors; it being understood
and agreed that all such fixtures, machinery, apparatus, equipment and articles
of personal property are a part of the said real estate and are declared to be a
portion of the security for the indebtedness hereby secured (whether in single
units or centrally controlled, and whether physically attached to said real
estate or not);
TO HAVE AND TO HOLD the above granted and bargained Premises with the privileges
and appurtenances thereunto belonging, and all rents, issues and profits
thereof, to Grantee, its successors and assigns, forever.
AND GRANTOR COVENANTS that at and until the execution and delivery of this
mortgage, Grantor is well seized of the above described Premises, in fee simple,
and has good right and full power to grant, bargain, sell and convey the same in
manner and form above written; and that the same are free from all liens and
encumbrances whatsoever; and that Grantor does warrant and will defend the said
Premises, with the privileges and appurtenances thereunto belonging, to Grantee,
his heirs, executors, successors and assigns, forever, against all claims and
demands whatsoever.
THIS MORTGAGE is given to secure the payment to Grantee of a certain cognovit
promissory note ("Note") of Grantor of even date herewith securing the same,
both as delivered to Grantee as well as any extension, modification or renewal
thereof or any instrument executed in substitution therefor. The Note requires
the payment to Grantee of the principal sum from time to time outstanding
thereunder, up to a maximum principal amount of Six Hundred Thousand Dollars
($600,000.00), together with interest thereon at the rate specified therein.
AND WHEREAS, GRANTOR FURTHER COVENANTS that:
1. Grantor will perform and pay any amounts due and owing under the terms of
the Note at the times and in the manner therein provided.
2. Except as the same are paid pursuant to the provisions of paragraph 3
below, Grantor will pay all taxes, assessments and other similar charges
levied upon the said Premises before the same become delinquent, and will
promptly deliver to Grantee receipts of the proper officers therefor;
provided, however, Grantor may contest any such taxes in good faith by
appropriate proceedings diligently pursued and available to Grantor prior
to the date penalties attach thereto. In default thereof, Grantee may pay
such taxes, assessments and other similar charges, including any penalties
or interest thereon (of which payment, amount and validity thereof, the
receipt of the proper officer shall be conclusive evidence) and any amount
so paid
-2-
<PAGE>
by Grantee shall become immediately due and payable by Grantor with
interest until repaid at the default rate defined in paragraph 18 herein
(said rate as so defined is hereinafter called the "Default Rate") and
shall be secured by this mortgage.
3. In the event of a default under this mortgage or the Note, Grantor will pay
to Grantee monthly, in addition to each monthly payment required hereunder,
or under the note secured hereby, a sum equivalent to one-twelfth of the
amount estimated by Grantee to be sufficient to enable Grantee to pay at
least thirty (30) days before they become due all taxes, assessments and
other similar charges levied against the said Premises, and all insurance
premiums on any policy or policies of insurance required hereunder. Such
additional payments shall not be, nor be deemed to be, trust funds, but may
be commingled with the general funds of Grantee, and no interest shall be
payable in respect thereof. Upon demand by Grantee, Grantor will deliver
and pay over to Grantee such additional sums as are necessary to make up
any deficiency in the amount necessary to enable Grantee to fully pay any
of the items hereinabove mentioned. In the event of any default by Grantor
in the performance of any of the terms, covenants or conditions herein or
in the Note, Grantee may apply against the indebtedness secured hereby, in
such manner as Grantee may determine, any funds of Grantor then held by
Grantee under this paragraph. Grantee shall have the right to make
appropriate payments from the account herein created notwithstanding that
at that time any such tax, assessment, charge or imposition is then being
protested or contested by Grantor, unless upon not less than fifteen (15)
days prior to the due date thereof, Grantor shall have notified Grantee, in
writing, of such protest or contest, in which event, as the case may be,
Grantee shall make such payment under protest in the manner prescribed by
law or shall withhold such payment; provided, however, that such contest
shall preclude enforcement of collection and the sale of the Premises in
satisfaction of such tax, assessment, charge or imposition. In the event
such protest or contest shall or might result in penalty or other charges,
Grantor shall deposit with Grantee the amount of any such penalty or
additional charge.
4. In the event of the passage after the date of this mortgage of any statute
or ordinance deducting from the value of real property for purposes of
taxation, any lien thereon, or changing in any way the laws now in force
for the taxation of mortgage or debts secured thereby, for state or local
purposes, or the manner of the collection of any such taxes, so as to
adversely affect the interest of Grantee hereunder, the whole of the
principal sum secured by this mortgage, with interest and charges, if any,
thereon, at the option of Grantee, shall become immediately due, payable
and collectible without notice of demand in the event Grantor fails to pay
or reimburse Grantee for any and all costs incurred by it within ten (10)
days after notice to Grantor by Grantee of such costs owing to Grantee.
-3-
<PAGE>
5. Grantor will procure, deliver to and maintain for the benefit of Grantee
during the continuance of this Mortgage and until the same is fully
satisfied and released such insurance as Grantee may require. Grantor will
promptly pay when due any premiums on any policy or policies of insurance
required by Grantee, and will deliver to Grantee renewals of such policy or
policies at least ten (10) days prior to the expiration date(s) thereof;
the said policies and renewals to be marked "paid" by the issuing company
or agent. Upon Grantor's failure to comply with the requirements of this
paragraph, Grantee may, in his discretion, effect any insurance required by
him and pay the premiums due therefor, and any amounts so paid by Grantee
shall become immediately due and payable by Grantor with interest on all
such sums until repaid at the Default Rate and shall be secured by this
Mortgage.
In the event of any loss or damage to the Premises, Grantor will give
immediate notice thereof to Grantee, and for any loss in excess of Ten
Thousand Dollars ($10,000.00) Grantee may thereupon make proof of such loss
or damage, if the same is not promptly made by Grantor. All proceeds of
insurance for any loss in excess of Ten Thousand Dollars ($10,000.00), in
the event of such loss or damage, shall be payable to Grantee, and any
affected insurance company is authorized and directed to make payment
thereof directly to Grantee. To the extent the amount of such insurance
proceeds are not sufficient to repair and restore the buildings on the
Premises to the original condition, Grantor shall further deposit with
Grantee such additional funds as Grantee shall reasonably require. Grantee
is authorized and empowered to settle, adjust or compromise any claims for
loss, damage or destruction for any loss in excess of Ten Thousand Dollars
($10,000.00) under any policy or policies of insurance. So long as no Event
of Default has occurred or no event has occurred which with the giving of
notice or passage of time would constitute an Event of Default, all such
insurance proceeds shall, if requested by Grantor, be applied to the
restoration, repair, replacement or rebuilding of the Premises; provided,
however, if an Event of Default has occurred or if an event has occurred
which with the giving of notice or the passage of time would constitute an
Event of Default, such insurance proceeds may, at the sole discretion of
Grantee, be applied to the restoration, repair, replacement or rebuilding
of the Premises, or to and in reduction of any indebtedness secured by this
Mortgage. All such insurance proceeds not so applied by Grantee shall be
released to Grantor. The delivery to Grantee of any policy or policies of
insurance hereunder, or renewals thereof, shall constitute an assignment to
Grantee of all unearned premiums thereon as further security for the
payment of the indebtedness secured hereby, and in the event of Grantor's
Default hereunder, all right, title and interest of Grantor in and to any
policy or policies of insurance then in force shall vest in Grantee.
-4-
<PAGE>
6. Grantor will maintain the Premises in good condition and repair and will
not commit or suffer any waste thereof, reasonable wear and tear excepted.
Grantor will comply in all material respects with, or cause to be complied
in all material respects with, all statutes, ordinances, regulations or
requirements of any governmental authority relating to the Premises, and
will promptly, subject to the limitations, terms and conditions of
paragraph 5 above, in the event Grantor elects to rebuild the Premises,
repair, restore, replace or rebuild any part of the Premises now or
hereafter subject to the lien of this mortgage which may be damaged or
destroyed by any casualty or as the result of any proceeding hereinafter
referred to in paragraph 9. None of the buildings, structures or
improvements now or hereafter erected or located on the above described
Premises shall be removed, demolished or substantially or structurally
altered in any respect without the prior written consent of Grantee; which
consent shall not be unreasonably withheld unless such actions may
materially impair the security of this mortgage for the payment of the
indebtedness secured hereby. Grantee, and any person authorized by Grantee,
shall have the right to enter upon and inspect the Premises at all
reasonable times.
7. Grantor will not create or suffer to be created any charge, lien or
encumbrance upon the Premises, or any part thereof, excepting the lien
hereof, without the prior written consent of Grantee. Grantor will pay, or
cause to be paid, promptly when due all charges for utilities or services,
including, but not limited to electricity, gas and water, and upon failure
so to pay, Grantee may, at its option, make such payment or payments and
any amounts so paid by Grantee shall become immediately due and payable and
shall be secured by the lien of this mortgage with interest at the rate
specified in the Note secured hereby; provided, however, that Grantor shall
be permitted to contest any such charges, liens or encumbrances in good
faith by appropriate proceedings diligently pursued and available to
Grantor prior to the date on which penalties attach thereto.
8. If there shall be any change in the legal or equitable ownership of the
Premises, as by sale, assignment, land sale or otherwise, or in the
ownership of Grantor corporation, as by reorganization, stock sales by
Grantor or its shareholders, or otherwise, other than by descent or the
laws of intestate succession, without the written consent of Grantee, then
at the election of Grantee the entire indebtedness secured hereby and all
accrued interest shall become due and payable as of the date of such change
in ownership of the Premises or of Grantor and shall bear interest
thereafter at the Default Rate until paid, and foreclosure proceedings may
be instituted thereon.
9. If all or any part of the Premises is damaged, taken or acquired, either
temporarily or permanently, in any condemnation proceeding, or by exercise
of the right of eminent
-5-
<PAGE>
domain, or by the alteration of the grade of any street affecting the said
Premises, the amount of any award or other payment for such taking or
damages made in consideration thereof, to the extent of the full amount of
the then remaining unpaid indebtedness secured hereby, is hereby assigned
to Grantee, who is empowered to collect and receive the same and to give
proper receipts therefor in the name of Grantor, and the same shall be paid
forthwith to Grantee. So long as no Event of Default has occurred or no
event has occurred which with the giving of notice or passage of time would
constitute an Event of Default, the award or payment shall, if requested by
Grantor, be released to Grantor for the purpose of altering, restoring or
rebuilding any part of the Premises to taken; provided, however, if an
Event of Default has occurred or if an event has occurred which with the
giving of notice or the passage of time would constitute an Event of
Default (whether or not then due and payable), any award or payment so
received by Grantee shall, at the option of Grantee, either be retained and
applied, in whole or in part, to the indebtedness secured hereby in such
manner as Grantee may determine, or released, in whole or in part, to
Grantor for the purpose of altering, restoring or rebuilding any part of
the Premises which may have been altered, damaged or destroyed as the
result of such taking, alteration or proceeding, but Grantee shall not be
obligated to see to the application of any amounts so released.
10. In the event of default in the payment of the Note (as "Default is defined
in the Note) or otherwise if Grantor shall fail to perform any of the terms
and conditions of this Mortgage for a period of thirty (30) days after
written notice of default, then, and in any such event, at the option of
Grantee, without notice or demand, the same being hereby expressly waived,
the entire indebtedness secured hereby shall become due, payable and
collectible, and/or, in addition to any other right or remedy which Grantee
may now or hereafter have at law or in equity, Grantee shall have the right
and power (a) to sell the or cause to be sold the Premises and to convey
the same to the purchaser pursuant to the provisions of Act 236, Public
Acts of Michigan, 1961 (MCL '600.3201 et seq.) pertaining to "Foreclosure
of Mortgage by Advertisement," which statute does not require that the
Grantor be personally notified of such sale or that a judicial hearing be
held before the sale is held; (b) to foreclose upon this mortgage and the
lien hereof; (c) to apply without notice (the same being hereby expressly
waived) for the appointment of a receiver to collect the rents and profits
of the Premises and to preserve the security hereof, as a matter of right,
either before or after any foreclosure sale, without consideration of the
value of the Premises as security for the amount due Grantee, or the
solvency of any person or persons liable for the payment of such amounts;
the rents, issues and profits of the Premises, in any such event, being
hereby assigned to Grantee as additional security for the payment of such
indebtedness; (d) to enter upon and take possession of the Premises with
the irrevocable consent of Grantor as evidenced by the execution of
-6-
<PAGE>
this mortgage, and, as mortgagee in possession and without the appointment
of any receiver or application being made therefor, to collect all rents
and profits from leases and rentals then in effect (which are due or to
become due), to let the Premises, either in Grantee's name or Grantor's
name, and receive all the rents, issues and profits therefrom (which are
due or to become due), and to apply the same after the payment of all
charges and expenses deemed by Grantee to be necessary, to the indebtedness
hereby secured; it being understood, in such case, that Grantor will pay to
Grantee monthly, in advance, a reasonable rent for the Premises occupied by
Grantor, if any, and, in default thereof, Grantor may be dispossessed by
the usual legal proceedings against a defaulting tenant of real estate; and
further, that any action may be brought in Grantor's name to dispossess any
tenant defaulting in the payment of rent to Grantee or violating the term
of his occupancy, which right and power are effective and may be enforced
either with or without any action to foreclose this mortgage and without
applying at any time for a receiver for the Premises. In case of private
sale or foreclosure of the Premises, the Premises may be sold in one or
more parcels, or as an entirety, as Grantee may elect.
WARNING: THIS MORTGAGE CONTAINS A POWER OF SALE AND UPON DEFAULT MAY BE
FORECLOSED BY ADVERTISEMENT. IN FORECLOSURE BY ADVERTISEMENT AND THE SALE
OF THE PROPERTY IN CONNECTION THEREWITH, NO HEARING IS REQUIRED AND THE
ONLY NOTICE REQUIRED IS THE PUBLICATION OF NOTICE IN A LOCAL NEWSPAPER AND
THE POSTING OF A COPY OF THE NOTICE ON THE PROPERTY.
WAIVER: THE GRANTOR HEREBY WAIVES ALL RIGHTS UNDER THE CONSTITUTION AND
LAWS OF THE UNITED STATES AND UNDER THE CONSTITUTION AND LAWS OF THE STATE
OF MICHIGAN TO A HEARING PRIOR TO THE SALE IN CONNECTION WITH THE
ABOVE-MENTIONED FORECLOSURE BY ADVERTISEMENT AND ALL NOTICE REQUIREMENTS
EXCEPT AS SET FORTH IN THE MICHIGAN STATUTE PROVIDING FOR FORECLOSURE BY
ADVERTISEMENT.
11. If Grantee shall incur or expend any sums, including reasonable attorney's
fees, whether in connection with any action or proceeding or not, to
sustain the lien of this mortgage or its priority, or to protect or enforce
any of Grantee's rights hereunder, or for the protection of the Premises,
or to recover any indebtedness hereby secured, all such sums shall become
immediately due and payable by Grantor with interest thereon until repaid
at the Default Rate. All such sums shall be secured by this mortgage and be
a lien on the Premises prior to any right, title, interest or claim, in,
-7-
<PAGE>
to, or upon the Premises attaching or accruing subsequent to the lien of
this mortgage.
12. Grantor will not assign, in whole or in part, the rents, income or profits
arising from the Premises without the prior written consent of Grantee, or
in any manner materially impair the security of this mortgage for the
payment of the indebtedness secured hereby.
13. Grantor will observe and perform all material covenants, conditions and
agreements contained in any lease or leases now or hereafter affecting the
Premises, or any portion thereof, on the part of Grantor to be observed and
performed. If Grantor shall default in the performance of any of the
material terms, covenants, conditions or obligations imposed upon Grantor
under any such lease or leases which would give the lessee or lessees the
right to terminate or cancel the said lease or leases or make monetary
advances and offset the same against future rentals, then, at the option of
Grantee, the whole of the indebtedness secured by this mortgage, including
all advances and payments by Grantee hereunder, shall become immediately
due and payable with interest thereon until repaid at the Default Rate.
Grantor will not amend, cancel, abridge, terminate or otherwise modify any
existing or future lease of the said Premises, or any part thereof, or
enter into any new lease, renewal or extension, or accept any prepayment of
rent or installments of rents for more than one month in advance, without
the prior written consent of Grantee.
Grantor, upon request from time to time, will furnish to Grantee a
statement in such reasonable detail as Grantee may request, certified by
Grantor, of all leases relating to the Premises; and, on demand, Grantor
will furnish to Grantee executed counterparts of any and all such leases.
14. With respect to the Premises and the operations thereof, Grantor will keep
or cause to be kept proper books of record and account with respect to the
operation of the Premises. Grantee shall have the right to examine the said
books of record and account at such reasonable times and intervals as
Grantee may elect. Grantor will furnish to the Grantee such financial and
other statements as are required by Grantee.
15. In the event that Grantee (a) grants any extension of time or forbearance
with respect to the payment of any indebtedness secured by this mortgage;
(b) takes other or additional security for the payment thereof; (c) waives
or fails to exercise any right granted herein or granted in any agreement
specifically incorporated herein or under the Note secured hereby; (d)
grants any release, with or without consideration, of the whole or any part
of the security held for the payment of the
-8-
<PAGE>
debt secured hereby; (e) amends or modifies in any respect with or without
the consent of Grantor any of the terms and provisions hereof or of the
Note secured hereby; then and in any such event, such act or omission to
act shall not release Grantor, or any co-makers, sureties or guarantors of
this mortgage or of the Note, under any covenant of this mortgage or of the
Note, nor preclude Grantee from exercising any right, power or privilege
herein granted or intended to be granted in the event of any other default
then made or any subsequent default, nor shall any such act or omission in
any way impair or affect the lien or priority of this mortgage.
16. Grantor will not make, suffer or permit, without the written consent of the
Grantee first had and obtained, (a) any use of the Premises for any purpose
other than that for which the same are now used or intended to be used; (b)
any alterations which have an adverse impact upon the value of the
buildings, improvements, fixtures, apparatus, machinery and equipment now
or hereafter erected or located upon said Premises; (c) any purchase or
conditional sale, lease or agreement under which title is reserved in the
vendor of any such fixtures, apparatus, machinery, equipment or personal
property to be placed in or upon any of the buildings or improvements on
the said Premises; provided, however, that Grantor shall not be deemed to
have violated this section 16 in the event that, without Grantor's consent,
any tenant to the Premises acts or permits action in violation of any of
(a) through (c) of this section. Grantor will execute and deliver, from
time to time, such further instruments as may be requested by Grantee to
confirm the lien of this mortgage on any fixture, machinery, apparatus and
equipment described herein.
17. Whenever used in this instrument, unless the context shall otherwise
clearly require, the term "Grantor" shall include the legal
representatives, successors and assigns, as the case may be, of Grantor,
and all persons claiming by, through or under Grantor; the term "Grantee"
shall include the legal representatives, successors and assigns of Grantee;
the term "Mortgage" shall refer to this mortgage deed; the term "Note"
shall refer to the promissory note of even date herewith evidencing the
indebtedness hereby secured; the term "Person" shall include any
individual, partnership, corporation, trustee or unincorporated
association; the term "Premises" shall include the real estate described
herein, together with all buildings, structures and improvements thereon,
and all fixtures, machinery, apparatus, equipment and articles of personal
property referred to herein, and any and all other right, property or
interests at any time subject to the lien of this mortgage, the singular
shall include the plural, and the plural, the singular; the masculine
gender used shall include the other genders.
18. The term "Default Rate" wherever used in this mortgage shall mean interest
at the rate which is greater of four percent (4%) per annum above the
interest rate payable
-9-
<PAGE>
under the Note on the day prior to the date of default, or sixteen percent
(16%); provided, however, that if the Default Rate determined pursuant to
the foregoing should exceed the maximum rate of interest permitted by law
then the Default Rate shall be the maximum rate of interest permitted by
law.
19. All of the terms, covenants, conditions and agreements herein set forth
shall be binding upon and inure to the benefit of the respective legal
representatives, successors and assigns, as the case may be, of the parties
hereto.
20. Intentionally deleted.
21. The Grantor and Grantee intend that this mortgage deed shall secure (1) all
advances (whether future or otherwise) which Grantee is obligated to or
does make under the terms of this mortgage, the Note or the Loan Agreement;
(2) the unpaid balances of non-obligatory loan advances made by the holder
of this mortgage at the request of the Grantor or its successor in interest
after the mortgage is delivered to the Recorder for recording to the extent
that such unpaid balances, in the aggregate and exclusive of interest
thereon, do not exceed the maximum amount thereof, namely Six Hundred
Thousand Dollars ($600,000.00), which may be outstanding at any time; and
(3) all other sums hereby stated to be secured by this mortgage, including,
but not limited to, the unpaid balances of advances made by Grantee for the
payment of taxes, assessments and insurance and costs incurred for the
protection of the Premises, which may be outstanding at any time.
22. This mortgage is without prejudice to the right of Grantee to enforce
collection of the Note when due and payable by suit or in any lawful
manner, or to resort to any other security for the payment of the Note,
this mortgage being additional, accumulative and concurrent security for
the payment of the Note. The enumeration of certain rights, privileges, and
options in this mortgage as vested in Grantee, or its successors and
assigns, is not and shall not be construed as a waiver of, nor to impair in
any way other rights of Grantee or its successors or assigns, either at law
or in equity, independent of this instrument, concerning this or any of the
liabilities, obligations, indebtedness or collateral security involved in
the loan transaction which the Note evidence or any other instrument
securing the Note. Grantee, its successors and assigns, shall have the
right to proceed against the security granted hereunder or any other
security granted for the payment of the Note and to proceed against all
security at the same time or against individually pledged or liened assets
from time to time at the sole discretion of Grantee. No action against any
specific security granted for the Note shall be a bar to any subsequent
action or actions against all or any other security granted for the Note.
-10-
<PAGE>
23. Grantee shall not, in any way, act as the agent or trustee of Grantor nor
does it intend, in any way, to act for or on behalf of Grantor with respect
to disbursement of the mortgage proceeds. Its purpose in making the
requirements set forth herein is that of a lender protecting the priority
of its mortgage and the value of its security. Grantee assumes no
responsibility for the completion of any improvements erected upon the
Premises or the payment of bills or any other details in connection with
the Premises and improvements erected thereon, any plans and specifications
in connection therewith, or mortgagor's relations with any contractors.
This mortgage is not to be construed by Grantor, or any one furnishing
labor, materials or any other work or product for the improving of the
Premises as an agreement on the part of Grantee to assure any one that he
will be paid for furnishing such labor, materials or any other work or
product. He must look entirely to Grantor for such payment. Grantee assumes
no responsibility for the architectural or structural soundness of any
improvements to be erected upon the Premises or for the approval of any
plans and specifications in connection therewith or for any improvements as
finally completed.
24. The term "default" as used in this mortgage means a "Default" or "Event of
Default" as defined in the Loan Agreement, beyond applicable grace periods
provided for in the Loan Agreement.
25. The Premises herein conveyed includes, without limiting the completeness of
the hereinabove grant, all real property hereafter acquired by Grantor
which is made a part of the lot(s) or parcel(s) which presently
constitute(s) the Premises on the tax maps of the county auditor for so
long as such after-required real property shall be a part of such lot(s) or
parcel(s). Grantor shall execute and deliver to Grantee such instruments as
Grantee may require to confirm the lien of this mortgage on the additional
property covered by this clause. This clause is intended to insure that the
lien of this mortgage shall always encumber one or more complete lots or
parcels on the tax maps in the office of the auditor of the county in which
the Premises is located so that the ability to transfer the Premises shall
not be defeated or hindered by any alteration of the lot(s) or parcel(s)
which presently constitute(s) the Premises on such tax maps.
26. (a) Grantor warrants and represents to Grantee, to Grantor's knowledge,
that: (i) the Premises described herein is now and at all times hereafter
will continue to be in full compliance with all federal, state and local
environmental laws and regulations, including but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), Public Law No. 96-510, 94 Stat. 2767, 42 USC 9601 et seq.,
and the Superfund Amendments and Reauthorization Act of 1986 ("SARA"),
Public Law No. 99-499, 100 Stat. 1613, and
-11-
<PAGE>
(ii) (aa) as of the date hereof there are no hazardous materials,
substances, wastes or other environmentally regulated substances (including
without limitation, any materials containing asbestos) located on, in or
under the Premises or used in connection therewith, or (bb) Grantor has
fully disclosed to Grantee in writing, the existences, extent and nature of
any such hazardous materials, substances, wastes or other environmentally
regulated substances, which Grantor is legally authorized and empowered to
maintain on, in or under the Premises or use in connection therewith, and
Grantor has obtained and will maintain all licenses, permits and approvals
required with respect thereto, and is in full compliance with all of the
terms, conditions and requirements of such licenses, permits and approvals.
Grantor further warrants and represents that it will promptly notify
Grantee of any change in the nature or extent of any hazardous materials,
substances, wastes or other environmentally regulated substances affecting
the Premises.
(b) Grantor hereby agrees to indemnify Grantee and its successors and
assigns and hold Grantee harmless from and against any and all liabilities,
obligations, charges, losses, damages, injuries, penalties, claims,
actions, suits, costs of any settlement or judgment, costs, expenses and
disbursements, including without limitation title insurance costs and
premiums, engineers' and professional fees, soil tests and chemical
analysis, court costs, including reasonable legal fees and expenses through
all trial, appellate and administrative levels of whatsoever kind and
nature imposed on, incurred by or asserted against Grantee by any person or
entity or governmental agency for, with respect to, or as a direct or
indirect result of, the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission, discharging or release from the
Premises of any Hazardous Substance (including, without limitation, any
losses, liabilities, including strict liability, damages, injuries,
expenses, including reasonable attorneys' fees, costs of any settlement or
judgment or claims asserted or arising under CERCLA, SARA, any so called
federal, state or local "Superfund" or "Superlien" laws, statutes, law,
ordinance, code, rule, regulation, order or decree regulating with respect
to or imposing liability, including strict liability substances or
standards of conduct concerning any Hazardous Substance), regardless of
whether within the control of Grantee. The foregoing indemnification shall
survive repayment of the Note and satisfaction or assignment of this
mortgage.
(c) For purposes of this mortgage, "Hazardous Substances" shall include
those elements or compounds which are contained in the list of hazardous
substances adopted by the United States Environmental Protection Agency
(EPA) and the list of toxic pollutants designated by Congress or the EPA or
defined by any other Federal, state or local statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to, or imposing
liability or standards of conduct concerning, any
-12-
<PAGE>
hazardous, toxic or dangerous waste, substance or material as now or at any
time hereunder in effect.
(d) If Grantor receives any notice of (i) the happening of any material
event involving the spill, release, leak, seepage, discharge or cleanup of
any Hazardous Substance on the Premises or in connection with Grantor's
operations thereon or (ii) any complaint, order, citation or material
notice with regard to air emissions, water discharges, or any other
environmental, health or safety matter affecting Grantor (an "Environmental
Complaint") from any person or entity (including without limitation the
EPA) then Grantor shall immediately notify Grantee orally and in writing of
said notice.
(e) In the event Grantor fails or refused to contest or otherwise remediate
any environmental conditions, Environmental Complaint or orders of
governmental agencies, Grantee shall have the right but not the obligation,
and without limitation of Grantee's rights under this mortgage to enter
onto the Premises or to take such other actions as it deems necessary or
advisable to cleanup, remove, resolve or minimize the impact of, or
otherwise deal with, any such Hazardous Substance or Environmental
Complaint following receipt of any notice from any person or entity
(including without limitation the EPA) asserting the existence of any
Hazardous Substance or an Environmental Complaint pertaining to the
Premises or any part thereof which, if true, could result in an order, suit
or other action against Grantor and/or which, in the sole opinion of
Grantee, could jeopardize its security under this mortgage. All reasonable
costs and expenses incurred by Grantee in the exercise of any such rights
shall be secured by this mortgage and shall be payable by Grantor upon
demand.
(f) Any breach of any warranty, representation or agreement contained in
this Paragraph 26 shall be an Event of Default hereunder and shall entitle
Grantee to exercise any and all remedies provided in this mortgage, or
otherwise permitted by law.
27. THIS MORTGAGE SECURES OBLIGATIONS INCURRED FOR THE CONSTRUCTION OF
IMPROVEMENTS ON LAND, INCLUDING THE ACQUISITION COST OF LAND, AND IS
ACCORDINGLY INTENDED TO BE A CONSTRUCTION MORTGAGE WITHIN THE MEANING OF
SECTION 19.9313(1)(C) OF THE MICHIGAN STATUTES ANNOTATED (MCL ' 440.9313)
SO THAT ANY AND ALL SECURITY INTERESTS IN FIXTURES ARE SUBORDINATE TO THIS
MORTGAGE PURSUANT TO SECTION 19.9313(6) OF THE MICHIGAN STATUTES ANNOTATED
(MCL '440.9313).
-13-
<PAGE>
28. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH
PARTY HEREBY 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 TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
29. All documents executed pursuant to the transactions contemplated herein
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with, the internal laws and judicial decisions of
the State of Michigan. Grantor hereby submits to the jurisdiction of the
state and federal courts of Michigan for the purposes of resolving disputes
hereunder or for the purposes of collection. For the purposes of service of
process, Grantor agrees to accept service of process out of any of the
before mentioned courts in any such dispute or collection action by
registered or certified mail addressed to Grantor at the Premises. Grantee
reserves the right to serve process on Grantor according to any other legal
method. Grantor hereby agrees not to raise as a defense in any action
brought in any court in Michigan the defense of an inconvenient forum.
NOW THEREFORE, if Grantor or Borrower shall pay to Grantee the said sums of
money described in the Note and the interest thereon, in the manner and at the
times mentioned in said Note, and any and all other sums which may become
payable by Grantor hereunder, and shall fully keep and perform the terms,
covenants, conditions and agreements hereof by Grantor to be kept and performed,
then this mortgage and the estate hereby granted shall cease, determine and be
void, and said mortgage shall thereupon be released by the Grantee at the cost
and expense of Grantor (all claims for statutory penalties, in case of Grantee's
failure to release, being hereby waived); otherwise, this mortgage shall remain
in full force and effect.
-14-
<PAGE>
IN WITNESS WHEREOF, the said Ottawa River Steel Co., an Ohio corporation,
Grantor in the within instrument has duly executed this instrument, this 4th day
of February 1999.
Signed and acknowledged
in the presence of: OTTAWA RIVER STEEL CO.
/s/ Karen L. Rochawiak By /s/ James L. Rosino
- ------------------------------- -----------------------------
/s/ Regina M. Joseph
- -------------------------------
STATE OF OHIO )
) SS:
COUNTY OF LUCAS )
BEFORE ME, a Notary Public in and for said County, personally appeared
James L. Rosino known to me to be the person who, as Vice President - Finance of
Ottawa River Steel Co., the corporation which executed the foregoing instrument,
signed the same, and acknowledged to me that he did so sign the said instrument
as such officer of said Ottawa River Steel Co., that the same is his free act
and deed as such officer, and the free act and deed of said corporation for the
uses and purposes therein.
IN TESTIMONY WHEREOF, I have hereunto signed my name and affixed my
official seal this 4th day of February 1999.
/s/ Karen L. Rochawiak
------------------------------
Notary Public
This Instrument Prepared By:
John W. Hilbert, II, Esq.
Shumaker, Loop & Kendrick, PLL
Toledo, Ohio 43624
-15-
<PAGE>
EXHIBIT 10.18(c)
SECURITY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
That OTTAWA RIVER STEEL CO., an Ohio corporation, having an address at
805 Chicago Street, Toledo, Ohio 43611 (the "Debtor"), in consideration of the
principal sum of Six Hundred Eighteen Thousand and 00/00 Dollars ($618,000.00),
plus interest thereon as provided in its Cognovit Demand Promissory Note of even
date, together with any renewals, substitutions, replacements and extensions
thereof (the "Note"), which is unconditionally guaranteed by MERIDIAN NATIONAL
CORPORATION, a Delaware Corporation, pursuant to an Unconditional Cognovit
Guaranty of even date (the "Unconditional Guaranty"), with respect to a loan
made to Debtor by WILLIAM D. FENIGER, whose address is c/o Meridian National
Corporation, 805 Chicago Street, Toledo, Ohio 43611 (the "Secured Party" or
"Lender"), and to induce and secure the aforesaid loan and any extensions or
renewals thereof and any and all other liabilities of Debtor to Secured Party,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, including arising out of the Note (collectively, the
"Indebtedness") and of other good and valuable considerations inuring to the
benefit of Debtor, does hereby grant to the Secured Party a security interest in
all the equipment (the "Equipment") located at the Debtor's facility at 7055
Intervale St., Detroit, Michigan 48238 (the "Premises"), including but not
limited to the Equipment more particularly described on Exhibit A hereto, and
including Equipment attached as fixtures to the real property described on
Exhibit B hereto (the "Collateral").
DEBTOR HEREBY WARRANTS AND AGREES:
1. (a) All of the Equipment shall be kept at the Premises and shall be
used by Debtor in the operations of the business of Debtor. Debtor will not
remove nor allow the removal of the Equipment from said location without the
prior written consent of Secured Party. Some of the Equipment described in
Exhibit A is attached to the underlying real estate.
(b) Debtor is now in title and possession of the Equipment and it is in
good condition and repair. Debtor shall maintain the Equipment in good condition
and repair, reasonable wear and tear alone excepted, and Secured Party may, at
Debtor's expense, pay all necessary expenses to maintain the Equipment in good
repair, the cost thereof to be a part of the Indebtedness.
(c) Debtor will at all times maintain insurance on the Equipment in
such amounts and types and with such companies as the Secured Party may from
time to time require. The insurance policy or policies shall be delivered to
Secured Party with an endorsement or loss payable clause in favor of Secured
Party as its interest may appear. Upon Debtor's failure to comply with any of
the provisions of this Paragraph, Secured Party may, at
<PAGE>
Debtor's expense, procure such insurance, the cost thereof to be a part of the
Indebtedness.
(d) Debtor will not transfer, rent, sublet assign, sell or encumber any
of the Equipment without the prior written consent of Secured Party, and Debtor
will not use or permit the same to be used in violation of any law or ordinance
of any governmental authority.
(e) Debtor will, upon acquiring any new or additional Equipment,
promptly notify Secured Party of such acquisition, stating the nature,
description, cost and amount of such Equipment so acquired; and it will, upon
demand by Secured Party at Debtor's expense, promptly execute and deliver to
Secured Party such additional security agreements, financing statements or other
documents with respect thereto as are required by Secured Party. Nothing in this
Paragraph is intended to limit the right of Secured Party in any after-acquired
property as security for the Indebtedness created pursuant to the Note.
IT IS AGREED THAT:
2. The Collateral now is and will at all times hereafter be free and
clear from any and all other security interests, liens and encumbrances. Debtor
will pay when due all taxes and assessments upon the same and will promptly
satisfy any and all liens that may be imposed upon or against the same and
defend the same against all claims and demands of third persons whatever. Upon
Debtor's failure to comply with any of the provisions of this Paragraph, Secured
Party may, at Debtor's expense, pay such taxes and assessments, the cost thereof
to be part of the Indebtedness.
3. Without the written consent of Secured Party, Debtor will not permit
any adverse financing statements covering the Collateral to be on file in any
public office.
4. Debtor will furnish to Secured Party from time to time upon request
written statements and schedules identifying and describing the Collateral and
any additions thereto and substitutions thereof, in such detail as Secured Party
may reasonably require, will maintain books and records pertaining to the
Collateral in such detail, form and scope as Secured Party shall reasonably
require, and will advise Secured Party promptly and in sufficient detail of any
substantial change in the Collateral and of the occurrence of any event which
would have any material adverse effect on the value of Collateral or on the lien
and security interest granted to Secured Party therein.
5. Upon reasonable notice, Debtor will give Secured Party and its
officers, agents or attorneys free and complete access at all reasonable times
to the place of
-2-
<PAGE>
business, property, ledgers, records and books of Debtor and to the Collateral;
and Debtor will keep records relating to the Collateral as required by Secured
Party.
6. No action taken by Secured Party shall be taken as authority to
sell, transfer, convey or assign any Collateral contrary to the terms of this
Agreement.
7. Any warranty or representation made by Debtor to Secured Party with
respect to the Collateral covered by this Agreement shall be deemed to be made
as of the date of this Agreement, or as of the date at which Debtor acquired
rights in the Collateral within the meaning of the Uniform Commercial Code as
adopted in the State of Michigan (the "Code"), whichever is later.
8. Debtor shall be in default of this Agreement at such time as it is
in default of the Note. In the event of such default by Debtor, Secured Party
shall have, in addition to those rights granted it by the Note, and in addition
to all other rights of a secured party under the Code, the right to require
Debtor, upon request by Secured Party, to assemble the Collateral and make it
available to Secured Party at a place designated by Secured Party which is
reasonably convenient to both parties, and the right to take possession of the
Collateral with or without demand and with or without process of law and the
right to sell and dispose of the same and distribute the proceeds according to
law. In order to take possession of the Collateral, Secured Party may, so far as
Debtor can give authority therefor, enter upon the Premises on which the
Collateral or any part thereof may be situated and remove the same therefrom, to
the extent not prohibited by law, Debtor hereby voluntarily waives with full
knowledge and understanding all rights under the Constitution of the United
States and under the Constitution and statutes of the State of Ohio and Michigan
which it might have to notice and to an opportunity for a hearing prior to
Secured Party's taking possession of the Collateral.
9. This Security Agreement is without prejudice to the right of Secured
Party to enforce collection of the Indebtedness when due and payable, by suit or
in any lawful manner or to resort to any other security for the payment of the
Indebtedness, this Security Agreement being additional, accumulative and
concurrent for security for payment of the Indebtedness. The enumeration of
certain rights, privileges and options in this Security Agreement as vested in
Secured Party, or its successors and assigns, is not and shall not be construed
as a waiver of, nor to impair in any way other rights of Secured Party, or its
successors or assigns, either at law or in equity, independent of this
instrument, concerning this or any of the liabilities, obligations,
indebtedness, or collateral security involved in the Indebtedness or any other
instrument securing the Indebtedness. Secured Party, its successors and assigns,
shall have the right to proceed against the security granted hereunder or any
other security granted for the payment of the Indebtedness and to
-3-
<PAGE>
proceed against all security at the same time or against individually pledged or
liened assets from time to time at the sole election of Secured Party. No action
against any specific security granted for the Indebtedness shall be a bar to any
subsequent action or actions against all or any other security granted for the
Indebtedness.
10. This Agreement is made pursuant to the provisions of the Code, and
adopts where applicable definitions contained in the Code. Secured Party shall
have and be entitled to each right, privilege and remedy to which a secured
party is entitled under provisions of the Code, as if made a part hereof and
fully rewritten herein. Written notice mailed to Debtor's address stated herein
shall constitute reasonable notice to the Debtor of any disposition of
Collateral, if mailed at least five (5) days prior to such disposition, and
Secured Party may buy in the Collateral at any private sale.
11. The lien, rights and security interest granted to Secured Party
herein are to continue in full force and effect, notwithstanding the termination
of this Agreement or the fact that the principal account maintained in Debtor's
name on Secured Party's books may from time to time be temporarily in a credit
position, until the final payment to Secured Party in full of all obligations
and Indebtedness due Secured Party by Debtor, together with interest thereon.
12. This Agreement shall be binding upon Debtor, its successors and
assigns and shall be binding upon Secured Party, and inure to the benefit of
Secured Party, and its successors and assigns.
13. No waiver by Secured Party of any default in the performance of any
provision of this Agreement or other instrument of Indebtedness secured hereby
to be performed by Debtor shall waive any other default to the same or different
provisions hereof.
14. If any provisions of this Agreement, or if the evidence of
Indebtedness is contrary to the laws of any state, the same shall not invalidate
the other provisions thereof.
15. Debtor will at any time join with Secured Party in executing one or
more financing statements, amendments or supplements thereto, or any and all
continuation statements as may be required by Secured Party, pursuant to the
Uniform Commercial Code in form satisfactory to Secured Party and will pay the
cost of filing same or filing or recording this Agreement in all public offices
where filing or recording is deemed by Secured Party to be necessary or
desirable. In the event Debtor fails, for a period of three (3) days, to
execute, acknowledge and deliver any of the aforementioned financing statements,
amendments thereof, supplements thereto or continuation statements, in
-4-
<PAGE>
addition to any other remedies for a breach or default as set forth herein or as
set forth in any other document executed by Debtor with Secured Party, Secured
Party may execute and do all things necessary to execute the aforementioned
financing statements, amendments thereof, supplements thereto or continuation
statements as herein provided as the agent or attorney-in-fact for all such
purposes. The foregoing constitution and appointment is coupled with an interest
and Debtor agrees to execute, at any time, any and all further documents as
Secured Party deems necessary to effectuate such constitution and appointment.
16. The parties covenant and agree that the security interests herein
granted to Secured Party in the Collateral as hereinbefore defined shall extend
to all Collateral hereafter acquired by Debtor.
17. As between the parties, this Agreement is part and parcel of a
single agreement consisting of this instrument, the Note and any and all
mortgages and documents made pursuant thereto; all of said agreements,
instruments, notes and/or documents to be read as a whole in determining the
entire agreement and intent of the parties.
18. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY 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 TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
19. All documents executed pursuant to the transactions contemplated
herein shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with, the internal laws and judicial decisions of the
State of Ohio. Debtor hereby submits to the jurisdiction of the state and
federal courts of Ohio for the purposes of
-5-
<PAGE>
resolving disputes hereunder or for the purposes of collection. For the purposes
of service of process, Debtor agrees to accept service of process out of any of
the before mentioned courts in any such dispute or collection action by
registered or certified mail addressed to Debtor at the address set forth in the
introductory paragraph hereof. Secured Party reserves the right to serve process
on Debtor according to any other legal method. Debtor hereby agrees not to raise
as a defense in any action brought in any court in Ohio the defense of an
inconvenient forum.
Agreed to and signed this 4th day of February, 1999, in the City of
Toledo, State of Ohio.
SECURED PARTY: DEBTOR:
OTTAWA RIVER STEEL CO.
By /s/ William D. Feniger By /s/ James L. Rosino
-------------------------- ------------------------------------
William D. Feniger James L. Rosino, Vice President,
Finance
-6-
<PAGE>
Exhibit 21
Meridian National Corporation
List of Subsidiaries of Registrant
State of Incorporation
Subsidiary or Organization
---------- ---------------
Ottawa River Steel Company Ohio
National Metal Processing, Inc. Michigan
Meridian Environmental Services, Inc. Michigan
EPI Technologies, Inc. Delaware
Subsidiaries of EPI Technologies, Inc.
--------------------------------------
National Purification, Inc. Ohio
MEPI Corp. Ohio
Environmental Purification Industries Company, Ohio
a general partnership 100% owned by
National Purification, Inc. and MEPI Corp.
<PAGE>
EXHIBIT 23.01
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-83590) of Meridian National Corporation and in the related
prospectus, and in the Registration Statements (Form S-8 Nos. 33-72256 and
333-961) pertaining to the 1990 Non-qualified and Incentive Stock Option Plan
and to the Amended and Restated 1987 Non-employee Directors' Stock Option Plan
of Meridian National Corporation included in this annual Report (Form 10-K) for
the year ended February 28, 1999
REHMANN ROBSON, P.C.
Farmington Hills, Michigan
June 18, 1999
<PAGE>
Exhibit 23.02
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-83590) of Meridian National Corporation and in the related
prospectus, and in the Registration Statements (Form S-8 Nos. 33-72256 and 333-
961) pertaining to the 1990 Non-qualified and Incentive Stock Option Plan and to
the Amended and Restated 1987 Non-employee Directors' Stock Option Plan of
Meridian National Corporation of our report dated June 20, 1997, with respect to
the consolidated financial statements of Meridian National Corporation for the
year ended February 28, 1997, included in this Annual Report (Form 10-K) for the
year ended February 28, 1999.
ERNST & YOUNG LLP
Toledo, Ohio
June 18, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE AUDITED CONSOLIDATED BALANCE SHEET OF MERIDIAN NATIONAL CORPORATION AS OF
FEBRUARY 28, 1999 AND RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 825,437
<SECURITIES> 0
<RECEIVABLES> 8,021,764
<ALLOWANCES> 448,000
<INVENTORY> 8,281,272
<CURRENT-ASSETS> 17,851,829
<PP&E> 7,094,339
<DEPRECIATION> 3,514,601
<TOTAL-ASSETS> 22,122,626
<CURRENT-LIABILITIES> 27,992,947
<BONDS> 4,822,562
0
1,175,320
<COMMON> 37,176
<OTHER-SE> (8,252,522)
<TOTAL-LIABILITY-AND-EQUITY> 22,122,626
<SALES> 49,291,003
<TOTAL-REVENUES> 49,291,003
<CGS> 45,317,859
<TOTAL-COSTS> 45,317,859
<OTHER-EXPENSES> (226,672)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,720,719
<INCOME-PRETAX> (5,533,982)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,533,982)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,533,982)
<EPS-BASIC> (1.54)
<EPS-DILUTED> (1.54)
</TABLE>
