<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 7, 1997
METAL MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 114836 94-2835068
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
500 Dearborn Street, Suite 405
Chicago, Illinois 60610
(Address of principal executive offices)
(312) 645-0700
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Acquisition of HouTex Metals Company, Inc.
On January 7, 1997 (the "Effective Date"), the Registrant, Metal
Management, Inc. (the "Company" or the "Registrant"), acquired all of the assets
of HouTex Metals Company, Inc., a Texas corporation ("HouTex") by means of a
reverse triangular merger in which the Company's wholly owned subsidiary, MTLM
Merger, Inc., a Texas corporation ("Sub"), was merged with and into HouTex, with
HouTex remaining as the surviving corporation, pursuant to a Merger Agreement
dated as of December 10, 1996, as amended by a First Amendment to Merger
Agreement dated December 10, 1996 (collectively the "Merger Agreement") among
the Company, Sub, HouTex, and the beneficial owners of HouTex's Common Stock
(the "Acquisition"). HouTex is a Houston, Texas-based scrap metal dealer. In
the Acquisition, the purchase price paid to the former shareholders of HouTex
consisted of an aggregate of (i) 475,000 shares of Common Stock of the Company,
(ii) warrants to purchase an aggregate of an additional 250,000 shares of Common
Stock of the Company, (iii) promissory notes for an aggregate of $1,655,268 due
on April 30, 1997, payable to Mike Melnik and Zalman Melnik (the "Melnik
Notes"), (iv) a promissory note for $5,000,000 due on June 30, 1997, payable to
Clend Investment Holdings, Ltd. ("Clend"), a British Virgin Islands corporation
indirectly controlled by Mike Melnik and Zalman Melnik (the "Clend Note"), and
(v) $750,000 in cash. Under the terms of the Acquisition, former HouTex
shareholder Clend, as holder of the Clend Note, also was granted the conditional
right to receive warrants for up to an additional 250,000 shares of Common Stock
of the Registrant if the Clend Note is not paid in full prior to its maturity
date. The holder of the Clend Note also has the option prior to April 30, 1997,
to convert up to $1 million of the remaining principal balance of the Clend Note
into Common Stock of the Registrant at a price per share equal to 75% of the
average closing price of the Registrant's Common Stock over the five trading
days immediately preceding the exercise of the option. Under certain conditions,
the holder of the Clend Note also has the option to convert prior to April 30,
1997, up to an additional $1 million of the remaining principal balance of the
Clend Note into shares of Common Stock of the Registrant at a price per share of
either $5.00 or $5.48, depending upon whether the average closing price of the
Registrant's stock is either more or less than $7.25 at the time the option is
exercised. At the same time as the Melnik Notes are due, on April 30, 1997, in
an aggregate amount of $1,655,268, a note in the amount of $405,268 is due to
HouTex from the Melniks in payment for certain HouTex assets that were
transferred to the Melniks. The cash payments by the Registrant were paid out
of general working capital of the Registrant. The amount of consideration paid
by the Registrant in the Acquisition was determined in arm's-length negotiations
with the shareholders of HouTex. The Registrant also entered into a long-term
lease (the "Lease"), with an option to purchase, with respect to approximately
46 acres of real property and improvements in Houston, Texas, on which HouTex's
headquarters are located. This Lease is between the Company and an affiliate of
the former shareholders of HouTex that owns the real estate and improvements.
The purchase option feature of the Lease provides for fixed periods of time
during the term of the Lease in which the Registrant can purchase the property
for $4 million. The Lease also designates periods during the term of the Lease
in which the owner of the property can require the Registrant to purchase the
property for $4 million. The earliest that either the Registrant or the owner
of the property may cause either the sale or the purchase of the property,
respectively, is during the 54th month of the Lease term. The Registrant
intends to continue to utilize the leased premises as headquarters for HouTex's
scrap metal operations and to continue to utilize the assets of HouTex for scrap
metal recycling.
The Melnik Notes and the Clend Note are secured by 100% of the capital
stock of HouTex, which was issued to the Registrant in connection with the
closing of the Acquisition. The Registrant is obligated to use its reasonable
best efforts to obtain replacement financing adequate to retire the Melnik Notes
and the Clend Note prior to their maturity dates. If the Registrant obtains
<PAGE> 3
such financing prior to April 30, 1997, the Registrant will be required under
the Merger Agreement to pay the Melnik Notes and the Clend Note in full within
five business days after receipt of the proceeds of such financing. The Merger
Agreement further provides that, if the Registrant uses its reasonable best
efforts to obtain replacement financing but has not done so before April 30,
1997, the obligations reflected by the Notes and the stock pledge and security
agreements entered into by the Registrant shall become non-recourse, and the
sole remedy available to the holders of the Melnik Notes and the Clend Note
shall be for the holders to exercise their rights under the stock pledge and
security agreements and foreclose on the shares of HouTex common stock issued to
the Registrant at the closing.
Prior to the closing of the Acquisition, the Registrant, the
Registrant's affiliates, directors, officers, and associates of such directors
and officers had no material relationship with HouTex or any of its
shareholders, including Mike Melnik, Zalman Melnik or Clend. At the closing of
the Acquisition, Mike Melnik was elected to the Board of Directors of the
Registrant and Mike Melnik and Zalman Melnik signed five-year employment
agreements with the Registrant to serve as Chief Executive Officer and Chief
Operating Officer, respectively, of HouTex. Messrs. Mike Melnik and Zalman
Melnik were also elected by the Registrant following the closing of the
Acquisition to serve on the Board of Directors of HouTex.
The Registrant has agreed to utilize as much as $4.5 million
of a $10 million short-term financing facility obtained through LaSalle National
Bank, Chicago, Illinois, ("LaSalle National") to refinance the line of credit
financing for HouTex and to provide additional working capital for HouTex.
Approximately $3.5 million of this $4.5 million total is structured as a
direct line of credit from LaSalle National to HouTex, and the remaining $1.0
million of the $4.5 million total is structured as an unsecured line of
credit from the Company to HouTex. (See Item 5. Other Events.)
The Acquisition is intended to be treated as a purchase for financial
accounting purposes.
ITEM 5. OTHER EVENTS
On January 7, 1997, the Company and HouTex obtained a $10 million
short-term financing facility from LaSalle National. The credit facility
consists of a $6.5 million term loan to the Company (the "Company Loan") at an
interest rate of LIBOR plus 1.75%, and a revolving credit facility of $3.5
million to HouTex (the "HouTex Loan") at an interest rate of the prime rate plus
1%. Both loans are due June 30, 1997, but they may be extended until September
30, 1997, for a fee of $25,000. The HouTex Loan was secured by a first lien on
the assets of HouTex, as well as personal guaranties by certain officers and
directors of the Company. The Company Loan was unsecured, except for personal
guaranties from certain officers and directors of the Company. The officers and
directors guaranteeing the loans to the Company and HouTex have received
warrants to purchase an aggregate of 500,000 shares of Common Stock of the
Company for a price of $4.00 per share in consideration for making such
guaranties. In connection with the Company Loan, the Company made available to
HouTex an additional $1 million pursuant to a Revolving Credit Note due
contemporaneously with the other loans at an interest rate of the prime rate
plus 1%, and subordinated such loan to the HouTex Loan.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The Consolidated Financial Statements of HouTex as of June 30, 1996,
September 30, 1995, and September 30, 1994, are attached hereto as Exhibit
99.1. A manually signed report of the Registrant's independent accountants
relating to the Financial Statements for HouTex is included herewith as
Exhibit 99.2.
It is impracticable to provide Financial Statements of HouTex as of
September 30, 1996, at this time. The Registrant will file the required
financial statements within 60 days of the date of this Report.
(b) Pro Forma Financial Information.
It is impracticable to provide pro forma financial information as
required by this Item at this time. The Registrant will file the required pro
forma financial information within 60 days of the date of this Report.
(c) Exhibits.
2.1 Merger Agreement by and among the Registrant, Sub,
HouTex, Mike Melnik, Zalman Melnik, and Clend, dated
as of December 10, 1996.
2.2 First Amendment to Merger Agreement among the
Registrant, Sub, HouTex, Mike Melnik, Zalman Melnik
and Clend, dated as of December 10, 1996.
10.1 Guaranty, dated as of January 7, 1997, by certain
directors of the Registrant to and for the benefit of
LaSalle National (re loan to Registrant).
10.2 Guaranty, dated as of January 7, 1997, by certain
directors of the Registrant to and for the benefit of
LaSalle National (re loan to HouTex).
10.3 Loan Agreement, dated as of January 7, 1997, by and
among the Registrant, HouTex and LaSalle National.
10.4 Revolver Note issued by HouTex to LaSalle National,
dated January 7, 1997 ($3.5 million).
10.5 Security Agreement, dated as of January 7, 1997, by
HouTex to and for the benefit of LaSalle National.
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10.6 Term Note, dated January 7, 1997, issued by the
Registrant to LaSalle National ($6.5 million).
10.7 Subordination Agreement, dated as of January 7, 1997,
by and between the Registrant and LaSalle National.
10.8 Revolving Credit Note, dated as of January 7, 1997,
issued by HouTex to the Registrant ($1 million).
10.9 Security Agreement, dated as of January 7, 1997, by
HouTex to and for the benefit of the Registrant.
10.10 Letter Agreement, dated as of January 7, 1997, by and
between the Registrant and HouTex.
23.1 Consent of Price Waterhouse LLP.
99.1 Consolidated Financial Statements of HouTex as of
June 30, 1996, September 30, 1995, and September 30,
1994.
99.2 Manually signed report of Price Waterhouse LLP
relating to the Financial Statements for HouTex as of
June 30, 1996, September 30, 1995, and September 30,
1994.
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
METAL MANAGEMENT, INC.
Dated: January 21, 1997 By: /s/ GERARD M. JACOBS
-----------------------------
Gerard M. Jacobs,
President and Chief Executive
Officer
<PAGE> 7
EXHIBIT INDEX
2.1 Merger Agreement by and among the Registrant, Sub, HouTex, Mike Melnik,
Zalman Melnik, and Clend, dated as of December 10, 1996.
2.2 First Amendment to Merger Agreement among the Registrant, Sub, HouTex,
Mike Melnik, Zalman Melnik and Clend, dated as of December 10, 1996.
10.1 Guaranty, dated as of January 7, 1997, by certain directors of the
Registrant to and for the benefit of LaSalle National (re loan to
Registrant).
10.2 Guaranty, dated as of January 7, 1997, by certain directors of the
Registrant to and for the benefit of LaSalle National (re loan to
HouTex).
10.3 Loan Agreement, dated as of January 7, 1997, by and among the
Registrant, HouTex and LaSalle National.
10.4 Revolver Note issued by HouTex to LaSalle National, dated January 7,
1997 ($3.5 million).
10.5 Security Agreement, dated as of January 7, 1997, by HouTex to and for
the benefit of LaSalle National.
10.6 Term Note, dated January 7, 1997, issued by the Registrant to LaSalle
National ($6.5 million).
10.7 Subordination Agreement, dated as of January 7, 1997, by and between
the Registrant and LaSalle National.
10.8 Revolving Credit Note, dated as of January 7, 1997, issued by HouTex to
the Registrant ($1 million).
10.9 Security Agreement, dated as of January 7, 1997, by HouTex to and for
the benefit of the Registrant.
10.10 Letter Agreement, dated as of January 7, 1997, by and between the
Registrant and HouTex.
23.1 Consent of Price Waterhouse LLP.
99.1 Consolidated Financial Statements of HouTex as of June 30, 1996,
September 30, 1995, and September 30, 1994.
99.2 Manually signed report of Price Waterhouse LLP relating to the
Financial Statements for HouTex as of June 30, 1996, September 30,
1995, and September 30, 1994.
<PAGE> 1
EXHIBIT 2.1
MERGER AGREEMENT
BY AND AMONG
METAL MANAGEMENT, INC.,
MTLM MERGER INC.
AND
HOUTEX METALS COMPANY, INC.
AND ITS SHAREHOLDERS
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
THE MERGER.......................................................... 1
1.1 The Merger................................................. 1
1.2 The Closing................................................ 2
1.3 Plan of Merger............................................. 2
1.4 Post Closing Adjustment to Merger Consideration............ 3
1.5 Determination of Exercise Price for Warrants............... 4
1.6 [Intentionally Omitted].................................... 5
1.7 Filing of Articles of Merger............................... 5
1.8 Issuance of MTLM Shares.................................... 5
1.9 Delivery of Certificates; Held Back Shares................. 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE MTLM COMPANIES............................................... 6
2.1 Corporate Status........................................... 6
2.2 Corporate Power and Authority.............................. 6
2.3 Enforceability............................................. 6
2.4 MTLM Common Stock.......................................... 6
2.5 No Commissions............................................. 7
2.6 Capitalization............................................. 7
2.7 SEC Reports and NASDAQ Compliance.......................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE HOUTEX SHAREHOLDERS............................................. 8
3.1 Corporate Status........................................... 8
3.2 Power and Authority........................................ 8
3.3 Enforceability............................................. 8
3.4 Capitalization............................................. 8
3.5 Shareholders of the Company................................ 9
3.6 No Violation............................................... 9
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
3.7 Records of the Company......................................................................... 10
3.8 Subsidiaries................................................................................... 10
3.9 Financial Statements........................................................................... 10
3.10 Changes Since the Current Balance Sheet Date................................................... 11
3.11 Liabilities of the Company..................................................................... 11
3.12 Litigation..................................................................................... 12
3.13 Environmental Matters.......................................................................... 12
3.14 Real Estate.................................................................................... 17
3.15 Good Title to and Condition of Assets.......................................................... 20
3.16 Compliance with Laws........................................................................... 21
3.17 Labor and Employment Matters................................................................... 21
3.18 Employee Benefit Plans......................................................................... 22
3.19 Tax Matters.................................................................................... 24
3.20 Insurance...................................................................................... 26
3.21 Receivables.................................................................................... 26
3.22 Licenses and Permits........................................................................... 27
3.23 Adequacy of the Assets; Relationships with
Customers and Suppliers; Affiliated Transactions............................................... 27
3.24 Intellectual Property.......................................................................... 27
3.25 Contracts...................................................................................... 27
3.26 Customer Lists and Recurring Revenue........................................................... 28
3.27 Accuracy of Information Furnished by the Shareholders.......................................... 29
3.28 Investment Intent; Accredited Investor Status; Securities Documents............................ 29
3.29 Business Locations............................................................................. 29
3.30 Names; Prior Acquisitions...................................................................... 30
3.31 No Commissions................................................................................. 30
3.32 Inventory...................................................................................... 30
3.33 Identification, Acquisition and Disposition of Assets and Liabilities.......................... 30
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER.................................................................. 31
4.1 Conduct of Business by HouTex Pending the Merger............................................... 31
ARTICLE V
ADDITIONAL AGREEMENTS................................................................................... 32
5.1 Further Assurances............................................................................. 32
5.2 Compliance with Covenants...................................................................... 33
5.3 Cooperation.................................................................................... 33
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
5.4 Access to Information.......................................................................... 33
5.5 Notification of Certain Matters................................................................ 33
5.6 Tax Treatment.................................................................................. 33
5.7 Confidentiality; Publicity..................................................................... 33
5.8 No Other Discussions........................................................................... 34
5.9 Restrictive Covenants.......................................................................... 34
5.10 Environmental Assessment....................................................................... 35
(a) Scope of Prompt Immediate Japhet Property Remediation..................................... 36
(b) Costs of Agreed Remediation............................................................... 36
(c) Future Remediation Costs.................................................................. 36
5.11 Trading in MTLM Common Stock................................................................... 37
5.12 Election of New Director....................................................................... 37
5.13 Employment Agreements.......................................................................... 37
5.14 Lease of Real Property......................................................................... 37
5.15 Post Closing Minimum Net Income................................................................ 38
5.16 Houston Compressed Steel Finders Fee........................................................... 38
5.17 Preclosing Audit of HouTex..................................................................... 38
5.18 Corporate Authority............................................................................ 38
5.19 Certification of Tax Status.................................................................... 38
5.20 NationsBank Financing; Release of Guarantors................................................... 39
5.21 Extraneous Assets.............................................................................. 39
5.22 Possible Issuance of Additional Three Year Warrants............................................ 39
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF
THE MTLM COMPANIES...................................................................................... 40
6.1 Accuracy of Representations and Warranties and
Compliance with Obligations.................................................................... 40
6.2 No Material Adverse Change or Destruction of Property.......................................... 41
6.3 Corporate Certificate.......................................................................... 41
6.4 Opinion of Counsel............................................................................. 41
6.5 Consents....................................................................................... 42
6.6 Securities Laws................................................................................ 42
6.7 HouTex Stock................................................................................... 42
6.8 No Adverse Litigation.......................................................................... 42
6.9 Board Approval................................................................................. 43
6.10 Shareholder Approval........................................................................... 43
6.11 Employment Agreements.......................................................................... 43
6.12 Lease Agreement................................................................................ 43
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
6.13 Due Diligence.................................................................................. 43
6.14 Fairness Opinion............................................................................... 43
6.15 Completion of Audit............................................................................ 43
6.16 Extraneous Assets.............................................................................. 43
6.17 Receipt of Tax Certifications.................................................................. 43
6.18 Consent of NationsBank......................................................................... 44
6.19 Title Commitment............................................................................... 44
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
HOUTEX AND THE HOUTEX SHAREHOLDERS...................................................................... 44
7.1 Accuracy of Representations and Warranties
and Compliance with Obligations................................................................ 44
7.2 Merger Consideration........................................................................... 44
7.3 No Adverse Litigation.......................................................................... 44
7.4 Opinion of Counsel............................................................................. 45
7.5 Employment Agreements.......................................................................... 45
7.6 Lease Agreement................................................................................ 45
7.7 Registration Rights............................................................................ 46
ARTICLE VIII
INDEMNIFICATION......................................................................................... 46
8.1 Agreement by the HouTex Shareholders to Indemnify.............................................. 46
8.2 Agreement by the MTLM Companies to Indemnify................................................... 48
8.3 Conditions of Indemnification.................................................................. 49
8.4 Held Back Shares and Rights of Setoff to Secure the
HouTex Shareholders' Indemnification Obligation................................................ 50
8.5 Adjustment to Merger Consideration............................................................. 52
ARTICLE IX
SECURITIES LAW MATTERS
9.1 Disposition of Shares.......................................................................... 52
9.2 Legend......................................................................................... 53
9.3 Registration Rights............................................................................ 53
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE X
DEFINITIONS............................................................................................. 53
10.1 Defined Terms.................................................................................. 53
10.2 Other Definitional Provisions.................................................................. 55
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER....................................................................... 56
11.1 Termination.................................................................................... 56
11.2 Effect of Termination.......................................................................... 56
ARTICLE XII
GENERAL PROVISIONS...................................................................................... 56
12.1 Notices........................................................................................ 56
12.2 Entire Agreement.............................................................................. 57
12.3 Expenses....................................................................................... 58
12.4 Amendment; Waiver.............................................................................. 58
12.5 Binding Effect; Assignment..................................................................... 58
12.6 Counterparts................................................................................... 58
12.7 Interpretation................................................................................. 58
12.8 Governing Law; Interpretation.................................................................. 58
12.9 Arm's Length Negotiations...................................................................... 59
12.10 Facsimile Signatures........................................................................... 59
ARTICLE XIII
POST CLOSING COVENANTS OF MTLM.......................................................................... 60
13.1 Post Closing Covenants of MTLM................................................................. 60
13.2 Covenant Regarding Financial Statements........................................................ 61
</TABLE>
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EXHIBITS
Exhibit A -- Plan of Merger
Exhibit B-1 -- Form of Five Year Warrants
Exhibit B-2 -- Form of Limited Warrants
Exhibit B-3 -- Form of Melnik Notes
Exhibit B-4 -- Form of Clend Note
Exhibit B-5 -- Form of Stock Pledge and Security Agreement
Exhibit B-6 -- Form of Escrow Agreement
Exhibit C -- Form of Employment Agreement (Mike Melnik)
Exhibit D -- Form of Employment Agreement (Sol Melnik)
Exhibit E -- Legal Description of Harris County Texas Real Property
Exhibit F -- Adjustments to GAAP to Determine Postclosing Minimum Net Income
Exhibit G -- Form of Registration Rights Agreement
Exhibit H -- Extraneous Assets
Exhibit I -- Form of Lease Agreement (with Purchase Option)
Exhibit J -- Price Waterhouse Letter
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MERGER AGREEMENT
This Merger Agreement (this "Agreement") is entered into as of December
10, 1996, by and among METAL MANAGEMENT, INC., a Delaware corporation ("MTLM");
MTLM MERGER, INC., a Texas corporation and wholly-owned subsidiary of MTLM (the
"MTLM Merger Sub", and together with MTLM, the "MTLM Companies"); HOUTEX METALS
COMPANY, INC., a Texas corporation, ("HouTex"), MIKE MELNIK,, and ZALMAN (SOL)
MELNIK, and CLEND INVESTMENT HOLDINGS LTD., a British Virgin Islands
corporation, who or which constitute all of the shareholders of HouTex
(collectively, the "HouTex Shareholders"). Certain other capitalized terms used
herein are defined in Article X or elsewhere throughout this Agreement.
RECITALS
The Boards of Directors of the MTLM Companies and HouTex have
determined that it is in the best interests of their respective shareholders for
MTLM to acquire HouTex upon the terms and subject to the conditions set forth in
this Agreement. In order to effectuate the transaction, MTLM has organized MTLM
Merger Sub as a wholly-owned subsidiary, and the parties have agreed, subject to
the terms and conditions set forth in this Agreement, to merge MTLM Merger Sub
with and into HouTex with HouTex as the surviving corporation, so that each of
the HouTex Shareholders will be issued certain shares of common stock of MTLM.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined below), and pursuant to the terms and
conditions set forth in the Plan of Merger and Reorganization annexed hereto as
Exhibit A (the "Plan of Merger"), MTLM Merger Sub will be merged into and with
HouTex. The terms and conditions of the Plan of Merger are incorporated herein
by reference as if fully set forth herein. As a result of the Merger, the
separate corporate existence of MTLM Merger Sub shall cease and HouTex shall
continue as the surviving corporation and wholly-owned subsidiary of MTLM.
<PAGE> 9
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the consummation of the purchase and Merger (the "Closing") shall take place as
promptly as practicable (and in any event within five (5) business days) after
satisfaction or waiver of the conditions set forth in Articles VI and VII, at
the offices of Chamberlain, Hrdlicka, White, Williams & Martin, 1200 Smith
Street, Suite 1400, Houston, Texas 77002, or such other place as the parties may
otherwise agree. The parties will attempt to perform all of their respective
obligations hereunder so that Closing may occur on or before December 6, 1996;
but in no event may Closing occur later than December 31, 1996, unless all
parties have agreed in writing to a later date.
1.3 PLAN OF MERGER. At the Closing, MTLM shall deliver to the HouTex
Shareholders (a) an aggregate of Four Hundred Seventy-Five Thousand (475,000)
shares of common stock, $0.01 par value per share (the "Share Consideration"),
of MTLM ("MTLM Common Stock"); (b) warrants of MTLM which entitle the holders to
purchase One Hundred Thousand (100,000) shares of MTLM for a period of five (5)
years at a price to be set at Closing as provided in Section 1.5 hereof, in the
form attached hereto as Exhibit "B-1" (the "Five Year Warrants"); (c) warrants
of MTLM which entitle the holders to purchase One Hundred Fifty Thousand
(150,000) shares of MTLM for a limited period of up to five(5) years at a price
to be set at Closing as provided in Section 1.5 hereof in the form attached
hereto as Exhibit "B-2" (the "Limited Warrants"); (d) Five Hundred Thousand
Dollars ($500,000.00) in cash or immediately available funds (the "Cash
Consideration"); (e) two promissory notes in the form attached hereto as Exhibit
"B-3" payable to Mike and Sol Melnik (the "Melnik Notes") in the aggregate
amount of One Million Four Hundred Thousand Dollars ($1,405,268.00) allocated
between Mike and Sol Melnik as set forth below and secured by a Stock Pledge and
Security Agreement in the form attached hereto as Exhibit "B-5" with related
Escrow Agreement in the form of Exhibit B-6 attached hereto (collectively the
"Stock Pledge Agreement"); and (f) a promissory note in the form attached hereto
as Exhibit "B-4" payable to Clend Investment Holdings Limited (the "Clend Note")
in the amount of Five Million Five Hundred Thousand Dollars ($5,500,000.00)
which will also be secured by the Stock Pledge Agreement all in exchange for all
the issued and outstanding shares of capital stock of HouTex. The above
referenced purchase price shall be allocated (subject to adjustments) among the
HouTex Shareholders as follows:
- 2 -
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<TABLE>
<CAPTION>
Held Back
MTLM Common Stock Shares Five Year Limited Cash
Delivered at Closing Under Section 1.9 Warrants Warrants Consideration Melnik Notes Clend Note
-------------------- ----------------- --------- -------- ------------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mike Melnik 27,077 32,212 87,000 $435,000 $ 960,055 --
Sol Melnik 19,590 23,343 63,000 315,000 695,213 --
Clend
Investments 372,778 -- 100,000 -- -- -- $5,000,000
------- ------ ------- ------- -------- ---------- ----------
Totals 419,445 55,555 100,000 150,000 $750,000 $1,655,268 $5,000,000
======= ====== ======= ======= ======== ========== ==========
</TABLE>
The Share Consideration, the Warrants, the Cash Consideration, the Melnik Notes
and the Clend Note, as adjusted in accordance with this Agreement, shall be
collectively referred to as the "Merger Consideration".
1.4 POST CLOSING ADJUSTMENT TO MERGER CONSIDERATION.
(a) Within 30 days after the Closing Date, MTLM will prepare
and deliver to the HouTex Shareholders a draft balance sheet (the
"Closing Date Balance Sheet") for HouTex as of the opening of business
on the Closing Date. MTLM will prepare the Draft Closing Date Balance
Sheet in accordance with GAAP. If the HouTex Shareholders have any
objections to the Draft Closing Date Balance Sheet, they will deliver a
detailed written statement describing their objections to MTLM within
15 days after receiving the Draft Closing Date Balance Sheet. MTLM and
the HouTex Shareholders will use reasonable efforts to resolve any such
objections themselves. However, if MTLM and the HouTex Shareholders do
not obtain a final resolution within 10 days after MTLM has received
the written statement of objections from the HouTex Shareholders, MTLM
and the HouTex Shareholders will select an accounting firm, mutually
acceptable to them to resolve any remaining objections. If MTLM and the
HouTex Shareholders are unable to agree on the choice of an accounting
firm, they will select a "Big Six" accounting firm by lot (after
excluding their respective outside accounting firms). The determination
of any accounting firm so selected will be set forth in writing and
will be conclusive and binding upon the parties. MTLM will revise the
Draft Closing Date Balance Sheet as appropriate to reflect the
resolution of any objections thereto pursuant to this Section 1.4. The
"Closing Date Balance Sheet" shall mean the Draft Closing Date Balance
Sheet together with any revisions thereto pursuant to this Section 1.4.
In the event the parties submit any unresolved objections to an
accounting firm for resolution as provided in this Section 1.4, MTLM
and the HouTex Shareholders will share equally the responsibility for
the fees and expenses of the accounting firm selected. MTLM will make
the work papers
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and back-up materials used in preparing the Draft Closing Date Balance
Sheet, and the books and records of HouTex, available to the HouTex
Shareholders and their accountants and representatives at reasonable
times upon reasonable notice at any time during (i) the preparation of
the Draft Closing Date Balance Sheet by MTLM; (ii) the review by the
HouTex Shareholders of the Draft Closing Date Balance Sheet, and (iii)
the resolution by the parties of any objections thereto.
(b) Pursuant to Section 5.15 hereof, the HouTex Shareholders
have covenanted that HouTex shall have an after tax net income
determined in accordance with Section 5.15 for the twelve month period
ending on the Minimum Net Income Determination Date (as defined in
Section 5.15) of not less than the Minimum Net Income (as defined in
Section 5.15). In the event the actual after tax net income of HouTex
determined in accordance with Section 5.15 for the twelve month period
ending on the Minimum Net Income Determination Date is less than the
Minimum Net Income, the HouTex Shareholders will pay MTLM an amount
equal to such deficiency (plus interest thereon at the Applicable Rate)
by the wire transfer or delivery of other immediately available funds
within three (3) business days after notification by MTLM in writing of
the actual after tax net income of HouTex determined in accordance with
Section 5.15 for the twelve (12) month period ending on the Minimum Net
Income Determination Date. MTLM shall have the option of recouping all
or any part of any amount the HouTex Shareholders owe MTLM pursuant to
this 1.4 (b) by notifying the HouTex Shareholders that MTLM is reducing
(in accordance with Article VIII) pro rata the Held Back Shares or
setting off such amount owed by the HouTex Shareholders against: (a)
amounts due to Mike and Sol Melnik or any entity which they form to
hold title to the Japhet Property (as such property is defined in
Section 5.14 hereof), or their or its respective successors in interest
under the Lease (such person, persons or entity being hereafter
referred to as the "Lessor"), or (b) amounts due under the Melnik
Notes, or (c) amounts due under the Clend Note. Any dispute arising
between MTLM and the HouTex Shareholders with regard to the accuracy of
MTLM's determination of HouTex's actual net income determined in
accordance with Section 5.15 hereof for the period ending on the
Minimum Net Income Determination Date shall be resolved in the same
manner as a dispute arising under Section 1.4 (a) hereof.
1.5 DETERMINATION OF EXERCISE PRICE FOR WARRANTS. The exercise
price per share for the Five Year Warrants and Limited Warrants shall be fixed
at Closing in an amount equal to the average of the closing bid and asked prices
(the "Closing Stock Price") of MTLM's common stock on the Nasdaq National Market
System on the last business day preceding the Closing Date.
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1.6 [INTENTIONALLY OMITTED].
1.7 FILING OF ARTICLES OF MERGER. At the time of the Closing, the
parties shall cause the Merger to be consummated by filing duly executed
Articles of Merger (with the Plan of Merger annexed thereto) with the Secretary
of State of the State of Texas, in such form attached hereto as Exhibit "A" with
such modifications, if any, as MTLM determines are required by the relevant
provisions of the Texas Business Corporation Act (the "Act") (the date and time
of such filing is referred to herein as the "Effective Date" or "Effective
Time").
1.8 ISSUANCE OF MTLM SHARES. At the Effective Time, by virtue of
the Merger and without any further action on the part of the parties hereto,
MTLM shall issue to the HouTex Shareholders duly executed certificates, in valid
form registered in each such Shareholder's name, evidencing that number of
shares of MTLM Common Stock determined, to the nearest whole share, in
accordance with the Plan of Merger. Any HouTex Shareholders who wish to have
their allocable shares of MTLM Common Stock issued in multiple certificates
shall deliver a certificate to MTLM at least 10 days prior to Closing pursuant
to this Section 1.8 setting forth the manner in which they wish to have their
share certificates issued.
1.9 DELIVERY OF CERTIFICATES; HELD BACK SHARES. At the Closing,
the HouTex Shareholders shall deliver the certificates representing all of the
issued and outstanding shares of capital stock of HouTex to MTLM for
cancellation, and MTLM shall deliver the certificates representing the shares of
MTLM Common Stock issued pursuant to Section 1.8 in the following manner: (i)
MTLM shall deliver to each holder one or more certificates evidencing the
Adjusted Share Consideration (less the Held Back Shares) of MTLM Common Stock
(rounded to the nearest whole share), and (ii) MTLM shall set aside and hold in
accordance with Article VIII certificates evidencing a number of Shares of MTLM
Common Stock equal in Section 1.3 under the column headed "Held Back Shares
under Section 1.9" (the "Held Back
[remainder of page intentionally left blank]
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<PAGE> 13
Shares"). The shares of MTLM Common Stock, including the Held Back Shares,
issuable by MTLM in the Merger are sometimes referred to herein as the "MTLM
Shares". At the Closing, MTLM shall also deliver the cash portion of the Merger
Consideration, the Five Year Warrants, the Limited Warrants, the Melnik Notes
and the Clend Note.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE MTLM COMPANIES
As a material inducement to each of the HouTex Shareholders to enter
into this Agreement and to consummate the transactions contemplated hereby, MTLM
makes the following representations and warranties to the HouTex Shareholders.
2.1 CORPORATE STATUS. MTLM is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The MTLM
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas. The MTLM Merger Sub is a
wholly-owned subsidiary of MTLM.
2.2 CORPORATE POWER AND AUTHORITY. Each of the MTLM Companies has the
corporate power and authority to execute and deliver this Agreement, to perform
its respective obligations hereunder and to consummate the transactions
contemplated hereby. Each of the MTLM Companies will take all action necessary
to authorize its execution and delivery of this Agreement, the performance of
its respective obligations hereunder and the consummation of the transactions
contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by each of the MTLM Companies and constitutes a legal, valid and binding
obligation of each of the MTLM Companies, enforceable against each of the MTLM
Companies in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
2.4 MTLM COMMON STOCK. Upon consummation of the Mergers and the
issuance and delivery of certificates representing the MTLM Shares to the HouTex
Shareholders, the MTLM Shares will be validly issued, fully paid and
non-assessable shares of MTLM Common Stock.
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<PAGE> 14
2.5 NO COMMISSIONS. None of the MTLM Companies has incurred any
obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
2.6 CAPITALIZATION. The authorized capital stock of MTLM consists of
42,000,000 shares, 40,000,000 of which are shares of MTLM Common Stock and
2,000,000 of which are Preferred Stock. As of the date hereof, 8,922,000 shares
of MTLM Common Stock are validly issued and outstanding, fully paid, and
non-assessable and there are no outstanding shares of Preferred Stock. Not more
than 2,400,000 shares of MTLM Common Stock have been reserved for issuance as of
the date hereof pursuant to various stock option plans, warrants, and pending
contracts for business acquisitions, and no other shares of MTLM Common Stock or
Preferred Stock, or any rights options, warrants, convertible securities,
subscription rights or other agreements or commitments of any kind obligating
MTLM to issue or sell any other shares of MTLM Common Stock or Preferred Stock,
are outstanding or have been authorized, as of the date hereof. All issued and
outstanding shares of capital stock of the MTLM Merger Sub are owned
beneficially and of record by MTLM. No other shares of capital stock of the MTLM
Merger Sub or any rights, options, warrants, convertible securities,
subscription rights or other agreements or commitments of any kind obligating
any of the MTLM Merger Sub to issue or sell other such shares are outstanding or
have been authorized.
2.7 SEC REPORTS AND NASDAQ COMPLIANCE. Since at least January 1, 1995,
MTLM has made all filings (the "SEC Reports") required to be made by it under
the Securities Act, the Exchange Act and the securities laws of any state, and
any rules and regulations promulgated thereunder and pursuant to any
requirements of law. The SEC Reports, when filed, complied in all material
respects with all applicable requirements of the Securities Act , the Exchange
Act and other requirements of law. To the knowledge of MTLM, none of the SEC
Reports, at the time of filing, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading in light of the
circumstances in which they were made. MTLM has, or will, deliver or make
accessible to the HouTex Shareholders true, accurate and complete copies of the
SEC Reports, as amended, which were filed with the SEC since January 1, 1995,
and as in effect as of the date hereof. MTLM has taken all necessary actions to
ensure its continued inclusion in, and the continued eligibility of the MTLM
Common Stock for trading on the Nasdaq Stock Market under all currently
effective and currently proposed inclusion requirements.
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<PAGE> 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE HOUTEX SHAREHOLDERS
As a material inducement to each of the MTLM Companies to enter into
this Agreement and to consummate the transactions contemplated hereby, each of
the HouTex Shareholders, jointly and severally, makes the following
representations and warranties to the MTLM Companies:
3.1 CORPORATE STATUS. HouTex is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and has the
requisite power and authority to own or lease its properties and to carry on its
business as now being conducted. HouTex is legally qualified to transact
business as a foreign corporation in all jurisdictions where the nature of its
properties and the conduct of its business requires such qualification (all of
which jurisdictions are listed on Schedule 3.1) and is in good standing in each
of the jurisdictions in which it is so qualified. There is no pending or
threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of HouTex.
3.2 POWER AND AUTHORITY. HouTex and the HouTex Shareholders each have
the power and authority to execute and deliver this Agreement, to perform their
respective obligations hereunder and to consummate the transactions contemplated
hereby. HouTex, and the HouTex Shareholders will each take all action necessary
to authorize the execution and delivery of this Agreement, the performance of
their respective obligations hereunder and the consummation of the transactions
contemplated hereby. Each of the HouTex Shareholders is an individual residing
in the State of Texas, except for Clend Investments Holdings Ltd. which is a
corporation organized under the laws of the British Virgin Islands. Each HouTex
Shareholder has the requisite competence and authority to execute and deliver
this Agreement, to perform his, her, or its respective obligations hereunder and
to consummate the transactions contemplated hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by HouTex and the HouTex Shareholders, and constitutes the legal, valid and
binding obligation of each of them, enforceable against them in accordance with
its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
3.4 CAPITALIZATION. Schedule 3.4 sets forth, with respect to HouTex,
(a) the number of authorized shares of each class of its capital stock, (b) the
number of issued and
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<PAGE> 16
outstanding shares of each class of its capital stock, and (c) the number of
shares of each class of its capital stock which are held in treasury. All of the
issued and outstanding shares of capital stock of HouTex (a) have been duly
authorized and validly issued and are fully paid and non-assessable, (b) were
issued in compliance with all applicable state and federal securities laws, and
(c) were not issued in violation of any preemptive rights or rights of first
refusal. No preemptive rights or rights of first refusal exist with respect to
the shares of capital stock of HouTex, and no such rights arise by virtue of or
in connection with the transactions contemplated hereby. There are no
outstanding or authorized rights, options, warrants, convertible securities,
subscription rights, conversion rights, exchange rights or other agreements or
commitments of any kind that could require HouTex to issue or sell any shares of
its capital stock (or securities convertible into or exchangeable for shares of
its capital stock). There are no outstanding stock appreciation, phantom stock,
profit participation or other similar rights with respect to HouTex. There are
no proxies, voting rights or other agreements or understandings with respect to
the voting or transfer of the capital stock of HouTex. HouTex is not obligated
to redeem or otherwise acquire any of its outstanding shares of capital stock.
3.5 SHAREHOLDERS OF THE COMPANY. Schedule 3.5 sets forth, with respect
to HouTex, (a) the name, address and federal taxpayer identification number of,
and the number of outstanding shares of each class of its capital stock owned
by, each shareholder of record as of the close of business on the date of this
Agreement; and (b) the name, address and federal taxpayer identification number
of, and number of shares of each class of its capital stock beneficially owned
by, each beneficial owner of outstanding shares of capital stock (to the extent
that record and beneficial ownership of any such shares are different). The
HouTex Shareholders constitute all of the holders of all issued and outstanding
shares of capital stock of HouTex, and each of the HouTex Shareholders owns such
shares as is set forth on Schedule 3.5, free and clear of all Liens,
restrictions and claims of any kind, except as set forth on Schedule 3.5, and
all Liens noted on Schedule 3.5 shall be released at or prior to the Closing
(other than as is specifically disclosed on Schedule 3.5).
3.6 NO VIOLATION. Except as set forth on Schedule 3.6, the execution
and delivery of this Agreement by HouTex and the HouTex Shareholders, the
performance by them of their respective obligations hereunder and the
consummation by them of the transactions contemplated by this Agreement will not
(i) contravene any provision of the articles of incorporation or bylaws of
HouTex, (ii) violate or conflict with any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment or order of any Governmental
Authority or of any arbitration award which is either applicable to, binding
upon or enforceable against HouTex or any of the HouTex Shareholders; (iii)
conflict with, result in any breach of, or constitute a default (or an event
which would, with the passage of time or the giving of notice or both,
constitute a default) under, or give rise to a right to terminate, amend,
modify,
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<PAGE> 17
abandon or accelerate, any Contract which is applicable to, binding upon or
enforceable against HouTex or any of the HouTex Shareholders, (iv) result in or
require the creation or imposition of any Lien upon or with respect to any of
the property or assets of HouTex, or (v) require the consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Authority, any court or tribunal or any other Person, except to the extent of
filings necessary to consummate the Merger or to the extent failure to obtain
such consent, approval, authorization or permit, or to make such filing or
notification, would not result in a Material Adverse Effect, or would not
preclude the Merger from being consummated in accordance with this Agreement.
3.7 RECORDS OF THE COMPANY. The copies of the articles of incorporation
and bylaws of HouTex which were provided to MTLM are true, accurate and complete
and reflect all amendments made through the date of this Agreement. The minute
books for HouTex contain an accurate record of all material corporate actions of
the shareholders and directors (and any committees thereof) of HouTex taken
since incorporation. All material corporate actions taken by HouTex have been
duly authorized or ratified. The stock ledgers of HouTex contain accurate and
complete records of all issuances, transfers and cancellations of shares of the
capital stock of the HouTex.
3.8 SUBSIDIARIES. Except as set forth on Schedule 3.8, HouTex does not
own, directly or indirectly, any outstanding voting securities of or other
interests in, or control, any other corporation, partnership, joint venture or
other business entity. HouTex has no liabilities or obligations, whether
accrued, absolute, contingent or otherwise, arising from its interest in the
entities set forth on Schedule 3.8, except as may be disclosed on Schedule 3.8.
3.9 FINANCIAL STATEMENTS. The HouTex Shareholders have delivered to
MTLM the financial statements as of September 30, 1993, September 30, 1994,
September 30, 1995, and for the period ending June 30, 1996, including the
notes, if any, thereto, (collectively, the "Financial Statements"), copies of
which are attached to Schedule 3.9 hereto. The balance sheet dated as of June
30, 1996 included in the Financial Statements is referred to herein as the
"Current Balance Sheet". Except as disclosed in Schedule 3.9, the Financial
Statements fairly present the financial position of HouTex at each of the
balance sheet dates and the results of operations for the periods covered
thereby, and have been prepared in accordance with GAAP consistently applied
throughout the periods indicated. The books and records of HouTex fully and
fairly reflect its transactions, properties, assets and liabilities. There are
no material special or non-recurring items of income or expense during the
periods covered by the Financial Statements, and the balance sheets included in
the Financial Statements do not reflect any writeup or revaluation increasing
the book value of any assets, except as specifically disclosed in the notes
thereto. The Financial Statements
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<PAGE> 18
reflect all adjustments necessary for a fair presentation of the financial
information contained therein.
3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Except as disclosed
in Schedule 3.10, and except as contemplated by Section 6.16 hereof, between the
date of the Current Balance Sheet and the date hereof HouTex has not (i) issued
any capital stock or other securities; (ii) made any distribution of or with
respect to its capital stock or other securities or purchased or redeemed any of
its securities; (iii) paid any bonus to or increased the rate of compensation of
any of its officers or salaried employees or amended any other terms of
employment of such persons; (iv) sold, leased or transferred any of its
properties or assets other than in the ordinary course of business consistent
with past practice; (v) made or obligated itself to make capital expenditures
out of the ordinary course of business consistent with past practice; (vi) made
any payment in respect of its liabilities other than in the ordinary course of
business consistent with past practice; (vii) incurred any obligations or
liabilities (including any indebtedness) or entered into any transaction or
series of transactions involving in excess of $10,000 in the aggregate out of
the ordinary course of business, except for this Agreement and the transactions
contemplated hereby; (viii) suffered any theft, damage, destruction or casualty
loss, not covered by insurance and for which a timely claim was filed, in excess
of $10,000 in the aggregate; (ix) suffered any extraordinary losses (whether or
not covered by insurance); (x) waived, cancelled, compromised or released any
rights having a value in excess of $10,000 in the aggregate; (xi) made or
adopted any change in its accounting practice or policies; (xii) made any
adjustment to its books and records other than in respect of the conduct of its
business activities in the ordinary course consistent with past practice; (xiii)
entered into any transaction with any Affiliate other than intercompany
transactions in the ordinary course of business consistent with past practice;
(xiv) entered into any employment agreement; (xv) terminated, amended or
modified any agreement involving an amount in excess of $10,000; (xvi) imposed
any security interest or other Lien on any of its assets other than in the
ordinary course of business consistent with past practice; (xvii) delayed paying
any accounts payable which is due and payable except to the extent being
contested in good faith; (xviii) made or pledged any charitable contribution
other than in the ordinary course of business consistent with past practice;
(xix) entered into any other transaction or been subject to any event which has
or may have a Material Adverse Effect on HouTex; or (xx) agreed to do or
authorized any of the foregoing.
3.11 LIABILITIES OF THE COMPANY. Except as set forth on Schedule 3.11,
HouTex does not have any liabilities or obligations, whether accrued, absolute,
contingent or otherwise, except (a) to the extent reflected or taken into
account in the Current Balance Sheet and not heretofore paid or discharged, (b)
to the extent specifically set forth in or incorporated by express reference in
any of the Schedules attached hereto, (c) liabilities
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<PAGE> 19
incurred in the ordinary course of business consistent with past practice since
the date of the Current Balance Sheet (none of which relates to breach of
contract, breach of warranty, tort, infringement or violation of law, or which
arose out of any action, suit, claim, governmental investigation or arbitration
proceeding), (d) normal accruals, reclassifications, and audit adjustments which
would be reflected on an audited financial statement and which would not be
material in the aggregate, and (e) liabilities incurred in the ordinary course
of business prior to the date of the Current Balance Sheet which, in accordance
with GAAP consistently applied, were not recorded thereon.
3.12 LITIGATION. Except as set forth on Schedule 3.12, there is no
action, suit, or other legal or administrative proceeding or governmental
investigation pending, overtly threatened, or to the knowledge of the HouTex
Shareholders anticipated or contemplated against, by or affecting HouTex or any
of its properties or assets, or the HouTex Shareholders, or which question the
validity or enforceability of this Agreement or the transactions contemplated
hereby, and there is no basis for any of the foregoing. There are no outstanding
orders, decrees or stipulations issued by any Governmental Authority in any
proceeding to which HouTex is or was a party which have not been complied with
in full or which continue to impose any material obligations on HouTex.
3.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 3.13:
(a) HouTex is and has at all times been in material compliance
with all Environmental, Health and Safety Laws (as defined herein) governing its
business, operations, properties and assets, including, without limitation,
Environmental, Health and Safety Laws with respect to discharges into the ground
water, surface water and soil, emissions into the ambient air, and generation,
accumulation, storage, treatment, transportation, transfer, labeling, handling,
manufacturing, use, spilling, leaking, dumping, discharging, release or disposal
of Hazardous Substances (as defined herein), or other Waste (as described
herein). HouTex is not currently liable for any penalties, fines or forfeitures
for failure to comply with any Environmental, Health and Safety Laws. HouTex is
in material compliance with all notice, record keeping and reporting
requirements of all Environmental, Health and Safety Laws, and has complied with
all informational requests or demands arising under the Environmental, Health
and Safety Laws.
(b) HouTex has obtained, or caused to be obtained, and is in
material compliance with, all licenses, certificates, permits, approvals and
registrations (collectively "Licenses") required by the Environmental, Health
and Safety Laws for the ownership of its properties and assets and the operation
of its business as presently conducted, including, without limitation, all air
emission, water discharge, water use and solid waste, hazardous waste and other
Waste generation, transportation, transfer, storage, treatment or disposal
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<PAGE> 20
Licenses, and HouTex is in full compliance with all the terms, conditions and
requirements of such Licenses, and copies of such Licenses have been provided to
MTLM. There are no administrative or judicial investigations, notices, claims or
other proceedings pending or overtly threatened, or to the knowledge of the
HouTex Shareholders anticipated or contemplated by any Governmental Authority or
third parties against HouTex, its businesses, operations, properties, or assets,
which question the validity or entitlement of HouTex to any License required by
the Environmental, Health and Safety Laws for the ownership of each of the
properties and assets of HouTex and the operation of its business or wherein an
unfavorable decision, ruling or finding could have a Material Adverse Effect on
HouTex, or which would impose any liability upon the MTLM Companies in the event
that the merger contemplated by this Agreement closes.
(c) HouTex has not received and is not aware of any non-compliance
order, warning letter, notice of violation, claim, suit, action, judgment, or
administrative or judicial proceeding pending against or involving HouTex, its
business, operations, properties, or assets, issued by any Governmental
Authority or third party with respect to any Environmental, Health and Safety
Laws in connection with the ownership by HouTex of its properties or assets or
the operation of its business, which has not been resolved to the satisfaction
of the issuing Governmental Authority or third party in a manner that would not
impose any obligation, burden or continuing liability on the MTLM Companies in
the event that the merger contemplated by this Agreement closes, or which could
have a Material Adverse Effect on HouTex.
(d) HouTex is in material compliance with, and is not in breach of
or default under any applicable writ, order, judgment, injunction, governmental
communication or decree issued pursuant to the Environmental, Health and Safety
Laws and no event has occurred or is continuing which, with the passage of time
or the giving of notice or both, would constitute such non-compliance, breach or
default thereunder, or affect the Owned Properties or Leased Premises.
(e) Except as permitted by all Environmental, Health and Safety
Laws, HouTex has not generated, manufactured, used, transported, transferred,
stored, handled, treated, spilled, leaked, dumped, discharged, released or
disposed, nor has it allowed or arranged for any third parties to generate,
manufacture, use, transport, transfer, store, handle, treat, spill, leak, dump,
discharge, release or dispose of, Hazardous Substances or other waste to or at
any location other than a site lawfully permitted to receive such Hazardous
Substances or other waste for such purposes, nor has it performed, arranged for
or allowed by any method or procedure such generation, manufacture, use,
transportation, transfer, storage, treatment, spillage, leakage, dumping,
discharge, release or disposal in contravention of any Environmental, Health and
Safety Laws. HouTex has not generated, manufactured,
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used, stored, handled, treated, spilled, leaked, dumped, discharged, released or
disposed of, or allowed or arranged for any third parties to generate,
manufacture, use, store, handle, treat, spill, leak, dump, discharge, release or
dispose of, Hazardous Substances or other waste upon property owned or leased by
it, except as permitted by law. For purposes of this Section 3.13, the term
"Hazardous Substances" shall be construed broadly to include any toxic or
hazardous substance, material, or waste, and any other contaminant, pollutant or
constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous,
including without limitation, chemicals, compounds, by-products, pesticides,
asbestos containing materials, petroleum or petroleum products, and
polychlorinated biphenyls, the presence of which requires investigation or
remediation under any Environmental, Health and Safety Laws or which are or
become regulated, listed or controlled by, under or pursuant to any
Environmental Health and Safety Laws, including, without limitation, the United
States Department of Transportation Table (49 CFR 172, 101) or by the
Environmental Protection Agency as hazardous substances (40 CFR Part 302) and
any amendments thereto; the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendment and
Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (hereinafter
collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource
Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C. Section 6901 et seq. (hereinafter, collectively
"RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
Section 1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311,
et seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642); Toxic
Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal
Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section
136-136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of
1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA");
the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section
651, et seq. ("OSHA"); any similar state statute, or any future amendments to,
or regulations implementing such statutes, laws, ordinances, codes, rules,
regulations, orders, rulings, or decrees, or which has been or shall be
determined or interpreted at any time by any Governmental Authority to be a
hazardous or toxic substance regulated under any other statute, law, regulation,
order, code, rule, order, or decree. For purposes of this Section 3.13, the term
"Waste" shall be construed broadly to include agricultural wastes, biomedical
wastes, biological wastes, bulky wastes, construction and demolition debris,
garbage, household wastes, industrial solid wastes, liquid wastes, recyclable
materials, sludge, solid wastes, special wastes, used oils, white goods, and
yard trash.
(f) HouTex has not caused, or allowed to be caused or permitted,
either by action or inaction, a Release or Discharge, or threatened Release or
Discharge, of any Hazardous Substance on, into or beneath the surface of any
parcel of the Owned Properties or the Leased Premises. There has not occurred,
nor is there presently occurring, a Release
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or Discharge, or threatened Release or Discharge, of any Hazardous Substance on,
into or beneath the surface of any parcel of the Owned Properties or the Leased
Premises. For purposes of this Section, the terms "Release" and "Discharge"
shall have the meanings given them in the Environmental, Health and Safety Laws.
(g) HouTex has not generated, handled, manufactured, treated,
stored, used, shipped, transported, transferred, or disposed of, nor has it
allowed or arranged, by contract, agreement or otherwise, for any third parties
to generate, handle, manufacture, treat, store, use, ship, transport, transfer
or dispose of, any Hazardous Substance or other Waste to or at a site which,
pursuant to CERCLA or any similar state law (i) has been placed on the National
Priorities List or its state equivalent; or (ii) the Environmental Protection
Agency or the relevant state agency has notified HouTex that it has proposed or
is proposing to place on the National Priorities List or its state equivalent.
Neither HouTex nor the HouTex Shareholders has received notice, and neither
HouTex nor the HouTex Shareholders have knowledge of any facts which could give
rise to any notice, that HouTex is a potentially responsible party for a federal
or state environmental cleanup site or for corrective action under CERCLA, RCRA
or any other applicable Environmental Health and Safety Laws. HouTex has not
submitted nor was required to submit any notice pursuant to Section 103(c) of
CERCLA with respect to the Leased Premises or the Owned Properties. HouTex has
not received any written or oral request for information in connection with any
federal or state environmental cleanup site, or in connection with any of the
real property or premises where HouTex has transported, transferred or disposed
of other Wastes. HouTex has not been required to and has not undertaken any
response or remedial actions or clean-up actions of any kind at the request of
any Governmental Authorities or at the request of any other third party. HouTex
has no liability under any Environmental, Health and Safety Laws for personal
injury, property damage, natural resource damage, or clean up obligations.
(h) HouTex does not use, nor has it used, any Aboveground Storage
Tanks or Underground Storage Tanks, and there are not now nor have there ever
been any Aboveground Storage Tanks or Underground Storage Tanks on the Leased or
Owned Properties. For purposes of this Section 3.13, the terms "Aboveground
Storage Tanks" and "Underground Storage Tanks" shall have the meanings given
them in Section 6901 et seq., as amended, of RCRA, or any applicable state or
local statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Aboveground Storage Tanks or Underground Storage Tanks.
(i) Schedule 3.13 identifies, regardless of their materiality, (i)
all environmental audits, assessments or occupational health studies undertaken
by HouTex or its agents or, to the knowledge of HouTex or the HouTex
Shareholders, undertaken by any Governmental Authority, or any third party,
relating to or affecting HouTex or any of the
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<PAGE> 23
Leased Premises or the Owned Properties; (ii) the results of any ground, water,
soil, air or asbestos monitoring undertaken by HouTex or its agents or, to the
knowledge of HouTex or the HouTex Shareholders, undertaken by any Governmental
Authority or any third party, relating to or affecting HouTex or any of the
Leased Premises or the Owned Properties; (iii) all written communications
between HouTex and any Governmental Authority arising under or related to
Environmental, Health and Safety Laws; and (iv) all citations issued under OSHA,
or similar state or local statutes, laws, ordinances, codes, rules, regulations,
orders, rulings, or decrees, relating to or affecting either of HouTex or any of
the Leased Premises or the Owned Properties.
(j) Schedule 3.13 contains a list of the assets of HouTex which
contain "asbestos" or "asbestos-containing material" (as such terms are
identified under the Environmental, Health and Safety Laws). Schedule 3.13 also
identifies (i) the degree of friability of all existing asbestos and
asbestos-containing material and (ii) all actions taken by HouTex, directly or
indirectly, or by any of their agents, employees, representatives or contractors
with respect to asbestos or asbestos-containing materials, including but not
limited to all methods and manner of abatement, removal, containment,
encapsulation, repair, maintenance, renovation, demolition, salvage,
installation, storage, transportation, disposal, monitoring, spill/emergency
clean-up, protective health and safety measures and training of personnel
(whether employees or independent contractors or otherwise). Except as set forth
in Schedule 3.13, HouTex has operated and continues to operate in compliance
with all Environmental, Health & Safety Laws governing the handling, use and
exposure to and disposal of asbestos or asbestos-containing materials. Except as
set forth in Schedule 3.13, there are no claims, actions, suits, governmental
investigations or proceedings before any Governmental Authority or third party
pending, or threatened against or directly affecting HouTex, or any of its
assets or operations relating to the use, handling or exposure to and disposal
of asbestos or asbestos-containing materials in connection with their assets and
operations.
(k) As used in this Agreement, "Environmental, Health and Safety
Laws" means all federal, state, regional or local statutes, laws, rules,
regulations, codes, orders, plans, injunctions, decrees, rulings, and changes or
ordinances or judicial or administrative interpretations thereof, whether
currently in existence or hereafter enacted or promulgated, any of which govern
(or purport to govern) or relate to pollution, protection of the environment,
public health and safety, air emissions, water discharges, hazardous or toxic
substances, solid or hazardous waste or occupational health and safety, as any
of these terms are or may be defined in such statutes, laws, rules, regulations,
codes, orders, plans, injunctions, decrees, rulings and changes or ordinances,
or judicial or administrative interpretations thereof, including, without
limitation, RCRA, CERCLA, the Hazardous
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<PAGE> 24
Materials Transportation Act, the Toxic Substances Control Act, the Clean Air
Act, the Clean Water Act, FIFRA, EPCRA and OSHA.
(l) Schedule 3.13 identifies the operations and activities, and
locations thereof, which have been conducted and are being conducted by HouTex
on any of the Owned Properties or the Leased Premises which have involved the
generation, accumulation, storage, treatment, transportation, labeling,
handling, manufacturing, use, spilling, leaking, dumping, discharging, release
or disposal of Hazardous Substances.
(m) Schedule 3.13 identifies the locations to which the Company
has transferred, transported, hauled, moved, or disposed of Waste over the past
five (5) years and the types and volumes of Waste transferred, transported,
hauled, moved, or disposed of to each such location.
(n) As used in this Section 3.13, the term "HouTex" is deemed to
refer to HouTex, any of its subsidiaries, predecessors, Affiliates, successors
or assigns, and shall specifically include any affiliated person, persons or
entity which owns real property leased, occupied, or used by HouTex.
3.14 REAL ESTATE.
(a) HouTex does not own any real property or any interest therein
except as set forth on Schedule 3.14(a) (the "Owned Properties"), which Schedule
sets forth the location and size of, and principal improvements and buildings
on, the Owned Properties. Except as set forth on Schedule 3.14(a), with respect
to each such parcel of Owned Property:
(i) HouTex has good and indefeasible title to the parcel of
Owned Property, free and clear of any Lien other than (x) liens for
real estate taxes not yet due and payable; (y) recorded easements,
covenants, and other restrictions which do not impair the current use,
occupancy or value of the property subject thereto, and (z)
encumbrances and restrictions described in the title insurance policies
listed on Schedule 3.14(a), all of which policies have been previously
delivered to MTLM.
(ii) there are no pending or, threatened condemnation
proceedings, suits or administrative actions relating to the Owned
Properties or other matters affecting adversely the current use,
occupancy or value thereof;
(iii) the legal descriptions for the parcels of Owned
Property contained in the deeds thereof describe such parcels fully and
adequately; the
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buildings and improvements are located within the boundary lines of the
described parcels of land, are not in violation of applicable setback
requirements, local comprehensive plan provisions, zoning laws and
ordinances (and none of the properties or buildings or improvements
thereon are subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications), building code requirements,
permits, licenses or other forms of approval by any Governmental
Authority, and do not encroach on any easement which may burden the
land; the land does not serve any adjoining property for any purpose
inconsistent with the use of the land; and the Owned Properties are not
located within any flood plain (such that a mortgagee would require a
mortgagor to obtain flood insurance) or subject to any similar type
restriction for which any permits or licenses necessary to the use
thereof have not been obtained;
(iv) all facilities have received all approvals of
Governmental Authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been
operated and maintained in accordance with applicable laws, ordinances,
rules and regulations;
(v) there are no Contracts granting to any party or parties
the right of use or occupancy of any portion of the parcels of Owned
Property, except as set forth on Schedule 3.14(a);
(vi) except as may be contemplated by the Lease, there are
no outstanding options or rights of first refusal to purchase the
parcels of Owned Property, or any portion thereof or interest therein;
(vii) there are no parties (other than HouTex and its
subsidiaries) in possession of the parcels of Owned Property, other
than tenants under any leases disclosed in Schedule 3.14(a) who are in
possession of space to which they are entitled;
(viii) all facilities located on the parcels of Owned Property
are supplied with utilities and other services necessary for the
operation of such facilities, including gas, electricity, water,
telephone, sanitary sewer and storm sewer, all of which services are
adequate in accordance with all applicable laws, ordinances, rules and
regulations, and are provided via public roads or via permanent,
irrevocable, appurtenant easements benefitting the parcels of Owned
Property;
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<PAGE> 26
(ix) each parcel of Owned Property abuts on and has direct
vehicular access to a public road, or has access to a public road via a
permanent, irrevocable, appurtenant easement benefitting the parcel of
Owned Property; access to the property is provided by paved public
right-of-way with adequate curb cuts available; and there is no pending
or threatened termination of the foregoing access rights;
(x) All improvements and buildings on the Owned Property are
in good repair and are safe for occupancy and use, free from termites
or other wood-destroying organisms; the roofs thereof are watertight;
and the structural components and systems (including plumbing,
electrical, air conditioning/heating, and sprinklers) are in good
working order and adequate for the use of such Owned Property in the
manner in which presently used; and
(xi) there are no service contracts, management agreements or
similar agreements which affect the parcels of Owned Property, except
as set forth on Schedule 3.14(a).
(b) Schedule 3.14(b) sets forth a list of all leases, licenses or
similar agreements ("Leases") to which HouTex is a party (copies of which have
previously been furnished to MTLM), in each case, setting forth (A) the lessor
and lessee thereof and the date and term of each of the Leases, (B) the legal
description, including street address, of each property covered thereby, and (C)
a brief description (including size and function) of the principal improvements
and buildings thereon (the "Leased Premises"), all of which are within the
property set-back and building lines of the respective property. The Leases are
in full force and effect and have not been amended except as set forth on
Schedule 3.14(b), and no party thereto is in default or breach under any such
Lease. No event has occurred which, with the passage of time or the giving of
notice or both, would cause a material breach of or default under any of such
Leases. There is no breach or anticipated breach by any other party to such
Leases. Except as set forth on Schedule 3.14(b), with respect to each such
Leased Premises:
(i) HouTex has valid leasehold interests in the Leased
Premises, free and clear of any Liens, covenants and easements or title
defects of any nature whatsoever;
(ii) The portions of the buildings located on the Leased
Premises that are used in the business of HouTex are each in good
repair and condition, normal wear and tear excepted, and are in the
aggregate sufficient to satisfy
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<PAGE> 27
HouTex's current and reasonably anticipated normal business activities
as conducted thereat;
(iii) Each of the Leased Premises (a) has direct access to
public roads or access to public roads by means of a perpetual access
easement, such access being sufficient to satisfy the current and
reasonably anticipated normal transportation requirements of HouTex's
business as presently conducted at such parcel; and (b) is served by
all utilities in such quantity and quality as are sufficient to satisfy
the current normal business activities as conducted at such parcel; and
(iv) HouTex has not received notice of (a) any condemnation
proceeding with respect to any portion of the Leased Premises or any
access thereto, and no such proceeding is contemplated by any
Governmental Authority; or (b) any special assessment which may affect
any of the Leased Premises, and no such special assessment is
contemplated by any Governmental Authority.
3.15 GOOD TITLE TO AND CONDITION OF ASSETS. Except as set forth in
Schedule 3.15:
(a) HouTex has good and marketable title to all of its Assets (as
hereinafter defined), free and clear of any Liens or restrictions on use. For
purposes of this Agreement, the term "Assets" means all of the properties and
assets of HouTex, other than the Owned Properties and the Leased Premises,
whether personal or mixed, tangible or intangible, wherever located.
(b) The Fixed Assets (as hereinafter defined) currently in use or
necessary for the business and operations of HouTex are in good operating
condition, normal wear and tear excepted, and have been maintained materially in
accordance with sound industry practices. For purposes of this Agreement, the
term "Fixed Assets" means all vehicles, machinery, equipment, tools, supplies,
leasehold improvements, furniture and fixtures used by or located on the
premises of HouTex or set forth on the Current Balance Sheet or acquired by
HouTex since the date of the Current Balance Sheet. Schedule 3.15 lists the
vehicles owned, leased or used by HouTex, setting forth the make, model,
description of body and chassis, vehicle identification number, and year of
manufacture, and for each vehicle, whether it is owned or leased, and if owned,
the name of any lienholder and the amount of the lien, and if leased, the name
of the lessor and the general terms of the lease, and, whether owned or leased,
if it is used to transport, transfer, handle, dispose or haul Waste materials.
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<PAGE> 28
3.16 COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.16:
(a) HouTex is and has been in compliance with all laws,
regulations and orders applicable to it, its business and operations (as
conducted by it now and in the past), the Assets, the Owned Properties and the
Leased Premises and any other properties and assets (in each case owned or used
by it now or in the past). HouTex has not been cited, fined or otherwise
notified of any asserted past or present failure to comply with any laws,
regulations or orders and no proceeding with respect to any such violation is
pending or threatened.
(b) Neither HouTex nor any of its employees or agents, has made
any payment of funds in connection with their business which is prohibited by
law, and no funds have been set aside to be used in connection with their
business for any payment prohibited by law.
(c) HouTex is and at all times has been in full compliance with
the terms and provisions of the Immigration Reform and Control Act of 1986, as
amended (the "Immigration Act"). With respect to each Employee (as defined in 8
C.F.R. 274a.1(f)) of HouTex for whom compliance with the Immigration Act as
employer is required, HouTex has on file a true, accurate and complete copy of
(i) each Employee's Form I-9 (Employment Eligibility Verification Form) and (ii)
all other records, documents or other papers prepared, procured and/or retained
by HouTex pursuant to the Immigration Act. HouTex has not been cited, fined,
served with a Notice of Intent to Fine or with a Cease and Desist Order, nor has
any action or administrative proceeding been initiated or threatened against it,
by the Immigration and Naturalization Service by reason of any actual or alleged
failure to comply with the Immigration Act.
(d) HouTex is not subject to any Contract, decree or injunction
which restricts the continued operation of any business or the expansion thereof
to other geographical areas, customers and suppliers or lines of business.
3.17 LABOR AND EMPLOYMENT MATTERS. Schedule 3.17 sets forth the name,
address, social security number and current rate of compensation of each of the
employees of HouTex. HouTex is not a party to or bound by any collective
bargaining agreement or any other agreement with a labor union, and there has
been no effort by any labor union during the 24 months prior to the date hereof
to organize any employees of HouTex into one or more collective bargaining
units. There is no pending or threatened labor dispute, strike or work stoppage
which affects or which may affect the business of HouTex which may interfere
with its continued operations. Neither HouTex nor any agent, representative or
employee thereof has within the last 24 months committed any unfair labor
practice as
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<PAGE> 29
defined in the National Labor Relations Act, as amended, and there is no pending
or threatened charge or complaint against HouTex by or with the National Labor
Relations Board or any representative thereof. There has been no strike, walkout
or work stoppage involving any of the employees of HouTex during the 24 months
prior to the date hereof. None of the HouTex Shareholders is aware that any
executive or key employee or group of employees has any plans to terminate his,
her or their employment with HouTex as a result of this Agreement or otherwise.
Schedule 3.17 contains detailed information about each contract, agreement or
plan of the following nature, whether formal or informal, and whether or not in
writing, to which HouTex is a party or under which it has an obligation: (i)
employment agreements, (ii) employee handbooks, policy statements and similar
plans, (iii) noncompetition agreements, and (iv) consulting agreements. HouTex
has complied with applicable laws, rules and regulations relating to employment,
civil rights and equal employment opportunities, including but not limited to,
the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans
with Disabilities Act, as amended.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 3.18 contains a list setting
forth each employee benefit plan or arrangement of HouTex, including but not
limited to employee pension benefit plans, as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
multi-employer plans, as defined in Section 3(37) of ERISA, employee welfare
benefit plans, as defined in Section 3(1) of ERISA, deferred compensation plans,
stock option plans, bonus plans, stock purchase plans, hospitalization,
disability and other insurance plans, severance or termination pay plans and
policies, whether or not described in Section 3(3) of ERISA, in which employees,
their spouses or dependents, of HouTex participate ("Employee Benefit Plans")
(true and accurate copies of which, together with the most recent annual reports
on Form 5500 and summary plan descriptions with respect thereto, were furnished
to MTLM).
(b) Compliance with Law. With respect to each Employee Benefit
Plan (i) each has been administered in all material respects in compliance with
its terms and with all applicable laws, including, but not limited to, ERISA and
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) no actions,
suits, claims or disputes are pending, or threatened; (iii) no audits,
inquiries, reviews, proceedings, claims, or demands are pending with any
governmental or regulatory agency; (iv) there are no facts which could give rise
to any material liability in the event of any such investigation, claim, action,
suit, audit, review, or other proceeding; (v) all material reports, returns, and
similar documents required to be filed with any governmental agency or
distributed to any plan participant have been duly or timely filed or
distributed; and (vi) no "prohibited transaction" has occurred within the
meaning of the applicable provisions of ERISA or the Code.
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<PAGE> 30
(c) Qualified Plans. With respect to each Employee Benefit Plan
intended to qualify under Code Section 401(a) or 403(a) (i) the Internal Revenue
Service has issued a favorable determination letter, true and correct copies of
which have been furnished to MTLM, that such plans are qualified and exempt from
federal income taxes; (ii) no such determination letter has been revoked nor has
revocation been threatened, nor has any amendment or other action or omission
occurred with respect to any such plan since the date of its most recent
determination letter or application therefor in any respect which would
adversely affect its qualification or materially increase its costs; (iii) no
such plan has been amended in a manner that would require security to be
provided in accordance with Section 401(a)(29) of the Code; (v) no reportable
event (within the meaning of Section 4043 of ERISA) has occurred, other than one
for which the 30-day notice requirement has been waived; and (v) as of the
Effective Date, the present value of all liabilities that would be "benefit
liabilities" under Section 4001(a)(16) of ERISA if benefits described in Code
Section 411(d)(6)(B) were included will not exceed the then current fair market
value of the assets of such plan (determined using the actuarial assumptions
used for the most recent actuarial valuation for such plan); (vi) except as
disclosed on Schedule 3.18, all contributions to, and payments from and with
respect to such plans, which may have been required to be made in accordance
with such plans and, when applicable, Section 302 of ERISA or Section 412 of the
Code, have been timely made; (vii) all such contributions to the plans, and all
payments under the plans (except those to be made from a trust qualified under
Section 401(a) of the Code) and all payments with respect to the plans
(including, without limitation, PBGC and insurance premiums) for any period
ending before the Closing Date that are not yet, but will be, required to be
made are properly accrued and reflected on the Current Balance Sheet or are
disclosed on Schedule 3.18.
(d) Multi-employer Plans. With respect to any multi-employer plan,
as described in Section 4001(a)(3) of ERISA ("MPPA Plan") (i) all contributions
required to be made with respect to employees of HouTex have been timely paid;
(ii) HouTex has not incurred or is expected to incur, directly or indirectly,
any withdrawal liability under ERISA with respect to any such plan (whether by
reason of the transactions contemplated by the Agreement or otherwise); (iii)
Schedule 3.18 sets forth (A) the withdrawal liability under ERISA to each MPPA
Plan, (B) the date as of which such amount was calculated, and (C) the method
for determining the withdrawal liability; and (iv) no such plan is (or is
expected to be) insolvent or in reorganization and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, exists or is expected to exist with respect to any such
plan.
(e) Welfare Plans. Other than as disclosed in Schedule 3.18, (i)
HouTex is not obligated under any employee welfare benefit plan as described in
Section 3(1) of ERISA ("Welfare Plan"), whether or not disclosed in Schedule
3.18, to provide medical or
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death benefits with respect to any employee or former employee of HouTex or its
predecessors after termination of employment; (ii) HouTex has complied with the
notice and continuation coverage requirements of Section 4980B of the Code and
the regulations thereunder with respect to each Welfare Plan that is, or was
during any taxable year for which the statute of limitations on the assessment
of federal income taxes remains, open, by consent or otherwise, a group health
plan within the meaning of Section 5000(b)(1) of the Code, and (iii) there are
no reserves, assets, surplus or prepaid premiums under any Welfare Plan which is
an Employee Benefit Plan. The consummation of the transactions contemplated by
this Agreement will not entitle any individual to severance pay, and, will not
accelerate the time of payment or vesting, or increase the amount of
compensation, due to any individual.
(f) Controlled Group Liability. HouTex nor any entity that would
be aggregated with it under Code Section 414(b), (c), (m) or (o): (i) has ever
terminated or withdrawn from an employee benefit plan under circumstances
resulting (or expected to result) in liability to the Pension Benefit Guaranty
Corporation ("PBGC"), the fund by which the employee benefit plan is funded, or
any employee or beneficiary for whose benefit the plan is or was maintained
(other than routine claims for benefits); (ii) has any assets subject to (or
expected to be subject to) a lien for unpaid contributions to any employee
benefit plan; (iii) has failed to pay premiums to the PBGC when due; (iv) is
subject to (or expected to be subject to) an excise tax under Code Section 4971;
(v) has engaged in any transaction which would give rise to liability under
Section 4069 or Section 4212(c) of ERISA; or (vi) has violated Code Section
4980B or Section 601 through 608 of ERISA.
(g) Other Liabilities. Except as set forth on Schedule 3.18, (i)
none of the Employee Benefit Plans obligates HouTex to pay separation,
severance, termination or similar benefits solely as a result of any transaction
contemplated by this Agreement or solely as a result of a "change of control"
(as such term is defined in Section 280G of the Code), (ii) all required or
discretionary (in accordance with historical practices) payments, premiums,
contributions, reimbursements, or accruals for all periods ending prior to or as
of the Effective Date shall have been made or properly accrued on the Current
Balance Sheet or will be properly accrued on the books and records of HouTex as
of the Effective Date, and (iii) none of the Employee Benefit Plans has any
unfunded liabilities which are not reflected on the Current Balance Sheet or the
books and records of HouTex.
3.19 TAX MATTERS. Except as set forth in Schedule 3.19 hereto, all Tax
Returns required to be filed prior to the date hereof with respect to HouTex or
any of its income, properties, franchises or operations have been timely filed,
each such Tax Return has been prepared in compliance with all applicable laws
and regulations, and all such Tax Returns are true and accurate in all respects.
All Taxes due and payable by or with respect to
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HouTex have been paid or accrued on the Current Balance Sheet or will be accrued
on its books and records as of the Closing. Except as set forth in Schedule 3.19
hereto: (i) with respect to each taxable period of HouTex, either such taxable
period has been audited by the relevant taxing authority or the time for
assessing or collecting Taxes with respect to each such taxable period has
closed and such taxable period is not subject to review by any relevant taxing
authority; (ii) no deficiency or proposed adjustment which has not been settled
or otherwise resolved for any amount of Taxes has been asserted or assessed by
any taxing authority against HouTex; (iii) HouTex has not consented to extend
the time in which any Taxes may be assessed or collected by any taxing
authority; (iv) HouTex has not requested or been granted an extension of the
time for filing any Tax Return to a date later than the Effective Time; (v)
there is no action, suit, taxing authority proceeding, or audit or claim for
refund now in progress, pending or threatened against or with respect to HouTex
regarding Taxes; (vi) HouTex has not made an election or filed a consent under
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign law) on or prior to the Effective Time; (vii) there are no Liens for
Taxes (other than for current Taxes not yet due and payable) upon the assets of
HouTex; (viii) HouTex will not be required (A) as a result of a change in method
of accounting for a taxable period ending on or prior to the Effective Date, to
include any adjustment under Section 481(c) of the Code (or any corresponding
provision of state, local or foreign law) in taxable income for any taxable
period (or portion thereof) beginning after the Effective Time or (B) as a
result of any "closing agreement," as described in Section 7121 of the Code (or
any corresponding provision of state, local or foreign law), to include any item
of income or exclude any item of deduction from any taxable period (or portion
thereof) beginning after the Effective Time; (ix) HouTex has not been a member
of an affiliated group (as defined in Section 1504 of the Code) or filed or been
included in a combined, consolidated or unitary income Tax Return; (x) HouTex is
not a party to or bound by any tax allocation or tax sharing agreement or has
any current or potential contractual obligation to indemnify any other Person
with respect to Taxes; (xi) no taxing authority will claim or assess any
additional Taxes against HouTex for any period for which Tax Returns have been
filed; (xii) HouTex has not made any payments, and is or will not become
obligated (under any contract entered into on or before the Effective Date) to
make any payments, that will be non-deductible under Section 280G of the Code
(or any corresponding provision of state, local or foreign law); (xiii) HouTex
has not been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code (or any corresponding provision of
state, local or foreign law) during the applicable period specified in Section
897(c)(1)(a)(ii) of the Code (or any corresponding provision of state, local or
foreign law); (xiv) no claim has ever been made by a taxing authority in a
jurisdiction where HouTex does not file Tax Returns that is or may be subject to
Taxes assessed by such jurisdiction; and (xv) HouTex does not have any permanent
establishment in any foreign country, as defined in the relevant tax treaty
between the United States of America and such foreign country; (xvi) true,
correct and complete copies of all
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<PAGE> 33
income and sales Tax Returns filed by or with respect to HouTex for the past
three years have been furnished or made available to MTLM; (xvii) HouTex will
not be subject to any Taxes for the period ending at the Effective Time for any
period for which a Tax Return has not been filed imposed pursuant to Section
1374 or Section 1375 of the Code (or any corresponding provision of state, local
or foreign law); and (xviii) no sales or use tax (other than sales tax on
aircraft, boats, mobile homes and motor vehicles), non-recurring intangibles
tax, documentary stamp tax or other excise tax (or comparable tax imposed by any
governmental entity) will be payable by HouTex or MTLM by virtue of the
transactions completed in this Agreement. The purchase of the Extraneous Assets
listed on Exhibit "H" hereto by Mike and Sol Melnik as described in Section 6.16
hereof will create no liability to HouTex for Taxes.
3.20 INSURANCE. HouTex is covered by valid, outstanding and enforceable
policies of insurance issued to it by reputable insurers covering its
properties, assets and businesses against risks of the nature normally insured
against by corporations in the same or similar lines of business and in coverage
amounts typically and reasonably carried by such corporations (the "Insurance
Policies"). Such Insurance Policies are in full force and effect, and all
premiums due thereon have been paid. As of the Effective Time, each of the
Insurance Policies will be in full force and effect. None of the Insurance
Policies will lapse or terminate as a result of the transactions contemplated by
this Agreement. HouTex has complied with the provisions of such Insurance
Policies. Schedule 3.20 contains (i) a complete and correct list of all
Insurance Policies and all amendments and riders thereto (copies of which have
been provided to MTLM) and (ii) a detailed description of each pending claim
under any of the Insurance Policies for an amount in excess of $5,000 that
relates to loss or damage to the properties, assets or businesses of HouTex.
HouTex has not failed to give, in a timely manner, any notice required under any
of the Insurance Policies to preserve its rights thereunder.
3.21 RECEIVABLES. All of the Receivables (as hereinafter defined) are
valid and legally binding, represent bona fide transactions and arose in the
ordinary course of business of HouTex. All of the Receivables are good and
collectible receivables, and will be collected in full in accordance with the
terms of such receivables (and in any event within six months following the
Closing), without set off or counterclaims, subject to the allowance for
doubtful accounts, if any, set forth on the Current Balance Sheet as reasonably
adjusted since the date of the Current Balance Sheet in the ordinary course of
business consistent with past practice. For purposes of this Agreement, the term
"Receivables" means all receivables of HouTex, including all trade account
receivables arising from the provision of services or sale of inventory, notes
receivable and insurance proceeds receivable, except for those receivables
listed on Exhibit H hereto.
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<PAGE> 34
3.22 LICENSES AND PERMITS. HouTex possesses all licenses and required
governmental or official approvals, permits or authorizations (collectively, the
"Permits") for its businesses and operations, including the operation of the
Owned Properties and Leased Premises, which Permits are listed on Schedule 3.22.
All such Permits are valid and in full force and effect, HouTex is in full
compliance with the requirements thereof, and no proceeding is pending or
threatened to revoke or amend any of them. None of such Permits is or will be
impaired or in any way affected by the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
3.23 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND
SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets, Owned Properties and Leased
Premises constitute, in the aggregate, all of the assets and properties
necessary for the conduct of the business of HouTex in the manner in which and
to the extent to which such business is currently being conducted. No current
supplier to HouTex of items essential to the conduct of its business will or has
threatened to terminate its business relationship with it for any reason. Except
as set forth on Schedule 3.23, HouTex does not have any direct or indirect
interest in any customer, supplier or competitor of HouTex, or in any person
from whom or to whom HouTex leases real or personal property. Except as set
forth on Schedule 3.23, no officer, director or shareholder of HouTex, nor any
person related by blood or marriage to any such person, nor any entity in which
any such person owns any beneficial interest, is a party to any Contract or
transaction with HouTex or has any interest in any property used by HouTex.
3.24 INTELLECTUAL PROPERTY. HouTex has full legal right, title and
interest in and to all trademarks, service marks, trade names, copyrights,
know-how, patents, trade secrets, licenses (including licenses for the use of
computer software programs), and other intellectual property used in the conduct
of its business (the "Intellectual Property"). The conduct of the business of
HouTex as presently conducted, and the unrestricted conduct and the unrestricted
use and exploitation of the Intellectual Property, does not infringe or
misappropriate any rights held or asserted by any Person, and no Person is
infringing on the Intellectual Property. No payments are required for the
continued use of the Intellectual Property. None of the Intellectual Property
has ever been declared invalid or unenforceable, or is the subject of any
pending or threatened action for opposition, cancellation, declaration,
infringement, or invalidity, unenforceability or misappropriation or like claim,
action or proceeding.
3.25 CONTRACTS. Within twenty (20) days from execution of this
Agreement, HouTex will supply MTLM with a list which sets forth each Contract to
which HouTex is a party or by which its properties and assets are bound and
which is material to its business, assets, properties or prospects (the
"Designated Contracts"), HouTex will also supply MTLM
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<PAGE> 35
with true and correct copies of such Designated Contracts. The copy of each
Designated Contract furnished to MTLM will be a true and complete copy of the
document it purports to represent and will reflect all amendments thereto made
through the date of delivery. Except as set forth on Schedule 3.25, HouTex has
not violated any of the material terms or conditions of any Designated Contract
or any term or condition which would permit termination or material modification
of any Designated Contract, and all of the covenants to be performed by any
other party thereto have been fully performed and there are no claims for breach
or indemnification or notice of default or termination under any Designated
Contract. Except as set forth on Schedule 3.25, no event has occurred which
constitutes, or after notice or the passage of time, or both, would constitute,
a material default by HouTex under any Designated Contract, and no such event
has occurred which constitutes or would constitute a material default by any
other party. HouTex is not subject to any liability or payment resulting from
renegotiation of amounts paid it under any Designated Contract. As used in this
Section, Designated Contracts shall include, without limitation, (a) loan
agreements, indentures, mortgages, pledges, hypothecations, deeds of trust,
conditional sale or title retention agreements, security agreements, equipment
financing obligations or guaranties, or other sources of contingent liability in
respect of any indebtedness or obligations to any other Person, or letters of
intent or commitment letters with respect to same; (b) contracts obligating
HouTex to purchase or sell products or services; (c) leases of real property,
and leases of personal property not cancelable without penalty on notice of
sixty (60) days or less or calling for payment of an annual gross rental
exceeding Ten Thousand Dollars ($10,000.00); (d) distribution, sales agency or
franchise or similar agreements, or agreements providing for an independent
contractor's services, or letters of intent with respect to same; (e) employment
agreements, management service agreements, consulting agreements,
confidentiality agreements, noncompetition agreements and any other agreements
relating to any employee, officer or director of HouTex; (f) licenses,
assignments or transfers of trademarks, trade names, service marks, patents,
copyrights, trade secrets or know how, or other agreements regarding proprietary
rights or intellectual property; (g) any Contract relating to pending capital
expenditures by HouTex; and (h) other material Contracts or understandings,
irrespective of subject matter and whether or not in writing, not entered into
in the ordinary course of business by HouTex and not otherwise disclosed on the
Schedules.
3.26 CUSTOMER LISTS AND RECURRING REVENUE. Within twenty (20) days
after execution of this Agreement, HouTex will supply MTLM with a true, correct
and complete list of HouTex's twenty largest customers ("Material Customers")
and suppliers. True, correct and complete copies of any agreements with such
customers or suppliers which are anticipated to endure beyond the Closing will
also be furnished by the HouTex Shareholders to MTLM. Other than the Material
Customers, no customer of HouTex as of the date of this Agreement accounts for
more than 1% of its combined annual revenue. The HouTex
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<PAGE> 36
Shareholders will also deliver to MTLM each Material Customer's name, address,
account number, term of franchise or agreement, billing cycle, type of service
and rates charged.
3.27 ACCURACY OF INFORMATION FURNISHED BY THE SHAREHOLDERS. To the
knowledge of the MTLM Shareholders, no representation, statement or information
made or furnished by the HouTex Shareholders to MTLM or any of MTLM's
representatives, including those contained in this Agreement and the various
Schedules attached hereto and the other information and statements referred to
herein and either previously furnished or to be furnished in the future by
HouTex and HouTex Shareholders, contains or shall contain any untrue statement
of a material fact or omits or shall omit any material fact necessary to make
the information contained therein not misleading. The HouTex Shareholders have
provided MTLM with true, accurate and complete copies of all documents listed or
described in the various Schedules attached hereto.
3.28 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES
DOCUMENTS. Each of the HouTex Shareholders is acquiring the MTLM Shares
hereunder for his, her or its own account for investment and not with a view to,
or for the sale in connection with, any distribution of any of the MTLM Shares,
except in compliance with applicable state and federal securities laws. Each of
the HouTex Shareholders has been provided, to its or his satisfaction, the
opportunity to discuss the transactions contemplated hereby with MTLM and has
had the opportunity to obtain such information pertaining to the MTLM Companies
as has been requested, including but not limited to filings made by MTLM with
the SEC under the Exchange Act. Each of the HouTex Shareholders is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act, and has such knowledge and experience in business or financial
matters that he, she or it is capable of evaluating the merits and risks of an
investment in the MTLM Shares, and is capable of bearing the economic risks of
such investment and is able to bear a complete loss of his or its investment in
the MTLM Shares. The HouTex Shareholders acknowledge that the MTLM Shares have
not been registered under the Securities Act and understand that the MTLM Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or such sale is permitted pursuant to an available exemption from
such registration requirement.
3.29 BUSINESS LOCATIONS. As of the date hereof, HouTex has no office or
place of business other than as identified on Schedules 3.14(a) and 3.14(b) and
HouTex's principal place of business and chief executive office (as such terms
are used in subsection 9-401 of the Uniform Commercial Code as enacted in the
State of Texas as of the date hereof) are indicated on Schedule 3.14(a) or
3.14(b), and, all locations where the equipment, inventory, chattel paper and
books and records of HouTex are located as of the date hereof are fully
identified on Schedules 3.14(a) and 3.14(b).
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<PAGE> 37
3.30 NAMES; PRIOR ACQUISITIONS. All names under which HouTex does
business as of the date hereof are specified on Schedule 3.30. Except as set
forth on Schedule 3.30, HouTex has not changed its name or used any assumed or
fictitious name, or been the surviving entity in a merger, acquired any business
or changed its principal place of business or chief executive office, within the
past ten years.
3.31 NO COMMISSIONS. Neither HouTex nor the HouTex Shareholders have
incurred any obligation for any finder's or broker's or agent's fees or
commissions or similar compensation in connection with the transactions
contemplated hereby.
3.32 INVENTORY. All Assets that consist of inventory (a) were acquired
in the ordinary course of business consistent with past practice; (b) are of a
quality, quantity, and condition useable or saleable in the ordinary course of
business within HouTex's normal inventory turnover experience; and (c) are
valued at the lower of cost or net realizable market value. All Assets that
consist of inventory are fit for the purposes for which such Assets were
procured. HouTex has no liability with respect to the return or repurchase of
any goods in the possession of any customer.
3.33 IDENTIFICATION, ACQUISITION AND DISPOSITION OF ASSETS AND
LIABILITIES. Schedule 3.33(a) sets forth a listing of all of the assets and
properties (including real, personal and mixed) owned by HouTex as of June 30,
1996. Not more than ten (10) days prior to the Closing, the HouTex Shareholders
shall deliver to MTLM a schedule reflecting any additions or deletions to
Schedule 3.33(a) as of such date relating to items which individually have a
value (defined as the higher of book value or fair market value) of $10,000.00
or more (the "Asset Update Schedule"). Schedule 3.33(b) sets forth a listing of
all of the liabilities of HouTex as of June 30, 1996. Not more than ten (10)
days prior to the Closing, the HouTex Shareholders shall deliver to MTLM a
schedule reflecting any additions or deletions to Schedule 3.33(b) as of such
date relating to items which individually have a value (defined as the higher of
book value or fair market value) of $10,000.00 or more (the "Liability Update
Schedule"). All additions or deletions reflected in the Asset Update Schedule
and the Liability Update Schedule shall be the result of transactions occurring
in the ordinary course of business or transactions contemplated by Section 6.16
following June 30, 1996 and no such additions or deletions will violate the
covenants contained in Section 4.1 hereof, nor would such additions or deletions
have violated the covenants contained in Section 4.1 hereof if such addition or
deletion had occurred after the date of this Agreement.
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<PAGE> 38
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 CONDUCT OF BUSINESS BY HOUTEX PENDING THE MERGER. Except as set
forth on Schedule 4.1, HouTex covenants and agrees that, between the date of
this Agreement and the Effective Time, the business of HouTex shall be conducted
only in, and HouTex shall not take any action except in, the ordinary course of
business, consistent with past practice. HouTex shall use its best efforts to
preserve intact its business organization, to keep available the services of its
current officers, employees and consultants, and to preserve its present
relationships with customers, suppliers and other persons with which it has
significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, HouTex shall not, between the date of
this Agreement and the Effective Time, directly or indirectly, do or propose or
agree to do any of the following without the prior written consent of MTLM:
(a) amend or otherwise change its articles of incorporation or
bylaws;
(b) issue, sell, pledge, dispose of, encumber, or, authorize the
issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of
its capital stock of any class, or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of such capital stock, or any
other ownership interest, of it or (ii) any of its assets, tangible or
intangible, except in the ordinary course of business consistent with past
practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, for cash or shares
of stock, by merger, consolidation, or acquisition of stock or assets) any
interest in any corporation, partnership or other business organization or
division thereof or any assets, or make any investment either by purchase of
stock or securities, contributions of capital or property transfer, or, except
in the ordinary course of business, consistent with past practice, purchase any
property or assets of any other Person, (ii) incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse or otherwise
as an accommodation become responsible for, the obligations of any Person, or
make any loans or advances, or (iii) except with respect to the disposition of
the Extraneous Assets listed on
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<PAGE> 39
Exhibit H, enter into any Contract other than in the ordinary course of
business, consistent with past practice;
(f) except in the ordinary course of business consistent with past
practice, increase the compensation payable or to become payable to its officers
or employees, or, except as presently bound to do, grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any of its directors, officers or other employees, or establish, adopt, enter
into or amend or take any action to accelerate any rights-or benefits under any
collective bargaining, bonus, profit sharing, trust, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(g) take any action other than in the ordinary course of business
and in a manner consistent with past practice with respect to accounting
policies or procedures;
(h) pay, discharge or satisfy any existing claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of due and payable
liabilities reflected or reserved against in its financial statements, as
appropriate, or liabilities incurred after the date hereof in the ordinary
course of business and consistent with past practice;
(i) except in the ordinary course of business consistent with past
practice, increase or decrease prices charged to its customers, except for
previously announced price changes, or take any other action which might
reasonably result in any material increase in the loss of customers through
non-renewal or termination of contracts or other causes; or
(j) agree, in writing or otherwise, to take or authorize any of
the foregoing actions or any action which would make any representation or
warranty in Article III untrue or incorrect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
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<PAGE> 40
5.2 COMPLIANCE WITH COVENANTS. The HouTex Shareholders shall cause
HouTex to comply with all of the respective covenants of HouTex under this
Agreement.
5.3 COOPERATION. Each of the parties agrees to cooperate with the other
in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation or the rules of any exchange on which the MTLM Common
Stock is listed (the Nasdaq Stock Market) in connection with the transactions
contemplated by this Agreement and to use their respective best efforts to agree
jointly on a method to overcome any objections by any Governmental Authority to
any such transactions.
5.4 ACCESS TO INFORMATION. From the date hereof to the Effective Time,
HouTex and HouTex Shareholders shall (and shall cause the directors, officers,
employees, auditors, counsel and agents of HouTex to) afford MTLM and MTLM's
officers, employees, auditors, counsel and agents reasonable access at all
reasonable times to its properties, offices, and other facilities, to its
officers and employees and to all books and records, and shall furnish such
persons with all financial, operating and other data and information as may be
requested. No information provided to or obtained by MTLM shall affect any
representation or warranty in this Agreement. MTLM agrees to provide Mike Melnik
and Sol Melnik access to senior executive officers and directors of both MTLM
and any of its operating subsidiaries, as well as the right to investigate MTLM,
its business and assets.
5.5 NOTIFICATION OF CERTAIN MATTERS. The HouTex Shareholders shall give
prompt notice to MTLM of the occurrence or non-occurrence of any event which
would likely cause any representation or warranty contained herein to be untrue
or inaccurate, or any covenant, condition, or agreement contained herein not to
be complied with or satisfied. MTLM will use its reasonable best efforts to
advise HouTex of any breach of any of HouTex's representations, warranties,
covenants or agreements contained herein which become known to MTLM.
5.6 TAX TREATMENT. MTLM, HouTex, and the HouTex Shareholders
acknowledge that the Merger does not qualify as a tax free reorganization under
the provisions of Section 368(a) of the Code and is therefore taxable. All
parties hereto agree to fully and completely comply with the reporting
requirements of the Internal Revenue Service.
5.7 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement or the subject matter or terms hereof without the
prior consent of the other parties hereto. No press release or other public
announcement related to this Agreement or the transactions contemplated hereby
shall be issued by any party hereto without the prior approval of the
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<PAGE> 41
other parties, except that MTLM may make such public disclosure which it
believes in good faith to be required by law or by the terms of any listing
agreement with or requirements of a securities exchange (in which case MTLM will
consult with Mike or Sol Melnik prior to making such disclosure).
5.8 NO OTHER DISCUSSIONS. HouTex, the HouTex Shareholders, and their
respective Affiliates, employees, agents and representatives will not (i)
initiate, encourage the initiation by others of discussions or negotiations with
third parties or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets,
business or properties of HouTex (whether by merger, consolidation, sale of
stock or otherwise) or (ii) enter into any agreement or commitment (whether or
not binding) with respect to any of the foregoing transactions. The HouTex
Shareholders will immediately notify MTLM if any third party attempts to
initiate any solicitation, discussion or negotiation with respect to any of the
foregoing transactions.
5.9 RESTRICTIVE COVENANTS. In order to assure that MTLM will realize
the benefits of this Agreement and in consideration of the transactions set
forth in this Agreement, Mike and Sol Melnik jointly and severally, each agree
with MTLM that they will not for a period of three years from the later of the
Effective Time or the date they cease to be an employee, officer or director of
the MTLM Companies:
(a) directly or indirectly, alone or as a partner, joint venturer,
officer, director, employee, consultant, agent, independent contractor or
stockholder of any company or business, engage in any business activity in the
State of Texas which is directly or indirectly in competition with the business
conducted by HouTex at the Effective Time; provided, however, that, the
beneficial ownership of less than five percent (5%) of the shares of stock of
any corporation having a class of equity securities actively traded on a
national securities exchange or over-the-counter market shall not be deemed, in
and of itself, to violate the prohibitions of this Section;
(b) directly or indirectly (i) induce any Person which is a
customer of HouTex at the Effective Time to patronize any business directly or
indirectly in competition with the business conducted by HouTex; (ii) canvass,
solicit or accept from any Person which is a customer of HouTex, any such
competitive business, or (iii) request or advise any Person which is a customer
of HouTex at the Effective Time to withdraw, curtail or cancel any such
customer's business with HouTex;
(c) directly or indirectly employ, or knowingly permit any company
or business directly or indirectly controlled by him, to employ, any person who
was employed by HouTex at or within six months prior to the Effective Time, or
in any manner seek to induce any such Person to leave his or her employment;
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<PAGE> 42
(d) directly or indirectly, at any time following the Effective
Time, in any way utilize, disclose, copy, reproduce or retain in his possession
any of HouTex's proprietary rights or records, including, but not limited to,
any of their customer lists.
Mike Melnik and Sol Melnik agree and acknowledge that the restrictions contained
in this Section 5.9 are reasonable in scope and duration and are necessary to
protect MTLM Companies after the Effective Time. If any provision of this
Section as applied to any party or to any circumstance is adjudged by a court to
be invalid or unenforceable, the same will in no way affect any other
circumstance or the validity or enforceability of this Agreement. If any such
provision, or any part thereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the duration
and/or area of such provision, and/or to delete specific words or phrases, and
in its reduced form, such provision shall then be enforceable and shall be
enforced. The parties agree and acknowledge that the breach of this Section will
cause irreparable damage to the MTLM Companies and upon breach of any provision
of this Section, the MTLM Companies shall be entitled to injunctive relief,
specific performance or other equitable relief; provided, however, that, this
shall in no way limit any other remedies which the MTLM Companies may have
(including, without limitation, the right to seek monetary damages).
5.10 ENVIRONMENTAL ASSESSMENT. MTLM shall be entitled to have conducted
prior to Closing an environmental assessment of the Owned Properties and Leased
Premises (hereinafter referred to as "Environmental Assessment"). The
Environmental Assessment may include, but not be limited to, a physical
examination of the Owned Property or Leased Premises, and any structures,
facilities, or equipment located thereon, soil samples, ground and surface water
samples, storage tank testing, review of pertinent records, documents, and
Licenses of HouTex. The HouTex Shareholders shall provide MTLM or its designated
agents or consultants with the access to such property which MTLM, its agents or
consultants require to conduct the Environmental Assessment. Notwithstanding any
other provision of this Agreement, the HouTex Shareholders agree that if the
results of the Environmental Assessment are not satisfactory to MTLM in its sole
discretion, then MTLM may elect not to close the transactions contemplated by
this Agreement.
Prior to the date hereof, MTLM retained ENVIRON Corporation, Emeryville,
California ("ENVIRON") to conduct a Phase I Environmental Audit of certain Owned
Property of HouTex located in Houston, Texas. A draft of ENVIRON's written
report dated September 13, 1996 has been furnished to the HouTex Shareholders
(the "ENVIRON Report"). The ENVIRON Report identifies certain environmental
issues concerning HouTex's Owned Property located at (i) 15 Japhet Street and 21
Japhet Street, Houston, Texas (the "Japhet Property"), (ii) 12000 Hirsch Road,
Houston, Texas (the "Hirsch Property"), and (iii) 215 Emile Street, Houston,
Texas (the
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"Emile Property"). After consultation with their respective attorneys and
consultants, MTLM and the HouTex Shareholders agree that certain specified
conditions at the Japhet Property should be promptly remediated as set forth
below and that the HouTex Shareholders should indemnify the MTLM Companies under
Section 8.1(f) hereof (in lieu of the general indemnification provisions in
Section 8.1(a)-(e)) from any further liabilities or obligations arising from, or
related to the Hirsch Property or the Emile Property. Remedies available to the
MTLM Companies in the event of liabilities or obligations related to the Hirsch
Property or the Emile Property shall include the rights of setoff subject to the
terms and conditions described in Article 8 hereof. The specified conditions to
be promptly remediated at the Japhet Property, and the method of sharing the
costs of remediation shall be as follows:
(a) Scope of Prompt Japhet Property Remediation. The ENVIRON
Report identifies on page five certain recommended remedial work
concerning chemical use and storage on the Japhet Property. The HouTex
Shareholders and MTLM agree that following the Closing MTLM will cause
HouTex to develop and implement a Spill Prevention Control and
Countermeasure (SPCC) Plan and to provide secondary containment for the
diesel fuel and oily wastewater storage tanks, in order to comply with
federal regulations. The cost estimated by ENVIRON to develop the SPCC
Plan is $5,000 to $10,000 and the costs of providing secondary
containment for the diesel fuel and oily wastewater storage tanks were
estimated by ENVIRON to be in the range of $60,000 to $90,000. The
parties agree that all of the work described above should be performed
as promptly as practicable following Closing, such work being hereafter
referred to as the "Agreed Remediation."
(b) Costs of Agreed Remediation. The actual costs of all
Agreed Remediation shall be allocated and paid as follows:
<TABLE>
<CAPTION>
Party Bearing Expense Amount
--------------------- ------
<S> <C>
HouTex first $75,000
HouTex Shareholders next $75,000
HouTex all amounts over $150,000;
</TABLE>
In the event the HouTex Shareholders fail to pay their allocable share
of the actual costs of Agreed Remediation within ten (10) days
following delivery of an invoice for such actual costs, MTLM is
authorized to setoff the HouTex Shareholders' allocable share of such
actual costs against the Held Back Shares or the payments owed by
HouTex or MTLM under the Lease.
(c) Future Remediation Costs. All future costs of, and
liabilities associated with, undertaking and completing the evaluation
and remediation of contamination present on the Japhet Property as of
the Closing Date, other than the costs of undertaking and
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completing the Agreed Remediation which shall be allocated and paid by
HouTex and the HouTex Shareholders as described in clause (a) above,
shall be borne by the HouTex Shareholders under and pursuant to the
indemnification procedures specified in Article VIII hereof, regardless
of whether or not such other contamination was referenced, discussed or
otherwise identified in the Environmental Assessment or any other part
of MTLM's due diligence investigation of HouTex. In any event, the
ENVIRON Report and the other environmental due diligence investigations
of HouTex by MTLM shall not affect any representation or warranty of
the HouTex Shareholders under this Agreement.
5.11 TRADING IN MTLM COMMON STOCK. Except as otherwise expressly
consented to by MTLM, from the date of this Agreement until the Effective Time,
neither HouTex nor the HouTex Shareholders (nor any Affiliates thereof) will
directly or indirectly purchase or sell (including short sales) any shares of
MTLM Common Stock in any transactions effected on the Nasdaq Stock Market or
otherwise.
5.12 ELECTION OF NEW DIRECTOR. Immediately following the Closing, Mike
Melnik will be added to MTLM's Board of Directors in accordance with the terms
and conditions of a resolution of the MTLM Board of Directors adopted prior to
the Closing which elects Mike Melnik to the Board of MTLM, contingent only upon
(i) the Closing having occurred and (ii) Mike Melnik having agreed in writing
following the Closing to serve as a director of MTLM.
5.13 EMPLOYMENT AGREEMENTS. MTLM and Mike Melnik agree that Mike Melnik
will sign, at Closing, an employment agreement in the form of Exhibit "C"
hereto. MTLM and Sol Melnik agree that Sol Melnik will sign, at Closing, an
employment agreement in the form of Exhibit "D" hereto. The parties agree that
the noncompetition covenants contained in the Employment Agreements for Mike and
Sol Melnik are an integral part of this Agreement.
5.14 LEASE OF REAL PROPERTY. At the Closing, HouTex will enter into a
lease with an option to purchase (the "Lease") in the form attached hereto as
Exhibit "I" concerning the approximately forty-seven (47) acre tract of real
property (the "Japhet Property") located in Harris County, Texas which is
described in Exhibit "E" hereto with the Lessor (as defined in Section 1.4
hereof) who will be the record and beneficial owner of the Japhet Property on
the date of Closing. Mike and Sol Melnik acknowledge and agree that during the
period following Closing in which they serve as senior officers and/or directors
of HouTex, there will be potential conflicts of interest between their roles as
officers and directors of HouTex and their roles as controlling persons of the
Lessor under the Lease. Mike and Sol Melnik further acknowledge and agree that
no event of default under the Lease may be caused, directly or indirectly, by
the actions or failures to act, of Mike or Sol Melnik, while serving as officers
and/or directors of HouTex following the Closing. Also, none of the rights
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<PAGE> 45
granted to Mike and Sol Melnik, either directly or indirectly, as controlling
persons of the Lessor under the Lease are meant to relieve Mike and Sol Melnik
of the duties imposed upon officers and directors of corporations by the laws of
the State of Texas. In this regard, Mike and Sol Melnik shall not have the right
on behalf of HouTex to waive any default by Lessor under the Lease nor to agree
on behalf of HouTex to any modification of the Lease or its terms, without the
written consent of a majority of the disinterested members of the Board of
Directors of HouTex.
5.15 POST CLOSING MINIMUM NET INCOME. The HouTex Shareholders hereby
covenant and agree with MTLM that HouTex shall have after tax net income of Nine
Hundred Thousand Dollars ($900,000), determined in accordance with GAAP as
adjusted in accordance with Exhibit "F" (the "Minimum Net Income") during the
period beginning on the first day of October, 1996 and ending on September 30,
1997 (the "Minimum Net Income Determination Date").
5.16 HOUSTON COMPRESSED STEEL FINDERS FEE. In the event MTLM, or any of
its subsidiaries or affiliates merges with, or otherwise acquires all of the
stock or assets of Houston Compressed Steel within two years of the Closing
Date, MTLM shall pay a one time, aggregate lump sum finders fee of no more than
$600,000 and no less than $300,000 to Mike and Sol Melnik, jointly, and an
amount of up to $150,000 to Robert Stuart (in the event HouTex is legally
obligated to pay a finder's fee to Robert Stuart) on the date the stock or
assets of Houston Compressed Steel are acquired by MTLM.
5.17 PRECLOSING AUDIT OF HOUTEX. MTLM agrees to retain Price Waterhouse
L.L.P. for the purposes of auditing HouTex's financial statements for the fiscal
year ending September 30, 1993, September 30, 1994 and September 30, 1995, as
well as for the period ending June 30, 1996. HouTex consents to cooperate fully
in connection with the planning, conduct and completion of the audits of HouTex
for such periods. HouTex agrees that it will provide all information, documents
and other materials requested by Price Waterhouse L.L.P. in connection with
these audits, and MTLM agrees to allow HouTex access to all work papers of Price
Waterhouse L.L.P. and access to a copy of the draft opinion of Price Waterhouse
together with all back-up materials which document the adjusting entries, if
any, proposed by Price Waterhouse. The Parties will negotiate in good faith any
disputes in connection with the issuance of the draft opinion.
5.18 CORPORATE AUTHORITY. The MTLM Companies, HouTex and the HouTex
Shareholders agree to use their individual best efforts to obtain the
authorizations required for each to execute and deliver this Agreement and to
perform each of their respective obligations hereunder and to consummate the
transactions contemplated hereby.
5.19 CERTIFICATION OF TAX STATUS. Each of the HouTex Shareholders shall
deliver to MTLM either: (i) a Certificate of Nonforeign Status under Treasury
Regulation Section
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<PAGE> 46
1.1445-2(b)(1), or (ii) a Certificate meeting the requirements of Treasury
Regulation Sections 1.897-2(g) and 1.897-2(h)(2) that the HouTex shares do not
constitute a U.S. real property interest.
5.20 NATIONSBANK FINANCING; RELEASE OF GUARANTORS. Mike Melnik and Sol
Melnik covenant and agree that prior to Closing they will use their individual
best efforts to cause NationsBank to consent to the Merger and agree that the
existing line of credit from NationsBank to HouTex (the "NationsBank Loan") will
remain in full force and effect at least through June 30, 1997 and that Mike and
Sol Melnik agree to remain as guarantors on the NationsBank Loan through no
later than June 30, 1997. MTLM covenants and agrees that it will pay off or
refinance the NationsBank Loan and obtain the release of Mike and Sol Melnik's
personal guarantees of the NationsBank Loan no later than June 30, 1997.
5.21 EXTRANEOUS ASSETS. Mike Melnik and Sol Melnik covenant and agree
that prior to Closing they will purchase the Extraneous Assets described on
Exhibit "H". The purchase price for the Extraneous Assets shall consist of the
assumption of all debt related to the Extraneous Assets and the delivery to
HouTex of a $405,268 promissory note from Mike and Sol Melnik bearing interest
at the rate of 6% per annum due on April 30, 1997 (the "Extraneous Assets
Note"). Mike and Sol Melnik further covenant and agree that HouTex shall have no
liability for Taxes associated with the purchase of Extraneous Assets by Mike
and Sol Melnik and that the purchase price of the Extraneous Assets described in
Exhibit"H" hereto equals or exceeds the aggregate fair market value of the
Extraneous Assets. In the event the Extraneous Assets Note is not paid in full
at its maturity, MTLM shall have the right to cause HouTex to setoff the entire
balance of principal and interest due under the Extraneous Assets Note against
the principal and interest then due under the Melnik Notes.
5.22 POSSIBLE ISSUANCE OF ADDITIONAL LIMITED WARRANTS. In the event the
Clend Note is not paid in full by the dates set forth in column (a) below, MTLM
will issue to Clend Investment Holdings Ltd. additional Limited Warrants in the
amounts set forth in column (b) below up to the cumulative totals set forth in
column (c) below:
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<PAGE> 47
<TABLE>
<CAPTION>
(a) (b) (c)
Payment of Clend Note No. of Additional Cumulative
on or Before the Limited Warrants Additional Limited
Period Ending to be Issued Warrants to be Issued
------------- ------------ ---------------------
<S> <C> <C>
February 28, 1997 None None
March 31, 1997 60,000 60,000
April 30, 1997 60,000 120,000
May 30, 1997 60,000 180,000
June 30, 1997 70,000 250,000
</TABLE>
For example, if the Clend Note is paid in full on March 1, 1997, then MTLM shall
issue to Clend Investment Holdings Limited 60,000 additional Limited Warrants;
if the Clend Note is paid in full on or any time after June 1, 1997, then MTLM
will issue to Clend Investment Holdings Limited a total of 250,000 additional
Limited Warrants.
As set forth above, the cumulative additional Limited Warrants which may be
issued to Clend Investment Holdings Ltd. after Closing shall not exceed 250,000
and the total number of Limited Warrants and Five Year Warrants issued to Mike
Melnik, Sol Melnik and Clend Investments Holdings Limited, both at or following
Closing, may not exceed 500,000 in the aggregate.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE MTLM COMPANIES
The obligations of the MTLM Companies hereunder shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived in whole or in part by the MTLM Companies:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the HouTex Shareholders
contained in this Agreement shall be true and correct at and as of the Effective
Time with the same force and effect as though made at and as of that time except
(i) for changes specifically permitted by or disclosed pursuant to this
Agreement, and (ii) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date. Each of HouTex and the HouTex Shareholders shall have performed and
complied
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<PAGE> 48
with all of their respective obligations required by this Agreement to be
performed or complied with at or prior to the Effective Time. Each of HouTex and
the HouTex Shareholders shall have delivered to MTLM a certificate, dated as of
the Effective Time, duly signed (in the case of HouTex, by its Chief Executive
Officer and Chief Financial Officer), certifying that such representations and
warranties are true and correct and that all such obligations have been
performed and complied with.
6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the
date hereof and the Effective Time, (i) there shall have been no Material
Adverse Change to HouTex, (ii) there shall have been no adverse federal, state
or local legislative or regulatory change affecting in any material respect the
services, products or business of HouTex, and (iii) none of the properties and
assets of HouTex shall have been damaged by fire, flood, casualty, act of God or
the public enemy or other cause (regardless of insurance coverage for such
damage) which damages may have a Material Adverse Effect thereon, and there
shall have been delivered to MTLM a certificate to that effect, dated the
Effective Time and signed by or on behalf of HouTex.
6.3 CORPORATE CERTIFICATE. The HouTex Shareholders shall have delivered
to MTLM (i) copies of the articles of incorporation and bylaws of HouTex as in
effect immediately prior to the Effective Time, (ii) copies of resolutions
adopted by the Board of Directors and shareholders of HouTex authorizing the
transactions contemplated by this Agreement, and (iii) a certificate of good
standing of HouTex issued by the State of Texas and each other state in which it
is qualified to do business as of a date not more than thirty days prior to the
Effective Time, certified in each case as of the Effective Time by the Secretary
of each such company as being true, correct and complete.
6.4 OPINION OF COUNSEL. MTLM shall have received an opinion dated as of
the Effective Time from counsel for HouTex and the HouTex Shareholders, in form
and substance acceptable to MTLM, to the effect that:
(a) HouTex is a corporation duly organized and existing and in
good standing under the laws of the State of Texas and is authorized to carry on
the business now conducted by it and to own or lease the properties now owned or
leased by it;
(b) HouTex has obtained all necessary authorizations and consents
of its Board of Directors and the Shareholders to effect the transactions
contemplated in this Agreement, including the merger of HouTex into the MTLM
Merger Sub;
(c) All issued and outstanding shares of capital stock of HouTex
are owned as set forth on Schedule 3.5 hereto;
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<PAGE> 49
(d) Except as set forth in Schedule 3.12, such counsel does not
know or have reason to believe that there is any litigation, proceeding or
investigation pending or threatened which might result in any material adverse
change in the properties, business or prospects or in the condition of HouTex,
or which questions the validity of this Agreement;
(e) Such counsel does not know or have reason to believe that any
event has occurred or state of facts exists which would constitute a breach of
any of the representations and warranties made by the HouTex Shareholders
pursuant to Article III of this Agreement;
(f) Clend Investment Holdings, Ltd. is a corporation duly
organized and existing and in good standing under the laws of the British Virgin
Islands and is authorized to carry on the business now conducted by it and to
own or lease the properties now owned or leased by it;
(g) This Agreement is a valid and binding obligation of HouTex and
the HouTex Shareholders, and enforceable against each of them in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally;
(h) The Stock Pledge Agreement is a valid and binding obligation
of the HouTex Shareholders and enforceable against each of them in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally;
(i) The Lease executed by Lessor is a valid and binding obligation
of Lessor, and is enforceable against Lessor in accordance with its terms and
conditions, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally;
(j) Mike Melnik's and Sol Melnik's guaranty of the Lease is a
valid and binding obligation of Mike Melnik and Sol Melnik, and enforceable
against each of them in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditor's rights generally; and
(k) No portion of the payment by MTLM to the HouTex Shareholders
is subject to U.S. federal withholding tax obligations on the part of MTLM.
6.5 CONSENTS. HouTex shall have received consents to the transactions
contemplated hereby and waivers of rights to terminate or modify any material
rights or obligations of HouTex from any person from whom such consent or waiver
is required under
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<PAGE> 50
any Designated Contract or instrument as of a date not more than ten days prior
to the Effective Time, or who, as a result of the transactions contemplated
hereby, would have such rights to terminate or modify such Contracts or
instruments, either by the terms thereof or as a matter of law.
6.6 SECURITIES LAWS. MTLM shall have received all necessary consents
and otherwise complied with any state Blue Sky or securities laws applicable to
the issuance of the MTLM Shares, in connection with the transactions
contemplated hereby.
6.7 HOUTEX STOCK. At the Closing, each of the HouTex Shareholders shall
have delivered to MTLM all certificates evidencing the shares of capital stock
of HouTex held by him, her or it.
6.8 NO ADVERSE LITIGATION. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Agreement or Merger or any other transaction contemplated hereby, and which,
in the judgment of MTLM, makes it inadvisable to proceed with the Agreement and
Merger and other transactions contemplated hereby.
6.9 BOARD APPROVAL. The Board of Directors of the MTLM Companies shall
have authorized and approved this Agreement, the Merger and transactions
contemplated hereby.
6.10 SHAREHOLDER APPROVAL. If required by applicable law, the
shareholders of MTLM shall have authorized and approved this Agreement, the
Merger and the transactions contemplated thereby.
6.11 EMPLOYMENT AGREEMENTS. At or prior to the Closing, HouTex shall
have entered into employment agreements (the forms of which are attached hereto
as Exhibit "C" and "D") with Mike Melnik and Sol Melnik.
6.12 LEASE AGREEMENT. At or prior to the Closing, HouTex and Lessor
shall have entered into a Lease Agreement conforming to the terms of Section
5.14.
6.13 DUE DILIGENCE. MTLM shall have completed its due diligence review
of HouTex and HouTex's assets, liabilities, businesses and prospects and the
results of such due diligence review will have been judged satisfactory in all
respects by MTLM.
6.14 FAIRNESS OPINION. MTLM shall have received a fairness opinion, in
form and content acceptable to MTLM in its sole discretion, as to the fairness
of the Merger to MTLM and its shareholders and such opinion shall not have been
withdrawn prior to Closing.
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<PAGE> 51
6.15 COMPLETION OF AUDIT. As contemplated by Section 5.17 hereof, Price
Waterhouse L.L.P. shall have completed and delivered audited financial
statements for HouTex's fiscal years ending September 30, 1993, September 30,
1994, September 30, 1995, and for the period ending June 30, 1996, and such
audited financial statements shall have been determined to be acceptable in form
and content to MTLM.
6.16 EXTRANEOUS ASSETS. Prior to the Closing, the assets of HouTex
described on Exhibit "H" shall have been sold to Mike and Sol Melnik at a
purchase price equal the to the adjusted tax basis of HouTex in such assets;
NationsBank shall have executed the Nondisturbance Agreement in the form
specified in the Lease; and HouTex and its assets shall have been released from
all liabilities, liens, claims and encumbrances related to such Extraneous
Assets and Mike and Sol Melnik shall have delivered to HouTex a promissory note
in the amount set forth in Exhibit "H" hereto, in a form satisfactory to MTLM.
6.17 RECEIPT OF TAX CERTIFICATIONS. At or prior to Closing, MTLM shall
have received the certification of tax status referred to in Section 5.19.
6.18 CONSENT OF NATIONSBANK. At or prior to Closing, Mike and Sol
Melnik shall have obtained the consent of NationsBank that the NationsBank Loan
will remain in full force and effect at least through June 30, 1997, on terms
which are acceptable to MTLM.
6.19 TITLE COMMITMENT. At or prior to Closing, MTLM shall have received
a commitment from a title insurance company doing business in Harris County,
Texas to issue a title policy insuring that the rights of MTLM and HouTex under
the Lease are inferior only to such liens, claims and encumbrances as are
Permitted Exceptions under the Lease, and Lessor shall have received a
commitment from a title insurance company doing business in Harris County, Texas
to issue a title policy insuring title to the real property that is the subject
of the Lease Agreement. MTLM and Lessor shall each pay one-half the total cost
of the two title policies.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
HOUTEX AND THE HOUTEX SHAREHOLDERS
The obligations of HouTex and the HouTex Shareholders to effect the
Merger and sale shall be subject to the fulfillment at or prior to the Effective
Time of the following conditions, any or all of which may be waived in whole or
in part by HouTex and the HouTex Shareholders:
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<PAGE> 52
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the MTLM Companies contained
in this Agreement shall be true and correct at and as of the Effective Time with
the same force and effect as though made at and as of that time except (i) for
changes specifically permitted by or disclosed pursuant to this Agreement, and
(ii) that those representations and warranties which address matters only as of
a particular date shall remain true and correct as of such date. Each of the
MTLM Companies shall have performed and complied with all of its obligations
required by this Agreement to be performed or complied with at or prior to the
Effective Time. Each of the MTLM Companies shall have delivered to the HouTex
Shareholders a certificate, dated as of the Effective Time, and signed by an
executive officer, certifying that such representations and warranties are true
and correct and that all such obligations have been performed and complied with.
7.2 MERGER CONSIDERATION. At the Closing, MTLM shall have delivered to
the HouTex Shareholders the Merger Consideration due to be received by the
HouTex Shareholders under Section 1.3 hereof.
7.3 NO ADVERSE LITIGATION. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Agreement or Merger or any other transaction contemplated hereby, and which
in the judgment of the HouTex Shareholders makes it inadvisable to proceed with
the Agreement or Merger and other transactions.
7.4 OPINION OF COUNSEL. The HouTex Shareholders shall have received an
opinion of counsel for MTLM as of the Effective Time, in form and substance
acceptable to the HouTex Shareholders, to the effect that:
(a) MTLM and MTLM Merger Sub are each a corporation duly organized
and in good standing under the laws of the State of Delaware and State of Texas,
respectively;
(b) MTLM and MTLM Merger Sub have obtained all necessary
authorizations and consents of their respective Boards of Directors to effect
the Merger;
(c) This Agreement, the Melnik Notes, the Clend Note, the Stock
Pledge and Security Agreement, the Declaration of Registration Rights and MTLM's
guaranty of the Lease are valid and binding obligations of MTLM, and enforceable
against MTLM in accordance with their respective terms, except as enforcement
may be limited by general equitable principles or by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally;
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<PAGE> 53
(d) The Lease executed by HouTex is a valid and binding obligation
of HouTex, and is enforceable against HouTex in accordance with its terms,
except as enforcement may be limited by general equitable principles or by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally;
(e) The MTLM Shares are validly issued, fully paid and
non-assessable shares of MTLM;
(f) The Five Year Warrants and the Limited Warrants issued at
Closing have been validly issued by MTLM;
(g) Except as may be disclosed in the SEC Reports, such counsel
does not know or have reason to believe that there is any litigation, proceeding
or investigation pending or threatened which might result in any material
adverse change in the properties, business or prospects or in the condition of
MTLM, or which questions the validity of this Agreement; and
(h) Such counsel does not know or have reason to believe that any
event has occurred or state of facts exists which would constitute a breach of
any of the representations and warranties made by MTLM pursuant to Article II of
this Agreement.
7.5 EMPLOYMENT AGREEMENTS. At or prior to Closing, MTLM shall have
entered into employment agreements with Mike Melnik and Sol Melnik in the forms
attached hereto as Exhibits "C" and "D".
7.6 LEASE AGREEMENT. At or prior to Closing, HouTex and MTLM shall have
entered into the Lease in the form of Exhibit "I" attached hereto concerning the
Property.
7.7 REGISTRATION RIGHTS. At or prior to Closing, MTLM shall have
confirmed in writing to the HouTex Shareholders that the MTLM Common Stock
issued to them at Closing shall be subject to the Registration Rights described
in Exhibit "G" hereto.
ARTICLE VIII
INDEMNIFICATION
8.1 AGREEMENT BY THE HOUTEX SHAREHOLDERS TO INDEMNIFY. The HouTex
Shareholders, jointly and severally, agree to indemnify and hold MTLM and HouTex
harmless from and against the aggregate of all Indemnifiable Damages (as defined
below).
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<PAGE> 54
(a) For purposes of this Agreement, "Indemnifiable Damages" means,
without duplication, the aggregate of all expenses, losses, costs, deficiencies,
liabilities and damages (including, without limitation, related counsel and
paralegal fees and expenses) incurred or suffered by MTLM or HouTex, on a
pre-tax basis, to the extent (i) resulting from any breach of a representation
or warranty made by the HouTex Shareholders in or pursuant to this Agreement,
(ii) resulting from any breach of the covenants or agreements made by any HouTex
Shareholder in or pursuant to this Agreement, (iii) resulting from any breach by
Lessor under the Lease, or (iv) resulting from any inaccuracy in any certificate
delivered by any HouTex Shareholder pursuant to this Agreement.
(b) Without limiting the generality of the foregoing, with respect
to the measurement of Indemnifiable Damages, MTLM and HouTex shall have the
right to be put in the same pre-tax financial position as each would have been
in had each of the representations and warranties of the HouTex Shareholders
hereunder been true and correct and had the covenants and agreements of the
HouTex Shareholders hereunder been performed in full.
(c) Except as provided in paragraph 8.1(f) below, each of the
representations and warranties made by the HouTex Shareholders in this Agreement
or pursuant hereto shall survive for a period of fourteen (14) months after the
Effective Time, notwithstanding any investigation at any time made by or on
behalf of MTLM or HouTex and upon expiration of such fourteen (14) month period,
such representations and warranties shall expire except as follows: (i) the
representations and warranties of the HouTex Shareholders contained in Section
3.19, and to the extent relating to tax attributes or liabilities with respect
to Taxes of HouTex, shall expire at the time the period of limitations
(including any extensions thereof pursuant to the delivery of waivers of the
applicable period of limitations) expires for the assessment by the taxing
authority of additional Taxes with respect to which the representations and
warranties relate; (ii) the representations and warranties of the HouTex
Shareholders contained in Sections 3.13 and 3.16 shall expire at the time the
latest period of limitations expires for the enforcement by an applicable
Governmental Authority of any remedy with respect to which the particular
representations and warranties of the HouTex Shareholders relates and if there
is no such period of limitations, then the representations and warranties shall
continue indefinitely; and (iii) the representations and warranties of the
HouTex Shareholders contained in Sections 3.1, 3.2, 3.3, 3.4, and 3.5 shall not
expire, but shall continue indefinitely. No claim for the recovery of
Indemnifiable Damages may be asserted by MTLM and/or HouTex against the HouTex
Shareholders after such representations and warranties shall thus expire,
provided, however, that claims for Indemnifiable Damages first asserted within
the applicable period shall not thereafter be barred. Notwithstanding any
knowledge of facts determined or determinable by any party by investigation,
each party shall have the right to fully rely on the representations,
warranties, covenants and agreements of the other parties contained in this
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<PAGE> 55
Agreement or in any other documents or papers delivered in connection herewith.
Each representation, warranty, covenant and agreement of the parties contained
in this Agreement is independent of each other representation, warranty,
covenant and agreement. Anything to the contrary herein notwithstanding, all
representations and warranties of the HouTex Shareholders shall not survive a
"change in control" of MTLM which occurs at any time after the Closing. Solely
for purposes of this Section 8.1(c), a "change in control" shall be deemed to
have occurred at any point in time that neither T. Benjamin Jennings or Gerard
M. Jacobs serves as Chief Executive Officer of MTLM.
(d) In the event that either MTLM or HouTex believe they are
entitled to a claim for any Indemnifiable Damages hereunder, MTLM and/or HouTex
shall promptly give written notice to the HouTex Shareholders of such claim and
the amount or the estimated amount of such claim, and the basis for such claim.
If the HouTex Shareholders do not pay the amount of the claim for Indemnifiable
Damages to MTLM or HouTex within ten (10) days, then MTLM may set off the amount
of such claim by selling some or all of the Held Back Shares and retaining the
net proceeds thereof as a set off against the claim in accordance with the
procedures, and subject to the HouTex Shareholders' right to contest such claim,
as set forth in Sections 8.3 and 8.4 below. Alternatively, MTLM may retain some
or all of the Held Back Shares as a direct set off against such claims in
accordance with the procedures, and subject to the HouTex Shareholders' right to
contest such claims, as set forth in sections 8.3 and 8.4 below. If the Held
Back Shares are insufficient to set off the claim (or have been delivered to the
HouTex Shareholders prior to the making or resolution of such claim), MTLM
and/or HouTex may take any action or exercise any remedy available to MTLM or
HouTex by appropriate legal proceedings to collect the Indemnifiable Damages,
including setting off the Indemnifiable Damages against either: (a) the Melnik
Notes, (b) the Clend Note, (c) rental or other payments due to Lessor from
HouTex (and guaranteed by MTLM) under the Lease, or (d) against the purchase
price to be paid to Lessor for the Premises by HouTex (payment of which is
guaranteed by MTLM) under the Lease.
(e) Notwithstanding anything to the contrary in this Section 8.1,
except as set forth in 8.1(f) below, the HouTex Shareholders shall not be liable
to MTLM or HouTex with respect to any claim for Indemnifiable Damages unless all
Indemnifiable Damages incurred by MTLM and HouTex exceed an aggregate of
$50,000, in which case the HouTex Shareholders shall be liable for the full
amount of such Indemnifiable Damages in excess of $50,000; provided however, in
the event the Indemnifiable Damage arises from a breach of a representation or
warranty contained in Section 3.13 hereof relating to the Japhet Property (the
"Japhet Environmental Indemnifiable Damages"), the HouTex Shareholders shall not
be liable to MTLM or HouTex with respect to any claim for Japhet Environmental
Indemnifiable Damages unless all such Japhet Environmental Indemnifiable Damages
incurred by MTLM or HouTex exceed an aggregate of $75,000 in which case the
HouTex Shareholders shall be liable for the full amount of such Japhet
Environmental Indemnifiable Damages in excess of $75,000.
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<PAGE> 56
(f) Notwithstanding anything to the contrary in this Section 8.1,
the HouTex Shareholders shall be liable for all Indemnifiable Damages (including
engineering, consulting, and legal fees) incurred by MTLM and HouTex arising
from, or related in any way to, the Hirsch Property or the Emile Property. The
$50,000 and $75,000 monetary thresholds of liability for collection of
Indemnifiable Damages set forth in subparagraph 8.1(e) above shall not apply to
Indemnifiable Damages related to the Hirsch Property and the Emile Property.
Similarly, the survival periods for certain representations and warranties set
forth in subparagraph 8.1(c) above shall not apply to the representations and
warranties herein with regard to the Emile Property and the Hirsch Property; the
representations and warranties of the HouTex Shareholders herein shall survive
Closing and shall not expire as they relate to the Emile Property or the Hirsch
Property.
8.2 AGREEMENT BY THE MTLM COMPANIES TO INDEMNIFY. MTLM agrees to
indemnify and hold the HouTex Shareholders harmless from and against the
aggregate of all HouTex Indemnifiable Damages (as defined below).
(a) For purposes of this Agreement, "HouTex Indemnifiable Damages"
means, without duplication, the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation, related
counsel and paralegal fees and expenses) incurred or suffered by the HouTex
Shareholders, on a pre-tax consolidated basis, to the extent (i) resulting from
any breach of a representation or warranty made by MTLM in or pursuant to this
Agreement, (ii) resulting from any breach of the covenants or agreements made by
MTLM in or pursuant to this Agreement, or (iii) resulting from any breach by
HouTex of the Lease; or (iv) resulting from any inaccuracy in any certificate
delivered by MTLM pursuant to this Agreement.
(b) Without limiting the generality of the foregoing, with respect
to the measurement of HouTex Indemnifiable Damages, each HouTex Shareholder
shall have the right to be put in the same pre-tax consolidated financial
position as he, she or it would have been in had each of the representations and
warranties of MTLM hereunder been true and correct and had the covenants and
agreements of MTLM hereunder been performed in full.
(c) Each of the representations and warranties made by MTLM in
this Agreement or pursuant hereto shall survive for a period of one year after
the Effective Time, notwithstanding any investigation at any time made by or on
behalf of the HouTex Shareholders, and upon expiration of such one year period,
such representations and warranties shall expire. No claim for the recovery of
HouTex Indemnifiable Damages may be asserted by the HouTex Shareholder against
MTLM after such representations and warranties shall thus expire, provided,
however, that claims for Indemnifiable Damages first asserted within the
applicable period shall not thereafter be barred. Notwithstanding any knowledge
of facts determined or determinable by any party by investigation, each party
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shall have the right to fully rely on the representations, warranties, covenants
and agreements of the other parties contained in this Agreement or in any other
documents or papers delivered in connection herewith. Each representation,
warranty, covenant and agreement of the parties contained in this Agreement is
independent of each other representation, warranty, covenant and agreement.
(d) In the event that the HouTex Shareholders believe they are
entitled to a claim for any Indemnifiable Damages hereunder, the HouTex
Shareholders shall promptly give written notice to MTLM of such claim and the
amount or the estimated amount of such claim, and the basis for such claim.
(e) Notwithstanding anything to the contrary in this Section 8.2,
MTLM shall not be liable to the HouTex Shareholders with respect to any claim
for Indemnifiable Damages unless all Indemnifiable Damages incurred by the
HouTex Shareholders exceed an aggregate of $50,000, in which case the MTLM
Companies shall be liable for the full amount of such Indemnifiable Damages.
8.3 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of
the HouTex Shareholders, MTLM and HouTex hereunder with respect to their
respective indemnities pursuant to this Article VIII resulting from any claim or
other assertion of liabilities by third parties (hereinafter called collectively
"Claims"), shall be subject to the following terms and conditions:
(a) the party seeking indemnification (the "Indemnified Party")
must give the other party or parties, as the case may be (the "Indemnifying
Party"), notice of any such Claim promptly after the Indemnified Party receives
notice thereof;
(b) the Indemnifying Party shall have the right to undertake, by
counsel or other representatives of it own choosing, the defense of such claim;
(c) in the event that the Indemnifying Party shall elect not to
undertake such defense, or within a reasonable time after notice of any such
Claim from the Indemnified Party shall fail to defend, the Indemnified Party
(upon further written notice to the Indemnifying Party) shall have the right to
undertake the defense, compromise or settlement of such Claim, by counsel or
other representatives of its own choosing, on behalf of and for the account and
risk of the Indemnifying Party (subject to the right of the Indemnifying Party
to assume defense of such Claim at any time prior to settlement, compromise or
final determination thereof);
(d) Anything in this Section 8.3 to the contrary notwithstanding,
(A) the Indemnified Party shall have the right, at its own cost and expense, to
have its own counsel
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to protect its own interests and participate in the defense, compromise or
settlement of the Claim, (B) the Indemnifying Party shall not, without the
Indemnified Party's written consent, settle or compromise any Claim or consent
to entry of any judgement which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified Party of
a release from all liability in respect of such Claim, and (C) the Indemnified
Party, by counsel or other representatives of its own choosing and at its sole
cost and expense, shall have the right to consult with the Indemnifying Party
and its counsel or other representatives concerning such Claim, and the
Indemnifying Party and the Indemnified Party and their respective counsel shall
cooperate with respect to such Claim.
8.4 HELD BACK SHARES AND RIGHTS OF SETOFF TO SECURE THE HOUTEX
SHAREHOLDERS' INDEMNIFICATION OBLIGATION. As security for the agreement by the
HouTex Shareholders to indemnify and hold MTLM and HouTex harmless as described
in Section 8.1, at the Closing, MTLM shall set aside and hold the certificates
representing the Held Back Shares issued pursuant to this Agreement.
(a) MTLM may set off against the Held Back Shares any
loss, damage, cost or expense for which the HouTex Shareholders may be
responsible pursuant to this Agreement (including without limitation,
any Indemnifiable Damages for which the HouTex Shareholders may be
responsible pursuant to this Agreement) whether or not indemnified
pursuant to Section 8.1 of this Agreement, subject, however, to the
following terms and conditions:
(1) MTLM shall give written notice to the HouTex
Shareholders of any claim for Indemnifiable Damages or any
other damages hereunder, which notice shall set forth (i) the
amount of Indemnifiable Damages or other loss, damage, cost or
expense which MTLM claims to have sustained by reason thereof,
and (ii) the basis of such claim;
(2) Such set off shall be effected on the later to
occur of the expiration of 10 days from the date of such
notice (the "Notice of Contest Period") or, if such claim is
contested, the date the dispute is resolved, and such set off
shall be charged proportionally against the shares set aside;
(3) If, prior to the expiration of the Notice of
Contest Period, the HouTex Shareholders shall notify MTLM in
writing of an intention to dispute the claim and if such
dispute is not resolved within 30 days after expiration of
such period (the "Resolution Period"), then MTLM may elect
that such dispute shall be resolved by a committee of three
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arbitrators (one appointed by the HouTex Shareholders, one
appointed by MTLM and one appointed by the two arbitrators so
appointed), which shall be appointed within 60 days after the
expiration of the Resolution Period. The arbitrators shall
abide by the rules of the American Arbitration Association and
their decision shall be made within 45 days of being appointed
and shall be final and binding on all parties;
(4) As soon as the Held Back Shares are registered
and any restrictions on sale imposed under Rule 145 of the
Securities Act are terminated, the HouTex Shareholder may
instruct MTLM to sell some or all of the Held Back Shares and
the net proceeds thereof shall be substituted for such Held
Back Shares in any set off to be made by MTLM pursuant to any
claim hereunder subject to continued compliance with any
applicable securities and other regulations; and
(5) For purposes of this Section 8.4, the value for
purposes of set off of the shares of MTLM Common Stock not
sold as provided in clause (4) of this Section 8.4 shall be
valued at the average of the closing bid and asked prices of
MTLM's common stock on the Nasdaq National Market System on
the business day preceding the date of set off.
(b) Except with respect to shares transferred pursuant to
the foregoing right of set off (and in the case of such shares, until
the same are transferred), all Held Back Shares shall be deemed to be
owned by the HouTex Shareholders and the HouTex Shareholders shall be
entitled to vote the same; provided, however, that, there shall also be
deposited with MTLM subject to the terms of this Section 8.4, all
shares of MTLM Common Stock issued to the HouTex Shareholders as a
result of any stock dividend or stock split and all cash issuable to
the HouTex Shareholders as a result of any cash dividend, with respect
to the Held Back Shares. All stock and cash issued or paid upon Held
Back Shares shall be distributed to the person or entity entitled to
receive such Held Back Shares together with such Held Back Shares.
(c) MTLM agrees to deliver to the HouTex Shareholders no
later than 90 days after the Effective Time any Held Back Shares then
held by it (or proceeds from the Held Back Shares) unless there then
remains unresolved any claim for Indemnifiable Damages or other damages
hereunder as to which notice has been given, in which event any Held
Back Shares remaining on deposit (or proceeds from the sale of Held
Back Shares) after such claim shall have been satisfied shall be
returned to the HouTex Shareholders promptly after the time of
satisfaction.
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<PAGE> 60
In addition to the Held Back Shares, MTLM and/or HouTex may set off all
Indemnifiable Damages owed by the HouTex Shareholders hereunder against either:
(a) the monthly payments of base or additional rent or against the purchase
payments for the Property due under the Lease to Mike and Sol Melnik or to their
respective successors in interest under the Lease, (b) amounts due under the
Melnik Notes, or (c) amounts due under the Clend Note; the determination of
whether to setoff first against the payments due under the Lease, the Melnik
Notes or the Clend Note shall be left to MTLM's sole discretion.
8.5 ADJUSTMENT TO MERGER CONSIDERATION. All payments for Indemnifiable
Damages made pursuant to this Article VIII shall be treated as adjustments to
the consideration paid in the Merger under Section 1.3.
ARTICLE IX
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale or other
disposition after Effective Time of the MTLM Shares:
9.1 DISPOSITION OF SHARES. The HouTex Shareholders represent and
warrant that the shares of MTLM Common Stock being acquired by them hereunder
are being acquired and will be acquired for their own respective accounts and
will not be sold or otherwise disposed of, except pursuant to (a) an exemption
from the registration requirements under the Securities Act, which does not
require the filing by the MTLM Companies with the SEC of any registration
statement, offering circular or other document, in which case the HouTex
Shareholders shall first supply to the MTLM Companies an opinion of counsel
(which counsel and opinions shall be satisfactory to the MTLM Companies) that
such exception is available, or (ii) an effective registration statement filed
by MTLM with the SEC under the Securities Act.
9.2 LEGEND. The certificates representing the MTLM Shares shall bear
the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF RULE 145(D) PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER THE ACT WITH RESPECT THERETO OR IN ACCORDANCE
WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
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ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
MTLM may, unless a registration statement is in effect covering such shares,
place stop transfer orders with its transfer agents with respect to such
certificates in accordance with federal securities laws.
9.3 REGISTRATION RIGHTS. The HouTex Shareholders shall have the
securities registration rights set forth in the Declaration of Registration
Rights attached hereto as Exhibit "G". The HouTex Shareholders acknowledge,
agree and understand that other individuals and entities possess either
identical or similar registration rights with regard to other presently issued
MTLM Common Stock. Also, MTLM may after the date hereof issue additional shares
of Common Stock which are also subject to similar registration rights. The
existence of such registration rights may have the effect of limiting the number
of shares of MTLM Common Stock issued to HouTex Shareholders eligible for
registration under certain provisions of the Declaration of Registration Rights.
ARTICLE X
DEFINITIONS
10.1 DEFINED TERMS. As used herein, the following terms shall have
the following meanings:
"Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as
in effect on the date hereof.
"Applicable Rate" means the prime rate of interest publicly
announced from time to time by NationsBank of Texas N.A., plus 1% per
annum.
"Contract" means any indenture, lease, sublease, license, loan
agreement, mortgage, note, indenture, restriction, will, trust,
commitment, obligation or other contract, agreement or instrument,
whether written or oral.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
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<PAGE> 62
"Governmental Authority" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"MTLM Shares" means the shares of MTLM Common Stock which the
HouTex Shareholders will receive in connection with the Merger.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited to,
any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable law
or any jurisdiction in connection with such mortgage, pledge, security
interest, encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties, assets,
liabilities, rights, obligations, operations, business or prospects
which change (or effect) individually or in the aggregate, is
materially adverse to such condition, properties, assets, liabilities,
rights, obligations, operations, business or prospects.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust, unincorporated
association, joint venture, Governmental Authority or other entity, of
whatever nature.
"Register", "registered" and "registration" refer to a
registration of the offering and sale of securities effected by
preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of
such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Taxes; and
"Taxes" means all taxes, fees or other assessments, including,
but not limited to, income, excise, property, sales, franchise,
intangible, withholding,
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social security and unemployment taxes imposed by any federal, state,
local or foreign governmental agency, and any interest or penalties
related thereto.
10.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise requires.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) Except as provided in Section 5.15 hereof with regard to
determination of Minimum Net Income, all matters of an accounting nature in
connection with this Agreement and the transactions contemplated hereby shall be
determined in accordance with GAAP applied on a basis consistent with prior
periods, where applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the neuter
and feminine, where the context so permits.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of all of the parties hereto at
any time prior to the Closing; or
(b) by MTLM in the event of a material breach by HouTex or any
of the HouTex Shareholders of any provision of this Agreement; or
(c) if the Closing shall not have occurred by December 6,
1996, unless the parties have agreed in writing to extend the time for Closing.
11.2 EFFECT OF TERMINATION. Except as provided in Article VI, in
the event of termination of this Agreement pursuant to Section 11.1, this
Agreement and the Plan of Merger shall forthwith become void; provided, however,
that nothing herein shall relieve any
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party from liability for the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
ARTICLE XII
GENERAL PROVISIONS
12.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage prepaid), guaranteed overnight delivery,
or facsimile transmission if such transmission is confirmed by delivery by
certified or registered mail (first class postage pre-paid) or guaranteed
overnight delivery, to the following addresses and telecopy numbers (or to such
other addresses or telecopy numbers which such party shall designate in writing
to the other party):
(a) IF TO ANY OF THE MTLM COMPANIES TO:
Metal Management, Inc.
500 N. Dearborn Street, Suite 405
Chicago, IL 60610
Attn: Chief Executive Officer
Telecopy No.: (312) 645-0714
WITH A COPY TO:
Meadows, Owens, Collier, Reed,
Cousins & Blau, L.L.P.
901 Main Street, Suite 3700
Dallas, Texas 75202
Attn: David N. Reed, Esq.
Telecopy No.: (214) 747-3732
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(b) IF TO HOUTEX OR THE HOUTEX SHAREHOLDERS TO:
HouTex Metals Company, Inc.
21 Japhet Street
Houston, Texas 77020
Attn: Mike or Sol Melnik
Telecopy No.: (713) 942-8596
WITH A COPY TO:
Chamberlain, Hrdlicka, White, Williams to Martin
1200 Smith Street, Suite 1400
Houston, Texas 77002
Attn: Lawrence D. Pennoni
Telecopy No.: (713) 658-2553
12.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matter and supersedes all prior agreements and understandings (oral or
written) between or among the parties with respect to such subject matter. The
Exhibits and Schedules constitute a part hereof as though set forth in full
above.
12.3 EXPENSES. Except as otherwise provided herein, the parties shall
pay their own fees and expenses, including their own counsel fees, incurred in
connection with this Agreement or any transaction contemplated hereby.
12.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended,
supplemented, canceled or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties. No extension of time for performance
of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts. The rights and remedies of the parties under this Agreement
are in addition to all other rights and remedies, at law or equity, that they
may have against each other.
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12.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by HouTex or any HouTex Shareholders without the
prior written consent of MTLM.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12.7 INTERPRETATION. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
12.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws of the State of
Texas applicable to contracts executed and to be wholly performed within such
State.
12.9 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents
and warrants to all other parties hereto that (a) before executing this
Agreement, said party has fully informed itself of the terms, contents,
conditions and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party has
had the opportunity to seek and has obtained the advice of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
12.10 FACSIMILE SIGNATURES. Each of the parties to this Agreement
agrees that a facsimile copy of this Agreement signed by a party (or any other
document required to be in writing and signed by a party) shall be considered as
equivalent to an original executed counterpart of this Agreement (or an original
signed document as the case may be).
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ARTICLE XIII
POST CLOSING COVENANTS OF MTLM
13.1 POST CLOSING COVENANTS OF MTLM. Except with the consent of the
HouTex Shareholders, MTLM covenants and agrees that from the date of this
Agreement until each of the Melnik Notes and the Clend Note are paid in full,
MTLM will, and will use its best efforts to cause HouTex to:
(a) Maintain HouTex's net worth, as determined in accordance
with GAAP, in an amount equal to or greater than the net worth set
forth on the Closing Date Balance Sheet;
(b) Maintain HouTex's respective corporate existence and not
enter into any merger, consolidation or plan of liquidation of HouTex;
(c) Not amend MTLM's or HouTex's Articles of Incorporation to
change in any manner the rights of their respective stock;
(d) Not enter into, assume or make any contract, loan,
license, designation, loan commitment, purchase or sale, or disposition
of assets of HouTex involving proceeds, expenditures or liabilities
aggregating in excess of $50,000.00, except in the ordinary course of
business or as may be approved in writing by the HouTex Shareholders.
(e) Promptly advise the HouTex Shareholders in writing of any
adverse material change in MTLM's or HouTex's financial condition or
business affairs;
(f) Operate MTLM's or HouTex's businesses only in the usual,
regular or ordinary manner in which MTLM or HouTex operated their
businesses prior to the execution of this Agreement and, to the extent
consistent with such operations, use all reasonable efforts to preserve
intact their present business organizations, keep available the
services of their present Boards of Directors, officers and employees,
and preserve the relationships with persons having business dealings
with them;
(g) Comply in all material respects with all applicable local,
state and federal rules, laws and regulations, including those relative
to the payment of income, franchise and other taxes, fees and other
charges due to be paid on or after the Closing Date;
(h) Maintain MTLM's and HouTex's books, accounts and records
in the usual, regular and ordinary manner, on a basis consistent with
prior years;
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<PAGE> 68
(i) Not take any action which would cause, or fail to take any
reasonable action with would prevent, any material adverse change to be
made in MTLM's or HouTex's financial condition, or extend any tax or
other liability by waiver of the statute of limitations;
(j) Not issue or sell options, warrants or rights to subscribe
to, or enter into any contract or commitment to issue or sell, or
subdivide or in any way reclassify or acquire or agree to acquire any
shares of HouTex's capital stock without the consent of the HouTex
Shareholders;
(k) Afford access at all reasonable times to representatives,
employees, counsel and accountants for the HouTex Shareholders to the
properties and all books, accounts, financial and other records and
contracts of every kind of MTLM and HouTex;
(l) Comply in every respect with the terms and provisions of
the Stock Pledge Agreement;
(m) Not directly or indirectly make any dividends,
distributions, loans or sales from HouTex to MTLM or any party related
to or controlled by MTLM or any of the shareholders of MTLM;
(n) Not enter into any contract, purchase or sale with, and
not mortgage, pledge or otherwise subject any of HouTex's assets to any
lien, charge or other encumbrance in favor of, MTLM or any party
related to or controlled by MTLM or any of the shareholders of MTLM;
and
(o) From time to time at the request of the HouTex
Shareholders and without further consideration execute and deliver such
instruments of transfer and assignment and take such other reasonable
actions as the HouTex Shareholders may require to more effectively
evidence, complete or perfect the pledge of the stock of HouTex to the
HouTex Shareholders, pursuant to the Stock Pledge Agreement.
(p) MTLM shall not charge any amounts to HouTex and HouTex
shall not pay any monies to MTLM for any reason, including but not
limited to, charges or payments for corporate overhead allocations,
legal or accounting expenses, taxes, interest or administrative costs.
13.2 COVENANT REGARDING FINANCIAL STATEMENTS. MTLM covenants and
agrees to use its reasonable best efforts to obtain a letter from Price
Waterhouse permitting HouTex, in the event the Notes are not paid, to use the
financial statements prepared by Price Waterhouse to the same extent and subject
to the same restrictions, as MTLM, within forty-five (45) days after the Closing
Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
METAL MANAGEMENT INC., A DELAWARE
CORPORATION
Date: December 10, 1996 By: /s/ Gerard M. Jacobs
----------------- ---------------------------------
Name: Gerard M. Jacobs
Title: President
MTLM MERGER, INC. A TEXAS CORPORATION
Date: December 10, 1996 By: /s/ Gerard M. Jacobs
----------------- ----------------------------------
Name: Gerard M. Jacobs
Title: President
HOUTEX METALS COMPANY INC.,
A TEXAS CORPORATION
Date: December 10, 1996 By: /s/ Mike Melnik
----------------- -----------------------------------
Name: Mike Melnik
Title: President
CLEND INVESTMENTS HOLDINGS LTD.,
A BRITISH VIRGIN ISLANDS CORPORATION
Date:------------------ By: /s/ William Maycock
-----------------------------------
Name: William Maycock
Title: Director
Date: December 10, 1996 /s/ Mike Melnik
----------------- ----------------------------------------
MIKE MELNIK
Date: December 10, 1996 /s/ Sol Melnik
----------------- ----------------------------------------
ZALMAN (SOL) MELNIK
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SPOUSAL ACKNOWLEDGMENT AND CONSENT
By my signature below, I hereby acknowledge that the foregoing
agreement contains specific terms, provisions and conditions pertaining to the
sale or transfer of certain shares of Common Stock of HouTex Metals Company,
Inc. in which I own, or may own, a community property interest. I hereby
specifically acknowledge (i) the terms, provisions and conditions of the
foregoing agreement, (ii) that I have read, understand, and agree to such terms,
provisions and conditions, and (iii) I further agree that my community property
interest, if any, in the Common Stock of HouTex Metals Company, Inc. shall be
bound by and subject to all of the terms, provisions and conditions of the
foregoing agreement.
Dated: December 10, 1996 /s/ Lea Melnik
------------------ ------------------
LEA MELNIK
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EXHIBIT 2.2
FIRST AMENDMENT
TO
MERGER AGREEMENT
This First Amendment to Merger Agreement (the "First Amendment") dated
as of December 10, 1996, is entered into by and among Metal Management, Inc.
("MTLM"), MTLM Merger, Inc., HouTex Metals Company, Inc. ("HouTex"), Mike
Melnik, Zalman (Sol) Melnik and Clend Investment Holdings Ltd. (the "Parties").
Reference is hereby made to that certain Merger Agreement (the "Merger
Agreement") dated as of December 10, 1996, by and among the Parties. Capitalized
terms defined in the Merger Agreement are used herein with the same meaning; in
addition, the term the "Notes" shall mean the Melnik Notes and the Clend Note,
collectively, and the term the "Noteholders" shall mean Mike Melnik, Zalman
(Sol) Melnik and Clend Investment Holdings, Ltd., collectively.
NOW, THEREFORE, in consideration of their mutual agreements and
covenants, the Parties hereby agree as follows, intending to be legally bound
hereby:
A. Amendment to Terms of Merger Agreement. Notwithstanding anything in the
Merger Agreement to the contrary, the Parties hereby agree that the Merger
Agreement shall be amended as set forth below. It is the express intention of
the Parties that the following additions, deletions or modifications to the
existing terms of the Merger Agreement shall supersede the provisions of the
Merger Agreement to which they relate.
1. Category One Conversion Rights. The holder of the Clend Note shall
have the right, at any time between the Closing Date and April 30,
1997, to apply an aggregate, maximum of One Million Dollars
($1,000,000.00) of the unpaid principal balance of the Clend Note to
purchase MTLM Common Stock, at a price per share equal to Seventy-Five
Percent (75%) of the average closing price of MTLM Common Stock on the
five (5) trading days immediately preceding the date of delivery by the
holders of the Clend Note to MTLM of a written notice (the "Category
One Notice") of the exercise of such right signed by all of the holders
of the Clend Note. The Category One Notice shall specify the unpaid
principal balance of the Clend Note being so applied to the purchase of
MTLM Common Stock. The holder of the Clend Note shall have the right to
exercise Category One Conversion Rights only three times with each such
exercise to be in an amount of at least $250,000.
2. Category Two Conversion Rights. Also, the holders of the Clend Note
shall have the right, at any time between the Closing Date and April
30, 1997-but in no event later than thirty (30) calendar days following
any public announcement by MTLM of its execution of a letter of intent
or a definitive agreement to acquire the stock or assets of a scrap
metal recycling company with gross revenue for its most recent fiscal
year in excess of
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$150,000,000-to apply an aggregate maximum of One Million Dollars
($1,000,000.00) of the unpaid principal balance of the Clend Note to
purchase MTLM Common Stock, at a price per share equal to either.
(a) Five Dollars ($5.00), if the average closing price of
MTLM Common Stock (the "Category Two Average Closing
Price") on the five (5) trading days immediately
preceding the date of delivery by the holder of the
Clend Note to MTLM of a written notice (the "Category
Two Notice") of the exercise of such right signed by
the holder of the Clend Note is less than Seven
Dollars Twenty-Five Cents ($7.25); or
(b) Five Dollars Forty-Eight Cents ($5.48), if the
Category Two Average Closing Price is Seven Dollars
Twenty-Five Cents ($7.25) or greater.
The Category Two Notice shall specify the unpaid principal balance of
the Clend Note being so applied to the purchase of MTLM Common Stock.
The holder of the Clend Note shall have the right to exercise the
Category Two Conversion Rights only three (3) times with each such
exercise to be in an amount of at least $250,000.
3. Escrow of Conversion Shares. If the holder of the Clend Note
exercises its rights under Paragraphs 1 and/or 2 above to apply a
portion of the unpaid balance of the principal of the Notes to purchase
MTLM Common Stock, then all of the MTLM Common Stock so purchased by
the holder of the Clend Note shall be held in escrow (the "Escrowed
Conversion Shares") in accordance with paragraph 8 below.
4. Acquisition Financing. MTLM has received a commitment to place
approximately $30,000,000 in convertible MTLM subordinated debt
instruments (the "EVEREN Financing") from EVEREN Securities ("EVEREN").
A copy of this commitment has previously been furnished to the HouTex
Shareholders. The Parties agree that MTLM's receipt of the EVEREN
Financing or any other financing (whether such financing is from a
public offering or private placement of debt or equity or from bank
loans, excluding, however, (i) the pending financing for the Reserve
acquisition and (ii) the senior bank debt replacement financing
currently being negotiated by MTLM) which provides MTLM with net
proceeds in excess of $7,000,000 which are available to fund
acquisitions (collectively the "Acquisition Financing") prior to the
maturity of the Notes shall have a material effect on the terms of the
Notes and on the liquidated damages received by the HouTex Shareholders
in the event MTLM defaults on the Notes. MTLM agrees to use its
reasonable best efforts to obtain such Acquisition Financing from
either EVEREN or some other financing source.
5. Modification to Cash Consideration and Notes. The Cash Consideration
set forth in Section 1.3 of the Merger Agreement is hereby increased
from $500,000 to $750,000 and the respective principal amounts of the
Melnik Notes are hereby decreased by $250,000 to reflect
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such increase in Cash Consideration. Furthermore, the Notes and the
Stock Pledge and Security Agreements attached as Exhibit B-5 to the
Merger Agreement shall be modified to provide that (i) the obligations
reflected by the Notes and the Stock Pledge and Security Agreements are
entered into without recourse as to MTLM in the event that MTLM uses
its reasonable best efforts to obtain the Acquisition Financing but the
proceeds of the Acquisition Financing are not received prior to April
30, 1997; and (ii) the sole remedy available to the Noteholders if an
event of default occurs and, provided MTLM has used its reasonable best
efforts to obtain the Acquisition Financing, the proceeds of the
Acquisition Financing have not been so received by MTLM prior to April
30, 1997, shall be to exercise the Noteholders respective rights under
the Stock Pledge and Security Agreements and foreclose on the HouTex
shares pledged as collateral under the Stock Pledge and Security
Agreements.
6. Liquidated Damages if Acquisition Financing Does Not Occur. In the
event (i) MTLM does not receive the proceeds of the Acquisition
Financing prior to April 30, 1997; (ii) the Notes are not paid in full
at or prior to their respective maturity dates; and (iii) MTLM fails to
cure such default within the time period allowed by the Escrow
Agreements, then the HouTex Shareholders shall be entitled to retain as
liquidated damages only the following:
(a) all Cash Consideration paid by MTLM at Closing;
(b) all Limited Warrants issued to the HouTex
Shareholders either at or following Closing; and
(c) all rights of foreclosure on the HouTex stock held as
collateral under the Stock Pledge and Security
Agreements.
Except as set forth above, the HouTex Shareholders shall be entitled to
no damages or other remedies at law or in equity or to pursue, directly
or indirectly, any claims against MTLM arising from MTLM's default
under the Notes, if MTLM does not receive the proceeds of the
Acquisition Financing prior to April 30, 1997. All Five-Year Warrants
and Share Consideration issued to the HouTex Shareholders at Closing
and all Escrowed Conversion Shares issued following Closing shall be
returned to MTLM and cancelled under the terms of the escrow
arrangement described in paragraph 8 below.
7. Liquidated Damages if Acquisition Financing does Occur. The Notes
shall be amended to provide for acceleration of the due dates of the
Notes in the event MTLM does receive the proceeds of the Acquisition
Financing prior to April 30, 1997. The Notes shall provide that MTLM
will have an affirmative duty to pay the Notes in full within five (5)
business days after the receipt of the proceeds of the Acquisition
Financing. If MTLM fails to pay the Notes after acceleration, then the
HouTex Shareholders shall be entitled to either:
(a) retain as liquidated damages the following:
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(i) all Cash Consideration paid by MTLM at
Closing;
(ii) all Limited Warrants issued to the HouTex
Shareholders either at or following the
Closing;
(iii) all rights of foreclosure on the HouTex
stock held as collateral under the Stock
Pledge and Security Agreements;
(iv) all Five-Year Warrants issued to the HouTex
Shareholders at Closing;
(v) all Share Consideration issued to the
HouTex Shareholders at Closing; and
(vi) all Escrowed Conversion Shares issued to
the HouTex Shareholders following Closing;
OR
(b)(i) retain as liquidated damages the following:
A. all Cash Consideration paid by MTLM
at Closing;
B. all Limited Warrants issued to the
HouTex Shareholders either at or
following the Closing;
C. all Five-Year Warrants issued to
the HouTex Shareholders at Closing;
D. all Share Consideration issued to
the HouTex Shareholders at Closing;
and
E. all Escrowed Conversion Shares
issued to the HouTex Shareholders
following Closing; AND
(ii) seek specific performance under the Notes.
Except as set forth above, the HouTex Shareholders shall be entitled to
no damages or other remedies at law or in equity or to pursue, directly
or indirectly, any claims against MTLM arising from MTLM's default
under the Notes, if MTLM does receive the proceeds of Acquisition
Financing prior to April 30, 1997. All Five-Year Warrants, Share
Consideration and Escrowed Conversion Shares shall be delivered to the
HouTex Shareholders under the terms of the escrow arrangement described
in paragraph 8 below.
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8. Escrow. The Parties agree that the Escrow Agreements shall be
modified and expanded to provide for the escrow at Closing of (i) the
Five-Year Warrants, (ii) the Share Consideration and the escrow
thereafter of the Escrowed Conversion Shares, together with the shares
of HouTex common stock pledged to the HouTex Shareholders under the
Stock Pledge and Security Agreements. The Escrow Agreements, as
modified, shall provide that, in the event MTLM defaults on the Notes
and the HouTex Shareholders are only entitled to receive the liquidated
damages specified under paragraph 6 above, then the escrow agent under
the Escrow Agreements shall return the Five-Year Warrants, the Share
Consideration, and the Escrowed Conversion Shares to MTLM for
cancellation and shall return the escrowed HouTex common stock owned by
MTLM to the HouTex Shareholders, subject to the terms and conditions of
the Stock Pledge and Security Agreement. Similarly, the Escrow
Agreements, as modified, shall provide that in the event MTLM defaults
on the Notes and the HouTex Shareholders are entitled to receive the
damages set forth in paragraph 7 above, the escrow agent under the
Escrow Agreements shall deliver the Five-Year Warrants, the Share
Consideration and the Escrowed Conversion Shares to the HouTex
Shareholders.
9. Termination of Lease and Guarantee Relationship. In the event MTLM
fails to pay the Notes when they mature and the HouTex Shareholders
foreclose on the stock of HouTex, the Lease will terminate and MTLM
will be released from its guarantee obligations under the Lease and on
all other obligations of HouTex which have been guaranteed by MTLM;
provided, however, MTLM agrees that, in the event it guarantees
HouTex's revolving credit obligations to NationsBank of Texas, N.A., it
will agree to remain liable to NationsBank under such guarantee
agreement. The HouTex Shareholders agree to use their reasonable best
efforts to obtain a release of MTLM's guarantee obligation from
NationsBank. In the event MTLM fails to pay the Notes when they mature
and the HouTex Shareholders foreclose on the stock of HouTex owned by
MTLM, but the HouTex Shareholders are unable to obtain a release of
MTLM's guarantee obligation to NationsBank, MTLM shall have and retain
subrogation rights against HouTex and the HouTex Shareholders in the
event MTLM thereafter is required to pay any funds to NationsBank as a
guarantor for HouTex.
10. Modifications to Documents. The Parties agree that each of the
Exhibits to the Merger Agreement and all other documents described in,
or contemplated by, the Merger Agreement will be modified, amended, or
restated in a manner consistent with the provisions of this First
Amendment. The form of all such Exhibits and other documents, as
modified, shall be mutually agreeable to all Parties and their
respective legal counsel.
B. Ratification of Merger Agreement. Except as specifically modified by
the provisions of this First Amendment, all terms and conditions of the Merger
Agreement are hereby ratified by the Parties.
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IN WITNESS WHEREOF, the parties have executed this agreement on the
date first written above.
METAL MANAGEMENT, INC.
By: /s/ Gerard M. Jacobs
-------------------------
Name: GERARD M. JACOBS
-----------------------
Title: President
----------------------
MTLM MERGER, INC.
By: /s/ Gerard M. Jacobs
-------------------------
Name: GERARD M. JACOBS
-----------------------
Title: President
----------------------
HOUTEX METALS COMPANY, INC.
By: /s/ Mike Melnik
-----------------------
Name: MIKE MELNIK
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Title: President
----------------------
/s/ Mike Melnik
____________________________
Mike Melnik
December 10, 1996
/s/ Sol Melnik
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Zalman (Sol) Melnik
/s/ Lea Melnik
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Lea Melnik
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CLEND INVESTMENT HOLDINGS LTD.
By: /s/ William Maycock
--------------------------
Name: WILLIAM MAYCOCK
------------------------
Title: Director
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EXHIBIT 10.1
GUARANTY
THIS GUARANTY is dated as of January 7, 1997, by GERARD M. JACOBS
("Jacobs"), T. BENJAMIN JENNINGS ("Jennings"), DONALD MOOREHEAD ("D.
Moorehead"), HAROLD RUBENSTEIN ("Rubenstein"), GEORGE MOOREHEAD ("G. Moorehead")
and RAYMOND ZACK ("Zack") (Jacobs, Jennings, D. Moorehead, Rubenstein, G.
Moorehead and Zack are hereinafter referred to individually as a "Guarantor")
and collectively as the "Guarantors") to and for the benefit of LASALLE NATIONAL
BANK, a national banking association ("Lender").
RECITALS:
A. Pursuant to the terms and conditions of a certain Loan Agreement of
even date herewith (the "Loan Agreement") by and among HouTex, Lender and Metal
Management, Inc., a Delaware corporation ("MMI"), Lender has agreed, among other
things, to loan to MMI the principal amount of $6,500,000 (the "Loan").
B. A condition precedent to Lender's extension of the Loan to MMI is
the execution and delivery of (i) this Guaranty, (ii) that certain Note of even
date herewith (the "Note") made by MMI and payable to the order of Lender to
evidence the Loan, and (iii) the other Loan Documents (as defined in the Loan
Agreement). All capitalized terms used herein which are not otherwise defined
shall have the meanings ascribed thereto in the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, each Guarantor hereby agrees as
follows:
1. GUARANTY OF PAYMENT. Each Guarantor hereby unconditionally and
irrevocably guaranties to Lender the punctual payment and performance when due,
whether at stated maturity or by acceleration or otherwise, of the indebtedness
and other obligations of MMI to Lender evidenced by the Note and any other
obligations or amounts that may become owing by MMI under the Loan Documents
(such indebtedness, obligations and other amounts are hereinafter referred to as
"MMI's Obligations"). Each Guarantor agrees that this Guaranty is a present and
continuing guaranty of payment and not of collectibility, and that Lender shall
not be required to prosecute collection, enforcement or other remedies against
MMI or any other guarantor of MMI's Obligations, or to enforce or resort to any
collateral for the repayment of MMI's Obligations or other rights or remedies
pertaining thereto, before calling on such Guarantor for payment. Each Guarantor
agrees that if for any reason MMI shall fail or be unable to pay, punctually and
fully, any of MMI's Obligations, such Guarantor shall pay such obligations to
Lender in full immediately upon demand. Each Guarantor agrees that one or more
successive actions may be brought against such Guarantor, as often as Lender
deems advisable, until all of MMI's Obligations are paid and performed in full.
2. REPRESENTATIONS AND WARRANTIES. The following shall constitute
representations and warranties of each Guarantor and each Guarantor hereby
acknowledges that Lender intends to make the Loan in reliance thereon:
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(a) Such Guarantor is not in default and no event has occurred
that with the passage of time and/or the giving of notice will
constitute a default under any agreement to which such Guarantor is a
party, the effect of which will impair performance by such Guarantor of
his or its respective obligations under this Guaranty. Neither the
execution and delivery of this Guaranty nor compliance with the terms
and provisions hereof will violate any applicable law, rule,
regulation, judgment, decree or order, or will conflict with or result
in any breach of any of the terms, covenants, conditions or provisions
of any indenture, mortgage, deed of trust, instrument, document,
agreement or contract of any kind that creates, represents, evidences
or provides for any lien, charge or encumbrance upon any of the
property or assets of such Guarantor, or any other indenture, mortgage,
deed of trust, instrument, document, agreement or contract of any kind
to which such Guarantor is a party or to which such Guarantor or the
property of such Guarantor may be subject.
(b) There is not any litigation, arbitration, governmental or
administrative proceedings, actions, examinations, claims or demands
pending, or to such Guarantor's knowledge, threatened that could
adversely affect performance by such Guarantor of his or its respective
obligations under this Guaranty.
(c) Neither this Guaranty nor any statement or certification
as to facts previously furnished or required herein to be furnished to
Lender by such Guarantor, contains any material inaccuracy or untruth
in any representation, covenant or warranty or omits to state a fact
material to this Guaranty.
3. CONTINUING GUARANTY. Each Guarantor agrees that the obligations of
such Guarantor pursuant to Section 1 above and any other provision of any of the
Loan Documents shall be primary obligations, shall not be subject to any
counterclaim, set-off, abatement, deferment or defense based upon any claim that
such Guarantor may have against Lender, MMI, any other guarantor of MMI's
Obligations or any other person or entity, and shall remain in full force and
effect without regard to, and shall not be released, discharged or affected in
any way by, any circumstance or condition (whether or not such Guarantor shall
have any knowledge thereof), including without limitation:
(a) any lack of validity or enforceability of the Note or any
of the other Loan Documents;
(b) any termination, amendment, modification or other change
in the Note or any of the other Loan Documents, including, without
limitation, any modification of the interest rate(s) described therein;
(c) any furnishing, exchange, substitution or release of any
collateral securing repayment of the Loan, or any failure to perfect
any lien in such collateral;
(d) any failure, omission or delay on the part of MMI, any
Guarantor, any other guarantor of MMI's Obligations or Lender to
conform or comply with any term of any of the
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Loan Documents or any failure of Lender to give notice of any Event of
Default (as defined in the Loan Agreement);
(e) any waiver, compromise, release, settlement or extension
of time of payment or performance or observance of any of the
obligations or agreements contained in the Note or any of the other
Loan Documents;
(f) any action or inaction by Lender under or in respect of
the Note or any of the other Loan Documents, any failure, lack of
diligence, omission or delay on the part of Lender to enforce, assert
or exercise any right, power or remedy conferred on it in the Note or
any of the other Loan Documents, or any other action or inaction on the
part of Lender;
(g) any voluntary or involuntary bankruptcy, insolvency,
reorganization, arrangement, readjustment, assignment for the benefit
of creditors, composition, receivership, liquidation, marshalling of
assets and liabilities or similar events or proceedings with respect to
MMI, any Guarantor or any other guarantor of MMI's Obligations, as
applicable, or any of their respective property or creditors, or any
action taken by any trustee or receiver or by any court in any such
proceeding;
(h) any merger or consolidation of MMI into or with any
entity, or any sale, lease or transfer of any of the assets of MMI, any
Guarantor or any other guarantor of MMI's Obligations to any other
person or entity;
(i) any change in the ownership of MMI or any change in the
relationship between MMI, any Guarantor or any other guarantor of MMI's
Obligations, or any termination of any such relationship;
(j) any release or discharge by operation of law of MMI or any
other guarantor of MMI's Obligations from any obligation or agreement
contained in any of the Loan Documents; or
(k) any other occurrence, circumstance, happening or event,
whether similar or dissimilar to the foregoing and whether foreseen or
unforeseen, which otherwise might constitute a legal or equitable
defense or discharge of the liabilities of a guarantor or surety or
which otherwise might limit recourse against MMI or any Guarantor.
4. WAIVERS. Each Guarantor unconditionally waives (i) notice of any of
the matters referred to in Section 3 above, (ii) all notices which may be
required by statute, rule of law or otherwise, now or hereafter in effect, to
preserve intact any rights against such Guarantor, including, without
limitation, any demand, presentment and protest, proof of notice of non-payment
under any of the Loan Documents and notice of any Event of Default or any
failure on the part of MMI, any Guarantor or any other guarantor of MMI's
Obligations to perform or comply with any covenant, agreement, term or condition
of any of the Loan Documents, (iii) any right to the enforcement, assertion or
exercise against MMI, any Guarantor or any other guarantor of MMI's Obligations
of any right or remedy conferred under any of the Loan Documents, (iv) any
requirement of diligence
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on the part of any person or entity, (v) to the fullest extent permitted by law
and except as otherwise expressly provided in this Guaranty or the other Loan
Documents, any claims based on allegations that Lender has failed to act in a
commercially reasonable manner, (vi) any requirement to exhaust any remedies or
to mitigate the damages resulting from any default under any of the Loan
Documents, and (vii) any notice of any sale, transfer or other disposition of
any right, title or interest of Lender under any of the Loan Documents.
5. SUBORDINATION. Each Guarantor agrees that any and all present and
future debts and obligations of MMI to such Guarantor hereby are subordinated to
the claims of Lender and hereby are assigned by such Guarantor to Lender as
security for MMI's Obligations and such Guarantor's obligations under this
Guaranty.
6. SUBROGATION WAIVER. Until MMI's Obligations are paid in full and all
periods under applicable bankruptcy law for the contest of any payment by any
Guarantor or MMI as a preferential or fraudulent payment have expired, each
Guarantor knowingly, and with advice of counsel, waives, relinquishes, releases
and abandons all rights and claims to indemnification, contribution,
reimbursement, subrogation and payment which such Guarantor may now or hereafter
have by and from MMI and the successors and assigns of MMI, for any payments
made by such Guarantor to Lender, including, without limitation, any rights
which might allow MMI, MMI's successors, a creditor of MMI, or a trustee in
bankruptcy of MMI to claim in bankruptcy or any other similar proceedings that
any payment made by MMI or MMI's successors and assigns to Lender was on behalf
of or for the benefit of such Guarantor and that such payment is recoverable by
MMI, a creditor or trustee in bankruptcy of MMI as a preferential payment,
fraudulent conveyance, payment of an insider or any other classification of
payment which may otherwise be recoverable from Lender.
7. REINSTATEMENT. The obligations of the Guarantors pursuant to this
Guaranty shall continue to be effective or automatically be reinstated, as the
case may be, if at any time payment of any of MMI's Obligations or the
Guarantors' obligations under this Guaranty is rescinded or otherwise must be
restored or returned by Lender upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of any Guarantor or MMI or otherwise, all as
though such payment had not been made.
8. FINANCIAL STATEMENTS. Each Guarantor hereby represents and warrants
to Lender that (a) the financial statements of such Guarantor previously
submitted to Lender are true, complete and correct in all material respects,
disclose all actual and contingent liabilities, and fairly present the financial
condition of such Guarantor, and do not contain any untrue statement of a
material fact or omit to state a fact material to the financial statements
submitted or this Guaranty and (b) no material adverse change has occurred in
the financial statements from the dates thereof until the date hereof. Each
Guarantor shall furnish to Lender financial statements in accordance with the
terms and conditions set forth in the Loan Agreement.
9. SUCCESSORS AND ASSIGNS; JOINT AND SEVERAL LIABILITIES. This Guaranty
shall inure to the benefit of Lender and its successors and assigns. This
Guaranty shall be binding on each
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Guarantor and the heirs, legatees, successors and assigns of such Guarantor. The
Guarantors shall be jointly and severally liable for the obligations set forth
in this Guaranty.
10. NO WAIVER OF RIGHTS. No delay or failure on the part of Lender to
exercise any right, power or privilege under this Guaranty or any of the other
Loan Documents shall operate as a waiver thereof, and no single or partial
exercise of any right, power or privilege shall preclude any other or further
exercise thereof or the exercise of any other power or right, or be deemed to
establish a custom or course of dealing or performance between the parties
hereto. The rights and remedies herein provided are cumulative and not exclusive
of any rights or remedies provided by law. No notice to or demand on any
Guarantor in any case shall entitle such Guarantor to any other or further
notice or demand in the same, similar or other circumstance.
11. MODIFICATION. The terms of this Guaranty may be waived, discharged,
or terminated only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought. No
amendment, modification, waiver or other change of any of the terms of this
Guaranty shall be effective without the prior written consent of Lender.
12. JOINDER. Each Guarantor agrees that any action to enforce this
Guaranty may be brought against such Guarantor without any joinder of MMI or any
other guarantor of MMI's Obligations in such action.
13. SEVERABILITY. In the event that any provision of this Guaranty is
deemed to be invalid by reason of the operation of law, or by reason of the
interpretation placed thereon by any administrative agency or any court, the
Guarantors and Lender shall negotiate an equitable adjustment in the provisions
of the same in order to effect, to the maximum extent permitted by law, the
purpose of this Guaranty and the validity and enforceability of the remaining
provisions, or portions or applications thereof, shall not be affected thereby
and shall remain in full force and effect.
14. APPLICABLE LAW. This Guaranty shall be governed as to validity,
interpretation, effect and in all other respects by laws and decisions of the
State of Illinois.
15. NOTICE. All notices, communications and waivers under this Guaranty
shall be in writing and shall be (i) delivered in person or (ii) mailed, postage
prepaid, either by registered or certified mail, return receipt requested, or
(iii) sent by overnight express carrier, addressed in each case as follows:
To Lender: LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Mr. James Tucker
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With copy to: Schwartz Cooper Greenberger & Krauss, Chtd.
180 North LaSalle Street, Suite 2700
Chicago, Illinois 60601
Attn: Martin I. Behn, Esq.
To any Guarantor: c/o Metal Management, Inc.
500 North Dearborn Street, Suite 405
Chicago, Illinois 60610
Attn: President
With copy to: Shefsky & Froelich, Ltd.
444 N. Michigan Avenue
Chicago, Illinois 60611
Attn: Erhard R. Chorle
or to any other address as to any of the parties hereto, as such party shall
designate in a written notice to the other party hereto. All notices sent
pursuant to the terms of this Section 15 shall be deemed received (i) if
personally delivered, then on the date of delivery, (ii) if sent by overnight,
express carrier, then on the next federal banking day immediately following the
day sent, or (iii) if sent by registered or certified mail, then on the earlier
of the third federal banking day following the day sent or when actually
received.
16. JURISDICTION AND VENUE. EACH GUARANTOR HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY SUCH GUARANTOR AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THIS GUARANTY, THE NOTE OR THE OTHER LOAN DOCUMENTS SHALL BE
LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR, IF LENDER INITIATES
SUCH ACTION, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION AND WHICH HAS
JURISDICTION. EACH GUARANTOR HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH
COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR
OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH GUARANTOR AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT
PURSUANT TO THIS GUARANTY. EACH GUARANTOR WAIVES ANY CLAIM THAT CHICAGO,
ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN
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<PAGE> 7
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD SUCH
GUARANTOR, AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY
LAW AFTER THE MAILING THEREOF, SUCH GUARANTOR SHALL BE DEEMED IN DEFAULT AND AN
ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER AGAINST SUCH GUARANTOR AS
DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE
EXCLUSIVE CHOICE OF FORUM FOR EACH GUARANTOR SET FORTH IN THIS SECTION SHALL NOT
BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN
ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN
ANY OTHER APPROPRIATE JURISDICTION, AND EACH GUARANTOR HEREBY WAIVES THE RIGHT,
IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
17. WAIVER OF RIGHT TO JURY TRIAL. LENDER AND EACH GUARANTOR
ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS GUARANTY,
THE NOTE OR THE OTHER LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES
AND THEREFORE, THE PARTIES AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY
SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, each Guarantor has executed this Guaranty as of the
date first above written.
/s/ Donald Moorehead
--------------------------
DONALD MOOREHEAD
/s/ Harold Rubenstein
--------------------------
HAROLD RUBENSTEIN
/s/ Gerard M. Jacobs /s/ G. O. Moorehead
- -------------------------- --------------------------
GERARD M. JACOBS GEORGE MOOREHEAD
/s/ T. Benjamin Jennings /s/ Raymond F. Zack
- -------------------------- --------------------------
T. BENJAMIN JENNINGS RAYMOND ZACK
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<PAGE> 1
EXHIBIT 10.2
GUARANTY
THIS GUARANTY is dated as of January 7, 1997, by METAL MANAGEMENT INC.,
a Delaware corporation ("MMI"), GERARD M. JACOBS ("Jacobs"), T. BENJAMIN
JENNINGS ("Jennings"), DONALD MOOREHEAD ("D. Moorehead"), HAROLD RUBENSTEIN
("Rubenstein"), GEORGE MOOREHEAD ("G. Moorehead") and RAYMOND ZACK ("Zack")
(MMI, Jacobs, Jennings, D. Moorehead, Rubenstein, G. Moorehead and Zack are
hereinafter referred to individually as a "Guarantor" and collectively as the
"Guarantors") to and for the benefit of LASALLE NATIONAL BANK, a national
banking association ("Lender").
RECITALS:
A. Pursuant to the terms and conditions of a certain Loan Agreement of
even date herewith (the "Loan Agreement") by and among MMI, Lender and HouTex
Metals Company, Inc., a Texas corporation ("HouTex"), Lender has agreed, among
other things, to make available to HouTex a working capital line of credit in
the maximum principal amount of $3,500,000 (any and all amounts drawn by HouTex
under said working capital line of credit are hereinafter collectively referred
to as the "Loan").
B. A condition precedent to Lender's extension of the Loan to HouTex is
the execution and delivery of (i) this Guaranty, (ii) that certain Note of even
date herewith (the "Note") made by HouTex and payable to the order of Lender to
evidence the Loan, and (iii) the other Loan Documents (as defined in the Loan
Agreement). All capitalized terms used herein which are not otherwise defined
shall have the meanings ascribed thereto in the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, each Guarantor hereby agrees as
follows:
1. GUARANTY OF PAYMENT. Each Guarantor hereby unconditionally and
irrevocably guaranties to Lender the punctual payment and performance when due,
whether at stated maturity or by acceleration or otherwise, of the indebtedness
and other obligations of HouTex to Lender evidenced by the Note and any other
obligations or amounts that may become owing by HouTex under the Loan Documents
(such indebtedness, obligations and other amounts are hereinafter referred to as
"HouTex's Obligations"). Each Guarantor agrees that this Guaranty is a present
and continuing guaranty of payment and not of collectibility, and that Lender
shall not be required to prosecute collection, enforcement or other remedies
against HouTex or any other guarantor of HouTex's Obligations, or to enforce or
resort to any collateral for the repayment of HouTex's Obligations or other
rights or remedies pertaining thereto, before calling on such Guarantor for
payment. Each Guarantor agrees that if for any reason HouTex shall fail or be
unable to pay, punctually and fully, any of HouTex's Obligations, such Guarantor
shall pay such obligations to Lender in full immediately upon demand. Each
Guarantor agrees that one or more successive actions may be brought against such
Guarantor, as often as Lender deems advisable, until all of HouTex's Obligations
are paid and performed in full.
2. REPRESENTATIONS AND WARRANTIES. The following shall constitute
representations and warranties of each Guarantor and each Guarantor hereby
acknowledges that Lender intends to make the Loan in reliance thereon:
<PAGE> 2
(a) Such Guarantor is not in default and no event has occurred
that with the passage of time and/or the giving of notice will
constitute a default under any agreement to which such Guarantor is a
party, the effect of which will impair performance by such Guarantor of
his or its respective obligations under this Guaranty. Neither the
execution and delivery of this Guaranty nor compliance with the terms
and provisions hereof will violate any applicable law, rule,
regulation, judgment, decree or order, or will conflict with or result
in any breach of any of the terms, covenants, conditions or provisions
of any indenture, mortgage, deed of trust, instrument, document,
agreement or contract of any kind that creates, represents, evidences
or provides for any lien, charge or encumbrance upon any of the
property or assets of such Guarantor, or any other indenture, mortgage,
deed of trust, instrument, document, agreement or contract of any kind
to which such Guarantor is a party or to which such Guarantor or the
property of such Guarantor may be subject.
(b) There is not any litigation, arbitration, governmental or
administrative proceedings, actions, examinations, claims or demands
pending, or to such Guarantor's knowledge, threatened that could
adversely affect performance by such Guarantor of his or its respective
obligations under this Guaranty.
(c) Neither this Guaranty nor any statement or certification
as to facts previously furnished or required herein to be furnished to
Lender by such Guarantor, contains any material inaccuracy or untruth
in any representation, covenant or warranty or omits to state a fact
material to this Guaranty.
3. CONTINUING GUARANTY. Each Guarantor agrees that the obligations of
such Guarantor pursuant to Section 1 above and any other provision of any of the
Loan Documents shall be primary obligations, shall not be subject to any
counterclaim, set-off, abatement, deferment or defense based upon any claim that
such Guarantor may have against Lender, HouTex, any other guarantor of HouTex's
Obligations or any other person or entity, and shall remain in full force and
effect without regard to, and shall not be released, discharged or affected in
any way by, any circumstance or condition (whether or not such Guarantor shall
have any knowledge thereof), including without limitation:
(a) any lack of validity or enforceability of the Note or any
of the other Loan Documents;
(b) any termination, amendment, modification or other change
in the Note or any of the other Loan Documents, including, without
limitation, any modification of the interest rate(s) described therein;
(c) any furnishing, exchange, substitution or release of any
collateral securing repayment of the Loan, or any failure to perfect
any lien in such collateral;
(d) any failure, omission or delay on the part of HouTex, any
Guarantor, any other guarantor of HouTex's Obligations or Lender to
conform or comply with any term of any of the Loan Documents or any
failure of Lender to give notice of any Event of Default (as defined in
the Loan Agreement);
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<PAGE> 3
(e) any waiver, compromise, release, settlement or extension
of time of payment or performance or observance of any of the
obligations or agreements contained in the Note or any of the other
Loan Documents;
(f) any action or inaction by Lender under or in respect of
the Note or any of the other Loan Documents, any failure, lack of
diligence, omission or delay on the part of Lender to enforce, assert
or exercise any right, power or remedy conferred on it in the Note or
any of the other Loan Documents, or any other action or inaction on the
part of Lender;
(g) any voluntary or involuntary bankruptcy, insolvency,
reorganization, arrangement, readjustment, assignment for the benefit
of creditors, composition, receivership, liquidation, marshalling of
assets and liabilities or similar events or proceedings with respect to
HouTex, any Guarantor or any other guarantor of HouTex's Obligations,
as applicable, or any of their respective property or creditors, or any
action taken by any trustee or receiver or by any court in any such
proceeding;
(h) any merger or consolidation of HouTex into or with any
entity, or any sale, lease or transfer of any of the assets of HouTex,
any Guarantor or any other guarantor of HouTex's Obligations to any
other person or entity;
(i) any change in the ownership of HouTex or any change in the
relationship between HouTex, any Guarantor or any other guarantor of
HouTex's Obligations, or any termination of any such relationship;
(j) any release or discharge by operation of law of HouTex or
any other guarantor of HouTex's Obligations from any obligation or
agreement contained in any of the Loan Documents; or
(k) any other occurrence, circumstance, happening or event,
whether similar or dissimilar to the foregoing and whether foreseen or
unforeseen, which otherwise might constitute a legal or equitable
defense or discharge of the liabilities of a guarantor or surety or
which otherwise might limit recourse against HouTex or any Guarantor.
4. WAIVERS. Each Guarantor unconditionally waives (i) notice of any of
the matters referred to in Section 3 above, (ii) all notices which may be
required by statute, rule of law or otherwise, now or hereafter in effect, to
preserve intact any rights against such Guarantor, including, without
limitation, any demand, presentment and protest, proof of notice of non-payment
under any of the Loan Documents and notice of any Event of Default or any
failure on the part of HouTex, any Guarantor or any other guarantor of HouTex's
Obligations to perform or comply with any covenant, agreement, term or condition
of any of the Loan Documents, (iii) any right to the enforcement, assertion or
exercise against HouTex, any Guarantor or any other guarantor of HouTex's
Obligations of any right or remedy conferred under any of the Loan Documents,
(iv) any requirement of diligence on the part of any person or entity, (v) to
the fullest extent permitted by law and except as otherwise expressly provided
in this Guaranty or the other Loan Documents, any claims based on allegations
that Lender has failed to act in a commercially reasonable manner, (vi) any
requirement to exhaust any remedies or to mitigate the damages resulting from
any default under any of the Loan
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<PAGE> 4
Documents, and (vii) any notice of any sale, transfer or other disposition of
any right, title or interest of Lender under any of the Loan Documents.
5. SUBORDINATION. Each Guarantor agrees that any and all present and
future debts and obligations of HouTex to such Guarantor hereby are subordinated
to the claims of Lender and hereby are assigned by such Guarantor to Lender as
security for HouTex's Obligations and such Guarantor's obligations under this
Guaranty.
6. SUBROGATION WAIVER. Until HouTex's Obligations are paid in full and
all periods under applicable bankruptcy law for the contest of any payment by
any Guarantor or HouTex as a preferential or fraudulent payment have expired,
each Guarantor knowingly, and with advice of counsel, waives, relinquishes,
releases and abandons all rights and claims to indemnification, contribution,
reimbursement, subrogation and payment which such Guarantor may now or hereafter
have by and from HouTex and the successors and assigns of HouTex, for any
payments made by such Guarantor to Lender, including, without limitation, any
rights which might allow HouTex, HouTex's successors, a creditor of HouTex, or a
trustee in bankruptcy of HouTex to claim in bankruptcy or any other similar
proceedings that any payment made by HouTex or HouTex's successors and assigns
to Lender was on behalf of or for the benefit of such Guarantor and that such
payment is recoverable by HouTex, a creditor or trustee in bankruptcy of HouTex
as a preferential payment, fraudulent conveyance, payment of an insider or any
other classification of payment which may otherwise be recoverable from Lender.
7. REINSTATEMENT. The obligations of the Guarantors pursuant to this
Guaranty shall continue to be effective or automatically be reinstated, as the
case may be, if at any time payment of any of HouTex's Obligations or the
Guarantors' obligations under this Guaranty is rescinded or otherwise must be
restored or returned by Lender upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of any Guarantor or HouTex or otherwise, all as
though such payment had not been made.
8. FINANCIAL STATEMENTS. Each Guarantor hereby represents and warrants
to Lender that (a) the financial statements of such Guarantor previously
submitted to Lender are true, complete and correct in all material respects,
disclose all actual and contingent liabilities, and fairly present the financial
condition of such Guarantor, and do not contain any untrue statement of a
material fact or omit to state a fact material to the financial statements
submitted or this Guaranty and (b) no material adverse change has occurred in
the financial statements from the dates thereof until the date hereof. Each
Guarantor shall furnish to Lender financial statements in accordance with the
terms and conditions set forth in the Loan Agreement.
9. SUCCESSORS AND ASSIGNS; JOINT AND SEVERAL LIABILITIES. This Guaranty
shall inure to the benefit of Lender and its successors and assigns. This
Guaranty shall be binding on each Guarantor and the heirs, legatees, successors
and assigns of such Guarantor. The Guarantors shall be jointly and severally
liable for the obligations set forth in this Guaranty.
10. NO WAIVER OF RIGHTS. No delay or failure on the part of Lender to
exercise any right, power or privilege under this Guaranty or any of the other
Loan Documents shall operate as a waiver thereof, and no single or partial
exercise of any right, power or privilege shall preclude any other or
- 4 -
<PAGE> 5
further exercise thereof or the exercise of any other power or right, or be
deemed to establish a custom or course of dealing or performance between the
parties hereto. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law. No notice to or demand on
any Guarantor in any case shall entitle such Guarantor to any other or further
notice or demand in the same, similar or other circumstance.
11. MODIFICATION. The terms of this Guaranty may be waived, discharged,
or terminated only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought. No
amendment, modification, waiver or other change of any of the terms of this
Guaranty shall be effective without the prior written consent of Lender.
12. JOINDER. Each Guarantor agrees that any action to enforce this
Guaranty may be brought against such Guarantor without joinder of HouTex or any
other guarantor of HouTex's Obligations in such action.
13. SEVERABILITY. In the event that any provision of this Guaranty is
deemed to be invalid by reason of the operation of law, or by reason of the
interpretation placed thereon by any administrative agency or any court, the
Guarantors and Lender shall negotiate an equitable adjustment in the provisions
of the same in order to effect, to the maximum extent permitted by law, the
purpose of this Guaranty and the validity and enforceability of the remaining
provisions, or portions or applications thereof, shall not be affected thereby
and shall remain in full force and effect.
14. APPLICABLE LAW. This Guaranty shall be governed as to validity,
interpretation, effect and in all other respects by laws and decisions of the
State of Illinois.
15. NOTICE. All notices, communications and waivers under this Guaranty
shall be in writing and shall be (i) delivered in person or (ii) mailed, postage
prepaid, either by registered or certified mail, return receipt requested, or
(iii) sent by overnight express carrier, addressed in each case as follows:
To Lender: LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Mr. James Tucker
With copy to: Schwartz Cooper Greenberger & Krauss, Chtd.
180 North LaSalle Street, Suite 2700
Chicago, Illinois 60601
Attn: Martin I. Behn, Esq.
To any Guarantor: c/o Metal Management, Inc.
500 North Dearborn Street, Suite 405
Chicago, Illinois 60610
Attn: President
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<PAGE> 6
With copy to: Shefsky & Froelich, Ltd.
444 North Michigan Avenue
Chicago, Illinois 60611
Attn: Erhard R. Chorle
or to any other address as to any of the parties hereto, as such party shall
designate in a written notice to the other party hereto. All notices sent
pursuant to the terms of this Section 15 shall be deemed received (i) if
personally delivered, then on the date of delivery, (ii) if sent by overnight,
express carrier, then on the next federal banking day immediately following the
day sent, or (iii) if sent by registered or certified mail, then on the earlier
of the third federal banking day following the day sent or when actually
received.
16. JURISDICTION AND VENUE. EACH GUARANTOR HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY SUCH GUARANTOR AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THIS GUARANTY, THE NOTE OR THE OTHER LOAN DOCUMENTS SHALL BE
LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS OR, IF LENDER INITIATES
SUCH ACTION, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH ACTION AND WHICH HAS
JURISDICTION. EACH GUARANTOR HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH
COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR
OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH GUARANTOR AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT
PURSUANT TO THIS GUARANTY. EACH GUARANTOR WAIVES ANY CLAIM THAT CHICAGO,
ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD SUCH GUARANTOR, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO
SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF,
SUCH GUARANTOR SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE
ENTERED BY LENDER AGAINST SUCH GUARANTOR AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR EACH
GUARANTOR SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE
TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION, AND EACH GUARANTOR HEREBY WAIVES THE RIGHT, IF ANY, TO
COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
17. WAIVER OF RIGHT TO JURY TRIAL. LENDER AND EACH GUARANTOR
ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS GUARANTY,
THE NOTE OR THE OTHER LOAN DOCUMENTS OR WITH
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<PAGE> 7
RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY COURT
PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, each Guarantor has executed this Guaranty as of the
date first above written.
METAL MANAGEMENT, INC., a
Delaware corporation
By: /s/ Gerard M. Jacobs
----------------------------
Title: President
-------------------------
/s/ Gerard M. Jacobs
- -------------------------------
GERARD M. JACOBS
/s/ T. Benjamin Jennings
- ------------------------------
T. BENJAMIN JENNINGS
/s/ Donald Moorehead
- -----------------------------
DONALD MOOREHEAD
/s/ Harold Rubenstein
- -----------------------------
HAROLD RUBENSTEIN
/s/ G. O. Moorehead
- -----------------------------
GEORGE MOOREHEAD
/s/ Raymond F. Zack
- -----------------------------
RAYMOND ZACK
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<PAGE> 1
EXHIBIT 10.3
LOAN AGREEMENT
AMONG
METAL MANAGEMENT, INC.,
a Delaware corporation,
HOUTEX METALS COMPANY, INC.,
a Texas corporation
AND
LASALLE NATIONAL BANK,
a national banking association
<PAGE> 2
TABLE OF CONTENTS
1. DEFINITIONS AND DETERMINATIONS..............................1
1.1 Definitions........................................1
1.1 Time Periods.......................................9
1.2 Accounting Terms...................................9
1.3 References........................................10
1.4 Lender's Discretion...............................10
1.5 Borrower's Knowledge..............................10
2. LOANS AND TERMS OF PAYMENT.................................10
2.1 Revolving Loan....................................10
2.1.1 Amount..........................10
2.1.2 Procedure for Borrowing.........10
2.1.3 Interest Payments...............11
2.1.4 Principal Payment 11
2.1.5 Revolver Note...................11
2.1.6 Use of Proceeds of Revolver.....11
2.1.7 Mandatory Prepayment............11
2.2 Term Loan.........................................11
2.2.1 Amount of Term Loan.............11
2.2.3 Term Note.......................11
2.3 General Interest Provisions.......................12
2.3.1 Interest Rate...................12
2.3.2 Interest Computation............12
2.3.3 Maximum Interest................12
2.4 Prepayments.......................................12
2.4.1 No Premiums.....................12
2.4.2 Payment of Additional Sums......12
2.5 Default Rate......................................12
2.6 Method of Payment; Good Funds.....................12
2.7 Extension Right...................................13
2.8 Loan Fee..........................................13
CONDITIONS OF FUNDING...............................................13
3.1 Title to Collateral...............................13
3.2 Delivery of Instruments...........................14
3.3 Lender's Security Interests.......................14
3.4 Proceedings and Documents.........................14
3.5 Representations and Warranties....................14
3.6 Performance; No Default...........................14
3.7 Material Adverse Effect...........................14
3.8 Use of Assets.....................................14
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<TABLE>
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4. REPRESENTATIONS AND WARRANTIES............................................................................ 15
4.1 MMI.............................................................................................. 15
4.2 HouTex........................................................................................... 15
4.3 Authority........................................................................................ 15
4.4 Necessary Assets................................................................................. 15
4.5 Binding Agreements............................................................................... 15
4.6 Business and Properties of the Borrowers......................................................... 15
4.6.1 Business Activity.............................................................. 15
4.6.2 Operating Agreements........................................................... 16
4.6.3 Business Sites................................................................. 16
4.6.4 Operation and Maintenance of Equipment......................................... 16
4.7 Title to Property; Liens......................................................................... 16
4.9 Financial Statements............................................................................. 16
4.10 Litigation....................................................................................... 16
4.11 Conflicting Agreements........................................................................... 17
4.12 Taxes of Borrowers............................................................................... 17
4.13 Compliance with Applicable Laws.................................................................. 17
4.14 Patents, Trademarks, Franchises, Agreements...................................................... 17
4.15 Environmental Matters............................................................................ 17
4.16 Application of Certain Laws and Regulations...................................................... 17
4.16.1 Investment Company Act......................................................... 17
4.16.2 Holding Company Act............................................................ 17
4.16.3 Regulations as to Borrowing.................................................... 18
4.17 Margin Regulations............................................................................... 18
4.18 No Misrepresentation............................................................................. 18
4.19 Burdensome Obligations........................................................................... 18
4.20 Employee Benefit Plans........................................................................... 18
4.21 Employee Matters................................................................................. 19
4.22 Eligible Inventory............................................................................... 19
4.23 Eligible Accounts................................................................................ 19
4.24 Bailment Relationships. ........................................................................ 20
4.25 Owned and Leased Property........................................................................ 20
5. AFFIRMATIVE COVENANTS..................................................................................... 20
5.1 Legal Existence; Good Standing................................................................... 20
5.2 Inspection of Books and Records.................................................................. 20
5.3 Inspection of Collateral......................................................................... 20
5.4 Financial Statements and Other Information....................................................... 20
5.4.1 Annual Statements.............................................................. 21
5.4.2 Monthly Statements............................................................. 21
5.4.3 Notice of Defaults; Loss....................................................... 21
5.4.4 Notice of Suits, Adverse Events................................................ 21
5.4.5 Reports to Security Holders, Creditors and Governmental Bodies................. 22
5.4.6 Other Information.............................................................. 22
5.5 Reports to Governmental Bodies and Other Persons................................................. 22
</TABLE>
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5.6 Borrowing Base Certificate; Accounts Aging Report........22
5.7 Shareholders.............................................22
5.8 Maintenance of Licenses, Franchises, Agreements..........22
5.9 Insurance................................................23
5.10 Future Leases............................................23
5.11 Environmental Matters....................................23
6. NEGATIVE COVENANTS................................................23
6.1 Liens....................................................23
6.2 Distributions............................................23
6.3 Amendments of Agreements.................................24
6.4 Fundamental Business Changes.............................24
6.5 Sale or Transfer of Assets...............................24
6.6 Payments on Certain Indebtedness.........................24
6.7 Amendment of Corporate Documents.........................24
6.8 Compliance with ERISA....................................24
7. DEFAULT AND REMEDIES..............................................24
7.1 Events of Default........................................24
7.1.1 Default in Payment.....................24
7.1.2 Breach of Covenants....................25
7.1.3 Breach of Representation...............25
7.1.4 Acceleration of any Indebtedness.......25
7.1.5 Bankruptcy.............................25
7.1.6 Judgments..............................26
7.1.7 Impairment of Operating Agreements.....26
7.2 Events of Default........................................26
7.2.1 Default in Payment.....................26
7.2.2 Breach of Covenants....................26
7.2.3 Breach of Representation...............27
7.2.4 Acceleration of any Indebtedness.......27
7.2.5 Bankruptcy.............................27
7.2.6 Judgments..............................28
7.2.7 Impairment of Operating Agreements.....28
7.3 Acceleration of Borrowers' Obligations Owing by MMI......28
7.4 Acceleration of Borrowers' Obligations Owing by HouTex...29
7.5 Remedies on Default......................................29
7.6 Application of Funds to MMI Obligations..................29
7.6.1 Expenses...............................29
7.6.2 Borrowers' Obligations.................29
7.6.3 Surplus................................29
7.7 Application of Funds to HouTex Obligations...............29
7.7.1 Expenses...............................30
7.7.2 Borrowers' Obligations.................30
7.7.3 Surplus................................30
<PAGE> 5
<TABLE>
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8. CLOSING................................................................................................... 30
9. EXPENSES AND INDEMNITY.................................................................................... 30
9.1 Attorneys' Fees and Other Fees and Expenses...................................................... 30
9.1.1 Fees and Expenses for Preparation of Loan Documents............................ 30
9.1.2 Fees and Expenses in Enforcement of Rights or Defense of Loan Documents........ 30
9.2 Indemnity...................................................................... 31
9.2.1 Brokerage Fees................................................................. 31
9.2.2 Securities Violations.......................................................... 31
9.2.3 Operation of Collateral; Joint Venturers....................................... 31
10. MISCELLANEOUS............................................................................................. 31
10.1 Notices.......................................................................................... 31
10.2 Survival of Loan Agreement....................................................................... 33
10.3 Further Assurance................................................................................ 33
10.4 Taxes and Fees................................................................................... 33
10.5 Severability..................................................................................... 33
10.6 Waiver........................................................................................... 33
10.7 Modification of Loan Documents................................................................... 33
10.8 Captions......................................................................................... 33
10.9 Sale of Interest................................................................................. 33
10.10 Successors and Assigns 34
10.11 Remedies Cumulative..................................................................... 34
10.12 Entire Agreement........................................................................ 34
10.13 APPLICABLE LAW.......................................................................... 34
10.14 JURISDICTION AND VENUE.................................................................. 34
10.15 WAIVER OF RIGHT TO JURY TRIAL........................................................... 35
</TABLE>
<PAGE> 6
LOAN AGREEMENT
THIS LOAN AGREEMENT is dated as of January 7, 1997, by and among METAL
MANAGEMENT, INC., a Delaware corporation ("MMI"), HOUTEX METALS COMPANY, INC., a
Texas corporation ("HouTex") (jointly, the "Borrowers"), and LASALLE NATIONAL
BANK, a national banking association ("Lender").
RECITALS:
A. MMI desires to obtain a $6,500,000 term loan from Lender to provide
funds to MMI to acquire certain entities currently engaged in businesses related
to the business of MMI, including HouTex, and to provide MMI with necessary
working capital.
B. HouTex desires to obtain a $3,500,000 revolving line of credit from
Lender to refinance certain existing indebtedness of HouTex and to provide
HouTex with necessary working capital.
C. Lender is willing to make such loans subject to the terms and
conditions set forth herein.
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS AND DETERMINATIONS.
1.1 Definitions. As used in this Loan Agreement and in the other Loan
Documents, unless otherwise expressly indicated herein or therein, the following
terms shall have the following meanings (such meanings to be applicable equally
both to the singular and plural terms defined):
Accountants: any independent certified public accounting firm
selected by the Borrowers and reasonably satisfactory to Lender.
Accounts: all of HouTex's now existing or hereafter arising or
acquired accounts receivable, chattel paper, contract rights, letters
of credit, instruments, documents and all other rights to payment,
however created, including, without limitation, any right to payment
for goods sold or leased or for services rendered, whether arising out
of the sale of inventory or otherwise and whether or not it has been
earned by performance, and any and all notes, drafts, acceptances,
general intangibles and other obligations arising out of or
representing a right to payment, however created.
Affiliate: any Person that directly or indirectly, through one
or more intermediaries, controls or is controlled by or is under common
control with another Person. The term "control" means possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. For the
purposes hereof, any Person which owns
<PAGE> 7
or controls, directly or indirectly, 10% or more of the voting
securities of another Person shall be deemed to "control" such Person.
Borrowing Base: at any time and subject to change from time to
time in Lender's reasonable discretion following notice to Borrower,
the sum of (i) 90% of Eligible Accounts, plus (ii) 65% of the Value of
Eligible Inventory.
Borrowing Base Certificate: a certificate of HouTex in a form
satisfactory to Lender summarizing the Eligible Accounts and Eligible
Inventory and including (a) a calculation of the Borrowing Base,
together with any supporting documentation requested by Lender, and (b)
a certified statement by the chief financial officer or president of
HouTex that (i) to the best knowledge of such Person, no HouTex Event
of Default or any other event or condition that, with the giving of
notice or the lapse of time, or both, would become a HouTex Event of
Default then exists, and (ii) the representations and warranties
pertaining to HouTex set forth in this Loan Agreement are true and
correct in all material respects as of the date of such certificate as
though remade on such date.
Borrowers' Obligations: (i) any and all Indebtedness due or to
become due, now existing or howsoever arising of the Borrowers to
Lender pursuant to the terms of this Loan Agreement or the other Loan
Documents, and (ii) the performance of the covenants of the Borrowers
contained in this Loan Agreement and the other Loan Documents.
Business Day: any day other than a Saturday, Sunday or other
day on which Lender is closed.
Capital Expenditures: payments which are made by a Borrower
for the lease, purchase, improvement, construction or use of any
property, the value or cost of which under GAAP is required to be
capitalized and appear on such Borrower's balance sheet in the category
of property, plant or equipment, without regard to the manner in which
such payments or the instrument pursuant to which such payments are
made is characterized by such Borrower or any other Person, and shall
include, without limitation, payments for the installment purchase of
property and payments under Capitalized Leases.
Capitalized Leases: any lease of Property, the obligations for
the rental of which are required to be capitalized in accordance with
GAAP.
CERCLA: the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time (42 USC Section
1802 et seq.)
Closing: as defined in Section 8 below.
Closing Date: as defined in Section 8 below.
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<PAGE> 8
Code: the Internal Revenue Code of 1986, as amended, and any
successor statute thereto, and the rules and regulations issued
thereunder, as in effect from time to time.
Collateral: the Property in which Lender is granted the
Security Interests pursuant to the Loan Documents.
Default: any event or condition that, with the giving of
notice or the lapse of time, or both, would become an Event of Default.
Default Rate: 4% plus the Prime Rate in effect from time to
time.
Default Period: a period of time commencing on the date that
an Event of Default has occurred and ending on the date that such Event
of Default is cured or waived.
Eligible Account: any Account of HouTex that satisfies all of
the following requirements:
(i) such Account has been earned from the final
delivery of goods or services to an account debtor located
within the United States of America;
(ii) such Account is a valid, binding and legally
enforceable obligation of the account debtor obligated thereon
and such account debtor is not (a) an Affiliate of HouTex, (b)
a shareholder, director, officer or employee of HouTex, (c) a
debtor under any proceeding under the United States Bankruptcy
Code or any other comparable bankruptcy or insolvency law, or
(d) an assignor for the benefit of creditors;
(iii) such Account, if owed by the United States of
America or any department, agency or instrumentality thereof,
has been validly assigned by HouTex as collateral security to
Lender for the benefit of Lender in full compliance with the
Assignment of Claims Act of 1940, as amended, and with all
other laws, rules, and contractual provisions which may be
applicable to the assignment of such Account;
(iv) such Account is assignable and, if evidenced by
an instrument or chattel paper, the same has been endorsed and
delivered to Lender;
(v) such Account is subject to a perfected, first
priority Lien in favor of Lender and is free and clear of any
other Lien other than Permitted Liens;
(vi) such Account is net of any credit or allowance
given by HouTex to the account debtor obligated thereon and
such Account is not subject to any asserted offset,
counterclaim or other defense with respect thereto which has
not been waived or released by the account debtor or dismissed
or denied by a court having jurisdiction over such asserted
offset, counterclaim or other defense;
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<PAGE> 9
(vii) such Account does not arise from a sale to an
account debtor on a bill-and-hold, guaranteed sale,
sale-or-return, sale-on-approval, consignment or any other
repurchase or return basis as to which such account debtor's
rights to such repurchase or return have not expired or been
waived;
(viii) such Account is evidenced by an invoice or
other comparable record dated not later than five Business
Days after the date of completion of services or shipment of
the goods shipped pursuant to such invoice or other record;
(ix) such Account is not unpaid in whole or in part
more than 90 days after its original invoice date;
(x) such Account is not owing by an account debtor
which has currently failed to pay in full 25% or more of the
other Accounts owing by such account debtor to HouTex within
90 days after the due date of such other Accounts;
(xi) such Account is payable in U.S. dollars; and
(xii) such Account has not otherwise been deemed
ineligible by Lender in its reasonable discretion.
An Account which is at any time an Eligible Account, but which
subsequently fails to meet any of the foregoing requirements, shall, at
the option of Lender, cease to be an Eligible Account.
Eligible Inventory: any Inventory that satisfies all of the
following requirements:
(i) such Inventory does not constitute an Eligible
Account;
(ii) such Inventory has not been acquired by HouTex
on consignment;
(iii) if such Inventory has been placed out on
consignment by HouTex, then not less than 30 days prior to
placing such Inventory on consignment, HouTex shall have: (A)
obtained Lender's written consent to the identity of the
consignee, the location of the consignment, and the form of
agreement upon which the Inventory was consigned, (B) filed
informational financing statements in such forms and locations
as Lender may require memorializing HouTex's ownership of the
Inventory, and (C) taken all other action reasonably required
by Lender, including marking the Inventory as consigned goods,
in order to evidence HouTex's continuing interest in the
Inventory;
(iv) such Inventory is not obsolete and is of good
and merchantable quality, free from any defects which might
adversely affect the market value thereof;
4
<PAGE> 10
(v) such Inventory is located at facilities owned or
leased by HouTex and listed on Exhibit A, or stored in the
warehouses listed on Exhibit A (provided that Lender has
previously received a warehousemen's estoppel letter with
respect to such location, in form and substance acceptable to
Lender), or located or stored at such additional locations as
are hereafter approved in writing by Lender, or such Inventory
is in transit to a customer of HouTex in the ordinary course
of HouTex's business (or has not yet been off loaded from the
barge on which such Inventory has been transported to such
customer);
(vi) such Inventory was not produced in violation of
applicable laws;
(vii) such Inventory is owned by HouTex and is
subject to a perfected, first priority Lien of Lender and is
not subject to any other Lien except Permitted Liens; and
(viii) such Inventory has not otherwise been deemed
ineligible by Lender in its reasonable discretion.
Any Inventory of HouTex which is at any time Eligible Inventory, but
which subsequently fails to meet any of the foregoing requirements,
shall, at Lender's option, cease to be Eligible Inventory.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations issued thereunder, as in effect
from time to time.
Extended Maturity Date: September 30, 1997.
Extension Notice: as defined in Section 2.7 below.
Extension Right: as defined in Section 2.7 below.
Event of Default: any MMI Event of Default or HouTex Event of
Default set forth in Section 7 below.
GAAP: generally accepted accounting principles as in effect
from time to time, which shall include the official interpretations
thereof by the Financial Accounting Standards Board, consistently
applied.
Good Funds: United States Dollars available to Lender in
federal funds at or before 12:00 noon Chicago time on a Business Day.
Governmental Body: any foreign, federal, state, municipal or
other government, or any department, commission, board, bureau, agency,
public authority or instrumentality thereof or any court or arbitrator.
5
<PAGE> 11
Guarantees: the MMI Guaranty and the HouTex Guaranty.
Hazardous Materials: any hazardous, toxic or dangerous waste,
substance or material defined as such in or for purposes of CERCLA and
all other applicable federal, state or local laws, ordinances and
regulations referred to in Section 5.11.
HouTex Event of Default: as defined in Section 7.2 below.
HouTex Guaranty: that certain Guaranty of even date herewith
made by the Individual Guarantors and MMI for the benefit of Lender
pursuant to which the Individual Guarantors and MMI have guaranteed the
repayment of the obligations of HouTex under the Loan Documents.
Indebtedness: all liabilities, obligations and reserves,
contingent or otherwise, which, in accordance with GAAP, would be
reflected as a liability on a balance sheet or would be required to be
disclosed in a financial statement, including, without duplication: (i)
all Indebtedness for Borrowed Money, (ii) all obligations under
conditional sales or other title retention agreements, (iii) all
obligations secured by any Lien upon Property, and (iv) all guaranties
and other contingent obligations, including, without limitation,
letters of credit.
Indebtedness for Borrowed Money: without duplication, all
Indebtedness (i) in respect of money borrowed, (ii) evidenced by a
note, debenture or other like written obligation to pay money, (iii) in
respect of rent or hire of Property under Capitalized Leases or for the
deferred purchase price of Property or (iv) in respect of obligations
under conditional sales or other title retention agreements, and all
guaranties of any and all of the foregoing.
Individual Guarantors: Gerard M. Jacobs, T. Benjamin Jennings,
Donald Moorehead, Harold Rubenstein, George Moorehead and Raymond Zack.
Inventory: all goods which are held by HouTex for sale or
lease, or which are to be furnished under contracts for service, or
which are raw materials, work-in-process, finished goods, materials or
supplies used or usable in connection with the manufacture, processing,
supply, servicing, storing, packing, shipping, advertising, selling,
leasing or furnishing of such goods by HouTex and any constituents
thereof and properly classified as inventory for purposes of GAAP.
Lien: any mortgage, pledge, assignment, lien, charge,
encumbrance or security interest of any kind, or the interest of a
vendor or lessor under any conditional sale agreement, Capitalized
Lease, or other title retention agreement.
Loans: the Revolver and the Term Loan.
Loan Agreement: this Loan Agreement and any amendments or
supplements hereto.
6
<PAGE> 12
Loan Documents: this Loan Agreement, the Notes, the Security
Agreement, the Guarantees, appropriate Uniform Commercial Code
Financing Statements, and such other instruments and documents as
Lender may require to evidence and/or perfect the Security Interests.
Material Adverse Effect: any changes or effects pertaining to
a Borrower that individually or in the aggregate are or can reasonably
be expected to be materially adverse to (i) the assets, business,
operations, income, prospects or condition (financial or otherwise) of
such Borrower, or (ii) the ability of such Borrower to fulfill any
covenants or to perform any of its obligations under this Loan
Agreement or the other Loan Documents.
Maturity Date: June 30, 1997.
Maximum Revolving Loan Amount: at any time, the lesser of (i)
the Borrowing Base at such time, or (ii) $3,500,000.
MMI Event of Default: as defined in Section 7.1 below.
MMI Guaranty: that certain Guaranty of even date herewith made
by the Individual Guarantors for the benefit of Lender pursuant to
which the Individual Guarantors have guaranteed the repayment of the
obligations of MMI under the Loan Documents.
Notes: the Revolver Note and the Term Note.
Operating Agreement: any site lease, equipment lease, or other
agreement relating to the operation of the business of a Borrower.
Operating Lease: any lease which, under GAAP, is not required
to be capitalized.
PBGC: the Pension Benefit Guaranty Corporation or any
Governmental Body succeeding to the functions thereof.
Permitted Liens: any of the following Liens:
(i) the Security Interests;
(ii) Liens for taxes or assessments and similar
charges, which either are (A) not delinquent or (B) being
contested diligently and in good faith by appropriate
proceedings, and as to which Borrower has set aside reserves
on its books which are acceptable under GAAP;
(iii) statutory Liens, such as mechanic's
materialman's, warehouseman's, carrier's or other like Liens,
incurred in good faith in the ordinary course of business,
provided that the underlying obligations relating to such
Liens are paid in the
7
<PAGE> 13
ordinary course of business or the repayment of such
obligations is otherwise secured in a manner that is
satisfactory to Lender;
(iv) Liens in respect of judgments or awards with
respect to which Borrower, in good faith, diligently shall be
prosecuting an appeal or proceeding for review, so long as
while being so contested such judgments or awards are bonded
or the enforcement or other realization thereon is stayed,
provided that the amount of such bonds outstanding at any one
time shall not exceed $100,000;
(v) pledges or deposits in the aggregate amount not
to exceed $100,000 at any time, other than those made in the
ordinary course of business to secure payment of worker's
compensation, or to participate in any fund in connection with
worker's compensation, unemployment insurance, old-age
pensions or other social security programs; and
(vi) any additional liens against the Collateral
described on Exhibit B attached hereto.
Person: any individual, firm, corporation, business
enterprise, trust, association, joint venture, partnership,
Governmental Body or other entity, whether acting in an individual,
fiduciary or other capacity.
Plan: any employee pension benefit plan subject to Title IV of
ERISA, established or maintained by a Borrower, or any such Plan to
which such Borrower is required to contribute on behalf of any of its
employees.
Prime Rate: the per annum rate of interest announced or
published publicly from time to time by Lender at its principal place
of business in Chicago, Illinois, as its prime or equivalent rate of
interest, which rate is not necessarily the lowest rate of interest
charged by Lender with respect to commercial loans.
Property: all types of real, personal or mixed property and
all types of tangible or intangible property of the Borrowers.
Revolver: the $3,500,000 revolving loan made by Lender to
HouTex pursuant to the terms of Section 2.1 below.
Revolver Advance: any advance of the Revolver made in
accordance with the terms set forth in Section 2.1 below.
Revolver Note: the Note of even date herewith made by HouTex
to the order of Lender in the amount of $3,500,000 to evidence the
Revolver.
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<PAGE> 14
Security Agreement: the Security Agreement of even date
herewith executed by HouTex in favor of Lender.
Security Interests: the Liens in the Collateral granted to
Lender pursuant to the Loan Documents.
Term Loan: the $6,500,000 term loan made by Lender to MMI
pursuant to the terms of Section 2.2 below.
Term Note: the Note of even date herewith made by MMI to the
order of Lender in the amount of $6,500,000 to evidence the Term Loan.
UCC: the Uniform Commercial Code, as adopted in the State of
Illinois, as the same may be amended from time to time.
Value: with respect to any Inventory, the lesser of (i) the
market value of such Inventory, or (ii) HouTex's cost of such Inventory
calculated in accordance with GAAP on a first-in, first-out basis.
1.1 Time Periods. In this Loan Agreement and the other Loan Documents,
in the computation of periods of time from a specified date to a later specified
date (i) the word "from" means "from and including", (ii) the words "to" and
"until" each mean "to, but excluding" and (iii) the words "through", "end of"
and "expiration" each mean "through and including". All references in this Loan
Agreement and the other Loan Documents to "month", "quarter" or "year" shall be
deemed to refer to a calendar month, quarter or year.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed, all accounting determinations hereunder shall be made
and all financial statements required to be delivered pursuant hereto shall be
prepared in accordance with GAAP.
1.3 References. All references in this Loan Agreement to "Article",
"Section", "subsection", "subparagraph", "clause" or "Exhibit", unless otherwise
indicated, shall be deemed to refer to an Article, Section, subsection,
subparagraph, clause or Exhibit, as applicable, of this Loan Agreement.
1.4 Lender's Discretion. Whenever the terms "satisfactory to Lender",
"determined by Lender", "acceptable to Lender", "Lender shall elect", "Lender
shall request" or similar terms are used in this Loan Agreement, except as
otherwise specifically provided in this Loan Agreement, such terms shall mean
satisfactory to, at the election of, determined by, acceptable to or requested
by, as applicable, Lender in its reasonable discretion.
1.5 Borrower's Knowledge. Any statements, representations or warranties
which are based upon the best knowledge of a Borrower shall be deemed to have
been made after due inquiry by such Borrower with respect to the matter in
question.
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<PAGE> 15
2. LOANS AND TERMS OF PAYMENT.
2.1 Revolving Loan.
2.1.1 Amount. The Revolver is a revolving loan which shall be
made available to HouTex by Lender from time to time on and after the
Closing Date through the day immediately preceding the Maturity Date
(or the Extended Maturity Date, if applicable) in the maximum principal
amount outstanding at any one time equal to the Maximum Revolving Loan
Amount at such time. Subject to the limitations set forth in this
Section 2, from the Closing Date through the day immediately preceding
the Maturity Date (or the Extended Maturity Date, if applicable),
HouTex may reborrow all or any portion of the Revolver that is repaid
or prepaid.
2.1.2 Procedure for Borrowing. Each request for a Revolver
Advance shall be irrevocable and shall be made by HouTex in writing or
by telephone and shall only be acceptable if made by one of the Persons
listed on Exhibit E. If a request for a Revolver Advance is made prior
to 1:00 p.m. Chicago time on a Business Day, then such Revolver Advance
shall be made by Lender on the date of such request. If such request is
made at or after 1:00 p.m. Chicago time, then such Revolver Advance
shall be made by Lender on the next Business Day. Each request for a
Revolver Advance shall be deemed a certification by HouTex that no
HouTex Event of Default or event or circumstance that with the passage
of time, the giving of notice or both would constitute a HouTex Event
of Default then exists or will be created if the requested Revolver
Advance is made. Lender shall not be obligated to make any Revolver
Advance if (i) a HouTex Event of Default or event or circumstance that
with the passage of time, the giving of notice or both would constitute
a HouTex Event of Default then exists or will be created if the
requested Revolver Advance is made, or (ii) after making such Revolver
Advance, the outstanding aggregate principal amount of the Revolver
will exceed the Maximum Revolving Loan Amount.
2.1.3 Interest Payments. Except as otherwise provided herein
or in the Revolver Note, accrued and unpaid interest on the outstanding
principal balance of the Revolver shall be due and payable monthly in
arrears on the first Business Day of each month commencing February
1997.
2.1.4 Principal Payment. The outstanding principal balance of
the Revolver shall be paid in full not later than the Maturity Date (or
the Extended Maturity Date, if applicable).
2.1.5 Revolver Note. HouTex shall execute and deliver to
Lender on the Closing Date the Revolver Note to evidence the Revolver.
2.1.6 Use of Proceeds of Revolver. The proceeds of the
Revolver shall be used by HouTex to refinance certain existing
indebtedness of HouTex and to provide working capital.
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<PAGE> 16
2.1.7 Mandatory Prepayment. If the outstanding principal
balance of the Revolver at any time exceeds the amount of the Maximum
Revolving Loan Amount at such time, HouTex shall immediately repay the
amount of such excess without notice or demand.
2.2 Term Loan.
2.2.1 Amount of Term Loan. Subject to the terms and conditions
set forth in this Loan Agreement, Lender hereby agrees to make to MMI a
term loan on the Closing Date (the "Term Loan") in the principal amount
of $6,500,000.
2.2.2 Principal and Interest Payments; Maturity.
(i) Except as otherwise provided herein or in the
Term Note, accrued and unpaid interest on the outstanding
principal balance of the Term Loan shall be due and payable
monthly in arrears on the first Business Day of each month
commencing February 1997.
(ii) The remaining unpaid principal balance of the
Term Loan, together with all accrued and unpaid interest
thereon, if not sooner declared to be due in accordance with
the provisions of this Loan Agreement, shall be due and
payable in full on the Maturity Date (or the Extended Maturity
Date, if applicable).
2.2.3 Term Note. MMI shall execute and deliver to Lender on
the Closing Date the Term Note to evidence the Term Loan.
2.3 General Interest Provisions.
2.3.1 Interest Rate. The principal balance of the Loans
outstanding from time to time shall bear interest at the per annum
rates set forth in the Notes.
2.3.2 Interest Computation. Interest shall be (a) computed on
the basis of a year consisting of 360 days and (b) payable for the
actual number of days during the period for which interest is being
charged.
2.3.3 Maximum Interest. Notwithstanding any provision to the
contrary contained herein or in any of the other Loan Documents, Lender
shall not collect a rate of interest on any obligation or liability due
and owing by the Borrowers to Lender in excess of the maximum contract
rate of interest permitted by applicable law. Lender and the Borrowers
have agreed that the interest laws of the State of Illinois shall
govern the relationship between them, but in the event of a final
adjudication to the contrary, the Borrowers shall be obligated to pay
to Lender only such interest as then shall be permitted by the laws of
the state found to govern the contract relationship between Lender and
the Borrowers. All interest found in excess of that rate of interest
allowed and collected by Lender shall be applied to the
11
<PAGE> 17
principal balance of the Loans in such manner as to prevent the payment
and collection of interest in excess of the rate permitted by
applicable law.
2.4 Prepayments.
2.4.1 No Premiums. Except as otherwise provided in the Term
Note, all or a portion of the principal balance(s) of the Loans may be
prepaid at any time and from time to time without premium or penalty.
2.4.2 Payment of Additional Sums. All prepayments of the Loans
pursuant to this Section shall be accompanied by the payment of any
accrued and unpaid interest on the portion of the principal balance
being prepaid to the date on which Lender is in receipt of Good Funds,
and any other sums which are due and payable pursuant to the terms of
the Loan Documents.
2.5 Default Rate. During a Default Period that arises due to an MMI
Event of Default, the aggregate outstanding principal balance of the Term Loan
shall bear interest at the Default Rate. During a Default Period that arises due
to a HouTex Event of Default, the aggregate outstanding principal balance of the
Revolver shall bear interest at the Default Rate.
2.6 Method of Payment; Good Funds. All payments to be made by the
Borrowers pursuant to the Loan Documents shall be delivered to Lender at 135
South LaSalle Street, Chicago, Illinois, or to such other address as Lender
shall notify the Borrowers. Payment shall not be deemed to have been received by
Lender until Lender is in receipt of Good Funds.
2.7 Extension Right. MMI and HouTex shall each have the right (the
"Extension Right") to extend the terms of the MMI Loan and the HouTex Loan,
respectively, for one additional three month period commencing on the Maturity
Date and ending on the Extended Maturity Date, subject to the following terms,
provisions and conditions:
(i) MMI and/or HouTex, as applicable, shall give written
notice (the "Extension Notice") to Lender of its or their election to
exercise the Extension Right no later than May 31, 1997;
(ii) Concurrently with the delivery of an Extension Notice,
the Borrowers shall pay to Lender a nonrefundable extension fee equal
to $25,000 in the aggregate;
(iii) If MMI seeks to exercise its Extension Right, then no
MMI Event of Default or event that with the passage of time, the giving
of notice or both would constitute an MMI Event of Default exists as of
the date on which such Extension Notice is delivered or on the Maturity
Date, and if HouTex seeks to exercise its Extension Right, then no
HouTex Event of Default or event that with the passage of time, the
giving of notice or both would constitute a HouTex Event of Default
exists as of the date on which such Extension Notice is delivered or on
the Maturity Date.
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<PAGE> 18
(iv) Except as expressly provided to the contrary in the Notes
or this Loan Agreement, all of the other terms, provisions and
conditions of the Notes and the other Loan Documents shall remain in
full force and effect in accordance with their respective terms,
including, without limitation, the obligation to make monthly payments
of interest at the then applicable rate(s) of interest; and
(v) There shall have been no material adverse change in the
projected income and expenses of the Individual Guarantors in the
aggregate or either Borrower, or in any other financial information
provided by the Individual Guarantors in the aggregate or either
Borrower to Lender.
2.8 Loan Fee. The unpaid balance of a nonrefundable loan fee in the
amount of $15,000 shall be due and payable by the Borrowers on the Closing Date.
3. CONDITIONS OF FUNDING. Lender's obligation to make the Loans shall be
subject to the satisfaction of all of the following conditions in a manner, form
and substance satisfactory to Lender:
3.1 Title to Collateral. The Borrowers have good and marketable title
to all of the Collateral free and clear of all Liens, except Permitted Liens, as
of the date of Closing and each subsequent Revolver Advance.
3.2 Delivery of Instruments. The following shall have been delivered to
Lender, each duly authorized and executed: (i) the Loan Documents; (ii) evidence
of the insurance required by Section 5.9 below; (iii) certificates of incumbency
for each Borrower; (iv) certificates of good standing for each Borrower from
their respective states of incorporation and from any other states in which they
are required to be qualified to do business; (v) certified copies of the
certificates of incorporation and by-laws, and all amendments thereto, of each
Borrower; (vi) certified copies of resolutions adopted by each Borrower
authorizing the execution of the Loan Documents and the consummation of the
transactions contemplated therein; (vii) certified copies of the Operating
Agreements; (viii) the initial Borrowing Base Certificate dated as of the
Closing Date; and (ix) such other instruments, documents, certificates,
consents, waivers and opinions as Lender may request.
3.3 Lender's Security Interests. All filings of Uniform Commercial Code
Financing Statements and all other recordings and actions necessary to perfect
and maintain the Security Interests as first, valid and perfected liens and
security interests in the Collateral, subject only to the Permitted Liens, shall
have been filed or taken and confirmation thereof received.
3.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Loan Agreement and the
other Loan Documents and all documents and instruments incident to such
transactions shall be satisfactory to Lender, and Lender shall have received all
such counterpart originals or certified or other copies as Lender reasonably may
request.
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3.5 Representations and Warranties. The representations and warranties
of the Borrowers set forth in this Loan Agreement and the other Loan Documents
shall be true and correct in all material respects as of the date of Closing and
as of the date each Revolver Advance is made.
3.6 Performance; No Default. The Borrowers shall have performed and
complied with all agreements and conditions contained in the Loan Documents to
be performed by or complied with by them prior to Closing and no Default or
Event of Default then exists.
3.7 Material Adverse Effect. No Material Adverse Effect shall have
occurred.
3.8 Use of Assets. Lender shall be satisfied that the Borrowers are
entitled to the use and quiet enjoyment of all assets necessary and desirable
for the continued ownership and operation of their respective businesses at each
location at which such businesses are presently conducted and are proposed to be
conducted, including, without limitation, the use of equipment, Property,
fixtures, licenses, permits, offices, inventory, warehouses and means of ingress
and egress thereto, including any easements or rights-of-way necessary to reach
any equipment or other items necessary for the operation of such businesses.
4. REPRESENTATIONS AND WARRANTIES. Each Borrower represents and warrants
to Lender only for itself and not as to the other Borrower as follows:
4.1 MMI. MMI is a duly formed, publicly traded corporation validly
existing and in good standing in the State of Delaware and in each jurisdiction
in which the failure to be in good standing could have a Material Adverse Effect
on MMI. MMI has full power and authority to execute and deliver the Loan
Documents and to perform its obligations hereunder and thereunder. The
certificate of incorporation and the by-laws of MMI, certified copies of which
have been furnished to Lender, are in effect and are the true, correct and
complete documents relating to MMI's creation and governance.
4.2 HouTex. HouTex is a duly formed corporation validly existing and in
good standing in the State of Texas and in each jurisdiction in which the
failure to be in good standing could have a Material Adverse Effect on HouTex.
HouTex has full power and authority to execute and deliver the Loan Documents
and to perform its obligations hereunder and thereunder. MMI is the sole
shareholder of HouTex. The certificate of incorporation and the by-laws of
HouTex, certified copies of which have been furnished to Lender, are in effect
and are the true, correct and complete documents relating to HouTex's creation
and governance.
4.3 Authority. No consent or approval of, or other action by, any
shareholder, partner, Governmental Body or any other Person, which has not
already been obtained, is required to be obtained by a Borrower to authorize, or
is required to be obtained by such Borrower in connection with the execution,
delivery and performance of, the Loan Documents, or is required as a condition
to the validity or enforceability of the Security Interests or any of the Loan
Documents.
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4.4 Necessary Assets. Each Borrower owns all of the assets necessary to
operate and maintain the operations of its business as conducted on the date
hereof.
4.5 Binding Agreements. This Loan Agreement and the other Loan
Documents, when executed and delivered, will constitute the valid and legally
binding obligations of each Borrower, and enforceable against each Borrower in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
equitable principles.
4.6 Business and Properties of the Borrowers.
4.6.1 Business Activity. Neither Borrower is engaging in any
business or activities other than scrap metal recycling or the
acquisition or sale of businesses related thereto. The property that
the Borrowers shall own upon Closing and any licenses and permits
issued to the Borrowers in connection with their respective businesses
constitute all of the Property, licenses and permits which are
necessary for the operation of such businesses as heretofore conducted
and as proposed to be conducted after the Closing.
4.6.2 Operating Agreements. All Operating Agreements are in
full force and effect and no event has occurred which could result in
the cancellation or termination of any Operating Agreement, which
cancellation or termination could have a Material Adverse Effect.
4.6.3 Business Sites. There is set forth in Exhibit A the
locations of all inventory (other than inventory that is in transit to
customers in the ordinary course of the Borrowers' businesses),
equipment, goods and offices presently used in the operation of the
businesses of the Borrowers. None of such locations shall be changed
without the prior written consent of Lender, which consent shall not be
unreasonably withheld.
4.6.4 Operation and Maintenance of Equipment. To the best of
each Borrower's knowledge, the equipment owned or to be acquired on the
Closing Date by HouTex is in good operating condition and repair and
has been used, operated and maintained in substantial compliance with
all applicable laws, rules and regulations.
4.7 Title to Property; Liens. As of the Closing Date, HouTex shall have
good and marketable title to the Collateral free and clear of all Liens, except
Permitted Liens. The applicable Loan Documents create valid and perfected Liens
in the Property described therein, subject only to Permitted Liens.
4.8 Solvency. Neither Borrower (i) is bankrupt or insolvent, (ii) has
made an assignment for the benefit of its creditors, (iii) has had a trustee or
receiver appointed, (iv) has had any bankruptcy, reorganization or insolvency
proceedings instituted by or against it, and (v) shall be rendered insolvent by
its execution, delivery or performance of the Loan Documents or by the
transactions contemplated thereunder. Notwithstanding the foregoing, Lender
hereby acknowledges
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that (a) the Borrowers may have incurred or may hereafter incur seller debt in
connection with the acquisition of the stock or assets of businesses related to
the business of the Borrowers, (b) the Borrowers shall be unable to service such
debt if they are unable to refinance the same prior to the maturity thereof, and
(c) the existence of such debt shall not be deemed a violation of the terms of
this Section prior to the maturity thereof or a default with respect thereto.
4.9 Financial Statements. The Borrowers have delivered to Lender the
financial statements described on Exhibit C. To the best of each Borrower's
knowledge, said financial statements contain no material misstatements, nor are
the same based upon assumptions or facts known by such Borrower to be false or
misleading.
4.10 Litigation. There are no actions, suits, arbitration proceedings
or claims pending or, to the best knowledge of each Borrower, threatened at law
or in equity or before any Governmental Body which, if adversely determined,
could have a Material Adverse Effect. There are no proceedings pending or, to
the best knowledge of each Borrower, threatened which call into question the
validity or enforceability of any of this Loan Agreement or the other Loan
Documents or any of the transactions contemplated hereby or thereby.
4.11 Conflicting Agreements. Neither Borrower is in default under any
material agreement to which it is a party or by which such Borrower or any of
its Property is bound. No provision of any mortgage, indenture, contract,
agreement, statute, rule, regulation, judgment, decree or order binding on
either Borrower or affecting the business or Property of either Borrower
conflicts with or in any way would prevent the execution, delivery or
performance of the terms of any of the Loan Documents. The execution, delivery
and carrying out of the terms of the Loan Documents shall not constitute a
default under any such mortgage, indenture, contract or agreement, or result in
the creation or imposition of or obligation to create any Lien upon the Property
of either Borrower pursuant to the terms thereof.
4.12 Taxes of Borrowers. Any charges, accruals and reserves on the
books of each Borrower with respect to all federal, state, local and other taxes
are considered by the management of such Borrower to be adequate, and neither
Borrower has knowledge of any unpaid assessment which is or might be due and
payable against such Borrower, or its business or Property, except such
assessments as are being contested in good faith and by appropriate proceedings
diligently conducted and for which adequate reserves have been set aside in
accordance with GAAP.
4.13 Compliance with Applicable Laws. Neither Borrower is in default in
respect of any judgment, order, writ, injunction, decree or decision of any
Governmental Body. Each Borrower is in compliance in all material respects with
all applicable statutes and regulations of all Governmental Bodies.
4.14 Patents, Trademarks, Franchises, Agreements. Each Borrower owns or
possesses as of the Closing Date all patents, trademarks, service marks, trade
names, copyrights, franchises, permits and licenses, and rights with respect
thereto, necessary for the conduct of its business as now
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conducted and as proposed to be conducted, without any known conflict with the
rights of others and, in each case, free of any Lien other than the Permitted
Liens.
4.15 Environmental Matters. To the best knowledge of each Borrower,
except as otherwise disclosed on Exhibit D no portion of such Borrower's
Property has been used as a land fill, and there are not any known Hazardous
Materials generated, manufactured, released, stored, buried or deposited over,
beneath, in or on (or used in the construction and/or renovation of) such
Property, except in compliance with all applicable laws.
4.16 Application of Certain Laws and Regulations.
4.16.1 Investment Company Act. Neither Borrower is an
"investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
4.16.2 Holding Company Act. Neither Borrower is a "holding
company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company," as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
4.16.3 Regulations as to Borrowing. Neither Borrower is
subject to any statute or regulation which regulates the incurrence of
any Indebtedness for Borrowed Money including, without limitation,
statutes or regulations relative to common or interstate carriers or to
the sale of electricity, gas, steam, water, telephone, telegraph or
other public utility services.
4.17 Margin Regulations. None of the transactions contemplated by this
Loan Agreement or any of the other Loan Documents, including the use of proceeds
of the Loan, will violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended, or any regulations issued pursuant
thereto, including, without limitation, Regulations G, T, U and X, and neither
Borrower owns or intends to carry or purchase any "margin security" within the
meaning of such Regulations U or G.
4.18 No Misrepresentation. No representation or warranty contained
herein and no certificate, information or report furnished or to be furnished by
either Borrower or any Individual Guarantor in connection with any of the Loan
Documents or any of the transactions contemplated hereby or thereby contains or
will contain a misstatement of material fact, or omits or will omit to state a
material fact required to be stated in order to make the statements contained
herein or therein not misleading in the light of the circumstances under which
such statements were made.
4.19 Burdensome Obligations. After giving effect to the transactions
contemplated by the Loan Documents, neither Borrower shall be a party to or be
bound by any franchise, agreement, deed, lease or other instrument, which is so
unusual or burdensome, so as to cause, in the foreseeable future, a material and
adverse effect upon, or impair the financial condition, operations, business,
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prospects or Property of such Borrower. Neither Borrower presently anticipates
that future expenditures needed to meet the provisions of federal or state
statutes, orders, rules or regulations will be so burdensome so as to have a
Material Adverse Effect on such Borrower. Notwithstanding the foregoing, Lender
hereby acknowledges that (a) the Borrowers may have incurred or may hereafter
incur seller debt in connection with the acquisition of the stock or assets of
businesses related to the business of the Borrowers, (b) the Borrowers shall be
unable to service such debt if they are unable to refinance the same prior to
the maturity thereof, and (c) the existence of such debt shall not be deemed a
violation of the terms of this Section prior to the maturity thereof or a
default with respect thereto.
4.20 Employee Benefit Plans. Any Plan of a Borrower is in material
compliance with the applicable provisions of ERISA and the Code, and all reports
required to be filed by ERISA and the Code in respect of each such Plan have
been filed. Each Borrower has met all requirements imposed by ERISA and the Code
in respect of the funding of all Plans. No Plan which is subject to Part 3 of
Subtitle B of Title I of ERISA or Section 412 of the Code ever has incurred an
"accumulated funding deficiency" as such term is defined in Section 302 of ERISA
or Section 412(a) of the Code (whether or not waived). There has been no
non-exempt prohibited transaction (within the meaning of Section 4975 of the
Code or Part 4 of Subtitle B of Title I of ERISA) with respect to any Plan.
Since the effective date of ERISA, there have not been, and there do not now
exist, any events or conditions which would permit any Plan to be terminated
under circumstances which would cause the Lien provided under Section 4068 of
ERISA to attach to the Property of a Borrower. Since the effective date of
ERISA, no "reportable event", as defined in Title IV of ERISA, which may
constitute grounds for the termination of any Plan under Title IV of ERISA, has
occurred and no Plan has been terminated in whole or in part. No liability to
the PBGC (other than required premiums, all of which have been paid to the
extent that they were due and payable) or to any Plan has been or is expected to
be incurred by a Borrower. As of the Closing Date, the present value of all
accrued benefits under each Plan, calculated on the basis of the actuarial
assumptions specified in the most recent actuarial valuation for such Plan, will
not exceed the fair market value of the assets of such Plan allocable to such
benefits.
4.21 Employee Matters. As of the date hereof, the employees of the
Borrowers are not subject to any collective bargaining agreement, and there are
no strikes, work stoppages or controversies pending, or to the best knowledge of
the Borrowers, threatened against either Borrower by any of its employees.
4.22 Eligible Inventory. With respect to Eligible Inventory referred to
in any Borrowing Base Certificate, the completion and sale or other disposition
of such Inventory by a Person other than HouTex would not require the consent of
any Person or constitute a breach of any contract to which HouTex is a party or
to which the Inventory is subject.
4.23 Eligible Accounts. With respect to Eligible Accounts referred to
in any Borrowing Base Certificate, as of the date of such Borrowing Base
Certificate: (a) the Eligible Accounts are genuine, are in all respects what
they purport to be, and are not evidenced by a judgment; (b) the Eligible
Accounts represent undisputed, bona fide transactions completed in accordance
with the
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terms and provisions contained in the documents delivered to Lender with respect
thereto; (c) the amounts reflected on the applicable Borrowing Base Certificate
and on HouTex's books and records and all invoices and statements which may be
delivered to Lender with respect thereto are owing solely to HouTex and are not
in any way contingent (except with respect to Accounts in connection with which
account debtors are entitled to return Inventory solely on the basis of the
quality of such Inventory); (d) no payments have been made in respect of such
Eligible Accounts or the portion thereof reflected in such Borrowing Base
Certificate; (e) there are no setoffs, counterclaims or disputes asserted or, to
the best of HouTex's knowledge, existing with respect thereto and HouTex has not
made any agreement with any account debtor for any deduction therefrom except a
discount or allowance allowed by HouTex in the ordinary course of its business
for prompt payment which has been reflected by a corresponding reduction in the
amount of the Eligible Accounts; (f) to the best of HouTex's knowledge, there
are no facts, events or occurrences which in any way impair the validity or
enforcement thereof or tend to reduce the amount payable thereunder as shown on
the respective Borrowing Base Certificate, HouTex's books and records and all
invoices and statements delivered to Lender with respect thereto; (g) to the
best of HouTex's knowledge without inquiry, all account debtors with respect to
the Eligible Accounts have the capacity to contract and are solvent; and (h) to
the best of HouTex's knowledge without inquiry, there are no proceedings or
actions which are threatened or pending against any account debtor with respect
to the Eligible Accounts which could reasonably be expected to result in any
material adverse change in such account debtor's financial condition.
4.24 Bailment Relationships. Exhibit A lists all locations at which
HouTex stores Inventory pursuant to agreements with warehousemen, consignees or
other bailees. All such agreements are in full force and effect and, to HouTex's
knowledge, no claim has been made or default asserted against HouTex thereunder.
HouTex has paid all storage costs and other charges which are due and payable by
it under its agreements with all warehousemen, consignees and other bailees.
4.25 Owned and Leased Property. HouTex owns no real property. The only
real property leased by HouTex is described on Exhibit A attached hereto. HouTex
has not leased or subleased any of its Property to any other Person.
5. AFFIRMATIVE COVENANTS. Until all of Borrowers' Obligations are paid
and performed in full, each Borrower covenants to Lender only for itself and not
as to the other Borrower as follows:
5.1 Legal Existence; Good Standing. Each Borrower shall maintain its
existence and shall remain in good standing (or shall have such good standing
reinstated within 15 days after the loss thereof) in its jurisdiction of
incorporation and maintain its qualification in all other jurisdictions in which
the failure to do so could have a Material Adverse Effect on such Borrower.
5.2 Inspection of Books and Records. Each Borrower shall permit
representatives of Lender to visit its offices to examine its books and records
and Accountants' reports relating thereto,
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and to make copies or extracts therefrom, and to discuss its business and
affairs with its employees, all at reasonable times during normal business
hours, upon reasonable prior notice.
5.3 Inspection of Collateral. Lender (by any of its officers, employees
and/or agents) shall have the right, during normal business hours and upon
reasonable notice to the Borrowers prior to the occurrence of an Event of
Default (and after the occurrence of an Event of Default, at any time or times)
to inspect the Collateral and all related records (and the premises upon which
it is located) and to verify the amount and condition of or any other matter
relating to the Collateral. All reasonable costs, fees and expenses incurred by
Lender in connection with all such field examinations shall constitute part of
Borrowers' Obligations, payable by the Borrowers to Lender on demand.
5.4 Financial Statements and Other Information. Each Borrower will
maintain a system of accounting in accordance with GAAP and furnish to Lender:
5.4.1 Annual Statements. As soon as available and in any event
within 90 days after the close of each fiscal year, each Borrower shall
furnish to Lender a copy of its (a) balance sheet as of the end of such
year, and (b) statements of income and cash flow for such year, setting
forth in each case in comparative form the corresponding figures for
the preceding year, all in reasonable detail, and in each case audited
by the Accountants. Such annual statements shall be accompanied by a
report of the Accountants which states that in preparing the financial
statements of such Borrower, nothing came to the attention of the
Accountants that caused them to believe that such Borrower was not in
compliance with the terms, covenants, provisions, or conditions of any
of the Loan Documents or that there shall have occurred a condition or
event that constitutes an Event of Default (or, if applicable,
specifying in such certificate the nature and status of any instances
of non-compliance or Events of Default), and which is otherwise in a
form reasonably satisfactory to Lender.
5.4.2 Monthly Statements. As soon as available and in any
event within 15 days after the end of each month, each Borrower shall
furnish to Lender a copy of its (a) unaudited balance sheet as of the
end of such month, and (b) unaudited statements of income and cash flow
for such month and for the period from the beginning of the then
current fiscal year to the end of such month, all in reasonable detail
and containing such information as Lender may require and certified by
the chief financial officer of such Borrower.
5.4.3 Notice of Defaults; Loss. Immediate written notice of
the following: (i) any Indebtedness of either Borrower is declared or
becomes due and payable prior to its declared or stated maturity, or
called and not paid when due, (ii) the holder of any note, or other
evidence of Indebtedness, certificate or security evidencing any such
Indebtedness of either Borrower has the right to declare such
Indebtedness due and payable prior to its stated maturity, (iii) there
shall occur and be continuing a Default or Event of Default, and such
notice shall be accompanied by a statement of the president of each
Borrower setting forth what action the Borrowers propose to take in
respect thereof, or (iv) any event within either
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Borrower's control that causes a material loss or depreciation in the
value of assets of such Borrower or otherwise results in a Material
Adverse Effect.
5.4.4 Notice of Suits, Adverse Events. Immediate written
notice of the following: (i) the issuance of any citation, summons,
subpoena, order to show cause or other order naming either Borrower a
party to any proceeding before any Governmental Body that may have a
Material Adverse Effect, together with a copy of such citation,
summons, subpoena, order to show cause or other order, (ii) any lapse
or other termination of any material license, permit, franchise,
agreement or other authorization issued to either Borrower by any
Governmental Body or any other Person, (iii) any refusal by any
Governmental Body or any other Person to renew or extend any such
material license, permit, franchise, agreement or other authorization,
and (iv) any dispute between either Borrower and any Governmental Body
or any other Person, which dispute could have a Material Adverse
Effect.
5.4.5 Reports to Security Holders, Creditors and Governmental
Bodies. Promptly upon becoming available, copies of any periodic or
special reports filed by either Borrower with any Governmental Body or
Person, if such reports indicate any material change in the business,
operations, affairs or condition of such Borrower, or if copies thereof
are requested by Lender, and copies of any material notices and other
communications from any Governmental Body or Person which specifically
relate to such Borrower.
5.4.6 Other Information.
(i) Prompt notice of (A) any change in the officers
of either Borrower, (B) any change of location of any material
item of Property of either Borrower, (C) any change in the
name of either Borrower, (D) any sale or purchase of Property
outside the regular course of business of either Borrower, and
(E) any material adverse change in the business or financial
affairs of either Borrower.
(ii) Promptly upon request therefor, such other
information and reports relating to the past, present or
future financial condition, operations, plans and projections
of the Borrowers as Lender reasonably may request from time to
time.
5.5 Reports to Governmental Bodies and Other Persons. Each Borrower
shall file, all on a timely basis, all reports, applications, documents,
instruments and information required to be filed pursuant to all rules,
regulations or requests of any Governmental Body or other Persons having
jurisdiction over the operation of such Borrower, including, but not limited to,
such of the Loan Documents as may be required to be filed with any such
Governmental Body or other Persons pursuant to applicable rules and regulations
promulgated thereby.
5.6 Borrowing Base Certificate; Accounts Aging Report. As soon as
available and in any event on or before 5:00 p.m. on Tuesday of each week,
HouTex shall deliver to Lender the Borrowing Base Certificate stating the amount
of the Borrowing Base as of such last day of the preceding week. As soon as
available and in any event within 15 days after the end of each month,
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HouTex shall deliver to Lender the following, all of which are to be in form and
substance satisfactory to Lender and certified by the chief financial officer of
HouTex: (i) an aging report for all Accounts and all accounts payable of HouTex,
describing the aging status of such Accounts and accounts payable as of the last
day of such month, and (ii) a listing of all Inventory of HouTex as of the last
day of such month.
5.7 Shareholders. MMI at all times shall remain the sole shareholder of
HouTex.
5.8 Maintenance of Licenses, Franchises, Agreements. Each Borrower
shall maintain in full force at all times and in a timely manner shall apply for
renewal of all licenses, approvals, permits, franchises and agreements necessary
for the continuation of the operation of its business, and give Lender not less
than thirty days prior written notice of the proposed amendment of any of such
licenses, permits, agreements or franchises; provided, however, that if the
cancellation, suspension or termination of any such licenses, permits,
agreements or franchises was not intentionally caused by such Borrower, then
such Borrower shall have fifteen days after obtaining knowledge of such
cancellation, suspension or termination to cause the same to be reinstated or
reissued.
5.9 Insurance. Each Borrower shall obtain and maintain such insurance
as is reasonably required by Lender, which insurance must be written by insurers
and in amounts and form specified in the other Loan Documents, or if not
specified as aforesaid, then in amounts and form reasonably satisfactory to
Lender.
5.10 Future Leases. Concurrently with the execution by HouTex as lessee
under any site lease subsequent to the date hereof, HouTex shall deliver to
Lender (i) notice of the execution of such lease, together with an executed copy
thereof, (ii) if requested by Lender, a collateral assignment of such lease in
favor of Lender in a form acceptable to Lender, and (iii) a consent and estoppel
letter from the lessor under such lease, in form and content reasonably
satisfactory to Lender.
5.11 Environmental Matters. If either Borrower receives (i) any notice
of any violation or administrative or judicial complaint or order having been
filed or about to be filed against such Borrower or any of such Borrower's
Property alleging violations of any law, ordinance or regulation requiring such
Borrower to take any action in connection with the release or clean-up of any
Hazardous Materials, or (ii) any notice from any Governmental Body or any other
Person alleging that such Borrower is or may be liable for costs associated with
a release or clean-up of any Hazardous Materials or any damages resulting from
such release, such Borrower shall provide Lender with a copy of such notice.
Such Borrower, at its sole cost and expense, shall comply in all respects with
the foregoing notices and, in all events, at its sole cost and expense, shall
satisfy the requirements of and at all times hereafter shall maintain such
Borrower's Property in compliance with all federal, state and local
environmental protection, occupational, health, safety and similar laws,
ordinances, restrictions, licenses, and regulations, including, without
limitation, CERCLA, the Federal Water Pollution Control Act (33 U.S.C. Sec. 1251
et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Sec. 6901 et
seq.), the Safe Drinking Water Act (42 U.S.C. Sec. 300f et
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seq.), the Toxic Substances Control Act (15 U.S.C. Sec. 2601 et seq.), the Clean
Air Act (42 U.S.C. Sec. 7401 et seq.) and other comparable state or local laws,
rules and/or regulations.
6. NEGATIVE COVENANTS. Until all of Borrowers' Obligations are paid and
performed in full, each Borrower covenants to Lender only for itself and not as
to the other Borrower as follows:
6.1 Liens. HouTex shall not create, incur, assume or suffer to exist
any Lien upon any of the Collateral, whether now owned or hereafter acquired,
except Permitted Liens.
6.2 Distributions. HouTex shall not make dividends or other
distributions to MMI of any revenue or other amounts received by or on behalf of
HouTex from the operation or ownership of its business or otherwise if a HouTex
Event of Default or event or circumstance that with the passage of time, the
giving of notice or both would constitute a HouTex Event of Default then exists.
6.3 Amendments of Agreements. Neither Borrower shall consent to any
amendment to any agreements, franchises, licenses or permits which are required
in order to conduct the businesses of such Borrower if such amendment could have
a Material Adverse Effect on such Borrower.
6.4 Fundamental Business Changes. Neither Borrower shall engage in any
business other than the business in which such Borrower is engaged as of the
date hereof or otherwise materially change the nature of such business.
6.5 Sale or Transfer of Assets. HouTex shall not sell, lease, assign,
transfer or otherwise dispose of any Property outside the ordinary course of
business, except dispositions of non-material Property or the disposition of any
obsolete or unusable items or equipment which promptly are replaced with new
items or equipment of like function and comparable value.
6.6 Payments on Certain Indebtedness. HouTex shall not make any
voluntary or optional prepayment of any Indebtedness for Borrowed Money, other
than the Revolver.
6.7 Amendment of Corporate Documents. Neither Borrower shall amend,
modify or waive any term or provision of such Borrower's certificate of
incorporation or by-laws in a manner that could have a Material Adverse Effect.
6.8 Compliance with ERISA. Neither Borrower shall (i) terminate any
Plan which would result in any material liability of such Borrower to the PBGC,
(ii) permit the occurrence of any "reportable event" (as defined in Title IV of
ERISA), or any other event or condition, which presents a risk of such a
termination by the PBGC of any Plan, or (iii) withdraw or effect a partial
withdrawal from any Plan, if such withdrawal would result in such withdrawing
employer incurring any withdrawal liability in excess of $25,000.
7. DEFAULT AND REMEDIES.
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7.1 Events of Default. The occurrence of any of the following shall
constitute an "MMI Event of Default" under the Loan Documents:
7.1.1 Default in Payment. If MMI shall fail to pay all or any
portion of its obligations under any of the Loan Documents on or before
the date on which the same become due and payable.
7.1.2 Breach of Covenants.
(a) If MMI shall fail to observe or perform any
covenant or agreement of MMI contained in Sections 5.1, 5.2,
5.3, 5.6, 5.7, 5.8, 5.9 or 5.11 or in Section 6 above;
(b) If MMI shall fail to observe or perform any
covenant or agreement made by MMI in Section 5.4.1 or 5.4.2,
and such failure shall continue for a period of thirty days
after written notice of such failure is given by Lender.
(c) If MMI shall fail to observe or perform any
covenant or agreement (other than those referred to in
subparagraphs (a) and (b) above) made by MMI in any of the
Loan Documents; provided, however, that if such failure by its
nature can be cured, then MMI shall have a period of thirty
days after written notice from Lender of such failure to cure
the same and an MMI Event of Default shall not be deemed to
exist during such period, provided further that if MMI
commences to cure such failure during such period and is
diligently and in good faith attempting to effect such cure,
such period shall be extended for thirty additional days, but
in no event shall such period be longer than sixty days in the
aggregate.
7.1.3 Breach of Representation. Any representation or warranty
made by MMI in or pursuant to any of the Loan Documents or in any
instrument or document furnished in compliance with the Loan Documents
shall prove to be false or misleading in any material respect on the
date as of which such representation or warranty is made.
7.1.4 Acceleration of any Indebtedness. If (i) MMI at any time
shall be in default (as principal or guarantor or other surety) in the
payment of any principal of or premium or interest on any Indebtedness
for Borrowed Money (other than Borrowers' Obligations), beyond the
grace period, if any, applicable thereto (including, without
limitation, Indebtedness for Borrowed Money owing by MMI to the seller
of any stock or assets of or other interest in a business acquired by
MMI), and the aggregate amount of such payments then in default beyond
such grace period shall exceed $100,000, or (ii) if MMI at any time
shall be in default in respect of any issue of Indebtedness for
Borrowed Money (other than
24
<PAGE> 30
Borrowers' Obligations) outstanding in a principal amount of at least
$100,000, or in respect of any agreement or instrument relating to any
such issue of Indebtedness for Borrowed Money, and such default shall
continue beyond the grace period, if any, applicable thereto
(including, without limitation, Indebtedness for Borrowed Money owing
by MMI to the seller of any stock or assets of or other interest in a
business acquired by MMI).
7.1.5 Bankruptcy.
(a) If MMI or any Individual Guarantor shall (i)
generally not be paying debts as they become due, (ii) file,
or consent, by answer or otherwise, to the filing against MMI
or Individual Guarantor, of a petition for relief or
reorganization or arrangement or any other petition in
bankruptcy or insolvency under the laws of any jurisdiction,
(iii) make an assignment for the benefit of creditors, (iv)
consent to the appointment of a custodian, receiver, trustee
or other officer with similar powers for, or for any
substantial part of the Property owned by MMI or Individual
Guarantor, (v) be adjudicated insolvent, or (vi) take action
for the purpose of any of the foregoing.
(b) If any Governmental Body of competent
jurisdiction shall enter an order appointing a custodian,
receiver, trustee or other officer with similar powers with
respect to MMI or Individual Guarantor without MMI's or such
Individual Guarantor's consent, or with respect to any
substantial part of the Property belonging to MMI or such
Individual Guarantor, or if an order for relief shall be
entered in any case or proceeding for liquidation or
reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of MMI or an
Individual Guarantor, or if any petition for any such relief
shall be filed against MMI or an Individual Guarantor and such
petition shall not be dismissed within sixty days.
7.1.6 Judgments. If there shall exist final judgments against
MMI which shall have been outstanding for any period of thirty days or
more from the date of the entry thereof and shall not have been
discharged in full or stayed pending appeal and if the aggregate amount
thereof exceeds $100,000.
7.1.7 Impairment of Operating Agreements. If any Operating
Agreement which is necessary to the operation of the business of MMI
shall be revoked or terminated and not replaced by a substitute
satisfactory to Lender within thirty days after the date of such
revocation or termination.
7.2 Events of Default. The occurrence of any of the following shall
constitute a "HouTex Event of Default" under the Loan Documents:
7.2.1 Default in Payment. If HouTex shall fail to pay all or
any portion of its obligations under any of the Loan Documents on or
before the date on which the same become due and payable.
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<PAGE> 31
7.2.2 Breach of Covenants.
(a) If HouTex shall fail to observe or perform any
covenant or agreement of HouTex contained in Sections 5.1,
5.2, 5.3, 5.6, 5.8, 5.9 or 5.11 or in Section 6 above;
(b) If HouTex shall fail to observe or perform any
covenant or agreement made by HouTex in Section 5.4.1 or
5.4.2, and such failure shall continue for a period of thirty
days after written notice of such failure is given by Lender.
(c) If HouTex shall fail to observe or perform any
covenant or agreement (other than those referred to in
subparagraphs (a) and (b) above and that contained in Section
5.7) made by HouTex in any of the Loan Documents; provided,
however, that if such failure by its nature can be cured, then
so long as the continued operation and safety of the
Collateral and the priority, validity and enforceability of
the Security Interests and the value of the Collateral are not
impaired, threatened or jeopardized, then HouTex shall have a
period of thirty days after written notice from Lender of such
failure to cure the same and a HouTex Event of Default shall
not be deemed to exist during such period, provided further
that if HouTex commences to cure such failure during such
period and is diligently and in good faith attempting to
effect such cure, such period shall be extended for thirty
additional days, but in no event shall such period be longer
than sixty days in the aggregate.
7.2.3 Breach of Representation. Any representation or warranty
made by HouTex in or pursuant to any of the Loan Documents or in any
instrument or document furnished in compliance with the Loan Documents
shall prove to be false or misleading in any material respect on the
date as of which such representation or warranty is made.
7.2.4 Acceleration of any Indebtedness. If (i) HouTex at any
time shall be in default (as principal or guarantor or other surety) in
the payment of any principal of or premium or interest on any
Indebtedness for Borrowed Money (other than Borrowers' Obligations),
beyond the grace period, if any, applicable thereto (including, without
limitation, Indebtedness for Borrowed Money owing by HouTex to the
seller of any stock or assets of or other interest in a business
acquired by HouTex), and the aggregate amount of such payments then in
default beyond such grace period shall exceed $100,000, or (ii) if
HouTex at any time shall be in default in respect of any issue of
Indebtedness for Borrowed Money (other than Borrowers' Obligations)
outstanding in a principal amount of at least $100,000, or in respect
of any agreement or instrument relating to any such issue of
Indebtedness for Borrowed Money, and such default shall continue beyond
the grace period, if any, applicable thereto (including, without
limitation, Indebtedness for Borrowed Money owing by HouTex to the
seller of any stock or assets of or other interest in a business
acquired by HouTex).
7.2.5 Bankruptcy.
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<PAGE> 32
(a) If HouTex or any Individual Guarantor shall (i)
generally not be paying debts as they become due, (ii) file,
or consent, by answer or otherwise, to the filing against
HouTex or such Individual Guarantor, of a petition for relief
or reorganization or arrangement or any other petition in
bankruptcy or insolvency under the laws of any jurisdiction,
(iii) make an assignment for the benefit of creditors, (iv)
consent to the appointment of a custodian, receiver, trustee
or other officer with similar powers for, or for any
substantial part of the Property owned by HouTex or such
Individual Guarantor, (v) be adjudicated insolvent, or (vi)
take action for the purpose of any of the foregoing.
(b) If any Governmental Body of competent
jurisdiction shall enter an order appointing a custodian,
receiver, trustee or other officer with similar powers with
respect to HouTex or an Individual Guarantor without HouTex's
or such Individual Guarantor's consent, or with respect to any
substantial part of the Property belonging to HouTex or such
Individual Guarantor, or if an order for relief shall be
entered in any case or proceeding for liquidation or
reorganization or otherwise to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of HouTex or an
Individual Guarantor, or if any petition for any such relief
shall be filed against HouTex or an Individual Guarantor and
such petition shall not be dismissed within sixty days.
7.2.6 Judgments. If there shall exist final judgments against
HouTex which shall have been outstanding for any period of thirty days
or more from the date of the entry thereof and shall not have been
discharged in full or stayed pending appeal and if the aggregate amount
thereof exceeds $100,000.
7.2.7 Impairment of Operating Agreements. If any Operating
Agreement which is necessary to the operation of the business of HouTex
shall be revoked or terminated and not replaced by a substitute
satisfactory to Lender within thirty days after the date of such
revocation or termination.
7.3 Acceleration of Borrowers' Obligations Owing by MMI. Upon the
occurrence of:
(a) any MMI Event of Default described in clauses
(ii), (iii), (iv) and (v) of Section 7.1.5(a) or Section
7.1.5(b), all of the outstanding Borrowers' Obligations that
are then owing by MMI automatically shall mature and become
due and payable, or
(b) any other MMI Event of Default, Lender, at any
time, (unless such MMI Event of Default shall have been waived
by Lender) at its option, may declare all of the outstanding
Borrowers' Obligations that are then owing by MMI to be due
and payable, whereupon such Borrowers' Obligations immediately
shall mature and become due and payable,
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<PAGE> 33
all without presentment, demand, protest, or notice, all of which hereby are
waived.
7.4 Acceleration of Borrowers' Obligations Owing by HouTex. Upon the
occurrence of:
(a) any HouTex Event of Default described in clauses
(ii), (iii), (iv) and (v) of Section 7.2.5(a) or Section
7.2.5(b), all of the outstanding Borrowers' Obligations that
are then owing by HouTex automatically shall mature and become
due and payable and HouTex's right to request additional
Revolver Advances shall immediately terminate, or
(b) any other HouTex Event of Default, Lender, at any
time, (unless such HouTex Event of Default shall have been
waived by Lender) at its option, may declare all of the
outstanding Borrowers' Obligations that are then owing by
HouTex to be due and payable, whereupon such Borrowers'
Obligations immediately shall mature and become due and
payable and HouTex's right to request additional Revolver
Advances shall immediately terminate,
all without presentment, demand, protest, or notice, all of which hereby are
waived.
7.5 Remedies on Default. If any of Borrowers' Obligations have been
accelerated pursuant to Sections 7.3 or 7.4, Lender, at its option, may enforce
its rights and remedies under the Loan Documents in accordance with their
respective terms and enforce any of the rights or remedies granted to Lender
under any other Loan Document and any other rights or remedies accorded to
Lender at equity or law, by virtue of statute or otherwise.
7.6 Application of Funds to MMI Obligations. Any funds received by
Lender from MMI or from the Individual Guarantors pursuant to the exercise of
any rights accorded to Lender under the MMI Guaranty shall be applied by Lender
in the following order of priority:
7.6.1 Expenses. First, to the payment of all fees and
expenses, including, without limitation, reasonable attorneys' fees,
court costs and all other costs incurred by the Lender in exercising
any rights against MMI or the Individual Guarantors accorded to the
Lender pursuant to the Loan Documents or by applicable law;
7.6.2 Borrowers' Obligations. Next to the payment of
Borrowers' Obligations owing by MMI in such order as Lender may
determine; and
7.6.3 Surplus. Any surplus, to the Person or Persons entitled
thereto.
7.7 Application of Funds to HouTex Obligations. Any funds received by
Lender from HouTex or from the Individual Guarantors of MMI pursuant to the
exercise of any rights accorded to Lender under the HouTex Guaranty, including,
without limitation, insurance proceeds, condemnation proceeds or proceeds from
the sale of Collateral, shall be applied by Lender in the following order of
priority:
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<PAGE> 34
7.7.1 Expenses. First, to the payment of (i) all fees and
expenses, including, without limitation, reasonable attorneys' fees,
court costs, fees of appraisers, title charges, costs of maintaining
and preserving the Collateral, costs of sale, and all other costs
incurred by the Lender in exercising any rights against HouTex or the
Individual Guarantors accorded to the Lender pursuant to the Loan
Documents or by applicable law and (ii) all Liens superior to the Liens
of Lender, except such superior Liens subject to which any sale of the
Collateral may have been made;
7.7.2 Borrowers' Obligations. Next to the payment of
Borrowers' Obligations owing by HouTex in such order as Lender may
determine; and
7.7.3 Surplus. Any surplus, to the Person or Persons entitled
thereto.
8. CLOSING. The initial closing of the Loans (the "Closing") shall be on
the date hereof (the "Closing Date"), and the Closing shall take place on such
date provided all conditions for the Closing as set forth in this Loan Agreement
have been satisfied. The Closing shall occur at such place and at such time as
the parties hereto shall agree.
9. EXPENSES AND INDEMNITY.
9.1 Attorneys' Fees and Other Fees and Expenses. Each Borrower agrees
to pay to Lender on demand all fees paid and expenses incurred by Lender in
connection with the transactions contemplated hereby and in connection with any
amendments, modifications or waivers (whether or not the same become effective)
under or in respect of any of the Loan Documents, including, without limitation:
9.1.1 Fees and Expenses for Preparation of Loan Documents. All
reasonable fees, expenses and disbursements (including without
limitation, charges for required lien searches, reproduction of
documents, long distance telephone calls and overnight express
carriers) of counsel retained by Lender in connection with the
preparation and negotiation of any of the Loan Documents or any
amendments, modifications or waivers hereto or thereto (whether or not
the same become effective).
9.1.2 Fees and Expenses in Enforcement of Rights or Defense of
Loan Documents. Any reasonable attorneys' fees and expenses or other
costs or expenses incurred by Lender in connection with the enforcement
or collection against the Borrowers or the Individual Guarantors of any
provision of any of the Loan Documents, and in connection with or
arising out of any litigation, investigation or proceeding instituted
by any Governmental Body or any other Person with respect to any of the
Loan Documents, whether or not suit is instituted, including, but not
limited to, such costs or expenses arising from the enforcement or
collection against the Borrowers and the Individual Guarantors of any
provision of any of the Loan Documents in any state or federal
bankruptcy or reorganization proceeding; provided, however, that MMI
shall not be liable for any of the costs or expenses incurred by Lender
in connection with the enforcement or collection of HouTex's
obligations under any of the
29
<PAGE> 35
Loan Documents and HouTex shall not be liable for any of the costs or
expenses incurred by Lender in connection with the enforcement or
collection of MMI's obligations under any of the Loan Documents.
9.2 Indemnity. Each Borrower hereby agrees to indemnify and save Lender
harmless from the following:
9.2.1 Brokerage Fees. The fees, if any, of brokers and finders
incurred by either Borrower.
9.2.2 Securities Violations. Any loss, cost, liability, damage
or expense (including reasonable attorneys' fees and expenses) incurred
by Lender in investigating, preparing for, defending against, or
providing evidence, producing documents or taking other action in
respect of any commenced or threatened litigation, administrative
proceeding, including, without limitation, any suit instituted by any
creditors of the Borrowers or investigation under any statutes, rules
or regulations pertaining to any federal securities law, the United
States Bankruptcy Code, any relevant state corporate statute or any
other securities law, bankruptcy law or law affecting mergers generally
of any jurisdiction, or any regulation pertaining to any of the
foregoing, or at common law or otherwise, relating, directly or
indirectly, to the transactions contemplated by the Loan Documents;
provided, however, that nothing herein is intended to require the
Borrowers to indemnify Lender for any losses, costs, liability, damages
or expenses incurred as a direct result of the gross negligence or
willful misconduct of Lender or its employees or agents.
9.2.3 Operation of Collateral; Joint Venturers. Any loss,
cost, liability, damage or expense (including reasonable attorneys'
fees and expenses) incurred in connection with the ownership, operation
or maintenance of the Collateral, the construction of Lender and the
Borrowers as having the relationship of joint venturers or partners or
the determination that Lender or the Borrowers have acted as agent for
the other.
10. MISCELLANEOUS.
10.1 Notices. Except as expressly provided to the contrary, any
notices, communications and waivers under this Loan Agreement and the other Loan
Documents shall be in writing and shall be (i) delivered in person, (ii) mailed,
postage prepaid, either by registered or certified mail, return receipt
requested, or (iii) sent by overnight express courier, addressed in each case as
follows:
To Lender: LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Mr. James Tucker
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<PAGE> 36
With copy to: Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street, Suite 2700
Chicago, Illinois 60601
Attn: Martin Behn, Esq.
To MMI: Metal Management, Inc.
500 North Dearborn Street, Suite 405
Chicago, Illinois 60610
Attn: President
With copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Chicago, Illinois 60611
Attn: Erhard R. Chorle
To HouTex: HouTex Metals Company, Inc.
21 Japhet Street
Houston, Texas 77020
Attn: Mr. Michael Melnik
With copies to: Metal Management, Inc.
500 North Dearborn Street, Suite 405
Chicago, Illinois 60610
Attn: President
Chamberlin, Hrdlicka, White, Williams & Martin
1200 Smith Street, Suite 1400
Houston, Texas 77002
Attn: Larry Pennoni, Esq.
or to any other address as to any of the parties hereto, as such party shall
designate in a written notice to the other party hereto. All notices sent
pursuant to the terms of this Section shall be deemed received (i) if personally
delivered, then on the date of delivery, (ii) if sent by overnight, express
courier, then on the next federal banking day immediately following the day
sent, or (iii) if sent by registered or certified mail, then on the earlier of
the third federal banking day following the day sent or when actually received.
10.2 Survival of Loan Agreement. All covenants, agreements,
representations and warranties made in this Loan Agreement and in the
certificates delivered pursuant hereto shall survive the initial disbursement of
the Loans and the execution and delivery to Lender of the Notes and of all other
Loan Documents and shall continue in full force and effect so long as any of
Borrowers' Obligations remain outstanding, unperformed or unpaid.
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<PAGE> 37
10.3 Further Assurance. From time to time, the Borrowers shall execute
and deliver to Lender such additional documents as Lender may require to carry
out the purposes of this Loan Agreement and the other Loan Documents and to
protect Lender's rights hereunder and thereunder.
10.4 Taxes and Fees. Should any tax (other than taxes based upon the
net income of Lender), recording or filing fees become payable in respect of any
of the Loan Documents, or any amendment, modification or supplement thereto, the
Borrowers agree to pay the same to Lender on demand, together with any interest
or penalties thereon, and agree to hold Lender harmless with respect thereto.
10.5 Severability. If any provision of this Loan Agreement is deemed to
be invalid by reason of the operation of law, or by reason of the interpretation
placed thereon by any administrative agency or any court, the Borrowers and
Lender shall negotiate an equitable adjustment in the provisions hereof in order
to effect, to the maximum extent permitted by law, the purpose of this provision
and the validity and enforceability of the remaining provisions, and this Loan
Agreement shall otherwise remain in full force and effect.
10.6 Waiver. No delay on the part of Lender in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, and no single or
partial exercise of any right, power or privilege hereunder shall preclude other
or further exercise thereof, or be deemed to establish a custom or course of
dealing or performance between the parties hereto, or preclude the exercise of
any other right, power or privilege.
10.7 Modification of Loan Documents. No modification or waiver of any
provision of any of the Loan Documents shall be effective unless the same shall
be in writing, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
the Borrowers in any case shall entitle them to any other or further notice or
demand in the same, similar or other circumstances.
10.8 Captions. The headings in this Loan Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
10.9 Sale of Interest. Neither Borrower may sell, assign or transfer
this Loan Agreement or any portion thereof, including, without limitation, such
Borrower's right, title, interest, remedies, powers, and/or duties hereunder or
thereunder. Each Borrower hereby consents to Lender's sale, assignment, transfer
or other disposition of its interest in this Loan Agreement and the other Loan
Documents at any time or times. Each Borrower acknowledges and agrees that any
and all such assignees may be provided with information concerning such
Borrower, its operations, business and financial condition and this Loan
Agreement which have been or would be provided to Lender.
10.10 Successors and Assigns. This Loan Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns.
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<PAGE> 38
10.11 Remedies Cumulative. All rights and remedies of Lender pursuant
to this Loan Agreement, any other Loan Documents or otherwise, shall be
cumulative and non-exclusive, and may be exercised singularly or concurrently.
One or more successive actions may be brought against the Borrowers as often as
Lender deems advisable, until all of Borrowers' Obligations are paid and
performed in full.
10.12 Entire Agreement. This Loan Agreement and the other Loan
Documents executed prior or pursuant hereto constitute the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
or thereby and supersede any prior agreements, whether written or oral, relating
to the subject matter hereof.
10.13 APPLICABLE LAW. THE LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS AND DECISIONS OF THE STATE OF ILLINOIS,
UNLESS OTHERWISE PROVIDED THEREIN.
10.14 JURISDICTION AND VENUE. EACH BORROWER HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY SUCH BORROWER AND ARISING DIRECTLY OR
INDIRECTLY OUT OF THE LOAN DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT OF
COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS OR, IF LENDER INITIATES SUCH ACTION, ANY COURT IN WHICH
LENDER SHALL INITIATE SUCH ACTION, TO THE EXTENT SUCH COURT HAS JURISDICTION.
EACH BORROWER HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH
COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR
OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE SENT
PURSUANT TO SECTION 10.1. EACH BORROWER WAIVES ANY CLAIM THAT CHICAGO, ILLINOIS
OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER
FORUM BASED ON LACK OF VENUE. SHOULD A BORROWER, AFTER BEING SO SERVED, FAIL TO
APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN
THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, SUCH BORROWER
SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER
AGAINST SUCH BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT,
PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR BORROWERS SET FORTH IN THIS
SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY
JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION.
10.15 WAIVER OF RIGHT TO JURY TRIAL. LENDER AND THE BORROWERS
ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
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<PAGE> 39
ANY OF THE LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
THEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE
PARTIES AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL
BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
This Loan Agreement has been executed and delivered by each of the
parties hereto by a duly authorized officer of each such party on the date first
set forth above.
METAL MANAGEMENT, INC., a
Delaware corporation
By: /s/ Gerard M. Jacobs
-------------------------------
Title: President
----------------------------
HOUTEX METALS COMPANY, INC., a
Texas corporation
By: /s/ Gerard M. Jacobs
------------------------------
Title: Vice President
---------------------------
LASALLE NATIONAL BANK, a national
banking association
By: /s/ James Tucker
------------------------------
Title: Senior Vice President
---------------------------
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List of Exhibits
A - List of Business Sites (1.1; 4.6.3; 4.25; 4.26)
B - Description of Additional Liens and Indebtedness (1.1; 4.18; 6.1)
C - Description of Financial Statements and Projections (4.9)
D - Environmental Matters (4.15)
E - List of HouTex Officers with Authority to Request Advances (2.1.2)
<PAGE> 1
Exhibit 10.4
REVOLVER NOTE
$3,500,000 January 7, 1997
Chicago, Illinois
1. Loan Amount. FOR VALUE RECEIVED, HOUTEX METALS COMPANY, INC., a
Texas corporation ("Maker"), hereby promises to pay to the order of LASALLE
NATIONAL BANK, a national banking association ("Lender"), the principal sum of
Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000), or such
portion thereof as is now or hereafter disbursed and remains unpaid, at the
place and in the manner hereinafter provided, together with interest thereon at
the rates described below.
2. Definitions. As used in this Note, the following terms shall have
the meanings set forth in this Section 2. Any capitalized terms used in this
Note and not defined herein shall have the meanings ascribed thereto in the Loan
Agreement (as defined below).
"Business Day" means any day other than a Saturday, Sunday or
other day on which Lender is closed.
"Default Rate" means the per annum rate of interest equal to
4% plus the Prime Rate in effect from time to time.
"Event of Default" has the meaning ascribed thereto in Section 10
below.
"Extended Maturity Date" means September 30, 1997.
"Floating Rate" means the per annum rate of interest equal to
1.0% plus the Prime Rate in effect from time to time.
"Loan" means the indebtedness owing by Maker to Lender and evidenced
by this Note.
"Loan Agreement" means that certain Loan Agreement of even
date herewith among Lender, Maker and MMI governing the disbursement
and administration of, and various other matters concerning, the Loan,
as the same may be amended or otherwise modified from time to time.
"Maturity Date" means June 30, 1997.
"MMI" means Metal Management, Inc., a Delaware corporation and
sole shareholder of Maker.
"Prime Rate" means the per annum rate of interest announced or
published publicly from time to time by Lender at its principal place
of business in Chicago, Illinois, as itsprime or equivalent rate of
interest, which rate is not necessarily the lowest rate of interest
charged by Lender with respect to commercial loans.
-1-
<PAGE> 2
3. Floating Rate; Calculation of Interest.
(a) Except as otherwise provided in this Note, interest shall
accrue on the balance of principal remaining from time to time unpaid
under this Note during each calendar month (whether full or partial)
prior to the Maturity Date (or the Extended Maturity Date, if
applicable) at the Floating Rate. The Floating Rate shall change
concurrently with any changes in the Prime Rate and Lender shall not be
obligated to notify Maker of any such changes.
(b) Interest shall be (i) computed on the basis of a year
consisting of 360 days and (ii) payable for the actual number of days
during the period for which interest is being charged.
4. Payments of Interest and Principal. Payments of principal
and interest due under this Note, if not sooner declared to be due in accordance
with the provisions hereof, shall be made as follows:
(a) Accrued and unpaid interest on the outstanding principal
balance of this Note shall be payable in arrears on the first Business
Day of each calendar month beginning on the first Business Day of
February 1997.
(b) The unpaid principal balance of this Note and all accrued
interest thereon and any other sums due and owing to Lender by Maker
under the Loan Documents shall be due and payable in full on the
Maturity Date (or the Extended Maturity Date, if applicable).
(c) Maker shall have the right (the "Extension Right") to
extend the term of this Note for one additional three month period
commencing on the Maturity Date, with the final payment of the unpaid
principal balance of this Note, if not sooner declared to be due in
accordance with the terms hereof, together with all accrued and unpaid
interest thereon, to be due and payable in full on the Extended
Maturity Date, upon and subject to the following terms, provisions and
conditions:
(i) Maker shall give written notice (the "Extension
Notice") to Lender of its election to exercise the Extension
Right no later than May 31, 1997;
(ii) Concurrently with the delivery of the Extension
Notice, Maker shall pay to Lender a nonrefundable extension
fee equal to $25,000; provided, however, that if MMI also
exercises its Extension Right pursuant to the terms and
conditions of the Term Note, the aggregate extension fee due
and payable by Maker and MMI under this Note and the Term Note
shall equal $25,000;
(iii) No Event of Default or event or circumstance
that with the passage of time, the giving of notice or both
would constitute an Event of Default exists as of the date on
which the Extension Notice is delivered or on the Maturity
Date.
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<PAGE> 3
(iv) Except as expressly provided to the contrary in
this Note or the Loan Agreement, all of the other terms,
provisions and conditions of this Note and the other Loan
Documents shall remain in full force and effect in accordance
with their respective terms, including, without limitation,
the obligation to make monthly payments of interest at the
then applicable rate(s) of interest;
(v) There shall have been no material adverse change
in the projected income and expenses of the Individual
Guarantors in the aggregate or Maker, or in any other material
financial information provided by Maker or the Individual
Guarantors to Lender.
(d) This is a revolving credit facility and any portion of the
principal balance of this Note that is repaid may thereafter be
reborrowed, subject to the terms and conditions set forth in the Loan
Agreement.
5. Application. All payments and prepayments on account of the Loan
shall be first applied to accrued and unpaid interest on the unpaid principal
balance of this Note, second, to all other sums (other than principal) then due
Lender hereunder or under any of the other Loan Documents, and third, to the
outstanding balance of the Loan.
6. Default Rate. After maturity or the earlier acceleration of the
indebtedness evidenced by this Note, or if said indebtedness has not been
accelerated, during any period in which an Event of Default exists under this
Note, Maker shall pay interest on the balance of principal remaining unpaid
during any such period at the Default Rate then in effect under this Note. The
interest accruing under this Section shall be immediately due and payable by
Maker to the holder of this Note and shall be additional indebtedness evidenced
by this Note.
7. Late Charge. In the event any payment of interest or principal due
hereunder is not made when such payment is due in accordance with the terms
hereof, then, in addition to the payment of the amount so due, Maker shall pay
to Lender a "late charge" of five cents for each whole dollar so overdue to
defray part of the cost of collection and handling such late payment. Maker
agrees that the damages to be sustained by the holder hereof for the detriment
caused by any late payment is extremely difficult and impractical to ascertain,
and that the amount of five cents for each one dollar due is a reasonable
estimate of such damages, does not constitute interest, and is not a penalty.
8. Prepayment. Maker reserves the right, without cost, premium or
penalty, to prepay all or any part of the indebtedness evidenced by this Note at
any time and from time to time.
9. Loan Documents. This Note is the "Revolver Note" referred to in the
Loan Agreement and is secured by the liens, security interest and encumbrances
created by the Loan Documents. Reference is hereby made to the Loan Documents
(which are incorporated herein by reference as fully and with the same effect as
if set forth herein at length) for a statement of the covenants and agreements
contained therein, a statement of the rights, remedies, and security afforded
thereby, and all matters therein contained.
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<PAGE> 4
10. Events of Default. The occurrence of a HouTex Event of Default
under the terms of the Loan Agreement shall constitute an "Event of Default"
under this Note.
11. Remedies. At the election of the holder hereof, and without notice,
the principal balance remaining unpaid under this Note, and all unpaid interest
accrued thereon, shall be and become immediately due and payable in full upon
the occurrence of any Event of Default. Failure to exercise this option shall
not constitute a waiver of the right to exercise same in the event of the
continuation of such Event of Default or any subsequent Event of Default. No
holder hereof shall, by any act of omission or commission, be deemed to waive
any of its rights, remedies or powers hereunder or otherwise unless such waiver
is in writing and signed by the holder hereof, and then only to the extent
specifically set forth therein. The rights, remedies and powers of the holder
hereof, as provided in this Note and in all of the other Loan Documents are
cumulative and concurrent, and may be pursued singly, successively or together
against Maker and the Individual Guarantors and any security given at any time
to secure the repayment hereof, all at the sole discretion of the holder hereof.
If any suit or action is instituted or attorneys are employed to collect this
Note or any part thereof, and Lender succeeds in obtaining any judgment or other
relief sought, Maker promises and agrees to pay all costs of collection,
including reasonable attorneys' fees and court costs.
12. Waivers. Maker and all others who now or may at any time become
liable for all or any part of the obligations evidenced hereby, expressly agree
hereby to be jointly and severally bound and (i) waive and renounce any and all
homestead, redemption and exemption rights and the benefit of all valuation and
appraisement privileges against the indebtedness evidenced by this Note or by
any extension or renewal hereof; (ii) except for notices and demands expressly
provided for under this Note or any of the other Loan Documents, waive
presentment and demand for payment, notices of nonpayment and of dishonor,
protest of dishonor, and notice of protest; (iii) waive any and all notices in
connection with the delivery and acceptance hereof and all other notices in
connection with the performance, default, or enforcement of the payment hereof
or hereunder, except for notices and demands expressly provided for under this
Note or any of the other Loan Documents; (iv) waive any and all lack of
diligence and delays in the enforcement of the payment hereof; (v) agree that
the liability of each Maker, guarantor, endorser or obligor shall be
unconditional and without regard to the liability of any other person or entity
for the payment hereof, and shall not in any manner be affected by any
indulgence or forbearance granted or consented to by Lender to any of them with
respect hereto; (vi) consent to any and all extensions of time, renewals,
waivers, or modifications that may be granted by Lender with respect to the
payment or other provisions hereof, and to the release of any security at any
time given for the payment hereof, or any part thereof, with or without
substitution, and to the release of any person or entity liable for the payment
hereof; and (vii) consent to the addition of any and all other makers,
endorsers, guarantor, and other obligors for the payment hereof, and to the
acceptance of any and all other security for the payment hereof, and agree that
the addition of any such makers, endorsers, guarantors or other obligors, or
security shall not affect the liability of Maker, any guarantor and all others
now liable for all or any part of the obligations evidenced hereby.
13. Business Loan. The Loan is a business loan which comes within the
purview of Section 205/4, paragraph (1)(c) of Chapter 815 of the Illinois
Compiled Statutes, as amended.
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<PAGE> 5
Maker agrees that the obligation evidenced by this Note is an exempted
transaction under the Truth In Lending Act, 15 U.S.C., Section 1601, et seq.
14. Time of the Essence. Time is of the essence hereof.
15. Governing Law; Modification. This Note is governed and controlled
as to validity, enforcement, interpretation, construction, effect and in all
other respects by the statutes, laws and decisions of the State of Illinois.
This Note may not be changed or amended orally but only by an instrument in
writing signed by the party against whom enforcement of the change or amendment
is sought.
16. No Partnership. Lender shall not be construed for any purpose to be
a partner, joint venturer, agent or associate of Maker or of any partner,
lessee, operator, concessionaire or licensee of Maker in the conduct of their
respective businesses, and by the execution of this Note, Maker agrees to
indemnify, defend, and hold Lender harmless from and against any and all
damages, costs, expenses and liability that may be incurred by Lender as a
result of a claim that Lender is such partner, joint venturer, agent or
associate.
17. Delivery of Note. This Note has been made and delivered at Chicago,
Illinois and all funds disbursed to or for the benefit of Maker will be
disbursed in Chicago, Illinois.
18. Binding Obligation. The obligations and liabilities of Maker under
this Note shall be binding upon and enforceable against Maker and its successors
and assigns. This Note shall inure to the benefit of and may be enforced by
Lender, its successors and assigns.
19. Invalid Provisions. If any provision of this Note is deemed to be
invalid by reason of the operation of law, or by reason of the interpretation
placed thereon by any administrative agency or any court, the validity and
enforceability of the remaining provisions, or portions or applications thereof,
shall not be affected thereby and shall remain in full force and effect.
20. JURISDICTION AND VENUE. MAKER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY MAKER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
NOTE OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT
OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS OR,
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<PAGE> 6
IF LENDER INITIATES SUCH ACTION, ANY COURT IN WHICH LENDER SHALL INITIATE SUCH
ACTION AND WHICH HAS JURISDICTION. MAKER HEREBY EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY LENDER
IN ANY OF SUCH COURTS, AND HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF
SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO MAKER AT THE ADDRESS TO WHICH NOTICES ARE TO BE
SENT PURSUANT TO THE LOAN AGREEMENT. MAKER WAIVES ANY CLAIM THAT CHICAGO,
ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD MAKER, AFTER BEING SO SERVED, FAIL
TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED
WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING THEREOF, MAKER
SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER
AGAINST MAKER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR
PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR MAKER SET FORTH IN THIS SECTION SHALL
NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF ANY JUDGMENT OBTAINED
IN ANY OTHER FORUM OR THE TAKING, BY LENDER, OF ANY ACTION TO ENFORCE THE SAME
IN ANY OTHER APPROPRIATE JURISDICTION, AND MAKER HEREBY WAIVES THE RIGHT, IF
ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR ACTION.
21. WAIVER OF RIGHT TO JURY TRIAL. LENDER AND MAKER ACKNOWLEDGE AND
AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE OR THE OTHER LOAN
DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN
WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE PARTIES
AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, Maker has executed this Note as of the day and year
first written above.
HOUTEX METALS COMPANY, INC., a Texas
corporation
By: /s/ Gerard M. Jacobs
----------------------------------
Title: Vice President
-------------------------------
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<PAGE> 1
Exhibit 10.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and delivered as of the 7th day of
January, 1997, by HOUTEX METALS COMPANY, INC., a Texas corporation ("Debtor"),
to and for the benefit of LASALLE NATIONAL BANK, a national banking association
("Secured Party").
R E C I T A L S:
A. Pursuant to the terms and conditions of a certain Loan Agreement of
even date herewith (the "Loan Agreement") by and among Secured Party, Debtor and
Metal Management, Inc., a Delaware corporation ("MMI"), Secured Party has
agreed, among other things, (i) to make available to Debtor a working capital
line of credit in the maximum principal amount of $3,500,000 (the "Line of
Credit") and (ii) to loan to MMI the principal amount of $6,500,000 (the
"Loan"). Debtor is executing a certain Note of even date herewith (the "Note")
payable to the order of Secured Party to evidence the Line of Credit. All
capitalized terms which are not defined herein shall have the meanings ascribed
thereto in the Loan Agreement.
B. A condition precedent to Secured Party's extension of the Line of
Credit to Debtor is the execution and delivery by Debtor of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. CREATION OF SECURITY INTEREST. Debtor hereby grants to Secured Party
a security interest in and mortgages the property owned by Debtor (except such
property listed on Exhibit C attached hereto) and described as follows
(hereinafter referred to collectively as the "Collateral"):
(a) All apparatus, machinery, devices, fixtures, communication
devices, systems and equipment, fittings, appurtenances, equipment,
appliances, furniture, furnishings, appointments, accessories,
landscaping, plants and all other items of personal property located at
any real property now or hereafter owned by or leased by Debtor or used
in the operation or maintenance of any real property now or hereafter
owned by or leased by Debtor or any business or operation conducted
thereon. All fixtures and equipment now or hereafter installed for use
in the operation of the buildings, structures and improvements now or
hereafter on any real property now or hereafter owned by or leased by
Debtor, including but not limited to, all lighting, heating, cooling,
ventilating, air-conditioning, plumbing, sprinkling, incinerating,
refrigerating, air-cooling, lifting, fire extinguishing, cleaning,
entertaining, security, communicating and electrical and power systems,
and the machinery, appliances, fixtures and equipment pertaining
thereto, all awnings, ovens, stoves, refrigerators, dishwashers,
disposals, carpeting, switchboards, engines, motors, tanks, pumps,
screens, storm doors and windows, shades, floor coverings, ranges,
washers, dryers, disposals, cabinets, furniture, partitions, conduits,
ducts and compressors, and all elevators and escalators and the
machinery and appliances, fixtures and equipment pertaining thereto.
<PAGE> 2
(b) Any and all revenues, receivables and income now owned or
hereafter acquired by Debtor.
(c) Any and all other personal property of any kind, nature or
description, whether tangible or intangible, (including without
limitation, any and all goods, accounts, contract rights, franchises,
licenses, permits, chattel paper, money, deposit accounts, documents,
instruments and general intangibles) of Debtor, whether now owned or
hereafter acquired, or in which Debtor now has or shall hereafter
acquire any right, title or interest whatsoever (whether by bill of
sale, lease, conditional sales contract, or other title retention
document or otherwise).
(d) Any and all additions and accessories to all of the
foregoing and any and all proceeds (including proceeds of insurance,
eminent domain or other governmental takings and tort claims),
renewals, replacements and substitutions of all of the foregoing.
(e) All of the books and records pertaining to the foregoing.
2. SECURED OBLIGATIONS. The security interest created herein is given
as security for the payment of all indebtedness and the performance and
observance of all covenants, conditions, agreements, representations, warranties
and other liabilities and obligations of Debtor to or benefiting Secured Party
which are evidenced, secured or created by this Agreement or the Note
(collectively, the "Obligations").
3. DEBTOR'S COVENANTS. Debtor covenants and agrees as follows:
(a) The Collateral shall not be misused, wasted or allowed to
deteriorate, except for the ordinary wear and tear resulting from its
use or damage resulting from a casualty.
(b) The Collateral shall at all times be insured against loss,
damage, theft, and such other risks as Secured Party may require in
such amounts, with such companies, under such policies, in such form
and for such periods as shall be reasonably satisfactory to Secured
Party, and each policy shall provide that the loss thereunder and the
proceeds payable thereunder shall be payable to Secured Party as its
interest may appear.
(c) The Collateral shall not be used in violation of any
applicable law or regulation.
(d) Debtor shall not sell, transfer, lease or otherwise
dispose of any of the Collateral or any interest therein or offer to do
so other than in the ordinary course of Debtor's business without the
prior written consent of Secured Party, or permit anything to be done
that may impair the value of any of the Collateral or the security
intended to be afforded by this Agreement.
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<PAGE> 3
(e) Debtor shall pay promptly when due all taxes and
assessments upon the Collateral or for its use or operation.
(f) Debtor shall sign and execute alone or with Secured Party
any financing statement or other document or procure any documents and
pay all costs, expenses and fees, including reasonable attorneys' fees,
necessary to protect the security interest under this Agreement against
the rights, interests or claims of third persons.
(g) Debtor shall reimburse Secured Party for all costs,
expenses and fees, including, without limitation, court costs and
reasonable attorneys' fees, incurred by or for Secured Party for any
action taken by or for Secured Party to remedy an Event of Default (as
defined below), together with interest thereon at the Default Rate (as
defined in the Loan Agreement) from the date incurred by Secured Party
until repaid to Secured Party.
(h) Debtor shall (i) from time to time promptly execute and
deliver to Secured Party all such other assignments, certificates,
supplemental writings, and financing statements, and do all other
reasonable acts or things as Secured Party may request in order to more
fully evidence and perfect the security interest created herein; (ii)
punctually and properly perform all of its agreements and obligations
under the Loan Agreement and the Note; (iii) pay the indebtedness
secured hereby in accordance with the terms of the Loan Agreement and
the Note; (iv) promptly furnish Secured Party with any information or
writings which Secured Party may reasonably request concerning the
Collateral; (v) allow Secured Party to inspect all records of Debtor
relating to the Collateral, the Obligations and the business and
operation of Debtor with respect to the Collateral, and to make and
take away copies of such records; (vi) promptly notify Secured Party of
any material adverse change in any facts or circumstances warranted or
represented by Debtor in this Agreement or in any other writing
furnished by Debtor to Secured Party in connection with the Collateral,
the Obligations or the business and operation of Debtor or the
Collateral; (vii) promptly notify Secured Party of any claim, action or
proceeding affecting title to the Collateral, or any part thereof, or
the security interest created herein, and, at the request of Secured
Party, appear in and defend, at Debtor's expense, any such action or
proceeding; and (viii) promptly, after being requested by Secured
Party, pay to Secured Party the amount of all expenses, including
reasonable attorneys' fees and other legal expenses, incurred by
Secured Party in enforcing the security interest created herein,
together with interest thereon at the Default Rate from the date
incurred by Secured Party until the date repaid to Secured Party.
(i) Debtor shall not, without the prior written consent of
Secured Party, create any other security interest in, mortgage, pledge,
or otherwise encumber the Collateral, or any part thereof, or permit
the same to be or become subject to any lien, attachment, execution,
sequestration, other legal or equitable process, or any encumbrance of
any kind or character.
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<PAGE> 4
(j) Should any part of the Collateral ever be in any manner
converted by its issuer or maker into another type of property or any
money or other proceeds ever be paid or delivered to Debtor as a result
of Debtor's rights in the Collateral, then all such property, money and
other proceeds shall become part of the Collateral, and Debtor
covenants to forthwith pay or deliver to Secured Party all of the same
which is susceptible of delivery and, at the same time, if Secured
Party deems it necessary and so requests, Debtor will properly endorse
or assign the same (provided that if no Event of Default then exists,
Debtor shall not be required to deliver to Secured Party cash received
in satisfaction of an account receivable, provided further that nothing
in this clause is intended to affect or otherwise restrict the security
interest granted to Secured Party in the proceeds of all Collateral).
With respect to any of such property of a kind requiring any additional
security agreement, financing statement or other writing to perfect a
security interest therein in favor of Secured Party, Debtor will
forthwith execute and deliver to Secured Party whatever Secured Party
shall deem necessary or proper for such purpose.
(k) Should any covenant, duty or agreement of Debtor fail to
be performed in accordance with its terms hereunder, Secured Party may,
but shall never be obligated to, perform or attempt to perform such
covenant, duty or agreement on behalf of Debtor, and any amount
expended by Secured Party in such performance or attempted performance
shall become a part of the indebtedness secured hereby, and, upon
demand of Secured Party, Debtor agrees to pay such amount promptly to
Secured Party, together with interest thereon at the Default Rate from
the date of such expenditure by Secured Party until repaid to Secured
Party.
4. DEFAULT. An "Event of Default" shall occur under this Agreement only
upon the occurrence of (a) a breach by Debtor of any of the covenants,
agreements, representations, warranties or other provisions hereof which is not
cured or waived within the applicable grace or cure period, if any, set forth in
the Loan Agreement, or (b) a HouTex Event of Default described in the Loan
Agreement.
5. SECURED PARTY'S RIGHTS AND REMEDIES. Secured Party shall have
available to it the following rights and remedies:
(a) Right to Assign. Secured Party may assign this Agreement,
and if Secured Party does assign this Agreement, the assignee shall be
entitled to the performance of all of Debtor's agreements and
obligations under this Agreement, and the assignee shall be entitled to
all the rights and remedies of Secured Party under this Agreement.
Debtor expressly agrees that it will assert no claims or defenses it
may have against Secured Party against the assignee except those
available to it pursuant to this Agreement.
(b) Right to Discharge Debtor's Obligations. Secured Party
may, at its option, discharge taxes, liens or security interests or
other encumbrances at any time levied or placed on the Collateral, may
remedy or cure any default of Debtor under the terms of any
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<PAGE> 5
lease, rental agreement, or other document which in any way pertains to
or affects Debtor's title to or interest in any of the Collateral, may
pay for insurance on the Collateral, and may pay for the maintenance
and preservation of the Collateral, and Debtor agrees to reimburse
Secured Party, on demand, for any payment made or any expense incurred
by Secured Party, including reasonable attorneys' fees, pursuant to the
foregoing authorization, together with interest at the Default Rate
from the date so paid or incurred by Secured Party until repaid to
Secured Party, which payments, expenses and interest shall be secured
by this Agreement and by the other Loan Documents.
(c) Rights as Secured Creditor. Upon the occurrence of an
Event of Default, Secured Party, in its sole and absolute discretion,
may: (a) exercise any one or more of the rights and remedies afforded
to secured parties under the Uniform Commercial Code in force in the
State(s) in which the Collateral is located, together with any and all
other rights and remedies otherwise provided and available to Secured
Party at law or in equity; (b) enter, with process of law and without
breach of the peace, any premises where the Collateral (or the books
and records of Debtor related thereto) is or may be located, and
without charge or liability to Secured Party therefor seize and remove
the Collateral (and copies of Debtor's books and records in any way
relating to the Collateral) from said premises and/or remain upon said
premises and use the same (together with said books and records) for
the purpose of collecting, preparing and liquidating the Collateral,
all without cost to Secured Party; and (c) upon prior notice to Debtor
as required by this Agreement, sell or otherwise dispose of the
Collateral at public or private sale or auction for cash or credit
(which sale or auction may, at the option of Secured Party, occur on
the premises where the Collateral is located or elsewhere, at no cost
to Secured Party) and from the proceeds of such sale or disposal retain
(i) all costs and charges incurred by Secured Party in taking and
causing the removal and sale or disposal of the Collateral, including
reasonable attorneys' fees; and (ii) an amount equal to all other
Obligations; provided, however, that Debtor shall be credited with the
net proceeds of such sale only when such proceeds are actually received
by Secured Party.
(d) Assembly of Collateral; Injunctive Relief. Upon the
occurrence of an Event of Default, Debtor, immediately upon demand by
Secured Party, shall assemble the Collateral and make it available to
Secured Party at a place or places to be designated by Secured Party at
Debtor's primary place of business or other reasonable locations within
Texas. Debtor hereby acknowledges and agrees that if Debtor fails to
perform, observe or discharge any of its obligations or liabilities
under this Agreement, no remedy of law shall provide adequate relief to
Secured Party, and that Secured Party shall be entitled to temporary
and permanent injunctive relief in any such case without the necessity
of proving actual damages or the posting of bond, surety or other
security.
(e) Notice of Collateral Disposition. Any notice required to
be given by Secured Party of a sale, lease or other disposition of the
Collateral or any other intended action by Secured Party, sent by
registered or certified United States mail, postage prepaid
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<PAGE> 6
and duly addressed to Debtor at Debtor's address set forth in the Loan
Agreement not less than ten days prior to such proposed action, shall
constitute commercially reasonable and fair notice to Debtor thereof.
(f) Matters Regarding Sale of Collateral. Debtor agrees that
Secured Party may, if Secured Party deems it reasonable, postpone or
adjourn any sale of Collateral from time to time by an announcement at
the time and place of sale or by announcement at the time and place of
such postponed or adjourned sale, without being required to give a new
notice of sale. Debtor also waives and releases any right of Debtor to
redeem the Collateral from such sale. At any sale or sales made
pursuant to this Agreement or in a suit to foreclose the same, the
Collateral, at the option of Secured Party or its assigns, may be sold
in its entirety or separately, at the same or at different times, and
the Collateral need not be present at the time or place of sale. At any
such sale, Secured Party or the holder of the indebtedness hereby
secured may bid for and purchase any of the property sold,
notwithstanding that such sale is conducted by Secured Party or its
attorneys, agents, or assigns, and no irregularity in the manner of
sale or of giving notice shall operate to preclude Secured Party from
recovering the Obligations.
(g) Replevin. If Secured Party seeks possession of the
Collateral through replevin or other court action, Debtor hereby
irrevocably waives (i) any bond, surety or security required as an
incident to such possession, and (ii) any demand by Secured Party for
possession of the Collateral prior to the commencement of any such suit
or action.
(h) Enforcement Standards. Secured Party shall have the right
at all times to enforce the provisions of this Agreement in strict
accordance with the terms hereof, notwithstanding any conduct or custom
on the part of Secured Party in refraining from so doing at any time or
times. The failure of Secured Party at any time or times to enforce its
rights under said provisions strictly in accordance with the same shall
not be construed or operate as a waiver of any of the rights and
remedies granted Secured Party hereunder or as having created a custom
in any way or manner contrary to the specific provisions of this
Agreement or as having in any way or manner modified the same. All
rights and remedies of Secured Party are cumulative and concurrent, and
the exercise of one right or remedy by Secured Party shall not be
deemed a waiver or release of any other right or remedy.
6. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants that:
(a) Debtor has authority to execute and deliver this
Agreement;
(b) no financing statement covering the Collateral, or any
part thereof, has been filed and remains in effect;
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<PAGE> 7
(c) no other security agreement covering the Collateral, or
any part thereof, has been made and no security interest, other than
the one herein created, has attached or been perfected in the
Collateral or in any part thereof;
(d) no material dispute, right of setoff, counterclaim or
defense exists with respect to any part of the Collateral;
(e) all information supplied and statements made in any
financial or credit statements or application for credit prior to the
execution of this Agreement are true and correct in all material
respects as of the date hereof;
(f) at the time Secured Party's security interest attaches to
any of the Collateral or its proceeds, Debtor will be the lawful owner
with the right to transfer any interest therein, and Debtor will make
such further assurances as to prove Secured Party's security interest
in the Collateral as may be required and will defend the Collateral and
its proceeds against the lawful claims and demands of all persons
whomsoever.
(g) There is listed on EXHIBIT A hereto the location of the
principal place of business of Debtor, all of the other places of
business of Debtor and all locations where all tangible Collateral and
the books and records of Debtor are kept. Debtor shall not change the
location of (i) its places of business or its books and records, or
(ii) any tangible Collateral, without in each case providing not less
than thirty days prior written notice thereof to Secured Party.
(h) All trade or assumed names under which Debtor is doing
business or proposes to do business are listed on EXHIBIT B. Debtor
shall give Secured Party not less than thirty days prior written notice
of any change in Debtor's name or any new or change in any trade name
that Debtor uses in its business.
The delivery at any time by Debtor to Secured Party of the Collateral shall
constitute a representation and warranty by Debtor that, with respect to such
Collateral, and each item thereof, Debtor is owner of the Collateral and the
matters heretofore represented and warranted in this Paragraph 6 are true and
correct. Further, Debtor, upon the request of Secured Party, agrees to amend
this Agreement and any and all financing statements filed in connection
therewith for the purpose of setting forth in said Agreement and said financing
statements an accurate and itemized list of the Collateral now generally
described herein and in said financing statements and to include in said
accurate and itemized list an identification of the Collateral by make, model,
serial number and other appropriate descriptive data.
7. SUBROGATION. If the Obligations, or any part thereof, are renewed or
extended, or applied toward the payment of any indebtedness secured by any
mortgage, pledge, security agreement or other lien, Secured Party shall be and
is hereby subrogated to all of the rights, titles, security interests and other
liens securing the indebtedness so renewed, extended or paid.
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8. FURTHER AGREEMENTS.
(a) "Debtor" and "Secured Party" as used in this Agreement
include the legal representatives, successors and assigns of those
parties.
(b) Neither Debtor nor Secured Party shall be bound by any
amendment not expressed in writing and signed by the party to be bound
thereby.
(c) It is expressly intended, understood and agreed: (i) that
this Agreement is made and entered into for the sole protection and
benefit of Secured Party and Debtor, and their successors and assigns
and no other person or persons shall have any right of action hereunder
or rights to the proceeds of the Line of Credit at any time; (ii) that
the proceeds of the Line of Credit do not constitute a trust fund for
the benefit of any third party; and (iii) that no third party shall
under any circumstances be entitled to any equitable lien on any
undisbursed proceeds of the Line of Credit at any time. The
relationship between Secured Party and Debtor is solely that of a
lender and borrower, and nothing contained herein, or in the Note or
the Loan Agreement shall in any manner be construed as making the
parties hereto partners, joint venturers or as creating any
relationship other than lender and borrower.
(d) This Agreement shall be construed in accordance with and
governed by the laws of the State of Illinois. In the event that any
provision of this Agreement is deemed to be invalid by reason of the
operation of law, or by reason of the interpretation placed thereon by
any administrative agency or any court, Debtor and Secured Party shall
negotiate an equitable adjustment in the provisions of the same in
order to effect, to the maximum extent permitted by law, the purpose of
this Agreement and the validity and enforceability of the remaining
provisions, or portions or applications thereof, shall not be affected
thereby and shall remain in full force and effect.
(e) To the extent permitted by law, Debtor hereby waives any
and all rights to require marshalling of assets.
(f) All notices, demands, requests and other correspondence
which are required or permitted to be given hereunder shall be deemed
sufficiently given when delivered or mailed in the manner and to the
address of Debtor or Secured Party, as the case may be, as specified in
the Loan Agreement.
(g) This Agreement shall inure to the benefit of Secured Party
and its successors and assigns and shall be binding upon Debtor and its
successors and assigns.
(h) DEBTOR AND SECURED PARTY ACKNOWLEDGE AND AGREE THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THE LOAN AGREEMENT, THIS AGREEMENT OR
THE NOTE OR WITH
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RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN WOULD BE
BASED UPON DIFFICULT AND COMPLEX ISSUES. ACCORDINGLY, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, DEBTOR AND SECURED PARTY HEREBY
KNOWINGLY AND VOLUNTARILY MUTUALLY (A) WAIVE THE RIGHT TO TRIAL BY JURY
IN ANY CIVIL ACTION, CLAIM, COUNTERCLAIM, CROSS-CLAIM, THIRD- PARTY
CLAIM, DISPUTE, DEMAND, SUIT OR PROCEEDING ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE LOAN AGREEMENT, THIS AGREEMENT OR THE NOTE, OR ANY
RENEWAL, EXTENSION OR MODIFICATION THEREOF, OR ANY CONDUCT OF ANY PARTY
RELATING THERETO, AND (B) AGREE THAT ANY SUCH ACTION, CLAIM, SUIT OR
PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
HOUTEX METALS COMPANY, INC., a LASALLE NATIONAL BANK, a national
Texas corporation banking association
By: /s/ Gerard M. Jacobs By: /s/ James Tucker
---------------------------- ------------------------------
Title: Vice President Title: Senior Vice President
-------------------------- ----------------------------
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EXHIBIT A
Locations of Property and Records
<PAGE> 11
EXHIBIT B
Names of Debtor
<PAGE> 1
Exhibit 10.6
TERM NOTE
$6,500,000 January 7, 1997
Chicago, Illinois
1. Loan Amount. FOR VALUE RECEIVED, METAL MANAGEMENT, INC., a
Delaware corporation ("Maker"), hereby promises to pay to the order of LASALLE
NATIONAL BANK, a national banking association ("Lender"), the principal sum of
Six Million Five Hundred Thousand and No/100 Dollars ($6,500,000), or such
portion thereof as is now or hereafter disbursed and remains unpaid, at the
place and in the manner hereinafter provided, together with interest thereon at
the rates described below.
2. Definitions. As used in this Note, the following terms shall
have the meanings set forth in this Section 2. Any capitalized terms used in
this Note and not defined herein shall have the meanings ascribed thereto in the
Loan Agreement (as defined below).
"Business Day" means any day other than a Saturday, Sunday or
other day on which Lender is closed.
"Commercial Paper Rate" means the per annum rate of interest
on overnight commercial paper issued by LaSalle National Corporation
from time to time.
"Default Rate" means the per annum rate of interest equal to
4% plus the Prime Rate in effect from time to time.
"Event of Default" has the meaning ascribed thereto in Section
16 below.
"Extended Maturity Date" means September 30, 1997.
"Fixed Rate" means, with respect to a LIBOR Loan for any
Interest Period, a fixed interest rate per annum equal to the sum of
(i) the LIBOR Rate applicable to such Interest Period, and (ii) the
Interest Margin.
"Floating Loan" means the portion of the outstanding principal
balance of the Loan that is bearing interest at the Floating Rate.
"Floating Rate" means the per annum rate of interest equal to
the Prime Rate in effect from time to time.
"HouTex" means HouTex Metals Company, Inc., a Texas
corporation and a wholly-owned subsidiary of Maker.
"Interest Margin" means 1.75%; provided, however, that the
Interest Margin shall be reduced from 1.75% to 0.90% during any period
in which Lender has been granted a first
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perfected security interest in marketable securities acceptable to
Lender with a fair market value of not less than $10,000,000 as
security for the repayment of the Loan.
"Interest Period" has the meaning ascribed to such term in
Section 6 below.
"Interest Rate Determination Date" means, with respect to any
Interest Period, the date that is two Business Days prior to the first
day of such Interest Period.
"LIBOR Loan" means each portion of the outstanding principal
balance of the Loan that is bearing interest at an applicable Fixed
Rate.
"LIBOR Rate" means, with respect to any LIBOR Loan, the per
annum rate of interest equal to the quotient obtained by dividing (i)
the per annum rate of interest at which United States dollar deposits
in an amount equal to the amount of such LIBOR Loan are generally
offered to Lender in the London interbank Eurodollar market at 11:00
a.m. in London, England, on the applicable Interest Determination Date
for a period equal to the Interest Period applicable to such LIBOR
Loan, by (ii) the difference between 100% and any applicable reserve
requirements (stated as a percentage and rounded upward to the nearest
whole multiple of 1/100th of one percent per annum (including, without
limitation, any applicable maximum reserve requirements for
"Eurocurrency Liabilities" under Regulation D of the Board of Governors
of the Federal Reserve System, or any similar reserves under any
successor regulations)).
"LIBOR Rate Taxes" has the meaning ascribed thereto in Section
10 below.
"Loan" means the indebtedness owing by Maker to Lender and
evidenced by this Note.
"Loan Agreement" means that certain Loan Agreement of even
date herewith among Lender, Maker and HouTex governing the disbursement
and administration of, and various other matters concerning, the Loan,
as the same may be amended or otherwise modified from time to time.
"Loan Rates" means the interest rates applicable to the
Floating Loan and each outstanding LIBOR Loan, if applicable.
"Maturity Date" means June 30, 1997.
"Prime Rate" means the per annum rate of interest announced or
published publicly from time to time by Lender at its principal place
of business in Chicago, Illinois, as its prime or equivalent rate of
interest, which rate is not necessarily the lowest rate of interest
charged by Lender with respect to commercial loans.
3. Floating Rate; Calculation of Interest.
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(a) Except as otherwise provided in this Note, interest shall
accrue on the balance of principal remaining from time to time unpaid
under this Note during each calendar month (whether full or partial)
prior to the Maturity Date (or the Extended Maturity Date, if
applicable) at the Floating Rate. The Floating Rate shall change
concurrently with any changes in the Prime Rate and Lender shall not be
obligated to notify Maker of any such changes.
(b) Interest shall be (i) computed on the basis of a year
consisting of 360 days and (ii) payable for the actual number of days
during the period for which interest is being charged.
4. Payments of Interest and Principal. Payments of principal
and interest due under this Note, if not sooner declared to be due in accordance
with the provisions hereof, shall be made as follows:
(a) Accrued and unpaid interest on the outstanding principal
balance of this Note shall be payable in arrears on the first Business
Day of each calendar month beginning on the first Business Day of
February 1997. Furthermore, interest shall be payable on any LIBOR Loan
on the last day of the Interest Period applicable to such LIBOR Loan.
(b) The unpaid principal balance of this Note and all accrued
interest thereon and any other sums due and owing to Lender by Maker
under the Loan Documents shall be due and payable in full on the
Maturity Date (or the Extended Maturity Date, if applicable).
(c) Maker shall have the right (the "Extension Right") to
extend the term of this Note for one additional three month period
commencing on the Maturity Date, with the final payment of the unpaid
principal balance of this Note, if not sooner declared to be due in
accordance with the terms hereof, together with all accrued and unpaid
interest thereon, to be due and payable in full on the Extended
Maturity Date, upon and subject to the following terms, provisions and
conditions:
(i) Maker shall give written notice (the "Extension
Notice") to Lender of its election to exercise the Extension
Right no later than May 31, 1997;
(ii) Concurrently with the delivery of the Extension
Notice, Maker shall pay to Lender a nonrefundable extension
fee equal to $25,000; provided, however, that if HouTex also
exercises its Extension Right pursuant to the terms and
conditions of the Revolver Note, the aggregate extension fee
due and payable by Maker and HouTex under this Note and the
Revolver Note shall equal $25,000;
(iii) No Event of Default or event or circumstance
that with the passage of time, the giving of notice or both
would constitute an Event of Default exists as of the date on
which the Extension Notice is delivered or on the Maturity
Date.
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(iv) Except as expressly provided to the contrary in
this Note or the Loan Agreement, all of the other terms,
provisions and conditions of this Note and the other Loan
Documents shall remain in full force and effect in accordance
with their respective terms, including, without limitation,
the obligation to make monthly payments of interest at the
then applicable rate(s) of interest;
(v) There shall have been no material adverse change
in the projected income and expenses of the Individual
Guarantors in the aggregate or Maker, or in any other material
financial information provided by Maker or the Individual
Guarantors to Lender.
(d) This is not a revolving credit facility and any portion of
the principal balance of this Note that is repaid may not be
reborrowed.
(e) All payments and prepayments of the principal balance of
this Note shall be applied first toward the Floating Loan, if
applicable. If such payments or prepayments are in excess of the
outstanding principal balance of the Floating Loan then, at Maker's
option, either (i) such excess shall be applied against one or more
LIBOR Loans, if applicable (such application to be made first against
those LIBOR Loans with the earliest Interest Period expiration dates),
in which event Maker shall pay, concurrently with the repayment of such
LIBOR Loans, all of Lender's damages, costs and expenses (including
prepayment premiums) arising in connection with the repayment of such
LIBOR Loans (as more fully described below); or (ii) if applicable,
Lender shall hold such excess (with interest being payable by Lender to
Maker on the amount so held at the Commercial Paper Rate in effect on
the date of such prepayment) until the next following expiration
date(s) of existing Interest Period(s), at which time Lender shall
apply such excess (plus interest accrued thereon as aforesaid) toward
repayment of the LIBOR Loans to which such expiring Interest Period(s)
apply until all of such excess is so applied. If the option described
in clause (ii) above is selected, interest at the applicable Loan Rates
shall continue to accrue and be payable to Lender on the entire
outstanding principal balance of this Note (including those portions
which will be repaid by such excess amount at the expiration of the
applicable Interest Periods).
5. Conversion to or Continuation of LIBOR Loan.
(a) Notwithstanding anything to the contrary set forth above,
but subject to the provisions of Sections 6 and 7 below, Maker shall
have the option (i) to convert at any time the interest rate charged on
all or any part of the Floating Loan (in excess of the minimum amount
set forth below) from the Floating Rate to a Fixed Rate; and (ii) upon
the expiration of any Interest Period applicable to a LIBOR Loan, to
continue all or any portion of the same as a LIBOR Loan, and the
succeeding Interest Period of such continued LIBOR Loan shall commence
on the expiration date of the Interest Period applicable thereto,
provided that no portion of the principal balance of the Loan may be
continued as, or be converted into, a LIBOR Loan when any Event of
Default has occurred and is continuing. Any partial
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<PAGE> 5
conversion to or continuation of a LIBOR Loan under this Section shall
be in a minimum amount of $1,000,000. At the end of any Interest Period
with respect to any LIBOR Loan, the portion of the principal balance
constituting such LIBOR Loan shall automatically become part of the
Floating Loan unless Maker has properly exercised an option to continue
such LIBOR Loan as provided herein.
(b) If Maker desires to convert all or a portion of the
Floating Loan to a LIBOR Loan or to continue all or any portion of a
LIBOR Loan as the same, Maker shall notify Lender no later than 10:00
a.m. (Chicago time) on the third Business Day prior to the proposed
conversion or continuation date. Each notice shall specify (i) the
proposed conversion or continuation date (which shall be a Business
Day), (ii) the portion of the principal amount of the Floating Loan to
be converted to or continued as a LIBOR Loan, and (iii) the requested
Interest Period.
(c) Any notice for conversion to a LIBOR Loan, or continuation
of a LIBOR Loan, shall be irrevocable and Maker shall be bound to
convert or continue the LIBOR Loan in accordance therewith.
6. Interest Periods. By giving notice as required under this Note,
Maker shall have the option, subject to the other provisions of this Section ,
to specify an interest period of 30, 60, or 90 days (each an "Interest Period")
during which all or a portion of the Loan shall bear interest at the applicable
Fixed Rate. The determination of Interest Periods shall be subject to the
following provisions:
(a) In the case of immediately successive Interest Periods
with respect to a continued LIBOR Loan, each successive Interest Period
shall commence on the day on which the immediately preceding Interest
Period expires;
(b) If any Interest Period would otherwise expire on a day
which is not a Business Day, the Interest Period shall be extended to
expire on the next succeeding Business Day (unless the next succeeding
Business Day is in the next calendar month, in which event the Interest
Period shall expire on the immediately preceding Business Day);
(c) Maker may not select an Interest Period which terminates
later than the Maturity Date (or the Extended Maturity Date, if the
Extension Right has been timely and properly exercised prior to the
selection of the Interest Period); and
(d) There shall be no more than two separate Interest Periods
(and, therefore, no more than two separate LIBOR Loans) in effect at
any one time.
7. Special Provisions Governing LIBOR Loans.
(a) If Maker has elected to convert to or continue a LIBOR
Loan, then, as soon as practicable on the Interest Rate Determination
Date applicable to such LIBOR Loan,
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<PAGE> 6
Lender shall determine (which determination shall conclusively be
deemed to be correct absent manifest error) the Fixed Rate which shall
apply to the requested LIBOR Loan and shall promptly give notice
thereof to Maker. If on any Interest Rate Determination Date Lender is
unable to obtain the applicable LIBOR Rate quotations, Lender shall
give Maker prompt notice thereof and the LIBOR Loan requested shall
continue to bear interest (or, in the case of a requested continuation
of a LIBOR Loan, shall commence bearing interest at the end of the then
current Interest Period therefor) at the Floating Rate.
(b) If, with respect to any Interest Period, (i) any change
occurs in any applicable law or governmental rule, regulation or order
(or any interpretation thereof and including the introduction of any
new law or governmental rule, legislation or order) affecting the
London interbank Eurodollar market for such Interest Period or (ii)
other circumstances affecting the London interbank Eurodollar market
for such Interest Period results in the then applicable Fixed Rates not
adequately reflecting the cost to Lender of making, funding or
maintaining the LIBOR Loans, Lender may, at its election, give notice
thereof to Maker, whereupon until Lender has determined that the
circumstances giving rise to such inadequacy no longer exist, (A) the
right of Maker to elect to have any portion of the Loan bear interest
at the Fixed Rate shall be suspended for such Interest Period, and (B)
each outstanding LIBOR Loan shall bear interest at the Floating Rate
commencing on the last day of the then current Interest Period
therefor, notwithstanding any prior election by Maker to the contrary.
8. Illegality. If Lender shall have reasonably determined that the
making or continuation of any LIBOR Loan has become prohibited or otherwise
unlawful under any law, governmental rule, regulation or order of any
governmental body, then Lender shall promptly give notice to Maker of such
determination. Upon delivery of such notice, Maker's right to request Lender to
make LIBOR Loans shall be immediately suspended to the extent unlawful, as
specified in such notice, and if any LIBOR Loans are then outstanding, each such
LIBOR Loan shall, if required by law, immediately commence bearing interest at
the Floating Rate in lieu of the applicable Fixed Rate. If Lender determines at
any time following delivery of the aforementioned notice that Lender may
lawfully make LIBOR Loans of the type referred to in such notice, Lender shall
promptly give notice to Maker of such determination, whereupon Maker's right to
request LIBOR Loans of such type shall be restored.
9. Reimbursement for Losses and Expenses; Increased Capital.
(a) Maker shall compensate Lender, within three Business Days
following Maker's receipt of the written statement described below, for
all actual losses, expenses and liabilities (including, without
limitation, any loss or expense incurred by reason of liquidation or
reemployment of deposits or other funds acquired by Lender to fund or
maintain the LIBOR Loans to Maker) that Lender may sustain in
connection with the funding or maintenance of LIBOR Loans (except to
the extent resulting from Lender's negligent or intentional error),
including, without limitation, expenses and liabilities incurred (i) if
such LIBOR Loans are not made when requested, (ii) if any prepayment of
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any LIBOR Loan occurs for any reason on a date that is not the last day
of the applicable Interest Period, or (iii) as a consequence of any
required conversion of the interest rate applicable to a LIBOR Loan to
a Floating Rate in the circumstances described in this Note. Lender
shall deliver to Maker a written statement of such losses, expenses and
liabilities promptly after the same have been determined (including the
reason therefor and the calculation thereof), and such statement shall
conclusively be deemed to be correct absent manifest error.
(b) If either (i) the introduction of or any change in (or a
change in the authoritative interpretation of) any law or regulation
regarding capital adequacy or (ii) compliance by Lender with any
guideline from any central bank or other governmental body regarding
capital adequacy (whether or not having the force of law and whether or
not the failure to comply therewith would be unlawful) has the effect
of reducing the rate of return on Lender's capital as a consequence of
its obligations hereunder to fund or maintain LIBOR Loans to a level
below that which Lender would have achieved but for such introduction,
change or compliance, then, upon demand by Lender, Maker shall, within
three Business Days following Maker's receipt of the statement
described below, pay to Lender additional amounts sufficient to
compensate Lender for such reduction. Lender shall deliver to Maker a
written statement of such amounts promptly after the same have been
determined, and such statement shall conclusively be deemed to be
correct absent manifest error.
10. LIBOR Rate Taxes. Maker agrees that:
(a) Maker shall pay, prior to the date on which penalties
attach thereto, all present and future stamp and other taxes, levies,
or costs and charges whatsoever imposed, assessed, levied or collected
on or in respect of the Loan as a result of the interest rate being
determined by reference to the LIBOR Rate or any payments of principal,
interest or other amounts made on or in respect of a LIBOR Loan (all
such taxes, levies, costs and charges being herein collectively called
"LIBOR Rate Taxes"); provided, however, that LIBOR Rate Taxes shall not
include income or franchise taxes imposed by any jurisdic tion (except
that Maker shall be liable for the payment of the amount of any
additional net income or franchise taxes actually incurred by Lender
and directly attributable to payments made by Maker pursuant to this
Section ).
(b) Maker shall indemnify Lender against, and reimburse Lender
within five Business Days after demand for, any LIBOR Rate Taxes paid
by Lender.
11. Application. Subject to the provisions of Section 4 above, all
payments and prepayments on account of the Loan shall be first applied to
accrued and unpaid interest on the unpaid principal balance of this Note,
second, to all other sums (other than principal) then due Lender hereunder or
under any of the other Loan Documents, third, to the outstanding balance of the
Floating Loan, and the remainder, if any, to the outstanding balances of the
LIBOR Loans in such manner and order as Lender determines.
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<PAGE> 8
12. Default Rate. After maturity or the earlier acceleration of the
indebtedness evidenced by this Note, or if said indebtedness has not been
accelerated, during any period in which an Event of Default exists under this
Note, Maker shall pay interest on the balance of principal remaining unpaid
during any such period at the Default Rate then in effect under this Note. The
interest accruing under this Section shall be immediately due and payable by
Maker to the holder of this Note and shall be additional indebtedness evidenced
by this Note.
13. Late Charge. In the event any payment of interest or principal due
hereunder is not made when such payment is due in accordance with the terms
hereof, then, in addition to the payment of the amount so due, Maker shall pay
to Lender a "late charge" of five cents for each whole dollar so overdue to
defray part of the cost of collection and handling such late payment. Maker
agrees that the damages to be sustained by the holder hereof for the detriment
caused by any late payment is extremely difficult and impractical to ascertain,
and that the amount of five cents for each one dollar due is a reasonable
estimate of such damages, does not constitute interest, and is not a penalty.
14. Prepayment. Maker reserves the right, without cost, premium or
penalty (except as provided in Sections 4 and 9 above), to prepay all or any
part of the indebtedness evidenced by this Note at any time and from time to
time.
15. Loan Documents. This Note is the "Term Note" referred to in the
Loan Agreement and is secured by the liens, security interest and encumbrances
created by the Loan Documents. Reference is hereby made to the Loan Documents
(which are incorporated herein by reference as fully and with the same effect as
if set forth herein at length) for a statement of the covenants and agreements
contained therein, a statement of the rights, remedies, and security afforded
thereby, and all matters therein contained.
16. Events of Default. The occurrence of an MMI Event of Default under
the terms of the Loan Agreement shall constitute an "Event of Default" under
this Note.
17. Remedies. At the election of the holder hereof, and without notice,
the principal balance remaining unpaid under this Note, and all unpaid interest
accrued thereon, shall be and become immediately due and payable in full upon
the occurrence of any Event of Default. Failure to exercise this option shall
not constitute a waiver of the right to exercise same in the event of the
continuation of such Event of Default or any subsequent Event of Default. No
holder hereof shall, by any act of omission or commission, be deemed to waive
any of its rights, remedies or powers hereunder or otherwise unless such waiver
is in writing and signed by the holder hereof, and then only to the extent
specifically set forth therein. The rights, remedies and powers of the holder
hereof, as provided in this Note and in all of the other Loan Documents are
cumulative and concurrent, and may be pursued singly, successively or together
against Maker and the Individual Guarantors and any security given at any time
to secure the repayment hereof, all at the sole discretion of the holder hereof.
If any suit or action is instituted or attorneys are employed to collect this
Note or any part thereof, and Lender succeeds in obtaining any judgment or other
relief
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<PAGE> 9
sought, Maker promises and agrees to pay all costs of collection, including
reasonable attorneys' fees and court costs.
18. Waivers. Maker and all others who now or may at any time become
liable for all or any part of the obligations evidenced hereby, expressly agree
hereby to be jointly and severally bound and (i) waive and renounce any and all
homestead, redemption and exemption rights and the benefit of all valuation and
appraisement privileges against the indebtedness evidenced by this Note or by
any extension or renewal hereof; (ii) except for notices and demands expressly
provided for under this Note or any of the other Loan Documents, waive
presentment and demand for payment, notices of nonpayment and of dishonor,
protest of dishonor, and notice of protest; (iii) waive any and all notices in
connection with the delivery and acceptance hereof and all other notices in
connection with the performance, default, or enforcement of the payment hereof
or hereunder, except for notices and demands expressly provided for under this
Note or any of the other Loan Documents; (iv) waive any and all lack of
diligence and delays in the enforcement of the payment hereof; (v) agree that
the liability of each Maker, guarantor, endorser or obligor shall be
unconditional and without regard to the liability of any other person or entity
for the payment hereof, and shall not in any manner be affected by any
indulgence or forbearance granted or consented to by Lender to any of them with
respect hereto; (vi) consent to any and all extensions of time, renewals,
waivers, or modifications that may be granted by Lender with respect to the
payment or other provisions hereof, and to the release of any security at any
time given for the payment hereof, or any part thereof, with or without
substitution, and to the release of any person or entity liable for the payment
hereof; and (vii) consent to the addition of any and all other makers,
endorsers, guarantor, and other obligors for the payment hereof, and to the
acceptance of any and all other security for the payment hereof, and agree that
the addition of any such makers, endorsers, guarantors or other obligors, or
security shall not affect the liability of Maker, any guarantor and all others
now liable for all or any part of the obligations evidenced hereby.
19. Business Loan. The Loan is a business loan which comes within the
purview of Section 205/4, paragraph (1)(c) of Chapter 815 of the Illinois
Compiled Statutes, as amended. agrees that the obligation evidenced by this
Note is an exempted transaction under the Truth In Lending Act, 15 U.S.C.,
Section 1601, et seq.
20. Time of the Essence. Time is of the essence hereof.
21. Governing Law; Modification. This Note is governed and controlled
as to validity, enforcement, interpretation, construction, effect and in all
other respects by the statutes, laws and decisions of the State of Illinois.
This Note may not be changed or amended orally but only by an instrument in
writing signed by the party against whom enforcement of the change or amendment
is sought.
22. No Partnership. Lender shall not be construed for any purpose to be
a partner, joint venturer, agent or associate of Maker or of any partner,
lessee, operator, concessionaire or licensee of Maker in the conduct of their
respective businesses, and by the execution of this Note, Maker agrees to
indemnify, defend, and hold Lender harmless from and against any and all
damages, costs,
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<PAGE> 10
expenses and liability that may be incurred by Lender as a
result of a claim that Lender is such partner, joint venturer, agent or
associate.
23. Delivery of Note. This Note has been made and delivered at Chicago,
Illinois and all funds disbursed to or for the benefit of Maker will be
disbursed in Chicago, Illinois.
24. Binding Obligation. The obligations and liabilities of Maker under
this Note shall be binding upon and enforceable against Maker and its successors
and assigns. This Note shall inure to the benefit of and may be enforced by
Lender, its successors and assigns.
25. Invalid Provisions. If any provision of this Note is deemed to be
invalid by reason of the operation of law, or by reason of the interpretation
placed thereon by any administrative agency or any court, the validity and
enforceability of the remaining provisions, or portions or applications thereof,
shall not be affected thereby and shall remain in full force and effect.
26. JURISDICTION AND VENUE. MAKER HEREBY AGREES THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY MAKER AND ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
NOTE OR ANY OF THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE CIRCUIT COURT
OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS OR, IF LENDER INITIATES SUCH ACTION, ANY COURT IN WHICH
LENDER SHALL INITIATE SUCH ACTION AND WHICH HAS JURISDICTION. MAKER HEREBY
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<PAGE> 11
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING COMMENCED BY LENDER IN ANY OF SUCH COURTS, AND HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN,
AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO MAKER AT THE ADDRESS TO
WHICH NOTICES ARE TO BE SENT PURSUANT TO THE LOAN AGREEMENT. MAKER WAIVES ANY
CLAIM THAT CHICAGO, ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD MAKER,
AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS, COMPLAINT,
PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER
THE MAILING THEREOF, MAKER SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR
JUDGMENT MAY BE ENTERED BY LENDER AGAINST MAKER AS DEMANDED OR PRAYED FOR IN
SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE EXCLUSIVE CHOICE OF FORUM FOR
MAKER SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT,
BY LENDER, OF ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY LENDER,
OF ANY ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND
MAKER HEREBY WAIVES THE RIGHT, IF ANY, TO COLLATERALLY ATTACK ANY SUCH JUDGMENT
OR ACTION.
27. WAIVER OF RIGHT TO JURY TRIAL. LENDER AND MAKER ACKNOWLEDGE AND
AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE OR THE OTHER LOAN
DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN
WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THEREFORE, THE PARTIES
AGREE THAT ANY COURT PROCEEDING ARISING OUT OF ANY SUCH CONTROVERSY WILL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, Maker has executed this Note as of the day and year
first written above.
METAL MANAGEMENT, INC., a Delaware
corporation
By: /s/ Gerard M. Jacobs
------------------------------
Title: President
---------------------------
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<PAGE> 1
Exhibit 10.7
SUBORDINATION AGREEMENT
This Subordination Agreement (this "AGREEMENT") is made as of January
7, 1997, by and between METAL MANAGEMENT, INC., a Delaware corporation (the
"UNDERSIGNED"), and LASALLE NATIONAL BANK, a national banking association
("LENDER").
R E C I T A L S:
(A) The Undersigned desires for the Lender to extend credit to HouTex
Metals Company, Inc., a Texas corporation ("BORROWER"), pursuant to that certain
Loan Agreement, dated as of January 7, 1997, among the Lender, Borrower and the
Undersigned (the "Loan Agreement").
(B) The Undersigned desires to extend credit to Borrower pursuant to a
certain Revolving Credit Note dated January 7, 1997, in the initial principal
amount of $1,000,000 (the "Note").
(C) Lender has conditioned its obligations to lend pursuant to the
Notes referred to in paragraph (A) above, and its agreement to and approval of
the extension of credit referred to in paragraph (B) above, as well as any
continuations thereof, on the Undersigned's agreeing to subordinate its right to
receive payment on any present and future indebtedness due the Undersigned from
Borrower in the manner described in this Agreement.
(D) The Undersigned owns one hundred percent (100%) of the issued and
outstanding capital stock of Borrower and the extension of credit, and any
continuation thereof, by the Undersigned to Borrower is necessary to the conduct
and operation of the business of Borrower, and will inure to the financial
benefit of the Undersigned.
NOW, THEREFORE, in consideration of the agreement by the Lender to
allow the Undersigned to extend credit to Borrower pursuant to the Note, and for
other good and valuable consideration to the Undersigned, the receipt and
sufficiency of which is hereby acknowledged, the Undersigned hereby:
(a) subordinates the indebtedness described above, as well as any other
indebtedness now or at any time or times hereafter owing by Borrower to the
Undersigned, whether such indebtedness is absolute or contingent, direct or
indirect and howsoever evidenced, including all interest thereon (collectively,
the "UNDERSIGNED'S CLAIMS"), to any and all debts, demands, claims, liabilities
or causes of action for which Borrower may now or at any time or times hereafter
in any way be liable to Lender under any agreement, instrument or document
executed and delivered or made by Borrower to Lender (collectively, the "LENDER
LOANS");
(b) subordinates all security interests, liens, encumbrances and claims
which in any way secure the payment of the Undersigned's Claim (collectively,
the "UNDERSIGNED'S LIENS") to all security interests, liens, encumbrances and
claims which in any way secure the payment of the Lender Loans (collectively,
the "LENDER LIENS");
<PAGE> 2
(c) after an occurrence and during the continuation of a "Houtex Event
of Default" under the Loan Agreement, agrees to instruct Borrower not to pay,
and the Undersigned agrees not to accept payment of, or assert or seek to
enforce against Borrower, the Undersigned's Claims unless and until Lender has,
in writing, notified the Undersigned that the Lender Loans have been paid in
full, or such HouTex Event of Default has been waived or cured;
(d) subrogates Lender to the Undersigned's Claims and the Undersigned's
Liens and assigns and agrees to endorse, deliver and deposit with Lender all
agreements, instruments and documents evidencing the Undersigned's Claims and
the Undersigned's Liens;
(e) agrees that in the event of any liquidation, dissolution or winding
up of Borrower, or of any execution, sale, receivership, insolvency, bankruptcy,
liquidation, readjustment, reorganization, or other similar proceeding relating
to Borrower or its property, all principal and interest owing on the Lender
Loans shall first be paid in full in cash before any payment is made upon the
Undersigned's Claims;
(f) agrees to turn over to Lender any sum or sums at any time paid to,
or received by, the Undersigned, in violation of the terms of this Agreement and
to reimburse Lender for all costs, including reasonable attorneys' fees,
incurred by Lender in the course of collecting said sum or sums should the
Undersigned fail to voluntarily turn over same to Lender; and
(g) agrees that the Undersigned shall not take or enjoy any additional
collateral to secure the Undersigned's Claims without obtaining Lender's prior
written consent.
The Undersigned represents and warrants to Lender that, except as
provided herein, the Undersigned has not assigned or transferred the
Undersigned's Claims or the Undersigned's Liens, or any interest therein, to any
person, firm, association, corporation or party, that the Undersigned will make
no such assignment or transfer thereof and that all agreements, instruments and
documents evidencing the Undersigned's Claims and the Undersigned's Liens will
be endorsed with proper notice of this Agreement.
TO INDUCE LENDER TO MAKE FINANCIAL ACCOMMODATIONS TO BORROWER, THE
UNDERSIGNED IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY
AS A RESULT OR IN CONSEQUENCE OF THIS AGREEMENT SHALL BE INSTITUTED AND
LITIGATED ONLY IN COURTS HAVING SITUS IN THE CITY OF CHICAGO, ILLINOIS, AND THE
UNDERSIGNED HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE
OR FEDERAL COURT LOCATED AND HAVING ITS SITUS IN SAID CITY, AND WAIVES ANY
OBJECTION BASED ON FORUM NON CONVENIENS, AND THE UNDERSIGNED HEREBY WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS, AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE
UNDERSIGNED AT THE ADDRESS INDICATED BELOW THE UNDERSIGNED'S SIGNATURE ON THE
SIGNATURE PAGE HEREOF IN THE
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<PAGE> 3
MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT, OR OTHERWISE.
THE UNDERSIGNED WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR
SETOFF, WHICH THE UNDERSIGNED NOW OR HEREAFTER MAY HAVE TO ANY ACTION BY LENDER
IN ENFORCING THIS AGREEMENT AND RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO
PURSUANT TO THE TERMS HEREOF AND AGREES THAT LENDER SHALL NOT BE LIABLE FOR ANY
ERRORS OF JUDGMENT OR MISTAKE OF FACT OR LAW EXCEPT FOR THOSE ERRORS OR MISTAKES
ARISING EXCLUSIVELY FROM LENDER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE
UNDERSIGNED KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES IRREVOCABLY, THE
RIGHT IT MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH OR ANY COURSE OF
CONDUCT OR DEALING IN WHICH LENDER AND THE UNDERSIGNED ARE ADVERSE PARTIES. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LENDER LOANS.
This Agreement shall constitute a continuing agreement of
subordination, and Lender may continue, without notice to the Undersigned, to
lend monies, extend credit and make other accommodations to or for the account
of Borrower on the faith hereof until written notice of revocation of this
Agreement shall be delivered to Lender by the Undersigned. Any such notice of
revocation shall not affect this Agreement in relation to any obligations or
liabilities of Borrower then existing or created thereafter pursuant to any
previous commitment of Lender or Undersigned to Borrower, or any extensions or
renewals of any such commitment, obligations or liabilities, and as to all such
obligations and liabilities and extensions or renewals thereof, this Agreement
shall continue effective until the same shall have been fully discharged with
interest.
The Undersigned consents and agrees that all obligations and
liabilities of Borrower to Lender shall be deemed to have been made or incurred
at the request of the Undersigned and in reliance upon this Agreement.
No waiver shall be deemed to be made by Lender of any of its rights
hereunder unless the same shall be in writing signed by Lender and each such
waiver, if any, shall be a waiver only with respect to the specific matter or
matters to which the waiver relates and shall in no way impair the rights of
Lender or the obligations of the Undersigned to Lender in any other respect at
any other time.
This Agreement shall be continuing, irrevocable and binding on the
Undersigned and on its heirs, successors and assigns, including a
debtor-in-possession on behalf of the Undersigned and shall inure to the benefit
of Lender, its successors and assigns.
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<PAGE> 4
IN WITNESS WHEREOF, the Undersigned has executed this Agreement as of
the date first written above.
METAL MANAGEMENT, INC., a
Delaware corporation
By: /s/ Gerard M. Jacobs
--------------------------------
Name: GERARD M. JACOBS
------------------------------
Title: President
-----------------------------
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<PAGE> 5
BORROWER'S ASSENT
HouTex Metals Company, Inc., a Texas corporation ("BORROWER") hereby
assents to the Subordination Agreement (the "AGREEMENT") dated as of January 7,
1997 between Metal Management, Inc., a Delaware corporation, and LaSalle
National Bank, a national banking association ("LENDER"), and the terms of the
Agreement and agrees to abide thereby and to keep, observe and perform the
several matters and things therein intended to be kept, observed and performed
by it, and specifically agrees not to make any payments contrary to the
intention of the Agreement.
A breach of any of the terms and conditions of this Borrower's Assent
shall constitute a default in any loan(s) made by Lender to Borrower.
HOUTEX METALS, INC., a Texas
corporation
By: /s/ Gerard M. Jacobs
-------------------------
Name: GERARD M. JACOBS
-----------------------
Title: Vice President
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<PAGE> 1
EXHIBIT 10.8
REVOLVING CREDIT NOTE
$1,000,000.00 Date: as of January 7, 1997
Chicago, Illinois Due: June 30, 1997
On or before the Maturity Date, HouTex Metals Company, Inc., a Texas
corporation ("Borrower"), whose address is 21 Japhet Street, Houston, Texas
77020, for value received, promises to pay to the order of Metal Management,
Inc., a Delaware corporation (hereinafter, together with any holder hereof,
called "Lender"), whose address is 500 North Dearborn, Suite 405, Chicago,
Illinois 60610, the principal sum of ONE MILLION AND NO/100 DOLLARS
($1,000,000.00) or if less, the aggregate unpaid principal amount of all
Advances under this Revolving Credit Note (this "Note") made available to
Borrower by Lender pursuant hereto. The unpaid principal amount hereof shall
bear interest at the rate of the Prime Rate plus one percent (1.0%) per annum;
provided, however, that after the occurrence and during the continuance of an
Event of Default, the unpaid principal amount hereof shall bear interest at the
rate of the Prime Rate plus four percent (4.0%) per annum.
This Note evidences a revolving loan (the "Loan") which shall be made
available to Borrower by Lender from time to time on and after the date hereof
through the day immediately preceding the Maturity Date in the maximum principal
amount outstanding at any one time equal to $1,000,000.00 from the date hereof
through the day immediately preceding the Maturity Date. Borrower may reborrow
all or any portion of the Loan that is repaid or prepaid. This Loan may be
prepaid or repaid in whole or in part at any time without premium or penalty.
The "Maturity Date" means the earliest of: (i) June 30, 1997 (or September 30,
1997, if the "Extended Maturity Date" is in effect under the "Loan Agreement"
defined below); (ii) the date on which the Maximum Revolving Loan Amount under
the Loan Agreement is increased to or exceeding $5,500,000.00; or (iii) the date
ninety (90) days after Metal Management, Inc. ceases to own all of the issued
and outstanding capital stock of Borrower.
Each request for an Advance hereunder shall be irrevocable and shall be
made by Borrower in writing or by telephone. If a request for an Advance is made
prior to 1:00 p.m. Chicago time on a Business Day, then such Advance shall be
made by Lender on the date of such request. If such request is made at or after
1:00 p.m. Chicago time, then such Advance shall be made by Lender on the next
Business Day. Each request for an Advance shall be deemed a certification by
Borrower that no Event of Default exists or will be created if the requested
Advance is made. Lender shall not be obligated to make any Advance if: (i) an
Event of Default exists or will be created if the requested Advance is made; or
(ii) after making such Advance, the outstanding aggregate principal amount of
the Loan will exceed $1,000,000.00. "Business Day" means any day other than a
Saturday, Sunday or other day on which commercial banks in Chicago, Illinois are
required or permitted to be closed.
<PAGE> 2
Interest shall be payable monthly in arrears from the date the proceeds
of any Advance under the Loan are made available to Borrower by Lender
hereunder, on the aggregate unpaid principal amount of the outstanding balance
outstanding from time to time, on the first Business Day of each month occurring
after the date of the first Advance under the Loan and continuing until the
Maturity Date of the Loan, whether by acceleration or otherwise. Principal owing
under the Loan shall be paid upon maturity of the Loan, whether by acceleration
or otherwise. Principal and interest shall be paid to Lender at its address set
forth above or at such other place as the holder of this Note shall designate in
writing to Borrower.
As used herein, the term "Prime Rate" means the rate which LaSalle
National Bank, a national banking association ("LaSalle"), announces, publishes
or designates from time to time as its prime lending rate in effect at its
principal office in Chicago, Illinois. The Prime Rate is a reference rate and
does not necessarily represent the lowest or best rate actually charged by
LaSalle to any customer. Any change in the Prime Rate shall be effective for
purposes of this Note on the date of such change without notice to Borrower.
Interest shall be computed on the basis of a year consisting of 360 days and
shall be paid for the actual number of days elapsed.
This Note is secured by a Security Agreement of even date herewith, and
all obligations of Borrower under this Note are subject to the terms and
conditions of a Subordination Agreement of even date herewith.
It is understood and agreed that if any of the following events (herein
called an "Event of Default") shall occur:
1. Borrower fails to make any payment due and owing hereunder;
2. A "HouTex Event of Default" has occurred and is continuing
under the Loan Agreement dated as of January 7, 1997, by and
among Borrower, Lender and LaSalle (the "Loan Agreement")
beyond any applicable cure periods; or a default or event of
default has occurred or is continuing under any other
agreement of Borrower: (a) in respect of money borrowed, (b)
evidenced by a note, debenture or other like written
obligation to pay money, (c) in respect of rent or hire of
property (real, personal or mixed, whether tangible or
intangible) under capitalized leases or for the deferred
purchase price of any such property or (d) in respect of
obligations under conditional sales or other title retention
agreements, and all guaranties of any and all of the
foregoing;
3. Borrower applies for, consents to, or acquiesces in the
appointment of a trustee, receiver or other custodian for
Borrower, or in the absence of such application, a trustee,
receiver or other custodian is appointed for Borrower, or any
bankruptcy, reorganization, dissolution or liquidation
proceeding is instituted by or against Borrower;
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<PAGE> 3
then Lender is hereby authorized and empowered, at its option, to declare,
without notice or demand of any kind, this Note to be immediately due and
payable, whether or not such default be thereafter remedied by the undersigned,
and Lender may, but is not obligated to, immediately proceed to exercise any
right, power or remedy provided in this Note or by law or in equity conferred.
BORROWER WAIVES THE BENEFIT OF ANY LAW THAT WOULD OTHERWISE RESTRICT OR
LIMIT LENDER'S EXERCISE OF ITS RIGHT, WHICH BORROWER HEREBY ACKNOWLEDGES, FROM
TIME TO TIME FOLLOWING THE OCCURRENCE OF AN EVENT OF DEFAULT, WITHOUT DEMAND OR
NOTICE OF ANY KIND, TO SET OFF AND TO APPROPRIATE AND APPLY ANY AND ALL
BALANCES, CREDITS, DEPOSITS, ACCOUNTS, MONEYS, CASH EQUIVALENTS AND ANY OTHER
INDEBTEDNESS AT ANY TIME HELD OR OWING BY LENDER TO OR FOR THE CREDIT OR THE
ACCOUNT OF BORROWER AGAINST AND ON THE ACCOUNT OF THE OBLIGATIONS AND
LIABILITIES OF BORROWER TO LENDER HEREUNDER. AFTER THE OCCURRENCE AND DURING THE
CONTINUANCE OF ANY EVENT OF DEFAULT, BORROWER HEREBY ASSIGNS AND TRANSFERS TO
LENDER ANY AND ALL CASH, NEGOTIABLE INSTRUMENTS, DOCUMENTS OF TITLE, CHATTEL
PAPER, SECURITIES, CERTIFICATES OF DEPOSIT, DEPOSIT ACCOUNTS, OTHER CASH
EQUIVALENTS AND OTHER ASSETS OF BORROWER IN THE POSSESSION OR CONTROL OF LENDER
FOR ANY PURPOSE.
BORROWER RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO WITH RESPECT TO
THE COLLATERAL AND AGREES THAT LENDER SHALL NOT BE LIABLE FOR ANY ERROR OF
JUDGMENT OR MISTAKES OF FACT OR LAW EXCEPT FOR ANY ERROR OR MISTAKE ARISING
EXCLUSIVELY FROM LENDER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. BORROWER
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES IRREVOCABLY ANY RIGHT IT MAY
HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING BASED HEREON OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, ANY LOAN INSTRUMENT, ANY
OBLIGATION OR THE COLLATERAL, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN
WHICH LENDER AND BORROWER ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR LENDER TO GRANT ANY FINANCIAL ACCOMMODATION TO BORROWER.
Borrower waives any and all presentment, demand, notice of dishonor,
protest, and all other notices and demands in connection with the enforcement of
Lender's rights hereunder and under any Loan Instrument, and hereby consents to
and waives notice of release, with or without consideration, of Borrower or of
any "Collateral" defined in the Security Agreement of even date herewith.
Lender may at any time transfer this Note and Lender's rights hereunder
and in any or all of the Collateral, and Lender thereafter shall be relieved
from all liability with respect to such Collateral.
TO INDUCE LENDER TO MAKE THE LOAN EVIDENCED BY THIS NOTE, BORROWER
IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY AS A RESULT
OF OR IN CONSEQUENCE OF THIS NOTE, ANY LOAN INSTRUMENT OR ANY OTHER AGREEMENT
WITH LENDER, OR THE COLLATERAL,
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<PAGE> 4
SHALL BE INSTITUTED AND LITIGATED ONLY IN COURTS HAVING SITUS IN THE CITY OF
CHICAGO, ILLINOIS, AND BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION
AND VENUE OF ANY STATE OR FEDERAL COURT LOCATED AND HAVING ITS SITUS IN SAID
CITY, AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS.
The Loan evidenced hereby has been made and this Note has been
delivered at Lender's main office in Chicago, Illinois. This Note shall be
governed and construed in accordance with the laws of the State of Illinois, in
which state it shall be performed, and shall be binding upon Borrower and its
legal representatives, successors and assigns. If this Note contains any blanks
when executed by Borrower, Lender is hereby authorized, without notice to
Borrower, to complete any such blanks according to the terms upon which the Loan
was granted. Wherever possible, each provision of this Note shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or be invalid under such law, such
provision shall be severable, and be ineffective to the extent of such
prohibition or invalidity, without invalidating the remaining provisions of this
Note.
As used herein, all provisions shall include the masculine, feminine,
neuter, singular and plural thereof, wherever the context and facts require such
construction.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date set
forth above.
HOUTEX METALS COMPANY, INC.
By: /s/ Gerard M. Jacobs
--------------------------
Name: GERARD M. JACOBS
------------------------
Its: Vice President
------------------------
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<PAGE> 1
EXHIBIT 10.9
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and delivered as of the 7th day of
January, 1997, by HOUTEX METALS COMPANY, INC., a Texas corporation ("Debtor"),
to and for the benefit of METAL MANAGEMENT, INC., a Delaware corporation
("Secured Party").
R E C I T A L S:
A. Pursuant to the terms and conditions of a certain Revolving Credit
Note of even date herewith (the "Note") by and between Secured Party and Debtor,
Secured Party has agreed, among other things, to make available to Debtor a
working capital line of credit in the maximum principal amount of $1,000,000
(the "Line of Credit"). Debtor is executing the Note of even date herewith
payable to the order of Secured Party to evidence the Line of Credit. All
capitalized terms which are not defined herein shall have the meanings ascribed
thereto in the Note.
B. A condition precedent to Secured Party's extension of the Line of
Credit to Debtor is the execution and delivery by Debtor of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. CREATION OF SECURITY INTEREST. Debtor hereby grants to Secured Party
a security interest in and mortgages the property owned by Debtor, except the
property listed on Exhibit C, and described as follows (hereinafter referred to
collectively as the "Collateral"):
(a) All apparatus, machinery, devices, fixtures, communication
devices, systems and equipment, fittings, appurtenances, equipment,
appliances, furniture, furnishings, appointments, accessories,
landscaping, plants and all other items of personal property located at
any real property now or hereafter owned by or leased by Debtor or used
in the operation or maintenance of any real property now or hereafter
owned by or leased by Debtor or any business or operation conducted
thereon. All fixtures and equipment now or hereafter installed for use
in the operation of the buildings, structures and improvements now or
hereafter on any real property now or hereafter owned by or leased by
Debtor, including but not limited to, all lighting, heating, cooling,
ventilating, air-conditioning, plumbing, sprinkling, incinerating,
refrigerating, air-cooling, lifting, fire extinguishing, cleaning,
entertaining, security, communicating and electrical and power systems,
and the machinery, appliances, fixtures and equipment pertaining
thereto, all awnings, ovens, stoves, refrigerators, dishwashers,
disposals, carpeting, switchboards, engines, motors, tanks, pumps,
screens, storm doors and windows, shades, floor coverings, ranges,
washers, dryers, disposals, cabinets, furniture, partitions, conduits,
ducts and compressors, and all elevators and escalators and the
machinery and appliances, fixtures and equipment pertaining thereto.
<PAGE> 2
(b) Any and all revenues, receivables and income now owned or
hereafter acquired by Debtor.
(c) Any and all other personal property of any kind, nature or
description, whether tangible or intangible, (including without
limitation, any and all goods, accounts, contract rights, franchises,
licenses, permits, chattel paper, money, deposit accounts, documents,
instruments and general intangibles) of Debtor, whether now owned or
hereafter acquired, or in which Debtor now has or shall hereafter
acquire any right, title or interest whatsoever (whether by bill of
sale, lease, conditional sales contract, or other title retention
document or otherwise).
(d) Any and all additions and accessories to all of the
foregoing and any and all proceeds (including proceeds of insurance,
eminent domain or other governmental takings and tort claims),
renewals, replacements and substitutions of all of the foregoing.
(e) All of the books and records pertaining to the foregoing.
2. SECURED OBLIGATIONS. The security interest created herein is given
as security for the payment of all indebtedness and the performance and
observance of all covenants, conditions, agreements, representations, warranties
and other liabilities and obligations of Debtor to or benefiting Secured Party
which are evidenced, secured or created by this Agreement or the Note
(collectively, the "Obligations").
3. DEBTOR'S COVENANTS. Debtor covenants and agrees as follows:
(a) The Collateral shall not be misused, wasted or allowed to
deteriorate, except for the ordinary wear and tear resulting from its
use or damage resulting from a casualty.
(b) The Collateral shall at all times be insured against loss,
damage, theft, and such other risks as Secured Party may require in
such amounts, with such companies, under such policies, in such form
and for such periods as shall be reasonably satisfactory to Secured
Party, and each policy shall provide that the loss thereunder and the
proceeds payable thereunder shall be payable to Secured Party as its
interest may appear.
(c) The Collateral shall not be used in violation of any
applicable law or regulation.
(d) Debtor shall not sell, transfer, lease or otherwise
dispose of any of the Collateral or any interest therein or offer to do
so other than in the ordinary course of Debtor's business without the
prior written consent of Secured Party, or permit anything to be done
that may impair the value of any of the Collateral or the security
intended to be afforded by this Agreement.
2
<PAGE> 3
(e) Debtor shall pay promptly when due all taxes and
assessments upon the Collateral or for its use or operation.
(f) Debtor shall sign and execute alone or with Secured Party
any financing statement or other document or procure any documents and
pay all costs, expenses and fees, including reasonable attorneys' fees,
necessary to protect the security interest under this Agreement against
the rights, interests or claims of third persons.
(g) Debtor shall reimburse Secured Party for all costs,
expenses and fees, including, without limitation, court costs and
reasonable attorneys' fees, incurred by or for Secured Party for any
action taken by or for Secured Party to remedy an Event of Default (as
defined below), together with interest thereon at the Default Rate (as
defined in the Note) from the date incurred by Secured Party until
repaid to Secured Party.
(h) Debtor shall (i) from time to time promptly execute and
deliver to Secured Party all such other assignments, certificates,
supplemental writings, and financing statements, and do all other
reasonable acts or things as Secured Party may request in order to more
fully evidence and perfect the security interest created herein; (ii)
punctually and properly perform all of its agreements and obligations
under the Note, the Note, the Guaranty and the other Loan Documents;
(iii) pay the indebtedness secured hereby in accordance with the terms
thereof and in accordance with the terms of the Note, the Note, the
Guaranty and the other Loan Documents; (iv) promptly furnish Secured
Party with any information or writings which Secured Party may
reasonably request concerning the Collateral; (v) allow Secured Party
to inspect all records of Debtor relating to the Collateral, the
Obligations and the business and operation of Debtor with respect to
the Collateral, and to make and take away copies of such records; (vi)
promptly notify Secured Party of any material adverse change in any
facts or circumstances warranted or represented by Debtor in this
Agreement or in any other writing furnished by Debtor to Secured Party
in connection with the Collateral, the Obligations or the business and
operation of Debtor or the Collateral; (vii) promptly notify Secured
Party of any claim, action or proceeding affecting title to the
Collateral, or any part thereof, or the security interest created
herein, and, at the request of Secured Party, appear in and defend, at
Debtor's expense, any such action or proceeding; and (viii) promptly,
after being requested by Secured Party, pay to Secured Party the amount
of all expenses, including reasonable attorneys' fees and other legal
expenses, incurred by Secured Party in enforcing the security interest
created herein, together with interest thereon at the Default Rate from
the date incurred by Secured Party until the date repaid to Secured
Party.
(i) Debtor shall not, without the prior written consent of
Secured Party, create any other security interest in, mortgage, pledge,
or otherwise encumber the Collateral, or any part thereof, or permit
the same to be or become subject to any lien, attachment, execution,
sequestration, other legal or equitable process, or any encumbrance of
any kind or character.
3
<PAGE> 4
(j) Should any part of the Collateral ever be in any manner
converted by its issuer or maker into another type of property or any
money or other proceeds ever be paid or delivered to Debtor as a result
of Debtor's rights in the Collateral, then all such property, money and
other proceeds shall become part of the Collateral, and Debtor
covenants to forthwith pay or deliver to Secured Party all of the same
which is susceptible of delivery and, at the same time, if Secured
Party deems it necessary and so requests, Debtor will properly endorse
or assign the same (provided that if no Event of Default then exists,
Debtor shall not be required to deliver to Secured Party cash received
in satisfaction of an account receivable, provided further that nothing
in this clause is intended to affect or otherwise restrict the security
interest granted to Secured Party in the proceeds of all Collateral).
With respect to any of such property of a kind requiring any additional
security agreement, financing statement or other writing to perfect a
security interest therein in favor of Secured Party, Debtor will
forthwith execute and deliver to Secured Party whatever Secured Party
shall deem necessary or proper for such purpose.
(k) Should any covenant, duty or agreement of Debtor fail to
be performed in accordance with its terms hereunder, Secured Party may,
but shall never be obligated to, perform or attempt to perform such
covenant, duty or agreement on behalf of Debtor, and any amount
expended by Secured Party in such performance or attempted performance
shall become a part of the indebtedness secured hereby, and, upon
demand of Secured Party, Debtor agrees to pay such amount promptly to
Secured Party, together with interest thereon at the Default Rate from
the date of such expenditure by Secured Party until repaid to Secured
Party.
4. DEFAULT. An "Event of Default" shall occur under this Agreement only
upon the occurrence of (a) a breach by Debtor of any of the covenants,
agreements, representations, warranties or other provisions hereof which is not
cured or waived within the applicable grace or cure period, if any, set forth in
the Note, or (b) any breach by Debtor of any of its obligations under this
Agreement.
5. SECURED PARTY'S RIGHTS AND REMEDIES. Secured Party shall have
available to it the following rights and remedies:
(a) Right to Assign. Secured Party may assign this Agreement,
and if Secured Party does assign this Agreement, the assignee shall be
entitled to the performance of all of Debtor's agreements and
obligations under this Agreement, and the assignee shall be entitled to
all the rights and remedies of Secured Party under this Agreement.
Debtor expressly agrees that it will assert no claims or defenses it
may have against Secured Party against the assignee except those
available to it pursuant to this Agreement.
(b) Right to Discharge Debtor's Obligations. Secured Party
may, at its option, discharge taxes, liens or security interests or
other encumbrances at any time levied or placed on the Collateral, may
remedy or cure any default of Debtor under the terms of any lease,
4
<PAGE> 5
rental agreement, or other document which in any way pertains to or
affects Debtor's title to or interest in any of the Collateral, may pay
for insurance on the Collateral, and may pay for the maintenance and
preservation of the Collateral, and Debtor agrees to reimburse Secured
Party, on demand, for any payment made or any expense incurred by
Secured Party, including reasonable attorneys' fees, pursuant to the
foregoing authorization, together with interest at the Default Rate
from the date so paid or incurred by Secured Party until repaid to
Secured Party, which payments, expenses and interest shall be secured
by this Agreement and by the other Loan Documents.
(c) Rights as Secured Creditor. Upon the occurrence of an
Event of Default, Secured Party, in its sole and absolute discretion,
may: (a) exercise any one or more of the rights and remedies afforded
to secured parties under the Uniform Commercial Code in force in the
State(s) in which the Collateral is located, together with any and all
other rights and remedies otherwise provided and available to Secured
Party at law or in equity; (b) enter, with process of law and without
breach of the peace, any premises where the Collateral (or the books
and records of Debtor related thereto) is or may be located, and
without charge or liability to Secured Party therefor seize and remove
the Collateral (and copies of Debtor's books and records in any way
relating to the Collateral) from said premises and/or remain upon said
premises and use the same (together with said books and records) for
the purpose of collecting, preparing and liquidating the Collateral,
all without cost to Secured Party; and (c) upon prior notice to Debtor
as required by this Agreement, sell or otherwise dispose of the
Collateral at public or private sale or auction for cash or credit
(which sale or auction may, at the option of Secured Party, occur on
the premises where the Collateral is located or elsewhere, at no cost
to Secured Party) and from the proceeds of such sale or disposal retain
(i) all costs and charges incurred by Secured Party in taking and
causing the removal and sale or disposal of the Collateral, including
reasonable attorneys' fees; and (ii) an amount equal to all other
Obligations; provided, however, that Debtor shall be credited with the
net proceeds of such sale only when such proceeds are actually received
by Secured Party.
(d) Assembly of Collateral; Injunctive Relief. Upon the
occurrence of an Event of Default, Debtor, immediately upon demand by
Secured Party, shall assemble the Collateral and make it available to
Secured Party at a place or places to be designated by Secured Party.
Debtor hereby acknowledges and agrees that if Debtor fails to perform,
observe or discharge any of its obligations or liabilities under this
Agreement, no remedy of law shall provide adequate relief to Secured
Party, and that Secured Party shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of
proving actual damages or the posting of bond, surety or other
security.
(e) Notice of Collateral Disposition. Any notice required to
be given by Secured Party of a sale, lease or other disposition of the
Collateral or any other intended action by Secured Party, sent by
registered or certified United States mail, postage prepaid and duly
addressed to Debtor at Debtor's address set forth in the Note not less
than ten days prior to
5
<PAGE> 6
such proposed action, shall constitute commercially reasonable and fair
notice to Debtor thereof.
(f) Matters Regarding Sale of Collateral. Debtor agrees that
Secured Party may, if Secured Party deems it reasonable, postpone or
adjourn any sale of Collateral from time to time by an announcement at
the time and place of sale or by announcement at the time and place of
such postponed or adjourned sale, without being required to give a new
notice of sale. Debtor also waives and releases any right of Debtor to
redeem the Collateral from such sale. At any sale or sales made
pursuant to this Agreement or in a suit to foreclose the same, the
Collateral, at the option of Secured Party or its assigns, may be sold
in its entirety or separately, at the same or at different times, and
the Collateral need not be present at the time or place of sale. At any
such sale, Secured Party or the holder of the indebtedness hereby
secured may bid for and purchase any of the property sold,
notwithstanding that such sale is conducted by Secured Party or its
attorneys, agents, or assigns, and no irregularity in the manner of
sale or of giving notice shall operate to preclude Secured Party from
recovering the Obligations.
(g) Replevin. If Secured Party seeks possession of the
Collateral through replevin or other court action, Debtor hereby
irrevocably waives (i) any bond, surety or security required as an
incident to such possession, and (ii) any demand by Secured Party for
possession of the Collateral prior to the commencement of any such suit
or action.
(h) Enforcement Standards. Secured Party shall have the right
at all times to enforce the provisions of this Agreement in strict
accordance with the terms hereof, notwithstanding any conduct or custom
on the part of Secured Party in refraining from so doing at any time or
times. The failure of Secured Party at any time or times to enforce its
rights under said provisions strictly in accordance with the same shall
not be construed or operate as a waiver of any of the rights and
remedies granted Secured Party hereunder or as having created a custom
in any way or manner contrary to the specific provisions of this
Agreement or as having in any way or manner modified the same. All
rights and remedies of Secured Party are cumulative and concurrent, and
the exercise of one right or remedy by Secured Party shall not be
deemed a waiver or release of any other right or remedy.
6. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants that:
(a) Debtor has authority to execute and deliver this
Agreement;
(b) no financing statement covering the Collateral, or any
part thereof, has been filed and remains in effect, other than securing
a first lien on the Collateral in favor of LaSalle National Bank;
6
<PAGE> 7
(c) no other security agreement covering the Collateral, or
any part thereof, has been made and no security interest, other than
the one herein created, has attached or been perfected in the
Collateral or in any part thereof other than to LaSalle National Bank;
(d) no material dispute, right of setoff, counterclaim or
defense exists with respect to any part of the Collateral;
(e) all information supplied and statements made in any
financial or credit statements or application for credit prior to the
execution of this Agreement are true and correct in all material
respects as of the date hereof;
(f) at the time Secured Party's security interest attaches to
any of the Collateral or its proceeds, Debtor will be the lawful owner
with the right to transfer any interest therein, and Debtor will make
such further assurances as to prove title to the Collateral in Secured
Party as may be required and will defend the Collateral and its
proceeds against the lawful claims and demands of all persons
whomsoever.
(g) There is listed on EXHIBIT A hereto the location of the
principal place of business of Debtor, all of the other places of
business of Debtor and all locations where all tangible Collateral and
the books and records of Debtor are kept. Debtor shall not change the
location of (i) its places of business or its books and records, or
(ii) any tangible Collateral, without in each case providing not less
than thirty days prior written notice thereof to Secured Party.
(h) All trade or assumed names under which Debtor has done or
proposes to do business are listed on EXHIBIT B. Debtor shall give
Secured Party not less than thirty days prior written notice of any
change in Debtor's name or any new or change in any trade name that
Debtor uses in its business.
The delivery at any time by Debtor to Secured Party of the Collateral shall
constitute a representation and warranty by Debtor that, with respect to such
Collateral, and each item thereof, Debtor is owner of the Collateral and the
matters heretofore represented and warranted in this Paragraph 6 are true and
correct. Further, Debtor, upon the request of Secured Party, agrees to amend
this Agreement and any and all financing statements filed in connection
therewith for the purpose of setting forth in said Agreement and said financing
statements an accurate and itemized list of the Collateral now generally
described herein and in said financing statements and to include in said
accurate and itemized list an identification of the Collateral by make, model,
serial number and other appropriate descriptive data.
7. SUBROGATION. If the Obligations, or any part thereof, are renewed or
extended, or applied toward the payment of any indebtedness secured by any
mortgage, pledge, security agreement or other lien, Secured Party shall be and
is hereby subrogated to all of the rights, titles, security interests and other
liens securing the indebtedness so renewed, extended or paid.
7
<PAGE> 8
8. FURTHER AGREEMENTS.
(a) "Debtor" and "Secured Party" as used in this Agreement
include the legal representatives, successors and assigns of those
parties.
(b) Neither Debtor nor Secured Party shall be bound by any
amendment not expressed in writing and signed by the party to be bound
thereby.
(c) It is expressly intended, understood and agreed: (i) that
this Agreement is made and entered into for the sole protection and
benefit of Secured Party and Debtor, and their successors and assigns
and no other person or persons shall have any right of action hereunder
or rights to the proceeds of the Line of Credit at any time; (ii) that
the proceeds of the Line of Credit do not constitute a trust fund for
the benefit of any third party; and (iii) that no third party shall
under any circumstances be entitled to any equitable lien on any
undisbursed proceeds of the Line of Credit at any time. The
relationship between Secured Party and Debtor is solely that of a
lender and borrower, and nothing contained herein, or in the Note, the
Guaranty or any of the other Loan Documents shall in any manner be
construed as making the parties hereto partners, joint venturers or as
creating any relationship other than lender and borrower.
(d) This Agreement shall be construed in accordance with and
governed by the laws of the State of Illinois. In the event that any
provision of this Agreement is deemed to be invalid by reason of the
operation of law, or by reason of the interpretation placed thereon by
any administrative agency or any court, Debtor and Secured Party shall
negotiate an equitable adjustment in the provisions of the same in
order to effect, to the maximum extent permitted by law, the purpose of
this Agreement and the validity and enforceability of the remaining
provisions, or portions or applications thereof, shall not be affected
thereby and shall remain in full force and effect.
(e) To the extent permitted by law, Debtor hereby waives any
and all rights to require marshalling of assets.
(f) All notices, demands, requests and other correspondence
which are required or permitted to be given hereunder shall be deemed
sufficiently given when delivered or mailed in the manner and to the
address of Debtor or Secured Party, as the case may be, as specified in
the Note.
(g) This Agreement shall inure to the benefit of Secured Party
and its successors and assigns and shall be binding upon Debtor and its
successors and assigns.
(h) DEBTOR AND SECURED PARTY ACKNOWLEDGE AND AGREE THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THE NOTE, THIS AGREEMENT, THE
GUARANTY, THE NOTE OR ANY OF THE OTHER LOAN
8
<PAGE> 9
DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND
THEREIN WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES. ACCORDINGLY,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, DEBTOR AND SECURED
PARTY HEREBY KNOWINGLY AND VOLUNTARILY MUTUALLY (A) WAIVE THE RIGHT TO
TRIAL BY JURY IN ANY CIVIL ACTION, CLAIM, COUNTERCLAIM, CROSS-CLAIM,
THIRD-PARTY CLAIM, DISPUTE, DEMAND, SUIT OR PROCEEDING ARISING OUT OF
OR IN ANY WAY CONNECTED WITH THE NOTE THIS AGREEMENT, THE GUARANTY, THE
NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, THE LINE OF CREDIT, OR ANY
RENEWAL, EXTENSION OR MODIFICATION THEREOF, OR ANY CONDUCT OF ANY PARTY
RELATING THERETO, AND (B) AGREE THAT ANY SUCH ACTION, CLAIM, SUIT OR
PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
HOUTEX METALS COMPANY, INC., METAL MANAGEMENT, INC.,
a Texas corporation a Delaware corporation
By: /s/ Gerard M. Jacobs By: /s/ Gerard M. Jacobs
---------------------------- ---------------------------
Title: Vice President Title: President
------------------------- ------------------------
9
<PAGE> 10
EXHIBIT A
Locations of Property and Records
<PAGE> 11
EXHIBIT B
Names of Debtor
<PAGE> 12
EXHIBIT C
TO
SECURITY AGREEMENT
EXCLUSIONS FROM COLLATERAL
<TABLE>
<CAPTION>
SECURED PARTY JURISDICTION FILING DATA
- ------------- ------------ -----------
<S> <C> <C>
1. Textron Financial Corporation Texas Secretary of State #92-050514
03/16/92
2. Mustang Tractor & Equipment Texas Secretary of State #96-093233
Company 05/10/96
3. Caterpillar Financial Services Texas Secretary of State #94-228422
Corporation 11/28/94
4. Caterpillar Financial Services Texas Secretary of State #94-751025
Corporation
5. Wagkesha Pearce Industries, Inc. Texas Secretary of State #96-233666
6. Associates Commercial Texas Secretary of State #96-00233656
Corporation 11/25/96
7. Metal Management, Inc. Texas Secretary of State N/A
Harris County Recorder
of Deeds
</TABLE>
8. The Collateral is currently encumbered by financing statements in favor of
NationsBank of Texas, N.A. (the "NationsBank Liens"). The indebtedness
secured by the NationsBank Liens will be retired in full with a portion of
the proceeds of the HouTex Loan, and the NationsBank Liens will be
terminated by filing UCC-3 Termination Statements promptly following
Closing.
9. The parties acknowledge the note payable by Mike Melnik and Zalman Melnik
to HouTex in the amount of $405,000 and agree that such note shall not be
included in the Collateral.
<PAGE> 1
EXHIBIT 10.10
LETTER AGREEMENT
This Letter Agreement ("Agreement"), is made and entered into as of the
7th day of January, 1997, by and between Metal Management, Inc., a Delaware
corporation ("MMI"), and HouTex Metals Company, Inc., a Texas corporation
("HouTex").
R E C I T A L S:
A. MMI and HouTex have executed a loan agreement (the "Loan Agreement")
with LaSalle National Bank, a national banking association ("Lender"), of even
date herewith, whereby Lender has agreed to provide MMI with a term loan in the
amount of $6,500,000, and to HouTex a revolving line of credit in the maximum
amount of $3,500,000.
B. In connection with the Loan Agreement, there are certain obligations
delegated to MMI and HouTex jointly, which the parties desire to divide among
themselves.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. All capitalized terms not otherwise defined in this Agreement shall
have the meanings ascribed to such terms in the Loan Agreement.
2. In Section 2.7 of the Loan Agreement, MMI and HouTex are granted the
right to extend the MMI Loan and the HouTex Loan for an additional period of
three months by delivering a written notice to the Lender and paying a
non-refundable extension fee equal to $25,000 (the "Extension Fee"). In the
event that both MMI and HouTex extend the MMI Loan and the HouTex Loan, MMI
shall pay $13,750 of the Extension Fee, and HouTex shall pay the remaining
$11,250 of the Extension Fee.
3. Pursuant to Section 2.8 of the Loan Agreement, MMI and HouTex have
agreed to pay to Lender a non-refundable loan fee in the amount of $15,000. MMI
and HouTex hereby agree that such fee shall be payable in full by MMI on the
Closing Date of the Loan Agreement.
4. Pursuant to Section 9 of the Loan Agreement, MMI and HouTex have
agreed to pay to the Lender on demand all fees paid and expenses incurred by
Lender in connection with the transactions contemplated by the Loan Agreement,
any amendments, modifications or waivers under or in respect of any of the Loan
Documents and in connection with the preparation of the Loan Documents (the
"Transactions Fees"). MMI and HouTex hereby agree that all of the Transaction
Fees incurred in connection with the initial loan Closing shall be paid by MMI,
and HouTex shall be responsible only for the fees and expenses incurred in
enforcement of Lender's rights against HouTex pursuant to the Loan Agreement or
for any modifications of the HouTex Loan.
1
<PAGE> 2
5. In the event that HouTex exercises its Extension Right pursuant to
Section 2.7 of the Loan Agreement, MMI does hereby agree to exercise its
Extension Right unless either (a) Lender has increased the amount available to
HouTex under the HouTex Loan to at least $5,500,000, or (b) MMI has obtained
other financings or has funds otherwise available sufficient to fund the
Revolving Credit Note from HouTex to MMI in the initial principal amount of
$1,000,000 dated January 7, 1997 (the "HouTex Revolver") and MMI agrees to
extend the HouTex Revolver to the Extended Maturity Date pursuant to the Loan
Agreement.
IN WITNESS WHEREOF, the parties have executed this Letter Agreement as
of the date and year first above written.
HOUTEX METALS COMPANY, INC., METAL MANAGEMENT, INC.,
a Texas corporation a Delaware corporation
By: /s/ Gerard M. Jacobs By: /s/ Gerard M. Jacobs
----------------------- ------------------------
Title: Vice President Title: President
-------------------- ---------------------
2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report dated January 6, 1997 relating
to Hou-Tex Metals Company, Inc. included in or made a part of this Form 8-K.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
January 21, 1997
<PAGE> 1
Exhibit 99.1
HOU-TEX METALS COMPANY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
<PAGE> 2
HOU-TEX METALS COMPANY, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 547 $ 31 $ 116
Securities available for sale 164 128 15
Accounts receivable, net of a $121
reserve in 1996 2,440 254 333
Inventories 3,837 4,434 1,460
Prepaid expenses 31
Employee advances 33 26 5
Deferred income taxes 56 8 7
------ ------ ------
Total current assets 7,108 4,881 1,936
Property and equipment, net 2,341 2,286 2,072
Due from stockholders 101 94 82
Other assets 174 171 153
------ ------ ------
Total assets $9,724 $7,432 $4,243
====== ====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $4,914 $3,447 $1,115
Accounts payable and accrued expenses 1,141 1,406 862
Income taxes payable 553 78 46
------ ------ ------
Total current liabilities 6,608 4,931 2,023
Long-term debt 852 1,082 1,095
Deferred income taxes 362 370 317
Minority interest 4 13 23
------ ------ ------
Total liabilities 7,826 6,396 3,458
====== ====== ======
Commitments and contingencies (Note 7)
Stockholders= equity:
Common stock, $1 par; 100,000 shares
authorized, 20,000 shares issued and
outstanding 20 20 20
Retained earnings 1,916 1,031 765
Unrealized loss on securities (38) (15)
------ ------ ------
Total stockholders' equity 1,898 1,036 785
------ ------ ------
Total liabilities and stockholders' equity $9,724 $7,432 $4,243
====== ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 3
HOU-TEX METALS COMPANY, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
June 30, September 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $17,223 $13,324 $11,468
------- ------- -------
Costs and expenses:
Cost of sales and other operating expenses 12,027 7,668 6,108
Selling, general and administrative expenses 3,175 4,682 4,678
Depreciation and amortization 292 350 237
------- ------- -------
15,494 12,700 11,023
------- ------- -------
Income from operations 1,729 624 445
Other income (expense):
Interest income 3 29 24
Interest expense (294) (223) (71)
Other 19 26 18
Minority interest in (income) loss of
consolidated subsidiary 5 (17)
------- ------- -------
Income before income taxes 1,462 456 399
Income tax provision 577 190 132
------- ------- -------
Net income $ 885 $ 266 $ 267
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
HOU-TEX METALS COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Unrealized
Common stock Retained loss on
Shares Amount earnings securities Total
------ ------ -------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1993 20,000 $20 $ 498 $ 518
Net income 267 267
------ --- ------ ------
Balance, September 30, 1994 20,000 20 765 785
Unrealized holding loss $(15) (15)
Net income 266 266
------ --- ------ ---- ------
Balance, September 30, 1995 20,000 20 1,031 (15) 1,036
Unrealized holding loss (23) (23)
Net income 885 885
------ --- ------ ----- ------
Balance, June 30, 1996 20,000 $20 $1,916 $(38) $1,898
====== === ====== ===== ======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
HOU-TEX METALS COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
June 30, September 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 885 $ 266 $ 267
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation and amortization 292 350 237
Deferred income taxes (56) 52 78
Gain on sale of assets (43) (17)
Reserve for tonnage variances 121
Unrealized gain on securities (21)
Minority interest in (income) loss of
consolidated subsidiary (5) 17
(Increase) decrease in current assets:
Accounts receivable (2,307) 79 (45)
Inventories 597 (3,036) (528)
Prepaid expenses (31) 7
Employee advances (7) (21) (13)
Other assets (3) (18) 11
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses (265) 544 272
Income taxes payable 475 32 43
------- ------- -------
Net cash provided by (used in)
operating activities (304) (1,795) 308
------- ------- -------
Investing activities:
Purchase of property and equipment (347) (523) (1,726)
Proceeds from sale of property and equipment 62 39
Purchases of securities (59) (143) (117)
Proceeds from sale of securities 17 185
Due from stockholders (7) (12) 86
------- ------- -------
Net cash used in investing activities (413) (599) (1,533)
------- ------- -------
Financing activities:
Proceeds from borrowings from bank 1,500 2,692 1,535
Repayments of borrowings from bank (223) (213) (189)
Payments on capital lease obligations (40) (160) (93)
Distributions to minority interest (4) (10) (9)
------- ------- -------
Net cash provided by
financing activities 1,233 2,309 1,244
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 516 (85) 19
Cash and cash equivalents, beginning of period 31 116 97
------- ------- -------
Cash and cash equivalents, end of period $ 547 $ 31 $ 116
======= ======= =======
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 316 $ 193 $ 70
Income taxes 183 67 2
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 6
HOU-TEX METALS COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
Hou-Tex Metals Company, Inc. (the Company) is engaged in the dismantling,
processing, marketing, brokering and recycling of ferrous and nonferrous metals.
These services are provided through its location in Houston, Texas, on property
which has barge access to the Houston Ship Channel.
Consolidated financial statements
The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Fiscal year
The Company's fiscal year ends on September 30.
Uses of estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from these estimates.
Cash equivalents
Highly liquid investments with original maturities of three months or less are
classified as cash equivalents.
Accounts receivable
Accounts receivable represent amounts due from customers on product sales. An
allowance for doubtful accounts has not been provided as losses are not
anticipated on the realization of the accounts receivable. A reserve for tonnage
variances has been provided at June 30, 1996 to account for differences in
shipment weights which are settled on a quarterly basis.
<PAGE> 7
- 2 -
Inventories
Inventories consist of ferrous, nonferrous, pipe and other material and are
carried at the lower of first-in, first-out cost or market.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. Major
renewals and improvements are capitalized while repairs and maintenance are
expensed as incurred. Depreciation is computed using the straight-line method
over estimated useful lives of 31.5 to 39 years for buildings and improvements,
5 to 7 years for equipment, furniture and fixtures and 3 to 5 years for
vehicles. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any gain or loss is
included in results of operations.
Revenue recognition
The Company recognizes revenue when title passes to the customer, which
generally occurs at the time of shipment.
Income taxes
The Company utilizes the liability method of accounting for income taxes, as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Under the liability method, deferred income taxes are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Investment securities
As of October 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and
Equity Securities. In accordance with SFAS 115, prior year's financial
statements have not been restated to reflect the change in accounting method.
Under this statement, the Company's marketable securities have been classified
as available for sale and are recorded at current market value with an
offsetting adjustment to stockholders' equity. The adoption of this statement
did not have a significant effect on the Company's consolidated financial
position. At September 30, 1994, marketable securities were carried at the lower
of cost or market.
Major customers and concentration of credit risk
Three customers represented 83%, 86% and 78% of revenues for the nine months
ended June 30, 1996 and the years ended September 30, 1995 and 1994,
respectively. These customers comprised approximately 90%, 78% and 80% of
accounts receivable at June 30, 1996, September 30, 1995 and September 30, 1994,
respectively. No other customer comprised more
<PAGE> 8
- 3 -
than 10% of total sales for any period or more than 10% of accounts receivable
for any period presented.
Financial instruments that potentially subject the Company to significant
concentration of credit risk are primarily trade accounts receivable. The
Company sells its products primarily to scrap metal brokers and steel mills
located in the southwestern region of the United States. Generally, the Company
does not require collateral or other security to support customer receivables.
Historically, the Company has not experienced material losses from the
noncollection of receivables.
NOTE 2 - INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Ferrous material $1,509 $2,260 $ 910
Nonferrous material 851 457 227
Pipe 1,477 1,717 323
------ ------ ------
$3,837 $4,434 $1,460
====== ====== ======
</TABLE>
The Company engages in the formal consignment of inventory with a steel mill,
primarily during the fourth quarter of each fiscal year. Consigned inventory
totaled $2,153 and $944 at September 30, 1995 and September 30, 1994,
respectively. There was no consigned inventory at June 30, 1996.
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Machinery and equipment $ 3,982 $ 3,809 $ 3,483
Land and improvements 797 797 780
Buildings and improvements 389 382 366
Vehicles 980 813 685
Furniture and fixtures 65 65 41
------- ------- -------
6,213 5,866 5,355
Less - accumulated depreciation (3,872) (3,580) (3,283)
------- ------- -------
$ 2,341 $ 2,286 $ 2,072
======= ======= =======
</TABLE>
<PAGE> 9
- 4 -
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Trade accounts payable $ 783 $ 878 $649
Accrued liabilities 358 528 213
------ ------ ----
$1,141 $1,406 $862
====== ====== ====
</TABLE>
NOTE 5 - LONG-TERM DEBT:
In March 1992, the Company entered into a $1,000 revolving line of credit with a
commercial lender which was subsequently increased to $2,000, $3,500 and $6,000
as of September 30, 1994, September 30, 1995 and June 30, 1996, respectively.
The line of credit matures June 30, 1997. Borrowings against the line of credit
bear interest at prime plus 1% and are secured by the Company's accounts
receivable and inventories. The Company is presently in default of its covenants
related to its line of credit. Consequently, this debt is payable on demand.
The Company leases certain equipment under a capital lease agreement with an
effective interest rate of 10 percent. Future minimum lease payments under these
agreements are included in other long-term debt.
<PAGE> 10
- 5 -
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Line of credit $ 4,600 $ 3,100 $ 750
Mortgage note payable, interest at 9.1%,
payable in monthly instalments of $9 including
interest through June 30, 1999, secured by real
property 839 918 1,024
Note payable in monthly instalments of $9,
plus interest at prime plus 1%, through
June 30, 1998, secured by vehicles and
equipment
208 286
Mortgage note payable to stockholders,
interest at 10.475% payable in monthly
instalments of $4 including interest through
January 1, 1997, secured by real property 23 59 95
Other notes payable and capital leases
maturing at various dates through 1999,
interest at rates ranging from 6.9% to 9.5%,
secured by vehicles and land
96 166 341
------- ------- -------
5,766 4,529 2,210
Less - current portion (4,914) (3,447) (1,115)
------- ------- -------
Total long-term debt $ 852 $ 1,082 $ 1,095
======= ======= =======
</TABLE>
As of June 30, 1996, long-term debt is scheduled to mature during fiscal years
ending September 30 as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 (remainder) $ 70
1997 4,897
1998 195
1999 604
------
$5,766
======
</TABLE>
<PAGE> 11
- 6 -
NOTE 6 - INCOME TAXES:
The provision for (benefit from) income taxes is as follows:
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
June 30, September 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 618 $131 $ 54
State 15 7
----- ---- ----
633 138 54
Deferred - primarily federal (56) 52 78
----- ---- ----
Total provision $ 577 $190 $132
===== ==== ====
</TABLE>
Deferred income tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
Nine months
ended Year ended Year ended
June 30, September 30, September 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reserve for tonnage variance $ 41
Accruals and other deferred tax assets 78 $ 29 $ 27
----- ----- -----
Total deferred tax assets 119 29 27
----- ----- -----
Tax depreciation in excess of book (408) (370) (317)
Other deferred tax liabilities (17) (21) (20)
----- ----- -----
Total deferred tax liabilities (425) (391) (337)
----- ----- -----
Net deferred tax liabilities $(306) $(362) $(310)
===== ===== =====
</TABLE>
Income taxes have been provided based on the statutory graduated tax rates
adjusted for items which are allowed as deductions for federal income tax
reporting purposes but not for book purposes. The primary differences between
the statutory rates and the Company's effective rates relate to nondeductible
expenses and an alternative minimum tax credit carryforward.
<PAGE> 12
- 7 -
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases vehicles and equipment under noncancelable operating lease
agreements. The leases expire at various dates through January 1997. As of June
30, 1996, future minimum lease payments under these agreements were $14 and $8
for the three months ended September 30, 1996 and fiscal year ended September
30, 1997, respectively.
Rent expense totaled $14 for the nine months ended June 30, 1996, $14 for the
year ended September 30, 1995 and $58 for the year ended September 30, 1994.
Litigation
The Company is party to various lawsuits and claims arising in the normal course
of its business. In management's opinion, based on discussion with legal
counsel, the ultimate disposition of these lawsuits and claims will not have a
material adverse effect upon the Company's financial position or operations.
NOTE 8 - SUBSEQUENT EVENT:
Subsequent to June 30, 1996, the Company entered into a letter of intent to sell
all of its stock to an unrelated third party. These financial statements make no
provision for the outcome of this transaction.
<PAGE> 1
Exhibit 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
January 6, 1997
To the Board of Directors and Stockholders of
Hou-Tex Metals Company, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Hou-Tex
Metals Company, Inc. at June 30, 1996, September 30, 1995 and September 30,
1994, and the results of their operations and their cash flows for the nine
months ended June 30, 1996 and the years ended September 30, 1995 and 1994, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 5, the Company is not in compliance with all of its debt
covenants related to its line of credit. Consequently, this line of credit is
payable on demand.
/s/ PRICE WATERHOUSE LLP
Houston, Texas
