<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 and Exchange Act of 1934
Date of Report: June 23, 1997
(Date of earliest event reported)
METAL MANAGEMENT, INC.
(Exact name of registrant as specified in the charter)
Delaware 0-14836 94-2835068
(State or other jurisdiction (Commission File No.) (IRS 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)
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Acquisition of the Isaac Group of Companies
Metal Management, Inc. (the "Company" or the "Registrant") entered
into a Purchase Agreement - Common Stock, with The Isaac Corporation
("Isaac"), Ferrex Trading Corporation, an Ohio corporation ("Ferrex"), Paulding
Recycling, Inc. ("Paulding") and Briquetting Corporation of America
(Briquetting") and a Plan of Merger by and among the Company, Isaac Acquisition
Corporation, a Delaware corporation ("Company Sub") and Ferrex dated as of
June 23, 1997, under which the Company purchased all of the equity securities
of Isaac, certain equity securities of Ferrex, and all of the equity
securities of Paulding and Briquetting. On the closing date, Ferrex was
merged with and into Company Sub, with Company Sub as the surviving
corporation, which changed its name to Ferrex Trading Corporation ("Ferrex
Delaware").
In connection with the merger of Ferrex into the Company Sub, the
shareholders of Ferrex received 1,942,857 shares of Common Stock, plus warrants
for the purchase of 462,500 shares of Common Stock, at exercise prices ranging
from $10.80 to $11.70 per share, exercisable from time to time on or before
June 23, 2002.
The aggregate purchase price of the Isaac, Ferrex, Paulding and
Briquetting securities consisted of promissory notes, each bearing interest at
8.5% (subject to adjustment equal to changes in the prime rate; provided,
however, that such rate shall not be 1% above or 1% below the prime rate at
June 23, 1997): (i) $10,600,000 payable to the shareholders of Isaac by
promissory notes due and payable on November 15, 1997, subject to extension for
three one-month periods upon payment of warrants for an aggregate of 100,000
shares per extension with an exercise price of $14.0875 per share, exercisable
from time to time on or before June 23, 2002; (ii) $2,000,000 payable to
George A. Isaac, III by a promissory note (the "George III Note") due and
payable on February 15, 1998; and (iii) an aggregate of $23,496,901 payable to
the shareholders of Isaac, Ferrex, Paulding and Briquetting by promissory
notes with principal payable equally on the principal payment dates of February
15, 1998, February 15, 1999 with a final maturity date of February 15, 2000. In
addition, Isaac had promissory notes outstanding in the aggregate principal
amounts of $8,544,201 (the "Isaac Notes").
The payment of the notes issued by the Company (other than the George
III Note) and the payment obligations assumed by the Company on the Isaac Notes
are secured by the following: (i) an irrevocable standby letter of credit
provided pursuant to a Credit Agreement dated as of June 23, 1997 by and among
Isaac, Ferrex Delaware, Paulding and Briquetting (collectively (the
"Borrowers"), as borrowers, and BT Commercial Corporation, as agent (the "Credit
Agreement"); (ii) mortgages and security agreements encumbering certain real
property of the acquired companies; (iii) the obligation of the Company to issue
up to 139,700 shares of its common stock, par value $.01 per share ("Common
Stock") upon the occurrence of an Event of Default under the notes (as defined);
(iv) a stock pledge agreement providing for a pledge of all of the capital stock
of Isaac, Paulding, Briquetting and Ferrex Delaware; and (v) a Company guaranty
guaranteeing the Isaac Notes.
1
<PAGE> 3
George A. Isaac, III has joined the Company as a director and will
serve as Executive Vice President of the Company. Mr. Isaac will also be a
member of the Board of Directors' Executive Committee and Office of the
President. In consideration for Mr. Isaac entering into an employment agreement
with the Company, the Company issued to Mr. Isaac: (i) warrants to purchase
76,923 shares of Common Stock at an exercise price of $13.00 per share,
exercisable from time to time before February 15, 1998; and (ii) warrants to
purchase 287,500 shares of Common Stock at an exercise price of $11.70 per
share, exercisable from time to time before June 23, 2002.
The Credit Agreement provides a revolving line of credit to Isaac,
Ferrex Delaware, Paulding and Briquetting in the amount of $37,000,000. BT
Commercial Corporation is agent under the Credit Agreement. The Credit Agreement
also provides for the issuance of a letter of credit as security for the
Company's payment obligations for the notes issued by the Company in the
acquisition (other than the George III Note) and the payment obligations under
the Isaac Notes. Obligations under the Credit Agreement have a final maturity
date of the earlier of June 23, 1998 or the completion of a high-yield debt
offering by the Company. Obligations under the Credit Agreement are secured by a
first priority security interest in substantially all of the Borrowers'
inventory and receivables.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
(1) The following audited financial statements of The Isaac
Corporation are attached hereto as Exhibit 99.1:
1. Report of Independent Auditors.
2. Balance Sheets as of December 31, 1995 and 1996.
3. Statements of Income for the years ended December 31,
1994, 1995 and 1996.
4. Statements of Stockholders Equity for the years ended
December 31, 1994, 1995 and 1996.
5. Statements of Cash Flows for the years ended December
31, 1994, 1995 and 1996.
6. Notes to Financial Statements.
(2) The following audited financial statements of Ferrex are
attached hereto as Exhibit 99.2:
1. Report of Independent Auditors.
2
<PAGE> 4
2. Balance Sheets as of December 31, 1995 and 1996.
3. Statements of Income for the years ended December 31,
1994, 1995 and 1996.
4. Statements of Stockholders Equity for the years ended
December 31, 1994, 1995 and 1996.
5. Statements of Cash Flows for the years ended December
31, 1994, 1995 and 1996.
6. Notes to Financial Statements.
(3) The following updated, unaudited financial statements of The
Isaac Corporation are attached hereto as Exhibit 99.3:
1. Statements of Income for the three months ended March
31, 1996 and 1997.
2. Balance Sheets as of March 31, 1996 and 1997.
3. Statements of Cash Flows for the three months ended
March 31, 1996 and 1997.
4. Notes to Financial Statements.
(4) The following updated, unaudited financial statements of
Ferrex are attached hereto as Exhibit 99.4:
1. Statements of Income for the three months ended March
31, 1996 and 1997.
2. Balance Sheets as of March 31, 1996 and 1997.
3. Statements of Cash Flows for the three months ended
March 31, 1996 and 1997.
4. Notes to Financial Statements.
(b) Pro Forma Financial Information
(1) The following updated, unaudited pro forma financial
statements are attached hereto as Exhibit 99.5:
1. Introduction to Pro Forma Financial Information.
3
<PAGE> 5
2. Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended March 31, 1997.
3. Notes to Unaudited Pro Forma Condensed Statement of
Operations for the year ended March 31, 1997.
4. Unaudited Pro Forma Combined Condensed Balance Sheet
as of March 31, 1997.
5. Notes to Unaudited Pro Forma Combined Balance Sheet
as of March 31, 1997.
(c) Exhibits.
2.1 Purchase Agreement - Common Stock of The Isaac Corporation, Ferrex
Trading Corporation, Paulding Recycling, Inc. and Briquetting
Corporation of America and Plan of Merger By and Among Metal
Management, Inc., Isaac Acquisition Corporation and Ferrex Trading
Corporation, dated June 23, 1997.
2.2 Employment Agreement by and between George A. Isaac, III and Metal
Management, Inc., dated June 23, 1997.
2.3 Credit Agreement among The Isaac Corporation, Ferrex Trading
Corporation, Paulding Recycling, Inc. and Briquetting Corporation of
America and BT Commercial Corporation, dated as of June 23, 1997.
23.1 Consent of Ernst & Young LLP.
99.1 Audited Financial Statements of Isaac as of December 31, 1995 and
December 31, 1996 and for the fiscal years ended December 31, 1994,
1995 and 1996.
99.2 Audited Financial Statements of Ferrex as of December 31, 1995 and
December 31, 1996 and for the fiscal years ended December 31, 1994,
1995 and 1996.
99.3 Unaudited Financial Statements of Isaac as of March 31, 1996 and
1997 and for the three months ended March 31, 1996 and 1997.
99.4 Unaudited Financial Statements of Ferrex as of March 31, 1996 and
1997 and for the three months ended March 31, 1996 and 1997.
99.5 Unaudited Pro Forma Combined Condensed Financial Statements giving
effect to the merger of the Registrant, Isaac, Ferrex, and Reserve Iron
& Metal, L.P. as of March 31, 1997 and for the year ended March 31,
1997.
4
<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 July 8, 1997 By: /s/ Gerard M. Jacobs
--- ----------------------------
Gerard M. Jacobs,
President and Chief Executive
Officer
<PAGE> 1
EXECUTION COPY
PURCHASE AGREEMENT
COMMON STOCK
OF
THE ISAAC CORPORATION,
FERREX TRADING CORPORATION,
PAULDING RECYCLING, INC.
AND
BRIQUETTING CORPORATION OF AMERICA
AND
PLAN OF MERGER
BY AND AMONG
METAL MANAGEMENT, INC.,
ISAAC ACQUISITION CORPORATION
AND
FERREX TRADING CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF PURCHASED SECURITIES . . . . . . . . . . . . . . . . . . . . 2
1.1 Purchase and Sale of Isaac Purchased Securities . . . . . . . . . . . . . . 2
1.2 Purchase Price of Ferrex Purchased Securities . . . . . . . . . . . . . . . 2
1.3 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Purchase Price of Isaac Purchased Securities . . . . . . . . . . . . . . . . 2
1.5 Purchase of Paulding and Briquetting Purchased Securities . . . . . . . . . 3
1.6 Purchase Price of Paulding and Briquetting Purchased Securities . . . . . . 3
1.7 Security for Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . 5
2.6 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MTLM AND SUB . . . . . . . . . . . . . . . . . 5
3.1 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 No Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 SEC Filings and Financial Information . . . . . . . . . . . . . . . . . . 6
3.6 MTLM Shares; Capitalization . . . . . . . . . . . . . . . . . . . . . . . 7
3.7 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 Accuracy of Information Furnished by MTLM . . . . . . . . . . . . . . . . 8
3.10 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 Capitalization of Sub; Continuation of Isaac Business . . . . . . . . . . 9
3.12 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.13 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 3
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND THE
COMPANIES ................................................... 10
4.1 Corporate Status ...................................... 10
4.2 Power and Authority ................................... 10
4.3 Enforceability ........................................ 10
4.4 Capitalization......................................... 11
4.5 Shareholders of each Company........................... 11
4.6 No Violation .......................................... 11
4.7 Records ............................................... 12
4.8 Subsidiaries .......................................... 12
4.9 Financial Statements .................................. 12
4.10 Changes Since the Current Balance Sheet Date .......... 13
4.11 Liabilities ........................................... 13
4.12 Litigation ............................................ 14
4.13 Environmental Matters ................................. 14
4.14 Real Estate ........................................... 19
4.15 Good Title to and Condition of Assets ................. 22
4.16 Compliance with Laws .................................. 22
4.17 Labor and Employment Matters .......................... 23
4.18 Employee Benefit Plans ................................ 24
4.19 Tax Matters ........................................... 26
4.20 Insurance ............................................. 27
4.21 Receivables ........................................... 27
4.22 Licenses and Permits .................................. 28
4.23 Adequacy of the Assets; Relationships with Customers
and Suppliers; Affiliated Transactions ................ 28
4.24 Intellectual Property ................................. 28
4.25 Contracts ............................................. 29
4.26 Customer Lists and Recurring Revenue .................. 30
4.27 Accuracy of Information Furnished by the Shareholders.. 30
4.28 Investment Intent; Accredited Investor Status; Securities
Documents ............................................. 30
4.29 Business Locations .................................... 31
4.30 Names; Prior Acquisitions ............................. 31
4.31 No Commissions ........................................ 31
4.32 Inventory ............................................. 31
4.33 Identification of Assets .............................. 31
4.34 Restrictions .......................................... 31
ARTICLE V CONDUCT OF BUSINESS PENDING THE CLOSING ..................... 32
5.1 Conduct of Business Pending the Closing ............... 32
ARTICLE VI ADDITIONAL AGREEMENTS ....................................... 33
6.1 Further Assurances .................................... 33
6.2 Compliance with Covenants ............................. 34
ii
<PAGE> 4
6.3 Cooperation ............................................. 34
6.4 Access to Information ................................... 34
6.5 Notification of Certain Matters ......................... 34
6.6 Tax Treatment ........................................... 34
6.7 Confidentiality; Publicity .............................. 34
6.8 No Other Discussions .................................... 34
6.9 Restrictive Covenants ................................... 35
6.10 Trading in MTLM's Common Stock .......................... 36
6.11 Other Agreements ........................................ 36
6.12 [Reserved] .............................................. 36
6.13 Additional Actions ...................................... 36
6.14 Certification of Tax Status ............................. 36
6.15 Option to Purchase Office Building ...................... 36
6.16 Tax Returns of the Companies Subsequent to Closing ...... 37
6.17 Pension Plan ............................................ 37
6.18 Audits .................................................. 37
6.19 Employee Compensation Plan .............................. 37
6.20 First Right to Purchase Certain Property ................ 37
6.21 Additional Consideration ................................ 38
6.22 Isaac Proxies ........................................... 39
6.23 Registration Rights ..................................... 39
6.24 Mitigation Rights ....................................... 39
ARTICLE VII CLOSING DELIVERIES OF THE COMPANIES AND THE SHAREHOLDERS ...... 40
7.1 Corporate Documents ..................................... 40
7.2 Opinion of Counsel ...................................... 40
7.3 Consents ................................................ 40
7.4 Company Stock ........................................... 41
7.5 Other Closing Deliveries ................................ 41
7.6 Employment Agreements ................................... 41
7.7 Notes Payable to Richard G. Isaac and Renee Isaac ....... 41
ARTICLE VIII CLOSING DELIVERIES OF MTLM AND SUB ............................. 42
8.1 Purchase Price .......................................... 42
8.2 Opinion of Counsel ...................................... 42
ARTICLE IX INDEMNIFICATION ................................................ 43
9.1 Agreement by the Shareholder Indemnitors to Indemnify ... 43
9.2 Agreement by MTLM to Indemnify .......................... 46
9.3 Conditions of Indemnification ........................... 47
9.4 Held Back Shares and Rights of Set off to Secure the
Shareholder Indemnitors' Indemnification Obligation ..... 48
ARTICLE X SECURITIES LAW MATTERS ......................................... 50
iii
<PAGE> 5
10.1 Disposition of MTLM Securities ......................... 51
10.2 Legend ................................................. 51
ARTICLE XI DEFINITIONS ........................................ 51
11.1 Defined Terms .......................................... 51
11.2 Other Definitional Provisions .......................... 58
11.3 Knowledge .............................................. 58
ARTICLE XII TERMINATION, AMENDMENT AND WAIVER ............................. 58
12.1 Termination ............................................ 58
ARTICLE XIII GENERAL PROVISIONS ............................................ 58
13.1 Notices ................................................ 58
13.2 Entire Agreement; No Third Party Beneficiaries ......... 60
13.3 Expenses ............................................... 60
13.4 Amendment; Waiver ...................................... 60
13.5 Binding Effect; Assignment ............................. 60
13.6 Counterparts ........................................... 60
13.7 Interpretation ......................................... 60
13.8 Governing Law; Interpretation .......................... 61
13.9 Arm's Length Negotiations .............................. 61
13.10 Isaac Children ......................................... 61
iv
<PAGE> 6
EXHIBITS
Exhibit A MTLM Notes
Exhibit B Downpayment Notes
Exhibit C George III Note
Exhibit D Collateral Agency Agreement
Exhibit E Letter of Credit
Exhibit F Mortgages
Exhibit G MTLM Stock Pledge
Exhibit H Downpayment Pledge
Exhibit I Guaranty Agreement
Exhibit J Certificate of Merger
Exhibit K Form of Warrant
Exhibit L Office Building Option Agreement
Exhibit M Agreement and Form of Proxy
Exhibit N Registration Rights Agreement
Exhibit O George A. Isaac, III Employment Agreement
Exhibit P Richard G. Isaac Employment Agreement
Exhibit Q Escrow Agreement
v
<PAGE> 7
PURCHASE AGREEMENT AND PLAN OF MERGER
This Purchase Agreement and Plan of Merger (this "Agreement") is entered
into effective as of June 23, 1997, by and among Metal Management, Inc., a
Delaware corporation ("MTLM"), Isaac Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of MTLM ("Sub"); The Isaac Corporation
("Isaac"), Ferrex Trading Corporation ("Ferrex"), Paulding Recycling, Inc.
("Paulding"), Briquetting Corporation of America ("Briquetting"), all Ohio
corporations (Isaac, Ferrex, Paulding and Briquetting being sometimes
hereinafter referred to collectively as the "Companies" and individually as a
"Company") and all of the shareholders of the Companies (collectively the
"Shareholders," and individually, a "Shareholder"). Certain other capitalized
terms used herein are defined in Article XI or elsewhere throughout this
Agreement.
RECITALS
A. The Shareholders own, and until the Closing (as defined herein) will
own, all of the issued and outstanding equity securities of Isaac, Ferrex,
Paulding and Briquetting.
B. MTLM has determined it is in its best interests to purchase and the
Shareholders have determined it is in their best interests to sell all of the
equity securities of Isaac, Paulding and Briquetting and certain of the equity
securities of Ferrex upon the terms and subject to the conditions set forth in
this Agreement.
C. MTLM desires to acquire from the Shareholders of Ferrex all of the
remaining issued and outstanding equity securities of Ferrex held by the
Shareholders (the "Ferrex Stock"), by means of a merger (the "Merger") of
Ferrex with and into Sub pursuant to which the remaining shares of Ferrex Stock
will be converted into the right to receive 1,942,857 shares of Common Stock of
MTLM of which 717,143 shares of Common Stock of MTLM shall be held in escrow
pursuant to Section 9.4 as security for the Shareholder Indemnitors'
indemnification of MTLM pursuant to Article IX.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PURCHASED SECURITIES
1.1 PURCHASE AND SALE OF ISSAC PURCHASED SECURITIES. Subject to the
terms and conditions of this Agreement, at the Closing Date, MTLM shall purchase
from the Shareholders, and each Shareholder shall sell, transfer and convey to
MTLM, all of the equity
<PAGE> 8
securities of Isaac (the "Isaac Purchased Securities"), certain equity
securities of Ferrex (the "Ferrex Purchased Securities"), and all of the equity
securities of Paulding (the "Paulding Purchased Securities") and Briquetting
(the "Briquetting Purchased Securities") set forth opposite such Shareholder's
name on Schedule 1.1 hereto.
1.2 PURCHASE PRICE OF FERREX PURCHASED SECURITIES. The aggregate
purchase price for the Ferrex Purchased Securities consists of $3,101,927
payable to the Shareholders of Ferrex in accordance with Schedule 1.1 hereof by
MTLM's delivery of promissory notes of MTLM in the form attached hereto as
Exhibit A ("MTLM Notes") accruing interest at a rate equal to the prime lending
rate announced from time to time by Bankers Trust Company in New York, New York
as its prime lending rate (the "Prime Lending Rate"), provided, however, that,
except as otherwise provided in the MTLM Notes, the interest rate on the MTLM
Notes shall at no time exceed 1.0% in excess of, and shall at no time be less
than 1.0% below, the Prime Lending Rate on the Closing Date. All principal and
accrued interest shall be payable over a period of up to three (3) years, as set
forth in the MTLM Notes.
1.3 MERGER. Subject to the terms and conditions of this Agreement, on
the Closing Date, immediately following the transactions described above, Ferrex
will be merged with and into Sub pursuant to the terms set forth in Article II
hereof.
1.4 PURCHASED PRICE OF ISSAC PURCHASED SECURITIES. The aggregate
purchase price for the Isaac Purchased Securities consists of:
(a) $10,600,000 payable to the Shareholders of Isaac in accordance
with Schedule 1.1 hereto by MTLM's delivery of promissory notes of MTLM in
the form attached hereto as Exhibit B ("Downpayment Notes") accruing
interest at a rate equal to the Prime Lending Rate, provided, however,
that, except as otherwise provided in the Downpayment Notes, the interest
rate on the Downpayment Notes shall at no time exceed 1.0% in excess of,
and shall at no time be less than 1.0% below, the Prime Lending Rate on the
Closing Date. All principal and accrued interest under the Downpayment
Notes shall be payable on November 1, 1997 unless extended pursuant to the
terms of the Downpayment Notes.
(b) $2,000,000 payable to George A. Isaac, III in accordance with
Schedule 1.1 hereto, by MTLM's delivery of a promissory note of MTLM in the
form attached hereto as Exhibit C ("George III Note") accruing interest at
a rate equal to the Prime Lending Rate, provided, however, that, except as
provided in the George III Note, the interest rate on the George III Note
shall at no time exceed 1.0% in excess of, and shall at no time be less
than 1.0% below, the Prime Lending Rate on the Closing Date. All principal
and accrued but unpaid interest shall be payable on February 15, 1998; and
(c) $20,394,974 payable to the Shareholders of Isaac in accordance
with Schedule 1.1 hereto by MTLM's delivery of MTLM Notes.
2
<PAGE> 9
1.5 PURCHASE OF PAULDING AND BRIQUETTING PURCHASED SECURITIES.
Subject to the terms and conditions of this Agreement, at the Closing Date and
immediately following the transactions described above, MTLM shall purchase from
the Shareholders of Paulding and Briquetting, and each such Shareholder shall
sell, transfer and convey to MTLM, the Paulding Purchased Securities and the
Briquetting Purchased Securities set forth opposite such Shareholder's name on
Schedule 1.1 hereto. (The Isaac Purchased Securities, the Ferrex Purchased
Securities, the Paulding Purchased Securities, and the Briquetting Purchased
Securities are sometimes referred to herein as the "Purchased Securities").
1.6 PURCHASE PRICE OF PAULDING AND BRIQUETTING PURCHASED SECURITIES.
The aggregate purchase price for the Paulding Purchased Securities and the
Briquetting Purchased Securities consists of $450,000 in MTLM Notes issued in
accordance with Schedule 1.1 hereto. (The Downpayment Notes, the MTLM Notes,
and the George III Note, together with the Richard and Renee Notes, shall be
referred to herein collectively as the "Notes").
1.7 SECURITY FOR PAYMENT. The Downpayment Notes, the MTLM Notes and
the Richard and Renee Notes shall be secured by the following items:
(a) the delivery by MTLM to the Collateral Agents, as defined in the
form of Collateral Agency Agreement attached hereto as Exhibit D, of an
irrevocable transferable standby letter of credit (the "Letter of Credit"),
which letter of credit shall be in the form attached hereto as Exhibit E;
(b) the delivery by Isaac to the Collateral Agents of open end
mortgages and security agreements encumbering real estate in Cuyahoga,
Defiance and Williams Counties, Ohio (collectively, the "Mortgages") in the
form attached hereto as Exhibit F;
(c) the obligation of MTLM to issue, and MTLM agrees that it shall
issue, shares of common stock of MTLM (the "Security Shares"), in an amount
equal to 139,700 shares minus the number of Permitted Additional Shares
previously issued pursuant to Section 6.21 to the Collateral Agents upon
the occurrence of an Event of Default under (and as defined in) the Notes,
such obligation to be evidenced by the Stock Issuance and Pledge Agreement
(the "MTLM Stock Pledge") in the form of Exhibit G hereto; and
(d) the delivery by MTLM and Sub to the Collateral Agents of a Stock
Pledge Agreement providing for a pledge of all of the capital stock of
Isaac, Paulding, Briquetting and Sub (the "Downpayment Pledge") in the form
of Exhibit H hereto; and
(e) the delivery by MTLM to the Collateral Agents of a Guaranty
Agreement (the "Guaranty") in the form of Exhibit I hereto guaranteeing the
Richard and Renee Notes. (The Letter of Credit, Mortgages, MTLM Stock
Pledge, Downpayment Pledge and Guaranty are collectively referred to as the
"Collateral Documents").
3
<PAGE> 10
1.8 THE CLOSING. The Closing of the transactions contemplated hereby
(the "Closing"), including the purchase and sale of the Purchased Securities,
and immediately thereafter the consummation of the Merger, shall take place on
the date hereof (the "Closing Date"), at the offices of MTLM's counsel in
Chicago, Illinois, or at such other time or place as MTLM and the Shareholder
Indemnitors may otherwise agree.
ARTICLE II
THE MERGER
2.1 THE MERGER. Upon execution of this Agreement, a Certificate of
Merger (the "Certificate of Merger") which is substantially in the form attached
hereto as Exhibit J shall be executed and duly acknowledged by the President or
a Vice President and the Secretary or Assistant Secretary of each of Ferrex and
Sub, as the constituent corporations. On the Closing Date, the Certificate of
Merger shall be filed with the (i) Secretary of State of the State of Delaware
in accordance with the Delaware General Corporation Law and (ii) the Secretary
of State of the State of Ohio in accordance with the Ohio General Corporation
Law, and upon such filing and the certification of the Certificate of Merger
(the time of such issuance being the "Effective Time") with respect thereto by,
the Secretary of State of the State of Delaware and the Secretary of State of
the State of Ohio: Ferrex shall be merged with and into the Sub in accordance
with applicable state law and Section 368(a)(2)(D) of the Code; the Ferrex
Purchased Securities shall be canceled and retired and shall cease to exist and
no stock of MTLM or other consideration shall be delivered in exchange therefor;
the remaining outstanding shares of Ferrex Stock shall be converted into the
right to receive 1,942,857 shares of Common Stock of MTLM, plus warrants for the
purchase of 462,500 shares of Common Stock of MTLM exercisable at any time and
from time to time on or before the fifth anniversary of the Closing Date for a
price per share set forth in the warrant (such warrants to be in the form of
Exhibit K hereto) with such Common Stock and warrants of MTLM to be distributed
among the Shareholders as set forth in Schedule 1.1 hereto; and Sub shall be the
surviving corporation (the "Surviving Corporation") and the separate corporate
existence of Ferrex shall cease.
2.2 ESCROW. Pursuant to Section 9.4, 717,143 shares of Common Stock of
MTLM shall be held in escrow as security for the Shareholder Indemnitors'
indemnification of MTLM pursuant to Article IX.
2.3 CLOSING. The closing of the Merger will take place concurrently
with the Effective Time of the Merger at the time and according to the
provisions set forth in Section 1.8 hereof, it being understood by the parties
hereto that the Certificate of Merger will be filed with the Secretary of State
of the State of Delaware and with the Secretary of State of the State of Ohio on
such date.
4
<PAGE> 11
2.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 252 of the Delaware General Corporation Law.
2.5 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Sub, in each case as in effect at the Effective
Time, shall be the Certificate of Incorporation and Bylaws of the Surviving
Corporation, provided that, at the Effective Time, Article First of the
Certificate of Incorporation shall read as follows:
"FIRST: The name of the Corporation is Ferrex Trading Corporation."
2.6 DIRECTORS AND OFFICERS. At the Effective Time, the Board of
Directors of the Surviving Corporation shall be comprised of Gerard M. Jacobs,
T. Benjamin Jennings and George A. Isaac, III, and the initial officers of the
Surviving Corporation shall be the officers of Ferrex.
2.7 FURTHER ASSURANCES. After the Closing, the Shareholders shall
from time to time, at the request of MTLM and without further cost or expense to
MTLM, execute and deliver such other instruments of conveyance and transfer and
take such other actions as MTLM may reasonably request, in order to more
effectively consummate the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF MTLM AND SUB
As a material inducement to the Shareholders to enter into this Agreement
and to consummate the transactions contemplated hereby, MTLM and Sub make, as of
the date hereof, the following representations and warranties to the
Shareholders, provided, however, that all of the following representations and
warranties are expressly qualified by the information and disclosures contained
in the Cozzi Agreement (as defined herein) including the Schedules thereto (a
copy of which has been furnished to the Companies and the Shareholders) or
contained in the Form 10-K for MTLM's fiscal year ended March 31, 1997 (the
"1997 10-K") which is required to be filed with the SEC on or before June 30,
1997:
5
<PAGE> 12
3.1 CORPORATE STATUS. Each of MTLM and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of incorporation. Each of MTLM and its Subsidiaries has the
requisite corporate power and authority, and has in effect all material federal,
state, local and other governmental authorizations necessary, to own or lease
its property and to carry on its business as now being conducted. Each of MTLM
and its Subsidiaries is duly qualified to transact business as a foreign
corporation in each jurisdiction where the nature of its property and the
conduct of its business requires such qualification. Schedule 3.1 sets forth a
list of all Subsidiaries of MTLM.
3.2 CORPORATE POWER AND AUTHORITY. Each of MTLM and Sub has the
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. Except as provided on Schedule 3.2, MTLM has, or will have at the time
of Closing, and Sub has taken all action necessary to authorize its execution
and delivery of this Agreement, the performance of its obligations hereunder and
the consummation of the transactions contemplated hereby.
3.3 ENFORCEABILITY. Each of this Agreement, the Other Agreements and
the Notes has been duly executed and delivered by each of MTLM and Sub, as the
case may be, and constitutes a legal, valid and binding obligation of each of
MTLM and Sub, as the case may be, enforceable against MTLM and/or Sub 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 NO COMMISSIONS. Neither MTLM nor any of its Subsidiaries 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.
3.5 SEC FILINGS AND FINANCIAL INFORMATION. MTLM has made all filings
required to be made by it with the SEC (as defined herein). All of such
filings made by MTLM (collectively, "SEC Documents") (i) complied in all
material respects as to form with the applicable requirements of the SEC and
(ii) none of such filings contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading. Each of the balance sheets contained in or incorporated
by reference into any such SEC Document (including the related notes and
schedules thereto) fairly presents the financial position of the entity or
entities to which it relates as of its date, and each of the statements of
income and changes in stockholders' equity and cash flows or equivalent
statements in such SEC Documents (including any related notes and schedules
thereto) fairly presents the results of operations, changes in stockholders'
equity and changes in cash flows, as the case may be, of the entity or entities
to which it relates for the periods to which they relate, in each case in
accordance with generally accepted accounting principles consistently applied
during the periods
6
<PAGE> 13
involved, except in each case as may be noted therein, subject to normal
year-end audit adjustments in the case of unaudited statements.
3.6 MTLM SHARES; CAPITALIZATION.
(a) The shares of Common Stock of MTLM to be issued
pursuant to the Merger, the Security Shares, when issued, and any
Additional Shares to be issued pursuant to Section 6.21, when issued, will
be duly authorized, validly issued, fully paid and non-assessable and will
not be subject to preemptive, first refusal, or similar rights and the
shares of Common Stock of MTLM to be issued pursuant to the Merger, the
Security Shares, when issued, and any Additional Shares, when issued, will
be free of all transfer restrictions (other than those pursuant to this
Agreement or applicable state and federal securities laws). MTLM has duly
authorized and reserved for issuance the shares of Common Stock of MTLM to
be issued pursuant to the Merger, the Security Shares and any Additional
Shares to be issued in accordance with Section 6.21.
(b) Schedule 3.6 sets forth, with respect to MTLM, (i) the
number of authorized shares of each class of its capital stock, (ii) the
number of issued and outstanding shares of each class of its capital stock,
and (iii) the number of shares each class of its capital stock which are
held in treasury. All of the issued and outstanding shares of capital
stock of MTLM (i) have been duly authorized and validly issued and are
fully paid and non-assessable, (ii) were issued in compliance with all
applicable state and federal securities laws and (iii) 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 MTLM, and no such rights arise by virtue of or
in connection with the transactions contemplated hereby. Except as set
forth in Schedule 3.6, 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 MTLM to issue or sell any shares of its capital stock (or
securities convertible into or exchangeable for shares of its capital
stock). Except as set forth in Schedule 3.6, there are no outstanding
stock appreciation, phantom stock, profit participation or similar rights
with respect to MTLM. Except as set forth in Schedule 3.6, there are no
proxies, voting rights or other agreements or understandings with respect
to the voting or transfer of the capital stock of MTLM, and MTLM is not
obligated to redeem or otherwise acquire any of its outstanding shares of
capital stock.
3.7 NO VIOLATION. Except for the filing of the Certificate of
Merger with, and the certification of the Certificate of Merger by, the
Secretary of State of the State of Delaware and the Secretary of State of the
State of Ohio, and the filing of a listing application with the Nasdaq Stock
Market, Inc., the execution and delivery of this Agreement by MTLM and Sub, the
Other Agreements, the Notes and the Confidentiality Agreement by MTLM and Sub,
the performance by each of MTLM and any of its Subsidiaries of its obligations
hereunder and thereunder and the consummation by each of MTLM and any of its
Subsidiaries of the transactions contemplated by this Agreement and the Other
Agreements will not (i) contravene
7
<PAGE> 14
any provision of the articles of incorporation or bylaws of MTLM or any of its
Subsidiaries, (ii) violate or conflict with any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment or order of any Governmental
Authority or any self-regulatory organization or securities market or any
arbitration award which is either applicable to, binding upon or enforceable
against MTLM or any of its Subsidiaries, (iii) conflict with, result in any
breach of, or constitute a default (or any 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, abandon or accelerate, any
Contract which is applicable to, binding upon or enforceable against MTLM or
any of its Subsidiaries, (iv) result in or require the creation or imposition
of any Lien upon or with respect to any of the property or assets of MTLM or
any of its Subsidiaries (except as contemplated by this Agreement and MTLM's
financing arrangements), 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, in the case of item (iii), for
any such events which would not have a Material Adverse Effect.
3.8 COMPLIANCE WITH LAWS.
(a) Each of MTLM and its Subsidiaries is in material
compliance with all laws, regulations and orders applicable to it, its
business and its operations (as conducted by it now and during the three
consecutive years prior to the Closing) and to its assets and owned and
leased properties (in each case owned or used by it now or during the three
consecutive years prior to Closing). Except as set forth on Schedule 3.8,
neither MTLM nor any of its Subsidiaries has been cited, fined or otherwise
notified of any asserted past or present material failure to comply with
any laws, regulations or orders and no proceeding with respect to any such
material violation is pending or, to the knowledge of MTLM or any of its
Subsidiaries, threatened.
(b) Except as described on Schedule 3.8, neither MTLM nor
any of its Subsidiaries is 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.
3.9 ACCURACY OF INFORMATION FURNISHED BY MTLM. No representation,
statement or information made or furnished by MTLM, Sub or any of MTLM's
representatives in this Agreement or in any Schedule, certificate or other
document to be delivered pursuant hereto contains any untrue statement of a
material fact or omits any material fact necessary to make the information
contained therein not misleading. MTLM has made available to the Shareholders
true, accurate and complete copies of all documents listed or described in
Schedule 3.10 hereto.
3.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1996, there has
not been, with respect to MTLM or any of its Subsidiaries, any Material Adverse
Change (or Effect). For purposes of this paragraph, "Material Adverse Change
(or Effect)" shall not include: (i) the acquisition of or agreement to acquire
any companies or the assets of any companies; (ii) the
8
<PAGE> 15
termination of any agreement to acquire or the unwind or sale of any companies
or the assets of any companies; (iii) the placement of, or entering into any
agreement to place, any debt or equity securities of MTLM; (iv) any change in
the trading price of the Common Stock of MTLM; or (v) any change in the Board
of Directors of MTLM; provided that each such item described in (i), (ii),
(iii), and (v) is specifically identified on Schedule 3.10 hereto and MTLM has
made available to the Shareholders copies of all documents, instruments and
other written materials executed in connection therewith; and provided,
further, that the exclusion set forth in clause (i) shall not apply with
respect to any Material Adverse Change (or Effect) to the operations of the
acquired company or companies.
3.11 CAPITALIZATION OF SUB; CONTINUATION OF ISSAC BUSINESS. Prior to
the transaction, MTLM will be in control of Sub within the meaning of Section
368(c)(1) of the Code. Following the transaction, Sub will not issue additional
shares of its stock that would result in MTLM losing control of Sub within the
meaning of Section 368(c)(1) of the Code. MTLM has no plan or intention to
reacquire any of its stock issued in the transaction, except pursuant to the
terms of the Escrow Agreement. MTLM has no plan or intention to liquidate Sub;
to merge Sub with and into another corporation; to sell or otherwise dispose of
the stock of Sub; or to cause Sub to sell or otherwise dispose of any of the
assets of Ferrex acquired in the transaction, except for dispositions made in
the ordinary course of business or transfers described in Section 368(a)(2)(C)
of the Internal Revenue Code. Following the transaction, Sub will continue the
historic business of Ferrex or use a significant portion of Ferrex's business
assets in a business.
3.12 INVENTORY. All properties and assets of MTLM and each of its
Subsidiaries (other than real property), whether personal or mixed, tangible or
intangible, wherever located, that consists of inventory (including any raw
materials and work-in-progress): (i) were acquired in the ordinary course of
business consistent with past practice; (ii) are of a quantity and condition
useable or saleable in the ordinary course of business within the normal
inventory turnover experience of MTLM and its Subsidiaries; and (iii) are valued
at the lower of cost or net realizable market value. Neither MTLM nor any of
its Subsidiaries has any material liability with respect to the return or
repurchase of any goods in the possession of any customer.
3.13 RECEIVABLES. All the Receivables (as hereinafter defined) of MTLM
and its Subsidiaries represent bona fide transactions and arose in the ordinary
course of business of MTLM or such Subsidiaries, as applicable. All of MTLM's
and its Subsidiaries' Receivables are good and reasonably expected to be
collectable Receivables, and are reasonably expected to be collected in the
ordinary course of business, without set off or counterclaims, subject to the
allowance for doubtful accounts, if any, set forth on the March 31, 1997 audited
balance sheets of MTLM or such Subsidiary, as the case may be, as reasonably
adjusted since the date of such balance sheet in the ordinary course of business
consistent with past practice and subject to credit insurance for Receivables.
3.14 LITIGATION. Except as set forth on Schedule 3.14, there is no
action, suit or other legal or administrative proceeding or governmental
investigation, pending or, to the
9
<PAGE> 16
knowledge of MTLM or any of its Subsidiaries, threatened, anticipated or
contemplated against, by or affecting any of MTLM, its Subsidiaries or any of
their properties or assets which is reasonably likely to have a Material
Adverse Effect, or relating to the transactions contemplated by this Agreement
or which question the validity or enforceability of this Agreement or the
transactions contemplated hereby, and, to the knowledge of MTLM and its
Subsidiaries, there is no basis for any of the foregoing. Except as set forth
in Schedule 3.14, there are no outstanding orders, decrees or stipulations
issued by any Governmental Authority in any proceeding to which any of MTLM or
any of its Subsidiaries is or was a party which have not been complied with in
full or which continue to impose any material obligations on MTLM or any of its
Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTS OF
THE SHAREHOLDERS AND THE COMPANIES
As a material inducement to MTLM and Sub to enter into this Agreement and
to consummate the transactions contemplated hereby, each of the Shareholders and
the Companies hereby severally and not jointly makes, as of the date hereof, the
following representations and warranties to MTLM and Sub:
4.1 CORPORATE STATUS. Each Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio. Each
Company has the requisite power and authority to own or lease its property and
to carry on its business as now being conducted. Each Company is legally
qualified to transact business as a foreign corporation in all jurisdictions
where the nature of its property and the conduct of its business requires such
qualification (all of which jurisdictions are listed on Schedule 4.1) 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 any Company.
4.2 POWER AND AUTHORITY. The Companies and such Shareholder has the
power and authority to execute and deliver this Agreement, to perform its
respective obligations hereunder and to consummate the transactions contemplated
hereby. Each Company has taken all action necessary to authorize the execution
and delivery of this Agreement, the performance of its respective obligations
hereunder and the consummation of the transactions contemplated hereby. Such
Shareholder has the requisite competence to execute and deliver this Agreement
and to perform his obligations hereunder and to consummate the transactions
contemplated hereby. Each Isaac Shareholder represents that he or she is a
resident of the State of Ohio (or, in the case of William M. Isaac, the State of
Florida; in the case of Stephanie Isaac, the State of California; and in the
case of David Isaac, the State of Florida).
4.3 ENFORCEABILITY. Each of this Agreement and the Other Agreements
has been duly executed and delivered by each Company and such Shareholder and
constitutes the legal, valid and binding obligation of such Company and such
Shareholder, enforceable against
10
<PAGE> 17
it 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.
4.4 CAPITALIZATION. Schedule 4.4 sets forth, with respect to each
Company, (i) the number of authorized shares of each class of its capital stock,
(ii) the number of issued and outstanding shares of each class of its capital
stock, and (iii) 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 each Company (i) have been duly authorized and validly issued and are fully
paid and non-assessable, (ii) were issued in compliance with all applicable
state and federal securities laws, and (iii) 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 any Company,
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 any of the Companies 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 any of the Companies.
Except as set forth in Schedule 4.4, there are no proxies, voting rights or
other agreements or understandings with respect to the voting or transfer of the
capital stock of any of the Companies, and none of the Companies is obligated to
redeem or otherwise acquire any of its outstanding shares of capital stock.
4.5 SHAREHOLDERS OF EACH COMPANY. Schedule 4.5 sets forth, with
respect to each Company, (i) 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 (ii) 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 Shareholders are the holders of all issued and
outstanding shares of capital stock of the Companies. Such Shareholder owns the
shares set forth opposite his or her name on Schedule 4.5, free and clear of all
Liens, restrictions and claims of any kind, except as set forth on Schedule 4.5.
Such shares are not subject to any voting trust agreement, proxy or other
Contract, except as set forth on Schedule 4.5.
4.6 NO VIOLATION. Except as set forth on Schedule 4.6, the execution
and delivery of this Agreement by the Companies and the Shareholders, the
performance by each of 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 any
Company, (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 any
11
<PAGE> 18
Company or the 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, abandon or accelerate, any Contract which is
applicable to, binding upon or enforceable against any Company or the
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 any Company, or (v)
require them to obtain 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 in the case of item (iii) for any such
events which would not have a Material Adverse Effect.
4.7 RECORDS. Except as set forth on Schedule 4.7, the copies of the
respective articles of incorporation and Code of Regulations of the Companies
which were or will be provided to MTLM are true, accurate and complete and
reflect all amendments made through the date of this Agreement. The minute
books for each Company provided to MTLM for review were correct and complete as
of the date of such review with respect to all actions of the Company since
1989, no further entries have been made through the date of this Agreement, such
minute books contain the true signatures of the persons purporting to have
signed them, and such minute books contain an accurate record of all corporate
actions of the shareholders and directors (and any committees thereof) of each
Company taken by written consent or at a meeting since 1989. All material
corporate actions taken by each Company have been duly authorized or ratified.
Since January 1, 1989, all accounts, books, ledgers and official and other
records of each Company have been fully, properly and accurately kept and
completed in all material respects, and there are no material inaccuracies or
discrepancies of any kind contained therein. The stock ledgers of each Company,
as previously provided to MTLM, contain accurate and complete records of all
issuances, transfers and cancellations of shares of the capital stock of each of
the Companies.
4.8 SUBSIDIARIES. Except as otherwise set forth on Schedule 4.8, none
of the Companies owns, directly or indirectly, any outstanding voting securities
of or other interests in, or control, any other corporation, partnership, joint
venture or other business entity.
4.9 FINANCIAL STATEMENTS. The Shareholders have delivered to MTLM (i)
the financial statements of Isaac and Ferrex as of December 31, 1996, including
the notes thereto, audited by Ernst & Young LLP and (ii) the December 31, 1996
unaudited financial statements of Paulding and Briquetting (collectively, the
"Financial Statements"), copies of which are attached as Schedule 4.9 hereto.
The balance sheets dated as of December 31, 1996 included in the Financial
Statements are referred to herein as the "Current Balance Sheets". The
Financial Statements fairly present the financial position of each Company at
the balance sheet date and the results of operations for the periods covered
thereby, and have been prepared in accordance with GAAP consistently applied
throughout the periods indicated, except as set forth in Schedule 4.9. The
books and records of the Companies fully and fairly reflect in all material
respects the transactions, properties, assets and liabilities of each Company.
Except as set forth in Schedule 4.9, 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
12
<PAGE> 19
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 reflect all adjustments necessary for a fair presentation of the
financial information contained therein.
4.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Except as disclosed
in Schedule 4.10, since the date of the Current Balance Sheet, none of the
Companies has (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 $25,000 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; (ix) suffered any extraordinary losses (whether or not covered
by insurance); (x) waived, canceled, compromised or released any rights having a
value in excess of $50,000 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, to the knowledge
of the Shareholders, any agreement involving an amount in excess of $50,000;
(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 or except in the ordinary course of its
business; (xviii) made or pledged any charitable contribution other than in the
ordinary course of business consistent with past practice; (xix) had a Material
Adverse Effect; or (xx) agreed to do or authorized any of the foregoing.
4.11 LIABILITIES. Except as set forth on Schedule 4.11, to the
knowledge of the Shareholders, none of the Companies has any liabilities or
obligations, whether accrued, absolute, contingent or otherwise, except (i) to
the extent reflected or taken into account in the Current Balance Sheet and not
heretofore paid or discharged, (ii) to the extent specifically set forth in or
incorporated by express reference in any of the Schedules attached hereto, (iii)
liabilities 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), (iv) 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 (v) liabilities incurred in the
ordinary course of business prior to the date of the Current
13
<PAGE> 20
Balance Sheet which, in accordance with GAAP consistently applied, were not
recorded thereon. The consolidated net worth of the Companies will be no less
than $5,750,000 as of the date hereof. As of the date hereof, the aggregate
outstanding indebtedness under (i) The Isaac Corporation's Promissory Note
dated March 22, 1996 with National City Bank, Northwest and the Loan Agreement
dated March 29, 1996 with Capital Bank, N.A., and (ii) the Ferrex Trading
Company's Promissory Note dated May 6, 1996 with National City Bank, Northwest
does not exceed $6,000,000. As of the date hereof, the maximum amounts due
under the Officer Wealth Plan have been accrued and are reflected or taken into
account in the Current Balance Sheet
4.12 LITIGATION. Except as set forth on Schedule 4.12, there is no
action, suit, or other legal or administrative proceeding or governmental
investigation, pending or, to the knowledge of the Shareholders, threatened,
anticipated or contemplated: (i) against, by or affecting any of the Companies
or any of their properties or assets, or the Shareholders; (ii) relating to the
transactions contemplated by this Agreement; or (iii) which question the
validity or enforceability of this Agreement or the transactions contemplated
hereby, and, to the knowledge of the Shareholders, there is no basis for any of
the foregoing. Except as set forth in Schedule 4.12, there are no outstanding
orders, decrees or stipulations issued by any Governmental Authority in any
proceeding to which any Company is or was a party which have not been complied
with in full or which continue to impose any material obligations on any
Company.
4.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.13:
(a) To the best of the Shareholders' knowledge, each Company is
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 defined
herein). None of the Companies is currently liable for any penalties,
fines or forfeitures for failure to comply with any Environmental, Health
and Safety Laws which would have a Material Adverse Effect. Each Company
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) Each Company has obtained, or caused to be obtained, and, to
the best of the Shareholders' knowledge, 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 Licenses, and to the best
14
<PAGE> 21
of the Shareholders' knowledge, each Company is in material compliance with
all the terms, conditions and requirements of such Licenses, and copies of
such Licenses have been made available to MTLM. There are no administrative
or judicial investigations, notices, claims or other proceedings pending
or, to the best of the Shareholders' knowledge, threatened by any
Governmental Authority or third parties against any Company, their
respective businesses, operations, properties, or assets, which question
the validity or entitlement of any Company to any License required by the
Environmental, Health and Safety Laws for the ownership of each of the
respective properties and assets of any Company and the operation of their
respective business or wherein an unfavorable decision, ruling or finding
could have a Material Adverse Effect on the Companies, or upon MTLM in the
event that the transaction contemplated by this Agreement closes.
(c) None of the Companies has received or is aware of any
non-compliance order, warning letter, investigation, notice of violation,
claim, suit, action, judgment, or administrative or judicial proceeding
pending or, to the best of the Shareholders' knowledge, threatened against
or involving any Company, their respective 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 such Company of its properties or assets or the
operation of its business, which has not been resolved with the issuing
Governmental Authority or third party in a manner that would not have a
Material Adverse Effect on MTLM in the event that the transaction
contemplated by this Agreement closes or which could have a Material
Adverse Effect on the Companies.
(d) To the best of the Shareholders' knowledge, each Company is in
full compliance with, and is not in breach of or default under any
applicable writ, order, judgment, injunction, governmental communication or
decree issued to the Company 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, except for such noncompliance
which in each case would not have a Material Adverse Effect or affect the
Owned Properties or Leased Premises.
(e) To the best of the Shareholders' knowledge, none of the
Companies has (i) 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 allowed 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 material
contravention of any Environmental, Health and Safety Laws or (ii)
generated, manufactured, used, stored, handled, treated, spilled, leaked,
dumped, discharged, released
15
<PAGE> 22
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, any material quantities of Hazardous Substances or
other waste upon Owned Properties or Leased Premises, except as permitted
by law, except as would in each case not have a Material Adverse Effect.
For purposes of this Section 4.13, 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, metals, 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 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 regulations
implementing such statutes, laws, ordinances, codes, rules, regulations,
orders, rulings, or decrees, or which has been 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 4.13, 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) To the best of the Shareholders' knowledge, (i) none of the
Companies has caused, nor allowed to be caused or permitted, either by
action or inaction, a Release or Discharge, or threatened Release or
Discharge, of any material quantity of Hazardous Substance on, into or
beneath the surface of any parcel of the Owned Properties or the Leased
Premises or to any properties adjacent thereto and (ii) there has not
occurred, nor is there presently occurring, a Release or Discharge, or
threatened Release or Discharge, of any material quantity of any Hazardous
Substance on, into or beneath the surface of any parcel of the Owned
Properties or the Leased Premises or to
16
<PAGE> 23
any properties adjacent thereto. For purposes of this Section, the terms
"Release" and "Discharge" shall have the meanings given them in the
Environmental, Health and Safety Laws.
(g) To the best of the Shareholders' knowledge, none of the
Companies has 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
the Company or any Subsidiary that it has proposed or is proposing to place
on the National Priorities List or its state equivalent. None of the
Companies, nor the Shareholders has received notice, and to the best of the
Shareholders' knowledge, none of the Companies, nor the Shareholders has
knowledge of any facts which could give rise to any notice, that any
Company 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. None of the
Companies has submitted or was required to submit any notice pursuant to
Section 103(c) of CERCLA with respect to the Leased Premises or the Owned
Properties. None of the Companies has received any written 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 any
Company has transported, transferred or disposed of other Wastes. To the
best of the Shareholders' knowledge, none of the Companies has 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 and none of the Companies has
any material liability under any Environmental, Health and Safety Laws for
personal injury, property damage, natural resource damage, or clean up
obligations.
(h) Except as set forth on Schedule 4.13, none of the Companies
has or has used, any Aboveground Storage Tanks or Underground Storage
Tanks, and there are not now nor have there ever been any Underground
Storage Tanks on the Owned Properties or Leased Premises. For purposes of
this Section 4.13, 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 4.13 identifies, to the best of the Shareholders'
knowledge, regardless of their materiality (i) all environmental audits,
assessments or occupational health studies of which any Shareholder or
Company is aware of having been undertaken by any Company, or their agents,
or by the Shareholders, or by any Governmental Authority, or by any third
party on behalf of any Company, relating to or affecting any
17
<PAGE> 24
Company, or any of the Leased Premises or the Owned Properties; (ii) the
results of which any Company is aware of any ground, water, soil, air or
asbestos monitoring undertaken by any Company, or their respective
agents, or by the Shareholders, or by any Governmental Authority, or by
any third party on behalf of any Company, relating to or affecting any
Company, or any of the Leased Premises or the Owned Properties; (iii) all
written communications between any Company 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 any Company or any of the Leased Premises or the
Owned Properties.
(j) Schedule 4.13 contains, to the best of the Shareholders'
knowledge, a list of the assets of each Company which contain "asbestos" or
"asbestos-containing material" (as such terms are identified under the
Environmental, Health and Safety Laws). Schedule 4.13 also identifies, to
the best of the Shareholders' knowledge, (i) the degree of friability of
all existing asbestos and asbestos-containing material and (ii) all actions
taken by each Company, directly or indirectly, or by any of their
respective 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 4.13, to the best of the Shareholders' knowledge, each Company has
operated and continues to operate in material 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 4.13, there are no claims, actions, suits,
governmental investigations or proceedings before any Governmental
Authority or third party pending, or, to the best of the Shareholders'
knowledge, threatened against or directly affecting any Company, or any of
their respective 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, or
ordinances or judicial or administrative interpretations thereof, any of
which 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
Materials Transportation Act, the Toxic Substances Control Act, the Clean
Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA.
18
<PAGE> 25
(l) To the best of the Shareholders' knowledge, Schedule 4.13
identifies the operations and activities, and locations thereof, which have
been conducted and are being conducted by each Company 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 any material quantities of Hazardous Substances.
(m) To the best of the Shareholders' knowledge, Schedule 4.13
identifies the locations to which each Company has transferred,
transported, hauled, moved, or disposed of Waste over the past five years
and provides general information on the types and volumes of Waste
transferred, transported, hauled, moved, or disposed of to each such
location.
(n) To the best of the Shareholders' knowledge, none of the
Owned Properties or Leased Properties presently includes, or has been
constructed upon, any "wetlands" as defined under applicable Environmental,
Health and Safety Laws.
(o) As used in this Section 4.13, the term "Companies" is deemed
to refer to the Companies predecessors-in-interest and other entities in
which the Companies have an interest.
(p) As used in Section 4.13(e), (f), (g), (h), (i) and (l), the
terms "Owned Properties" and "Leased Premises" are deemed to refer to any
properties previously owned or leased by the Companies and used in the
operation of the scrap metal business.
4.14 REAL ESTATE.
(a) None of the Companies owns any real property or any interest
therein except for the Retained Properties and except those properties as
set forth on Schedule 4.14(a) (the properties listed on Schedule 4.14(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 4.14(a), with respect to each such parcel
of Owned Property:
(i) each Company has good and marketable title to each
parcel of its 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 4.14(a), all of which policies have been
previously delivered to MTLM.
19
<PAGE> 26
(ii) there are no pending or, to the knowledge of the
Shareholders, threatened condemnation proceedings, suits or administrative
actions relating to the Owned Properties or other matters materially
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;
to the knowledge of the Shareholders, the 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) to the knowledge of the Shareholders, 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 material compliance 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 4.14(a);
(vi) 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 the Companies) in possession
of the parcels of Owned Property, other than tenants under any leases
disclosed in Schedule 4.14(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 as presently being used, 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
20
<PAGE> 27
public roads or via permanent, irrevocable, appurtenant easements
benefitting the parcels of Owned Property;
(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; and there is no pending or, to the knowledge of the
Shareholders, 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 4.14(a).
(b) Schedule 4.14(b) sets forth a list of all leases, licenses or
similar agreements ("Leases") to which each Company 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 or 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 or are otherwise
set forth on Schedule 4.14(b). The Leases are in full force and effect and have
not been amended except as set forth on Schedule 4.14(b), and no party thereto
is in default or breach under any such Lease. To the knowledge of the
Shareholders, 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. To the knowledge of the Shareholders, there is no breach or
anticipated breach by any other party to such Leases. Except as set forth on
Schedule 4.14(b), with respect to each such Leased Premises:
(i) each Company has valid leasehold interests in the
Leased Premises leased by it, which leasehold interests are free and clear
of any Liens, covenants and easements or title defects of any nature
whatsoever, other than those that would not have a Material Adverse Effect;
(ii) the portions of the buildings located on the Leased
Premises that are used in the business of each Company are in good repair
and condition, normal wear and tear excepted, and are in the aggregate
sufficient to satisfy each
21
<PAGE> 28
Company'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 each Company's respective
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) none of the Companies has received notice of (a) any
condemnation proceeding with respect to any portion of the Leased Premises
or any access thereto, and, to the knowledge of the Shareholders, no such
proceeding is contemplated by any Governmental Authority; or (b) any
special assessment which may affect any of the Leased Premises and, to the
knowledge of the Shareholders, no such special assessment is contemplated
by any Governmental Authority.
4.15 GOOD TITLE TO AND CONDITION OF ASSETS.
(a) Except as set forth on Schedule 4.15, each Company has good and
marketable title to all of its respective 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 each Company, other
than the Owned Properties, the Retained 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 each Company are in good operating
condition, normal wear and tear excepted, and have been maintained 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 each
Company or set forth on the Current Balance Sheet or acquired by each Company
since the date of the Current Balance Sheet. Schedule 4.15 lists the vehicles
owned, leased or used by each Company, 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.
22
<PAGE> 29
4.16 COMPLIANCE WITH LAWS.
(a) Each Company is in material compliance with all laws,
regulations and orders applicable to it, its respective 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). Except as set forth on
Schedule 4.16, none of the Companies has been cited, fined or otherwise
notified of any asserted past or present material failure to comply with
any laws, regulations or orders and no proceeding with respect to any such
material violation is pending or, to the knowledge of the Shareholders,
threatened.
(b) None of the Companies has made any payment of funds in
connection with its business which is prohibited by law, and no funds have
been set aside to be used in connection with its business for any payment
prohibited by law.
(c) Each Company is 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 each Company for whom compliance with the Immigration
Act as employer is required, such Company 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 such Company pursuant to the
Immigration Act. None of the Companies has 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, to the knowledge of
the Shareholders, threatened against it, by the Immigration and
Naturalization Service by reason of any actual or alleged failure to comply
with the Immigration Act.
(d) Except as fully described on Schedule 4.16, none of the
Companies is 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.
4.17 LABOR AND EMPLOYMENT MATTERS. Schedule 4.17 sets forth the name,
address, social security number and current rate of compensation of each of the
employees of each Company. Except as set forth on Schedule 4.17, none of the
Companies is a party to or bound by any collective bargaining agreement or any
other agreement with a labor union, and there have been no efforts by any labor
union during the 24 months prior to the date hereof to organize any employees of
any Company 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 any Company which may interfere with its continued
operations. To the knowledge of the Shareholders, none of the Companies has
within the last 24 months committed any unfair labor practice as defined in the
National Labor Relations Act, as amended, and there is no pending or threatened
charge or complaint against any Company by or with the National
23
<PAGE> 30
Labor Relations Board or any representative thereof. There has been no strike,
walkout or work stoppage involving any of the employees of any Company during
the 24 months prior to the date hereof. The Shareholders are not aware that any
executive or key employee or group of employees has any plans to terminate his,
her or their employment with the Companies as a result of this Agreement or
otherwise. Schedule 4.17 lists each contract, agreement or plan of the
following nature, whether formal or informal, and whether or not in writing, to
which each Company 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. To the
knowledge of the Shareholders, each Company 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 Worker Adjustment and Retraining Notification
Act of 1988.
4.18 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 4.18 contains a list setting
forth each employee benefit plan or arrangement of each Company, 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"), multiemployer 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 each Company 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, to the knowledge of
the Shareholders, threatened (except routine claims for benefits); (iii) no
audits, inquiries, reviews, proceedings, claims, or demands are pending
with any governmental or regulatory agency; (iv) there are no facts known
to the Shareholders 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.
(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
24
<PAGE> 31
has issued a favorable determination letter, true and correct copies of
which have been furnished to MTLM, to the effect that such plans are
qualified and exempt from federal income taxes; (ii) to the knowledge of
the Shareholders, no such determination letter has been revoked, no
revocation has been threatened, and no amendment or other action or
omission has 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;
(iv) no reportable event (within the meaning of Section 4043 of ERISA) has,
to the knowledge of the Shareholders, 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 4.18, 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 date hereof 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 4.18.
(d) Multiemployer Plans. None of the Companies maintains,
contributes or has any obligation to contribute to any multiemployer plan,
as described in Section 4001(a)(3) of ERISA ("MPPA Plan").
(e) Welfare Plans. Other than as disclosed in Schedule 4.18, (i)
none of the Companies is obligated under any employee welfare benefit plan
as described in Section 3(1) of ERISA ("Welfare Plan"), whether or not
disclosed in Schedule 4.18, to provide medical or death benefits with
respect to any employee or former employee of any Company, or their
predecessors after termination of employment; (ii) each Company 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, (iii) there are no reserves, assets, surplus or
prepaid premiums under any Welfare Plan which is an Employee Benefit Plan,
and (iv) 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.
25
<PAGE> 32
(f) Controlled Group Liability. None of the Companies, nor any
entity that would be aggregated with them 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 4.18, (i)
none of the Employee Benefit Plans obligates any Company 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 fiscal years ending prior to or as of the date hereof shall have
been made or properly accrued on the Current Balance Sheet or will be
properly accrued on the books and records of each Company as of the date
hereof, 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 each Company.
4.19 TAX MATTERS. Except as set forth in Schedule 4.19 hereto, all Tax
Returns required to be filed prior to the date hereof with respect to each
Company, or any of its income, properties, franchises or operations have been
filed, each such Tax Return has been prepared in substantial compliance with all
applicable laws and regulations, and all such Tax Returns are true, complete and
accurate in all material respects. All Taxes due and payable by or with respect
to each Company have been paid or accrued on the Current Balance Sheet or will
be accrued on its books and records with respect to fiscal years ending on or
before December 31, 1996 as of the date hereof. Except as set forth in Schedule
4.19 hereto: (i) with respect to each taxable period of each Company ending
within the last six years, no taxable period has been audited by the 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; (iii) none of the Companies has consented to
extend the time in which any Taxes may be assessed or collected by any taxing
authority; (iv) none of the Companies has requested or been granted an extension
of the time for filing any Tax Return to a date later than the date hereof; (v)
there is no action, suit, taxing authority proceeding, or audit or claim for
refund now in progress, pending or, to the knowledge of the Shareholders,
threatened against or with respect to any Company regarding Taxes; (vi) none of
the Companies has 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 date hereof; (vii) there are no Liens for Taxes (other than for
26
<PAGE> 33
current Taxes not yet due and payable) upon the assets of each Company, (viii)
none of the Companies will be required (A) as a result of a change in method of
accounting for a taxable period ending on or prior to the date hereof, 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 date hereof 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 date hereof; (ix) none of the Companies is 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; (x) to the knowledge of the Shareholders, there is no basis for any
assessment, deficiency notice, 30-day letter or similar notice with respect to
any Tax to be issued to any Company with respect to any period on or before the
date hereof; (xi) none of the Companies has made any payments, and is or will
not become obligated (under any contract entered into on or before the date
hereof) 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); (xii)
none of the Companies has 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); (xiii) no claim has ever been made by a taxing
authority in a jurisdiction where any Company does not file Tax Returns that it
is or may be subject to Taxes assessed by such jurisdiction; (xiv) none of the
Companies has any permanent establishment in any foreign country, as defined in
the relevant tax treaty between the United States of America and such foreign
country; (xv) true, correct and complete copies of all income and sales Tax
Returns filed by or with respect to each Company for the past two years have
been furnished or made available to MTLM; (xvi) no Company will be subject to
any Taxes for the period ending at the Closing Date for any period for which a
Tax Return has not been filed pursuant to Section 1374 or Section 1375 of the
Code (or any corresponding provision of state, local or foreign law); and (xvii)
no sales or use tax or property transfer 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 Authority) will be payable by any Company or MTLM by virtue of the
transactions contemplated by this Agreement.
4.20 INSURANCE. Each Company 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 businesses in the same or similar lines of business and in
coverage amounts typically and reasonably carried by such businesses (the
"Insurance Policies"). Such Insurance Policies are in full force and effect, and
all premiums due thereon have been paid. As of the date hereof each of the
Insurance Policies is in full force and effect. None of the Insurance Policies
will lapse or terminate as a result of the transactions contemplated by this
Agreement. Each Company has complied with the provisions of such Insurance
Policies. Schedule 4.20 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
27
<PAGE> 34
Policies for an amount in excess of $5,000 that relates to loss or damage to
the properties, assets or businesses of any Company. None of the Companies has
failed to give, in a timely manner, any notice required under any of the
Insurance Policies to preserve its rights thereunder.
4.21 RECEIVABLES. All of the Companies' Receivables (as hereinafter
defined) represent bona fide transactions and arose in the ordinary course of
business of each Company as applicable. All of the Companies' Receivables are
good and reasonably expected to be collectable receivables, and are reasonably
expected to be collected in the ordinary course of business, 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 and subject to credit insurance for Receivables. For purposes of this
Agreement, the term "Receivables" means, with respect to any entity, all
receivables of such entity, including all trade account receivables arising from
the provision of services or sale of inventory, notes receivable, and insurance
proceeds receivable.
4.22 LICENSES AND PERMITS.
(a) Each Company possesses all material licenses and required
governmental or official approvals, permits or authorizations
(collectively, the "Permits") for its business and operations, including
the operation of the Owned Properties and Leased Premises, which Permits
are listed on Schedule 4.22. All such Permits are valid and in full force
and effect, each Company is in material compliance with the requirements
thereof, and no proceeding is pending or, to the knowledge of the
Shareholders, 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 including without limitation the merger of Ferrex with
and into Sub.
(b) There are no material licenses or required governmental or
official approvals, permits or authorizations for the conduct of the
business and operations of Ferrex as such business is operated.
4.23 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 the Companies in the manner in which and to the
extent to which such business is currently being conducted. To the knowledge of
the Shareholders, no current supplier to any Company of items essential to the
conduct of its business will or has, to the knowledge of the Shareholders,
threatened to terminate its respective business relationship with it for any
reason. Except as set forth on Schedule 4.23, none of the Companies has any
direct or indirect interest in any customer, supplier or competitor of such
Company, or in any person from whom or to whom such Company leases real or
personal property. Except as set forth on Schedule 4.23, no officer, director or
shareholder of any Company, nor any person related by blood or marriage to any
such
28
<PAGE> 35
person, nor any entity in which any such person owns any beneficial
interest, is a party to any Contract or transaction with such Company or has
any interest in any property used by such Company.
4.24 INTELLECTUAL PROPERTY. Each Company has full legal right, title
and interest in and to all trademarks, servicemarks, tradenames, 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 their respective businesses (the "Intellectual Property"). The conduct of
the business of each Company 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.
4.25 CONTRACTS.
(a) Schedule 4.25 sets forth a list of each Contract to which each
Company 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"), true and correct copies of which have been
provided to MTLM. The copy of each Designated Contract furnished to MTLM
is a true and complete copy of the document it purports to represent and
reflects all amendments thereto made through the date of this Agreement. To
the knowledge of the Shareholders, except as set forth on Schedule 4.25, no
Company has 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. To the knowledge
of the Shareholders, except as set forth on Schedule 4.25, no event has
occurred which constitutes, or after notice or the passage of time, or
both, would constitute, a material default by any Company under any
Designated Contract, and no such event has occurred which constitutes or
would constitute a material default by any other party. No Company is
subject to any material liability or payment resulting from renegotiation
of amounts paid it under any Designated Contract. As used in this Section,
Designated Contracts shall mean (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 any
Company to purchase or sell products or services other than individual
contracts for the purchase or sale of scrap individually not exceeding
$2,000,000; (c) leases of real property, and leases of personal property
not cancelable without penalty on notice of 60 days or less or calling for
29
<PAGE> 36
payment of an annual gross rental exceeding $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 any Company; (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 any Company in excess of $150,000; and (h) other material
Contracts or understandings, irrespective of subject matter and whether
written or, to the knowledge of the Shareholders, unwritten, not entered
into in the ordinary course of business by any Company and not otherwise
disclosed on the Schedules.
(b) There are no Designated Contracts with respect to the business
and operations of Ferrex that are 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 including without
limitation the merger of Ferrex with and into Sub.
4.26 CUSTOMER LISTS AND RECURRING REVENUE. The Companies prepared and
made available to MTLM a true, correct and complete list for the fiscal year
ended December 31, 1996 of the Companies' 20 largest customers ("Material
Customers") and suppliers together with the applicable percentage of total sales
or purchases, as applicable. True, correct and complete copies of any
agreements with such customers or suppliers which are anticipated to endure
beyond the date hereof have been furnished by the Shareholders to MTLM. Except
as provided on Schedule 4.26, other than Material Customers, no customer of the
Companies as of the date of this Agreement accounts for more than 1% of the
Companies' combined annual revenue. The Companies have made available to MTLM
each Material Customer's name, address, account number, term of franchise or
agreement, billing cycle, type of service and rates charged.
4.27 ACCURACY OF INFORMATION FURNISHED BY THE SHAREHOLDERS. No
representation, statement or information made or furnished by the Shareholders
to MTLM or any of MTLM's representatives in this Agreement or in any Schedule,
certificate or other document to be delivered pursuant hereto 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 Shareholders have provided MTLM with true, accurate and
complete copies of all documents listed or described in the various Schedules
provided by or on behalf of Shareholders and attached hereto.
4.28 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES
DOCUMENTS. Such Isaac Shareholder is acquiring his or her interest in the
shares of Common Stock of MTLM pursuant to this Agreement for his own account
for investment and not with a view to, or for the sale in connection with, any
distribution of his interest, except in compliance with applicable state and
federal securities laws. Such Isaac Shareholder has been provided, to his
satisfaction, the
30
<PAGE> 37
opportunity to discuss the transactions contemplated hereby with MTLM and has
had the opportunity to obtain such information pertaining to MTLM as has been
requested, including but not limited to filings made by MTLM with the SEC under
the Exchange Act. Such Isaac Shareholder is an "accredited investor" within the
meaning of Regulation D promulgated under the Securities Act or, in the case of
Stephanie Isaac and David Isaac, represented by a "purchaser representative"
within the meaning of Regulation D promulgated under the Securities Act. Such
Isaac Shareholder, or such purchaser representative in the case of Stephanie
Isaac and David Isaac, has such knowledge and experience in business and
financial matters that he or she is capable of evaluating the merits and risks
of an investment in shares of Common Stock of MTLM, and such Isaac Shareholder
is capable of bearing the economic risks of such investment and is able to bear
a complete loss of his or her investment in shares of Common Stock of MTLM.
Such Isaac Shareholder acknowledges that the shares of Common Stock of MTLM to
be received pursuant to the Merger have not been registered under the Securities
Act and understands that such 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.
4.29 BUSINESS LOCATIONS. As of the date hereof, none of the Companies
has any office or place of business other than as identified on Schedules
4.14(a) and 4.14(b) and each Company's principal place of business and chief
executive office (as such terms are used in Title XIII of the Ohio Revised Code
Section 1309.38 as of the date hereof) are indicated on Schedule 4.14(a) or
4.14(b), and, all locations where the equipment, inventory, chattel paper and
books and records of each Company are located as of the date hereof are fully
identified on Schedules 4.14(a) and 4.14(b).
4.30 NAMES; PRIOR ACQUISITIONS. All names under which each Company does
business as of the date hereof are specified on Schedule 4.30. Except as set
forth on Schedule 4.30, none of the Companies has 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 10 years.
4.31 NO COMMISSIONS. None of the Companies or the 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.
4.32 INVENTORY. All Assets that consist of inventory (including raw
materials and work-in-progress): (i) were acquired in the ordinary course of
business consistent with past practice; (ii) are of a quantity, and condition
useable or saleable in the ordinary course of business within each Company's
normal inventory turnover experience; and (iii) are valued at the lower of cost
or net realizable market value. None of the Companies has any material
liability with respect to the return or repurchase of any goods in the
possession of any customer.
31
<PAGE> 38
4.33 IDENTIFICATION OF ASSETS. Schedule 4.33 sets forth a listing of
all of the fixed assets and properties (including real, personal and mixed)
owned by each Company as of March 31, 1996.
4.34 RESTRICTIONS. Schedule 4.34 sets forth a list of all
non-competition, non-solicitation, confidentiality and other restrictive
covenants to which each Company and/or Shareholder is a party or otherwise
bound. Except as set forth on Schedule 4.34, there are no contracts or
agreements to which the Companies are parties or which are specifically
applicable to the Companies which would in any way limit or restrict the rights
of MTLM, or any Company from engaging in any business anywhere in the world.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
5.1 CONDUCT OF BUSINESS PENDING THE CLOSING. Except as set forth on
Schedule 5.1, each Company covenants and agrees that, between the date of this
Agreement and the Closing Date, the business of each Company shall be conducted
only in, and each Company shall not take any action except in, the ordinary
course of business, consistent with past practice and in material compliance
with all rules, regulations and laws. Each Company shall use its best efforts
to preserve intact its respective business organization, to keep available the
services of its respective current officers, employees and consultants, and to
preserve its respective 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, or
as set forth on Schedule 5.1, none of the Companies shall, between the date of
this Agreement and the Closing Date, 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 Code
of Regulations;
(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
their respective 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;
32
<PAGE> 39
(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 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 except under lines of credit existing as of the date hereof
and enumerated in Section 4.11, and in any event not in excess of
$6,000,000 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) enter into any Contract
other than in the ordinary course of business, consistent with past
practice;
(f) increase the compensation payable or to become payable to its
respective officers or directors, 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 respective directors or officers, 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 as required by law or a governmental authority and
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) increase or decrease prices charged to its respective
customers, except for previously announced price changes or except in the
ordinary course of business, 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 IV untrue or incorrect.
33
<PAGE> 40
ARICLE VI
ADDITIONAL AGREEMENTS
6.1 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.
6.2 COMPLIANCE WITH COVENANTS. The Shareholders shall cause each
Company to comply with all of the respective covenants of the Companies under
this Agreement.
6.3 COOPERATION. Each of the parties agrees to cooperate
with the others 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 the Nasdaq Stock Market
or of any exchange on which the Common Stock is listed 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.
6.4 ACCESS TO INFORMATION. From the date hereof to the Closing Date,
each Company and MTLM shall (and shall cause its respective directors,
officers, employees, auditors, counsel and agents to) afford each other
and their 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 or the Shareholders
shall affect any representation or warranty in this Agreement.
6.5 NOTIFICATION OF CERTAIN MATTERS. The Shareholders and MTLM shall
give prompt notice to the other 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.
6.6 TAX TREATMENT. Each party to this Agreement has sought and
received its own advice as to the tax treatment of the transactions covered by
this Agreement and is not relying on any representations of the other parties or
their respective advisers with respect thereto. All parties hereto agree to
fully and completely comply with the reporting requirements of the Internal
Revenue Service.
6.7 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
34
<PAGE> 41
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 other parties, except that any party
hereto may make such public disclosure which such party believes in good faith
is required by law or by the terms of any listing agreement with or
requirements of a securities exchange.
6.8 NO OTHER DISCUSSIONS. None of the Companies, nor the Shareholders,
and their respective Affiliates, employees, agents or representatives shall (i)
initiate or 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 the Companies (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
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.
6.9 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, each Shareholder Indemnitor agrees with MTLM that he
shall not for a period of sixty (60) months from the later of the Closing Date
or the date each such Shareholder Indemnitor ceases to be an employee, officer
or director of MTLM or the Company (except as may otherwise be set forth in an
employment agreement with such Shareholder Indemnitor):
(a) directly or indirectly, alone or as a partner, joint venturer,
member, officer, director, employee, consultant, agent, independent
contractor, stockholder, or in any other capacity of any company or
business, engage in any business activity in the States of Ohio, Michigan
and Indiana, which is directly in competition with the business conducted
by the Companies at the Closing Date (other than real estate development);
provided, however, that, the beneficial ownership of less than 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 any Company at the Closing Date to patronize any business
directly in competition with the business conducted by the Companies; (ii)
canvass, solicit or accept from any Person which is a customer of the
Companies at the Closing Date, any such competitive business, or (iii)
request or advise any Person which is a customer of the Companies at the
Closing Date to withdraw, curtail or cancel any such customer's business
with the Companies;
(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 any of the Companies at or within six months prior to
the Closing Date, or in any manner seek to induce any such Person to leave
his or her employment;
35
<PAGE> 42
(d) directly or indirectly, at any time following the Closing Date,
in any way utilize, disclose, copy, reproduce or retain in his possession
any of the Companies' proprietary rights or records, including, but not
limited to, any of their customer lists.
The Shareholders agree and acknowledge that the restrictions contained in this
Section 6.9 are reasonable in scope and duration and are necessary to protect
MTLM after the Closing Date. 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 MTLM and upon breach of any provision of this Section,
MTLM 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 MTLM may have (including, without limitation, the right to seek
monetary damages).
6.10 TRADING IN MTLM'S COMMON STOCK. Except as otherwise expressly
consented to by MTLM, from the date of this Agreement until the Closing Date,
none of the Companies, nor the Shareholders (nor any Affiliates thereof) will
directly or indirectly purchase or sell (including short sales) any shares of
the Common Stock in any transactions effected on the Nasdaq Stock Market or
otherwise.
6.11 OTHER AGREEMENTS. On the date hereof, each party hereto that is a
signatory to any of the documents forms of which are attached as Exhibits "A"
through "Q" (the "Other Agreements") agrees to execute and deliver such Other
Agreements, as appropriate, to the other parties to such Other Agreements, and
each party who is a married individual shall cause his spouse to execute all
consents requested by MTLM to consummate the transactions set forth herein. The
parties agree that the non-competition covenants contained in the employment
agreements attached as Exhibits "O" and "P" are an integral part of this
Agreement.
6.12 [RESERVED]
6.13 ADDITIONAL ACTIONS. MTLM, the Companies and the 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. Additionally, MTLM agrees to use its best efforts to recover any
insurance proceeds which would otherwise reduce the Indemnifiable Damages under
Article IX which MTLM would otherwise suffer.
36
<PAGE> 43
6.14 CERTIFICATION OF TAX STATUS. The Shareholders shall deliver to
MTLM either: (i) a Certificate of Nonforeign Status under Treasury Regulation
Section 1.1445-2(b)(1), or (ii) a Certificate meeting the requirements of
Treasury Regulation Sections 1.987-2(g) and 1.897-2(h)(2) that the Purchased
Securities do not constitute a U.S. real property interest.
6.15 OPTION TO PURCHASE OFFICE BUILDING. At the date hereof, the
Shareholders shall cause Isaac Building Company, Ltd. to enter into an
agreement, attached hereto as Exhibit L, with MTLM or a Subsidiary of MTLM
granting MTLM or such Subsidiary the right and option to purchase Isaac Building
Company, Ltd.'s office building in Maumee, Ohio for a price of $3.2 million in
cash, free and clear of any and all liens, claims and encumbrances, at any time
after the third anniversary of the Closing Date but prior to the fifth
anniversary of the Closing Date.
6.16 TAX RETURNS OF THE COMPANIES SUBSEQUENT TO CLOSING. The
Shareholders shall have the right and obligation to supervise and control the
preparation and filing of the federal income tax return and State of Ohio
franchise returns or alternative reports for electing Subchapter S corporations
with respect to the periods commencing on or after January 1, 1996 and ending on
or before the Closing Date. MTLM shall provide such information and otherwise
cooperate with the Shareholders as the Shareholders shall reasonably deem
necessary to accomplish the foregoing.
6.17 PENSION PLAN. Following the Closing, The Isaac Corporation Pension
Plan-80 (the "Pension Plan") shall initially continue to be administered as it
was administered prior to the Closing, consistent with prior practice in all
material respects. On or before December 31, 1997, Gerard M. Jacobs
representing and on behalf of MTLM and Lynn A. Isaac representing and on behalf
of those employees who are not continuing employees of the Companies, each
acting with the advice and prior written approval of his respective competent
professional advisors, shall mutually agree upon lawful terms and conditions
pursuant to which the Pension Plan will be transferred to Isaac Investments,
Inc. and a portion of the Pension Plan shall be transferred to a new benefit
plan to be maintained by Isaac.
6.18 AUDITS. The Shareholders shall have the right and obligation to
respond, contest, settle and otherwise handle in all respects any and all
inquiries, demands, requests or audits of the Internal Revenue Service regarding
or in connection with any and all federal income tax returns filed by any of the
Companies for periods ending on or before the Closing Date. MTLM shall provide
such information and otherwise cooperate with the Shareholders as the
Shareholders shall reasonably deem necessary to accomplish the foregoing.
6.19 EMPLOYEE COMPENSATION PLAN. On the Closing Date, the Shareholders
shall have the right, but not the obligation, to cause Isaac to adopt an
employee benefit plan covering certain employees of the Companies and containing
such terms and funding as shall be specified by the Shareholders. Such plan
shall provide for the payment by MTLM of cash to those employees specified by
the Shareholders in the aggregate amount of $700,000, subject to a vesting
schedule of three (3) years. Any amount paid by MTLM to any such employee
37
<PAGE> 44
pursuant to such plan shall reduce, dollar-for dollar, the payment of principal
and/or interest under certain MTLM Notes in accordance with their terms.
6.20 FIRST RIGHT TO PURCHASE CERTAIN PROPERTY. In the event MTLM or
Isaac, as applicable, (the "Grantor") after the Closing Date decides to dispose
of all or any part of Isaac's Owned Property located in Cuyahoga, Lorain, Medina
or Summit Counties, Ohio, or property acquired after the Closing Date and made a
part of the Owned Property located in such counties (together, the "Sale
Property"), it shall first offer the Sale Property by written notice to the
Shareholder Indemnitors or their designee (the "Grantee"). Such notice shall
identify the Sale Property and designate a cash purchase price (the "Sale
Price") for which it will be sold. For forty-five (45) days following such
notice, the Grantee shall have the exclusive right to purchase the Sale Property
for the Sale Price. During such notice period, Grantor shall permit Grantee to
review its files with respect to the Sale Property. The Grantee shall accept
the offer to purchase the Sale Property by notice to the Grantor within the
forty-five (45) day notice period. The sale of the Sale Property shall be closed
in escrow through the title company insuring title to the Sale Property within
thirty (30) days following notice of acceptance. At the closing, the Sale
Property shall be conveyed to the Grantee by general warranty deed subject only
to easements and restrictions of record which do not adversely affect the
current use of the Sale Property, zoning ordinances which permit the continued
existing use of the Sale Property and real property taxes and installments of
assessments not then due and payable (which shall be pro rated as of the closing
date in accordance with local custom). The Grantor, at its cost, shall furnish
the Grantee: (i) an Owner's Policy of Title Insurance issued by a national title
insurance company acceptable to the Grantee in the amount of the purchase price,
without exception for mechanics liens or matters which would be disclosed by
survey; and (ii) an ALTA Survey of the Sale Property prepared by a registered
surveyor acceptable to the title insurer. If the Grantee does not give notice
of acceptance of the offer to purchase the Sale Property, the Grantor shall be
free to sell such property to a third party, but only if such sale is closed
within ninety (90) days thereafter for cash in the amount not less than 97.5
percent of the Sale Price. If the Grantor receives a bona fide third party
offer to purchase the Sale Property for less than 97.5 percent of the Sale
Price, which it desires to accept, the Grantor shall give the Grantee notice of
such offer, accompanied by a copy of the offer. The Grantee shall have thirty
(30) days after such notice within which to give notice to the Grantor that the
Grantee elects to purchase the Sale Property (or the portion thereof which is
the subject of this offer) on the terms of the offer. If the Grantee does not
give notice of its election to purchase the Sale Property within thirty (30)
days after receiving notice of its right of first refusal, then the Grantor
shall have the right to sell the Sale Property to a third party, but only if
such sale is closed within ninety (90) days thereafter for cash in the amount
not less than 97.5 percent of the first refusal offer price. If the Grantor
does not close the sale of the Sale Property within the ninety (90) day sale
periods set forth above, then the Sale property shall again be offered to the
Grantee in accordance with the requirements of this Section 6.20 before it can
be sold to a third party. The rights granted to the Grantee under this Section
6.20 run with the land.
38
<PAGE> 45
6.21 ADDITIONAL CONSIDERATION.
(a) If the transactions contemplated in the Agreement and Plan of
Merger dated as of May 16, 1997 among Cozzi Iron & Metal, Inc. and its
shareholders, MTLM and CIM Acquisition Co. (the "Cozzi Agreement") are not
consummated prior to the date set forth in Section 12.1(f) thereof (as such
date may be amended by the parties thereto) or if such Agreement and Plan
of Merger is otherwise terminated by the parties thereto (the date of
public announcement of such event, the "Trigger Date"), MTLM shall issue
additional shares of Common Stock of MTLM (the "Additional Shares") to the
Shareholders of Ferrex who receive shares of Common Stock of MTLM in the
Merger (the "Isaac Shareholders") in accordance with this Section 6.21.
(b) The number of shares to be issued by MTLM shall equal the
positive difference, if any, of (i) $12,200,000 divided by the greater of
(y) $5.75, or (z) the average closing price per share of MTLM's Common
Stock on the Nasdaq Stock Market (or such other public market upon which
the Common Stock of MTLM is then primarily traded) for the 15 trading days
immediately following the Trigger Date, minus (ii) 1,742,857.
(c) MTLM shall, prior to or on the fifth trading day after the
Trigger Date, provide written notice to the Isaac Shareholders of the
number of Permitted Additional Shares. MTLM shall issue such Permitted
Additional Shares to the Isaac Shareholders on the seventeenth trading day
after the Trigger Date. To the extent that the number of Permitted
Additional Shares is less than the total number of Additional Shares
calculated pursuant to Section 6.21(b) (the difference, the "Prohibited
Additional Shares"), the Isaac Shareholders shall be entitled to receive
cash in lieu of such Prohibited Additional Shares as set forth below. At
any time (and from time to time) after such seventeenth trading day the
Shareholder Indemnitor Designees, on behalf of the Isaac Shareholders, may
at their option demand payment in cash for some or all of the Prohibited
Additional Shares.
(d) If such a cash payment is demanded, MTLM shall, on the third
business day after such demand, pay to the Isaac Shareholders by wire
transfer of immediately available funds an amount equal to the number of
Prohibited Additional Shares for which cash is to be paid in lieu thereof
multiplied by the average closing price of MTLM's Common Stock determined
pursuant to Section 6.21(b). Any such amount of cash which is not paid
prior to or on such third business day shall accrue interest at 15% per
annum on the basis of a 365-day year.
(e) All payments or delivery of cash or stock by MTLM to the Isaac
Shareholders pursuant to this Section 6.21 shall be in proportions set
forth on Schedule 1.1.
39
<PAGE> 46
6.22 ISAAC PROXIES. Each Isaac Shareholder shall vote his shares of
Common Stock of MTLM received pursuant to the Merger in favor of the
transactions contemplated by the Cozzi Agreement when and if such a vote of the
shareholders of MTLM is taken, and shall provide MTLM with an agreement and
irrevocable proxy substantially in the form attached as Exhibit M.
6.23 REGISTRATION RIGHTS. MTLM shall enter into a Registration Rights
Agreement in the form attached hereto as Exhibit N with the Isaac Shareholders.
6.24 MITIGATION RIGHTS. During the period of employment of George A.
Isaac, III pursuant to the employment agreement attached as Exhibit O hereto, he
shall have the authority to do or cause to be done such acts and things as he in
his reasonable discretion deems necessary or desirable to reduce or mitigate the
potential liability for Indemnifiable Damages as a result of claims for breach
of the representations and warranties contained in Sections 4.22(b) and 4.25(b).
ARTICLE VII
CLOSING DELIVERIES OF THE COMPANIES AND THE SHAREHOLDERS
At the Closing, the Companies and the Shareholders shall provide or cause
to be provided to MTLM the following documents and items:
7.1 CORPORATE DOCUMENTS. (i) Copies of the Articles of Incorporation
and Code of Regulations of each Company as in effect immediately prior to the
date hereof, (ii) copies of resolutions adopted by the Board of Directors of
each Company and the Shareholders authorizing the transactions contemplated by
this Agreement, and (iii) certificates of good standing of each Company issued
by the State of Ohio and each other state in which each of them is qualified to
do business as of a date not more than thirty days prior to the date hereof,
certified in each case as of the date hereof by the Secretary as being true,
correct and complete.
7.2 OPINION OF COUNSEL. An opinion dated as of the date hereof from
counsel for the Companies and the Shareholders, in form and substance acceptable
to MTLM, to the effect that:
(i) each Company is a corporation duly organized and existing
and in good standing under the laws of its state of incorporation, and
each of them is authorized to carry on the business now conducted by
it and to own or lease the properties now owned or leased by it;
(ii) each Company has obtained all necessary corporate
authorizations and consents to effect the transactions contemplated in
this Agreement;
40
<PAGE> 47
(iii) except as set forth in Schedule 4.12, such counsel has no
actual knowledge (without any independent investigation of any sort)
of 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 the Companies, or which
questions the validity of this Agreement;
(iv) each of this Agreement and the Other Agreements to which
a Company or the Shareholders is a valid and binding obligation of
such Company and the Shareholders, as the case may be, 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.
7.3 CONSENTS. Written consents to the transactions contemplated
hereby and waivers of rights to terminate or modify any material rights or
obligations of any Company from any Person from whom such consent or waiver is
required under any Designated Contract or instrument as of a date not more than
ten days prior to the date hereof, 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.
7.4 COMPANY STOCK. All certificates evidencing the Purchased
Securities held by the Shareholders, together with stock powers duly executed in
blank, with signatures guaranteed, and otherwise in form acceptable to MTLM for
transfer on the books of each Company.
7.5 OTHER CLOSING DELIVERIES.
(a) A current title policy insuring title to the real property
owned by each Company as set forth on Schedule 4.14 (a) which shows no
Liens other than Liens disclosed on such Schedule 4.14(a);
(b) Each Other Agreement executed by each Company and/or the
Shareholders, as the case may be, who is a party thereto;
(c) resignations effective as of the Closing Date from such
officers and directors of each Company as MTLM shall have requested in
writing;
(d) the stock books, stock ledgers, minute books, corporate
seal and other books and records of each Company (provided, that the minute
books, corporate seal and other books and books and records necessary for
the continued operation of a Company may continue to be held at the
executive offices of the Companies); and
41
<PAGE> 48
(e) all other previously undelivered agreements, certificates,
documents, instruments or writings required to be delivered by each Company
and/or the Shareholders at or prior to the date hereof pursuant to this
Agreement or otherwise in connection herewith, duly executed by the Company
and/or the Shareholders, as the case may be, who is a party thereto.
7.6 EMPLOYMENT AGREEMENTS. Employment agreements acceptable to MTLM
executed by each of George A. Isaac, III and Richard G. Isaac, copies of which
are attached hereto as Exhibits O and P, respectively.
7.7 NOTES PAYABLE TO RICHARD G. ISAAC AND RENEE ISAAC. Existing
promissory notes of Isaac, payable to Richard G. Isaac and Renee Isaac in the
aggregate amount of $5,091,102, promissory notes of Isaac payable to Richard G.
Isaac and Renee Isaac in the aggregate amount of $3,453,098 (issuance contingent
upon consummation of the transactions contemplated hereby) (such notes in the
aggregate amounts of $5,091,102 and $3,453,098 the "Richard and Renee Notes")
and promissory notes of Isaac payable to Richard G. Isaac and Renee Isaac dated
June 30, 1996 (marked "canceled").
ARTICLE VIII
CLOSING DELIVERIES OF MTLM AND SUB
At the Closing (or within 5 Business Days of the Closing with respect to
Items 8.1(b) and (d)), MTLM shall provide or cause to be provided to the
Shareholders the following documents and items:
8.1 PURCHASE PRICE.
(a) The Notes described in Article I;
(b) 1,942,857 shares of Common Stock of MTLM, as described in
Articles I and II;
(c) $27,400,000 Letter of Credit;
(d) The Warrants described in Section 2.1;
(e) Each Other Agreement to which MTLM or Sub is a party, duly
executed by MTLM or Sub as the case may be; and
(f) all other previously undelivered agreements, certificates,
documents, instruments or writings required to be delivered by MTLM or Sub
at or prior to the date
42
<PAGE> 49
hereof pursuant to this Agreement or otherwise in connection herewith, duly
executed by MTLM or Sub, as the case may be, who is a party thereto.
8.2 OPINION OF COUNSEL. An opinion dated as of the date hereof from
counsel for MTLM, in form and substance acceptable to the Shareholders, to the
effect that:
(i) MTLM and Sub are each corporations duly organized and
existing and in good standing under the laws of the State of Delaware
and each is authorized to carry on the business now conducted by it
and to own or lease the properties now owned or leased by it;
(ii) MTLM and Sub has each obtained all necessary corporate
authorizations and consents to effect the transactions contemplated in
this Agreement; provided, however, that the filing of the Certificate
of Merger with, and the acceptance of the filing of the Certificate of
Merger by, the Secretary of State of the State of Delaware shall be
necessary to effectuate the Merger;
(iii) such counsel has no actual knowledge (without any
independent investigation of any sort) of 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;
(iv) each of this Agreement, the Other Agreements to which
MTLM or Sub is a party, and the Notes is a valid and binding
obligation of MTLM and Sub, as the case may be, 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, and the stated rate of interest on the Notes does
not violate any applicable laws, regulations or orders of the United
States or the State of Illinois.
(v) MTLM has duly authorized the shares of Common Stock of
MTLM to be issued pursuant to the Merger and the shares of Common
Stock of MTLM to be issued pursuant to the Merger, when issued in
accordance with the Merger, will be duly authorized, validly issued,
fully paid and non-assessable. To our knowledge, the issuance of the
shares of Common Stock of MTLM pursuant to the Merger and any
Additional Shares will not be subject to preemptive, first refusal or
similar rights or transfer restrictions (other than those pursuant to
this Agreement or applicable state and federal securities laws);
(vi) Except for (i) the Nasdaq National Market Notification
Form for Listing of Additional Shares required to be filed with the
Nasdaq Stock Market, Inc. and (ii) the acceptance of the filing of the
Certificate of Merger by
43
<PAGE> 50
the Secretary of State of the State of Delaware, no other consent,
approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, self-regulatory organization or
securities market is necessary for MTLM to effect the transactions
contemplated by this Agreement (except that no such opinion is
expressed with respect to the issuance of any Additional Shares).
ARTICLE IX
INDEMNIFICATION
9.1 AGREEMENT BY THE SHAREHOLDER INDEMNITORS TO INDEMNIFY. The
Shareholder Indemnitors agree to severally indemnify, defend and hold MTLM
harmless (with each such Shareholder Indemnitors' liability to MTLM being equal
to such Shareholder Indemnitors' proportionate share, as set forth in Schedule
9.1 hereto, of any Indemnifiable Damages, subject to the limitations set forth
in Section 9.1(e) below) from and against the aggregate of all Indemnifiable
Damages (as defined below).
(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 and reasonable counsel and paralegal fees and expenses) incurred or
suffered by MTLM, on a pre-tax consolidated basis calculated after the
application of any and all amounts received under insurance contracts or
similar arrangements by MTLM with respect thereto which reduce the
Indemnifiable Damages that would otherwise be sustained, to the extent (i)
resulting from any breach of a representation or warranty made by each
Company or the Shareholders in this Agreement, (ii) resulting from any
breach of the covenants or agreements made by each Company or the
Shareholders in this Agreement, (iii) resulting from (a) any payments made
by The Isaac Corporation pursuant to that certain Guaranty dated as of
December 4, 1996 (and any amendment, replacement or restatement thereof) by
The Isaac Corporation in favor of General Electric Capital Corporation with
respect to the indebtedness of Miltec Resources or (b) any claims,
expenses, losses, costs, deficiencies, liabilities and damages relating in
any manner to the partnership agreement of Miltec Resources, a Pennsylvania
general partnership or any alleged breach thereof, or (iv) resulting from
any inaccuracy in any certificate delivered by each Company or the
Shareholders pursuant to this Agreement; provided, that Indemnifiable
Damages shall include any increase in MTLM's insurance premiums arising in
connection with the payment of such insurance proceeds.
(b) Without limiting the generality of the foregoing, with
respect to the measurement of Indemnifiable Damages, MTLM shall have the
right, subject to the limitations set forth in Section 9.1(e) below, to be
put in the same pre-tax consolidated financial position, after the
application of any insurance proceeds received, as MTLM would have been in
had each of the representations and warranties of the Shareholders
44
<PAGE> 51
hereunder been true and correct and had the covenants and agreements of
each Company and the Shareholders hereunder been performed in full.
(c) Each of the representations and warranties made by the
Shareholders in this Agreement or pursuant hereto shall survive for a
period of 12 months after the Closing Date except as follows: (i) the
representations and warranties of the Shareholders contained in Section
4.19, with respect to Taxes of the Companies, 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 Shareholders contained in Sections 4.13 and 4.16
shall survive for a period of 12 months after the Closing Date; (iii) the
representations and warranties of the Shareholders contained in Sections
4.1, 4.2 and 4.3 shall expire 180 days after the end of MTLM's fiscal year
in which the Closing shall occur; (iv) the representations and warranties
of the Shareholders contained in Sections 4.4, 4.5 and 4.31 shall not
expire, but shall continue indefinitely; and (v) the representations and
warranties of the Shareholders contained in Section 4.25(b) shall expire 90
days after the Closing Date. No claim for the recovery of Indemnifiable
Damages may be asserted by MTLM against the 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 Agreement
or in any schedule, certificate or other document to be delivered pursuant
hereto. Each representation, warranty, covenant and agreement of the
parties contained in this Agreement is independent of each other
representation, warranty, covenant and agreement; provided, that any item
disclosed with respect to any representation or warranty shall be deemed to
have been disclosed for purposes of all other representations and
warranties where disclosure of such item would be pertinent.
(d) The Shareholder Indemnitors hereby designate William M.
Isaac and Lynn A. Isaac or their successors chosen pursuant to this Section
9.1(d) (the "Shareholder Indemnitors Designees") to monitor the defense of
any Indemnifiable Damages against the Shareholder Indemnitors and to
otherwise act on behalf of the Shareholder Indemnitors in respect thereto,
and their actions shall constitute the actions and decisions of the
Shareholder Indemnitors and shall bind all such Shareholder Indemnitors.
The Shareholder Indemnitors agree that by the written consent of the
Shareholder Indemnitors holding 75% or more of the Shareholder Percentages
as set forth in Schedule 9.1 hereto, the Shareholder Indemnitors may
designate other individuals to monitor on behalf of the Shareholder
Indemnitors any claim for Indemnifiable Damages made under Article IX. Any
action to be taken by the Shareholder Indemnitors Designees must be taken
by both Shareholder Indemnitors Designees to have effect hereunder, unless
specifically provided otherwise.
45
<PAGE> 52
(e) Notwithstanding anything to the contrary contained in
this Agreement, the Shareholder Indemnitors' aggregate liability for
Indemnifiable Damages shall be limited as follows:
(i) MTLM shall have no claim for Indemnifiable
Damages unless and until all Indemnifiable Damages incurred by MTLM
exceed an aggregate of $500,000, in which event the Shareholder
Indemnitors shall be liable for only such Indemnifiable Damages in
excess of $500,000; and
(ii) for amounts in excess of the $500,000 amount
referred to in Section 9.1(e)(i), the total amount of Indemnifiable
Damages for which the Shareholder Indemnitors shall be liable to MTLM
shall not exceed (1) at the First Measurement Date, the lesser of
$5,020,000 and the value of 717,143 shares of Common Stock of MTLM (as
adjusted for any stock dividend, stock split, conversion,
recapitalization, reclassification, combination or other similar item)
("as adjusted") as of the First Measurement Date and (2) at or after
the Second Measurement Date, the lesser of (x) $5,020,000 less the
amount of any payments of or set offs against the Escrow Collateral
previously made and (y) the value of the 717,143 shares of Common
Stock of MTLM (as adjusted) as of the Second Measurement Date less the
amount of any payments of or set offs against the Escrow Collateral
previously made (the applicable limitation being referred to as the
"Maximum Indemnification Amount"); except that,
(iii) if and to the extent that Indemnifiable
Damages exceed the limitations set forth above solely as a result of
claims for breach of the representations and warranties contained in
Sections 4.22(b) and 4.25(b), then the Maximum Indemnification Amount
with respect to claims for breaches of representations and warranties
contained in Sections 4.22(b) and 4.25(b) shall be $16,000,000;
provided, however, that the limitations contained in Section 9.1(e)(i)
shall not apply to any Indemnifiable Damages arising pursuant to
Section 9.1(a)(iii).
9.2 AGREEMENT BY MTLM TO INDEMNIFY. MTLM agrees to indemnify, defend
and hold the Shareholders harmless from and against the aggregate of all
Shareholders Indemnifiable Damages (as defined below).
(a) For purposes of this Agreement, "Shareholders Indemnifiable
Damages" means, without duplication, the aggregate of all expenses, losses,
costs, deficiencies, liabilities and damages (including, without
limitation, related and reasonable counsel and paralegal fees and expenses)
incurred or suffered by the Shareholders, on a pre-tax consolidated basis,
to the extent (i) resulting from any breach of a representation or warranty
made by MTLM and Sub in or pursuant to this Agreement, (ii) resulting from
any breach of the covenants or agreements made by MTLM and Sub in or
pursuant to this
46
<PAGE> 53
Agreement, or (iii) resulting from any inaccuracy in any certificate
delivered by MTLM and Sub pursuant to this Agreement.
(b) Without limiting the generality of the foregoing, with respect
to the measurement of Shareholders Indemnifiable Damages, the Shareholders
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 and Sub 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 and Sub
in this Agreement or pursuant hereto shall survive for a period of one year
after the Closing Date, notwithstanding any investigation at any time made
by or on behalf of the Shareholders, and upon expiration of such one year
period, such representations and warranties shall expire, except for the
representations contained in Sections 3.1, 3.2, 3.3 and 3.4 shall not
expire, but shall continue indefinitely. No claim for the recovery of
Shareholders Indemnifiable Damages may be asserted by the Shareholders
against MTLM after such representations and warranties shall thus expire,
provided, however, that claims for Shareholders 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 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; provided, that
any item disclosed with respect to any representation or warranty shall be
deemed to have been disclosed for purposes of all other representations and
warranties where disclosure of such item would be pertinent.
(d) In the event that the Shareholders believe they are entitled to
a claim for any Shareholders Indemnifiable Damages hereunder, the
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. In the event of a dispute under this Section 9.2, the provisions of
Section 9.4(a)(i) and (iii) shall apply mutatis mutandis.
(e) Notwithstanding anything to the contrary contained in this
Agreement, Shareholders shall have no claim for Indemnifiable Damages
unless and until all Indemnifiable Damages incurred by the Shareholders
exceed an aggregate of $500,000 in which event MTLM shall be liable for
only such Indemnifiable Damages in excess of $500,000.
9.3 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of
the Shareholders and MTLM hereunder with respect to their respective indemnities
pursuant to this
47
<PAGE> 54
Article IX 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 within 20 days after the Indemnified
Party receives notice thereof;
(b) the Indemnifying Party shall have the right to undertake, by
counsel or other representatives of its own choosing, the defense of such
Claim; provided, however, if a Claim is made against MTLM for an amount
which exceeds the value of the Escrow Collateral at such time, MTLM shall
have the right to control the defense of the 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 9.3 to the contrary notwithstanding,
(A) the Indemnified Party shall have the right, at its own cost and
expense, to have its own counsel 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.
9.4 HELD BACK SHARES AND RIGHTS OF SET OFF TO SECURE THE SHAREHOLDER
INDEMNITORS' INDEMNIFICATION OBLIGATION. As security for the agreement by the
Shareholder Indemnitors to indemnify and hold MTLM harmless as described in
Section 9.1, at the Closing, MTLM shall set aside the certificates representing
717,143 shares of Common Stock of MTLM (the "Held Back Shares") issued pursuant
to this Agreement. The Held Back Shares and any cash collateral substituted
therefor (collectively, the "Escrow Collateral") shall be placed in an escrow
account (the "Escrow Account") in accordance with the terms of the Escrow
Agreement, substantially in the form attached hereto as Exhibit Q. Shareholder
Indemnitors hereby pledge and grant to MTLM a security interest in the Escrow
Collateral for the performance of the
48
<PAGE> 55
Shareholder Indemnitors' Indemnification Obligations; provided that the Escrow
Collateral shall be released automatically from such security interest upon
distribution of the Escrow Collateral to the shareholders in accordance with the
terms hereof. MTLM's sole remedy for any claims for Indemnifiable Damages which
is asserted on or before the Second Measurement Date shall be by set off against
or payment from the Escrow Collateral.
(a) MTLM may set off against the Escrow Collateral any
Indemnifiable Damages for which the Shareholders are responsible pursuant
to this Agreement, subject, however, to the limitations set forth in
Section 9.1(e) and to the following terms and conditions:
(i) MTLM shall give written notice to the
Shareholder Indemnitors Designees of any claim for Indemnifiable
Damages, which notice shall set forth (1) the amount of Indemnifiable
Damages which MTLM claims to have sustained by reason thereof, and (2)
a statement in reasonable detail of the basis of such claim;
(ii) Either Shareholder Indemnitors Designee shall
have the right, within 10 business days from the date of such notice
provided pursuant to clause (i) above, to notify MTLM whether the
Shareholder Indemnitors contest such claim.
(1) If such claim is not contested, the
escrow agent shall effect such set off of the Escrow Collateral
equal to the amount of such claim up to the Maximum
Indemnification Amount; provided, that such set off shall not be
effected except at a Measurement Date.
(2) If such claim is disputed, such dispute
shall be resolved in accordance with clause (iii) below. If the
Shareholder Indemnitors are liable for such claim as determined
pursuant to clause (iii), the escrow agent shall effect such set
off of the Escrow Collateral equal to the amount of such claim up
to the Maximum Indemnification Amount; provided, that such set
off shall not be effected except at the Second Measurement Date
or as provided in Section 9.4(b) below.
(iii) If a Shareholder Indemnitors Designee shall notify MTLM
in writing of an intention to dispute the claim and if such dispute is
not resolved within 30 days thereafter (the "Resolution Period"), then
MTLM or the Shareholder Indemnitors Designees may elect that such
dispute shall be resolved by a committee of three arbitrators (one
appointed by the Shareholder Indemnitors Designees, one appointed by
MTLM and one appointed by the two arbitrators so appointed), which
shall be appointed within 30 days after the expiration of the
Resolution Period. The arbitration shall take place in Chicago,
Illinois. The arbitrators shall abide by the Commercial Arbitration
Rules of the American
49
<PAGE> 56
Arbitration Association and they shall use their best efforts to make
their decision within 45 days of being appointed and their decision
shall be final and binding on all parties and enforceable in any court
of competent jurisdiction. Notwithstanding anything to the contrary
herein, including Section 13.8, any arbitration conducted hereunder
shall be governed by the Federal Arbitration Act, Title 9, United
States Code. The losing party in any arbitration hereunder shall
reimburse the winning party for its expenses incurred in connection
with such arbitration, including reasonable attorney fees.
(b) Promptly after the Second Measurement Date, MTLM agrees to
instruct the Escrow Agent to deliver to the Shareholders any Escrow
Collateral; provided, however, if there then remain unresolved any claims
for Indemnifiable Damages as to which notice has been given to MTLM prior
to or on the Second Measurement Date pursuant to Section 9.4(a)(i), then
such Escrow Collateral shall be so delivered only to the extent that the
value thereof exceeds the lesser of (i) the Maximum Indemnification Amount
and (ii) the amount of such claims.
(c) MTLM agrees to instruct the Escrow Agent to deliver to the
Shareholder Indemnitors promptly after final satisfaction of all claims in
accordance with the provisions of this Article IX, any Escrow Collateral
remaining in the Escrow Account.
(d) (i) For all purposes of this Article IX, the value of the
shares of Common Stock of MTLM or Held Back Shares shall be the price per
share equal to the closing price per share of the Common Stock of MTLM on
the Nasdaq Stock Market (or such other public market upon which the Common
Stock of MTLM is then primarily traded) on the business day immediately
preceding the applicable date of valuation.
(ii) At any time while any Held Back Shares are in the Escrow
Account the Shareholders may replace any or all of such Held Back
Shares with cash equal to the value of such Held Back Shares and the
escrow agent shall deliver such Held Back Shares so replaced to the
Shareholder Indemnitors; provided, that prior to the Second
Measurement Date a Held Back Share shall not be replaced with less
than $7 in cash.
(iii) At any time after the Held Back Shares remaining in the
Escrow Account are registered or any restrictions on sale imposed
under the Securities Act are terminated or expire, at the request of
the Shareholder Indemnitors Designees, MTLM will join the Shareholder
Indemnitors in instructing the escrow agent to sell some or all of
such remaining Held Back Shares and the net proceeds thereof shall be
substituted for such Held Back Shares in the Escrow Account.
(e) 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
Shareholder Indemnitors and the
50
<PAGE> 57
Shareholder Indemnitors shall be entitled to vote the same. All shares of
MTLM Common Stock issued to the Shareholder Indemnitors as a result of any
stock dividend, stock split, conversion, recapitalization,
reclassification, combination or other similar item and all cash issuable
to the Stockholder Indemnitors as a result of any special cash dividend
distribution with respect to the Held Back Shares shall remain in the
Escrow Account. All cash issued or paid upon Held Back Shares shall as the
result of any regular cash dividend distribution be distributed to the
Shareholder Indemnitors.
ARTICLE X
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale or other disposition
after the Closing Date of MTLM Securities:
10.1 DISPOSITION OF MTLM SECURITIES. Each of the Shareholders
represents and warrants that each of the shares of Common Stock of MTLM being
acquired by him hereunder is being acquired and will be acquired for his own
account and will not be sold or otherwise disposed of, except pursuant to (i)
the provisions of Rules 144 and 145 (or any successor regulations) or another
exemption from the registration requirements under the Securities Act, which
does not require the filing by MTLM with the SEC of any registration statement,
offering circular or other document, in which case the Shareholders shall first
supply to MTLM an opinion of counsel (which counsel and opinions shall be
reasonably satisfactory to MTLM) that such exception is available, or (ii) an
effective registration statement filed by MTLM with the SEC under the Securities
Act.
10.2 LEGEND. Each of the shares of Common Stock of MTLM shall bear the
following legend:
THE SHARES OF COMMON STOCK 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 ISSUER THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
MTLM may, unless a registration statement is in effect covering the shares of
Common Stock of MTLM, place stop transfer orders with its transfer agents with
respect to such certificates in accordance with federal securities laws.
51
<PAGE> 58
ARTICLE XI
DEFINITIONS
11.1 Defined Terms. As used herein, the following terms shall have
the following meanings:
"Aboveground Storage Tanks" defined in Section 4.13 (h).
"Additional Shares" defined in Section 6.21(a).
"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.
"Asbestos" or "Asbestos-containing material" defined in Section 4.13
(j).
"Assets" defined in Section 4.15 (a).
"Briquetting" defined in the introductory paragraph of this Agreement.
"Briquetting Purchased Securities" defined in Section 1.1.
"CERCLA" defined in Section 4.13 (e).
"Certificate of Merger" defined in Section 2.1.
"Claims" defined in Section 9.3.
"Closing" defined in Section 1.8.
"Closing Date" defined in Section 1.8.
"Code" defined in Section 4.18 (b).
"Collateral Agents" defined in Section 1.7(a).
"Collateral Documents" defined in Section 1.7(e).
"Common Stock" means shares of MTLM's common stock, $.01 par value.
"Company" and "Companies" defined in the introductory paragraph of
this Agreement.
52
<PAGE> 59
"Confidentiality Agreement" means the Confidentiality Agreement dated
March 24, 1997 between the Companies and MTLM.
"Contract" means any written indenture, lease, sublease, license, loan
agreement, mortgage, note, indenture, restriction, will, trust, commitment,
obligation or other contract, agreement or instrument.
"Cozzi Agreement" defined in Section 6.21(a).
"Current Balance Sheets" defined in Section 4.9.
"Designated Contracts" defined in Section 4.25(a).
"Discharge" defined in Section 4.13 (f).
"Downpayment Notes" defined in Section 1.4(a).
"Downpayment Pledge" defined in Section 1.7(d).
"Effective Time" defined in Section 2.1.
"Employee Benefit Plans" defined in Section 4.18 (a).
"Employment Agreements" means the employment agreements by and between
George A. Isaac, III and MTLM and Richard G. Isaac and MTLM in the forms
attached hereto as Exhibits N and O, respectively.
"Environmental, Health and Safety Laws" defined in Section 4.13 (k).
"EPCRA" defined in Section 4.13 (e).
"ERISA" defined in Section 4.18 (a).
"Escrow Account" defined in Section 9.4.
"Escrow Collateral" defined in Section 9.4.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Ferrex" defined in the introductory paragraph of this Agreement.
"Ferrex Purchased Securities" defined in Section 1.1.
"Ferrex Stock" defined in the Recitals to this Agreement.
53
<PAGE> 60
"FIFRA" defined in Section 4.13 (e).
"Financial Statements" defined in Section 4.9.
"First Measurement Date" means, with respect to claims by MTLM for
Indemnification Damages that are made not later than the 10th day prior to
the six month anniversary of the Closing Date and are not contested by
either Shareholder Indemnitors Designee by such six month anniversary, the
six month anniversary of the Closing Date (or the next succeeding day which
is a business day).
"Fixed Assets" defined in Section 4.15 (b).
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
"George III Note" defined in Section 1.4(b).
"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.
"Guaranty" defined in Section 1.7(e).
"Hazardous Substances" defined in Section 4.13 (e).
"Held Back Shares" defined in Section 9.4.
"III" defined in Section 6.17(a).
"Immigration Act" defined in Section 4.16 (c).
"Indemnifiable Damages" defined in Section 9.1 (a).
"Indemnified Party" defined in Section 9.3 (a).
"Indemnifying Party" defined in Section 9.3(a).
"Insurance Policies" defined in Section 4.20.
"Intellectual Property" defined in Section 4.24.
"Isaac" defined in the introductory paragraph of this Agreement.
"Isaac Child" and "Isaac Children" defined in Section 13.10.
54
<PAGE> 61
"Isaac Purchased Securities" defined in Section 1.1.
"Isaac Shareholders" defined in Section 6.21(a).
"Leased Premises" defined in Sections 4.13(p) and 4.14(b).
"Leases" defined in Section 4.14 (b).
"Letter of Credit" defined in Section 1.7(a).
"Licenses" defined in Section 4.13 (b).
"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 with respect to the
Companies or MTLM respectively, a change (or effect), in the condition
(financial or otherwise), properties, assets, liabilities, rights,
obligations, operations or business or prospects which change (or effect)
is materially adverse to such condition, properties, assets, liabilities,
rights, obligations, operations business or prospects of the Companies
taken as a whole or MTLM and its subsidiaries taken as a whole,
respectively; provided, however, that Material Adverse Change (or Effect)
shall not be deemed to include the effects of compliance with this
Agreement and the transactions contemplated hereby.
"Material Customers" defined in Section 4.26.
"Maximum Indemnification Amount" defined in Section 9.1(e).
"Measurement Date" means the First Measurement Date or the Second
Measurement Date, as applicable.
"Merger" defined in the Recitals to this Agreement.
"Mortgages" defined in Section 1.7(b).
"MPPA Plan" defined in Section 4.18(d).
"MTLM" defined in the introductory paragraph of this Agreement.
"MTLM Notes" defined in Section 1.2(a).
55
<PAGE> 62
"MTLM Stock Pledge" defined in Section 1.7(c).
"New Plan" defined in Section 6.17(b).
"Notes" defined in Section 1.6.
"OSHA" defined in Section 4.13 (e).
"Other Agreements" defined in Section 6.11.
"Owned Properties" defined in Sections 4.13(p) and 4.14(a).
"Paulding" defined in the introductory paragraph of this Agreement.
"Paulding Purchased Securities" defined in Section 1.1.
"PBGC" defined in Section 4.18 (f).
"Pension Plan" defined in Section 6.17(a).
"Permits" defined in Section 4.22(a).
"Permitted Additional Shares" means, from time to time, the maximum
number of shares of Common Stock of MTLM which can be issued in connection
with this Agreement pursuant to Section 6.21 without obtaining the approval
of the shareholders of Common Stock of MTLM, to the extent required by the
Nasdaq Stock Market (or such other public market upon which the Common
Stock of MTLM is then primarily traded).
"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.
"Prime Lending Rate" defined in Section 1.2.
"Prohibited Additional Shares" defined in Section 6.21(c).
"Purchased Securities" defined in Section 1.5. "RCRA" defined in
Section 4.13 (e).
"Receivables" defined in Section 4.21.
"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
56
<PAGE> 63
with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement.
"Release" defined in Section 4.13 (f).
"Resolution Period" defined in Section 9.4(a)(iii).
"Retained Properties" defined in items A1-A4 on Schedule 4.10.
"Richard and Renee Notes" defined in Section 7.7.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" defined in Section 3.5.
"Second Measurement Date" means the business day which is the first
anniversary of the Closing Date (or the next succeeding day which is a
business day).
"Securities Act" means the Securities Act of 1933, as amended.
"Security Shares" defined in Section 1.7(c).
"Shareholder" and "Shareholders" defined in the introductory paragraph
of this Agreement
"Shareholder Indemnitors" means Charles A. Isaac, George A. Isaac,
III, L.A. Isaac, Richard G. Isaac and William M. Isaac.
"Shareholder Indemnitors Designees" defined in Section 9.1(d).
"Shareholders Indemnifiable Damages" defined in Section 9.2 (a).
"Sub" defined in the introductory paragraph of this Agreement.
"Subsidiary," with respect to any Person, means a Person controlled by
such person directly, or indirectly through one or more intermediaries.
"Surviving Corporation" defined in Section 2.1 hereof.
"Tax Return" means any tax return, filing or information statement
required to be filed in connection with or with respect to any Taxes.
"Taxes" means all taxes, fees or other assessments, including, but not
limited to, income, excise, property, sales, franchise, intangible,
withholding, social security and
57
<PAGE> 64
unemployment taxes imposed by any federal, state, local or foreign
governmental agency, and any interest or penalties related thereto.
"Trigger Date" defined in Section 6.21.
"Underground Storage Tanks" defined in Section 4.13 (h).
"Waste" defined in Section 4.13 (e).
"Welfare Plan" defined in Section 4.18(e).
11.2 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) 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.
11.3 KNOWLEDGE. The phrases "to the knowledge of the Shareholders"
and "to the best of the Shareholders' knowledge" shall, in each case, mean the
actual knowledge of a Shareholder.
ARTICLE XII
TERMINATION AMENDMENT AND WAIVER
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, by mutual written consent of all of the Companies,
MTLM, Sub and the Shareholder Indemnitors on behalf of all of the Shareholders
hereto.
ARTICLE XIII
58
<PAGE> 65
GENERAL PROVISIONS
13.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by certified or registered mail (first class postage
prepaid) two business days after such delivery, guaranteed overnight delivery on
the next business day, or facsimile transmission (with confirmation of receipt),
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 MTLM 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:
Shefsky & Froelich Ltd.
444 N. Michigan Avenue
Suite 2500
Chicago, IL 60611
Attn: Erhard R. Chorle
Telecopy No.: (312) 527-5921
(b) IF TO THE COMPANIES OR THE SHAREHOLDERS TO:
William M. Isaac
c/o Secura Group
7799 Leesburg Pike
8th Floor
Falls Church, Virginia 22043
Telecopy No.: (703) 749-1532
AND TO:
L.A. Isaac
2625 Underhill Road
Toledo, Ohio 43615
Telecopy No.: (419) 891-4119
WITH A COPY TO:
59
<PAGE> 66
Shumaker, Loop & Kendrick, LLP
North Courthouse Square
1000 Jackson
Toledo, Ohio 43624-1573
Attn: David F. Waterman, Esq.
Telecopy No.: (419) 241-6894
13.2 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. 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 (other than the Confidentiality Agreement). The Exhibits
and Schedules constitute a part hereof as though set forth in full above.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
person, other than the parties hereto or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
13.3 EXPENSES. Except as otherwise provided herein, MTLM shall pay its
own fees and expenses, including its own counsel fees, incurred in connection
with this Agreement or any transaction contemplated hereby, and the Companies
shall pay all reasonable fees and expenses, including counsel fees for two law
firms to jointly represent the Companies and the Shareholders, incurred by the
Companies and the Shareholders in connection with this Agreement or any
transaction contemplated hereby.
13.4 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.
13.5 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 any of the Shareholders or MTLM without the
prior written consent of MTLM or the Shareholder Indemnitors Designee,
respectively.
60
<PAGE> 67
13.6 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.
13.7 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.
13.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws of the State of
Illinois applicable to contracts executed and to be wholly performed within such
State.
13.9 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.
13.10 ISSAC CHILDREN. Notwithstanding anything to the contrary herein,
each of George Andrew Isaac, IV, Deborah Isaac, Kimberly A. Isaac, David Isaac
and Stephanie Isaac are signatories to this Agreement with respect to the
agreement to sell the Purchased Securities owned by them pursuant to Article I
in exchange for the consideration as set forth on Schedule 1.1. George Andrew
Isaac, IV, David Isaac, Stephanie Isaac, Deborah Isaac and Kimberly R. Isaac is
each an "Isaac Child" and, collectively, are the "Isaac Children." Each Isaac
Child is also a signatory to this Agreement with respect to the representation
and warranty provided in the next to last sentence of Section 4.5 with respect
to such Isaac Child's Isaac Purchased Securities. Notwithstanding anything to
the contrary herein, each Isaac Child individually, and the Isaac Children
collectively, make no other representations, warranties or covenants under this
Agreement and are not party to this Agreement for any other purpose, including
without limitation the provisions of Article XI.
61
<PAGE> 68
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: June 23, 1997 By: Gerard M. Jacobs
--------------------------
Name: GERARD M. JACOBS
---------------------
Title: President
--------------------
ISAAC ACQUISITION CORPORATION,
A DELAWARE CORPORATION
Date: June 23, 1997 By: Gerard M. Jacobs
--------------------------
Name: GERARD M. JACOBS
---------------------
Title: President
--------------------
THE ISAAC CORPORATION,
AN OHIO CORPORATION
Date: June 23, 1997 By: George A. Isaac
--------------------------
Name: GEORGE A. ISAAC III
---------------------
Title: President
--------------------
FERREX TRADING CORPORATION,
AN OHIO CORPORATION
Date: June 23, 1997 By: George A. Isaac
--------------------------
Name: GEORGE A. ISAAC III
---------------------
Title: President
--------------------
-60-
<PAGE> 69
PAULDING RECYCLING, INC.,
AN OHIO CORPORATION
Date: June 23, 1997 By: George A. Isaac
-------------------------
Name: GEORGE A. ISAAC III
--------------------
Title: President
--------------------
BRIQUETTING CORPORATION OF
AMERICA, AN OHIO CORPORATION
Date: June 23, 1997 By: George A. Isaac
--------------------------
Name: GEORGE A. ISAAC III
---------------------
Title: President
--------------------
-61-
<PAGE> 70
THE ISAAC CORPORATION
SHAREHOLDERS Voting Shares Non-Voting Shares
- ------------ ------------- -----------------
5,580.75 16,742.25
Richard G. Isaac
- ------------------------
Richard G. Isaac
May, 1997 Revocable Trust
5,712.5 16,609.50
George A. Isaac III
- --------------------------
George A. Isaac, III
Second Revocable Trust
528
George A. Isaac III
- ---------------------------
George A. Isaac, III
Custodian for George
Andrew Isaac, IV
5,712.50 17,137.50
Lynn A. Isaac
- ---------------------------
Lynn A. Isaac
Second Revocable Trust
4,753.00 11,858.75
- ---------------------------
William M. Isaac
Revocable Trust dated
October 5, 1992
1,200
- ---------------------------
David Isaac, by William M.
Isaac, attorney-in-fact
1,200
- ---------------------------
Stephanie Isaac, by
William M. Isaac,
attorney-in-fact
4,753.00 10,208.75
Charles A. Isaac
- ---------------------------
Charles A. Isaac
May 1997 Revocable Trust
2,025
Charles A. Isaac
- ---------------------------
Deborah Isaac, by
Charles A. Isaac,
attorney-in-fact
-62-
<PAGE> 71
2,025
Charles R. Isaac
- ----------------------------
Kimberly R. Isaac, by
Charles A. Isaac,
attorney-in-fact
FERREX TRADING CORPORATION
SHAREHOLDERS Voting Shares
- ------------ -------------
100
Richard G. Isaac
- --------------------------
Richard G. Isaac
May 1997 Revocable Trust
100
George A. Isaac III
- ---------------------------
George A. Isaac, III
Second Revocable Trust
100
Lynn A. Isaac
- ---------------------------
Lynn A. Isaac
Second Revocable Trust
100
- ---------------------------
William M. Isaac
Revocable Trust dated
October 5, 1992
100
Charles A. Isaac
- ----------------------------
Charles A. Isaac
May, 1997 Revocable Trust
PAULDING RECYCLING, INC.
SHAREHOLDERS Voting Shares
- ------------ -------------
Richard G. Isaac 100
- -------------------------
Richard G. Isaac
May, 1997 Revocable Trust
George A. Isaac, III 100
- --------------------------
George A. Isaac, III
Second Revocable Trust
-63-
<PAGE> 72
100
Lynn A. Isaac
- -------------------------------
Lynn A. Isaac
Second Revocable Trust
100
William M. Isaac
- -------------------------------
William M. Isaac
Revocable Trust dated
October 5, 1992
Charles A. Isaac 100
- ------------------------------
Charles A. Isaac
May, 1997 Revocable Trust
BRIQUETTING CORPORATION OF AMERICA
SHAREHOLDERS Voting Shares
- ------------ -------------
100
Richard G. Isaac
- --------------------------
Richard G. Isaac
May, 1997 Revocable Trust
100
George A. Isaac III
- ---------------------------
George A. Isaac, III
Second Revocable Trust
100
Lynn A. Isaac
- ---------------------------
Lynn A. Isaac
Second Revocable Trust
William M. Isaac 100
- ---------------------------
William M. Isaac
Revocable Trust dated
October 5, 1992
Charles A. Isaac 100
- ---------------------------
Charles A. Isaac
May, 1997 Revocable Trust
The undersigned have joined in the execution and delivery of this
Agreement as affirmation and acknowledgment of their obligations pursuant to
Article IX hereof.
-64-
<PAGE> 73
SHAREHOLDER INDEMNITORS
Richard G. Isaac
-----------------------------
Richard G. Isaac
George A. Isaac III
-----------------------------
George A. Isaac, III
L.A. Isaac
-----------------------------
L.A. Isaac
-----------------------------
William M. Isaac
Charles A. Isaac
-----------------------------
Charles A. Isaac
-65-
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this 23rd day
of June, 1997 by and between GEORGE A. ISAAC, III (the "Executive") and
METAL MANAGEMENT, INC., a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to accept such employment;
NOW, THEREFORE, in consideration of the promises, mutual covenants and
agreements contained herein, the Company and the Executive do hereby agree
as follows:
1. Employment and Duties. (a) On the terms and subject to the conditions
set forth in this Agreement, the Company agrees to employ the Executive as
the Executive Vice-President of the Company and Chief Executive Officer of the
Isaac Corporation, Ferrex Trading Corporation, Paulding Recycling, Inc. and
Briquetting Corporation of America, Inc. (the "Isaac Group") to perform such
duties and responsibilities as are consistent with such positions. In
connection with the Executive's position as Executive Vice-President, the
Executive shall report to the Chairman of the Board of Directors and the
Chief Executive Officer of the Company, and shall, among other things,
participate in financial planning and analysis, information systems,
financial and operational due diligence in connection with acquisitions, and
strategy and planning for the integration of acquisitions. In connection with
the Executive's position as Chief Executive Officer of the Isaac Group, the
Executive shall report to the President and Chief Operating Officer of the
Company and shall have overall management responsibility for the Isaac
Group's businesses.
(b) Directorship. Effective upon the closing of the merger and purchase
of the Company and the Isaac Group (the "Closing"), the Executive shall
become a member of the
<PAGE> 2
Company's Board of Directors (the "Board of Directors"), and thereafter
throughout the Employment Period the Company shall cause the Executive to be
nominated for election to the Board of Directors. Failure of the Company to so
nominate the Executive or the failure of the stockholders of the Company to
elect the Executive to the Board of Directors following nomination, shall
constitute "Good Reason" for the Executive to resign pursuant to Section 14(e)
below and any such resignation shall be deemed a termination by the Company
pursuant to Section 14(a) below.
(c) Executive Committee. Effective as of the Closing, the Board of
Directors shall amend the Bylaws of the Company in order to create an
Executive Committee (the "Executive Committee") of the Board of Directors,
which Executive Committee shall be authorized to act on behalf of and in the
name of the Board of Directors during the periods between meetings of the full
Board of Directors, including in regard to certain actions specified in
Section 1.2 of the stockholders' agreement for Metal Management, Inc. to be
dated as of the closing of the Company's merger with Cozzi Iron & Metal, Inc.
(the "Cozzi Closing") by and among T. Benjamin Jennings, Gerard M. Jacobs,
Albert A. Cozzi, Frank J. Cozzi, Gregory P. Cozzi and the Company. The
Executive Committee shall consist of the Chairman of the Board of Directors,
the President and Chief Operating Officer of the Company or his successor on
the Executive Committee, Frank J. Cozzi, and the Chief Executive Officer of
the Company, and one or more other senior company executives chosen by the
Executive Committee. The Executive shall be a member of the Executive
Committee during the Employment Period, and as such the Executive shall
participate in all decision-making by the Executive Committee, provided,
however, that the Executive acknowledges and agrees that the Company shall not
be in breach of this Agreement due to the Executive's refusal or inability to
participate in decision-making by
2
<PAGE> 3
the Executive Committee from time to time due to personal reasons or personal
unavailability. All actions by the Executive Committee shall be by majority
vote, excepting, however, that no action may be taken by the Executive
Committee without the unanimous consent of (i) Albert A. Cozzi, or his
successor on the Executive Committee, Frank J. Cozzi, (ii) T. Benjamin
Jennings, so long as he is then employed by the Company, and (iii) Gerard M.
Jacobs, so long as he is then employed by the Company.
2. Performance. The Executive accepts the employment described in
Section 1 above, and agrees to faithfully and diligently perform the duties and
responsibilities described therein. The Executive shall devote time and
attention to matters of the Company such that the Executive's services to the
Company constitute his primary business activity. The Company acknowledges
that the Executive may (i) engage in charitable and community affairs
(including serving on the board of directors or similar management body of any
charitable or community organization), (ii) serve on the board of directors of
other companies which are not engaged in a business that directly or
indirectly competes with the Company Business (as defined in Section 18
below), and (iii) make personal investments, to the extent such activities do
not unreasonably interfere with his duties and responsibilities described in
Section 1 hereof.
3. Term. The term of employment under this Agreement shall commence on
the Closing (the "Commencement Date") and shall continue for a period of five
(5) years, ending on the fifth anniversary of the Closing, unless sooner
terminated hereunder (the "Employment Period"). Upon expiration of the initial
five-year term, the Employment Period shall be automatically renewed for
successive one-year periods unless, at least one-year prior to the date that
the Employment Period would otherwise expire by reason of lapse of time,
either the Executive or the Company, as the case may be, notifies the other of
its desire not to renew the
3
<PAGE> 4
Employment Period. For purposes of this Agreement, "Balance of the Term" shall
mean the period beginning on the date of termination and ending on the date
that the Employment Period would have ended pursuant to this Section 3 due to
lapse of time (assuming no further renewals of the Employment Period beyond
those already approved as of the date of termination), without regard to
Section 14.
4. Salary. For all the services to be rendered by the Executive
hereunder, the Company agrees to pay, during the Employment Period, a base
salary ("Salary") at an initial rate of Two Hundred and Seventy-Five Thousand
Dollars ($275,000.00) per Contract Year, payable in the manner and frequency
in which the Company's payroll is customarily handled. For purposes of this
Agreement, "Contract Year" shall mean a one-year period commencing on the
Commencement Date or on any anniversary of the Commencement Date. The Company
may increase the Executive's Salary at any time, or from time to time, during
the Employment Period, provided, however, that the Company may not at any time
reduce the Salary from its then-current level. In no event shall the Salary
paid hereunder with respect to any Contract Year be less than seventy-five
percent (75%) of the base salary paid to the highest paid member of the
Executive Committee with respect to such Contract Year, provided, however,
that during the first eighteen (18) months of the Employment Period the Salary
shall in no event be less than one-hundred percent (100%) of the base salary
paid to the highest paid member of the Executive Committee during such 18-
month period.
5. Incentive Compensation. In addition to the Executive's Salary and
Cash Bonus compensation (as defined below), the Company shall grant the
Executive the following stock warrants.
4
<PAGE> 5
(a) Stock Warrants. On the Commencement Date, the Company shall grant
the Executive warrants to purchase seventy-six thousand nine hundred
twenty-three (76,923) shares of common stock of the Company at an exercise
price of Thirteen Dollars ($13.00) per share. The above-described warrants
shall be immediately and fully exercisable on the Commencement Date and shall
remain exercisable and not subject to forfeiture until February 1, 1998. If the
warrants granted under this Section 5(a) have not been exercised in accordance
with their terms prior to or on February 1, 1998, then they shall expire
without exercise and shall be considered void and terminated.
(b) Other Stock Terms.
(i) All warrants issued pursuant to Section 5(a) and Section 18(g)
shall be governed by and subject to all conditions, terms and
restrictions in the actual warrant which is attached hereto as
Attachment A and hereby incorporated by reference.
(ii) The Company represents and warrants to the Executive that
each grant of warrants to purchase shares of common stock of the
Company hereunder shall be an exempt acquisition under Section 16(b)
of the Securities Exchange Act of 1934.
(iii) The Executive acknowledges that the Company's common stock is
publicly traded and is subject to various federal and state securities
laws and that the shares acquired upon the exercise of the warrants
granted under this Agreement (the "Shares") are being issued
5
<PAGE> 6
pursuant to such laws and agrees that he will comply with any and all
applicable laws and regulations governing the Shares.
(iv) The Company shall use its best efforts to file as soon as
practicable, and shall use its best efforts to cause to remain
effective, a registration statement(s) as may be necessary to permit
the Executive to sell in the public market any and all Shares acquired
hereunder, provided, that the Executive understands and agrees that
this Section 5(b) (iv) shall not be deemed to impose any obligation
upon the Company to take any action whatsoever that, in the opinion of
the Executive Committee, would or might delay or hinder any material
transaction involving the Company, including but not limited to any
of the Company's acquisitions (such as its pending mergers with Cozzi
Iron & Metal, Inc. and Proler Southwest) or any of the Company's debt
or equity financings (such as its contemplated high yield debt
offering), or that would or might be deemed to be a default or
violation of any of the Company's contracts in regard to any of such
transactions or financings, including but not limited to any "blackout"
periods imposed by the Company's underwriters. Notwithstanding the
foregoing, the Executive shall have the right to participate on the
same terms and conditions in any and all registration rights afforded
to T. Benjamin Jennings, Gerard M. Jacobs, Albert A. Cozzi, Frank J.
Cozzi or Gregory P. Cozzi.
6
<PAGE> 7
(v) The respective warrants granted under Section 5(a) herein shall
be "incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, to the fullest extent
permitted by applicable law.
(c) The Executive shall be eligible to participate in and receive awards
under any other stock-based plans of the Company pursuant to Section 12 below.
6. Cash Bonus Compensation. The Executive shall be entitled to the
following bonus compensation:
(a) Annual Cash Bonus. On each anniversary of the Commencement Date, the
Executive shall be entitled to a minimum annual cash bonus (the "Annual Cash
Bonus") in an amount equal to twenty-five percent (25%) of his Salary for the
Contract Year then ended, or, in the event the Employment Period is terminated
for any reason during a Contract Year, a prorated amount equal to twenty-five
percent (25%) of the Executive's Salary in such Contract Year multiplied by a
fraction, the numerator of which is the number of calendar days in which the
Executive was employed by the Company during such Contract Year and the
denominator of which is 365. The Company shall pay the Annual Cash Bonus to
the Executive no later than thirty (30) days after the end of such Contract
Year or, in the event the Employment Period is terminated during the Contract
Year, five (5) days after the date the Employment Period is terminated. In no
event shall the Annual Cash Bonus percentage used to calculate the Executive's
Annual Cash Bonus with respect to any Contract Year be less than the
guaranteed annual cash bonus percentage used to calculate any guaranteed
annual cash bonus paid to any other member of the Executive Committee with
respect to such Contract Year.
7
<PAGE> 8
(b) Additional Bonus. The Executive shall be eligible to receive
additional cash bonuses pursuant to Section 12 below.
7. Vacation. In accordance with the policies and rules governing the
vacation of other members of the Executive Committee, the Executive shall be
entitled to take vacations with pay, during each year of service under this
Agreement, to be taken during the year at such time or times as may be
approved by the Company. Such vacation shall be at least four (4) weeks, but
no less than the vacation granted other members of the Executive Committee.
Unless otherwise established for members of the Executive Committee, unused
vacation days shall not be accumulated from one year to the next.
8. Sick Leave. In accordance with the policies and rules governing the
sick leave of other members of the Executive Committee, the Executive shall be
allowed paid sick leave during each year of service under this Agreement.
Unless otherwise established for members of the Executive Committee, unused
sick leave shall not be accumulated from one year to the next.
9. Disability Benefit. If at any time during the Employment Period the
Executive is unable to perform fully his duties hereunder for a period of six
(6) consecutive months by reason of illness, accident, or other physical or
mental disability (as confirmed by competent medical evidence) and such
condition may reasonably be expected to be permanent ("Total Disability"), the
Executive shall be entitled to receive (i) any accrued but unpaid Salary,
Annual Cash Bonus (determined in accordance with Section 6(a)) and prorated
vacation, and any other amounts accrued but unpaid as of the date of
termination, and (ii) any and all disability benefits then generally available
to other members of the Executive Committee. In the event there is then no
established policy regarding disability benefits afforded to a member of the
8
<PAGE> 9
Executive Committee or such benefits afforded to members of the Executive
Committee are less than seventy percent (70%) of the Executive's then-current
Salary and Annual Cash Bonus for the Balance of the Term, then the Executive
shall be entitled to receive periodic payments of seventy percent (70%) of his
then-current Salary and Annual Cash Bonus (determined pursuant to Section 4 of
this Agreement) for the Balance of the Term. If any dispute regarding the
existence of the Executive's Total Disability arises, each party shall appoint
a physician and such physicians shall jointly appoint a third physician, the
decision of any two (2) of such physicians regarding the existence of Total
Disability shall be binding upon the parties. Notwithstanding the foregoing
provision, the amounts payable to the Executive pursuant to this Section 9
shall be reduced by any amounts received by the Executive with respect to any
such incapacity pursuant to any insurance policy, plan, or other employee
benefit provided to the Executive by the Company.
10. Death Benefit. In the event of the death of the Executive during the
Employment Period, the Company shall pay (i) any accrued but unpaid Salary,
Annual Cash Bonus (determined in accordance with Section 6(a)) and prorated
vacation, and any other amounts accrued but unpaid as of the date of
termination, and (ii) any and all death benefits then generally available to
other members of the Executive Committee. In the event there is then no
established policy regarding death benefits afforded to a member of the
Executive Committee or such benefits afforded members of the Executive
Committee are less than a lump-sum payment equal to the Executive's
then-current Salary and Annual Cash Bonus otherwise payable to the Executive
for the one-year period immediately following the Executive's death, then the
Executive shall be entitled to receive as a survivor's benefit, a lump-sum
amount equal to the Executive's then-current Salary and Annual Cash Bonus that
would otherwise be payable to the
9
<PAGE> 10
Executive pursuant to Section 4 of this Agreement for the one-year period
immediately following the Executive's death. The benefits payable under this
Section 10 shall be paid to the person or persons designated by the Executive
on the form provided by the Company or, in the absence of such a designation,
as follows: (i) to the Executive's spouse if she survives him; (ii) if the
Executive's spouse fails to survive the Executive, then in equal shares to
the Executive's children who survive him; or (iii) if neither Executive's
spouse nor any child survives the Executive, then all to the Executive's
estate.
11. Insurance. During the Employment Period, the Company shall apply
for, procure and pay for, in the Executive's name and for the Executive's
benefit with the Executive or the Executive's designee as the beneficiary,
life insurance owned by the Executive in the following amounts: $500,000
through a term life policy and $500,000 through a whole life policy. The
Executive shall submit to any medical or other examination and execute and
deliver any application or other instrument in writing reasonably necessary to
effectuate such insurance.
12. Other Compensation, Benefits and Perquisites. The Executive's Salary
shall be as described in Section 4 above; his Annual Cash Bonus shall be as
described in Section 6(a) above; his vacation shall be as described in
Section 7 above; and his sick leave, disability benefit, death benefit and
insurance shall be as described in Sections 8, 9, 10 and 11 above,
respectively. In addition to the aforesaid types of compensation, benefits
and perquisites, the Executive shall be entitled to participate in all other
types of compensation, benefits and perquisites then generally available to
other members of the Executive Committee, such as, but not limited to: cash
bonuses in addition to guaranteed cash bonuses; stock option plans; 401(k)
plans; welfare plans; severance pay arrangements; business travel policies;
car allowance; medical insurance; dental insurance; dues, fees and costs
(including travel) associated with
10
<PAGE> 11
membership and participation in professional, educational and other clubs and
organizations, and attendance at professional, educational and other programs,
presentations, workshops, seminars and conventions. Absent special
circumstances identified by the Board of Directors of the Company in a duly
adopted resolution, the Executive's participation in all such other types of
compensation, benefits and perquisites shall, as nearly as practicable, be at
the same levels as the other members of the Executive Committee, excepting
only that the amount of the Executive's cash bonus (if any) in addition to his
Annual Cash Bonus, and also the level of the Executive's participation in
stock option grants and stock option plans (if any), shall be determined and
granted by the Board of Directors from time to time based upon the Executive's
responsibilities and performance, and shall not necessarily be in the same
amounts or levels as are received by the other members of the Executive
Committee. Notwithstanding the foregoing, if, absent special circumstances
identified by the Board of Directors of the Company in a duly adopted
resolution, the Executive's participation in any of such other types of
compensation, benefits or perquisites -- other than the amount of the
Executive's cash bonus (if any) in addition to his Annual Cash Bonus, and
other than the level of the Executive's participation in stock option grants
and stock option plans (if any) -- is not as nearly as practicable at the same
levels as the other members of the Executive Committee, then the Executive's
participation therein shall, without the need for any further action by any
party, be deemed to be "upgraded" to the same levels as the other members of
the Executive Committee. The Company shall at all times direct its Chief
Financial Officer and its independent certified public accountants to
cooperate fully with any oral or written inquiry from the Executive in regard
to any types of compensation, benefits or perquisites then being enjoyed by
the other members of the Executive Committee.
11
<PAGE> 12
Without limiting the generality of the foregoing, it is expressly agreed: that
the Executive's car allowance from the Company shall be $1,000 per month,
provided that any portion of such car allowance that is not being used to pay
for the Executive's car shall be paid by the Company to the Executive as
additional compensation in regard to such month; that the Executive shall also
be fully reimbursed by the Company for all gas, oil, repairs, maintenance and
insurance in regard to such car; and that the Company shall supply and pay all
of the costs, fees and charges in regard to a Company telephone at the
Executive's home office (if any), a car phone and a cellular phone. The
Executive understands and agrees that the Executive Committee shall be
permitted from time to time to establish an annual dollar limitation upon the
Company's expenditures in regard to dues, fees and costs (including travel)
associated with membership and participation in professional, educational and
other clubs and organizations, and attendance at professional, educational and
other programs, presentations, workshops, seminars and conventions, other than
the Institute of Scrap Recycling Industries (ISRI), incurred by any member of
the Executive Committee, which limitation shall be identical with respect to
each member of the Executive Committee; provided that so long as the Company's
common stock closes at a price per share at or above Ten Dollars ($10.00) per
share on the first trading day of any fiscal year of the Company, then such
annual limitation in regard to such fiscal year of the Company shall not be
less than Twenty Thousand Dollars ($20,000.00) per member of the Executive
Committee.
13. Business Expense Reimbursement. The Company shall reimburse the
Executive for the reasonable, ordinary, and necessary business expenses
incurred by him in connection with the performance of his duties hereunder,
including, but not limited to, ordinary and necessary travel, entertainment and
phone expenses. The Executive shall provide the Company with an accounting of
his expenses, which accounting shall clearly reflect which
12
<PAGE> 13
expenses are reimbursable by the Company. The Executive shall provide the
Company with such other supporting documentation and other substantiation of
reimbursable expenses as will conform to Internal Revenue Service regulations
or other requirements. All such reimbursements shall be payable by the Company
to the Executive within a reasonable time after receipt by the Company of
appropriate documentation thereof; provided, however, the Company shall have
no obligation to reimburse any expenses for which appropriate and customary
back-up documentation is not provided within ninety (90) days following
accrual of the obligation in question.
14. Termination.
(a) Unilateral Termination. The Employment Period may be terminated by
either party at any time by written notice of termination given to the other
party at least ninety (90) days in advance of the termination date stated in
such notice, provided that any such notice of termination given by the Company
to the Executive shall be signed by all the other members of the Executive
Committee.
(b) Termination for Just Cause. The Company shall have the option to
terminate the Employment Period, effective upon written notice of such
termination to the Executive signed by all of the other members of the
Executive Committee, for Just Cause. For purposes of this Agreement, the term
"Just Cause" shall mean the occurrence of any one or more of the following
events:
(i) The willful and continued failure by the Executive to
substantially perform his duties with the Company (other than
any such failure resulting from termination by the Company pursuant to
Section 14(a), Total Disability, retirement or death) after a demand
for substantial
13
<PAGE> 14
performance is delivered to the Executive that specifically identifies
the manner in which the Company believes that the Executive has
not substantially performed his duties, and the Executive fails to
resume substantial performance of his duties on a continuous basis
within fourteen (14) days of receiving such demand; provided, that if
it is not reasonably possible for the Executive to resume such
substantial performance within such fourteen (14) days, then such
fourteen (14) day time period shall be extended to that minimum period
of time during which it is reasonably possible for the Executive to
resume such substantial performance;
(ii) The willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company, monetarily or
otherwise and the Executive's failure to cease engaging in such
conduct within fourteen (14) days after a demand for such cessation is
delivered to the Executive by the Company that specifically identifies
such conduct; provided, however, that if it is not reasonably possible
for the Executive to cease such conduct within such fourteen (14)
days, then such fourteen (14) day time period shall be extended to
that minimum period of time during which it is reasonably possible for
the Executive to cease such conduct; or
(iii) The Executive's conviction of a felony or a misdemeanor
which materially impairs the Executive's ability substantially to
perform his duties with the Company.
For purposes of this subsection (b), an act, or failure to act, on the
Executive's part, shall not be deemed "willful" unless done, or omitted to be
done, by the Executive not in
14
<PAGE> 15
good faith and without a reasonable belief that his action or omission was in
the best interest of the Company.
(c) Termination Upon Death. The Employment Period shall automatically
terminate upon the death of the Executive, without further action by the
Company.
(d) Termination Upon Disability. The Employment Period shall terminate
thirty days after the Company notifies the Executive of a determination of
Total Disability (as defined above) of the Executive, provided the Executive
does not dispute such determination as provided in Section 9 hereof, in which
case the date of termination for Total Disability shall be the date the
Executive is determined to have a Total Disability pursuant to Section 9
hereof.
(e) Termination for Good Reason. The Executive shall have the right to
resign for Good Reason (as defined below) and any such resignation shall be
deemed a termination by the Company pursuant to Section 14(a). For purposes of
this Agreement, "Good Reason" shall mean (i) any material breach by the
Company of its obligations hereunder, which is not cured by the Company within
fourteen (14) days after the Company receives notice from the Executive
describing such breach, (ii) any breach of the Company's obligations under
Section I above, which is not cured by the Company within fourteen (14) days
after the Company receives notice from the Executive describing such breach,
(iii) any transfer of the Executive's principal work location to a location
more than fifteen (15) miles from Toledo, Ohio, (iv) the termination of the
Employment Period by the Executive for any reason or no reason at all at any
time during the one-year period immediately following the date of a Change in
Control, or (v) the termination of the Employment Period by the Executive for
any reason or no reason at all at any time during the one-year period
immediately following the date the Executive receives
15
<PAGE> 16
notice of non-renewal from the Company pursuant to Section 3 herein. For
purposes of this Agreement, a "Change in Control" of the Company shall mean:
(i) The date that T. Benjamin Jennings ceases to serve
as the Chairman of the Board of the Company;
(ii) The date that Gerard M. Jacobs ceases to serve as
the Chief Executive Officer of the Company; or
(iii) A change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether
or not the Company is then subject to such reporting
requirement, that was not approved by the Executive Committee,
provided that, without limitation, a Change in Control shall
be deemed to have occurred if the following events occur
without the affirmative vote of the Executive Committee:
(A) any "person" (as defined in Sections 13(d) and
14(d) of the Exchange Act), other than Albert A. Cozzi,
Frank J. Cozzi and Gregory P. Cozzi and their
respective heirs, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing thirty percent (30%) or more of the
combined voting
16
<PAGE> 17
power of the Company's then outstanding securities
computed on a fully diluted basis;
(B) during any period of two (2) consecutive years
(not including any period prior to the execution of
this Agreement), there shall cease to be a
majority of the Board of Directors comprised as
follows: individuals who at the beginning of the
Employment Period constitute the Board of Directors and
any new director(s) whose election by the Board of
Directors or nomination for election by the Company's
shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the
Employment Period or whose election or nomination for
election was previously so approved; or
(C) the shareholders of the Company (a) approve a
merger or consolidation of the Company or a subsidiary
of the Company with any other corporation, other than a
merger with Cozzi Iron & Metal, Inc. and other than a
merger or consolidation which would result in the
voting securities of the Company outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted
into voting securities of the surviving entity) at
least eighty percent (80%) of the combined voting power
of the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or
17
<PAGE> 18
consolidation; or (b) approve a plan of complete
liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially
all the Company's assets.
15. Surrender of Properties. Upon termination of the Executive's
employment with the Company, regardless of the reason therefor, the Executive
shall promptly surrender to the Company all property provided him by the
Company for use in relation to his employment and, in addition, the Executive
shall surrender to the Company any and all sales materials, lists of customers
and prospective customers, price lists, files, records, models, or other
materials and information of or pertaining to the Company or its customers or
prospective customers or the products, business, and operations of the
Company.
16. Toledo Headquarters. The Company acknowledges that the Executive
shall be based in or within fifteen (15) miles of Toledo, Ohio during the
Employment Period.
17. Severance Pay. (a) Notwithstanding any other provision of this
Agreement, if the Employment Period is terminated by the Company pursuant to
Section 14(a), the Company shall pay the Executive (i) any accrued but unpaid
Salary, Annual Cash Bonus (determined in accordance with Section 6(a)) and
prorated vacation, and any other amounts accrued but unpaid as of the date of
termination, and (ii) a lump-sum severance payment equal to the greater of (A)
the Executive's then-current Salary and Annual Cash Bonus for the Balance of
the Term, or (B) the product of 2.99 multiplied by the Executive's highest
total annual cash compensation (as reported by the Company on Internal Revenue
Service Form W-2) earned by the Executive in any one of the three (3) calendar
years immediately preceding the calendar year in which the termination occurs.
In no event shall the formula used to calculate the Executive's lump-sum
severance payment, described in subparagraph (ii) above, be less than the
formula
18
<PAGE> 19
used to calculate the lump-sum severance payment of any other member of the
Executive Committee. In addition, (i) the Company shall continue all medical,
dental and life insurance benefits at no cost to the Executive for the greater
of (A) twelve (12) months, commencing on the date of termination of the
Employment Period, or (B) the Balance of the Term (the provision by the
Company of any such group health benefits shall not be considered continuation
coverage pursuant to Section 4980B of the Internal Revenue Code of 1986, as
amended, and such continuation coverage shall commence on the date that
benefits provided hereunder cease), (ii) the ownership of all warrants and
options granted to the Executive by the Company shall be immediately and fully
vested in the Executive and shall remain outstanding and exercisable until the
expiration date of such warrants and options (without regard to any early
termination of such warrants or options resulting from the Executive's
termination of employment with the Company), and (iii) all restricted stock of
the Company not vested or released to the Executive prior to such date shall
immediately be vested and released to the Executive and become nonforfeitable.
Other than as provided herein, if the Employment Period is terminated by the
Executive pursuant to Section 14(a) or by the Company as provided in Section
14(b) of this Agreement, the Company shall pay to the Executive any accrued
but unpaid Salary, Annual Cash Bonus (determined in accordance with Section
6(a)) and prorated vacation, and any other amounts accrued but unpaid as of
the date of termination. Any benefit payable pursuant to this Section 17 shall
be paid to the Executive in a lump-sum within five (5) days after the
termination of the Employment Period.
(b) In the event that the Executive becomes entitled to the severance
payments as provided herein, if it is determined that any of such payments
will be subject to the tax or any other similar state or local excise taxes
(the "Excise Tax") imposed by Section 4999 of the Code
19
<PAGE> 20
(or any similar tax that may hereafter be imposed), the Executive shall have
the option, but not the obligation, to reduce the amount of such payments to
an amount which will result in the payments not being subject to the Excise
Tax. The Company will cooperate with the Executive in every way possible to
restructure the payments to achieve such result.
18. Restrictive Covenants. In addition to any other obligation of the
Executive under any other agreement with the Company, in order to assure that
the Company will realize the benefits of this Agreement and in consideration
of the employment set forth in this Agreement, the Executive agrees that he
shall not during the Employment Period and for a period of thirty-six (36)
months from the termination of the Employment Period; provided, that, in the
event the Employment Period is terminated by the Company pursuant to Section
14(a) on or before the second anniversary of the Commencement Date, the
thirty-six (36) month period provided herein shall be reduced to a twelve (12)
month period; and provided further, that, in the event the Employment Period
is terminated by the Company pursuant to Section 14(a) after the second
anniversary of the Commencement Date, the thirty-six (36) month period
provided herein shall be reduced to a thirty (30) month period:
(a) directly or indirectly, alone or as a partner, joint
venturer, member, officer, director, employee, consultant, agent,
independent contractor, stockholder or in any other capacity of any
company or business, engage in any business activity in the States of
Michigan, Ohio or Indiana, which is directly or indirectly in
competition with the Company Business; provided, however, that, the
beneficial ownership of less than 5% of the shares of stock of any
corporation having a class of equity securities actively traded on a
national securities
20
<PAGE> 21
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 the Company or any subsidiary or affiliate of the Company
on the date of the termination of such Employment Period to patronize
any business directly or indirectly in competition with the Company
Business; (ii) canvass, solicit or accept from any person that is a
customer of the Company or any subsidiary or affiliate of the Company
on the date of the termination of the Employment Period, any such
competitive business, or (iii) request or advise any person that is a
customer of the Company Business on the date of the termination of the
Employment Period to withdraw, curtail, or cancel any such customer's
business with the Company or any affiliate or subsidiary of the
Company;
(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 the Company or any subsidiary or affiliate
of the Company on the date of the termination of the Employment
Period or within six months prior to the date of termination of the
Employment Period, or in any manner seek to induce any such person to
leave his or her employment;
(d) For purposes of this Agreement, "Company Business" shall mean
scrap metal recycling and/or processing conducted by the Company or its
subsidiaries or affiliates and any other business that the Company
or its subsidiaries or affiliates may be engaged in (other than real
estate development) at the time of the termination of the Employment
Period.
21
<PAGE> 22
(e) Notwithstanding the foregoing, the Company acknowledges that the
Executive presently has an interest in Miltec Resources and the Company
agrees that such interest will not be considered a violation of this
Section 18, provided, that the Executive shall be obligated to take
such action as is reasonably necessary to divest himself of his
interest in Miltec Resources over such period of time as may reasonably
be expected not to have an adverse impact on the value of such interest
or Miltec Resources; provided, that if the Executive does not fully
divest himself of his interest in Miltec Resources within twelve (12)
months following the Commencement Date, he shall be obligated to resign
from the Board of Directors and shall not participate in the management
or conduct of the business of, and shall not in any way perform
services for, Miltec Resources. In addition, the Executive will not be
considered to have violated this Section 18, if the Executive obtains
an interest in or makes an investment in a business or enterprise which
is not directly or indirectly in competition with the Company Business
at the time such investment is made.
(f) The Executive agrees and acknowledges that the restrictions
contained in this Section 18 are reasonable in scope and duration and
are necessary to protect the Company after the Commencement Date.
If any provision of this Section 18 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
22
<PAGE> 23
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 Company and upon breach of
any provision of this Section, the Company 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 Company may have (including, without limitation, the right to
seek monetary damages).
(g) In order to induce the Executive to enter into the Restrictive
Covenants provided under this Section 18, on the Commencement Date, the
Company shall grant the Executive warrants to purchase two hundred
eighty-seven thousand five hundred (287,500) shares of common stock of
the Company at an exercise price per share equal to the product of (i)
.90 multiplied by (ii) the NASDAQ closing price per share of the common
stock of the Company on the date of announcement of the Closing. The
above-described warrants shall be immediately and fully exercisable on
the Commencement Date and shall remain exercisable and not subject to
forfeiture for any reason until the fifth anniversary of the date of
the Closing. If the warrants granted under this Section 18(g) have not
been exercised in accordance with their terms prior to or on the fifth
anniversary of the date of the Closing, then they shall expire without
exercise and shall be considered void and terminated. The Company's
obligations with respect to the warrants granted hereunder are absolute
and unconditional and shall not be
23
<PAGE> 24
affected by, and the Company shall not fail to honor the Executive's
rights to exercise such warrants based on, any circumstances,
including without limitation any set-off, counterclaim, recoupment,
defense or other right which the Company may have pursuant to this
Agreement, including without limitation, any claim regarding the
Executive's failure to comply with the Restrictive Covenants provided
herein. Except as specifically provided in this Section 18(g), the
above-described warrants shall be governed by, and subject to the
benefits contained in, Section 5(b) herein.
(h) In the event of any conflict between the provisions of this
Section 18 and the provisions (including Section 6.9) of the Purchase
Agreement and Plan of Merger, dated June 23, 1997, the provisions of
this Section 18 shall prevail.
19. Confidentiality of Information: Duty of Non-Disclosure. The
Executive acknowledges and agrees that his employment by the Company under this
agreement necessarily involves his understanding of and access to certain
trade secrets and confidential information pertaining to the business of the
Company. Accordingly, the Executive agrees that after the date of this
Agreement at all times, whether during or after the termination of the
Employment Period, he will not, directly or indirectly, without the prior
written consent of the Company, disclose to or use for the benefit of any
person, corporation or other entity, or for himself any and all files, trade
secrets or other confidential information concerning the internal affairs of
the Company or its subsidiaries or affiliates, including, but not limited to,
information pertaining to its clients, services, products, earnings, finances,
operations, methods or other activities; provided, however, that the foregoing
shall not apply to information which is of public record or is generally known,
disclosed or available to the general public or the industry generally.
Further, the Executive
24
<PAGE> 25
agrees that he shall not, directly or indirectly, remove or retain, without
the express prior written consent of the Company, and upon termination of this
Agreement for any reason shall return to the Company, any figures,
calculations, letters, papers, records, computer disks, computer printouts,
customer lists, price lists, other lists, contracts, business plans, forms,
manuals, other documents, instruments, drawings, designs, programs, brochures,
sales literature, or any copies or reproductions thereof, or any information
or instruments derived therefrom, or any other similar information of any type
or description, however such information might be obtained or recorded,
arising out of or in any way relating to the business of the Company or
obtained as a result of his employment by the Company. The Executive
acknowledges that all of the foregoing are proprietary information, and are
the exclusive property of the Company.
20. Enforcement.
(a) Upon presentation of a claim or claims (collectively, "Claims")
arising out of or relating to this Agreement, or the breach hereof, by an
aggrieved party, the other party shall have thirty (30) days in which to make
such inquiries of the aggrieved party and conduct such investigations as it
believes reasonably necessary to determine the validity of the Claims. At the
end of such period of investigation, the complained of party shall either pay
the amount of the Claims or the arbitration proceeding described immediately
below shall be invoked.
(b) In the event that the Claims are not settled by the procedure set
forth immediately above, the Claims shall be submitted to arbitration
conducted in accordance with the Commercial Arbitration Rules ("Rules") of the
American Arbitration Association ("AAA") except as amplified or otherwise
varied hereby.
25
<PAGE> 26
(c) The parties shall submit the dispute to the Chicago regional office
of the AAA and the situs of the arbitration shall be Cook County, Illinois.
(d) The arbitration shall be conducted by a single arbitrator. The
parties shall appoint the single arbitrator to arbitrate the dispute within
ten (10) business days of the submission of the dispute. In the absence of
agreement as to the identity of the single arbitrator to arbitrate the dispute
within such time, the AAA is authorized to appoint an arbitrator in accordance
with the Rules, except that the arbitrator shall have as his principal place
of business the Chicago metropolitan area.
(e) The single arbitrator selected by the AAA shall be an attorney,
accountant or other professional licensed to practice by the State of
Illinois.
(f) Notwithstanding anything in the Rules to the contrary, the
arbitration award shall be made in accordance with the following procedure.
Each party shall, at the commencement of the arbitration hearing, submit an
initial statement of the amount each party proposes be selected by the
arbitrator as the arbitration award ("Settlement Amount"). During the course
of the arbitration, each party may vary its proposed Settlement Amount. At the
end of the arbitration hearing, each party shall submit to the arbitrator its
final Settlement Amount ("Final Settlement Amount"), and the arbitrator shall
be required to select either one or the other Final Settlement Amounts as the
arbitration award without discretion to select any other amount as the award.
The arbitration award shall be paid within ten (10) business days after the
award has been made, together with interest from the date of award at the rate
of six percent (6%). Judgment upon the award may be entered in any federal or
state court having jurisdiction over the parties and shall be final and
binding.
26
<PAGE> 27
21. Costs of Enforcement. The Company shall reimburse the Executive for
reasonable attorneys' fees and costs incurred by the Executive in connection
with any claim by the Executive brought hereunder (including but not limited
to all reasonable attorney's fees and costs incurred by the Executive in
contesting or disputing any termination of the Employment Period or in seeking
to obtain or enforce any right or benefit provided by this Agreement, or in
connection with any tax audit or proceeding to the extent attributable to any
payment or benefit provided hereunder), so long as such claim is brought in
good faith.
22. No Duty to Mitigate or Offset. The Executive shall not be required to
mitigate or offset the amount of any payments that the Executive may receive
from the Company as a result of the termination of the Employment Period. The
amounts payable hereunder by the Company as a result of the termination of the
Employment Period shall be considered liquidated damages and shall not be
reduced by any amounts that the Executive earns through other employment or
otherwise, except that the Company's obligation to continue medical, dental
and life insurance benefits pursuant to Section 17 herein, shall be reduced by
the amount of any such benefits provided to the Executive by any other
employer.
23. Indemnification. The Company hereby agrees to indemnify the
Executive against all liabilities, costs, charges and expenses whatsoever
incurred or sustained by the Executive in connection with any threatened,
pending or completed action, suit or proceeding to which the Executive may be
made a party or may be threatened to be made a party by reason of the
Executive's being or having been a director, officer, employee, or agent of
the Company or serving or having served at the request of the Company as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise to the fullest extent permitted by
applicable law. The Company shall advance all costs, charges and expenses,
27
<PAGE> 28
including legal fees, incurred by the Executive in connection with the
Executive's defense of any claim for which the foregoing indemnity may apply.
If it is subsequently determined that the Executive was not entitled to such
indemnification, the Executive will reimburse the Company any amounts advanced
pursuant to the foregoing sentence.
24. Directors and Officers Insurance. The Executive shall be entitled to
the protection of any insurance policies the Company or any of its affiliates
from time to time maintains for the benefit of its senior executive officers
and directors (or substantially similar policies) respecting liabilities,
costs, charges, and expenses of any type whatsoever incurred or sustained by
the Executive in connection with any action, suit or proceeding to which the
Executive may be made a party or may be threatened to be made a party by reason
of the Executive's being or having been a director, officer, employee or agent
of the Company or serving or having served at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
25. General Provisions.
(a) Goodwill. The Company has invested substantial time and money
in the development of its products, services, territories, advertising and
marketing thereof, soliciting clients and creating goodwill. By accepting
employment with the Company, the Executive acknowledges that the customers are
the customers of the Company, and that any goodwill created by the Executive
belongs to and shall inure to the benefit of the Company.
(b) Notice. Any notice or demand required or permitted hereunder shall
be made in writing (i) either by actual delivery of the notice or demand into
the hands of the party thereunder entitled, or (ii) by the mailing of the
notice or demand in the United States mail, certified or registered mail,
return receipt requested, all postage prepaid and addressed to the
28
<PAGE> 29
party to whom the notice or demand is to be given at the party's respective
address set forth below, or such other address as the parties may from time to
time designate by written notice as herein provided.
As addressed to the Company:
Metal Management, Inc.
500 North Dearborn Avenue
Suite 405
Chicago, Illinois 60610
Chief Executive Officer
With a copy to:
Erhard R. Chorle, Esq.
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
As addressed to the Executive:
Mr. George A. Isaac, III
The Isaac Corporation
1645 Indian Wood Circle
Maumee, OH 43537
With a copy to:
David F. Waterman, Esq.
Shumaker, Loop & Kendrick, LLP
North Courthouse Square
100 Jackson
Toledo, OH 43624-1573
The notice or demand shall be deemed to be received in case (i) on the date of
its actual receipt by the party entitled thereto and in case (ii) on the date
of its mailing.
29
<PAGE> 30
(c) Amendment and Waiver. No amendment or modification of this
Agreement shall be valid or binding upon the Company unless made in writing and
signed by an officer of the Company duly authorized by the Board of Directors
or upon the Executive unless made in writing and signed by him. The waiver by
either party hereto of the breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by such party.
(d) Entire Agreement. This Agreement constitutes the entire Agreement
between the parties with respect to the Executive's duties and compensation as
an executive of the Company and shall supersede any and all prior agreements
or understandings between the parties hereto; and there are no
representations, warranties, agreements or commitments between the parties
hereto with respect to his employment except as set forth herein.
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State
of Illinois.
(f) Severability. If any provision of this Agreement shall, for any
reason, be held unenforceable by a court of competent jurisdiction, such
provision shall be severed from this Agreement unless, as a result of such
severance, the Agreement fails to reflect the basic intent of the parties. If
the Agreement continues to reflect the basic intent of the parties, then the
invalidity of such specific provision shall not affect the enforceability of
any other provision herein, and the remaining provisions shall remain in full
force and effect.
(g) Assignment. The Executive may not under any circumstances delegate
any of his rights and obligations hereunder without first obtaining the prior
written
30
<PAGE> 31
consent of the Company. The Company shall cause this Agreement and all of the
Company's rights and obligations hereunder, including without limitation the
obligations of the Company in the event of a termination of employment by the
Company pursuant to Section 14(a), to be assigned and expressly assumed by any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation or
otherwise, including upon a Change in Control (as defined in Section 14(e));
provided, however, that any such assignment shall not relieve the Company of
its obligations hereunder to the extent that an assignee does not fulfill such
obligations.
(h) Heirs. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributors, devisees and legatees. If the
Executive should die while any amount would still be payable to him hereunder
if he had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee or other designee or, if there is no such
designee, to the Executive's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
METAL MANAGEMENT, INC.
By:[signature]
-------------------------
Its: President
-------------------------
EXECUTIVE
/s/ George A. Isaac, III
-------------------------
GEORGE A. ISAAC, III
31
<PAGE> 1
===============================================================================
$37,000,000
CREDIT AGREEMENT
AMONG
THE ISAAC CORPORATION
FERREX TRADING CORPORATION
PAULDING RECYCLING, INC.
AND
BRIQUETTING CORPORATION OF AMERICA
AS BORROWERS
EACH OF THE FINANCIAL INSTITUTIONS
INITIALLY A SIGNATORY HERETO,
TOGETHER WITH THEIR ASSIGNEES
PURSUANT TO SECTION 11.8 HEREOF
AS LENDERS
WITH
THE ISAAC CORPORATION
AS ISAAC FUNDS ADMINISTRATOR
AND
BT COMMERCIAL CORPORATION,
AS AGENT
DATED AS OF JUNE 23, 1997
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 General Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.3 Other Terms; Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 2. REVOLVING LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.2 Borrowing of Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.3 Notice of Request for Lender Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.4 Periodic Settlement of Agent Advances; Interest and Fees; Statements. . . . . . . . . . . . . 23
2.5 Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.6 Defaulting Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.7 Allocation of Revolving Loans and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 3. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1 Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2 Terms of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.3 Notice of Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.4 Lenders' Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.5 Payments of Amounts Drawn Under Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . 28
3.6 Payment by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.7 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.8 Agent's Execution of Applications and Other Issuing Bank Documentation; Reliance on Credit
Agreement by Issuing Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 4. COMPENSATION, REPAYMENT AND REDUCTION OF
COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.1 Interest on Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.2 Closing Fee; Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.3 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.4 Interest and Letter of Credit Fees After Event of Default. . . . . . . . . . . . . . . . . . . 31
4.5 Collateral Monitoring Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.7 Mandatory Payment of Revolving Loans; Reductions of Commitments. . . . . . . . . . . . . . . . 32
4.8 Maintenance of Loan Account; Statements of Account . . . . . . . . . . . . . . . . . . . . . . 32
4.9 Payment Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.10 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.11 Distribution and Application of Collections and other Amounts . . . . . . . . . . . . . . . . 33
4.12 Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.13 Special Provisions Relating to LIBOR Rate Loans . . . . . . . . . . . . . . . . . . . . . . . 34
4.14 Indemnification in Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 5. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.1 Conditions Precedent to Initial Revolving Loan and Letter of Credit . . . . . . . . . . . . . 39
5.2 Conditions Precedent to All Revolving Loans and Letters of Credit . . . . . . . . . . . . . . 40
ARTICLE 6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.4 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.5 Consents and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.6 Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.7 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.8 Rights in Collateral; Priority of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.9 Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.10 Locations of Offices, Records and Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.11 Subsidiaries; Ownership of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.12 No Judgments or Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.13 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.14 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.16 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.17 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.18 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.19 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.20 Taxes and Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.21 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.22 Accuracy and Completeness of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.23 No Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.1 Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2 Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.3 Notification Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.5 Books and Records; Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
7.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.10 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.11 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.12 ERISA Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.13 Environmental and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.14 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.15 Deposit of Collections and Other
Proceeds of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.1 Minimum EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.2 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.3 Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.4 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.5 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.6 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.7 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.8 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.9 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.12 Additional Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE 9. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.2 Acceleration, Termination of Commitments and Cash Collateralization . . . . . . . . . . . . . 63
9.3 Rescission of Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.5 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.6 License of Use of Software and Other Intellectual Property . . . . . . . . . . . . . . . . . . 65
9.7 Application of Proceeds; Surplus; Deficiencies . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE 10. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.1 Appointment of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.2 Nature of Duties of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.3 Lack of Reliance on Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.4 Certain Rights of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.5 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.6 Indemnification of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.7 The Agent in its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.8 Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.10 Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.1 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.2 SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.3 SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
11.4 JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.5 LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.6 Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.8 Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
11.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.10 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
11.11 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
11.12 Counterparts and Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
11.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
11.14 Maximum Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
11.15 Entire Agreement; Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.16 Joint and Several Liability of Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
iv
<PAGE> 6
ANNEXES
-------
ANNEX I List of Lenders; Commitment Amounts; Applicable
Lending Offices
SCHEDULES
---------
SCHEDULE A Closing Document List
SCHEDULE B Disclosure Schedules
SCHEDULE B, PART 6.1 States in which Qualified
SCHEDULE B, PART 6.9 Contingent Obligations and Other Liabilities
SCHEDULE B, PART 6.10 Chief Executive Offices; Locations of Collateral
SCHEDULE B, PART 6.11 Subsidiaries
SCHEDULE B, PART 6.12 Pending Judgments, Litigation and other Claims
SCHEDULE B, PART 6.14 Labor Contracts
SCHEDULE B, PART 6.16 Plans
SCHEDULE B, PART 6.17 Environmental Matters
SCHEDULE B, PART 6.20 Tax Matters; Tax Sharing Agreements
SCHEDULE B, PART 6.21 Material Contracts
SCHEDULE B, PART 8.3 Existing Indebtedness
SCHEDULE B, PART 8.4 Existing Liens
SCHEDULE B, PART 8.10 Disbursement Accounts
EXHIBITS
--------
EXHIBIT A Form of Borrowing Base Certificate
EXHIBIT B Form of Notice of Borrowing
EXHIBIT C Form of Revolving Note
EXHIBIT D Form of Notice of Continuation
EXHIBIT E Form of Notice of Conversion
EXHIBIT F Form of Compliance Certificate
EXHIBIT G Form of Assignment and Assumption Agreement
v
<PAGE> 7
THIS CREDIT AGREEMENT ("CREDIT AGREEMENT") is entered into as of June
23, 1997, among THE ISAAC CORPORATION, an Ohio corporation ("ISAAC"), FERREX
TRADING CORPORATION, a Delaware corporation formerly known as Isaac Acquisition
Corporation ("FERREX"), PAULDING RECYCLING, INC., an Ohio corporation
("PAULDING"), BRIQUETTING CORPORATION OF AMERICA, an Ohio corporation
("BRIQUETTING") (Isaac, Ferrex, Paulding and Briquetting each sometimes
hereinafter are referred to individually as a "BORROWER" and collectively as
"BORROWERS"); each financial institution identified on ANNEX I (together with
its successors and permitted assigns, hereinafter referred to individually as a
"LENDER" and collectively as "LENDERS"); Isaac, acting in its capacity as
borrowing agent hereunder for the Borrowers (Isaac, in such capacity, the
"ISAAC FUNDS ADMINISTRATOR"); and BT COMMERCIAL CORPORATION, a Delaware
corporation (in its individual capacity, hereinafter referred to as "BTCC"),
acting in its capacity as agent for the Lenders (in such capacity, together
with its successors in such capacity, hereinafter referred to as the "AGENT").
ARTICLE 1. DEFINITIONS.
1.1 GENERAL DEFINITIONS.
ACCOUNT has the meaning set forth in the Security Agreement.
ACQUISITION DOCUMENTS means, collectively, the Purchase Agreement and
Plan of Merger and all other documents and instruments executed by Isaac, MTLM,
Ferrex Ohio, Ferrex, Paulding, Briquetting or any Isaac Seller in connection
with the Acquisition and the Merger, in each case as in effect on the Closing
Date and as amended, restated, supplemented or otherwise modified from time to
time hereafter in accordance with the terms and provisions hereof.
ACQUISITION means the acquisition by MTLM of the Ferrex Ohio Capital
Stock, the Isaac Capital Stock, the Paulding Capital Stock and the Briquetting
Capital Stock pursuant to the terms and conditions of the Acquisition
Documents.
AFFILIATE of a Person means another Person who directly or indirectly
controls, is controlled by, is under common control with or is a director or
officer of, such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to vote five percent (5%) or
more of the securities having ordinary voting power for the election of
directors or the direct or indirect power to direct the management and policies
of a business.
AGENT ADVANCES has the meaning set forth in SECTION 2.2.
1
<PAGE> 8
ALLOCATION ACCOUNT has the meaning set forth in SECTION 2.7(b).
APPLICABLE LENDING OFFICE means, with respect to each Lender, such
Lender's LIBOR Lending Office in the case of a LIBOR Rate Loan, and such
Lender's Domestic Lending Office in the case of a Prime Rate Loan.
ASSIGNMENT AND ASSUMPTION AGREEMENT has the meaning set forth in
SECTION 11.8(B).
AUDITORS means a nationally recognized firm of independent public
accountants selected by the Borrowers and reasonably satisfactory to the Agent;
PROVIDED, THAT for purposes of this Credit Agreement, the firm of Price
Waterhouse L.L.P. shall be deemed to be satisfactory to the Agent.
BANKRUPTCY CODE means Title 11 of the U.S. Code (11 U.S.C. Section 101
et seq.), as amended from time to time, and any successor statute.
BENEFIT PLAN means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which any Borrower, any Subsidiary of any Borrower or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
BOND CLOSING DATE means the date on which the net cash proceeds of the
approximately $130,000,000 to $170,000,000 high yield bond offering presently
contemplated by MTLM are received by or for the account of MTLM.
BORROWER AGENCY AGREEMENT means that certain Contribution and Agency
Agreement of even date herewith among the Borrowers and Isaac, in its capacity
as borrowing agent for the Borrowers hereunder and under the other Credit
Documents.
BORROWER INFORMATION has the meaning set forth in SECTION 11.9.
BORROWING means a borrowing of Revolving Loans of the same Type by the
Isaac Funds Administrator for the joint and several account of the Borrowers
from (or, in the case of Agent Advances, on behalf of) the Lenders on a pro
rata basis on a given date (whether pursuant to SECTION 2.2 or resulting from
continuations or conversions of Revolving Loans on a given date pursuant to
SECTIONS 4.13(A) and (B), respectively) having, in the case of LIBOR Loans, the
same Interest Period.
BORROWING BASE means, at any time, the sum at such time of:
(a) the Fixed Asset Sublimit, PLUS
2
<PAGE> 9
(b) eighty-five percent (85%) of Eligible Accounts
Receivable, PLUS
(c) the lesser of $15,000,000 and seventy percent (70%)
of Eligible Inventory, PLUS
(d) one hundred percent (100%) of all cash collateral for
the Obligations delivered to and held by Agent from
time to time.
In addition, the Agent, in the exercise of its Permitted Discretion, may (I)
establish and increase or decrease reserves against Eligible Accounts
Receivable and Eligible Inventory, (II) reduce the advance rates provided for
in this definition, or restore such advance rates to any level equal to or
below the advance rates in effect as of the date of this Credit Agreement, and
(III) impose additional restrictions (or eliminate the same) to the standards
of eligibility set forth in the definitions of "ELIGIBLE ACCOUNTS RECEIVABLE"
and "ELIGIBLE INVENTORY."
BORROWING BASE CERTIFICATE means a certificate of the Isaac Funds
Administrator concerning the Borrowing Base, in each case provided under
SECTION 7.2 and substantially in the form of EXHIBIT A.
BRIQUETTING CAPITAL STOCK means all of the issued and outstanding
capital stock and options, warrants and other rights to acquire capital stock
of Briquetting.
BT ACCOUNT has the meaning set forth in SECTION 4.10.
BUSINESS DAY means any day that is neither a Saturday nor a Sunday nor
a day on which commercial banks in Chicago, Illinois are required or permitted
by law to be closed and, when used in connection with LIBOR Rate Loans, this
definition will also exclude any day on which commercial banks are not open for
dealing in United States dollar deposits in the London (U.K.) interbank market.
CAPITAL EXPENDITURES means, for any Person for any period, the sum of
all expenditures which have been, or should have been, capitalized by such
Person for financial statement purposes in accordance with GAAP during such
period (whether payable in cash or other property or accrued as a liability),
including the capitalized portion of capital leases and that portion of
Investments made by such Person allocable to property, plant or equipment.
Capital Expenditures shall exclude proceeds of a casualty loss applied to the
repair or replacement of the property affected by the casualty loss. "CASUALTY
LOSS", as used herein, means, for any Person, (I) the loss, damage, or
destruction of any asset or property owned or used by such Person, (II) the
condemnation, confiscation, or other taking, in whole or in part,
3
<PAGE> 10
of any such asset or property, or (III) the diminishment of the use of any such
asset or property so as to render impracticable or unreasonable the use thereof
for its intended purpose.
CASH EQUIVALENTS means either of the following, so long as the same
are maintained in accounts in which the Agent has a perfected security
interest: (I) securities issued, guarantied or insured by the United States,
or any of its agencies and having maturities of not more than one year; and
(II) certificates of deposit having maturities of not more than one year issued
by a United States national or state chartered commercial bank of recognized
standing whose combined capital and unimpaired surplus is in excess of
$200,000,000 and whose short-term commercial paper rating, or that of its
parent holding company, is at least "A-1" or the equivalent by S&P and at least
"Prime-1" or the equivalent by Moody's.
CLOSING DATE means the date of execution and delivery of this Credit
Agreement by all of the parties hereto or, if later, the date on which the
initial Revolving Loan is made or the initial Letter of Credit is issued,
whichever occurs earlier.
CLOSING DOCUMENT LIST has the meaning set forth in SECTION 5.1.
CLOSING FEE has the meaning set forth in SECTION 4.2.
CODE has the meaning set forth in SECTION 1.3.
COLLATERAL means the Accounts, Inventory, Equipment and other personal
property identified in the Collateral Documents as security for the
Obligations.
COLLATERAL ACCESS AGREEMENT means an agreement in form and substance
reasonably satisfactory to the Agent pursuant to which a mortgagee or lessor of
real property on which Collateral is stored or otherwise located, or a
warehouseman, processor or other bailee of Inventory, acknowledges the Liens of
the Agent and, in the case of any such agreement with a mortgagee or lessor,
permits the Agent access to and use of such real property for a reasonable
amount of time following the occurrence and during the continuance of an Event
of Default to assemble, complete and sell any Collateral stored or otherwise
located thereon.
COLLATERAL DOCUMENTS means, collectively, the Security Agreement and
all other documents, agreements and instruments pursuant to which Liens are now
or hereafter granted to the Agent to secure any or all of the Obligations.
COLLATERAL MONITORING FEE has the meaning set forth in SECTION 4.5.
4
<PAGE> 11
COLLECTION ACCOUNT has the meaning set forth in SECTION 4.10.
COLLECTION BANKS has the meaning set forth in SECTION 4.10.
COLLECTIONS means all cash, funds, checks, notes, instruments and any
other form of remittance tendered by account debtors in payment of Accounts of
any Borrower.
COMMITMENT of a Lender means such Lender's commitment, on the terms
and subject to the conditions set forth herein, to make Revolving Loans and to
participate in Letters of Credit, up to the amount set forth below its name on
ANNEX I (as amended from time to time pursuant to SECTION 11.8(B)), as such
amount may be reduced from time to time in accordance with the terms and
provisions of this Credit Agreement.
CONSOLIDATED ENTITY means all of the Borrowers.
CONSOLIDATED NET INCOME means the consolidated net income of the
Consolidated Entity.
CONTINGENT OBLIGATION means, with respect to any Person, any direct,
indirect, contingent or non-contingent guaranty or obligation of such Person
for the Indebtedness of another Person, except for endorsements in the ordinary
course of business.
CREDIT DOCUMENTS means, collectively, this Credit Agreement, the
Revolving Notes, the Letters of Credit, each of the Collateral Documents and
all other documents, agreements and instruments now or hereafter executed in
connection herewith or therewith in each case as modified, amended, extended,
restated or supplemented from time to time.
CREDIT PARTIES means, collectively, the Borrowers and Isaac in its
capacity as Isaac Funds Administrator.
DEFAULT means an event, condition or default which with the giving of
notice, the passage of time or both would be an Event of Default.
DEFAULTING LENDER has the meaning set forth in SECTION 2.6.
DEPOSITARY ACCOUNT AGREEMENTS has the meaning set forth in SECTION
4.10.
DISBURSEMENT ACCOUNT means the operating account of the Isaac Funds
Administrator maintained with the Disbursement Account Bank.
DISBURSEMENT ACCOUNT BANK means Bankers Trust Company or any other
financial institution selected from time to time by the Agent and reasonably
acceptable to the Isaac Funds Administrator.
5
<PAGE> 12
DOMESTIC LENDING OFFICE means, with respect to any Lender, the office
of such Lender specified as its "DOMESTIC LENDING OFFICE" on ANNEX I, as such
annex may be amended from time to time, which office shall in any event be
located in the United States.
EBITDA means, for any period, Consolidated Net Income (excluding
extraordinary items) for such period, PLUS (A) all Interest Expense, income tax
expense, depreciation and amortization (including amortization of any goodwill
or other intangibles) for such period; MINUS or PLUS (without double counting)
(B) gains and losses attributable to any fixed asset sales; PLUS or MINUS (C)
any other non-cash charges or gains which have been subtracted or added in
calculating such Consolidated Net Income.
ELIGIBLE ACCOUNTS RECEIVABLE means Accounts of the respective Borrowers
deemed by the Agent in the exercise of its Permitted Discretion to be eligible
for inclusion in the calculation of the Borrowing Base. In determining the
amount to be so included, the face amount of such Accounts shall be reduced by
the amount of all returns, discounts, deductions, claims, credits, charges, or
other allowances. Unless otherwise approved in writing by the Agent, no Account
of any Borrower shall be deemed to be an Eligible Account Receivable if:
(A) it arises out of a sale made by such Borrower to an Affiliate
of such Borrower or to any other Borrower; or
(B) its payment terms are longer than 30 days from date of
invoice; or
(C) it is unpaid (I) more than 60 days after the original payment
due date on payment terms of 30 days or less from date of
invoice, or (II) more than 30 days after the original payment
due date on payment terms of or more than 30 days from date of
invoice; or
(D) it is from the same account debtor or its Affiliate and fifty
percent (50%) or more of all Accounts from that account debtor
(and its Affiliates) are ineligible under (c) above; or
(E) when aggregated with all other Accounts of an account debtor,
the Account exceeds forty percent (40%) in face value of all
Accounts of all Borrowers then outstanding, to the extent of
such excess, unless supported by an irrevocable letter of
credit satisfactory to the Agent (as to form, substance and
issuer) and assigned to and directly drawable by the Agent; or
(F) the account debtor for the Account is a creditor of such
Borrower, has or has asserted a right of setoff against such
Borrower, has disputed its liability or made any
6
<PAGE> 13
claim with respect to the Account or any other Account which
has not been resolved, but in each of the foregoing cases,
solely to the extent of the amount of such actual or asserted
right of setoff, or the amount of such dispute or claim, as
the case may be; or
(G) the account debtor is (or the assets of the account debtor
are) the subject of an Insolvency Event; or
(H) the Account is not payable in United States dollars or the
account debtor for the Account is located outside the
continental United States, unless the Account is supported by
an irrevocable letter of credit satisfactory to the Agent (as
to form, substance and issuer) and assigned to and directly
drawable by the Agent; or
(I) the sale to the account debtor is on a guaranteed sale,
sale-and-return, sale on approval or consignment basis or made
pursuant to any other written agreement providing for
repurchase or return; or
(J) the Agent determines by its own credit analysis that
collection of the Account is uncertain or the Account may not
be paid; or
(K) the account debtor is the United States of America or any
department, agency or instrumentality thereof, unless such
Borrower duly assigns its rights to payment of such Account to
the Agent pursuant to the Assignment of Claims Act of 1940, as
amended (31 U.S.C. Section 3727 et seq.); or
(L) the goods giving rise to such Account have not been shipped
and delivered to and accepted by the account debtor, the
services giving rise to such Account have not been performed
and accepted or the Account otherwise does not represent a
final sale; or
(M) the Account does not comply with all Requirements of Law,
including, without limitation, the Federal Consumer Protection
Act, the Federal Truth-in-Lending Act and Regulation Z; or
(N) the Account is subject to any adverse security deposit,
progress payment or other similar advance made by or for the
benefit of the applicable account debtor; or
(O) the Account is not subject to a valid and perfected first
priority Lien in favor of the Agent or does not otherwise
conform to the representations and warranties contained in the
Credit Documents.
7
<PAGE> 14
ELIGIBLE INVENTORY means the aggregate amount of Inventory of the
respective Borrowers deemed by the Agent in the exercise of its Permitted
Discretion to be eligible for inclusion in the calculation of the Borrowing
Base. In determining the amount to be so included, Inventory shall be valued
at the lower of cost or market on a basis consistent with the Borrowers'
current and historical accounting practice. Unless otherwise approved in
writing by the Agent, no Inventory of any Borrower shall be deemed Eligible
Inventory if:
(A) it is not owned solely by such Borrower or such Borrower does
not have good, valid and marketable title thereto; or
(B) it is not located in the United States; or
(C) it is not located on property owned by a Borrower or by a
third party that has executed and delivered a Collateral
Access Agreement and, in the case of Inventory located on
property owned by such a third party, it is segregated or
otherwise separately identifiable from goods of others, if
any, stored on such property PROVIDED, that Inventory shall
not be deemed ineligible solely by reason of this CLAUSE (C)
until the date which is sixty (60) days after the Closing
Date; or
(D) it is not subject to a valid and perfected first priority Lien
in favor of the Agent, except, with respect to such Inventory
stored at locations other than locations owned by a Borrower,
for Liens for unpaid rent or normal and customary warehousing
charges; or
(E) it consists of goods returned or rejected by such Borrower's
customers or goods in transit to third parties (other than to
warehouse sites covered by a Collateral Access Agreement); or
(F) it could not reasonably be expected to be sold within twelve
(12) months after the date of its initial processing, or does
not otherwise conform to the representations and warranties
contained in the Credit Documents.
PROVIDED, however, that notwithstanding the foregoing, Inventory of
any Borrower which has been sold and shipped to the applicable Account
Debtor but with respect to such Account Debtor has not yet been
invoiced shall be deemed Eligible Inventory until issuance of such
invoice, PROVIDED, further that such Inventory constituted Eligible
Inventory immediately prior to such sale.
8
<PAGE> 15
ERISA means the Employee Retirement Income Security Act of 1974, 29
U.S.C. Section 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
ERISA AFFILIATE means any entity required to be aggregated with any
Borrower or any Subsidiary of any Borrower under Sections 414 (b), (c), (m) or
(o) of the Internal Revenue Code.
EVENT OF DEFAULT has the meaning set forth in ARTICLE 9.
EXCESS CASH FLOW means, for any fiscal year, (A) EBITDA of the
Consolidated Entity for such fiscal year MINUS (B) the sum of the following
items for the Consolidated Entity for such fiscal year: (I) Interest Expense,
(II) income taxes paid in cash, (III) principal payments on or mandatory
redemptions of Indebtedness (other than repayments of Revolving Loans in the
ordinary course of business which do not permanently reduce the Commitments)
and (IV) Capital Expenditures, MINUS (C) the aggregate amount of cash dividends
paid by Borrowers during such fiscal year.
EXPENSES means all reasonable costs and expenses of the Agent incurred
in connection with the Credit Documents and the transactions contemplated
therein, including, without limitation, (I) the costs of conducting record
searches, examining collateral, opening bank accounts and lockboxes, depositing
checks, and receiving and transferring funds (including charges for checks for
which there are insufficient funds), (II) the reasonable fees and expenses of
legal counsel and paralegals (including the allocated cost of internal counsel
and paralegals), accountants, appraisers and other consultants, experts or
advisors retained by the Agent, (III) expenses incurred in connection with the
assignments of or sales of participations in the Revolving Loans, (IV) the cost
of title insurance premiums, real estate survey costs, and fees and taxes in
connection with the filing of financing statements, and (V) the costs of
preparing and recording Collateral Documents, releases of Collateral, and
waivers, amendments, and terminations of any of the Credit Documents. EXPENSES
also means all reasonable costs and expenses (including the reasonable fees and
expenses of legal counsel and other professionals) paid or incurred by the
Agent and any Lender (I) during the continuance of an Event of Default, (II) in
enforcing or defending its respective rights under or in respect of this Credit
Agreement, the Credit Documents or any other document or instrument now or
hereafter executed and delivered in connection herewith or therewith, (III)
collecting the Revolving Loans, (IV) foreclosing or otherwise collecting upon
the Collateral or any part thereof and (V) in obtaining any legal, accounting
or other advice in connection with any of the foregoing.
EXPIRATION DATE means the earliest to occur of (I) June 23, 1998 and
(II) the Bond Closing Date.
9
<PAGE> 16
FEDERAL FUNDS RATE means, for any period, a fluctuating interest rate
per annum for each day during such period equal to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average of the quotations for such day on
such transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
FEDERAL RESERVE BOARD means the Board of Governors of the Federal
Reserve System or any Governmental Authority succeeding to its functions.
FEES means, collectively, the Closing Fee, the Unused Line Fee, the
Letter of Credit Fees, the L/C Facing Fee, the Issuing Bank Fees and the
Collateral Monitoring Fee.
FERREX OHIO CAPITAL STOCK means all of the issued and outstanding
capital stock and options, warrants and other rights to acquire capital stock
of Ferrex Ohio.
FERREX OHIO means Ferrex Trading Corporation, an Ohio corporation.
FINANCIAL STATEMENTS means the consolidated and consolidating balance
sheets, statements of operations, statements of cash flows and statements of
changes in shareholder's equity of the Consolidated Entity for the period
specified, prepared in accordance with GAAP and consistently with prior
practices.
FIXED ASSET SUBLIMIT means an amount equal to $9,100,000; PROVIDED,
that such amount shall be automatically and permanently reduced (I) on the
first business day of each calendar quarter, commencing October 1, 1997, by
$455,000 and (II) on the date which is one hundred twenty (120) days after the
end of each fiscal year of Isaac, commencing with such fiscal year ending
December 31, 1997, by an amount equal to seventy-five percent (75%) of Excess
Cash Flow of the Consolidated Entity for such fiscal year.
GAAP means generally accepted accounting principles in the United
States as in effect from time to time.
GOVERNING DOCUMENTS means certificates or articles of incorporation,
by-laws and other similar organizational or governing documents.
GOVERNMENTAL AUTHORITY means any nation or government, any state or
other political subdivision thereof and any entity
10
<PAGE> 17
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
HIGHEST LAWFUL RATE means, at any given time during which any
Obligations shall be outstanding hereunder, the maximum nonusurious interest
rate that at any time or from time to time may be contracted for, taken,
reserved, charged or received on such Obligations, under the laws of the State
of Illinois (or the law of any other jurisdiction whose laws may be mandatorily
applicable notwithstanding other provisions of this Credit Agreement and any of
the other Credit Documents), or under applicable federal laws which may
presently or hereafter be in effect and which allow a higher maximum
nonusurious interest rate than under the State of Illinois (or such other
jurisdiction's) law, in any case after taking into account, to the extent
permitted by applicable law, any and all relevant payments or charges under
this Credit Agreement and any other Credit Documents executed in connection
herewith, and any available exemptions, exceptions and exclusions.
INDEBTEDNESS of a Person means, without duplication, (A) indebtedness
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), whether on open account or
evidenced by a note, bond, debenture or similar instrument, (B) obligations
under capital leases, (C) reimbursement obligations for letters of credit,
banker's acceptances or other credit accommodations, whether drawn or undrawn,
(D) liabilities, as determined by the Agent, under any Interest Rate Agreement,
(E) Contingent Obligations and (F) Indebtedness secured by any Lien on any
property of that Person, even if that Person has not assumed such Indebtedness.
INSOLVENCY EVENT means, with respect to any Person, the occurrence of
any of the following: (A) such Person shall be adjudicated insolvent or
bankrupt, or generally fail to pay, or admit in writing its inability to pay,
its debts as they become due, (B) the voluntary commencement of any proceeding
or the filing of any petition under any bankruptcy, insolvency or similar law,
(C) the seeking of dissolution or reorganization or the appointment of a
receiver, trustee, custodian or liquidator for it or a substantial portion of
its property, assets or business or to effect a plan or other arrangement with
its creditors, (D) the filing of any answer admitting the jurisdiction of the
court and the material allegations of an involuntary petition filed against it
in any bankruptcy, insolvency or similar proceeding, (E) the making by such
Person of a general assignment for the benefit of its creditors, or the consent
to, or acquiescence in the appointment of, a receiver, trustee, custodian or
liquidator for a substantial portion of such Person's property, assets or
business. INSOLVENCY EVENT shall also mean, with respect to any Person, the
occurrence of any of the following: an involuntary proceeding or
11
<PAGE> 18
involuntary petition shall be commenced or filed against such Person under any
bankruptcy, insolvency or similar law seeking the dissolution or reorganization
of it or the appointment of a receiver, trustee, custodian or liquidator for it
or of a substantial part of its property, assets or business, or any writ,
judgment, warrant of attachment, execution or similar process shall be issued
or levied against a substantial part of its property, assets or business, and
such proceedings or petitions shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded, within sixty (60) days after commencement, filing, or
levy, as the case may be, or any order for relief shall be entered in any such
proceeding.
INTEREST EXPENSE means, for any period, the aggregate consolidated
expense of the Consolidated Entity for interest on Indebtedness for such
period, including, without limitation, (I) amortization of original issue
discount, (II) incurrence fees (to the extent included in interest expense),
(III) the interest portion of any deferred payment obligation, (IV) the
interest component of any capital lease obligation.
INTEREST PERIOD means, for any LIBOR Rate Loan, the period commencing
on the date of such Borrowing and ending on the last day of the period selected
by the Isaac Funds Administrator pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three or six months,
in each case as the Isaac Funds Administrator may, in an appropriate Notice of
Borrowing, Notice of Continuation or Notice of Conversion, select; PROVIDED,
THAT the Isaac Funds Administrator may not select any Interest Period that ends
after the Expiration Date. Whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding Business Day;
PROVIDED, THAT if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day.
INTEREST RATE AGREEMENT means any interest rate protection or hedge
agreement, including, without limitation, interest rate future, option, swap,
and cap agreements.
INTERNAL REVENUE CODE means the Internal Revenue Code of 1986,
amendments thereto, successor statutes, and regulations or guidance promulgated
thereunder.
INVENTORY has the meaning set forth in the Security Agreement.
INVESTMENT means all expenditures made and all liabilities incurred
(contingently or otherwise) for or in connection with the acquisition of stock
or Indebtedness of, or for loans, advances,
12
<PAGE> 19
capital contributions or similar transfers of property to, or acquisition of
substantially all the assets of, a Person. In determining the aggregate amount
of Investments outstanding at any particular time, (I) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and outstanding; (II) there
shall be deducted in respect of each such Investment any amount received as a
return of capital (but only by repurchase, redemption, retirement, repayment,
liquidating dividend or liquidating distribution); (III) there shall not be
deducted in respect of any Investment any amounts received as earnings on such
Investment, whether as dividends, interest or otherwise; and (IV) there shall
not be deducted from the aggregate amount of Investments any decrease in the
market value thereof.
ISAAC FUNDS ADMINISTRATOR means Isaac acting in its capacity as
borrowing agent for the Borrowers pursuant the Borrower Agency Agreement.
ISAAC CAPITAL STOCK means all of the issued and outstanding capital
stock and options, warrants and other rights to acquire capital stock of Isaac.
ISAAC SELLERS means collectively, William M. Isaac, as trustee,
Charles A. Isaac, as trustee, George A. Isaac, III, as trustee, Lynn A. Isaac,
as trustee, Richard G. Isaac, as trustee, David M. Isaac, Stephanie A. Isaac,
Debbie Isaac, Kim Isaac and George Andrew Isaac, IV.
ISAAC SELLERS AGENTS mean William M. Isaac and Lynn A. Isaac.
ISAAC SELLERS INDEBTEDNESS means the Indebtedness owing by MTLM to the
Isaac Sellers evidenced by the Isaac Sellers Notes, the outstanding principal
amount of which shall not exceed $27,400,000 and the repayment of which shall
be secured by the Isaac Sellers Letter of Credit.
ISAAC SELLERS LETTER OF CREDIT shall mean the Letter of Credit in the
face amount of $27,400,000 issued to the Isaac Sellers Agents to secure
repayment of the Isaac Sellers Indebtedness.
ISAAC SELLERS NOTES means collectively, (I) that certain promissory
note of even date herewith issued by MTLM to William M. Isaac, as trustee, in
the original principal amount of $1,297,306, (II) that certain promissory note
of even date herewith issued by MTLM to William M. Isaac, as trustee, in the
original principal amount of $4,633,212, (III) that certain promissory note of
even date herewith issued by MTLM to David Isaac, in the original principal
amount of $341,166, (IV) that certain promissory note of even date herewith
issued by MTLM to Stephanie Isaac, in the original principal amount of
$341,166, (V) that certain promissory note of even date herewith issued by MTLM
to Charles A. Isaac, as
13
<PAGE> 20
trustee, in the original principal amount of $828,203, (VI) that certain
promissory note of even date herewith issued by MTLM to Charles A. Isaac, as
trustee, in the original principal amount of $4,633,212, (VII) that certain
promissory note of even date herewith issued by MTLM to Debbie Isaac, in the
original principal amount of $575,718, (VIII) that certain promissory note of
even date herewith issued by MTLM to Kim Isaac, in the original principal
amount of $575,718, (IX) that certain promissory note of even date herewith
issued by MTLM to George A. Isaac, III, as trustee, in the original principal
amount of $2,074,681, (X) that certain promissory note of even date herewith
issued by MTLM to George A. Isaac, III, as trustee, in the original principal
amount of $2,000,000, (XI) that certain promissory note of even date herewith
issued by MTLM to George A. Isaac, III, as trustee, in the original principal
amount of $5,206,983, (XII) that certain promissory note of even date herewith
issued by MTLM to George Andrew Isaac, IV, in the original principal amount of
$150,113, (XIII) that certain promissory note of even date herewith issued by
MTLM to Lynn A. Isaac, as trustee, in the original principal amount of
$2,224,794, (XIV) that certain promissory note of even date herewith issued by
MTLM to Lynn A. Isaac, as trustee, in the original principal amount of
$5,206,983, (XV) that certain promissory note of even date herewith issued by
MTLM to Richard G. Isaac, as trustee, in the original principal amount of
$2,191,134, (XVI) that certain promissory note of even date herewith issued by
MTLM to Richard G. Isaac, as trustee, in the original principal amount of
$4,266,511, without giving effect to any amendments, restatements or
modifications thereof, supplements thereto, or substitutions therefor, except
for any of the foregoing previously consented to in writing by the Majority
Lenders or as permitted under SECTION 8.13.
ISSUING BANK means Bankers Trust Company or any Lender or other
financial institution that is acceptable to the Agent and the Borrowers which
may at any time issue or be requested to issue a Letter of Credit for the
account of any Borrower.
ISSUING BANK FEES has the meaning set forth in SECTION 4.3(B).
L/C FACING FEE has the meaning set forth in SECTION 4.3(A).
LENDER ADVANCES has the meaning set forth in SECTION 2.2.
LETTER OF CREDIT FEE has the meaning set forth in SECTION 4.3(A).
LETTER OF CREDIT OBLIGATIONS means, without duplication, the sum of
the aggregate undrawn face amount of all Letters of Credit outstanding, PLUS
the aggregate amount of all drawings under Letters of Credit for which the
Borrowers have not reimbursed the Issuing Bank, PLUS the aggregate amount of
all payments made by
14
<PAGE> 21
Lenders to the Issuing Bank for their participations in Letters of Credit, for
which the Borrowers have not reimbursed the Lenders.
LETTER OF CREDIT REQUEST has the meaning set forth in SECTION 3.3.
LETTERS OF CREDIT means all letters of credit, issued for the account
of any Borrower under ARTICLE 3 and all amendments, renewals, extensions or
replacements thereof.
LIBOR LENDING OFFICE means, with respect to any Lender, the office of
such Lender specified as its "LIBOR LENDING OFFICE" opposite its name on ANNEX
I, as such annex may be amended from time to time (or, if no such office is
specified, its Domestic Lending Office).
LIBOR RATE means, with respect to any Interest Period for each LIBOR
Rate Loan comprising part of the same Borrowing, an interest rate per annum
equal to the rate (rounded upward to the nearest whole multiple of
one-sixteenth (1/16) of one percent (1.00%) per annum, if such rate is not such
a whole multiple of one-sixteenth (1/16) of one percent (1.00%)) of the offered
quotation, if any, to first class banks in the London (U.K.) interbank market
by Bankers Trust Company for United States dollar deposits of amounts in
immediately available funds comparable to the principal amount of the LIBOR
Rate Loan of BTCC for which the LIBOR Rate is being determined with maturities
comparable to the Interest Period for which such LIBOR Rate will apply as of
approximately 10:00 a.m. Chicago time two (2) Business Days prior to the
commencement of such Interest Period.
LIBOR RATE LOAN means a Revolving Loan that bears interest as provided
in SECTION 4.1(B) hereof.
LIEN means any lien, claim, charge, pledge, security interest,
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title, or other preferential arrangement having substantially the
same economic effect as any of the foregoing, whether voluntary or imposed by
law.
LINE OF CREDIT means the aggregate revolving line of credit extended
pursuant to this Credit Agreement by the Lenders to the Borrowers for Revolving
Loans and Letters of Credit, in an amount up to $37,000,000, as such amount may
be reduced from time to time pursuant to the respective terms and provisions
hereof.
LOAN ACCOUNT has the meaning set forth in SECTION 4.8.
MAJORITY LENDERS means those Lenders holding in the aggregate more
than fifty-percent (50%) of the total Commitments, or if the Commitments are
terminated, those Lenders owed more than fifty-
15
<PAGE> 22
percent (50%) of the Revolving Loans and Letter of Credit Obligations then
outstanding.
MATERIAL ADVERSE EFFECT means a material adverse effect on (I) the
business, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of the Credit Parties taken as a whole, (II) the
ability of any Credit Party to perform its obligations under the Credit
Documents to which it is a party, or on the ability of the Agent or the Lenders
to enforce the Obligations or realize upon the Collateral, or (III) the value
of the Collateral or the amount which the Agent or the Lenders would be likely
to receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of such Collateral.
MATERIAL CONTRACT means any contract or other arrangement to which a
Credit Party or any Subsidiary of a Credit Party is a party (other than the
Credit Documents) or by which the property or assets of any Credit Party or any
Subsidiary of a Credit Party are bound, for which such contract or other
arrangement is material to the business, assets, properties or prospects of
such Person.
MERGER means the merger of Ferrex Ohio with and into Ferrex with
Ferrex as the surviving corporation, in accordance with the terms and
conditions of the Acquisition Documents.
MOODY'S means Moody's Investors Services, Inc., or any successor
thereto.
MTLM means Metal Management, Inc., a Delaware corporation.
MULTIEMPLOYER PLAN means a "multiemployer plan" (as defined in Section
4001(a) (3) of ERISA) to which a Borrower, any Subsidiary of Borrower or any
ERISA Affiliate has contributed within the past six years or with respect to
which a Borrower or any Subsidiary of a Borrower could reasonably be expected
to incur any liability.
NOTICE OF BORROWING means an irrevocable and binding notice delivered
by the Isaac Funds Administrator to the Agent either by telephone or by
facsimile transmission (and if by telephone, promptly confirmed in writing), of
the request by the Isaac Funds Administrator, for and on behalf of the
Borrowers, for a Borrowing, which notice shall be substantially in the form of
EXHIBIT B.
NOTICE OF CONTINUATION has the meaning set forth in SECTION 4.13(A).
NOTICE OF CONVERSION has the meaning set forth in SECTION 4.13(B).
OBLIGATIONS means the unpaid principal and interest hereunder
(including interest accruing on or after the occurrence of an
16
<PAGE> 23
Insolvency Event) in respect of Revolving Loans, reimbursement obligations
under Letters of Credit, Fees, Expenses and all other obligations and
liabilities of the Borrowers to the Agent, the Issuing Bank or any of the
Lenders under this Credit Agreement, the Revolving Notes or any of the other
Credit Documents.
PAULDING CAPITAL STOCK means all of the issued and outstanding capital
stock and options, warrants and other rights to acquire capital stock of
Paulding.
PERMITTED DISCRETION means the Agent's judgment exercised in good
faith and not in an irrational manner based upon its consideration of any
factor which the Agent believes in good faith could affect the value of any
Collateral, including any Inventory or Accounts of any Borrower or the amount
which the Agent and the Lenders would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral. In exercising such judgment, the Agent may consider such
factors which are already included in or tested by the definition of Eligible
Accounts Receivable or Eligible Inventory, as well as any of the following:
(I) the financial and business climate of any Borrower's industry and general
macroeconomic conditions, (II) changes in collection history and dilution with
respect to the Accounts of any Borrower, (III) changes in levels of backlog of
firm purchase orders and demand for, and pricing of, Inventory of any Borrower,
(IV) changes in any concentration of risk with respect to Accounts and
Inventory of any Borrower, and (V) any other factors that change the credit
risk of lending to the Borrowers on the security of the Accounts and Inventory
of the Borrowers.
PERMITTED LIENS means the Liens referred to in CLAUSES (A) through (I)
of SECTION 8.4.
PERSON means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, entity, party or government (including any
division, agency or department thereof), and its successors, heirs and assigns.
PLAN means any Benefit Plan, Multiemployer Plan, or Retiree Health
Plan, or any employee benefit plan, fund, program or arrangement, whether oral
or written, maintained or contributed to by any Borrower or any Subsidiary of
any Borrower, or with respect to which any of them could reasonably be expected
to incur liability.
PRIME LENDING RATE means the rate which Bankers Trust Company announces
as its prime lending rate, from time to time. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Bankers Trust Company and each of the Lenders
may make commercial loans or
17
<PAGE> 24
other loans at rates of interest at, above or below the Prime Lending Rate.
PRIME RATE LOAN means a Revolving Loan that bears interest as provided
in SECTION 4.1(A) hereof.
PROPORTIONATE SHARE of a Lender means a fraction, expressed as a
percentage, obtained by dividing its Commitment by the Line of Credit or, if
the Commitments are terminated, by dividing its then outstanding Revolving
Loans and Letter of Credit participations by the then outstanding aggregate
Revolving Loans and Letter of Credit Obligations.
PURCHASE AGREEMENT AND PLAN OF MERGER means the Purchase Agreement
Common Stock of The Isaac Corporation, Ferrex Trading Corporation, Paulding
Recycling, Inc. and Briquetting Corporation of America and Plan of Merger by
and among Metal Management, Inc., Isaac Acquisition Corporation and Ferrex
Trading Corporation dated as of June 23, 1997 among MTLM, Isaac, Ferrex Ohio,
Ferrex, Paulding, Briquetting and the Isaac Sellers.
PURCHASE MONEY LIENS has the meaning set forth in SECTION 8.3(E).
REGISTER has the meaning set forth in SECTION 11.8(C).
REGULATION D means Regulation D of the Federal Reserve Board, as in
effect from time to time.
REGULATION G means Regulation G of the Federal Reserve Board, as in
effect from time to time.
REGULATION Z means Regulation Z of the Federal Reserve Board, as in
effect from time to time.
REPORTABLE EVENT means any of the events described in Section 4043 of
ERISA and the regulations thereunder.
REQUIREMENT OF LAW means, with respect to any Person, (A) the Governing
Documents of such Person, (B) any law, treaty, rule or regulation or
determination of an arbitrator, court or other Governmental Authority binding on
such Person, or (C) any franchise, license, lease, permit, certificate,
authorization, qualification, easement, right of way, right or approval binding
on a Person or any of its property.
RETIREE HEALTH PLAN means an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA, and any other plan, program or arrangement,
whether oral or written, that provides benefits to persons after termination of
employment, other than as required by Section 601 of ERISA.
18
<PAGE> 25
REVOLVING LOANS has the meaning set forth in SECTION 2.1.
REVOLVING NOTE means a promissory note of the Borrowers payable to the
order of any Lender, substantially in the form of EXHIBIT C, as amended,
restated, supplemented or otherwise modified from time to time, and including
all notes issued in replacement of, or in substitution or exchange for, any
Revolving Note.
RICHARD AND RENEE NOTES means (I) that certain promissory note in the
original principal amount of $3,027,825 of even date herewith, 1997 issued by
Isaac to the Renee Isaac Corporation, (II) that certain promissory note in the
original principal amount of $2,021,898 of even date herewith issued by Isaac
to the Renee Isaac Corporation, (III) that certain promissory note in the
original principal amount of $2,063,277 of even date herewith issued by Isaac
to the Richard Isaac Corporation, and (IV) that certain promissory note in the
original principal amount of $1,431,200 of even date herewith issued by Isaac
to the Richard Isaac Corporation, without giving effect to any amendments,
restatements or modifications thereof, supplements thereto, or substitutions
therefor, except for any of the foregoing previously consented to 21992in
writing by the Majority Lenders or as permitted under SECTION 8.13.
S&P means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
SECURITY AGREEMENT means the Security Agreement of even date herewith
executed by the Borrowers in favor Agent.
SETTLEMENT DATE has the meaning set forth in SECTION 2.4.
SUBSIDIARY of a Person means a corporation or other entity in which
that Person directly or indirectly owns or controls the shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or appoint other managers of such corporation or other
entity.
TERMINATION EVENT means (I) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan; (II) the withdrawal of any Borrower, any
Subsidiary of any Borrower or any ERISA Affiliate from a Benefit Plan during a
plan year in which it was a "substantial employer" (as defined in Section
4001(a) (2) of ERISA); (III) the providing of notice of intent to terminate a
Benefit Plan in a distress termination (as described in Section 4041 (c) of
ERISA); (IV) the institution by the Pension Benefit Guaranty Corporation of
proceedings to terminate a Benefit Plan or Multiemployer Plan; (V) any event or
condition (A) which could reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Benefit Plan or Multiemployer Plan, or (B) that may result
in termination of a Multiemployer Plan pursuant to Section
19
<PAGE> 26
4041A of ERISA; or (VI) the partial or complete withdrawal, within the meaning
of Sections 4203 and 4205 of ERISA, of a Borrower, any Subsidiary of a Borrower
or any ERISA Affiliate from a Multiemployer Plan.
TYPE means a LIBOR Rate Loan or a Prime Rate Loan.
UNUSED LINE FEE has the meaning set forth in SECTION 4.2.
1.2 ACCOUNTING TERMS AND DETERMINATIONS.
Unless otherwise defined or specified herein, all accounting terms
used in this Credit Agreement shall be construed in accordance with GAAP,
applied on a basis consistent in all material respects with the Financial
Statements referred to in SECTION 6.9. All accounting determinations for
purposes of determining compliance with the financial covenants contained in
ARTICLE 8 shall be made in accordance with GAAP as in effect on the Closing
Date and applied on a basis consistent in all material respects with the
audited Financial Statements delivered to the Agent on or before the Closing
Date. The Financial Statements required to be delivered hereunder from and
after the Closing Date, and all financial records, shall be maintained in
accordance with GAAP. If GAAP shall change from the basis used in preparing
the audited Financial Statements delivered to the Agent on or before the
Closing Date, the certificates required to be delivered pursuant to SECTION 7.1
demonstrating compliance with the covenants contained herein shall include, at
the election of the Borrowers or upon the request of the Majority Lenders,
calculations setting forth the adjustments necessary to demonstrate that the
Borrowers are in compliance with the financial covenants based upon GAAP as in
effect on the Closing Date.
1.3 OTHER TERMS; HEADINGS.
Terms used herein and not otherwise defined in ARTICLE 1 that are
defined in the Uniform Commercial Code in effect in the State of Illinois (the
"CODE") shall have the meanings given in the Code. Each of the words "hereof,"
"herein," and "hereunder" refer to this Credit Agreement as a whole. An Event
of Default shall "continue" or be "continuing" until such Event of Default has
been waived in accordance with SECTION 11.11 hereof. References to Articles,
Sections, Annexes, Schedules, and Exhibits are internal references to this
Credit Agreement, and to its attachments, unless otherwise specified. The
headings and the Table of Contents are for convenience only and shall not
affect the meaning or construction of any provision of this Credit Agreement.
20
<PAGE> 27
ARTICLE 2. REVOLVING LOANS.
2.1 COMMITMENTS.
Subject to the terms and conditions set forth in this Credit
Agreement, and in reliance on the representations and warranties of the
Borrowers set forth herein, on and after the Closing Date and to but excluding
the Expiration Date, each Lender severally agrees to make loans and advances to
the Borrowers on a joint and several basis (each a "REVOLVING LOAN") in an
amount not to exceed at any time its Proportionate Share of the lesser at such
time of (A) the Line of Credit and (B) the Borrowing Base MINUS, in each case,
the then outstanding Letter of Credit Obligations. The Revolving Loans of each
Lender shall be evidenced by a Revolving Note dated as of the Closing Date and
executed by each of the Borrowers in the maximum amount of such Lender's
Commitment.
2.2 BORROWING OF REVOLVING LOANS.
Revolving Loans may be made available to the Isaac Funds Administrator
for the account of the Borrowers directly by the Lenders ("LENDER ADVANCES")
or, in the circumstances described in SECTION 2.2(B), from the Agent acting on
behalf of the Lenders ("AGENT ADVANCES").
(A) LENDER ADVANCES. Subject to the determination by the
Agent and the Lenders that the conditions for borrowing contained in
SECTION 5.2 are satisfied, upon receipt of a Notice of Borrowing from
the Isaac Funds Administrator received by the Agent before 12:00 noon
Chicago time on a Business Day, Lender Advances of Revolving Loans
shall be made to the extent of each Lender's Proportionate Share of
the requested Borrowing.
(B) AGENT ADVANCES. The Agent is authorized by the
Lenders, but is not obligated, to make Agent Advances upon a receipt
of any Notice of Borrowing received by the Agent before 3:00 P.M.
Chicago time on a Business Day. Agent Advances shall be subject to
periodic settlement with the Lenders under SECTION 2.4. Agent
Advances may be made only in the following circumstances:
(I) NORMAL COURSE AGENT ADVANCES. For
administrative convenience, the Agent may, but is not
obligated, to make Agent Advances up to the amount available
for borrowing under SECTION 2.1 in reliance upon the actual or
deemed representations of the Borrowers under SECTION 5.2 that
the conditions for borrowing are satisfied.
(II) OTHER AGENT ADVANCES. When the conditions
for borrowing under SECTION 5.2 cannot be fulfilled, and
21
<PAGE> 28
notwithstanding the Borrowing Base limitation of SECTION 2.1,
the Agent may, but is not obligated, to continue to make Agent
Advances for seven (7) Business Days or until sooner instructed
by the Majority Lenders to cease, in an aggregate amount at any
time not to exceed $2,000,000.
(C) DISBURSEMENT OF REVOLVING LOANS. The proceeds of
Revolving Loans shall be transmitted: (X) in the circumstances
described in SECTION 3.5, by the Agent directly to the Issuing Bank,
and (Y) in all other circumstances, by the Agent or Lenders, as the
case may be, to the Disbursement Account.
(D) NOTICES OF BORROWING. Notices of Borrowing may be
given under this Section by telephone or facsimile transmission, and,
if by telephone, promptly shall be confirmed in writing. The Isaac
Funds Administrator shall specify in each Notice of Borrowing whether
the conditions for the requested Borrowing are satisfied. The
Borrowers may request one or more Borrowings of Revolving Loans
constituting Prime Rate Loans on the same Business Day. Each Notice
of Borrowing for LIBOR Rate Loans shall be given not later than noon
Chicago time on the third Business Day prior to the proposed
Borrowing. Each Notice of Borrowing shall, unless otherwise
specifically provided herein, consist entirely of Revolving Loans of
the same Type and, if such Borrowing is to consist of LIBOR Rate
Loans, shall be in an aggregate amount of not less than $5,000,000 or
an integral multiple of $500,000 in excess thereof. The right of the
Borrowers to choose LIBOR Rate Loans is subject to the provisions of
SECTION 4.13. Once given, a Notice of Borrowing is irrevocable and
binding on the Borrowers. The Isaac Funds Administrator shall provide
to the Agent a list, with specimen signatures, of officers and other
Persons, if any, authorized to request Revolving Loans. The Agent is
entitled to rely upon such list until it is replaced by the Isaac
Funds Administrator.
2.3 NOTICE OF REQUEST FOR LENDER ADVANCES.
Subject to the last sentence of this Section, the Agent shall give
each Lender prompt notice by telephone or facsimile transmission of a Notice of
Borrowing that is received pursuant to SECTION 2.2(A) and is to be satisfied by
Lender Advances. No later than 3:00 P.M. Chicago time on the date of receipt
of such notice, each Lender shall make available for the account of its
Applicable Lending Office to the Agent at the Agent's address for deposit into
the Disbursement Account, its Proportionate Share of such Borrowing in
immediately available funds. Unless the Agent receives contrary written notice
prior to any such Borrowing, it is entitled to assume that each Lender will
make available its Proportionate Share of the Borrowing and in reliance upon
that assumption, but without any obligation to do so, may advance such
Proportionate Share on
22
<PAGE> 29
behalf of the Lender, without the necessity of giving daily notice to each
Lender of the receipt of a Notice of Borrowing.
2.4 PERIODIC SETTLEMENT OF AGENT ADVANCES; INTEREST AND FEES;
STATEMENTS.
(A) THE SETTLEMENT DATE; ALLOCATION OF INTEREST AND FEES.
The amount of each Lender's Proportionate Share of Revolving Loans
shall be computed weekly (or more frequently in the Agent's
discretion) and shall be adjusted upward or downward based on all
Revolving Loans (including Agent Advances) and repayments received by
the Agent as of 5:00 P.M. Chicago time on the last Business Day of the
period specified by the Agent (such date, the "SETTLEMENT DATE").
(B) SUMMARY STATEMENTS; SETTLEMENTS. The Agent shall
deliver to each of the Lenders promptly after the Settlement Date a
summary statement of the account of outstanding Revolving Loans
(including Agent Advances) for the period, the amount of repayments
received for the period, and the amount allocated to each Lender of
the interest and Unused Line Fee for the period. After application of
payments under SECTION 4.11, as reflected on the summary statement,
(I) the Agent shall transfer to each Lender its allocated share of
interest and Unused Line Fee, and its Proportionate Share of
repayments received by the Agent in respect of the period covered by
such summary statement; and (II) each Lender shall transfer to the
Agent, or the Agent shall transfer to each Lender, such amounts as are
necessary to insure that, after giving effect to all such transfers,
the amount of Revolving Loans made by each Lender shall be equal to
such Lender's Proportionate Share of the aggregate amount of Revolving
Loans outstanding as of such Settlement Date. If the summary
statement requires transfers to be made to the Agent by the Lenders
and is received by the Lenders prior to 12:00 noon Chicago time on a
Business Day, such transfers shall be made in immediately available
funds no later than 3:00 P.M. Chicago time that day; and, if received
after 12:00 noon Chicago time, then no later than 3:00 P.M. Chicago
time on the next Business Day. The obligation of each Lender to
transfer such funds is irrevocable, unconditional and without recourse
to or warranty by the Agent.
(C) DISTRIBUTION OF INTEREST AND UNUSED LINE FEES.
Interest on the Revolving Loans (including Agent Advances) and the
Unused Line Fee shall be allocated by the Agent to each Lender (I) in
the case of interest, in accordance with the Revolving Loans actually
advanced by and repaid to such Lender and (II) in the case of the
Unused Line Fee, in accordance with the Proportionate Share of such
Lender. Interest shall accrue from and including the date Revolving
Loans are advanced and to but excluding the date such Revolving Loans
23
<PAGE> 30
are either repaid by the Borrowers or, if later, actually settled
under this Section. Promptly after the end of each month, the Agent
shall distribute to each Lender its portion, allocated as provided
above, of the interest and Unused Line Fee which has been received by
the Agent during such month.
2.5 SHARING OF PAYMENTS.
If any Lender shall obtain any payment (whether made voluntarily or
involuntarily, or through the exercise of any right of set-off, or otherwise)
on account of the Revolving Loans made by it or its participation in the Letter
of Credit Obligations in excess of its Proportionate Share of payments on
account of the Revolving Loans or Letter of Credit Obligations obtained by all
the Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Revolving Loans made by them or in their participation in
Letters of Credit as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; PROVIDED, THAT if all or
any portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each other Lender shall be rescinded and each such
other Lender shall repay to the purchasing Lender the purchase price to the
extent of such recovery, together with an amount equal to such other Lender's
ratable share (according to the proportion of (I) the amount of such Lender's
required repayment to (II) the total amount so recovered from the purchasing
Lender) of any interest or other amount paid or payable by the purchasing
Lender in respect to the total amount so recovered. The Borrowers agree that
any Lender so purchasing a participation from another Lender pursuant to this
SECTION 2.5, to the fullest extent permitted by law, may exercise all of its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrowers in the amount of such participation.
2.6 DEFAULTING LENDERS.
(A) A Lender who fails to pay the Agent its Proportionate
Share of any Revolving Loans (including Agent Advances) made available
by the Agent on such Lender's behalf, or who fails to pay any other
amounts owing by it to the Agent, is a "DEFAULTING LENDER." The Agent
is entitled to recover from such Defaulting Lender all such amounts
owing by such Defaulting Lender on demand. If the Defaulting Lender
does not pay such amounts on the Agent's demand, the Agent shall
promptly notify the Isaac Funds Administrator and the Borrowers shall
pay such amounts to the Agent (to the extent the Agent has made such
amounts available to or for the account of the Borrowers) within five
(5) Business Days of the receipt by the Isaac Funds Administrator of
such notice. In addition, the Defaulting Lender or the Borrowers
shall pay to the Agent for its own account interest on such amount for
each
24
<PAGE> 31
day from the date it was made available by the Agent to the Borrowers
to the date it is recovered by the Agent at a rate per annum equal to
(X) the overnight Federal Funds Rate if paid by the Defaulting Lender,
or (Y) the then applicable rate of interest calculated under SECTION
4.1, if paid by the Borrowers; plus, in each case, the Expenses and
losses, if any, incurred as a result of the Defaulting Lenders'
failure to perform its obligations. Nothing herein shall be deemed to
relieve any Lender of its obligation to fulfill its commitments
hereunder or to prejudice any rights which the Borrowers may have
against any Lender as a result of any default by such Lender
hereunder, including, without limitation, the right of the Borrowers
to seek reimbursement from any Defaulting Lender for any amounts paid
by the Borrowers under CLAUSE (Y) above on account of such Defaulting
Lender's default.
(B) The failure of any Lender to fund its Proportionate
Share of a Revolving Loan shall not relieve any other Lender of its
obligation to fund its Proportionate Share of a Revolving Loan.
Conversely, no Lender shall be responsible for the failure of another
Lender to fund its Proportionate Share of a Revolving Loan.
(C) The Agent shall not be obligated to transfer to a
Defaulting Lender any payments made by the Borrowers to the Agent for
the Defaulting Lender's benefit; nor shall a Defaulting Lender be
entitled to the sharing of any payments hereunder. Amounts payable to
a Defaulting Lender shall instead be paid to or retained by the Agent.
The Agent may hold and, in its discretion, re-lend to the Borrowers
the amount of all such payments received by it for the account of such
Lender. For purposes of voting or consenting to matters with respect
to the Credit Documents and determining Proportionate Shares, such
Defaulting Lender shall be deemed not to be a "LENDER" and such
Lender's Commitment shall be deemed to be zero (-0-). This section
shall remain effective with respect to such Lender until (X) the
Obligations shall have been declared or shall have become immediately
due and payable or (Y) the Majority Lenders, the Agent and the
Borrowers shall have waived such Lender's default in writing. The
operation of this Section shall not be construed to increase or
otherwise affect the Commitment of any Lender, or relieve or excuse
the performance by the Borrowers of their respective duties and
obligations hereunder.
2.7 ALLOCATION OF REVOLVING LOANS AND EXPENSES.
(A) The Borrowers maintain an integrated cash management
system reflecting their interdependence on one another and the mutual benefits
shared among them as a result of their respective operations. In order to
efficiently fund and operate their
25
<PAGE> 32
respective businesses and minimize the number of Borrowings which they will
make under this Credit Agreement and thereby reduce the administrative costs
and record keeping required in connection therewith, including the necessity to
enter into and maintain separately identified and monitored borrowing
facilities, the Borrowers have requested, and the Agent and the Lenders have
agreed that, subject to SECTION 11.16, (I) all Revolving Loans will be advanced
to and for the account of the Borrowers on a joint and several basis to the
Disbursement Account and (II) all Letters of Credit will be issued pursuant to
an application therefor executed by the Isaac Funds Administrator on behalf and
for the account of the Borrower or Borrowers specified by the Isaac Funds
Administrator in such application. Each of the Borrowers hereby acknowledges
that it will be receiving a direct benefit from each Revolving Loan made and
each Letter of Credit issued pursuant to this Credit Agreement.
(B) In order to track more precisely the respective
recipients of the proceeds of each Revolving Loan and the Borrower receiving
the primary benefit from the issuance of each Letter of Credit, and to assist
the Isaac Funds Administrator, the Borrowers, the Agent and the Lenders in
administering the Revolving Loans and the Letters of Credit, each of the
Borrowers has agreed with the Agent and the Lenders to cause the Isaac Funds
Administrator to establish and maintain, and the Isaac Funds Administrator
hereby agrees to establish and maintain, accounts with respect to each Borrower
(each Borrower's "ALLOCATION ACCOUNT") in which the Isaac Funds Administrator
shall record its good faith allocation to each of the Borrowers of (W) the
proceeds, if any, of each Revolving Loan received by or for the account of such
Borrower, (X) payments made to the Agent on account of the Obligations of such
Borrower, (Y) the aggregate face amount of all outstanding Letters of Credit
covering goods which such Borrower will receive and (Z) all previously
unallocated Expenses.
(C) As soon as available, but not later than ten (10)
Business Days after the last Business Day of each month ending after the
Closing Date, the Isaac Funds Administrator shall deliver to the Agent and each
Borrower a report prepared by or under the supervision of the chief financial
officer of the Isaac Funds Administrator, and certified by such officer,
setting forth with respect to each Borrower the balance of the Allocation
Account of such Borrower as of the end of, and all activity occurring in such
Allocation Account during, such month. Absent demonstrable error, each such
monthly statement shall be final, conclusive and binding on the respective
Borrowers.
ARTICLE 3. LETTERS OF CREDIT.
3.1 ISSUANCE OF LETTERS OF CREDIT.
26
<PAGE> 33
Subject to the terms and conditions hereof and in reliance on the
representations and warranties of the Borrowers set forth herein, the Agent
shall cause the Issuing Bank to issue Letters of Credit hereunder at the
request of the Isaac Funds Administrator and for its account, as more
specifically described below. The Agent shall not be obligated to cause the
Issuing Bank to issue any Letter of Credit if:
(A) issuance of the requested Letter of Credit (I) would
cause the Letter of Credit Obligations then outstanding to exceed
$27,400,000 or (II) would cause the sum of the Revolving Loans PLUS
the Letter of Credit Obligations then outstanding to exceed the lesser
of (X) the Line of Credit and (Y) the Borrowing Base, in each case
then in effect; or
(B) issuance of the Letter of Credit is enjoined,
restrained or prohibited by any Governmental Authority, Requirement of
Law or any request or directive of any Governmental Authority (whether
or not having the force of law) or would impose upon the Agent or the
Issuing Bank any material restriction, reserve, capital requirement,
loss, cost or expense (for which the Agent or the Issuing Bank is not
otherwise compensated) not in effect or known as of the Closing Date.
3.2 TERMS OF LETTERS OF CREDIT.
The proposed amount, terms and conditions, and form of each Letter of
Credit (and of any drafts or acceptances thereunder) shall be subject to
approval by the Issuing Bank. The term of each standby Letter of Credit shall
not exceed 360 days, but may be subject to annual renewal. The term of each
documentary Letter of Credit shall not exceed 120 days. No Letter of Credit
shall have an expiry date later than five (5) Business Days prior to the
Expiration Date.
3.3 NOTICE OF ISSUANCE.
A request for issuance of a Letter of Credit (a "LETTER OF CREDIT
REQUEST") may be given in writing or electronically and, if given
electronically and if requested by the Agent, promptly shall be confirmed in
writing. A Letter of Credit Request must be received by the Agent no later
than 1:00 P.M. Chicago time at least ten (10) Business Days (or such shorter
period as may be agreed to by the Issuing Bank) in advance of the proposed date
of issuance.
3.4 LENDERS' PARTICIPATION.
Immediately upon issuance or amendment of any Letter of Credit, each
Lender shall be deemed to have irrevocably and unconditionally purchased and
received from the Issuing Bank, without recourse or warranty, an undivided
interest and participation
27
<PAGE> 34
in all rights and obligations under such Letter of Credit (other than fees and
other amounts owing to the Issuing Bank) in accordance with such Lender's
Proportionate Share.
3.5 PAYMENTS OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT.
The Agent shall notify the Isaac Funds Administrator of the receipt by
the Agent of notice from the Issuing Bank of a draft or other presentation for
payment or drawing under a Letter of Credit not later than 11:00 A.M. Chicago
time on the Business Day immediately prior to the date on which the Issuing
Bank intends to honor such drawing. Unless the procedures set forth in SECTION
9.2(C) shall be applicable, the Isaac Funds Administrator shall be deemed to
have concurrently given a Notice of Borrowing to the Agent to make a Revolving
Loan in the amount of and at the time of such drawing (which Revolving Loan
shall be a Prime Rate Loan), the proceeds of which shall be applied directly by
the Agent to reimburse the Issuing Bank for the amount of such drawing.
3.6 PAYMENT BY LENDERS.
If a Revolving Loan is not made in an amount sufficient to reimburse
the Issuing Bank in full for the amount of any draw under a Letter of Credit,
the Agent shall promptly notify each Lender of the unreimbursed amount of such
drawing and of such Lender's respective participation therein. Each Lender
shall make available to the Agent, for the account of the Issuing Bank, the
amount of its participation in immediately available funds not later than 1:00
P.M. Chicago time on the next Business Day after such Lender receives notice
from the Agent of the amount of such Lender's participation in such
unreimbursed amount. If any Lender fails to make available to the Agent the
amount of such Lender's participation, the Issuing Bank shall be entitled to
recover such amount on demand from such Lender together with interest at the
Federal Funds Rate for the first three Business Days and thereafter at the
Prime Lending Rate. For each Letter of Credit, the Agent shall promptly
distribute to each Lender which has funded the amount of its participation its
Proportionate Share of all payments subsequently received by the Agent from the
Borrowers in reimbursement of honored drawings.
3.7 OBLIGATIONS ABSOLUTE.
The joint and several obligations of the Borrowers to reimburse the
Lenders under SECTION 3.5 hereof shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Credit Agreement
under all circumstances including, without limitation, upon the occurrence and
during the continuance of an Event of Default.
28
<PAGE> 35
3.8 AGENT'S EXECUTION OF APPLICATIONS AND OTHER ISSUING BANK
DOCUMENTATION; RELIANCE ON CREDIT AGREEMENT BY ISSUING BANK.
The Agent shall be authorized to execute, deliver and perform on
behalf of the Lenders such letter of credit applications, shipping indemnities,
letter of credit modifications and consents and other undertakings for the
benefit of the Issuing Bank as may be reasonably necessary or appropriate in
connection with the issuance or modification of Letters of Credit requested by
the Borrowers hereunder. The Lenders, the Agent, the Borrowers and the Isaac
Funds Administrator all expressly agree that the terms of this ARTICLE 3 and
various other provisions of this Credit Agreement identifying the Issuing Bank
are also intended to benefit the Issuing Bank and the Issuing Bank shall be
entitled to enforce the provisions hereof which are for its benefit.
ARTICLE 4. COMPENSATION, REPAYMENT AND REDUCTION
OF COMMITMENTS.
4.1 INTEREST ON REVOLVING LOANS.
(A) Interest on the unpaid principal amount of Revolving
Loans which are Prime Rate Loans shall be payable monthly in arrears,
on the first Business Day of each month, at an interest rate per annum
equal to the Prime Lending Rate PLUS one-half of one percent (0.5%)
calculated on the net balances owing to the Agent and the Lenders at
the close of business each day during such month. The rate hereunder
shall change each day the Prime Lending Rate changes.
(B) Interest on the unpaid principal amount of Revolving
Loans which are LIBOR Rate Loans shall be payable on the earliest to
occur of (I) the last day of each Interest Period with respect to such
LIBOR Rate Loans, (II) ninety (90) days following the commencement of
such LIBOR Rate Loans, (III) the date of conversion of such LIBOR Rate
Loans (or a portion thereof) to a Prime Rate Loan and (IV) the
maturity of such LIBOR Rate Loans, at an interest rate per annum equal
during the Interest Period for such LIBOR Rate Loans to the LIBOR Rate
for the Interest Period in effect for such LIBOR Rate Loans PLUS two
percent (2.00%). After maturity of such LIBOR Rate Loans (whether by
acceleration or otherwise), interest shall be payable upon demand.
The Agent upon determining the LIBOR Rate for any Interest Period
shall promptly notify the Isaac Funds Administrator and the Lenders by
telephone (confirmed promptly in writing) or in writing thereof. Each
determination by the Agent of an interest rate hereunder shall be
conclusive and binding for all purposes, absent demonstrable error.
29
<PAGE> 36
(C) Notwithstanding the provisions of SECTION 4.1(B), the
Borrowers shall pay to each Lender, so long as and to the extent such
Lender shall be required under regulations of the Board of Governors
of the Federal Reserve System to maintain reserves with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities, additional interest on the unpaid principal amount of
each Revolving Loan comprised of LIBOR Rate Loans of such Lender, from
the date of such LIBOR Rate Loan until such principal amount is paid
in full, at an interest rate per annum equal at all times to the
remainder obtained by subtracting (I) the LIBOR Rate for the
applicable Interest Period for such LIBOR Rate Loan from (II) the rate
obtained by dividing such LIBOR Rate by a percentage equal to 1 MINUS
the stated maximum rate (stated as a decimal) applicable two (2)
Business Days before the first day of such Interest Period of all
reserves, if any, required to be maintained against "EUROCURRENCY
LIABILITIES" as specified in Regulation D (or against any other
category of liabilities which includes deposits by reference to which
the interest rate on LIBOR Rate Loans is determined or any category of
extensions of credit or other assets which includes loans by a
non-United States office of any Lender to United States residents)
having a term equal to the Interest Period applicable to such LIBOR
Rate Loan. Such Lender shall as soon as practicable provide notice to
the Agent and the Isaac Funds Administrator of any such additional
interest arising in connection with such LIBOR Rate Loan, which notice
shall be conclusive and binding, absent demonstrable error.
4.2 CLOSING FEE; UNUSED LINE FEE.
(A) The Borrowers shall pay to the Agent, for the ratable benefit
of the Lenders, a non-refundable fee (the "CLOSING FEE") in the amount of
$277,500. The Closing Fee shall be fully earned on the Closing Date and
payable on or before the date which is the earlier to occur of (I) 75 days
after the Closing Date and (II) the Bond Closing Date (the "FEE PAYMENT DATE").
(B) The Borrowers shall pay to the Agent for its own account a
non-refundable structuring fee (the "STRUCTURING FEE") in the amount of
$370,000. The Structuring Fee shall be fully earned on the Closing Date and
payable on the Fee Payment Date.
(C) The Borrowers shall pay to the Agent, for the ratable benefit
of the Lenders, a non-refundable fee (the "UNUSED LINE FEE") equal to one-half
of one percent (0.50%) per annum of the unused portion of the Line of Credit
(with any outstanding Letters of Credit constituting usage of the Line of
Credit). The Unused Line Fee shall accrue daily from the Closing Date until
the Expiration Date, and shall be due and payable monthly in arrears, on the
first Business Day of each month and on the Expiration Date. The Agent and
each of the Lenders hereby agree that,
30
<PAGE> 37
notwithstanding the provisions of SUBSECTION 4.2(A) and (B), an amount equal to
the Closing Fee and the Structuring Fee shall be deducted from any closing fee
and structuring fee, respectively, payable by Borrowers in connection with any
replacement or restatement of this Agreement contemplated to occur following
the Bond Closing Date.
4.3 LETTER OF CREDIT FEES.
(A) The Agent, for the ratable benefit of the Lenders,
shall be entitled to charge to the account of the Borrowers on the
first Business Day of each month, a fee (the "LETTER OF CREDIT FEE"),
in an amount equal to one and three-quarters percent (1.75%) per annum
of the daily weighted average undrawn amount of Letters of Credit
outstanding during the immediately preceding month. In addition, the
Agent, for its own account, shall be entitled to charge to the account
of the Borrowers on the date of issuance of any standby Letter of
Credit, a facing fee equal to one-half of one percent (0.50%) on the
initial face amount of each such standby Letter of Credit (the "L/C
FACING FEE").
(B) The Agent shall also be entitled to charge to the
account of the Borrowers, as and when incurred by the Agent or any
Lender, the customary charges, fees, costs and expenses charged to the
Agent or any Lender for the Borrower's account by any Issuing Bank
(the "ISSUING BANK FEES") in connection with the issuance, transfer,
drawing, amendment or negotiation of any Letters of Credit by the
Issuing Bank. Each determination by the Agent of Letter of Credit
Fees, L/C Facing Fees, Issuing Bank Fees and other fees, costs and
expenses charged under this Section shall be conclusive and binding
for all purposes, absent manifest error.
4.4 INTEREST AND LETTER OF CREDIT FEES AFTER EVENT OF DEFAULT.
From the date of occurrence of an Event of Default until the earlier
of the date upon which (I) all Obligations shall have been paid and satisfied
in full or (II) such Event of Default shall have been waived, interest on the
Revolving Loans and Letter of Credit Fees on Letter of Credit Obligations shall
each be payable on demand at a rate per annum equal to, with respect to the
Revolving Loans, the rate in effect under SECTION 4.1, PLUS two percent (2%),
and with respect to the Letter of Credit Obligations, the rate at which Letter
of Credit Fees are charged pursuant to the first sentence of SECTION 4.3(A),
PLUS two percent (2%).
31
<PAGE> 38
4.5 COLLATERAL MONITORING FEE.
The Borrowers shall pay to the Agent, for its own account, a
non-refundable annual collateral monitoring fee (the "COLLATERAL MONITORING
FEE") in the amount of $37,000. The Collateral Monitoring Fee shall be fully
earned and payable on the Closing Date and on each anniversary thereof.
4.6 EXPENSES.
The Borrowers shall reimburse the Expenses of the Agent or any Lender,
as the case may be, promptly upon demand.
4.7 MANDATORY PAYMENT OF REVOLVING LOANS; REDUCTIONS OF
COMMITMENTS.
(A) Except during the period described in SECTION
2.2(B)(II), the aggregate outstanding principal amount of Revolving
Loans PLUS Letter of Credit Obligations at any time in excess of the
lesser at such time of (I) the Line of Credit and (II) the Borrowing
Base, shall be immediately due and payable without the necessity of
any demand.
(B) On the Expiration Date, the Commitment of each Lender
shall automatically reduce to zero (-0-) and may not be reinstated.
(C) The Borrowers may not reduce the Line of Credit in
part at any time. The Borrowers may terminate the Line of Credit in
whole, but not in part, at any time and from time to time.
4.8 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF ACCOUNT.
The Agent shall maintain an account on its books in the name of the
Borrowers (the "LOAN ACCOUNT") in which the Borrowers will be charged with all
loans and advances made by the Lenders to the Borrowers or for the account of
the Borrowers, including the Revolving Loans and all Letter of Credit
Obligations, the Fees, the Expenses and any other Obligations, as and when such
payments become due. The Loan Account will be credited with all payments
received by the Agent from the Borrowers or for the account of the Borrowers,
including all amounts received in the BT Account from the Collection Banks.
After the end of each month, the Agent shall send the Isaac Funds Administrator
a monthly statement accounting for the charges, loans, advances and other
transactions occurring among and between the Agent, the Lenders and the
Borrowers during that month, PROVIDED, THAT the failure of the Agent to send
such statement to the Isaac Funds Administrator shall not relieve the Borrowers
of any Obligations. Absent demonstrable error, each monthly statement shall be
an account stated and shall be final, conclusive and binding on the Borrowers.
32
<PAGE> 39
4.9 PAYMENT PROCEDURES.
Payments of Fees, principal of and interest on the Revolving Loans and
Expenses payable to the Agent or any Lender shall be made in each case not
later than 2:00 P.M. Chicago time on the day when due, in immediately available
dollars, to the offices of the Agent, at the address set forth in SECTION 11.7,
or as the Agent may otherwise direct the Isaac Funds Administrator. The
Borrowers hereby authorize the Agent to charge the Loan Account with the amount
of all payments to be made hereunder and under the other Credit Documents,
including all Fees and Expenses, as and when such payments become due. The
joint and several obligations of the Borrowers to the Lenders with respect to
such payments shall be discharged by making such payments to the Agent pursuant
to this Section or by the charging of the Loan Account by the Agent.
4.10 COLLECTION OF ACCOUNTS. Until instructed otherwise by the
Agent, each Borrower shall be entitled to receive Collections directly from
account debtors in accordance with its historical practices. Within sixty (60)
days after the Closing Date, each Borrower, the Agent and financial
institutions selected by such Borrower and reasonably acceptable to the Agent
(the "COLLECTION BANKS") shall enter into agreements in form and substance
satisfactory to Agent (the "DEPOSITARY ACCOUNT AGREEMENTS"), which among other
things shall provide for the opening of an account for the deposit of
Collections (a "COLLECTION ACCOUNT") at a Collection Bank. For purposes of
this Agreement, National City Bank shall be deemed acceptable to Agent to act
as a Collection Bank. All Collections and other amounts received by each
Borrower from any account debtor, in addition to all other cash received from
any other Collateral, shall upon receipt be deposited into a Collection
Account. Termination of such arrangements shall also be subject to approval by
the Agent. Upon the terms and subject to the conditions set forth in the
Depositary Account Agreements, all available amounts held in each Collection
Account shall be wired each Business Day into an account (the "BT ACCOUNT")
maintained by the Agent at Bankers Trust Company. Amounts received in the BT
Account from the Collection Banks shall be credited to the Loan Account and
distributed and applied as set forth in SECTION 4.11.
4.11 DISTRIBUTION AND APPLICATION OF COLLECTIONS AND OTHER AMOUNTS.
All Collections received by the Agent, and all other amounts received
by the Borrowers and delivered to the Agent, shall be credited to the Loan
Account; provided, however, that if an Event of Default has occurred and is
continuing, all Collections and other amounts received by Agent shall be
distributed and applied in the following order: FIRST, to the payment of any
Fees, Expenses or other Obligations due and payable to the Agent under any of
the Credit Documents, including Agent Advances and any other amounts
33
<PAGE> 40
advanced by the Agent on behalf of the Lenders; SECOND, to the payment of any
Fees, Expenses or other Obligations due and payable to the Issuing Bank under
any of the Credit Documents; THIRD, to the ratable payment of any Fees,
Expenses or other Obligations due and payable to the Lenders under any of the
Credit Documents other than those Obligations specifically referred to in this
Section; FOURTH, to the ratable payment of interest due on the Revolving Loans;
and, FIFTH, to the ratable payment of principal due on the Revolving Loans.
4.12 CALCULATIONS.
All calculations of (I) interest hereunder and (II) Fees, including,
without limitation, Unused Line Fees and Letter of Credit Fees, shall be made
by the Agent, on the basis of a year of 360 days, or, if such computation would
cause the interest and fees chargeable hereunder to exceed the Highest Lawful
Rate, 365/366 days, in each case for the actual number of days elapsed
(including the first day but excluding the last day) occurring in the period
for which such interest or Fees are payable. Each determination by the Agent
of an interest rate, Fee or other payment hereunder shall be conclusive and
binding for all purposes, absent manifest error.
4.13 SPECIAL PROVISIONS RELATING TO LIBOR RATE LOANS.
(A) CONTINUATION. With respect to any Borrowing
consisting of LIBOR Rate Loans, the Borrowers may, subject to the
provisions of SECTION 4.13(C), elect to maintain such Borrowing or any
portion thereof as consisting of LIBOR Rate Loans by selecting a new
Interest Period for such Borrowing, which new Interest Period shall
commence on the last day of the immediately preceding Interest Period.
Each selection of a new Interest Period shall be made by notice given
not later than noon Chicago time on the third Business Day prior to
the date of any such continuation relating to LIBOR Rate Loans, by the
Isaac Funds Administrator to the Agent. Such notice by the Isaac
Funds Administrator of a continuation (a "NOTICE OF CONTINUATION")
shall be by telephone or facsimile transmission, and if by telephone,
promptly confirmed in writing, substantially in the form of EXHIBIT D,
in each case specifying (I) the date of such continuation, (II) the
Type of Revolving Loans subject to such continuation, (III) the
aggregate amount of Revolving Loans subject to such continuation and
(IV) the duration of the selected Interest Period. The Borrowers may
elect to maintain more than one Borrowing consisting of LIBOR Rate
Loans by combining such Borrowings into one Borrowing and selecting a
new Interest Period pursuant to this SECTION 4.13(A). If the
Borrowers shall fail to select a new Interest Period for any Borrowing
consisting of LIBOR Rate Loans in accordance with this SECTION
4.13(A), such Revolving Loans will automatically, on the last day of
the then existing Interest Period therefor, convert
34
<PAGE> 41
into Prime Rate Loans. The Agent shall give each Lender prompt notice
by telephone or facsimile transmission of each Notice of Continuation.
(B) CONVERSION. The Borrowers may on any Business Day
(so long as no Default or Event of Default has occurred and is
continuing), upon notice (each such notice, a "NOTICE OF CONVERSION")
given to the Agent, and subject to the provisions of SECTION 4.13(C),
convert the entire amount of or a portion of all Revolving Loans of
one Type comprising the same Borrowing into Revolving Loans of another
Type; PROVIDED, THAT any conversion of any LIBOR Rate Loans into
Revolving Loans of another Type shall be made on, and only on, the
last day of an Interest Period for such LIBOR Rate Loans and, upon
conversion of any Prime Rate Loans into Revolving Loans of another
Type, the Borrowers shall pay accrued interest to the date of
conversion on the principal amount converted. Each such Notice of
Conversion shall be given not later than Noon Chicago time on the
Business Day prior to the date of any proposed conversion into Prime
Rate Loans and on the third Business Day prior to the date of any
proposed conversion into LIBOR Rate Loans. Subject to the
restrictions specified above, each Notice of Conversion shall be by
telephone or facsimile transmission, and if by telephone, promptly
confirmed in writing, substantially in the form of EXHIBIT E, in each
case specifying (I) the requested date of such conversion, (II) the
Type of Revolving Loans to be converted (III) the portion of such Type
of Revolving Loan to be converted, (IV) the Type of Revolving Loans
such Revolving Loans are to be converted into and (V) if such
conversion is into LIBOR Rate Loans, the duration of the Interest
Period of such Revolving Loan. Each conversion shall be in an
aggregate amount of not less than $5,000,000 or an integral multiple
of $500,000 in excess thereof. The Borrowers may elect to convert the
entire amount of or a portion of all Revolving Loans of one Type
comprising more than one Borrowing into Revolving Loans of another
Type by combining such Borrowings into one Borrowing; PROVIDED, THAT
if the Borrowings so combined consist of LIBOR Rate Loans, such Loans
shall have Interest Periods ending on the same date.
(C) CERTAIN LIMITATIONS ON LIBOR RATE LOANS. The right
of the Borrowers to maintain, select, continue or convert LIBOR Rate
Loans shall be limited as follows:
(I) If the Agent is advised by Bankers Trust
Company that it is not offering United States dollar deposits
(in the applicable amounts) in the London interbank market, or
the Agent determines that adequate and fair means do not
otherwise exist for ascertaining the LIBOR Rate or LIBOR Rate
Loans comprising any requested Borrowing, continuation or
conversion, the right of the
35
<PAGE> 42
Borrowers to select or maintain LIBOR Rate Loans for such
Borrowing or any subsequent Borrowing shall be suspended until
the Agent shall notify the Isaac Funds Administrator and the
Lenders that the circumstances causing such suspension no
longer exists, and each Revolving Loan shall be made as a Prime
Rate Loan.
(II) If the Majority Lenders shall, at least one
Business Day before the date of any requested Borrowing,
continuation or conversion, notify the Agent that the LIBOR
Rate for Revolving Loans comprising such Borrowing will not
adequately reflect the cost to such Lenders of making or
funding their respective Revolving Loans for such Borrowing,
the right of the Borrowers to select LIBOR Rate Loans for such
Borrowing shall be suspended until the Agent shall notify the
Isaac Funds Administrator and the Lenders that the
circumstances causing such suspension no longer exist, and
each Revolving Loan comprising such Borrowing and each other
Borrowing requested during such period of suspension shall be
made as a Prime Rate Loan.
(III) If at any time any Lender determines (which
determination shall, absent manifest error, be conclusive and
binding on all parties) that the making, continuation or
conversion of any Revolving Loan as a LIBOR Rate Loan by such
Lender has become unlawful or impermissible by reason of
compliance by that Lender with any law, governmental rule,
regulation or order of any Governmental Authority (whether or
not having the force of law), then, and in any such event,
such Lender may give notice of that determination in writing,
to the Agent and the Isaac Funds Administrator and the Agent
shall promptly transmit the notice to each other Lender.
Until such Lender gives notice otherwise, the right of the
Borrowers to select LIBOR Rate Loans from that Lender shall be
suspended and each Revolving Loan made by that Lender,
notwithstanding the Type of Revolving Loan made by the other
Lenders, shall be a Prime Rate Loan and each LIBOR Rate Loan
outstanding from that Lender shall automatically, on the last
day of the existing Interest Period therefor (or earlier, if
so required under such law, rule, regulation or order),
convert to a Prime Rate Loan.
(IV) No Agent Advance shall be made as a LIBOR
Rate Loan.
(V) No Revolving Loans may be made, continued or
converted as or to LIBOR Rate Loans at any time that a Default
or Event of Default shall have occurred and be continuing.
36
<PAGE> 43
(VI) The Borrowers may not select a LIBOR Rate
Loan prior to the earlier to occur of (X) the completion of
the syndication by the Agent in the exercise of its sole
discretion and (Y) ninety (90) days after the Closing Date.
(D) COMPENSATION.
(I) Each Notice of Continuation and Notice of
Conversion shall be irrevocable by and binding on the
Borrowers. In the case of any Borrowing, continuation or
conversion that the related Notice of Borrowing, Notice of
Continuation or Notice of Conversion specifies is to be
comprised of LIBOR Rate Loans, the Borrowers shall indemnify
each Lender against any loss, cost or expense incurred by such
Person as a result of any failure to fulfill, on or before the
date for such Borrowing, continuation or conversion specified
in such Notice of Borrowing, Notice of Continuation or Notice
of Conversion, the applicable conditions set forth in ARTICLE
5, including, without limitation, any loss (excluding loss of
anticipated profits), cost or expense incurred by reason of
the liquidation or re-employment of deposits or other funds
acquired by such Lender to fund the Revolving Loan to be made
by such Lender as part of such Borrowing, continuation or
conversion.
(II) If any payment of principal of, or conversion
or continuation of, any LIBOR Rate Loan is made other than on
the last day of the Interest Period for such Loan as a result
of a payment, prepayment, conversion or continuation of such
Loan or acceleration of the maturity of the Revolving Notes or
for any other reason, the Borrowers shall, upon demand by any
Lender (with a copy of such demand to the Agent), pay to the
Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or
expenses which it may reasonably incur as a result of such
payment, including, without limitation, any loss (excluding
loss of anticipated profits), cost or expense incurred by
reason of the liquidation or re-employment of deposits or
other funds acquired by any Lender to fund or maintain such
Loan.
(III) Calculation of all amounts payable to a
Lender under this SECTION 4.13(D) shall be made as though such
Lender elected to fund all LIBOR Rate Loans by purchasing
United State dollar deposits in its LIBOR Lending Office's
interbank eurodollar market.
37
<PAGE> 44
4.14 INDEMNIFICATION IN CERTAIN EVENTS.
(A) INCREASED COSTS. If after the Closing Date, either
(I) any change in or in the interpretation of any law or regulation is
introduced, including, without limitation, with respect to reserve
requirements applicable to the Agent, to any of the Lenders, Bankers
Trust Company or any other affiliated banking or financial institution
from whom any of the Lenders borrows funds or obtains credit (a
"FUNDING BANK"), or (II) the Agent, a Funding Bank or any of the
Lenders complies with any future guideline or request from any central
bank or other Governmental Authority proposed or promulgated after the
date of the Agreement or (III) the Agent, a Funding Bank or any of the
Lenders determines that the adoption of any applicable law, rule or
regulation regarding capital adequacy or any change therein, or any
change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with
the interpretation or administration thereof announced after the date
of this Credit Agreement has or would have the effect described below,
or the Agent, a Funding Bank or any of the Lenders complies with any
request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable
agency announced after the date of this Credit Agreement and in the
case of any event set forth in this clause (III), such adoption,
change or compliance has or would have the direct or indirect effect
of reducing the rate of return on any of such Person's capital as a
consequence of its obligations hereunder to a level below that which
such Person could have achieved but for such adoption, change or
compliance (taking into consideration such Person's policies with
respect to capital adequacy) by an amount deemed by such Person to be
material, and any of the foregoing events described in CLAUSES (I),
(II) OR (III) increases the cost to the Agent, or any of the Lenders
of (A) funding or maintaining any Commitment or (B) issuing, causing
the issuance of making or maintaining any Letter of Credit or of
purchasing or maintaining any participation therein, or reduces the
amount receivable in respect thereof by the Agent or any Lender, then
the Borrowers shall upon demand by the Agent at any time within one
hundred eighty (180) days after the date on which an officer of the
Agent, such Funding Bank or such Lender, as the case may be,
responsible for overseeing this Credit Agreement knows or has reason
to know of its right to additional compensation under this SECTION
4.14(A), pay to the Agent, for the account of such Lender or, as
applicable, the Agent or a Funding Bank, additional amounts sufficient
to reimburse the Agent, such Funding Bank and such Lender against such
increase in cost or reduction in amount receivable; PROVIDED, HOWEVER,
that if the Agent or any such Lender or Funding Bank, as the case may
be, fails to deliver such demand within such 180 day period, such
38
<PAGE> 45
entity shall only be entitled to additional compensation for any such
costs incurred from and after the date that is one hundred eighty
(180) days prior to the date the Borrowers received such demand; and
PROVIDED FURTHER, HOWEVER, that before making any such demand, the
Agent and each Lender agree to use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to
designate a different Applicable Lending Office if the making of such
a designation would avoid the need for, or reduce the amount of, such
increased cost and would not, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender. A certificate as
to the amount of such increased cost, and setting forth in reasonable
detail the calculation thereof, shall be submitted to the Isaac Funds
Administrator by the Agent, or the applicable Lender or Funding Bank,
and shall be conclusive absent demonstrable error.
(B) Each Lender will promptly notify the Agent, and the
Agent will promptly notify the Isaac Funds Administrator, of any event
of which it has knowledge that would entitle such entity to additional
compensation under this SECTION 4.14. Neither the Agent nor any
Lender shall request any additional compensation under this SECTION
4.14 unless it is generally making similar requests of other borrowers
similarly situated, and the Agent and each Lender agrees to use a
reasonable basis for calculating amounts allocable to its commitment
to lend or its Loans and Letter of Credit Obligations, if any,
hereunder.
ARTICLE 5. CONDITIONS PRECEDENT.
5.1 CONDITIONS PRECEDENT TO INITIAL REVOLVING LOAN AND LETTER OF
CREDIT.
The obligation of each Lender to fund its Proportionate Share of the
initial Borrowing (or, if it shall occur earlier, the obligation of the Agent
to cause the issuance by the Issuing Bank of the initial Letter of Credit and
of each Lender to purchase a participation therein) is in each case subject to
the satisfaction or waiver of the following conditions precedent:
(A) ACQUISITION AND MERGER. Agent shall have received
evidence satisfactory to it, in its sole discretion, that (I) the
Acquisition and the Merger have been consummated in accordance with
the terms of the Acquisition Documents and all applicable Requirements
of Law, (II) Borrowers have good and marketable title to all Property
necessary for the operation of their respective businesses, free and
clear of all Liens other than Permitted Liens, (III) the Acquisition
Documents are in full force and effect and (IV) none of the parties to
the Acquisition Documents shall have failed to perform any material
obligation or covenant required by any Acquisition
39
<PAGE> 46
Document to be performed or complied with by it on or before the
Closing Date.
(B) CLOSING DOCUMENTS. The Agent and the Lenders shall
have received each of the agreements, opinions, reports, approvals,
consents, certificates and other documents set forth on the List of
Closing Documents attached hereto as SCHEDULE A (the "CLOSING DOCUMENT
LIST").
(C) FEES AND EXPENSES. All Fees and Expenses payable by
the Borrowers hereunder on or before the Closing Date shall have been
paid in full.
(D) OTHER DOCUMENTS. Borrowers shall have delivered or
caused to be delivered to the Agent, in each case in form and
substance satisfactory to Agent, (I) all information required pursuant
to SECTION 7.2 and (II) such other business and/or financial and data
and other information as the Agent shall reasonably request.
(E) OFFICER'S CERTIFICATE. The Agent shall have received
a certificate dated the Closing Date signed on behalf of the Isaac
Funds Administrator and each of the Borrowers by the Chairman or Vice
Chairman of the Isaac Funds Administrator stating that all of the
conditions set forth in SECTIONS 5.1(A) through (D), and SECTIONS
5.2(A) and (B), have been satisfied on and as of such date.
5.2 CONDITIONS PRECEDENT TO ALL REVOLVING LOANS AND LETTERS OF
CREDIT.
The obligation of each Lender to fund its Proportionate Share of any
requested Revolving Loan (or of the Agent to cause the Issuing Bank to issue
any requested Letter of Credit and of each Lender to purchase a participation
therein) is in each case subject to the satisfaction of the conditions
precedent set forth below. Each Notice of Borrowing, each Letter of Credit
Request and each issuance by any Borrower of a check drawn against, or request
for transfer from, the Disbursement Account shall constitute a representation
and warranty to the Agent and each Lender by the Borrowers that such conditions
are satisfied.
(A) All representations and warranties contained in this
Credit Agreement and the other Credit Documents are true and correct
in all material respects on and as of the date of such Notice of
Borrowing, Letter of Credit Request, or issuance of a check drawn
against, or request for transfer from, the Disbursement Account both
before and after giving effect thereto and to the application of the
proceeds thereof, in each case as if then made, other than
representations and warranties that expressly relate solely to an
earlier date (in which case such representations and warranties shall
have been
40
<PAGE> 47
true and accurate in all material respects on and as of such earlier
date); and
(B) No Default or Event of Default shall have occurred or
could reasonably be expected to result from the making of the
requested Revolving Loan or the issuance of the requested Letter of
Credit, which has not been waived.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES.
To induce the Agent and the Lenders to enter into this Credit
Agreement and to induce the Lenders to make the Loans and other financial
accommodations described herein, each of the Borrowers hereby represents and
warrants to the Agent and the Lenders that, after giving effect to the events
described in SECTIONS 5.1(A) and (B), the representations and warranties
contained in this ARTICLE 6 are true and correct. Such representations and
warranties, and all other representations and warranties made by the Borrowers
in any other Credit Documents, shall survive the execution and delivery of this
Credit Agreement and such other Credit Documents.
6.1 ORGANIZATION AND QUALIFICATION.
Each Credit Party and each Subsidiary of each Credit Party (I) are
corporations duly organized, validly existing and in good standing under the
laws of the respective states or other jurisdictions of their incorporation,
(II) have the power and authority to own their respective properties and assets
and to transact their respective businesses in which they presently are, or
propose to be, engaged and (III) are duly qualified and are authorized to do
business and are in good standing in each of the respective jurisdictions where
they presently are, or propose to be, engaged in business, in each case, except
where any failures to do so could not reasonably be expected singly or in the
aggregate to have a Material Adverse Effect. SCHEDULE B, PART 6.1 lists all
jurisdictions in which each Credit Party and each Subsidiary of each Credit
Party are qualified to do business as foreign corporations.
6.2 AUTHORITY.
Each Credit Party and each Subsidiary of each Credit Party has the
requisite corporate power and authority to execute, deliver and perform the
respective Credit Documents to which they are parties. All corporate action
necessary for the execution, delivery and performance of any of the Credit
Documents by each Credit Party and each Subsidiary of each Credit Party which
is a party thereto has been taken.
41
<PAGE> 48
6.3 ENFORCEABILITY.
This Credit Agreement and each of the other Credit Documents are the
legal, valid and binding obligations of each Credit Party and each Subsidiary
of each Credit Party which are parties thereto, enforceable in accordance with
their respective terms, except as such enforceability may be limited by (I)
bankruptcy, insolvency or similar laws affecting creditors' rights generally,
and (II) general principles of equity.
6.4 NO CONFLICT.
The execution, delivery and performance of each Credit Document by
each Credit Party and each Subsidiary of each Credit Party which are parties
thereto are not in contravention of (I) the Governing Documents of such
Persons, or (II) to the Borrowers' knowledge, any Requirement of Law, or (III)
to the Borrowers' knowledge, any indenture, contract, agreement or instrument
or other commitment to which any or all of such Persons are parties or by which
any of such Persons or any of its properties are bound, and will not, except as
contemplated herein, result in the imposition of any Liens upon any of the
properties of any of such Persons.
6.5 CONSENTS AND FILINGS.
To the Borrower's knowledge, no consent, authorization, permit or
filing is required in connection with the Acquisition, the Merger, the
execution, delivery and performance of the Acquisition Documents, this Credit
Agreement or any other Credit Document by any Credit Party or any Subsidiary of
any Credit Party which are parties thereto, or in connection with the
continuing operations of such Persons, except (I) those that have been obtained
or made, (II) filings necessary to create, perfect or retain the perfection of
Liens against the Collateral and (III) the filing of a file-stamped certificate
of merger from the Secretary of State of Ohio evidencing the merger of Ferrex
Trading Corporation, an Ohio corporation, with and into Isaac Acquisition
Corporation, a Delaware corporation, in the office of the recorder of each of
Williams, Defiance and Cuyahoga County, Ohio.
6.6 GOVERNMENT REGULATION.
No Borrower nor any Subsidiary of any Borrower is subject to
regulation under the Public Utility Holding Company Act of 1935, the Investment
Company Act of 1940, the Federal Power Act or any other similar Requirement of
Law that limits the respective abilities of such Persons to incur indebtedness
or consummate the transactions contemplated in the Acquisition Documents, this
Credit Agreement and the other Credit Documents.
42
<PAGE> 49
6.7 SOLVENCY.
The present fair saleable value of the assets of each Borrower exceeds
all its probable liability on its existing debts as they become absolute and
matured, including those to be incurred pursuant to this Credit Agreement and
the other Credit Documents. No Borrower (I) has unreasonably small capital in
relation to the business in which it is or proposes to be engaged and (II) has
incurred and believes that it will incur, after giving effect to the
transactions contemplated by this Credit Agreement, debts beyond its ability to
pay as such debts become due.
6.8 RIGHTS IN COLLATERAL; PRIORITY OF LIENS.
All property constituting Collateral is owned or leased by the
respective Borrowers, free and clear of any and all Liens in favor of third
parties, other than Permitted Liens. Upon the proper filing of the UCC
financing and termination statements, in each case listed in the Closing
Document List, the security interests granted pursuant to the Credit Documents
constitute valid and enforceable first, prior (subject to Permitted Liens) and
perfected Liens on the Collateral, to the extent such Liens can be perfected by
the filing of such financing statements.
6.9 FINANCIAL DATA.
The Borrowers have provided or caused to be provided to the Agent and
each of the Lenders complete and accurate copies of the following Financial
Statements: (I) audited Financial Statements for the twelve-month fiscal period
ended December 31, 1996, (II) unaudited Financial Statements for the quarter
ended March 31, 1997 and (III) unaudited Financial Statements for the month
ended April 30, 1997. All such Financial Statements have been prepared in
accordance with GAAP consistently applied throughout the periods involved and
fairly present the respective consolidated financial positions, results of
operations and cash flows of Persons indicated for each of the periods covered
subject, in the case of interim Financial Statements, to normal year-end audit
adjustments. The Consolidated Entity has no Contingent Obligation (or any
other material liabilities which were not incurred in the ordinary course of
business) which is not reflected in such Financial Statements or the footnotes
thereto, or is not otherwise disclosed on SCHEDULE B, PART 6.9.
6.10 LOCATIONS OF OFFICES, RECORDS AND INVENTORY.
(A) The address of the principal place of business and, if there is
more than one principal place of business, the chief executive office, of each
Credit Party is set forth on SCHEDULE B, PART 6.10(A), as the same may be
amended after the Closing Date in accordance with SECTION 11.11. The books and
records of each Credit Party, and all its chattel paper, if any, and records of
43
<PAGE> 50
Accounts, are maintained exclusively at one or more of such locations.
(B) There is no location in which any Borrower has any Collateral
(except for vehicles and Inventory in transit) other than those locations
identified on SCHEDULE B, PART 6.10(B), as the same may be amended after the
Closing Date in accordance with SECTION 11.11. A complete list of the legal
name and address of each warehouse at which Inventory of any Borrower is stored
is set forth on SCHEDULE B, PART 6.10(B), as the same may be amended after the
Closing Date in accordance with SECTION 11.11. None of the receipts received
and to be received by any Borrower from any warehouseman state that the
Inventory covered thereby is to be delivered to bearer or to the order of a
named Person or to a named Person and such named Person's assigns, in each case
other than such Borrower.
6.11 SUBSIDIARIES; OWNERSHIP OF STOCK.
As of the Closing Date, (I) the only direct or indirect Subsidiaries
of the respective Credit Parties are those listed on SCHEDULE B, PART 6.11,
(II) each Credit Party is the record and beneficial owner of all of the
respective shares of capital stock of each of its Subsidiaries listed on
SCHEDULE B, PART 6.11, (III) there are no proxies, irrevocable or otherwise,
with respect to such shares, and no equity securities of any of such
Subsidiaries are or may become required to be issued by reason of any options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of any capital stock of any such Subsidiary, and (IV)
there are no contracts, commitments, understandings or arrangements by which
any such Subsidiary is or may become bound to issue additional shares of its
capital stock or securities convertible into or exchangeable for such shares.
All of such shares so owned by any Credit Party are owned by such Credit Party
free and clear of any Liens.
6.12 NO JUDGMENTS OR LITIGATION.
No judgments, orders, writs or decrees are outstanding against any
Credit Party or any Subsidiary of any Credit Party, nor is there now pending
or, to any Credit Party's knowledge, threatened, any litigation, contested
claim, investigation, arbitration, or governmental proceeding by or against any
Credit Party or any Subsidiary of any Credit Party other than (I) as set forth
on SCHEDULE B, PART 6.12, or (II) with respect to matters arising after the
Closing Date, that singly or in the aggregate could not reasonably be expected
to have a Material Adverse Effect.
44
<PAGE> 51
6.13 NO DEFAULTS.
No Credit Party nor any Subsidiary of any Credit Party is in default
under (I) the Acquisition Documents or (II) any term of any other indenture,
contract, lease, agreement, instrument or commitment to which any of them is a
party or by which any of them is bound, in the case of the items described in
CLAUSE (II) above, the default under which singly or in the aggregate could
reasonably be expected to have a Material Adverse Effect. No Credit Party
knows of any dispute regarding any such indenture, contract, lease, agreement,
instrument or other commitment.
6.14 LABOR MATTERS.
SCHEDULE B, PART 6.14 accurately sets forth all labor union contracts
to which any Borrower or any Subsidiary of any Borrower is a party as of the
Closing Date (including their dates of expiration). There are no existing or,
to the knowledge of any Borrower, threatened strikes, lockouts or other
disputes relating to any collective bargaining or similar agreement to which
any Borrower or any Subsidiary of any Borrower is a party that singly or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
6.15 COMPLIANCE WITH LAW.
To the Borrowers' knowledge, no Credit Party nor any Subsidiary of any
Credit Party has violated or failed to comply in any material respect with any
Requirements of Law.
6.16 ERISA.
No Borrower, no Subsidiary of any Borrower and no ERISA Affiliate
maintains or contributes to any Plan other than those listed on SCHEDULE B,
PART 6.16. Each Plan has been and is maintained and funded in accordance with
its terms and in compliance with all applicable provisions of ERISA and the
Internal Revenue Code. Each Borrower, each Subsidiary of a Borrower and each
ERISA Affiliate has fulfilled all contribution obligations for each Plan
(including obligations related to the minimum funding standards of ERISA and
the Internal Revenue Code). No Termination Event has occurred nor has any
other event occurred that may result in a Termination Event. No Borrower, no
Subsidiary of any Borrower, no ERISA Affiliate, and no fiduciary of any Plan is
subject to any direct or indirect liability with respect to any Plan under any
Requirement of Law or agreement. No Borrower, no Subsidiary of a Borrower and
no ERISA Affiliate, is required to provide security to any Plan under Section
401(a)(29) of the Internal Revenue Code.
45
<PAGE> 52
6.17 COMPLIANCE WITH ENVIRONMENTAL LAWS.
Except for matters disclosed on SCHEDULE B, PART 6.17 and for matters
arising after the Closing Date, in each case none of which matters could singly
or in the aggregate reasonably be expected to have a Material Adverse Effect,
(I) the operations of each Borrower and each Subsidiary of each Borrower comply
with all applicable federal, state and local environmental, health and safety
statutes, regulations, directions, ordinances, criteria and guidelines; (II) no
Borrower has received notice that any of the operations of such Borrower or any
of its Subsidiaries is the subject of any judicial or administrative proceeding
alleging the violation of any federal, state or local environmental, health or
safety statute, regulation, direction, ordinance, criteria or guideline; (III)
none of the operations of such Borrower or any of its Subsidiaries is the
subject of any federal or state investigation evaluating whether such Borrower
or any of its Subsidiaries disposed of any hazardous or toxic waste, substance
or constituent or other substance at any site that may require remedial action,
or any federal or state investigation evaluating whether any remedial action is
needed to respond to a release of any hazardous or toxic waste, substance or
constituent or other substance into the environment; (IV) no Borrower nor any
Subsidiary of any Borrower has filed any notice under any federal or state law
indicating past or present treatment, storage or disposal of a hazardous or
toxic waste, substance or constituent or reporting a spill or release of a
hazardous or toxic waste, substance or constituent or other substance into the
environment; and (V) no Borrower nor any Subsidiary of any Borrower has any
contingent liability of which the Borrower has knowledge, or reasonably should
have knowledge, in connection with any release or potential release of any
hazardous or toxic waste, substance or constituent or other substance into the
environment, nor has the Borrower or any of its Subsidiaries received any
notice, letter or other indication of potential liability arising from the
disposal of any hazardous or toxic waste, substance or constituent or other
substance into the environment.
6.18 INTELLECTUAL PROPERTY.
Each Borrower and each Subsidiary of each Borrower possesses such
assets, licenses, patents, patent applications, copyrights, service marks,
trademarks and trade names as are necessary or advisable to continue to conduct
their respective present and proposed business activities.
6.19 LICENSES AND PERMITS.
Each Borrower and each Subsidiary of each Borrower has obtained and
holds in full force and effect, all franchises, licenses, leases, permits,
certificates, authorizations, qualifications, easements, rights of way and
other rights and
46
<PAGE> 53
approvals which are necessary or advisable for the operation of its business as
presently conducted and as proposed to be conducted.
6.20 TAXES AND TAX RETURNS.
(A) Except as set forth on SCHEDULE B, PART 6.20, all
income tax returns required to be filed by each Credit Party and each
Subsidiary of each Credit Party have been timely filed without request
for extension. The information filed is complete and accurate in all
material respects. All deductions taken in such income tax returns
are appropriate and in accordance with applicable laws and
regulations, except deductions that may have been disallowed but are
being challenged in good faith and for which adequate reserves have
been made in accordance with GAAP.
(B) All taxes, assessments, fees and other governmental
charges for periods beginning prior to the date hereof, other than
such taxes, assessments, fees and other governmental charges that are
not yet due and payable, have been timely paid and no Credit Party nor
any Subsidiary of any Credit Party has any liability for taxes in
excess of the amounts so paid or reserves so established.
(C) Except as set forth in SCHEDULE B, PART 6.20, no
material deficiencies for taxes have been claimed, proposed or
assessed by any taxing or other Governmental Authority against any
Credit Party or any Subsidiary of any Credit Party and no tax liens
have been filed. Except as set forth in SCHEDULE B, PART 6.20, there
are no pending or, to the knowledge of any Credit Party, threatened
audits, investigations or claims for or relating to any liability for
taxes and there are no matters under discussion with any Governmental
Authority which could reasonably be expected to result in a material
additional liability for taxes. As of the Closing Date, either the
federal income tax returns of each Borrower have been audited by the
Internal Revenue Service and such audits have been closed, or the
period during which any assessments may be made by the Internal
Revenue Service has expired without waiver or extension for all years
up to and including the fiscal year ended December 31, 1992. Except
as set forth in SCHEDULE B, PART 6.20, as of the Closing Date, no
extension of a statute of limitations relating to taxes, assessments,
fees or other governmental charges is in effect with respect to any
Credit Party or any Subsidiary of any Credit Party.
(D) Except as set forth on SCHEDULE B, PART 6.20, no
Credit Party nor any Subsidiary of any Credit Party has any obligation
under any written tax sharing agreement or agreement regarding
payments in lieu of taxes.
47
<PAGE> 54
6.21 MATERIAL CONTRACTS.
SCHEDULE B, PART 6.21, contains a true, correct and complete list of
all the Material Contracts in effect on the Closing Date. Except as described
on SCHEDULE B, PART 6.21, no Material Contract contains any burdensome
restrictions on any Credit Party or any Subsidiary of any Credit Party or any
of their respective properties that could prevent such Credit Party or
Subsidiary from conducting its business as conducted on the Closing Date. As
of the Closing Date, all of the Material Contracts are in full force and
effect, and no defaults currently exist thereunder by any Credit Party or
Subsidiary of a Credit Party that is a party thereto, or to the knowledge of
any Credit Party, any other party thereto.
6.22 ACCURACY AND COMPLETENESS OF INFORMATION.
All factual information furnished by or on behalf of any Credit Party
or any Subsidiary of any Credit Party in writing to the Agent or any Lender for
purposes of or in connection with this Credit Agreement or any Credit Documents
or any transaction contemplated hereby or thereby, is or will be true and
accurate in all material respects on the date as of which such information is
dated or certified and, taken as a whole, is not incomplete by omitting to
state any material fact necessary to make such information not misleading at
such time.
6.23 NO CHANGE.
Except as a result of the transactions and events disclosed on
SCHEDULE B, PART 6.23, since December 31, 1996, no event has occurred which has
had or could reasonably be expected to have a Material Adverse Effect.
ARTICLE 7. AFFIRMATIVE COVENANTS.
Until termination of this Credit Agreement and payment and
satisfaction of all Obligations due hereunder:
7.1 FINANCIAL REPORTING.
The Borrowers shall timely deliver to each Lender the following
information:
(A) AUDITOR'S ENGAGEMENT LETTER. As soon as available,
but in any event not later than the earlier of (I) 15 days prior to
the end of each fiscal year or (II) prior to the date the Auditors
commence work on the preparation of the annual audited Financial
Statement, a copy of the engagement letter between the Credit Parties
and their Auditors, which engagement letter shall notify such Auditors
that such annual
48
<PAGE> 55
audited Financial Statement will be delivered by the Credit Parties to
the Agent and Lenders, and stating that Agent and Lenders shall be
entitled to rely thereon with respect to the transactions which are
the subject of this Agreement.
(B) ANNUAL FINANCIAL STATEMENTS. As soon as available,
but not later than 90 days after each fiscal year end: (I) the annual
audited consolidated, and unaudited consolidating, Financial
Statements of the Consolidated Entity and of MTLM; (II) a comparison
in reasonable detail to the prior year annual audited and unaudited
Financial Statements; (III) the Auditors' unqualified opinion,
"Management Letter" (if any) and statement indicating whether the
Auditors have obtained knowledge of the existence of any Default or
Event of Default during their audit; (IV) a narrative discussion of
the consolidated financial condition and results of operations and the
consolidated liquidity and capital resources of the Consolidated
Entity for such fiscal year, prepared by the chief financial officer
of Isaac; and (V) a compliance certificate substantially in the form
of EXHIBIT F with an attached schedule of calculations demonstrating
compliance with the financial covenants set forth in ARTICLE 8.
(C) MONTHLY AND ANNUAL PROJECTIONS. Not later than 45
days after each fiscal year end, beginning with the fiscal year ended
December 31, 1997, monthly projections of the financial condition and
results of operations of the Consolidated Entity for the next
succeeding year, quarterly projections for the second succeeding year,
and annual projections for each succeeding fiscal year thereafter,
through and including the fiscal year in which the Expiration Date
will occur, in each case containing projected consolidating balance
sheets, statements of operations, statements of cash flows and
statements of changes in shareholders equity.
(D) QUARTERLY FINANCIAL STATEMENTS. As soon as
available, but not later than 45 days after each end of each of the
first three fiscal quarters, and 90 days after the end of the last
fiscal quarter: (I) Financial Statements of the Consolidated Entity
and of MTLM as of the fiscal quarter then ended, and for the fiscal
year to date; (II) a comparison in reasonable detail to the Financial
Statements for the corresponding periods of the prior fiscal year;
(III) the certification of the chief executive officer or chief
financial officer of MTLM that such Financial Statements have been
prepared in accordance with GAAP (subject to year-end audit
adjustments); (IV) a narrative discussion of the consolidated
financial condition and results of operations and the consolidated
liquidity and capital resources of the Consolidated Entity for such
fiscal quarter and fiscal year to date, prepared by the chief
financial officer of Isaac; and
49
<PAGE> 56
(V) a compliance certificate substantially in the form of EXHIBIT F
with an attached schedule of calculations demonstrating compliance
with the financial covenants set forth in ARTICLE 8.
(E) MONTHLY FINANCIAL STATEMENTS. As soon as available,
but not later than (I) 30 days after the end of each month (other than
the last month in each fiscal quarter), (II) 45 days after the end of
the last month in the first three fiscal quarters and (III) 90 days
after the end of the last month in the fourth fiscal quarter; (A) a
balance sheet for the Consolidated Entity and MTLM as at the end of
such month and for the fiscal year to date and statements of
operations and cash flows for such month and for the fiscal year to
date; (B) a comparison to the balance sheet, statement of operations
and statement of cash flows for the same periods in the prior year;
(C) a certification by the chief executive officer or chief financial
officer of Isaac that such balance sheet, statement of operations and
statement of cash flows have been prepared in accordance with GAAP
(subject to year-end audit adjustments); and (D) a compliance
certificate substantially in the form of EXHIBIT F with an attached
schedule of calculations demonstrating compliance with the financial
covenants set forth in ARTICLE 8.
(F) MONTHLY COMPARISON TO PRIOR PROJECTIONS. As soon as
available, but not later than 30 days after the end of each of the
first eleven months of each fiscal year, and 45 days after end of the
last month of each fiscal year, a comparison of actual results of
operations, cash flow and capital expenditures for the Consolidated
Entity and MTLM for such month and for the period from the beginning
of the current fiscal year through the end of such month with amounts
previously projected for those periods (see SECTION 7.1(C)) and with
actual results for corresponding periods in the previous fiscal year.
(G) PUBLIC REPORTING. Promptly upon their becoming
available, copies of all regular and periodic reports, proxy
statements and other materials, if any, filed by MTLM any Borrower
with the Securities and Exchange Commission, or any Governmental
Authority succeeding to any or all of the functions of such
Commission, or with any national securities exchange, or distributed
to the stockholders of any Borrower or MTLM.
7.2 COLLATERAL REPORTING.
The Borrowers shall timely deliver or cause to be delivered to the
Agent the following certificates and reports:
50
<PAGE> 57
(A) WEEKLY AND MONTHLY BORROWING BASE CERTIFICATES.
Weekly, before 12:00 noon on the third Business Day of each week
(except the last week of each month), monthly, within three (3)
Business Days after the last Business Day of each month, and at any
other time reasonably requested by the Agent, a Borrowing Base
Certificate, which shall be: (I) substantially in the form of EXHIBIT
A, detailing the Eligible Accounts Receivable and Eligible Inventory,
in each case of each of the Borrowers, PROVIDED, HOWEVER, Eligible
Inventory shall be updated only on monthly Borrowing Base
Certificates, as of each Friday of the immediately preceding week (if
a weekly Borrowing Base Certificate), or as of the last Business Day
of the immediately preceding month (if a monthly Borrowing Base
Certificate), or as of such other date as the Agent may request; and
(II) prepared by or under the supervision of the chief executive
officer or chief financial officers of each Borrower and certified by
such officer subject only to adjustment upon completion of the normal
annual audit of physical inventory. Each Borrowing Base Certificate
shall have attached to it such additional schedules and other
information as the Agent may reasonably request, including, without
limitation, an aging of Accounts.
(B) APPRAISALS. When requested by the Agent, (I) so long
as an Event of Default shall not have occurred and be continuing, not
more than once in any fiscal year of the Isaac Funds Administrator and
(II) following the occurrence and during the continuance of an Event
of Default, at any time, a report of Inventory of each Borrower, based
upon a physical count, which shall describe each Borrower's Inventory
by category and by item (in reasonable detail) and report the then
appraised value (at lower of cost or market) of such Inventory.
(C) FURTHER ASSURANCES. When requested by the Agent, any
further information regarding the Collateral, business affairs and
financial condition of Isaac, any other Credit Party or any Subsidiary
of any Credit Party.
7.3 NOTIFICATION REQUIREMENTS.
The Borrowers shall timely give to the Agent and each of the Lenders
the following notices:
(A) NOTICE OF DEFAULTS. Promptly, and in any event
within five (5) Business Days after becoming aware of the occurrence
of a Default or Event of Default, a certificate of the chief executive
officer or chief financial officer of the Isaac Funds Administrator
specifying the nature thereof and the proposed response of the Credit
Parties with respect thereto, each in reasonable detail.
51
<PAGE> 58
(B) PROCEEDINGS OR ADVERSE CHANGES. Promptly, and in any
event within five (5) Business Days after any Credit Party becomes
aware of (I) any proceedings being instituted or threatened to be
instituted by or against such Credit Party or any of its Subsidiaries
in any federal, state, local or foreign court or before any commission
or other regulatory body (federal, state, local or foreign), (II) any
order, judgment or decree in excess of $250,000 being entered against
such Credit Party or any of its Subsidiaries or any of their
respective properties or assets or (III) any actual or prospective
change, development or event which has had or could reasonably be
expected to have a Material Adverse Effect, a written statement
describing such proceeding, order, judgment, decree, change,
development or event and any action being taken with respect thereto
by such Credit Party or such Subsidiary.
(C) ERISA NOTICES. (I) Promptly, and in any event within
ten (10) Business Days after any Borrower, any Subsidiary of any
Borrower or any ERISA Affiliate knows or has reason to know that a
Termination Event has occurred, a written statement of the chief
financial officer of Isaac Funds Administrator describing such
Termination Event and any action that is being taken with respect
thereto by such Borrower, such Subsidiary or such ERISA Affiliate, and
any action taken or threatened by the Internal Revenue Service,
Department of Labor or Pension Benefit Guaranty Corporation. Each
Borrower, each Subsidiary of each Borrower and each ERISA Affiliate
shall be deemed to know all facts known by the administrator of any
Benefit Plan of which it is the plan sponsor; (II) promptly, and in
any event within three (3) Business Days after the filing thereof with
the Internal Revenue Service, a copy of each funding waiver request
filed with respect to any Benefit Plan and all communications received
by any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate
with respect to such request; and (III) promptly, and in any event
within three (3) Business Days after receipt by any Borrower, any
Subsidiary of any Borrower or any ERISA Affiliate, of the PBGC's
intention to terminate a Benefit Plan or to have a trustee appointed
to administer a Benefit Plan, copies of each such notice.
(D) ENVIRONMENTAL AND HEALTH AND SAFETY NOTICES.
Promptly, and in any event within ten (10) Business Days after receipt
by any Credit Party or any Subsidiary of any Credit Party of any
notice, complaint or order alleging any actual or prospective
violation of any environmental, health or safety Requirement of Law or
alleging responsibility for costs of a cleanup, together with a copy
of such notice, complaint, or order and a written statement describing
any action being taken with respect thereto by such Credit Party or
Subsidiary.
52
<PAGE> 59
(E) MATERIAL CONTRACTS. Promptly, and in any event
within ten (10) Business Days after any Material Contract of any
Credit Party or any Subsidiary of any Credit Party is terminated or
amended or any new Material Contract is entered into, a written
statement describing such event, with copies of amendments or new
contracts, and an explanation of any actions being taken with respect
thereto.
(F) COLLATERAL MATTERS. At least thirty (30) Business
Days prior written notice to the Agent of any additional location of
any Collateral of any Borrower or in the location of the chief
executive office or places of business of any Borrower or any
Subsidiary of any Borrower from the respective locations specified in
SCHEDULE B, PART 6.10. At least twenty (20) Business Days prior to
any such change, the Borrowers shall cause to be executed and
delivered to the Agent any financing statements or other documents
reasonably required by the Agent, all in form and substance reasonably
satisfactory to the Agent.
7.4 CORPORATE EXISTENCE.
Each Borrower shall, and shall cause each of its Subsidiaries to, (I)
maintain its corporate existence (except that Subsidiaries of a Borrower may
merge with each other and with such Borrower, PROVIDED, THAT the Agent receives
five (5) Business Days prior written notice thereof), (II) maintain in full
force and effect all licenses, bonds, franchises, leases, trademarks and
qualifications to do business, and all patents, contracts and other similar
rights necessary or advisable for the profitable conduct of their businesses,
(III) continue in, and limit their operations to, the same general lines of
business as presently conducted by them and (IV) in the case of each Borrower,
maintain all material terms and provisions of its corporate charter and bylaws
in the form in effect on the Closing Date.
7.5 BOOKS AND RECORDS; INSPECTIONS.
Each Borrower agrees to maintain, and to cause each of its
Subsidiaries to maintain, books and records pertaining to the Collateral in
such detail, form and scope as is consistent with good business practice. Each
Borrower agrees that the Agent, or its agents, may enter upon the premises of
such Borrower or any of its Subsidiaries at any time and from time to time,
during normal business hours and upon reasonable notice under the
circumstances, and at any time at all upon the occurrence and during the
continuance of an Event of Default, for the purposes of (I) inspecting and
verifying the Collateral, (II) inspecting and/or copying (at the expense of
such Borrower) any and all records pertaining thereto, and (III) discussing the
affairs, finances and business of such Borrower with the Auditors or any
officers, employees and directors of such Borrower.
53
<PAGE> 60
7.6 INSURANCE.
Each Borrower agrees to maintain, and to cause each of its
Subsidiaries to maintain, public liability insurance, fire and extended
coverage insurance and replacement value insurance on the Collateral under such
policies of insurance, with such insurance companies, in such amounts and
covering such risks as are at all times satisfactory to the Agent in its
commercially reasonable judgment; provided, that the Agent acknowledges that
the insurance coverage maintained by the Borrowers and disclosed in writing to
the Agent, in each case on or prior to the Closing Date, satisfies the
foregoing requirements. All policies covering the Collateral are to name the
Agent as an additional insured and/or the loss payee in case of loss, and are
to contain such other provisions as the Agent may reasonably require to fully
protect the Agent's interest in the Collateral and to any payments to be made
under such policies.
7.7 TAXES.
Each Borrower agrees to pay, when due, and to cause each of its
Subsidiaries to pay when due, all taxes lawfully levied or assessed against
such Borrower, such Subsidiary or any of the Collateral before any penalty or
interest accrues thereon; PROVIDED, THAT, unless such taxes have become a
federal tax or ERISA Lien on any of the assets of such Credit Party or such
Subsidiary, no such tax need be paid if the same is being contested, in good
faith, by appropriate proceedings promptly instituted and diligently conducted
and if an adequate reserve or other appropriate provision shall have been made
therefor as required in order to be in conformity with GAAP.
7.8 COMPLIANCE WITH LAWS.
Each Borrower agrees to comply, and to cause each of its Subsidiaries
to comply, in all material respects with all Requirements of Law applicable to
the Collateral or any part thereof, or to the operation of its business or its
assets generally, unless such Credit Party contests any such Requirements of
Law in a reasonable manner and in good faith.
7.9 USE OF PROCEEDS.
The Borrowers shall use the initial extension of credit under the Line
of Credit for the issuance of the Isaac Sellers Letter of Credit and to pay the
costs and expenses of the transactions contemplated by the Acquisition
Documents and by this Credit Agreement, including without limitation the Fees
and Expenses payable pursuant to ARTICLE 4 hereof. The proceeds of subsequent
Revolving Loans and other extensions of credit made hereunder shall be used by
the Borrowers solely for ongoing working capital requirements and other general
corporate purposes. No Borrower
54
<PAGE> 61
shall use any portion of the proceeds of any Revolving Loans for the purpose of
purchasing or carrying any "margin stock" (as defined in Regulation G) in any
manner which violates the provisions of Regulation G or X or of the terms and
conditions of this Credit Agreement or any other Credit Document.
7.10 FISCAL YEAR.
Each Borrower agrees to maintain, and to cause each of its
Subsidiaries to maintain, its fiscal year as a year ending December 31st.
7.11 MAINTENANCE OF PROPERTY.
Except to the extent otherwise expressly permitted pursuant to SECTION
8.6, each Borrower agrees to keep, and to cause each of its Subsidiaries to
keep, all property useful and necessary to their respective businesses in good
working order and condition (ordinary wear and tear excepted) in accordance
with their past operating practices and not to commit or suffer any waste with
respect to any of their properties.
7.12 ERISA DOCUMENTS.
Each Borrower will cause to be delivered to the Agent, upon the
Agent's request, each of the following: (I) a copy of each Plan (or, where any
such plan is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written descriptions thereof
that have been distributed to employees or former employees of such Borrower or
any of its Subsidiaries; (II) the most recent determination letter issued by
the Internal Revenue Service with respect to each Benefit Plan; (III) for the
three most recent plan years, Annual Reports on Form 5500 Series required to be
filed with any governmental agency for each Benefit Plan; (IV) all actuarial
reports prepared for the last three plan years for each Benefit Plan; (V) a
listing of all Multiemployer Plans, with the aggregate amount of the most
recent annual contributions required to be made by such Borrower or any ERISA
Affiliate to each such plan and copies of the collective bargaining agreements
requiring such contributions; (VI) any information that has been provided to
such Borrower or any ERISA Affiliate regarding withdrawal liability under any
Multiemployer Plan; and (VII) the aggregate amount of the most recent annual
payments made to former employees of such Borrower or any ERISA Affiliate under
any Retiree Health Plan.
55
<PAGE> 62
7.13 ENVIRONMENTAL AND OTHER MATTERS.
(A) Each Borrower shall, and shall cause each of its
Subsidiaries to, conduct their businesses so as to comply in all
material respects with all environmental, land use, occupational,
safety or health laws, regulations, directions, ordinances, criteria
and guidelines in all jurisdictions in which any of them is or may at
any time be doing business, except to the extent that such Borrower or
such Subsidiary is contesting, in good faith by appropriate legal
proceedings, any such law, regulation, direction, ordinance, criteria,
guideline, or interpretation thereof or application thereof; PROVIDED,
THAT such Borrower and each of its Subsidiaries shall comply with the
order of any court or other Governmental Authority relating to such
laws unless such Borrower or such Subsidiary shall currently be
prosecuting an appeal or proceedings for review and shall have secured
a stay of enforcement or execution or other arrangement postponing
enforcement or execution pending such appeal or proceedings for
review.
(B) If the Agent reasonably believes, or the Majority
Lenders reasonably believe, that the facts or circumstances evidence
or suggest that any Borrower or any Subsidiary of any Borrower is in
material non-compliance with any environmental law and that such
non-compliance could reasonably be expected to have a Material Adverse
Effect, then at the written request of the Agent or the Majority
Lenders, which request shall specify in reasonable detail the basis
therefor, at any time and from time to time, such Borrower will
provide at its sole cost and expense a Phase I or Phase II
environmental site assessment report or update report concerning the
site owned, operated or leased by such Borrower or such Subsidiary in
respect of which such material non-compliance is believed to have
occurred and be continuing, such report to be prepared by an
environmental consulting firm approved by the Agent and the Majority
Lenders, indicating the presence, release or absence of hazardous
materials on or from such site and the potential cost of any removal,
remedial or corrective action in connection with any such hazardous
materials on such site.
7.14 FURTHER ACTIONS.
Each Borrower shall take, and shall cause each of its Subsidiaries to
take, all such further actions and execute all such further documents and
instruments as the Agent may at any time reasonably determine to be necessary
or desirable to further carry out and consummate the transactions contemplated
by the Credit Documents, to cause the execution, delivery and performance of
the Credit Documents to be duly authorized and to perfect or protect the Liens
(and the priority status thereof) of the Agent on the Collateral.
56
<PAGE> 63
7.15 DEPOSIT OF COLLECTIONS AND OTHER PROCEEDS OF COLLATERAL.
From and after the Closing Date, Borrowers shall cause all Collections
on all Accounts of Borrowers, and all other cash payments made for Inventory of
Borrowers, and all other payments of any kind constituting proceeds of
Collateral received by or for the account any Borrower from any Person,
promptly upon receipt thereof to be deposited into a Collection Account or the
BT Account in the identical form in which such payment was made, whether by
cash or check.
ARTICLE 8. NEGATIVE COVENANTS.
Until termination of this Credit Agreement and payment and
satisfaction of all Obligations due hereunder, each Borrower shall comply with,
and, where required, shall cause each of its Subsidiaries to comply with, the
following covenants:
8.1 MINIMUM EBITDA.
The Borrowers shall not permit EBITDA to be less than (I) $1,600,000,
for the four-month period ending as of September 30, 1997, (II) $2,800,000, for
the seven-month period ending as of December 31, 1997 and (III) $3,600,000, for
the nine-month period ending as of February 28, 1998.
8.2 CAPITAL EXPENDITURES.
The Borrowers shall not make payments for Capital Expenditures in the
aggregate for all Borrowers during the fiscal year of the Consolidated Entity
ending December 31, 1997, and during any fiscal year of the Consolidated Entity
ending thereafter, in an amount greater than $1,500,000.
8.3 ADDITIONAL INDEBTEDNESS. No Borrower nor any Subsidiary of
any Borrower shall directly or indirectly incur, create, assume or suffer to
exist any Indebtedness other than:
(A) Indebtedness under the Credit Documents;
(B) Indebtedness in the ordinary course of business under
Interest Rate Agreements, in each case in form and substance
satisfactory to the Agent;
(C) Indebtedness of any Subsidiary of any Borrower to
such Borrower or any other Subsidiary of such Borrower;
(D) Indebtedness described on SCHEDULE B, PART 8.3 and
any refinancing of such Indebtedness, so long as the aggregate
principal amount of the Indebtedness so refinanced shall not be
increased and the refinancing shall be on terms and
57
<PAGE> 64
conditions no more restrictive than the terms and conditions of the
Indebtedness to be refinanced;
(E) Indebtedness secured by purchase money Liens on
equipment acquired after the date of this Credit Agreement not to
exceed $1,000,000 in the aggregate for all of the Credit Parties
outstanding at any one time ("PURCHASE MONEY LIENS") so long as (I)
each Purchase Money Lien shall attach only to the property to be
acquired, (II) a description shall have been furnished to the Agent
for any item of equipment for which the purchase price is greater than
$250,000 and (III) the debt incurred shall not exceed one hundred
percent (100%) of the purchase price of the item or items of equipment
purchased; and
(F) The Richard and Renee Notes.
8.4 LIENS.
No Borrower nor any Subsidiary of any Borrower shall directly or
indirectly create, incur, assume, or suffer to exist any Lien on any of its
property now owned or hereafter acquired except:
(A) Liens granted to the Agent under the Credit
Documents;
(B) Liens listed on SCHEDULE B, PART 8.4;
(C) Purchase Money Liens permitted under SECTION 8.3;
(D) Liens of warehousemen, mechanics, materialmen,
workers, repairmen, common carriers, or landlords, liens for taxes,
assessments or other governmental charges, and other similar Liens
arising by operation of law, in each case for amounts that are not yet
due and payable or that are being diligently contested in good faith
by a Borrower or Subsidiary of a Borrower, so long as the Agent has
been notified thereof and adequate reserves are maintained by such
Person for their payment in accordance with GAAP;
(E) Attachment or judgment Liens not to exceed an
aggregate of $250,000 for the Borrowers and their Subsidiaries,
excluding amounts (I) bonded to the reasonable satisfaction of the
Agent or (II) covered by insurance to the reasonable satisfaction of
the Agent;
(F) Deposits or pledges to secure obligations under
workmen's compensation, social security or similar laws, under
unemployment insurance, or to secure public or statutory obligations
not to exceed an aggregate of $500,000 for all Borrowers;
58
<PAGE> 65
(G) Deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds and other obligations
of like nature arising in the ordinary course of business not to
exceed an aggregate of $500,000 for all Borrowers;
(H) Easements, rights-of-way, restrictions and other
similar encumbrances on title to, or restrictions on the use of, real
property, which, in the aggregate, do not materially detract from the
value of the item of property subject thereto or materially interfere
with the ordinary conduct of the business of any Borrower or any of
its Subsidiaries;
(I) Extensions and renewals of any of the foregoing so
long as the aggregate amount of extended or renewed Liens are not
increased and are on terms and conditions no more restrictive than the
terms and conditions of the Liens extended or renewed.
8.5 CONTINGENT OBLIGATIONS.
No Borrower nor any Subsidiary of any Borrower shall directly or
indirectly incur, assume, or suffer to exist any Contingent Obligation,
excluding Contingent Obligations for Indebtedness permitted to be incurred
under SECTION 8.3, and Investments permitted under Section 8.8.
8.6 SALE OF ASSETS.
No Borrower shall, or shall permit any of its Subsidiaries to,
directly or indirectly, sell, lease, assign, transfer or otherwise dispose of
any assets other than (I) Inventory in the ordinary course of business; (II)
obsolete or worn out property disposed of in the ordinary course of business;
and (III) dispositions of assets not otherwise permitted under this SECTION
8.6, PROVIDED, THAT, (A) such dispositions are for fair value, (B) the
aggregate consideration is paid in cash at the time of disposition and is
thereupon delivered to the Agent for application to the outstanding principal
balance of the Revolving Loans and (C) the aggregate amount of all such
dispositions does not exceed $150,000 in the aggregate for any fiscal year.
8.7 RESTRICTED PAYMENTS.
No Borrower shall, or shall permit any of its Subsidiaries to,
directly or indirectly, (A) declare or pay any dividend (other than dividends
payable solely in capital stock of such Person) on, or make any payment on
account of, or set apart assets for a sinking or other analogous fund for, the
purchase, redemption, defeasance, retirement or other acquisition of, any
shares of any class of capital stock of such Person or any warrants, options or
rights to
59
<PAGE> 66
purchase any such capital stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of such Person or any of its
Subsidiaries; (B) make any optional payment or optional prepayment on or
optional redemption (including, without limitation, by making payments to a
sinking or analogous fund) or optional repurchase of any Indebtedness (other
than Indebtedness pursuant to this Credit Agreement); PROVIDED, THAT,
notwithstanding the foregoing:
(I) any Subsidiary of any Borrower may make payments or
prepayments on account of Indebtedness owing to any Borrower or any
Subsidiary of any Borrower;
(II) any Subsidiary of any Borrower may declare and pay
dividends to such Borrower or any Subsidiary of such Borrower; and
(III) so long as, in each case, before and after giving
effect thereto, no Default or Event of Default shall have occurred and
be continuing, Borrowers may make (A) distributions to MTLM to permit
the payment by MTLM of regularly scheduled payments of interest under
the Isaac Seller Notes and (B) other distributions to MTLM, PROVIDED
that the aggregate amount of distributions made pursuant to this
CLAUSE (B) shall not exceed $500,000 in any fiscal year of the
Consolidated Entity.
8.8 INVESTMENTS.
No Borrower shall, or shall permit any of its Subsidiaries to,
directly or indirectly, make any Investment in any Person, whether in cash,
securities, or other property of any kind including, without limitation, any
Subsidiary or Affiliate of any Credit Party, other than:
(A) Advances or loans made in the ordinary course of business
not to exceed $100,000 outstanding at any time to any one Person and
$300,000 in the aggregate for all Credit Parties outstanding at any
one time;
(B) Loans, investments and advances between a Borrower and
any other Borrower;
(C) Cash Equivalents;
(D) Investments in account debtors received in connection
with the bankruptcy or reorganization, or in settlement of delinquent
obligations of customers, in the ordinary course of business and in
accordance with applicable collection and credit policies established
by such Borrower or such Subsidiary, as the case may be;
60
<PAGE> 67
(E) such other Investments as the Agent may approve in
writing in the exercise of its sole discretion.
8.9 AFFILIATE TRANSACTIONS.
No Borrower shall, or shall permit any of its Subsidiaries to,
directly or indirectly, enter into any transaction with (including, without
limitation, the purchase, sale or exchange of property or the rendering of any
service to) any Subsidiary or Affiliate of any Borrower, except in the ordinary
course of and pursuant to the reasonable requirements of such Borrower's or
such Subsidiary's business, as the case may be, and upon fair and reasonable
terms no less favorable in any material respect to Borrower or such Subsidiary
than could be obtained in a comparable arm's-length transaction with an
unaffiliated Person, except for transactions otherwise permitted under SECTIONS
8.7, 8.8 and 8.3(F).
8.10 ADDITIONAL BANK ACCOUNTS.
From and after the Closing Date, no Borrower shall, or shall permit
any of its Subsidiaries to, directly or indirectly, open, maintain or otherwise
have any checking, savings or other accounts at any bank or other financial
institution, or any other account where money is or may be deposited or
maintained with any Person, other than the Disbursement Account and the
accounts set forth on SCHEDULE B, PART 8.10.
8.11 ADDITIONAL NEGATIVE PLEDGES.
Except as otherwise disclosed on SCHEDULES 8.3 or 8.4, no Borrower
shall, or shall permit any of its Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective, (A) any
prohibition or restriction (including any agreement to provide equal and
ratable security to any other Person in the event a Lien is granted to or for
the benefit of the Agent and the Lenders) on the creation or existence of any
Lien upon the assets of such Borrower or any of its Subsidiaries; or (B) any
contractual obligation which may restrict or inhibit the Agent's rights or
ability to sell or otherwise dispose of the Collateral or any part thereof
after the occurrence of an Event of Default.
8.12 ADDITIONAL SUBSIDIARIES.
No Borrower shall, or shall permit any of its Subsidiaries to,
directly or indirectly, form or acquire any new Subsidiaries.
8.13 CHANGES TO ACQUISITION DOCUMENTS.
No Borrower shall, or shall permit any of its Subsidiaries to, amend,
restate, supplement or otherwise modify in any respect any of the Acquisition
Documents, except for any of the foregoing which
61
<PAGE> 68
singly or in the aggregate could not reasonably by expected to have a material
and adverse effect on (A) any Borrower's ability to perform and satisfy its
obligations and liabilities under this Agreement or any of the other Credit
Documents or (B) any right or remedies of Agent or any Lender under this
Agreement or any of the other Credit Documents, and in any event (I) which
would not result in any increase in the amount of any payment or distribution
by any Borrower to any other Person thereunder, and (II) do not increase in any
material respect the obligations of any Borrower or confer additional material
rights on any other Person thereunder and (III) are not otherwise expressly
prohibited by the terms of any of the Credit Documents.
ARTICLE 9. EVENTS OF DEFAULT AND REMEDIES.
9.1 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an
event of default (each an "EVENT OF DEFAULT") hereunder:
(A) FAILURE TO PAY. The Borrowers shall fail to pay any
Obligations in respect of principal on the Revolving Loans or interest
on the Revolving Loans, in each case when the same shall become
payable or shall fail to pay, within five (5) days after the same
shall become payable, any other amount due under this Agreement or any
of the other Credit Documents.
(B) BREACH OF CERTAIN COVENANTS. Any Borrower shall fail
to comply with any covenant contained in ARTICLE 7 (other than SECTION
7.4, 7.7, 7.8, 7.11, 7.12 and 7.13) or ARTICLE 8.
(C) BREACH OF REPRESENTATION OR WARRANTY. Any
representation or warranty made or deemed to be made by any Credit
Party in this Credit Agreement or in any other Credit Document (and in
any statement or certificate given under this Credit Agreement or any
other Credit Document), shall be false or misleading in any material
respect when made or deemed to be made.
(D) BREACH OF OTHER COVENANTS. Any Credit Party shall
fail to comply with any covenant contained in this Credit Agreement or
any other Credit Document, other than as set forth in SECTION 9.1(B),
and such failure shall continue for ten (10) days after the Isaac
Funds Administrator receives notice of such failure from Agent.
(E) DISSOLUTION. Any Credit Party shall dissolve, wind
up or otherwise cease its business.
(F) INSOLVENCY EVENT. Any Credit Party shall become the
subject of an Insolvency Event.
62
<PAGE> 69
(G) CHANGE OF CONTROL. MTLM shall cease for any reason
to be the record and beneficial owner of one hundred percent (100%) of
all of the issued and outstanding capital stock of each of the
Borrowers.
(H) CROSS DEFAULT. A default or event of default shall
occur (and continue beyond any applicable grace period) under any
note, agreement or instrument evidencing any other Indebtedness of any
Credit Party or any Subsidiary of any Credit Party, which default or
event of default permits the acceleration of its maturity, PROVIDED
THAT the aggregate principal amount of all such Indebtedness for which
the default or event of default has occurred exceeds $200,000.
(I) FAILURE OF ENFORCEABILITY OF CREDIT DOCUMENTS;
SECURITY. Any covenant, agreement or obligation of any Credit Party
contained in or evidenced by any of the Credit Documents shall cease
to be enforceable, or shall be determined to be unenforceable, in
accordance with its terms; any Credit Party shall deny or disaffirm
its obligations under any of the Credit Documents or any Liens granted
in connection therewith; or, any Liens granted on any of the
Collateral shall be determined to be void, voidable, invalid or
unperfected, are subordinated or not given the priority contemplated
by this Credit Agreement.
(J) FAILURE OF MERGER. The office of the Secretary of
State of Ohio shall reject the certificate of merger filed in
connection with the Merger, and such certificate of merger is not
re-submitted by Borrowers to the office of the Secretary of State of
Ohio, and accepted as corrected within the appropriate time limit set
by the laws of the State of Ohio.
9.2 ACCELERATION, TERMINATION OF COMMITMENTS AND CASH
COLLATERALIZATION.
Upon the occurrence and during the continuance of any Event of
Default, without prejudice to the rights of the Agent or any Lender to enforce
its claims against the Credit Parties:
(A) ACCELERATION. Upon the written request of the
Majority Lenders and by delivery of written notice to the Isaac Funds
Administrator from the Agent, all Obligations shall be immediately due
and payable (except with respect to any Event of Default set forth in
SECTION 9.1(F), in which case all Obligations shall automatically
become immediately due and payable without the necessity of any
request of the Majority Lenders or notice or other demand to the Isaac
Funds Administrator or any of the Borrowers) without presentment,
demand, protest or any other action or obligation of the Agent or any
Lender.
63
<PAGE> 70
(B) TERMINATION OF COMMITMENTS. Upon the written request
of the Majority Lenders, and by delivery of written notice to the
Isaac Funds Administrator from the Agent (except with respect to any
Event of Default set forth in SECTION 9.1(F)), in which case all of
the Commitments shall automatically and immediately terminate without
the necessity of any request of the Majority Lenders or notice or
other demand to the Isaac Funds Administrator or any of the Borrowers)
the Commitments shall be immediately terminated and, at all times
thereafter, all Revolving Loans made by any Lender pursuant to this
Credit Agreement shall be at such Lender's sole discretion, unless
such Event of Default is waived in accordance with SECTION 11.11, in
which case the Commitments shall be automatically reinstated.
(C) CASH COLLATERALIZATION. On demand of the Agent or
the Majority Lenders, the Borrowers shall immediately deposit with the
Agent for each Letter of Credit then outstanding, cash or Cash
Equivalents in an amount equal to 100% of the greatest amount drawable
thereunder. Such deposit shall be held by the Agent and used to
reimburse the Issuing Bank for the amount of each drawing made under
such Letters of Credit, as and when each such drawing is made.
9.3 RESCISSION OF ACCELERATION.
After acceleration of the maturity of all or any part of the
Obligations, if the Borrowers pay all accrued interest and all principal due
(other than by reason of the acceleration) and all Events of Default are waived
in accordance with SECTION 11.11, the Majority Lenders may elect in their sole
discretion, to rescind the acceleration and return to the Borrowers any cash
collateral, if any, deposited with the Agent pursuant to SECTION 9.2(C). (This
Section is intended only to bind all of the Lenders to a decision of the
Majority Lenders and not to confer any right on the Borrowers, even if the
described conditions for the Majority Lenders' election may be met.)
9.4 REMEDIES.
Upon the occurrence and during the continuance of an Event of Default,
upon the written request and at the direction of the Majority Lenders, the
Agent may exercise any rights and remedies available to it under applicable law
(including under the Code) and under the Collateral Documents. The foregoing
rights and remedies are not intended to be exhaustive and the full or partial
exercise of any right or remedy shall not preclude the full or partial exercise
of any other right or remedy available under this Credit Agreement, any other
Credit Document, at equity or at law.
64
<PAGE> 71
9.5 RIGHT OF SETOFF.
In addition to and not in limitation of all rights of offset that any
Lender may have under applicable law, upon the occurrence and during the
continuance of any Event of Default, and whether or not any Lender has made any
demand or the Obligations of any Credit Party have matured, each Lender shall
have the right to appropriate and apply to the payment of the Obligations of
such Credit Party all deposits and other obligations then or thereafter owing
by such Lender to such Credit Party. Each Lender exercising such rights shall
notify the Agent thereof and any amount received as a result of the exercise of
such rights shall be shared by the Lenders in accordance with SECTION 2.5.
9.6 LICENSE OF USE OF SOFTWARE AND OTHER INTELLECTUAL PROPERTY.
Unless expressly prohibited by the licensor thereof, if any, the Agent
is hereby granted a license to use all computer software programs, data bases,
processes and materials used by the Borrowers in connection with their
respective businesses or in connection with any Collateral. The Agent agrees
not to use any such license prior to the occurrence of an Event of Default.
9.7 APPLICATION OF PROCEEDS; SURPLUS; DEFICIENCIES.
The net cash proceeds resulting from the Agent's exercise of any of
the foregoing rights against any Collateral (after deducting all of the Agent's
Expenses related thereto) shall be applied by the Agent to the payment of the
Obligations, whether due or to become due, in the order set forth in SECTION
4.11. The Borrowers shall remain liable to the Agent and the Lenders for any
deficiencies, and the Agent and the Lenders in turn agree to remit to the
Borrowers or its successors or assigns, any surplus resulting therefrom.
ARTICLE 10. THE AGENT.
10.1 APPOINTMENT OF AGENT.
(A) Each Lender hereby designates BTCC as Agent to act as
herein specified. Each Lender hereby irrevocably authorizes, and each
holder of any Revolving Note, by the acceptance of such Note, shall be
deemed irrevocably to authorize the Agent to take such action on its
behalf under the provisions of this Credit Agreement and the other
Credit Documents and any other instruments and agreements referred to
herein and therein and to exercise such powers and to perform such
duties hereunder and thereunder as are specifically delegated to or
required of the Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto. The Agent
65
<PAGE> 72
shall hold all Collateral and all payments of principal, interest,
Fees (other than Fees that are exclusively for the account of the
Agent), charges and Expenses received pursuant to this Credit
Agreement or any other Credit Document for the ratable benefit of the
Lenders. The Agent may perform any of its duties hereunder by or
through its agents or employees.
(B) Other than rights of the Credit Parties under SECTION
10.9, the provisions of this ARTICLE 10 are for the benefit of the
Agent and the Lenders only and none of the Credit Parties or any other
Persons shall have any rights as a third party beneficiary of any of
the provisions hereof. In performing its functions and duties under
this Credit Agreement and the other Credit Documents, the Agent shall
act only for the Lenders and does not assume and shall not be deemed
to have assumed any obligation toward or relationship of agency or
trust with or for any Credit Party.
10.2 NATURE OF DUTIES OF AGENT.
The Agent has no duties or responsibilities except those expressly set
forth in the Credit Documents. Neither the Agent nor any of its officers,
directors, employees or agents shall be liable for any action taken or omitted
hereunder or in connection herewith, unless caused by its or their gross
negligence or willful misconduct. The duties of the Agent shall be mechanical
and administrative in nature; the Agent shall not have by reason of this
Credit Agreement or any of the other Credit Documents a fiduciary relationship
in respect of any Lender or any participant of any Lender; and nothing in this
Credit Agreement or any other Credit Document, expressed or implied, is
intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Credit Agreement or any other Credit Document,
except as expressly set forth herein or therein.
10.3 LACK OF RELIANCE ON AGENT.
(A) Independently and without reliance upon the Agent,
each Lender, to the extent it deems appropriate, has made and shall
continue to make (I) its own independent investigation of the
financial or other condition and affairs of each Credit Party in
connection with the taking or not taking of any action in connection
herewith and (II) its own appraisal of the creditworthiness of each
Credit Party, and, except as expressly provided in this Credit
Agreement, the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any
credit or other information with respect thereto, whether coming into
its possession before the making of the Revolving Loans or at any time
or times thereafter.
66
<PAGE> 73
(B) The Agent shall not be responsible to any Lender for
any recitals, statements, information, representations or warranties
herein or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness,
validity, enforceability, collectibility, priority or sufficiency of
this Credit Agreement or any of the other Credit Documents or the
financial or other condition of any Credit Party. The Agent shall not
be required to make any inquiry concerning either the performance or
observance of any other terms, provisions or conditions of this Credit
Agreement or any of the other Credit Documents, or the financial
condition of any Credit Party, or the existence or possible existence
of any Default or Event of Default, unless specifically requested to
do so in writing by any Lender.
10.4 CERTAIN RIGHTS OF THE AGENT.
The Agent shall have the right to request instructions from the
Lenders by notice to each of such Lenders. If the Agent shall request
instructions from the Lenders with respect to any act or action (including the
failure to act) in connection with this Credit Agreement, the Agent shall be
entitled to refrain from such act or taking such action unless and until the
Agent shall have received instructions from such Lenders, and the Agent shall
not incur liability to any Person by reason of so refraining. Without limiting
the foregoing, no Lender shall have any right of action whatsoever against the
Agent as a result of the Agent acting or refraining from acting hereunder in
accordance with the instructions of the requisite Lenders required to give such
instructions hereunder. The Agent may give any notice required under ARTICLE 9
hereof without the consent of any of the Lenders unless otherwise directed by
the Majority Lenders in writing and will, at the direction of the Majority
Lenders, give any such notice required under ARTICLE 9.
10.5 RELIANCE BY AGENT.
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, statement, certificate,
telex, teletype or telecopier message, cablegram, radiogram, order or other
documentary, facsimile or telephone message believed by it to be genuine and
correct and to have been signed, sent or made by the proper person. The Agent
may consult with legal counsel (including counsel for the Credit Parties with
respect to matters concerning the Credit Parties), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
67
<PAGE> 74
10.6 INDEMNIFICATION OF AGENT.
To the extent the Agent is not reimbursed and indemnified by the
Borrowers, each Lender will reimburse and indemnify the Agent, in proportion to
its respective Commitment, for and against all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including counsel fees and disbursements) or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in performing its duties hereunder, in any way relating to or arising out
of this Credit Agreement; PROVIDED, THAT no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct.
10.7 THE AGENT IN ITS INDIVIDUAL CAPACITY.
With respect to its obligation to lend under this Credit Agreement,
the Revolving Loans made by it and the Revolving Notes issued to it and its
participation in Letters of Credit issued hereunder, the Agent shall have the
same rights and powers hereunder as any other Lender or holder of a Revolving
Note or participation interests and may exercise the same as though it was not
performing the duties specified herein; and the terms "Lenders," "Lenders,"
"Majority Lenders," "holders of Revolving Notes," or any similar terms shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to,
acquire equity interests in, and generally engage in any kind of banking,
trust, financial advisory or other business with any Credit Party or any
Affiliate of any Credit Party as if it were not performing the duties specified
herein, and may accept fees and other consideration from any Credit Party for
services in connection with this Credit Agreement and otherwise without having
to account for the same to the Lenders.
10.8 HOLDERS OF NOTES.
The Agent may deem and treat the payee of any Revolving Note as the
owner thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof shall have been filed with the Agent. Any
request, authority or consent of any Person who, at the time of making such
request or giving such authority or consent, is the holder of any Revolving
Note, shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Revolving Note or of any Revolving Note or Revolving Notes
issued in exchange therefor.
10.9 SUCCESSOR AGENT.
68
<PAGE> 75
(A) The Agent may, upon five (5) Business Days' notice to
the Lenders and the Isaac Funds Administrator, resign at any time
(effective upon the appointment of a successor Agent pursuant to the
provisions of this SECTION 10.9) by giving written notice thereof to
the Lenders and the Isaac Funds Administrator. Upon any such
resignation, the Majority Lenders shall have the right, upon five (5)
days' notice and approval by the Credit Parties (which approval shall
not be unreasonably withheld or delayed) to appoint a successor Agent.
If no successor Agent shall have been so appointed by the Majority
Lenders and accepted such appointment, within thirty (30) days after
the retiring Agent's giving of notice of resignation, then the
retiring Agent may, on behalf of the Lenders, appoint a successor
Agent, which shall be a bank or a trust company or other financial
institution which maintains an office in the United States, or a
commercial bank organized under the laws of the United States of
America or of any State thereof, or any Affiliate of such bank or
trust company or other financial institution which is engaged in the
banking business, having a combined capital and surplus of at least
$500,000,000.
(B) Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Credit Agreement
and the other Credit Documents. After any retiring Agent's
resignation hereunder as Agent, the provisions of this ARTICLE 10
shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under or in connection with this Credit
Agreement.
10.10 COLLATERAL MATTERS.
(A) Each Lender authorizes and directs the Agent to enter
into the Collateral Documents for the benefit of the Lenders. Each
Lender hereby agrees, and each holder of any Revolving Note by the
acceptance thereof will be deemed to agree, that, except as otherwise
set forth herein or in the other Credit Documents, any action taken by
the Majority Lenders in accordance with the provisions of this Credit
Agreement and the other Credit Documents, and the exercise by the
Majority Lenders of the powers set forth herein or therein, together
with such other powers as are reasonably incidental thereto, shall be
authorized and binding upon all of the Lenders. The Agent is hereby
authorized on behalf of all of the Lenders, without the necessity of
any notice to or further consent from any Lender, from time to time so
long as an Event of Default shall not then exist, to take any action
with respect to any Collateral or Collateral Documents which
69
<PAGE> 76
may be necessary to perfect and maintain the perfection of the Liens
upon the Collateral granted pursuant to the Collateral Documents.
(B) The Lenders hereby authorize the Agent, at its option
and in its discretion, to release any Lien granted to or held by the
Agent upon any Collateral (I) upon termination of the Commitments and
payment and satisfaction of all of the Obligations at any time arising
under or in respect of this Credit Agreement or the other Credit
Documents or the transactions contemplated hereby or thereby or (II)
if approved, authorized or ratified in writing by the Majority
Lenders, unless such release is required to be approved by all of the
Lenders pursuant to SECTION 11.11. Upon request by the Agent at any
time, the Lenders will confirm in writing the Agent's authority to
release particular types or items of Collateral pursuant to this
SECTION 10.10.
(C) The Agent shall have no obligation whatsoever to the
Lenders or to any other Person to assure that the Collateral exists or
is owned by any Borrower or is cared for, protected or insured or that
the Liens granted to the Agent in or pursuant to any of the Collateral
Documents have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular
priority, or to exercise or to continue exercising at all or in any
manner or under any duty of care, disclosure or fidelity any of the
rights, authorities and powers granted or available to the Agent in
this SECTION 10.10 or in any of the Collateral Documents, it being
understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, the Agent may act in any manner it
may deem appropriate, in its sole discretion, given the Agent's own
interest in the Collateral as one of the Lenders and that the Agent
shall have no duty or liability whatsoever to the Lenders, except for
its gross negligence or willful misconduct. The Agent agrees to
conduct or cause to be conducted at least one audit of the Collateral
during each year that this Credit Agreement shall remain in effect.
10.11 ACTIONS WITH RESPECT TO DEFAULTS. In addition to the Agent's
right to take actions on its own accord as permitted under this Credit
Agreement, the Agent shall take such action with respect to a Default or Event
of Default as shall be directed by the Majority Lenders; PROVIDED, THAT until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable and in
the best interests of the Lenders.
10.12 DELIVERY OF INFORMATION. The Agent shall not be required to
deliver to any Lender originals or copies of any documents,
70
<PAGE> 77
instruments, notices, communications or other information received by the Agent
from any of the Credit Parties or any Subsidiary of any of the Credit Parties,
the Majority Lenders, any Lender or any other Person under or in connection
with this Credit Agreement or any other Credit Document except (I) as
specifically provided in this Credit Agreement or any other Credit Document and
(II) as specifically requested from time to time in writing by any Lender with
respect to a specific document, instrument, notice or other written
communication received by and in the possession of the Agent at the time of
receipt of such request and then only in accordance with such specific request.
ARTICLE 11. MISCELLANEOUS.
11.1 GOVERNING LAW.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS CREDIT AGREEMENT
AND EACH OF THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
CONFLICT OF LAWS PROVISIONS.
11.2 SUBMISSION TO JURISDICTION.
ALL DISPUTES AMONG THE LENDERS AND THE CREDIT PARTIES (OR THE AGENT OR
ISAAC FUNDS ADMINISTRATOR, RESPECTIVELY, ACTING ON THEIR BEHALF), WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY
STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO WHICH
AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE AGENT ON BEHALF
OF THE LENDERS, SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, TO PROCEED AGAINST THE ISAAC FUNDS ADMINISTRATOR OR ANY CREDIT PARTY OR
THEIR RESPECTIVE PROPERTIES IN ANY LOCATION REASONABLY SELECTED BY THE AGENT IN
GOOD FAITH TO ENABLE THE AGENT TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE AGENT. THE ISAAC FUNDS
ADMINISTRATOR AND EACH OF THE OTHER CREDIT PARTIES AGREE THAT NONE OF SUCH
PERSONS WILL ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN
ANY PROCEEDING BROUGHT BY THE AGENT OR ANY LENDER. THE ISAAC FUNDS
ADMINISTRATOR AND EACH OF THE OTHER CREDIT PARTIES WAIVE ANY OBJECTION THAT ANY
OF SUCH PERSONS MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT OR ANY
LENDER HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
11.3 SERVICE OF PROCESS.
EACH OF THE ISAAC FUNDS ADMINISTRATOR AND THE OTHER CREDIT PARTIES
HEREBY WAIVES PERSONAL SERVICE UPON IT AND, AS ADDITIONAL SECURITY FOR THE
OBLIGATIONS, HEREBY IRREVOCABLY DESIGNATES AND APPOINTS ROBERT C. LARRY, WITH
AN OFFICE ON THE DATE HEREOF AT C/O METAL MANAGEMENT, INC., 500 NORTH DEARBORN
STREET, CHICAGO,
71
<PAGE> 78
ILLINOIS 60610, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY SUCH
PERSON WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT, TO RECEIVE
ON ITS BEHALF SERVICE OF ALL PROCESS ISSUED BY ANY COURT IN ANY LEGAL ACTION OR
OTHER PROCEEDING WITH RESPECT TO THIS CREDIT AGREEMENT OR ANY OTHER CREDIT
DOCUMENT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY SUCH PERSON TO BE EFFECTIVE
AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED
SHALL BE MAILED BY REGISTERED MAIL TO THE ISAAC FUNDS ADMINISTRATOR AT ITS
ADDRESS PROVIDED HEREIN EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE
LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF
PROCESS. IF ANY AGENT APPOINTED BY THE ISAAC FUNDS ADMINISTRATOR OR ANY OTHER
CREDIT PARTIES REFUSES TO ACCEPT SERVICE, EACH SUCH PERSON HEREBY AGREES THAT
SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE AND EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW OR SHALL LIMIT THE RIGHT OF AGENT OR ANY LENDER TO BRING
PROCEEDINGS AGAINST THE ISAAC FUNDS ADMINISTRATOR OR ANY OTHER CREDIT PARTY IN
THE COURTS OF ANY OTHER JURISDICTION.
11.4 JURY TRIAL.
THE ISAAC FUNDS ADMINISTRATOR, EACH OF THE OTHER CREDIT PARTIES, THE
AGENT AND THE LENDERS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY. INSTEAD, ANY
DISPUTES WILL BE RESOLVED IN A BENCH TRIAL.
11.5 LIMITATION OF LIABILITY.
NEITHER THE AGENT NOR ANY LENDER SHALL HAVE ANY LIABILITY TO THE ISAAC
FUNDS ADMINISTRATOR OR ANY OTHER CREDIT PARTY (WHETHER SOUNDING IN TORT,
CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY ANY SUCH PERSON IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR
RELATIONSHIPS CONTEMPLATED BY THIS CREDIT AGREEMENT, OR ANY OF THE OTHER CREDIT
DOCUMENTS, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER
BINDING ON THE AGENT OR ANY SUCH LENDER, THAT THE LOSSES WERE THE RESULT OF
ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
11.6 DELAYS.
No delay or omission of the Agent or the Lenders in exercising any
right or remedy hereunder shall impair any such right or operate as a waiver
thereof.
11.7 NOTICES.
Except as otherwise provided herein, all notices and correspondences
hereunder shall be in writing and sent by certified
72
<PAGE> 79
or registered mail, return receipt requested, or by overnight delivery service,
with all charges prepaid, if to the Agent or any of the Lenders, then to BT
Commercial Corporation, 233 South Wacker Drive, Chicago, Illinois 60606,
Attention: Credit Department, if to the Isaac Funds Administrator or any other
Credit Party, then to The Isaac Corporation at 1645 Indianwood Circle, Maumee,
Ohio 43537, Attention: President, with, in the case of any such notice to the
Isaac Funds Administrator or any other Credit Party, a copy thereof to Shefsky
& Froelich, Ltd., 444 North Michigan Avenue, Suite 2500, Chicago, Illinois
60611, Attn: Erhard R. Chorle, or by facsimile transmission, promptly
confirmed in writing sent by first class mail, if to the Agent, or any of the
Lenders, at (312) 993-8096 and if to the Isaac Funds Administrator or any other
Credit Party at (419) 891-4122. All such notices and correspondence shall be
deemed given (I) if sent by certified or registered mail, three Business Days
after being postmarked, (II) if sent by overnight delivery service, when
received at the above stated addresses or when delivery is refused and (III) if
sent by telex or facsimile transmission, when receipt of such transmission is
acknowledged PROVIDED that failure or delay in delivering copies of any notices
to any persons designated above to receive copies thereof shall in no way
adversely affect the effectiveness of such notice.
11.8 ASSIGNMENTS AND PARTICIPATIONS.
(A) BORROWER ASSIGNMENT. Neither the Isaac Funds
Administrator nor any of the other Credit Parties shall have any right
to assign this Credit Agreement or any of the other Credit Documents,
or any rights or obligations hereunder or thereunder, without the
prior written consent of the Agent and the Lenders.
(B) LENDER ASSIGNMENTS. Each Lender may assign to one or
more banks or other financial institutions all or a portion of its
rights and obligations under this Credit Agreement, the Revolving
Notes and the other Credit Documents, with the consent of the Agent;
and upon execution and delivery to the Agent, for its acceptance and
recording in the Register, of an agreement in substantially the form
of EXHIBIT G (an "ASSIGNMENT AND ASSUMPTION AGREEMENT"), together with
surrender of any Revolving Note or Revolving Notes subject to such
assignment and a processing and recordation fee of $2,500, such
assignment shall be effective and ANNEX I hereto shall be deemed to be
modified accordingly. No such assignment shall be for less than
$10,000,000 of the Commitments unless it is to another Lender or is an
assignment of all of such Lender's rights and obligations under this
Credit Agreement. (This Section does not apply to branches and
Affiliates of a Lender, it being understood that a Lender may make,
carry or transfer Revolving Loans at or for the account of any of its
branch offices or Affiliates without consent of the Borrowers, the
Agent or any other Lender.)
73
<PAGE> 80
(C) AGENT'S REGISTER. The Agent shall maintain a
register of the names and addresses of the Lenders, their Commitments,
and the principal amount of their Revolving Loans (the "REGISTER") at
the address specified for the Agent in SECTION 11.7. The Agent shall
also maintain a copy of each Assignment and Assumption Agreement
delivered to and accepted by it, and modify the Register to give
effect to each Assignment and Assumption Agreement. Upon its receipt
of each Assignment and Assumption Agreement and surrender of the
affected Revolving Note or Revolving Notes, the Agent will give prompt
notice thereof to the Isaac Funds Administrator and deliver to the
Isaac Funds Administrator a copy of the Assignment and Assumption
Agreement and the surrendered Revolving Note or Revolving Notes.
Within five Business Days after its receipt of such notice, the
Borrowers shall execute and deliver to the Agent a substitute
Revolving Note or Revolving Notes to the order of the assignee in the
amount of the Commitment or Commitments assumed by it and to the
assignor in the amount of the Commitment or Commitments retained by
it, if any. Such substitute Revolving Note or Revolving Notes shall
re- evidence the Indebtedness outstanding under the surrendered
Revolving Note or Revolving Notes and shall be dated as of the Closing
Date. The Agent shall be entitled to rely upon the Register
exclusively for purposes of identifying the Lenders hereunder. The
Register shall be available for inspection by the Credit Parties and
the Lenders (or any of them) at any reasonable time and from time to
time upon reasonable notice to the Agent.
(D) PARTICIPATIONS. Each Lender may sell participations
(without the consent of the Agent, any Credit Party or any other
Lender) to one or more parties in or to all or a portion of its rights
and obligations under this Credit Agreement, the Revolving Notes and
the other Credit Documents. Notwithstanding a Lender's sale of a
participation interest, its obligations hereunder shall remain
unchanged. The Credit Parties, the Agent, and the other Lenders shall
continue to deal solely and directly with such Lender. No participant
shall have rights to approve any amendment or waiver of this Credit
Agreement or any of the other Credit Documents except to the extent
such amendment or waiver would (I) increase the participant's
obligation in respect of the Commitment of the Lender from whom the
participant purchased its participation interest; (II) reduce the
principal of, or stated rate or amount of interest on, the Revolving
Loans subject to such participation, (III) postpone any maturity date
fixed for final payment of principal of the Revolving Loans subject to
the participation interest, and (IV) release any guarantor of the
Obligations or all or a substantial portion of the Collateral, other
than when otherwise permitted hereunder.
74
<PAGE> 81
11.9 CONFIDENTIALITY.
(A) Each Lender agrees that it will use its best efforts not disclose
to any Person, without the prior consent of the Isaac Funds Administrator, any
information with respect to any of the Credit Parties or any Subsidiary of any
of the Credit Parties which is furnished pursuant to this Credit Agreement and
which is designated by the respective Credit Parties to the Lenders in writing
as confidential (the "BORROWER INFORMATION"), PROVIDED, THAT, each Lender may
disclose any such information (I) to its employees, auditors, or counsel, or to
another Lender if the disclosing Lender or such disclosing Lender's holding or
parent company in its sole discretion determines that any such party should
have access to such information, (II) as has become generally available to the
public, (III) as may be required in any report, statement or testimony
submitted to any Governmental Authority having or claiming to have jurisdiction
over such Lender, (IV) as may be required or appropriate in response to any
summons or subpoena or in connection with any litigation, (V) in order to
comply with any Requirement of Law, and (VI) to any actual or prospective
transferee or participant in connection with any contemplated transfer or
participation of any of the Revolving Notes or Commitments or any interest
therein by such Lender, so long as prior to such disclosure such prospective or
actual transferee or participant has agreed to preserve the confidentiality of
such information on terms substantially similar to those set forth in this
SECTION 11.9 or on terms otherwise satisfactory to the Isaac Funds
Administrator.
(B) In the event that the Agent or any Lender is requested or
becomes legally compelled (by interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process) to disclose
any of the Credit Party Information, such Person will (I) provide the Isaac
Funds Administrator with prompt written notice so that the Credit Parties may
seek a protective order or other appropriate remedy and/or waive compliance
with the provisions of this SECTION 11.9; (II) unless the Credit Parties waive
compliance by such Person with the provisions of this SECTION 11.9, make a
timely objection to the request or compulsion to provide such Credit Party
Information on the basis that such Credit Party Information is confidential and
subject to the agreements contained in this SECTION 11.9; and (III) take action
as is necessary to preserve such confidentiality, such as seeking a protective
order or other appropriate remedy.
In the event that a protective order or other remedy is not obtained,
or the Credit Parties waive compliance with the provisions of this SECTION
11.9, such Person will furnish only that portion of the Credit Party
Information which is legally required to be furnished and will exercise such
Person's best efforts to obtain reliable assurance that confidential treatment
will be accorded to the Credit Party Information.
75
<PAGE> 82
11.10 INDEMNIFICATION.
The Borrowers hereby jointly and severally indemnify and agree to defend
and hold harmless the Agent and each of the Lenders and their respective
directors, officers, agents, employees and counsel from and against any and all
losses, claims, damages, liabilities, deficiencies, judgments or expenses
incurred by any of them (except to the extent that it is finally judicially
determined to have resulted from their own gross negligence or willful
misconduct) arising out of or by reason of (A) any litigations, investigations,
claims or proceedings which arise out of (I) this Credit Agreement or the
transactions contemplated hereby, (II) the issuance of the Letters of Credit,
(III) the failure of the Issuing Bank to honor a drawing under any Letter of
Credit, as a result of any act or omission, whether rightful or wrongful, of
any present or future de jure or de facto government or Governmental Authority,
(IV) any actual or proposed use by any Borrower of the proceeds of the
Revolving Loans or (V) the Agent's or the Lenders' entering into this Credit
Agreement, the other Credit Documents or any other agreements and documents
relating hereto, including, without limitation, amounts paid in settlement,
court costs and the fees and disbursements of counsel incurred in connection
with any such litigation, investigation, claim or proceeding or any advice
rendered in connection with any of the foregoing and (B) any remedial or other
action taken by any of the Borrowers or any of the Lenders in connection with
compliance by any of the Borrowers or any Subsidiary of any of the Borrowers,
or any of their respective properties, with any federal, state or local
environmental laws, acts, rules, regulations, orders, directions, ordinances,
criteria or guidelines.
11.11 AMENDMENTS AND WAIVERS.
No amendment or waiver of any provision of this Credit Agreement, any
part of SCHEDULE B, or any other Credit Document shall be effective unless in
writing and signed by the Majority Lenders (or by the Agent on their behalf),
except that:
(A) the consent of all the Lenders is required to (I)
increase the Commitments, (II) reduce the principal of, or interest on,
any Revolving Note, any Letter of Credit reimbursement obligations or
any Fees hereunder (other than Fees that are exclusively for the account
of the Agent), (III) postpone any date fixed for any payment in respect
of principal of, or interest on, any Revolving Note, any Letter of
Credit reimbursement obligations or any Fees hereunder, (IV) change the
percentage of the Commitments, or any minimum requirement necessary for
the Lenders or the Majority Lenders to take any action hereunder, (V)
amend or waive this SECTION 11.11(A), or change the definition of
Majority Lenders or (VI) except as otherwise expressly provided in this
Credit Agreement, and other than in connection with the financing,
refinancing, sale
76
<PAGE> 83
or other disposition of any asset of a Borrower permitted under this
Credit Agreement, release any Liens in favor of the Agent on any of the
Collateral; and
(B) the consent of the Agent shall be required for any
amendment, waiver or consent affecting the rights or duties of the Agent
under any Credit Document, in addition to the consent of the Lenders
otherwise required by this Section.
Neither the consent of the Isaac Funds Administrator nor any other
Credit Party shall be required for any amendment, modification or waiver of the
provisions of ARTICLE 10 (other than SECTION 10.9). The Isaac Funds
Administrator, the other Credit Parties and the Lenders each hereby authorize
the Agent to modify this Credit Agreement by unilaterally amending or
supplementing ANNEX I to reflect assignments of the Commitments.
Notwithstanding the foregoing, the Credit Parties may amend SCHEDULE B, PARTS
6.1, 6.10 and 6.14, without the consent of the Majority Lenders.
11.12 COUNTERPARTS AND EFFECTIVENESS.
This Credit Agreement and any waiver or amendment hereto may be executed
in any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. This Credit Agreement shall become effective on the date on which
all of the parties hereto shall have signed a copy hereof (whether the same or
different copies) and shall have delivered the same to the Agent.
11.13 SEVERABILITY.
In case any provision in or obligation under this Credit Agreement, the
Revolving Notes or any of the other Credit Documents shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality and enforceability
of the remaining provisions or obligations, or of such provision or obligation
in any other jurisdiction, shall not in any way be affected or impaired
thereby.
11.14 MAXIMUM RATE. Notwithstanding anything to the contrary
contained elsewhere in this Credit Agreement or in any other Credit Document,
the Borrowers, the Agent, and the Lenders hereby agree that all agreements
among them under this Credit Agreement and the other Credit Documents, whether
now existing or hereafter arising and whether written or oral, are expressly
limited so that in no contingency or event whatsoever shall the amount paid, or
agreed to be paid, to the Agent or any Lender for the use, forbearance, or
detention of the money loaned to the Borrowers and evidenced hereby or thereby
or for the performance or payment of any covenant or obligation contained
herein or therein, exceed the Highest Lawful Rate. If due to any circumstance
whatsoever, fulfillment of any provisions of this Credit Agreement or any of
the other Credit
77
<PAGE> 84
Documents at the time performance of such provision shall be due shall exceed
the Highest Lawful Rate, then, automatically, the obligation to be fulfilled
shall be modified or reduced to the extent necessary to limit such interest to
the Highest Lawful Rate, and if from any such circumstance any Lender should
ever receive anything of value deemed interest by applicable law which would
exceed the Highest Lawful Rate, such excessive interest shall be applied
pursuant to the terms hereof to the reduction of the principal amount then
outstanding hereunder or on account of any other then outstanding Obligations
and not to the payment of interest, or if such excessive interest exceeds the
principal unpaid balance then outstanding hereunder and such other then
outstanding Obligations, such excess shall be refunded to the Borrowers. All
sums paid or agreed to be paid to the Agent or any Lender for the use,
forbearance, or detention of the Obligations and other Indebtedness of the
Borrowers to the Agent or any Lender, to the extent permitted by applicable
law, shall be amortized, prorated, allocated and spread throughout the full
term of such Indebtedness, until payment in full thereof, so that the actual
rate of interest on account of all such Indebtedness does not exceed the
Highest Lawful Rate throughout the entire term of such Indebtedness. The terms
and provisions of this SECTION 11.14 shall control over every other provision
of this Credit Agreement, the other Credit Documents, and all agreements among
the Borrower, the Agent and the Lenders.
11.15 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS.
This Credit Agreement and the other Credit Documents constitute the
entire agreement among the Credit Parties, the Agent and the Lenders, supersede
any prior agreements among them, and shall bind and benefit each of such
Persons and their respective successors and permitted assigns.
11.16 JOINT AND SEVERAL LIABILITY OF BORROWERS.
Each of the Borrowers shall be jointly and severally liable hereunder
and under each of the other Credit Documents with respect to all Obligations,
regardless of which of the Borrowers actually receives the proceeds of the
Revolving Loans or the benefit of any other extensions of credit hereunder, or
the manner in which the Isaac Funds Administrator, the Borrowers, the Agent or
the Lenders account therefor in their respective books and records.
Notwithstanding the foregoing, (A) each Borrower's obligations and liabilities
with respect to proceeds of Revolving Loans which it receives or Letters of
Credit issued for its account, and related fees, costs and expenses, and (B)
each Borrower's obligations and liabilities arising as a result of the joint
and several liability of the Borrowers hereunder with respect to proceeds of
Revolving Loans received by, or Letters of Credit issued for the account of,
any of the other Borrowers, together with the related fees, costs and expenses,
shall be separate and distinct obligations, both of
78
<PAGE> 85
which are primary obligations of such Borrower. Neither the joint and several
liability of, nor the Liens granted to the Agent under the Collateral Documents
by, any of the Borrowers shall be impaired or released by any action or
inaction on the part of the Agent or any Lender, or any other event or
condition with respect to any other Borrower, including any such action or
inaction or other event or condition, which might otherwise constitute a
defense available to, or a discharge of, such Borrower, or a guarantor or
surety of or for any or all of the Obligations.
[SIGNATURE PAGE FOLLOWS]
79
<PAGE> 86
IN WITNESS WHEREOF, the respective parties hereto have caused this
Credit Agreement to be executed and delivered by their duly authorized officers
as of the date first set forth above.
THE ISAAC CORPORATION, an Ohio corporation,
individually and in its capacity as Isaac
Funds Administrator
By: ______________________________________
George A. Isaac, III
President
FERREX TRADING CORPORATION, a
Delaware corporation
By: ______________________________________
George A. Isaac, III
President
PAULDING RECYCLING, INC., an Ohio
corporation
By: ______________________________________
George A. Isaac, III
President
BRIQUETTING CORPORATION OF AMERICA, an Ohio
corporation
By: ______________________________________
George A. Isaac, III
President
BT COMMERCIAL CORPORATION, individually and
in its capacity as Agent
By: ______________________________________
Name: ___________________________________
Title: __________________________________
<PAGE> 87
ANNEX I
TO
CREDIT AGREEMENT
DATED AS OF JUNE 23, 1997
LIST OF LENDERS; COMMITMENT
AMOUNTS; APPLICABLE LENDING OFFICES
1. BT COMMERCIAL CORPORATION
233 South Wacker Drive
Chicago, Illinois 60606
COMMITMENT AMOUNT: $37,000,000
DOMESTIC LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
LIBOR LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No.333-10487) pertaining to the 1995 Stock Option Plan and the 1996
Director Option Plan of Metal Management, Inc. and in the Registration
Statement (Form S-3 No. 333-07581) and related Prospectus of Metal Management,
Inc. for the registration of 300,000 shares of its common stock of our report
dated February 28, 1997 (except Note 8, as to which the date is June 23, 1997)
with respect to the financial statements of The Isaac Corporation and of our
report dated February 28, 1997 (except Note 9, as to which the date is June 23,
1997) with respect to the financial statements of Ferrex Trading Corporation,
included as Exhibits 99.1 and 99.2 in Metal Management, Inc.'s Current Report
on Form 8-K dated July 8, 1997, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Toledo, Ohio
July 8, 1997
<PAGE> 1
Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors ...........................1
Balance Sheets at December 31, 1995 and 1996 .............2
For the years ended December 31, 1994, 1995 and 1996
Statements of Income ..................................3
Statements of Shareholders' Equity ....................4
Statements of Cash Flows ..............................5
Notes to Financial Statements ............................6
</TABLE>
<PAGE> 2
Report of Independent Auditors
The Board of Directors
The Isaac Corporation
We have audited the accompanying balance sheets of The Isaac Corporation as of
December 31, 1996 and 1995, and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Isaac Corporation at
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Toledo, Ohio
February 28, 1997,
except for Note 8, as to which
the date is June 23, 1997
<PAGE> 3
The Isaac Corporation
Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
-------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 55 $ 1,917
Trade accounts receivable, less allowance of $134 and $25
for doubtful accounts 13,854 10,588
Notes and accounts receivable - affiliates 3,997 3,022
Inventories 5,267 6,931
Prepaid expenses 134 113
------------------
Total current assets 23,307 22,571
Property, plant and equipment, at cost:
Land and improvements 2,302 2,155
Buildings, improvements and fixtures 6,933 4,652
Machinery and equipment 13,540 14,540
------------------
22,775 21,347
Less accumulated depreciation 12,707 13,813
------------------
Net property, plant and equipment 10,068 7,534
Notes receivable - affiliates 150 -
Other assets 590 13
------------------
Total assets $34,115 $30,118
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $13,369 $14,057
Distribution payable to shareholders 408 566
Accrued liabilities:
Commissions payable to affiliate 391 392
Payroll 1,353 1,049
Other 664 867
Current portion of notes payable 2,207 1,151
------------------
Total current liabilities 18,392 18,082
Notes payable - 4,606
Deferred compensation 60 116
Shareholders' equity:
4
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Common stock, no par value, $10 stated value
per share:
Class A shares (voting); 75,000 shares authorized,
26,511.375 shares outstanding 341 341
Class B shares (nonvoting); 225,000 shares authorized,
79,535.125 shares outstanding 1,022 1,022
Treasury stock; 7,544 Class A shares and 22,632 Class B
shares recorded at cost -- (5,763)
Retained earnings 14,300 11,714
------------------
Total shareholders' equity 15,663 7,314
------------------
Total liabilities and shareholders' equity $34,115 $30,118
==================
</TABLE>
See accompanying notes.
5
<PAGE> 5
The Isaac Corporation
Statements of Income
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
--------------------------------
<S> <C> <C> <C>
Net sales:
Scrap processing $62,646 $ 67,136 $ 69,253
Brokerage 37,107 48,957 56,432
-------------------------------
99,753 116,093 125,685
Cost of materials sold:
Scrap processing 46,234 49,328 52,076
Brokerage 35,568 47,004 53,094
-------------------------------
81,802 96,332 105,170
-------------------------------
17,951 19,761 20,515
Material processing costs 10,149 10,778 10,578
-------------------------------
Gross profit 7,802 8,983 9,937
Selling and administrative 5,207 6,617 6,954
-------------------------------
Operating profit 2,595 2,366 2,983
Interest expense (33) (86) (620)
Interest and other income 196 492 532
-------------------------------
Net income $ 2,758 $ 2,772 $ 2,895
===============================
</TABLE>
See accompanying notes.
3
<PAGE> 6
The Isaac Corporation
Statements of Shareholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------------------ Retained
Class A Class B Class A Class B Earnings Total
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $341 $1,022 $ 12,047 $13,410
Net income 2,758 2,758
Distributions to shareholders (1,307) (1,307)
-------------------------------------------------------
Balance at December 31, 1994 341 1,022 13,498 14,861
Net income 2,772 2,772
Distributions to shareholders (1,970) (1,970)
-------------------------------------------------------
Balance at December 31, 1995 341 1,022 14,300 15,663
Net income 2,895 2,895
Purchase of Treasury stock $(1,441) $(4,322) -- (5,763)
Distributions to shareholders (5,481) (5,481)
-------------------------------------------------------
Balance at December 31, 1996 $341 $1,022 $(1,441) $(4,322) $ 11,714 $ 7,314
=======================================================
</TABLE>
See accompanying notes.
8
<PAGE> 7
The Isaac Corporation
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,758 $ 2,772 $ 2,895
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,071 1,369 1,695
Loss (gain) on disposal of property,
plant and equipment 8 (69) 20
------------------------------------------------------
Net income adjusted for noncash charges 3,837 4,072 4,610
Changes in operating assets and liabilities:
Notes and accounts receivable 2,430 (3,958) 3,009
Inventories (187) (143) (1,664)
Accounts payable (5,934) 4,185 687
Accrued liabilities and other assets 303 (173) (35)
------------------------------------------------------
Net cash provided by operating activities 449 3,983 6,607
INVESTING ACTIVITIES
Payments on notes receivable 620 1,590 1,382
Additions to property, plant and equipment (1,969) (5,177) (2,126)
Increase in notes receivable (515) (1,725) -
Proceeds from sale of property, plant and equipment 14 93 2,945
------------------------------------------------------
Net cash provided by (used in) investing activities (1,850) (5,219) 2,201
FINANCING ACTIVITIES
Borrowings under notes payable -- 1,557 102
Payments on notes payable (712) (19) (2,207)
Purchase of Treasury stock -- -- (106)
Distributions paid to shareholders (1,015) (2,653) (4,735)
------------------------------------------------------
Net cash used in financing activities (1,727) (1,115) (6,946)
------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (3,128) (2,351) 1,862
Cash and cash equivalents at beginning of
period 5,534 2,406 55
------------------------------------------------------
Cash and cash equivalents at end of period $ 2,406 $ 55 $ 1,917
======================================================
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
Supplemental disclosure of cash flow
information: Cash paid during the period
for interest $ 32 $ 86 $ 449
=============================================
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During 1996, the Company distributed a life insurance policy with a cash
surrender value of $589 to two shareholders in lieu of cash.
During 1995, the Company assumed a note payable for $668 in connection with
the purchase of a headquarters building from a related entity (see Note 6).
During 1997, the Company issued $5,657 in notes payable in connection with the
purchase of treasury stock (see Note 7).
See accompanying notes.
7
<PAGE> 9
The Isaac Corporation
Notes to Financial Statements
(Dollars in thousands)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company's principal activities involve the purchasing and processing of
scrap iron and other metals for sale to foundries, mills and other brokers in
the midwest and brokering of scrap iron and other metals to similar customers.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
Sales of processed products are recognized when the products are shipped. Sales
relating to brokerage operations are recognized upon the receipt of the
materials by the customer.
DEPRECIATION
Depreciation is principally computed on accelerated methods based upon the
estimated useful lives of the assets. Estimated useful lives generally range
from 10 to 40 for buildings, improvements and fixtures and 5 to 15 for
machinery and equipment.
INCOME TAXES
The Company has elected to be treated as a small business corporation (S
Corporation) for income tax purposes. The taxable income of the Company will be
included in the shareholders' personal federal and state income tax returns and
accordingly no provision for federal or state income taxes has been recorded by
the Company. It is the Company's
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
9
<PAGE> 10
policy to distribute funds to shareholders in amounts that are, at a minimum,
sufficient to cover the shareholders' tax liability from the Company's taxable
income.
ENVIRONMENTAL MATTERS
In the normal course of operations, the Company is subject to various
environmental laws and regulations. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. The Company believes that such costs, in excess of
amounts provided, arising out of these matters will not have a material adverse
effect on the Company's financial position.
2. INVENTORIES
The Company values its inventory on the lower of cost or market using the
last-in, first-out (LIFO) method. Inventories have been reduced by
approximately $2,771 and $2,703 at December 31, 1995 and 1996, respectively,
from amounts which would have been reported under the first-in, first-out
(FIFO) method, which approximates current costs.
3. EMPLOYEE BENEFIT PLANS
The Company sponsors a trusteed noncontributory pension plan which provides
retirement benefits for all eligible employees of the Company and two
affiliated companies. Benefits are generally based upon levels of compensation
and length of service. Amounts are allocated between the Company and the
affiliated companies based upon their participation and contributions to the
Plan.
The pension expense (credit) for 1994, 1995, and 1996 included the following
components:
1994 1995 1996
---------------------
Service cost-benefits earned during period $ 42 $ 55 $ 88
Interest cost on projected benefit obligation 226 240 258
Actual return on Plan assets 43 (625) (464)
Net amortization and deferral (344) 333 131
--------------------
$ (33) $ 3 $ 13
====================
10
<PAGE> 11
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the Plan at December 31 was as follows:
1995 1996
------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $2,347 $2,436
=================
Accumulated benefit obligation $2,504 $2,603
=================
Projected benefit obligation $3,477 $3,614
Plan assets at fair value 4,005 4,314
-----------------
Plan assets in excess of projected benefit obligation 528 700
Unrecognized net transition asset (456) (420)
Unrecognized net gain (43) (264)
-----------------
Prepaid pension cost $ 29 $ 16
=================
The assumed rate of increase in future compensation levels and the assumed
discount rate used in determining the actuarial present value of the projected
benefit obligation was 7.5% and 5.0%, respectively. The assumed rate of return
on Plan assets was 7.5%. Plan assets consist primarily of investments in
equity, fixed income and money market common trust funds.
In addition, the Company has a 401(k) profit sharing plan which provides
retirement benefits for all eligible employees. Participant contributions to
the plan are matched at a rate of 30% by the Company up to a maximum of 3% of a
participant's compensation. Profit sharing contributions to the plan are at the
discretion of the Company's board and approximated $56, $72 and $65 for the
years ended December 31, 1994, 1995 and 1996, respectively.
The Company sponsors a nonqualified deferred compensation program which
provides for discretionary awards to certain key employees. An individual is
fully vested in each award after seven years of employment from the date of the
award. Vested amounts can generally be withdrawn by the participant after ten
years of participation in the plan. Interest is earned on awards not withdrawn
at the U. S. Treasury bond rates. The Company expensed $30, $30 and $56 under
this program in 1994, 1995 and 1996, respectively. None of the aforementioned
awards were vested at December 31, 1995 or 1996.
11
<PAGE> 12
4. NOTES PAYABLE AND LONG-TERM DEBT
The Company has unsecured lines of credit totalling $8,000 with two banks with
interest payable at the prime rate or at a rate of LIBOR plus 2% if the
borrowings are in excess of $500 and of at least thirty days duration. No
amounts were outstanding under the lines of credit in 1995 or 1996.
Under the terms of a Close Corporation and Settlement Agreement (see Note 7),
the Company entered into separate note payable agreements with a shareholder
and a former shareholder. The amounts outstanding under these agreements
approximated $5,657 at December 31, 1996. Principal payments are due on a
semi-annual basis in amounts totalling $566. Interest on the unpaid note
balance is charged at 12% and is payable quarterly. The note agreements require
the Company to maintain certain levels of shareholders' equity and debt to
equity levels as defined in the agreements.
During 1996, the Company entered into a $100 note agreement with an unrelated
entity which remains outstanding at December 31, 1996.
In connection with the acquisition of the Company's new headquarters building
(see Note 6), the Company assumed the obligation and made additional borrowings
under a mortgage note agreement with a bank. Outstanding borrowings at December
31, 1995 were $2,207 and were secured by the building with a carrying value of
approximately $2,700. During 1996, the outstanding balance under the mortgage
note agreement was paid in its entirety.
At December 31, 1995 and 1996, the carrying value of the Company's debt
instruments approximates its fair value based on the Company's incremental
borrowing rates.
5. LEASES
Rent expense related to various operating lease agreements approximated $111,
$137 and $109 for the years ended December 31, 1994, 1995 and 1996,
respectively.
At December 31, 1996, the Company has future minimum lease payments for the
next five succeeding fiscal years as follows: 1997 - $422; 1998 - $412; 1999 -
$392; 2000 - $389; 2001 - $389; 2002 and thereafter $2,157.
6. RELATED PARTY TRANSACTIONS
The Company was charged $1,592, $1,807 and $1,827 in commissions and marketing
services provided by an affiliated company for 1994, 1995 and 1996,
respectively. In addition, billings to affiliated companies for services
provided by the Company were approximately $647, $701 and $549 in 1994, 1995
and 1996, respectively.
Sales to an affiliated entity approximated $6,730, $6,000 and $6,777 in 1994,
1995 and 1996, respectively.
12
<PAGE> 13
The Company also recorded approximately $171, $247 and $261 of interest income
in the years ended December 31, 1994, 1995 and 1996, respectively, relating to
notes receivable from affiliated entities and individuals. At December 31, 1995
and 1996, $2,000 and $1,149, respectively, of notes receivable from an
affiliated entity were subordinate to the affiliate's bank debt. Interest
expense relating to the notes payable to a shareholder and former shareholder
(see Note 4) approximated $342 in 1996.
During 1995, the Company purchased their headquarters building and related land
from an affiliated entity for a purchase price of approximately $2,646. The
purchase price included the assumption of approximately $668 of the affiliate's
debt associated with the construction of the building. In 1995 and 1996, the
Company incurred additional costs to complete construction of the building.
During 1996, the Company sold this building to another affiliated entity for
cash at its net book value of approximately $2,890.
At December 31, 1996 and in connection with the sale of the Company's
headquarters building, the Company entered into an operating lease for office
space with the affiliated entity. The terms of the lease include a ten year
lease term with two five year options.
At December 31, 1995 and 1996, the carrying value of the Company's notes
receivable approximates fair value based on current interest rates and the
terms of the notes.
At December 31, 1996, the Company has provided a $400 guarantee relating to a
note payable of a related party.
7. COMMON STOCK AND COMMON STOCK REPURCHASE
Effective September 11, 1996, the Company and its shareholders entered into a
Close Corporation and Settlement Agreement. The terms of the agreement included
share repurchase agreements which provided for the repurchase of 7,431.5 shares
of Class A (voting) and 22,294.5 shares of Class B (non-voting) common stock
for an aggregate purchase price of $5,677. The purchase price consisted of a
cash payment of $20 and 12% promissory notes totaling $5,657 (see Note 4). The
share purchase agreements also provide for the possibility of additional
purchase price to be paid by the Company as outlined in the agreement upon the
sale of the Company prior to June 30, 2001 as defined in the agreement. In
addition, the agreement requires the Company to repurchase shares from the
shareholders under certain circumstances and in accordance with various terms
and restrictions outlined in the agreement (see Note 8).
8. SALE OF COMPANY
Effective June 23, 1997, owners and management of the Company completed the
sale of the Company to Metal Management, Inc.
13
<PAGE> 1
Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors ............................1
Balance Sheets at December 31, 1995 and 1996 ..............2
For the years ended December 31, 1994, 1995 and 1996
Statements of Income ...................................3
Statements of Shareholders' Equity......................4
Statements of Cash Flows ...............................5
Notes to Financial Statements .............................6
</TABLE>
<PAGE> 2
Report of Independent Auditors
The Board of Directors
Ferrex Trading Corporation
We have audited the accompanying balance sheets of Ferrex Trading Corporation
as of December 31, 1996 and 1995, and the related statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ferrex Trading Corporation at
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Toledo, Ohio
February 28, 1997,
except for Note 9, as to which
the date is June 23, 1997
<PAGE> 3
Ferrex Trading Corporation
Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
-------------------
<S> <C> <C>
ASSETS
Current assets:
Investments available for sale $ 392 $ -
Accounts receivable, less allowance of $97 and
$25 for doubtful accounts 9,251 7,924
Accounts receivable - related party 654 392
Note receivable 294 174
Inventories 1,232 1,875
Prepaid expenses 112 24
-------------------
Total current assets 11,935 10,389
Property and equipment, at cost:
Automobiles 178 187
Furniture and equipment 119 147
Leasehold improvements 41 41
-------------------
338 375
Less accumulated depreciation 193 228
-------------------
Net property and equipment 145 147
Note receivable 1,379 --
Intangible pension asset 73 59
-------------------
Total assets $13,532 $10,595
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties $ 2,120 $ 1,149
Notes payable 1,500 -
Accounts payable 5,926 5,563
Accounts payable - related party 306 689
Distribution payable to shareholders 802 -
Accrued liabilities:
Payroll 726 624
Other 190 223
===================
Total current liabilities 11,570 8,248
Deferred compensation 547 740
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Accrued pension 200 276
Shareholders' equity:
Common stock, no par value, $300 stated value per share,
750 shares authorized, 500 shares outstanding 150 150
Retained earnings 1,065 1,181
-------------------
Total shareholders' equity 1,215 1,331
-------------------
Total liabilities and shareholders' equity $13,532 $10,595
===================
</TABLE>
See accompanying notes.
<PAGE> 5
Ferrex Trading Corporation
Statements of Income
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
----------------------------
<S> <C> <C> <C>
Net sales:
Brokerage $35,633 $56,943 $48,343
Scrap processing 17,280 19,513 17,635
---------------------------
52,913 76,456 65,978
Cost of sales:
Brokerage 34,700 55,686 46,755
Scrap processing 16,554 17,822 16,105
---------------------------
51,254 73,508 62,860
---------------------------
Gross profit 1,659 2,948 3,118
Marketing fee 1,592 1,807 1,827
---------------------------
3,251 4,755 4,945
Selling and administrative expenses 1,884 2,940 2,992
---------------------------
Operating profit 1,367 1,815 1,953
Interest expense (338) (433) (286)
Interest and other income 127 156 174
---------------------------
Net income $ 1,156 $ 1,538 $ 1,841
===========================
</TABLE>
See accompanying notes
<PAGE> 6
Ferrex Trading Corporation
Statements of Shareholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Retained
Common Earnings
Stock (Deficit) Total
------ ---------- --------
<S> <C> <C> <C>
Balance at January 1, 1994 $150 $ (9) $ 141
Net income 1,156 1,156
Distribution to shareholders (324) (324)
--------- -------
Balance at December 31, 1994 150 823 973
Net income 1,538 1,538
Distribution to shareholders (1,296) (1,296)
--------- -------
Balance at December 31, 1995 150 1,065 1,215
Net income 1,841 1,841
Distribution to shareholders (1,725) (1,725)
--------- -------
Balance at December 31, 1996 $150 $ 1,181 $ 1,331
====== ========= =======
</TABLE>
See accompanying notes.
<PAGE> 7
Ferrex Trading Corporation
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
----------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,156 $ 1,538 $ 1,841
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 46 64 54
Gain on sale of property and
equipment - - (3)
---------------------------
Net income adjusted for noncash charges 1,202 1,602 1,892
Changes in operating assets and liabilities:
Accounts receivable (3,945) (1,137) 1,589
Inventory (917) 616 (644)
Prepaid expenses 6 (97) 88
Accounts payable 3,747 (1,254) 19
Accrued liabilities 482 730 214
---------------------------
Net cash provided by operating activities 575 460 3,158
INVESTING ACTIVITIES
Decrease (increase) in note receivable 278 (53) 1,500
Proceeds from sale of property and
equipment - - 7
Additions to property and equipment (46) (66) (59)
Increase in investments - (322) (147)
Proceeds from sale of investments - - 539
---------------------------
Net cash provided by (used in) investing
activities 232 (441) 1,840
FINANCING ACTIVITIES
Borrowings under notes payable to related
parties - 670 3,242
Payments under notes payable to related
parties - (2,125) (4,213)
Net borrowings (payments) under line of
credit (1,226) 1,200 (1,500)
Distributions paid to shareholders (82) (736) (2,527)
---------------------------
Net cash used in financing activities (1,308) (991) (4,998)
---------------------------
Net decrease in cash (501) (972) -
Cash at beginning of period 1,473 972 -
---------------------------
Cash at end of period $ 972 $ - $ -
===========================
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 319 $ 330 $ 417
===========================
</TABLE>
See accompanying notes
<PAGE> 8
Ferrex Trading Corporation
Notes to Financial Statements
(Dollars in thousands)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company's principal activities involve the brokering of scrap iron and
other metals for sale to foundries, mills and other brokers in the midwest and
the sale of processed scrap metals to similar customers. The Company has
significant transactions with The Isaac Corporation, a company related through
common ownership.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Sales of processed products are recognized when the products are shipped. Sales
relating to brokerage operations are recognized upon the receipt of the
materials by the customer.
DEPRECIATION
Depreciation is principally computed on accelerated methods based upon the
estimated useful lives of the assets. Estimated useful lives are generally 7
years.
INCOME TAXES
The Company has elected to be treated as a small business corporation (S
Corporation) for income tax purposes. The taxable income of the Company will be
included in the shareholders' personal federal and state income tax returns and
accordingly no provision for federal or state income taxes has been recorded by
the Company. It is the Company's policy to distribute funds to shareholders in
amounts that are, at a minimum, sufficient to cover the shareholders' tax
liability from the Company's taxable income.
<PAGE> 9
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
The Company values all processable scrap metal inventories, which approximates
72% and 75% of total inventories at December 31, 1995 and 1996, respectively,
on the last-in, first-out (LIFO) method. Inventories have been reduced by
approximately $315 and $334 at December 31, 1995 and 1996, respectively, from
amounts which would have been reported under the first-in, first-out (FIFO)
method, which approximates current costs.
During 1995, LIFO inventory quantities were reduced. This reduction resulted in
an increase to net income of approximately $20 from amounts which would have
been reported under the FIFO method.
The nonprocessable scrap metal inventories and the capitalized labor content of
processed inventories are valued at the lower of cost, determined by the
first-in, first-out (FIFO) method, or market.
ENVIRNOMENTAL MATTERS
In the normal course of operations, the Company is subject to various
environmental laws and regulations. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. The Company believes that such costs, in excess of
amounts provided, arising out of these matters will not have a material adverse
effect on the Company's financial position.
INVESTMENTS AVAILABLE FOR SALE
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company adopted the provisions of the new
standard as of December 31, 1995. For year ended December 31, 1995, the Company
classified their investments as available-for-sale. At December 31, 1995, the
Company's investments were recorded at fair value which approximated their
cost, therefore, no adjustment to shareholders' equity was necessary to reflect
unrealized gains and losses. During 1996, all of these investments were sold.
<PAGE> 10
2. NOTES RECEIVABLE
During 1994 and 1995, funds were advanced to and received from an unrelated
entity that provides the Company certain processed products under a $2,000
demand note agreement expiring May 1, 1998 with interest at the prime rate.
Amounts outstanding under the agreement were secured by substantially all
assets of the borrower including accounts receivable, inventory and equipment.
At December 31, 1995 $1,455 was outstanding under the agreement. In 1996, the
note was repaid and the agreement was terminated.
Funds have also been advanced to an unrelated entity that provides the Company
certain processed products under an agreement expiring in March 1999 with
interest at the prime rate. The amounts outstanding under this agreement at
December 31, 1995 and 1996 were $218 and $164, respectively.
At December 31, 1995 and 1996, the carrying value of the Company's notes
receivable approximates their fair value based on current interest rates and
the terms of the notes.
3. NOTES PAYABLE
The Company has a secured line of credit with maximum borrowings of $5,000 at
an interest rate equal to prime or at a rate of LIBOR plus 2% if the borrowings
are in excess of $500 and of at least thirty days duration. The line of credit
is secured by accounts receivable, inventory and equipment. Related party notes
payable of $2,120 and $1,149 at December 31, 1995 and 1996, respectively, are
subordinate to the line of credit borrowings. At December 31, 1995, $1,500 was
outstanding under this agreement. No amounts were outstanding under this
agreement at December 31, 1996.
At December 31, 1995 and 1996, the carrying value of the Company's debt
instruments approximates its fair value based on the Company's incremental
borrowing rates.
4. EMPLOYEE BENEFIT PLANS
The Company participates in a trusteed noncontributory defined benefit pension
plan which provides retirement benefits for all eligible employees of the
Company and The Isaac Corporation. Benefits are generally based upon levels of
compensation and length of service. Amounts are allocated between the Company
and The Isaac Corporation based upon their participation and contributions to
the plan.
<PAGE> 11
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
The pension expense for 1994, 1995, and 1996 included the following components:
1994 1995 1996
---- ---- ----
Service cost-benefits earned during period $16 $24 $41
Interest cost on projected benefit
obligation 22 25 28
Net amortization and deferral 20 20 20
---- ---- ----
$58 $69 $89
==== ==== ====
The funded status of the Plan at December 31, 1995 and 1996 was as follows:
1995 1996
--------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 170 $ 235
=============
Accumulated benefit obligation $ 201 $ 276
=============
Projected benefit obligation $ 373 $ 501
Plan assets at fair value - -
-------------
Projected benefit obligations in excess of plan assets 373 501
Unrecognized net (loss) gain 14 (44)
Unrecognized net transition obligation (259) (239)
Minimum liability adjustment 72 58
-------------
Accrued pension cost $ 200 $ 276
=============
The accrued liability for pension costs included in long-term liabilities at
December 31, 1995 and 1996, respectively, includes a minimum liability
adjustment of $72 and $58 resulting from the excess of the accumulated benefit
obligation over plan assets with a corresponding intangible asset.
The assumed rate of increase in future compensation levels and the assumed
discount rate used in determining the actuarial present value of the projected
benefit obligation were 5.0% and 7.5%, respectively.
<PAGE> 12
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
In addition, the Company participates in The Isaac Corporation 401(k) Profit
Sharing Plan which provides retirement benefits for all eligible employees.
Participant contributions to the Plan are matched at a rate of 30% by the
Company up to a maximum of 3% of a participant's compensation. Profit sharing
contributions to the plan are at the discretion of the Company's Board of
Directors. Profit sharing expense totalled approximately $23 in 1994 and $32 in
1995 and 1996, respectively.
The Company maintains a nonqualified deferred compensation program which
provides for discretionary awards to certain key employees. An individual is
fully vested in each award after seven years of employment from the date of the
award. Vested amounts can generally be withdrawn by the participant after ten
years of participation in the plan. Interest is earned on awards not withdrawn
at the U. S. Treasury bond rates. During 1994, 1995 and 1996, the Company
expensed $148, $177 and $202, respectively, under this program. At December 31,
1995 and 1996, vested benefits under the plan amounted to $3 and $44,
respectively.
5. LEASES
Rent expense relating to various operating leases approximated $43, $29 and $71
for the years ended December 31, 1994, 1995 and 1996, respectively.
6. RELATED PARTY TRANSACTIONS
Billings to The Isaac Corporation for brokerage marketing services rendered by
the Company approximated $1,592, $1,807 and $1,827 in 1994, 1995 and 1996,
respectively. In addition, the Company received charges from The Isaac
Corporation approximating $120, $200 and $340 in 1994, 1995 and 1996,
respectively, primarily related to employee costs incurred on behalf of the
Company.
At December 31, 1995 and 1996, the Company had demand notes payable of $2,120
and $1,149, respectively, to affiliated entities. Interest on these notes is
payable monthly at the prime interest rate. Interest expense associated with
these borrowings was $312 and $228 in 1995 and 1996, respectively.
<PAGE> 13
7. MAJOR CUSTOMERS
The Company's three largest customers are major steel mills. Total sales to the
Company's three largest customers approximated $23,000, $33,000, and $30,725 in
1994, 1995 and 1996, respectively.
8. COMMITMENTS
Effective September 11, 1996 the Company and its shareholders entered into a
Close Corporation and Settlement Agreement. The agreement requires the Company
to repurchase shares from the shareholders under certain circumstances and in
accordance with various terms and restrictions outlined in the agreement (see
Note 9).
The Company is guarantor of a note payable and line of credit agreement of an
unrelated entity that provides certain processing services to the Company. The
maximum guarantee is $2,000 with approximately $1,800 outstanding under the
agreement at December 31, 1996.
9. SALE OF COMPANY
Effective June 23, 1997, owners and management of the Company completed the
sale of the Company to Metal Management, Inc.
<PAGE> 1
The Isaac Corporation
Unaudited
Statements of Income
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1997
--------- ---------
<S> <C> <C>
Net sales:
Scrap processing $16,027 $12,400
Brokerage 10,576 14,061
------- -------
26,603 26,461
Cost of materials sold:
Scrap processing 12,116 9,477
Brokerage 10,182 13,399
------- -------
22,298 22,876
------- -------
4,305 3,585
Material processing costs 2,232 1,824
------- -------
Gross profit 2,073 1,761
Selling and administrative 1,603 1,402
------- -------
Operating profit 470 359
Interest expense (123) (205)
Interest and other income 70 61
------- -------
Net income $ 417 $ 215
======= =======
</TABLE>
See accompanying notes.
<PAGE> 2
The Isaac Corporation
(Unaudited)
Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
--------- ---------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,370 $ 776
Trade accounts receivable, less allowance of $111 and $25
for doubtful accounts 12,082 11,265
Notes and accounts receivable - affiliates 6,164 4,650
Inventories, at lower of cost, last-in, first-out (LIFO)
basis or market 6,786 8,226
Prepaid expenses 63 117
-------- -------
Total current assets 26,465 25,034
Property, plant and equipment, at cost:
Land and improvements 2,302 2,155
Buildings, improvements and fixtures 7,152 4,953
Machinery and equipment 13,957 14,651
-------- -------
23,411 21,759
Less accumulated depreciation 12,986 14,167
-------- -------
Net property, plant and equipment 10,425 7,592
Other assets 619 15
-------- -------
Total assets $ 37,509 $32,641
======== =======
</TABLE>
<PAGE> 3
The Isaac Corporation
(Unaudited)
Balance Sheets
(Dollars in thousands)
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,241 $ 15,421
Accrued liabilities:
Payroll 1,465 36
Other 777 1,021
Current portion of notes payable -- 3,330
-------- --------
Total current liabilities 20,483 19,808
Notes payable 882 5,187
Deferred compensation 63 117
Shareholders' equity:
Common stock, no par value, $10 stated value
per share:
Class A shares (voting); 75,000 shares authorized,
26,511.375 shares outstanding 341 341
Class B shares (nonvoting); 225,000 shares authorized,
79,535.125 shares outstanding 1,022 1,022
Treasury shares; 7,544 Class A shares and 22,632 Class B
shares recorded at cost -- (5,763)
Retained earnings 14,718 11,929
-------- --------
Total shareholders' equity 16,081 7,529
-------- --------
Total liabilities and shareholders' equity $ 37,509 $ 32,641
======== ========
</TABLE>
See accompanying notes
<PAGE> 4
The Isaac Corporation
(Unaudited)
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1996 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 417 $ 215
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 380 368
Loss (gain) on disposal of property, plant and equipment -- 10
------- -------
Net income adjusted for noncash charges 797 593
Changes in operating assets and liabilities:
Notes and accounts receivable 1,741 (291)
Inventories (1,520) (1,295)
Accounts payable 5,099 1,965
Accrued liabilities and other assets (86) (950)
-------- --------
Net cash provided by operating activities 6,031 22
INVESTING ACTIVITIES
Additions to property, plant and equipment (736) (441)
Increase in notes receivable (2,246) (2,919)
Proceeds from sale of property, plant and equipment -- 5
-------- -------
Net cash provided by (used in) investing activities (2,982) (3,355)
FINANCING ACTIVITIES
Borrowings under notes payable 2,082 2,759
Payments on notes payable (3,407) --
Distributions paid to shareholders (409) (566)
-------- --------
Net cash used in financing activities (1,734) 2,193
-------- --------
Net increase (decrease) in cash and cash equivalents 1,315 (1,140)
Cash and cash equivalents at beginning of period 55 1,916
-------- -------
Cash and cash equivalents at end of period $ 1,370 $ 776
======== =======
Supplemental disclosure of cash flow information: Cash paid during the period
for interest $ 115 $ 202
======== =======
Supplemental schedule of noncash investing and financing activities:
During 1996, the Company distributed a life insurance policy with a cash
surrender value of $589 to two shareholders in lieu of cash.
</TABLE>
See accompanying notes.
<PAGE> 5
The Isaac Corporation
(Unaudited)
Notes to Financial Statements
(Dollars in thousands)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company's principal activities involve the purchasing and processing of
scrap iron and other metals for sale to foundries, mills and other brokers in
the midwest and brokering of scrap iron and other metals to similar customers.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
DEPRECIATION
Depreciation is principally computed on accelerated methods based upon the
estimated useful lives of the assets.
INCOME TAXES
The Company has elected to be treated as a small business corporation (S
Corporation) for income tax purposes. The taxable income of the Company will be
included in the shareholders' personal federal and state income tax returns and
accordingly no provision for federal or state income taxes has been recorded by
the Company. It is the Company's policy to distribute funds to shareholders in
amounts that are, at a minimum, sufficient to cover the shareholders' tax
liability from the Company's taxable income.
INTERIM FINANCIAL INFORMATION
The accompanying consolidated balance sheets as of March 31, 1996 and 1997, the
related consolidated statements of income and cash flows for the three months
ended March 31, 1996 and 1997, ("interim
<PAGE> 6
financial statements") have been prepared by the Company in accordance with
generally accepted accounting principles for interim financial information and
with Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The interim financial statements include all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation of the results of interim periods. Operating
results for the three-month period ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997.
2. INVENTORIES
The Company values its inventory on the lower of cost or market using the
last-in, first-out (LIFO) method. Inventories have been reduced by
approximately $2,771 and $2,703 at March 31, 1996 and March 31, 1997 ,
respectively, from amounts which would have been reported under the first-in,
first-out (FIFO) method, which approximates current costs.
3. NOTES PAYABLE AND LONG-TERM DEBT
In connection with the acquisition of the Company's new headquarters building
(see Note 6), the Company assumed the obligation and made additional borrowings
under a mortgage note agreement with a bank. During 1996, the outstanding
balance under the mortgage note agreement was paid in its entirety.
At March 31, 1996 and 1997, the carrying value of the Company's debt
instruments approximates its fair value based on the Company's incremental
borrowing rates.
4. LEASES
Rent expense related to various operating lease agreements approximated $28 and
$130 for the three month periods ended March 31, 1996 and 1997, respectively.
At December 31, 1996, the Company has future minimum lease payments for the
next five succeeding fiscal years as follows: 1997 - $422; 1998 - $412; 1999 -
$392; 2000 - $389; 2001 - $389; 2002 and thereafter - $2,157.
5. RELATED PARTY TRANSACTIONS
The Company was charged $441 and $300 in commissions and marketing services
provided by a related company for the three month periods ended March 31, 1996
and 1997, respectively. In addition, billings to related companies for services
provided by the Company were approximately $139 and $137 in the three month
periods ended March 31, 1996 and 1997, respectively.
Sales to an affiliated entity approximated $538 and $595 in the three month
periods ended March 31, 1996 and 1997, respectively.
The Company also recorded approximately $55 and $48 of interest income in the
three month periods ended March 31, 1996 and 1997, respectively, relating to
notes receivable from affiliated entities and individuals. At March 31, 1996
and 1997, $4,040 and $3,965, respectively, of notes receivable from an
<PAGE> 7
affiliated entity was subordinate to the affiliate's bank debt. Interest
expense relating to the notes payable to a shareholder and former shareholder
(see Note 4) approximated $25 for the three month period ended March 31, 1997.
During 1995, the Company purchased their headquarters building and related land
from an affiliated entity for a purchase price of approximately $2,646. The
purchase price included the assumption of approximately $668 of the affiliate's
debt associated with the construction of the building. In 1995 and 1996, the
Company incurred additional costs to complete construction of the building.
During 1996, the Company sold this building to another affiliated entity for
cash at its net book value of approximately $2,890.
At December 31, 1996 and in connection with the sale of the Company's
headquarters building, the Company entered into an operating lease for office
space with the affiliated entity. The terms of the lease include a ten year
lease term with two five year options.
At March 31, 1996 and 1997, the carrying value of the Company's notes
receivable approximate fair value based on current interest rates and the terms
of the notes.
At March 31, 1997, the Company has provided a $400 guarantee relating to a note
payable of a related party.
6. COMMON STOCK AND COMMON STOCK REPURCHASE
Effective September 11, 1996, the Company and its shareholders entered into a
Close Corporation and Settlement Agreement. The terms of the agreement included
share repurchase agreements which provided for the repurchase of 7,431.5 shares
of Class A (voting) and 22,294.5 shares of Class B (non-voting) common stock
for an aggregate purchase price of $5,677. The purchase price consisted of a
cash payment of $20 and 12% promissory notes totaling $5,657 (see Note 4). The
share purchase agreements also provide for the possibility of additional
purchase price to be paid by the Company as outlined in the agreement upon the
sale of the Company prior to June 30, 2001 as defined in the agreement. In
addition, the agreement requires the Company to repurchase shares from the
shareholders under certain circumstances and in accordance with various terms
and restrictions outlined in the agreement.
7. SALE OF COMPANY
Effective June 23, 1997, owners and management of the company completed the
sale of the Company to Metal Management, Inc.
<PAGE> 1
Ferrex Trading Corporation
(Unaudited)
Statements of Income
(Dollars in thousands)
<TABLE>
<Cation>
THREE MONTHS ENDED
MARCH 31
1996 1997
--------- -----------
<S> <C> <C>
Net sales:
Brokerage $13,203 $11,037
Scrap processing 4,040 2,800
------- -------
17,243 13,837
Cost of sales:
Brokerage 12,797 10,745
Scrap processing 3,735 2,475
------- -------
16,532 13,220
------- -------
Gross profit 711 617
Marketing fee 441 300
------- -------
1,152 917
Selling and administrative expenses 648 671
------- -------
Operating profit 504 246
Interest expense (36) (41)
Interest and other income 2 --
------- -------
Net income $ 470 $ 205
======= =======
</TABLE>
See accompanying notes.
<PAGE> 2
Ferrex Trading Corporation
(Unaudited)
Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 540 $ 824
Investments available for sale
Accounts receivable, less allowance of $103
and $25 for doubtful accounts 9,406 8,933
Accounts receivable - related party 1,714 198
Note receivable 205 154
Inventories 1,309 3,133
Prepaid expenses 3 3
------- -------
Total current assets 13,177 13,245
Property and equipment, at cost:
Automobiles 187 206
Furniture and equipment 112 147
Leasehold improvements 41 41
------- -------
340 394
Less accumulated depreciation 185 240
------- -------
Net property and equipment 155 154
Intangible pension asset 72 59
------- -------
Total assets $13,404 $13,458
======= =======
</TABLE>
<PAGE> 3
Ferrex Trading Corporation
(Unaudited)
Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
---------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties $ 4,320 $ 3,965
Accounts payable 5,940 6,456
Accounts payable - related party 279 394
Accrued liabilities:
Payroll 395 23
Other 35 53
-------- ---------
Total current liabilities 10,969 10,891
Deferred compensation 546 747
Accrued pension 204 284
Shareholders' equity:
Common stock, no par value, $300 stated value
per share, 750 shares authorized, 500 shares
outstanding 150 150
Retained earnings 1,535 1,386
-------- -------
Total shareholders' equity 1,685 1,536
-------- -------
Total liabilities and shareholders' equity $ 13,404 $13,458
======== =======
</TABLE>
See accompanying notes.
<PAGE> 4
Ferrex Trading Corporation
(Unaudited)
Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------- ---------
1996 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 470 $ 205
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 12 13
Net income adjusted for noncash charges 482 218
Changes in operating assets and liabilities:
Accounts receivable 240 (1,197)
Inventory (77) (1,258)
Prepaid expenses 109 21
Accounts payable (166) 969
Accrued liabilities (329) (735)
------- -------
Net cash provided by (used in) operating activities 259 (1,982)
INVESTING ACTIVITIES
Decrease (increase) in note receivable 13 10
Additions to property and equipment (22) (20)
------- -------
Net cash provided by (used in) investing activities (9) (10)
FINANCING ACTIVITIES
Borrowings under notes payable to related parties 2,200 2,816
Net borrowings (payments) under line of credit (1,500) --
Distributions paid to shareholders (802) --
------- -------
Net cash provided by (used in) financing activities (102) 2,816
------- -------
Net increase (decrease) in cash 148 824
Cash at beginning of period 392 --
------- -------
Cash at end of period $ 540 $ 824
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 75 $ 45
======= =======
</TABLE>
See accompanying notes.
<PAGE> 5
Ferrex Trading Corporation
(Unaudited)
Notes to Financial Statements
(Dollars in thousands)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company's principal activities involve the brokering of scrap iron and
other metals for sale to foundries, mills and other brokers in the midwest and
the sale of processed scrap metals to similar customers. The Company has
significant transactions with The Isaac Corporation, a company related through
common ownership.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
DEPRECIATION
Depreciation is principally computed on accelerated methods based upon the
estimated useful lives of the assets.
INCOME TAXES
The Company has elected to be treated as a small business corporation (S
Corporation) for income tax purposes. The taxable income of the Company will be
included in the shareholders' personal federal and state income tax returns and
accordingly no provision for federal or state income taxes has been recorded by
the Company. It is the Company's policy to distribute funds to shareholders in
amounts that are, at a minimum, sufficient to cover the shareholders' tax
liability from the Company's taxable income.
INVENTORIES
The Company values all processable scrap metal inventories, which approximates
72% and 85% of total inventories at March 31, 1996 and 1997, respectively, on
the last-in, first-out (LIFO) method. Inventories have been reduced by
approximately $315 and $334 at March 31, 1996 and 1997, respectively, from
amounts which would have been reported under the first-in, first-out (FIFO)
method, which approximates current costs.
The nonprocessable scrap metal inventories and the capitalized labor content of
processed inventories are valued at the lower of cost, determined by the
first-in, first-out (FIFO) method, or market.
<PAGE> 6
INVESTMENTS AVAILABLE FOR SALE
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company adopted the provisions of the new
standards as of December 31, 1995. At March 31, 1996, the Company's
investments were recorded at fair value which approximated their cost,
therefore, no adjustment to shareholders' equity was necessary to reflect
unrealized gains and losses. During 1996, all of these investments were sold.
INTERIM FINANCIAL INFORMATION
The accompanying consolidated balance sheet as of March 31, 1996 and 1997, the
related consolidated statements of income and cash flows for the three months
ended March 31, 1996 and 1997 ("interim financial statements") have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The interim financial statements include all adjustments,
consisting of only normal recurring adjustments, considered necessary for a
fair presentation of the results of interim periods. Operating results for the
three-month period ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.
2. NOTES RECEIVABLE
During 1994 and 1995, funds were advanced to and received from an unrelated
entity that provides the Company certain processed products under a $2,000
demand note agreement expiring May 1, 1998 with interest at the prime rate.
Amounts outstanding under the agreement were secured by substantially all
assets of the borrower including accounts receivable, inventory and equipment.
Amounts outstanding under the agreement at March 31, 1996 were $1,368. In 1996,
all outstanding amounts were repaid, and the agreement was terminated.
Funds have also been advanced to an unrelated entity that provides the Company
certain processed products under an agreement expiring in March 1999 with
interest at the prime rate. The amounts outstanding under this agreement at
March 31, 1996 and 1997 were $205 and $154, respectively.
At March 31, 1996 and 1997, the carrying value of the Company's notes
receivable approximates their fair value based on current interest rates and
the terms of the notes.
3. NOTES PAYABLE
The Company has a secured line of credit with maximum borrowings of $5,000 at
an interest rate equal to prime or at a rate of LIBOR plus 2% if the borrowings
are in excess of $500 and of at least thirty days duration. The line of credit
is secured by accounts receivable, inventory and equipment. Related party notes
payable of $4,040 and $3,965 at March 31, 1996 and 1997, respectively are
subordinate to the line of credit borrowings. No amounts were outstanding under
this agreement at March 31, 1996 and 1997.
4. LEASES
<PAGE> 7
Rent expense relating to various operating leases approximated $21 and $23 for
the three month periods ended March 31, 1996 and 1997, respectively.
5. RELATED PARTY TRANSACTIONS
Billings to The Isaac Corporation for brokerage marketing services rendered by
the Company approximated $441 and $300 in the three month periods ended March
31, 1996 and 1997, respectively. In addition, the Company received
cross-charges from The Isaac Corporation approximating $89 and $81 in the three
month periods ended March 31, 1996 and March 31, 1997, respectively, primarily
related to employee costs incurred on behalf of the Company.
At March 31, 1996 and 1997, the Company had demand notes payable of $4,040 and
$3,965, respectively, to affiliated entities. Interest on these notes are
payable monthly at the prime interest rate. Interest expense associated with
these borrowings were $43 and $45 for the three month periods ended March 31,
1996 and 1997, respectively.
At March 31, 1996 and 1997, the carrying value of the Company's debt
instruments approximates its fair value based on the Company's incremental
borrowing rates.
6. COMMITMENTS
Effective September 11, 1996 the Company and its shareholders entered into a
Close Corporation and Settlement Agreement. The agreement requires the Company
to repurchase shares from the shareholders under certain circumstances and in
accordance with various terms and restrictions outlined in the agreement.
In December of 1996, the Company became guarantor of a note payable and line of
credit agreement of an unrelated entity that provides certain processing
services to the Company. The maximum guarantee is $2,000 with approximately
$1,752 outstanding under the agreement at March 31, 1997.
7. SALE OF COMPANY
Effective June 23, 1997, owners and management of the Company completed the
sale of the Company to Metal Management, Inc.
<PAGE> 1
PRO FORMA FINANCIAL INFORMATION
On June 23, 1997, Metal Management, Inc. ("MTLM" or "Company") acquired Isaac
Corporation ("Isaac"), Ferrex Trading Corporation ("Ferrex"), Paulding
Recycling, Inc. ("Paulding") and Briquetting Corporation of America
("Briquetting").
The following unaudited pro forma combined condensed statements of operations
do not reflect the operating results from discontinued operations. As
previously disclosed, the discontinued operations include I) the Spectra*Star
printer and consumables business, which was sold during the first quarter of
fiscal 1997 and II) the VideoShow and related product lines business, which was
discontinued during the fourth quarter of fiscal 1995 and sold during the third
quarter of fiscal 1997.
The accompanying unaudited pro forma combined condensed financial statements
have been derived from the Company's audited balance sheet as of March 31,
1997 and the audited statement of operations for the year ended March 31, 1997
(incorporated by reference to the Company's Annual Report on Form 10-K, dated
March 31, 1997, filed with the Commission on June 20, 1997), and the unaudited
balance sheet as of March 31, 1997 and the unaudited statement of operations
for the twelve months ended March 31, 1997 for Reserve Iron & Metal
("Reserve"), Isaac and Ferrex. The unaudited pro forma combined condensed
financial statements do not include the results of operations or balance sheets
of Paulding or Briquetting as these entities are not significant to the Company
or the combined pro forma financial information.
The unaudited pro forma combined condensed statement of operations gives effect
to the acquisition of Isaac and Ferrex by MTLM for the year ended March 31,
1997, using the purchase method of accounting as if the acquisition had
occurred on April 1, 1996 and by giving effect to the pro forma adjustments
described on page 5. The unaudited pro forma combined condensed statement of
operations also includes the unaudited statement of operations from April 1,
1996 to December 31, 1996 for The MacLeod Group ("MacLeod") and HouTex Metals
Company, Inc. ("HouTex") and the unaudited statement of operations for Reserve
for the year ended March 31, 1997. The MacLeod and HouTex acquisitions were
completed on January 1, 1997 and January 7, 1997, respectively, and are
therefore only included in the Company's statement of operations from their
respective acquisition dates. The Reserve acquisition was completed on May 1,
1997, and is therefore, not reflected in the Company's statement of operations
for the year ended March 31, 1997.
The following unaudited pro forma combined condensed balance sheet presents the
combined financial position of MTLM, Isaac and Ferrex as of March 31, 1997
using the purchase method of accounting as if the acquisition had occurred on
March 31, 1997 and includes the pro forma adjustments described on Page 9
relating to the acquisition, the May 1, 1997 acquisition of Reserve and several
equity and financing transactions entered into by the Company subsequent to
March 31, 1997. The allocation of the excess of the acquisition costs over the
book value of the net assets to be acquired has been applied to goodwill and
non-compete agreement, based on the Company's estimate of the fair value of the
net assets to be acquired. Such allocation of the purchase price may change
upon the final determination of the fair value of assets acquired (including
other intangibles) and liabilities assumed.
The unaudited pro forma combined condensed financial information does not
purport to represent what the Company's combined results of operations would
have been had the acquisition occurred on the dates indicated or for any future
period or date.
The unaudited pro forma combined condensed financial information should be read
in conjunction with: 1) the annual financial statements and notes thereto for
MTLM, which appear on the Company's Annual Report on Form 10-K for the year
ended March 31, 1997; (2) the historical audited financial statements and notes
thereto for Reserve which appear on Form 8-K dated May 1, 1997, filed with the
Commission on May 15, 1997; and (3) the historical audited financial
statements and notes thereto and unaudited interim financial statements and
notes thereto for Isaac and Ferrex which appear elsewhere in this Form 8-K.
1
<PAGE> 2
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MACLEOD HOUTEX
MTLM 9 MONTHS 9 MONTHS RESERVE
YTD 3/31/97 ENDED 12/31/96 ENDED 12/31/96 YTD 3/31/97
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues from continuing operations $ 65,196 $ 22,608 $ 14,707 $ 119,579
Costs and expenses:
Cost of sales and other operating
expenses 58,324 22,135 10,495 112,394
------------------- ------------------- ------------------- -------------------
Gross Profit 6,872 473 4,212 7,185
Selling, general and
administrative expenses 8,456 1,524 4,261 5,145
- - - -
------------------- ------------------- ------------------- -------------------
Operating income (loss) from
continuing operations (1,584) (1,051) (49) 2,040
Other income (expense)
Interest Income 222 64 0 0
Interest expense (1,449) (54) (364) (2,330)
<CAPTION>
PRO FORMA
ISAAC FERREX PRO FORMA COMBINED
YTD 3/31/97 YTD 3/31/97 ADJUSTMENTS REF YTD 3/31/97
------------------- ------------------- ------------------- --- ------------------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations $ 125,543 $ 62,572 $ (12,043) 17. $ 398,162
Costs and expenses:
Cost of sales and other operating
expenses 115,918 59,548 525 3. 367,010
(2,139) 12. -
1,545 12. -
(1,610) 13. -
1,918 13. -
(12,043) 17. -
------------------- ------------------- ------------------- -------------------
Gross Profit 9,625 3,024 (239) 31,152
Selling, general and
administrative expenses 6,964 1,184 223 1. 26,932
(110) 10. -
112 10. -
1,050 14. -
210 14.
(2,087) 16. -
------------------- ------------------- ------------------- -------------------
Operating income (loss) from
continuing operations 2,661 1,840 363 4,220
Other income (expense)
Interest Income 523 0 (85) 2. 718
(6) 5. -
Interest expense (702) (291) 69 4. (8,767)
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
MTLM MACLEOD HOUTEX
COMBINED 9 MONTHS 9 MONTHS RESERVE
YTD 3/31/97 ENDED 12/31/96 ENDED 12/31/96 YTD 3/31/97
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Interest expense
Other (41) 271 85 598
------------------- ------------------- ------------------- -------------------
Income (loss) from continuing
operations before income taxes (2,852) (770) (328) 308
Income tax provision (benefit) (842) (272) (132) 0
------------------- ------------------- ------------------- -------------------
Net income (loss) from continuing
operations $ (2,010) $ (498) $ (196) $ 308
=================== =================== =================== ===================
Net income (loss) per share from
continuing operations $ (0.22)
Weighted average number of shares
outstanding 9,106 n/a n/a n/a
<CAPTION>
PRO FORMA
ISAAC FERREX PRO FORMA COMBINED
YTD 3/31/97 YTD 3/31/97 ADJUSTMENTS REF YTD 3/31/97
---------------- ------------------- ------------------- --- -------------------
<S> <C> <C> <C> <C> <C>
23 6. -
189 7. -
(255) 8. -
Interest expense (306) 9.
(139) 11.
(3,158) 15.
Other 0 0 0 913
---------------- ------------------- ------------------- -------------------
Income (loss) from continuing
operations before income taxes 2,482 1,549 (3,305) (2,916)
Income tax provision (benefit) 0 0 80 18. (1,166)
---------------- ------------------- ------------------- -------------------
Net income (loss) from continuing
operations $ 2,482 $ 1,549 $ (3,385) $ (1,750)
================ =================== =================== ===================
Net income (loss) per share from
continuing operations $ (0.13)
Weighted average number of shares
outstanding n/a n/a 4,640 19. 13,746
</TABLE>
See accompanying notes to unaudited pro forma combined condensed statement of
operations
3
<PAGE> 4
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
The unaudited pro forma combined condensed statement of operations as of March
31, 1997 is based on the following assumptions and adjustments:
Assumptions 1 to 3 relate to MTLM's acquisition of MacLeod on January 1, 1997
and HouTex on January 7, 1997. The pro forma adjustments reflect the
acquisitions as if they occurred on April 1, 1996.
1. Goodwill amortization for MacLeod and HouTex is included as of each
respective acquisition date. Adjustment represents goodwill amortization
for MacLeod ($104,000) and HouTex ($119,000) for the period April 1, 1996
to December 31, 1996. Goodwill is being amortized over 40 years.
2. Adjustment to reduce interest income for the period April 1, 1996 to
December 31, 1996 relating to the cash consideration and related
transaction costs incurred for HouTex and MacLeod, respectively.
3. At each respective acquisition date, the fixed assets of MacLeod and
HouTex were written-up to their fair market value. Adjustment represents
additional depreciation expense for MacLeod ($193,000) and HouTex
($332,000) for the period April 1, 1996 to December 31, 1996.
Depreciation expense was estimated based on an average useful life of 7
years.
Assumptions 4 through 9 reflect material financing and equity transactions that
the Company completed during April 1997 and May 1997. Pro forma adjustments
reflect the effect of the transactions as if they occurred on April 1, 1996.
4. During April 1997 and May 1997, the Company repaid its $5.0 million, 6%
note payable to Clend Investment ("Clend"). Clend converted $1.0 million
of principal into common stock, utilized $720,000 principal in exchange
for their Limited Warrant exercise, and received a cash payment from the
Company of $3,280,000. Adjustment represents reduction of interest
expense recognized in MTLM's March 31, 1997 statement of operations.
5. On April 30, 1997, the Company collected a 6%, $405,000 note receivable
from Mike Melnik (note received January 7, 1997). Adjustment represents
reduction of interest income recognized in MTLM's March 31, 1997 statement
of operations.
6. On April 30, 1997, the Company paid its $1,655,268, 6% notes payable to
Mike and Zalman Melnik (issued January 7, 1997). Adjustment represents
reduction of interest expense recognized in MTLM's March 31, 1997
statement of operations.
7. During April 1997 and May 1997, the Company repaid its debt obligations
to the former shareholders of MacLeod (debt issued on January 1, 1997).
Adjustment represents reduction of interest expense recognized in MTLM's
March 31, 1997 statement of operations.
8. On May 29, 1997, the Company issued a $3.0 million, 8.5% note payable due
on June 30, 2002 to Ian MacLeod. Adjustment represents interest expense
on the note payable.
9. On May 29, 1997, the Company obtained a $4.5 million revolving and term
loan, at the prime rate of interest. The Company also repaid a $1.0
million line of credit. Adjustment represents interest expense on the net
$3.5 million of additional borrowings.
Assumptions 10 through 12 reflect the acquisition of Reserve on May 1, 1997.
The pro forma adjustments reflect the acquisition as if it occurred on April 1,
1996.
10. Reflects the reversal of Reserve's amortization of goodwill from prior
acquisitions ($110,000) and recording of amortization of goodwill arising
upon MTLM's acquisition of Reserve ($112,000). Goodwill is amortized over
40 years.
4
<PAGE> 5
11. MTLM issued a $1,541,660, 9% notes payable, due May 1, 1998, to P. Joseph
Iron and Metal in consideration for their partnership interest in
Reserve. Adjustment represents interest expense on the notes.
12. Reserve records depreciation expense based on accelerated lives. The
Company's depreciation policy is determined using the straight-line
method. Adjustment represents reversal of depreciation expense recognized
by Reserve ($2,139,000) and recording of depreciation expense using the
straight-line method ($1,545,000). Depreciation expense was calculated
based on the fair market value of Reserve's fixed assets using an average
useful life of 10 years for leasehold improvements, 7 years for operating
machinery and equipment and 5 years for office equipment.
Assumptions 13 through 17 reflect the acquisition of Ferrex and Isaac on June
23, 1997. The pro forma adjustments reflect the acquisitions as if they
occurred on April 1, 1996.
13. Isaac and Ferrex historically recorded depreciation expense based on
accelerated methods. The Company's depreciation policy is determined
using the straight-line method. The adjustment represents reversal of
depreciation expense recognized by Isaac and Ferrex ($1,610,000) and
recording of depreciation expense using the straight-line method
($1,918,000). Depreciation expense was calculated based on the fair
market value of Isaac's fixed assets using an average useful life of 30
years for buildings and improvements and 7 to 19 years for machinery and
equipment.
14. Adjustment to reflect the amortization of goodwill arising upon MTLM's
acquisition of Isaac and Ferrex ($1,050,000) and amortization of
noncompete agreement with George A. Isaac III ($210,000). Amortization
periods for goodwill and noncompete agreement is 40 years and 8 years,
respectively.
15. MTLM issued $36,097,000 of notes payable to the former shareholders of
Isaac and Ferrex in partial consideration for their common stock. The
notes payable are due at various dates through February 15, 2000 and
accrue interest at the prime rate subject to certain adjustments.
Adjustment reflects interest expense on the notes payable.
16. Adjustment made to reflect elimination of compensation paid to previous
shareholders of Isaac and Ferrex which have been contractually eliminated.
17. Adjustment to eliminate intercompany sales between Ferrex and Isaac.
18. Adjustment to reflect Federal and State income taxes to provide for an
combined effective tax rate of 40%.
19. Adjustment to weighted average shares outstanding reflects the following
transactions (see notes to unaudited pro forma balance sheet for further
detail):
<TABLE>
<S> <C>
Common stock issued in private offering 2,025,000
Common stock issued to Clend in exchange for reduction in notes payable 182,481
Common stock issued upon exercise of Limited Warrants by Mike and Zalman
Melnik 150,000
Common stock issued upon exercise of Limited Warrants by Clend 180,000
Common stock issued to Ian MacLeod in exchange for reduction in note payable 160,000
Common stock issued in connection with the Ferrex acquisition 1,942,857
---------
Total additional common stock issued 4,640,338
=========
</TABLE>
5
<PAGE> 6
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MTLM RESERVE ISAAC FERREX PRO FORMA COMBINED
3/31/97 3/31/97 3/31/97 3/31/97 ADJUSTMENTS REF 3/31/97
------------- -------------- ------------- ----------- ------------- --- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,718 $ 169 $ 776 $ 824 $ 14,681 a. $ 10,222
600 d. -
405 e. -
(5,027) f. -
(5,549) g.
(1,000) i. -
4,500 i. -
(5,875) j. -
Accounts receivable, net 9,966 20,624 15,915 9,160 (405) e. 49,667
(5,593) w. -
Inventories 8,415 18,320 8,226 3,133 3,037 q. 41,131
Other current assets 1,609 24 117 3 0 1,753
---------- ----------- -------- ------- --------- ----------
Total current assets 25,708 39,137 25,034 13,120 (226) 102,773
Property and equipment, net 20,208 6,469 7,592 154 4,366 m. 51,962
13,173 t. -
Other assets 725 831 15 59 0 1,630
Goodwill and other intangibles 23,484 370 0 0 437 b. 71,588
4,015 l. -
(370) l. -
41,976 s. -
- - - - 1,676 v. -
---------- ----------- -------- ------- --------- ----------
TOTAL ASSETS $70,125 $46,807 $ 32,641 $13,333 $ 65,047 $ 227,953
========== =========== ======== ======= ========= ==========
LIABILITIES AND EQUITY
Current Liabilities:
Operating line of credit $14,387 $ 0 $ 0 $ 0 $ (1,000) i. $ 17,887
4,500 i. -
Accounts Payable 5,246 12,833 15,296 6,850 23 k. 38,918
298 r. -
(1,628) w. -
Other accrued liabilities 2,746 1,494 1,032 76 (92) f. 5,107
(149) g. -
Current portion of debt 16,884 1,454 3,330 3,965 (1,000) c. 30,490
(720) d. -
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
PRO FORMA
MTLM RESERVE ISAAC FERREX PRO FORMA COMBINED
3/31/97 3/31/97 3/31/97 3/31/97 ADJUSTMENTS REF 3/31/97
------------- -------------- ------------- ----------- ------------- --- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
(4,935) f. -
(1,000) g. -
Current portion of debt (4,920) g. -
(3,000) h. -
- - - - 20,432 p. -
-------- ---------- ---------- ---------- ----------- --------
Total current liabilities 39,263 15,781 19,658 10,891 6,809 92,402
Long term debt, less current 5,170 25,672 5,187 0 (480) g. 51,791
3,000 h. -
1,542 j. -
15,665 p. -
(3,965) w. -
Other liabilities 2,544 0 117 1,031 437 m. 10,613
- - - - 6,484 t. -
-------- ---------- ---------- ---------- ----------- --------
TOTAL LIABILITIES 46,977 41,453 24,962 11,922 29,492 154,806
-------- ---------- ---------- ---------- ----------- --------
Stockholders equity:
Common stock and APIC 18,081 0 (4,400) 0 14,681 a. 68,080
437 b. -
1,000 c. -
1,320 d. -
1,000 g. -
5,488 j. -
24,397 o. -
4,400 u. -
1,676 v. -
Partners' capital 0 5,354 0 150 (5,354) n. 0
(150) u. -
Retained earnings 5,067 0 12,079 1,261 (13,340) u. 5,067
-------- ---------- ---------- ---------- ----------- --------
Total stockholders equity 23,148 5,354 7,679 1,411 35,555 73,147
-------- ---------- ---------- ---------- ----------- --------
TOTAL LIABILITIES AND EQUITY $70,125 $46,807 $32,641 $13,333 $ 65,047 $227,953
======== ========== ========== ========== =========== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed balance sheet
7
<PAGE> 8
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The unaudited pro forma combined condensed balance sheet as of March 31, 1997
is based on the following assumptions and adjustments:
Assumptions a through i reflect material financing and equity transactions that
the Company completed during April 1997 and May 1997. The pro forma
adjustments reflect the transactions as if they occurred on March 31, 1997.
a. In April 1997 and May 1997, the Company completed a private offering of
2,025,000 shares of restricted common stock at $7.25 per share generating
a $14,681,250 increase to cash and equity.
b. On April 1, 1997 and May 1, 1997, the Company issued to Clend warrants to
purchase an aggregate 120,000 shares of restricted common stock at an
exercise price of $4.00 as contingent purchase consideration for the
HouTex acquisition. The value of the warrants are reflected as a
$437,000 increase to goodwill and equity.
c. On April 15, 1997, Clend converted $1.0 million of its note payable ($5.0
million outstanding) into 182,481 shares of restricted common stock.
Reflected as a $1.0 million reduction in current portion of debt and $1.0
million increase in equity. As of April 15, 1997, balance due on Clend
note was $4.0 million.
d. On May 21, 1997, Mike and Zalman Melnik, former owners of HouTex,
exercised their Limited Warrants to purchase 150,000 shares of restricted
common stock for aggregate cash payments to the Company of $600,000. Also
Clend Investment exercised their Limited Warrants to purchase 180,000
shares of restricted common stock in exchange for a $720,000 reduction of
its note payable. Reflected as a $600,000 increase to cash, a $720,000
reduction in current portion of debt and a $1,320,000 increase to equity.
As of May 21, 1997, balance due on Clend note was $3,280,000.
e. On April 30, 1997, the Company collected its $405,000 note receivable
from Mike Melnik. Reflected as a $405,000 increase to cash and a $405,000
reduction in accounts receivable.
f. On April 30, 1997, the Company paid its $1,655,268 notes payable due to
Mike and Zalman Melnik, with accrued interest. On May 30, 1997, the
Company paid its $3,280,000 notes payable due to Clend, with accrued
interest. Reflected as a $4,935,268 reduction in current portion of debt,
a $91,897 reduction in other accrued liabilities (accrued interest) and a
$5,027,165 reduction in cash.
g. On May 29, 1997, Ian MacLeod converted $1.0 million of his note payable
into 160,000 shares of restricted common stock. Reflected as a $1.0
million reduction in current portion of debt and a $1.0 million increase in
equity. During April 1997 and May 1997, the Company made $5.4 million of
principal payments and $148,648 of accrued interest payments on the notes
payable issued in connection with the MacLeod acquisition. Reflected as a
$4,920,000 reduction in current portion of debt, $480,000 reduction in
long-term debt, $148,648 reduction in other accrued liabilities (accrued
interest) and a $5,548,648 reduction in cash.
h. On May 29, 1997, the Company refinanced $3.0 million of its notes
payable due to Ian MacLeod on May 31, 1997 into a $3.0 million, 5 year
note due on June 30, 2002. Reflected as a $3.0 million reduction in
current portion of debt and a $3.0 million increase in long-term debt.
i. On May 27, 1997, the Company made a $1.0 million payment on a line of
credit from a commercial bank. On May 30, 1997, the Company obtained a
$4.5 million revolving and term loan from a commercial bank, due on July
1, 1998.
Assumptions j through n reflect the acquisition of Reserve on May 1, 1997. The
pro forma adjustments reflect the acquisition as if it occurred on March 31,
1997.
8
<PAGE> 9
j. The purchase consideration for Reserve was comprised of the following (in
000's):
<TABLE>
<S> <C>
Cash payment to limited partner $5,875
Promissory note issued to general partner, 9% due May 1, 1998 1,542
Value of 1,400,000 warrants issued 5,488
Cash payment for transaction costs 500
-------
Total estimated consideration $13,405
=======
</TABLE>
The value of the warrants issued was estimated using the Black- Scholes
option pricing model.
The estimated consideration will be allocated for pro forma purposes as
follows (in 000's):
<TABLE>
<S> <C>
Current assets $ 39,137
Noncurrent Assets 11,666
Current liabilities (15,781)
Long term debts/other liabilities (25,672)
Deferred Taxes (437)
Goodwill 4,492
--------
$ 13,405
========
</TABLE>
The above allocation of the estimated consideration is preliminary and
may change upon final determination of the fair value of assets acquired
and liabilities assumed. Goodwill is being amortized over 40 years.
k. Transaction costs for Reserve are estimated to be $500,000 in total. As
of March 31, 1997, MTLM had incurred and capitalized $477,000 of
transaction costs. The difference of $23,000 represents remaining costs
to be incurred and is presented as a $23,000 increase in accounts payable.
l. Reflects the goodwill, net of transaction costs already capitalized,
related to MTLM's acquisition of Reserve ($4,015,000) and the elimination
of Reserve's goodwill and other intangibles ($370,000) which were
not purchased.
m. Reflects the write-up of Reserve's fixed assets to fair market value.
Also, reflects the increase in deferred taxes as a result of the write-up
of fixed assets. Increase in deferred taxes presented as a $437,000
increase in other liabilities. Deferred taxes were calculated assuming a
40% combined Federal and State effective tax rate.
n. Reflects the elimination of Reserve's partners capital account.
Assumptions o through w reflect the acquisitions of Isaac and Ferrex on June
23, 1997. The pro forma adjustments reflect the acquisitions as if they
occurred on March 31, 1997.
o. The purchase consideration for Ferrex and Isaac was comprised of the
following (in 000's):
<TABLE>
<S> <C>
Promissory notes issued to Ferrex shareholders $ 3,102
Value of 1,942,857 shares of restricted common stock issued to Ferrex 21,469
shareholders
Value of 462,500 warrants issued to Ferrex shareholders 2,928
Value of 287,500 warrants issued to Geroge A. Isaac III 1,676
Promissory notes issued to Isaac shareholders 32,995
Cash payment for transaction Costs 305
-------
Total estimated consideration $62,475
=======
</TABLE>
9
<PAGE> 10
The restricted common stock was valued at $11.05 per share, which
reflects a discount from the closing market price as quoted on the NASDAQ
on June 23, 1997. The discount reflects, among other things, that none
of the shares issued are currently registered.
The value of the warrants issued was estimated using the Black- Scholes
option pricing model.
The estimated consideration will be allocated for pro forma purposes as
follows (in 000's):
<TABLE>
<S> <C>
Current assets $ 35,598
Fixed Assets 20,919
Noncurrent Assets 74
Current liabilities (28,921)
Long term debts/other liabilities (2,370)
Deferred Taxes (6,484)
Non-compete intangible 1,676
Goodwill 41,983
---------
$ 62,475
=========
</TABLE>
The above allocation of the estimated consideration is preliminary and
may change upon final determination of the fair value of assets acquired
and liabilities assumed. Goodwill and the non-compete intangible is
being amortized over 40 and 8 years, respectively.
p. The Promissory notes issued to Ferrex and Isaac are classified as follows
(in 000's):
<TABLE>
<CAPTION>
FERREX ISAAC TOTAL
------ ------- -------
<S> <C> <C> <C>
Current $1,034 $19,398 $20,432
Non-current 2,068 13,597 15,665
------ ------- -------
$3,102 $32,995 $36,097
====== ======= =======
</TABLE>
q. Reflects the adjustment of LIFO inventory for Isaac ($2,703,000) and
Ferrex ($334,000) to a FIFO basis to conform to MTLM's accounting policy
for inventory valuation.
r. Transaction costs for Isaac are estimated to be $305,000 in total. As of
March 31, 1997, MTLM had spent and capitalized $7,000 of transaction
costs. The difference of $298,000 represents remaining costs to be
incurred and is presented as a $298,000 increase in accounts payable.
s. Reflects the goodwill, net of transaction costs already capitalized,
related to MTLM's acquisition of Isaac and Ferrex.
t. Reflects the write-up of fixed assets for Isaac to fair market value.
Fair market value of fixed assets for Ferrex approximated its book value,
therefore, no adjustment was made. Also, reflects deferred taxes
resulting from the write-up of the fixed assets and inventory. Increase
in deferred taxes of $6,484 is presented as an other liability and was
calculated assuming a 40% combined Federal and State effective tax rate.
u. Reflects the elimination of Isaac's and Ferrex's equity accounts.
v. Reflects the value of warrants issued to George A. Isaac III to enter
into a noncompete agreement. The noncompete agreement is being amortized
over 8 years.
w. Reflects the elimination of intercompany accounts and notes receivable
between Isaac and Ferrex.
10
