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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file no. 0-14836
METAL MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
94-2835068
(I.R.S. Employer
Identification Number)
500 N. DEARBORN ST., SUITE 405,
CHICAGO, IL 60610
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (312) 645-0700
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value for the Registrant's voting stock held by
non-affiliates of the Registrant based upon the closing sale price of the Common
Stock on June 18, 1997 as reported on the NASDAQ National Market System, was
approximately $86,194,000. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of June 18, 1997, the Registrant had 12,857,222 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the Annual Meeting of Stockholders is incorporated
into this Form 10-K Part III by reference.
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TABLE OF CONTENTS
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PART I
Item 1: Business.................................................... 1
Item 2: Properties.................................................. 6
Item 3: Legal Proceedings........................................... 6
Item 4: Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5: Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 8
Item 6: Selected Consolidated Financial Data........................ 9
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 8: Financial Statements and Supplementary Data................. 26
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 26
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 27
Item 11: Executive Compensation...................................... 27
Item 12: Security Ownership of Certain Beneficial Owners and
Management.................................................. 27
Item 13: Certain Relationships and Related Transactions.............. 27
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 28
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This Form 10-K includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements in this Form 10-K which address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such things as future acquisitions
(including the amount and nature thereof), business strategy, expansion and
growth of the Company's business and operations and other such matters are
forward-looking statements. Although the Company believes the expectations
expressed in such forward-looking statements are based on reasonable assumptions
within the bounds of its knowledge of its business, a number of factors could
cause actual results to differ materially from those expressed in any
forward-looking statements, whether oral or written, made by or on behalf of the
Company. Many of these factors have previously been identified in filings or
statements made by or on behalf of the Company. See also "Factors Influencing
Future Results and Accuracy of Forward Looking Statements" below.
PART I
ITEM 1. BUSINESS
GENERAL
Metal Management, Inc. (herein, "MTLM" or the "Company") was founded in
1981 and re-incorporated in Delaware in June 1986. Prior to April 11, 1996, the
Company was called General Parametrics Corporation and operated as a
manufacturer and marketer of color thermal and dye sublimation printers and
related consumables, including ribbons, transparencies and paper. This business
was discontinued by the Company during fiscal 1997. On April 9, 1996, the
Company's stockholders approved an amendment to the Company's Certificate of
Incorporation to change the name of the Company from General Parametrics
Corporation to Metal Management, Inc. Effective April 15, 1996, the Company
formally changed its Nasdaq stock symbol to "MTLM". On April 25, 1996, the Board
of Directors of the Company approved a change in the Company's fiscal year end
from October 31 to March 31, effective April 1, 1996.
MTLM entered the scrap metal recycling industry on April 11, 1996, through
its merger with EMCO Recycling Corp. ("EMCO"), headquartered in Phoenix,
Arizona. As part of the strategic redirection, in April 1996, management
announced plans to exit the Spectra*Star printer and consumables business. On
July 16, 1996, Mannesmann Tally ("Tally") acquired the inventory and related
production equipment of the Spectra*Star business for approximately $1.3 million
in cash and provided additional contingent consideration in the form of
royalties on future sales of Spectra*Star printers and related consumables. The
Company discontinued and sold its VideoShow and related products lines business
("VideoShow") in December 1996 for consideration substantially in the form of
royalties on future sales of VideoShow equipment. The VideoShow consideration is
not expected to be material to the Company. On January 1, 1997, the Company
acquired the MacLeod Group of Companies ("MacLeod") headquartered in South Gate,
California. On January 7, 1997, the Company acquired HouTex Metals Company, Inc.
("HouTex"), headquartered in Houston, Texas. On May 1, 1997, the Company
acquired Reserve Iron & Metal, L.P. ("Reserve"), headquartered in Cleveland,
Ohio, with operations in Ohio, Illinois and Alabama. EMCO, MacLeod, HouTex and
Reserve are referred to herein as the "Acquired Companies" and "Recycling
Operations."
The Company and its wholly-owned subsidiaries are engaged in the business
of dismantling, processing, marketing, brokering and recycling of both ferrous
and non-ferrous metals with the goal of becoming one of the largest recyclers of
scrap metal in North America. Giving effect to the acquisition of the Acquired
Companies, MTLM operates twenty recycling centers in five states and resells
processed scrap metal and other materials to domestic and foreign customers.
MTLM intends to continue its expansion principally through acquisition to
consolidate the highly fragmented scrap metal recycling industry. MTLM believes
that no single company is a significant processor of scrap metal on a national
scale, although certain companies are significant processors on a local or
regional scale.
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ACQUISITION STRATEGY
MTLM believes that similar to the solid waste industry, the scrap metal
recycling industry has recently begun to experience market consolidation due to,
among other things: (1) significant capital requirements caused by expanding
equipment needs and by more stringent environmental regulations; and (2) desire
of owners of independent scrap metal processors to sell closely-held businesses
to companies with access to public capital markets.
MTLM seeks to acquire significant processors of scrap metal in large
metropolitan markets which will serve as regional platform companies and to
follow these acquisitions with "tuck-in" acquisitions of smaller processors.
MTLM believes that this consolidation strategy will allow MTLM to improve its
operating margins and profitability by: (1) increasing its market share, which
is expected to enhance customer relationships and enhance supply capabilities;
(2) spreading the cost of management and administrative staff, and utilizing
equipment and other assets, across larger operations; and (3) transferring
technology and best demonstrated processing and marketing strategies among
acquired recycling operations. The Company is continuously evaluating
acquisition opportunities.
RECYCLING OPERATIONS
The Recycling Operations are engaged in buying, processing, and selling
scrap metals. The principal forms in which scrap metals are generated include
industrial scrap and obsolete scrap. Industrial scrap results from residual
materials from manufacturing processes. Obsolete scrap consists primarily of
residual metals from old or obsolete consumer and industrial products such as
appliances and automobiles.
FERROUS OPERATIONS
Ferrous Scrap Purchasing
The Company purchases ferrous scrap from two primary sources: (1)
manufacturers who generate steel and iron ("industrial scrap"); and (2)
junkyards, demolition firms, railroads, the military and others who generate
steel and iron scrap ("obsolete scrap"). In addition to these sources, the
Company purchases, at auction, furnace iron from integrated steel mills and
obsolete steel and iron from government and large industrial accounts. Finally,
the Company purchases materials from small dealers, peddlers and auto wreckers
who deliver directly to the Company's processing facilities. Prices are
determined primarily by market demand and the composition, quality, size, and
weight of the materials.
Ferrous Scrap Processing
The Company prepares ferrous scrap metal for resale through a variety of
methods including sorting, shredding, shearing or cutting, baling, or breaking
and processes a number of differently sized and shaped products depending upon
customer specifications and market demand.
Sorting: After purchasing ferrous scrap metal, the Company inspects the
material to determine how it should be processed to maximize profitability. In
some instances, scrap may be sorted and sold without requiring processing. The
Company's sorting operations separate scrap for further processing according to
its size and composition with conveyor systems, front-end loaders, crane-mounted
electromagnets or claw-like grapples.
Shredding: Obsolete consumer scrap such as automobiles, home appliances and
other consumer goods, as well as certain light gauge industrial scrap, is
processed in the Company's shredding operation. These items are fed into a
shredder that quickly breaks the scrap down into fist-size pieces of ferrous
metal. The shredding process uses magnets to separate ferrous, non-ferrous and
non-metallic materials. The ferrous material is sold to the Company's customers
including mini-mills and the non-metallic by-product of the shredding
operations, referred to as "shredder fluff," is disposed of in third party
landfills. The Company operates a shredder at its EMCO subsidiary in Phoenix.
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Shearing or Cutting: Pieces of oversized ferrous scrap which are too large
for other processing, such as obsolete steel girders and used drill pipe, are
cut with hand torches, crane-mounted alligator shears and/or stationary
guillotine shears. After being reduced to more manageable size, the scrap is
then sold to customers who can accommodate larger materials, such as mini-mills.
The Company operates a shear in Chicago at its Reserve subsidiary and has made
deposits with a vendor to purchase a shear for its EMCO subsidiary.
Baling: The Company processes light gauge ferrous metals such as clips and
sheet iron, and by-products from industrial manufacturing processes, such as
stampings, clippings and excess trimmings, by baling these materials into large,
uniform blocks. The Company uses cranes, front-end loaders and conveyors to feed
the metal into hydraulic presses which compress the materials into uniform
blocks at high pressure.
Breaking of Furnace Iron: The Company processes furnace iron which includes
blast furnace iron, steel pit scrap, steel skulls, beach iron and pit scrap.
Large pieces of iron are broken down by the impact of 8 to 10 ton forged steel
balls dropped from cranes. The fragments are then sorted and screened according
to size and iron content.
Ferrous Scrap Sales
The Company sells processed ferrous scrap to end users such as mini-mills,
integrated steel makers and foundries and to brokers who aggregate materials for
other large end users. Most of the Company's customers purchase processed
ferrous scrap according to a monthly plan which establishes the quantity
purchased for the month. The Company interacts with end users and brokers
through its sales force of approximately 15 people. The price for ferrous scrap
depends upon market demand, as well as quality and grade. The Company believes
profitability may be enhanced by offering a broad product line to its customers;
however, no assurance can be provided in that regard. The Company believes that
its consolidation strategy will allow it to be a premier supplier of scrap since
it will be able to fill larger quantity orders due to increased ability to
source large amounts of raw materials. The Company's sales of processed ferrous
scrap accounted for 32% of the Company's revenues for the twelve months ended
March 31, 1997, representing approximately 152,000 tons of ferrous metals.
NON-FERROUS OPERATIONS
Non-Ferrous Scrap Purchasing
The Company purchases non-ferrous scrap from three primary sources: (1)
manufacturers and other non-ferrous scrap sources who generate or sell waste
aluminum, copper, stainless steel, brass, high-temperature alloys and other
metals; (2) telecommunications, aerospace, defense, and recycling companies that
generate obsolete scrap consisting primarily of copper wire, exotic metal alloys
and used aluminum beverage cans; and (3) peddlers who deliver to the Company
material which they collect from a variety of sources. While peddlers usually
deliver their scrap to the Company, the Company collects non-ferrous scrap from
others sources by placing retrieval bins near these sources. Once full, the bins
are transported to the Company's strategically located processing facilities.
The Company also generates non-ferrous scrap as a by-product of its ferrous
scrap processing. Non-ferrous scrap is recovered from the Company's ferrous
operations through two primary activities: (1) non-ferrous materials, generally
a mixture of aluminum, zinc, die-cast metal, stainless steel and copper, are
recovered as a by-product of the shredding process; and (2) non-ferrous
materials are identified visually and by using hand-held magnets.
A number of factors can influence the continued availability of non-ferrous
scrap such as the level of economic activity and the quality of the Company's
supplier relationships. Consistent with industry practice, the Company has
certain long-standing supply relationships that management believes will improve
as a result of implementing its consolidation strategy; however, no assurance
can be provided in that regard.
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Non-Ferrous Scrap Processing
The Company prepares non-ferrous scrap metal for resale by sorting,
shearing, cutting, chopping and/or baling.
Sorting: The Company's sorting operations separate non-ferrous scrap using
conveyor systems and front-end loaders. In addition, many non-ferrous metals are
sorted and identified using grinders, hand torches and spectrometers. The
Company's ability to identify metallurgical composition is critical to
maintaining margins and profitability. Due to the high value of many non-ferrous
metals, the Company can afford to utilize more labor intensive sorting
techniques than are employed in its ferrous operations. The Company sorts
non-ferrous scrap for further processing according to type, grade, size and
chemical composition. Throughout the sorting process, the Company determines
whether the material requires further processing before being sold.
Copper: Copper scrap may be processed in several ways. The Company
processes copper scrap predominately by using wire choppers which grind the wire
into small pellets. During chopping operations, the plastic casing of the wire
is separated from the copper using a variety of techniques. In addition to wire
chopping, the Company processes scrap copper by baling and other repacking to
meet customer specifications. For the twelve months ended March 31, 1997, the
Company sold approximately 22.6 million pounds of copper.
Aluminum: The Company processes aluminum based on the size of the pieces
and customer specifications. Large pieces of aluminum are cut using crane
mounted alligator shears and stationary guillotine shears and are baled along
with small aluminum stampings to produce large bales of aluminum. Smaller pieces
of aluminum are repackaged to meet customer specifications. For the twelve
months ended March 31, 1997, the Company sold approximately 34.4 million pounds
of aluminum.
Other Non-Ferrous Materials: The Company processes other non-ferrous metals
using similar cutting, baling and repacking techniques as it uses to process
aluminum. Among other significant non-ferrous metals the Company processes
include brass and high-temperature alloys.
Non-Ferrous Scrap Sales
The Company sells processed non-ferrous scrap to end users such as
specialty steel-makers, foundries, aluminum sheet and ingot manufacturers,
copper refineries and smelters, and brass and bronze ingot manufacturers. The
Company interacts with end users and brokers through its sales force of 15
people. Prices for the majority of non-ferrous scrap metals change based upon
the daily publication of spot and futures prices on the COMEX or London Metal
Exchange. The Company's sales of processed non-ferrous scrap accounted for 67%
of the Company's revenues for the twelve months ended March 31, 1997,
representing approximately 65 million pounds of non-ferrous metals.
TRANSPORTATION
The Company's subsidiaries operate trucks, trailers and roll-off containers
to transport material from suppliers and to customers. In addition, the Company
utilizes railroad and independent trucking for a portion of its inbound and
outbound hauling.
ENVIRONMENTAL MATTERS
Information with respect to Environmental Matters is included in the
section "Factors Influencing Future Results and Accuracy of Forward Looking
Statements -- Environmental Matters".
SEASONALITY
The Company's subsidiaries have, in the past, experienced lower sales in
July and December. The Company's operations can be adversely affected by
protracted periods of inclement weather or unexpected closing or shutdown of
customer's plants, which could reduce the volume of material processed at its
facilities.
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PERSONNEL
As of March 31, 1997, the Company employed 376 people, of whom 11 are in
the Corporate office. 365 employees work in the Company's recycling centers, of
which 191 are full-time and 174 are part-time employees. None of the Company's
employees are represented by a labor union. The Company considers relations with
its employees to be satisfactory.
RESEARCH AND DEVELOPMENT
The Company is not currently involved in any research and development
projects.
EXPORT SALES
The Company's MacLeod subsidiary generated approximately $2.5 million (3%
of consolidated net sales) from foreign sales for the year ended March 31, 1997.
Foreign sales are denominated in U.S. dollars.
COMPETITION
The scrap metal recycling industry is highly competitive, with the
principal competitive factors being price and availability of scrap metal.
Competition in the industry is intense in part because the barriers to entry
into the scrap metal collection business are relatively low. Additionally, the
Company faces competition from producers of finished steel products, many of
whom have substantially greater financial resources than the Company, who may
vertically integrate by entering the scrap metal recycling business. There can
be no assurance that the Company will be able to obtain or maintain a market
share necessary to achieve its financial goals or to effectively compete in its
markets.
RECENT DEVELOPMENTS
On May 16, 1997, the Company signed a definitive agreement to merge a
wholly-owned subsidiary with and into Cozzi Iron & Metal, Inc. ("Cozzi"),
headquartered in Chicago, Illinois. Cozzi will be the surviving entity and will
operate as a wholly-owned subsidiary of the Company following the merger. The
closing of the Cozzi merger is subject to shareholder and government approvals
and is also subject to certain other conditions precedent. At the closing of
this merger, the shareholders of Cozzi will receive 11.5 million shares of the
Company's common stock, warrants to purchase 1.5 million shares of common stock,
and $6.0 million in cash. Further, at the effective time of the merger, the
Company intends to appoint Albert A. Cozzi as President and Chief Operating
Officer of the Company. T. Benjamin Jennings will remain Chairman of the Board
and Chief Development Officer, and Gerard M. Jacobs will remain the Chief
Executive Officer of the Company. Contemporaneous with closing, Albert A. and
Frank J. Cozzi, as well as T. Benjamin Jennings and Gerard M. Jacobs, anticipate
entering into five-year employment agreements with the Company. In addition,
Albert A., Frank J. and Gregory P. Cozzi and T. Benjamin Jennings and Gerard M.
Jacobs intend to enter into a ten-year stockholder agreement to, among other
things, vote their respective shares in a common fashion in regard to elections
of directors and officers and in certain other circumstances. No assurance can
be provided that the Cozzi merger will close and failure of such transaction to
close for any reason could have an adverse affect on the Company and its stock
price. See "Factors Influencing Future Results and Accuracy of Forward-Looking
Statements."
On March 18, 1997, the Company signed a binding Letter of Intent to acquire
Proler Southwest Inc., and Proler Steelworks LLC ("Proler"). Proler Southwest,
Inc. and Proler Steelworks LLC have operations in Houston, Texas and Jackson,
Mississippi, respectively. The transaction is expected to be effected by the
Company acquiring all of the equity interests in Proler Southwest Inc., and
Proler Steelworks LLC in exchange for $15.0 million in cash, a $2.0 million
promissory note, 1.75 million shares of common stock of the Company and warrants
to purchase 375,000 shares of common stock. No assurance can be provided that
the Proler transaction will close and failure of such transaction to close for
any reason could have an adverse affect on the Company and its stock price.
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Effective May 28, 1997, Raymond F. Zack voluntarily resigned from his
position as a Director of the Company.
ITEM 2. PROPERTIES
The Company's principal offices are located in an office building at 500
North Dearborn St., Suite 405, Chicago, Illinois, which the Company leases. As
of June 19, 1997, the Company owned or leased 20 locations. The Company's
recycling operations are performed in the following locations:
The Company's EMCO subsidiary owns a 25 acre site in an industrial area of
Phoenix, Arizona, at which it performs its main administrative activities and
principal processing operations. In addition, EMCO leases nine collection
centers in the Phoenix metropolitan area and collection centers in Prescott,
Arizona and Yuma, Arizona.
The Company's Metal Management Realty, Inc. subsidiary owns two parcels of
real property in Tucson, Arizona. This property is leased to Ellis Metals, Inc.,
which is principally owned by Harold Rubenstein, a Director of the Company.
The Company's Metal Management Realty, Inc. subsidiary also owns a seven
acre site in South Gate, California where the main offices and principal
processing operations of MacLeod are located. In addition, MacLeod leases three
additional sites in the Los Angeles metropolitan area.
The Company's HouTex subsidiary leases a 45 acre processing site located in
Houston, Texas from a limited partnership affiliated with Mike Melnik, a
Director of the Company. The facility is located on the Houston shipping channel
and all of the HouTex operations are performed on this facility.
The Company's Reserve subsidiary lease sites in Cleveland, Ohio and
Chicago, Illinois. Reserve owns a 50% interest in a joint venture with
operations in Attalla, Alabama. The joint venture leases the site on which its
operations are performed.
Giving effect to the Reserve acquisition, the Company's scrap metal
recycling operations will be conducted from facilities in Alabama, Arizona,
California, Illinois, Ohio and Texas.
The Company's lease relating to its former offices in Berkeley, California
has been terminated and the final lease payment was made in April 1997. The cost
relating to the termination of the Berkeley lease is recorded as part of
discontinued operations.
ITEM 3. LEGAL PROCEEDINGS
The Company's Reserve subsidiary is currently involved in a legal
proceeding in which Reserve Iron & Metal Limited Partnership (a Delaware Limited
Partnership) and P. Joseph Iron & Metal, Inc. (its sole general partner) are
named as defendants. The court in which such proceedings are pending and the
date of the proceeding is: George Abboud v. Reserve Iron & Metal Limited
Partnership, Cuyahoga County Court of Common Pleas, Case No. 304772, George
Abboud v. P. Joseph Iron & Metal, Inc., Cuyahoga County Court of Common Pleas,
Case No. 304772, March 27, 1996.
Claimant George Abboud has alleged that Reserve Iron & Metal, as his
employer, intentionally required Mr. Abboud to work under conditions in which an
injury to Mr. Abboud was substantially certain to occur. Reserve Iron & Metal
has denied this allegation and believes evidence will show that Mr. Abboud
negligently performed his work, which caused his injury. Claimant George Abboud
seeks money damages in an amount in excess of $25,000 to be determined at trial.
No trial date has been set. Discovery is still pending.
Certain of the sellers of Reserve (the "Indemnifying Parties") have agreed
to indemnify the Company and its affiliates against a portion of specified
potential liabilities. As is customary with certain types of potential
liabilities, Reserve's insurance carriers have accepted the defense of Reserve,
but have done so subject to reserving their respective rights to deny coverage
under certain circumstances. Assuming, for hypothetical purposes, that insurance
coverage would not be available or would be inadequate, such potential
liabilities, were they to become actual liabilities, could be significant. Any
amounts payable by the
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Indemnifying Parties will be funded by reducing the purchase price note owed by
the Company and/or by increasing the exercise price on warrants issued to such
Indemnifying Parties as part of the original terms of the Purchase Agreement and
the ten-year employment agreements, respectively. With reference to these
certain potential liabilities, Reserve has advised the Company it believes it
has adequate insurance coverage and has denied any liability for these potential
liabilities. There can be no assurance, however, that Reserve will not suffer
actual liability or that it will have adequate insurance to cover the liability
and in such case, the Company could be materially and adversely affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the shareholders of Metal Management, Inc.
during the fourth quarter of fiscal 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Metal Management Inc. common stock, par value $.01, has been traded on the
NASDAQ National Market System under the symbol MTLM since April 1996.
Previously, the Company traded under the symbol GPAR. The following table sets
forth the high and low closing prices for the Company's common stock for the
periods indicated, as reported by the NASDAQ National Market System. They
reflect inter-dealer prices, without retail mark-up, mark-down or commission.
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FISCAL 1997 (YEAR ENDED 3/31/97)
Fourth Quarter.............................................. $10.38 $3.81
Third Quarter............................................... 4.19 3.38
Second Quarter.............................................. 4.50 3.25
First Quarter............................................... 5.56 4.38
FISCAL 1996 (FIVE MONTHS ENDED 3/31/96)
Second Quarter (2/1/96 to 3/31/96).......................... $ 5.00 $4.25
First Quarter (11/1/95 to 1/31/96).......................... 5.00 3.00
FISCAL 1995 (YEAR ENDED 10/31/95)
Fourth Quarter.............................................. $ 3.63 $1.75
Third Quarter............................................... 2.13 1.44
Second Quarter.............................................. 2.00 1.50
First Quarter............................................... 1.88 1.25
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The number of registered stockholders of record of the Company's Common
Stock, based on the transfer records of the Company at June 18, 1997, was 240.
On June 18, 1997, the closing price per share of the Company's Common Stock as
reported on the NASDAQ National Market System was $11.875.
On August 31, 1995, the Company announced that its Board of Directors
elected to discontinue the payment of cash dividends. The Company presently has
no intention of paying dividends in the foreseeable future and intends to
utilize its cash and investments for the intended new direction of the Company.
The Company last paid a cash dividend in fiscal 1995, of $0.18 per share (three
quarterly cash dividend payments of $.06 per share).
SALES OF UNREGISTERED SECURITIES DURING THE YEAR ENDED MARCH 31, 1997
In connection with the Company's merger with EMCO on April 11, 1996, the
Company issued 3,500,000 shares of unregistered Common Stock valued at $8.8
million and warrants to purchase 1,000,000 shares of unregistered Common Stock,
at exercise prices ranging from $4.48 to $6.48 per share.
In connection with the Company's acquisition of MacLeod on January 1, 1997,
the Company issued 725,000 shares of unregistered Common Stock valued at $2.3
million and warrants to purchase 175,000 shares of unregistered Common Stock, at
exercise prices ranging from $3.96 to $4.75 per share.
In connection with the Company's acquisition of HouTex on January 7, 1997,
the Company issued 475,000 shares of unregistered Common Stock valued at $1.7
million and warrants to purchase 250,000 shares of unregistered Common Stock at
an exercise price of $4.00 per share. Also, certain provisions in the HouTex
acquisition agreements required the Company to issue, subsequent to closing,
additional warrants to purchase 180,000 shares of unregistered Common Stock at
an exercise price of $4.00 per share. On May 21, 1997, warrants to purchase
330,000 shares of unregistered Common Stock were exercised by the former
shareholders of HouTex including warrants to purchase 87,000 shares by Mike
Melnik, a Director of the Company.
On January 7, 1997, the Company obtained a $10.0 million loan from a
commercial bank. This loan is secured by personal guarantees provided by five
current directors and one former director of the Company,
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including Gerard M. Jacobs, T. Benjamin Jennings, Donald F. Moorehead, Jr.,
George O. Moorehead, Harold Rubenstein and Raymond F. Zack and pledges of
certain assets of its HouTex subsidiary. In consideration for providing the
personal guarantees, the Company granted these directors warrants to purchase an
aggregate 500,000 shares of unregistered Common Stock at an exercise price of
$4.00 per share.
On April 15, 1997, Clend Investment, beneficially owned, in part, by Mike
Melnik, a director of the Company, converted $1.0 million of its note payable
into 182,482 shares of unregistered Common Stock. On May 29, 1997, Ian MacLeod,
a director of the Company, converted $1.0 million of a note payable into 160,000
shares of unregistered Common Stock.
In April 1997, the Board of Directors approved a private placement of up to
2,025,000 shares unregistered Common Stock at $7.25 per share (the "Private
Placement"). The Private Placement is fully subscribed and all shares available
for sale have been issued. Five directors of the Company, including Gerard M.
Jacobs, T. Benjamin Jennings, Donald F. Moorehead, Jr., George O. Moorehead and
Harold Rubenstein collectively purchased 260,000 shares in the Private
Placement. A purchaser of 1.0 million shares of unregistered Common Stock in the
Private Placement, who is not a director or employee, provided consideration
comprised of $5.0 million in cash and a $2.25 million short term note. The short
term note accrues interest at prime rate and all principal and interest is due
and payable on or before June 30, 1997. On June 16, 1997, the Company received a
$500,000 payment on the note. The Private Placement was accomplished by the
Company directly with accredited investors and did not involve the use of any
underwriters or advisors or the payment of any fees or commissions.
In connection with the Company's acquisition of Reserve on May 1, 1997, the
Company issued warrants to purchase 1.575 million shares of unregistered Common
Stock, at exercise prices ranging from $3.50 to $9.90 per share (exercise prices
are subject to adjustment). A total of 840,000 of the warrants were issued to
Paul D. Joseph, a Director of the Company.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share and employee data)
Financial results for the current fiscal year and prior years reflect the
divested businesses as discontinued operations. For information about principal
acquisitions and divestitures see notes 2, 3 and 16 to the consolidated
financial statements included in Part II, Item 8 of this report.
Fiscal 1992 to 1995 represents the twelve month period ended October 31 of
each year. Fiscal 1996 represents the five month period from November 1, 1995 to
March 31, 1996. Fiscal 1997 represents the twelve month period ended March 31.
Results for fiscal 1992 through 1995 and the five month period ended March 31,
1996 have been restated to reflect the results of the disposed businesses as
discontinued operations.
9
<PAGE> 12
See "Factors Affecting Future Results and Accuracy of Forward-Looking Statements
- -- Recent Change in Strategic Direction and Limited Operating History."
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales.............................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 65,196
Gross profit........................... 0 0 0 0 0 6,872
Total operating expenses............... 0 0 0 0 210 8,456
Interest and other income (expense),
net.................................. 968 310 229 312 142 (1,268)
Net income (loss) from continuing
operations........................... 968 310 228 261 (16) (2,010)
Income (loss) from discontinued
operations........................... 78 (202) (440) (2,698) 22 847
Net income (loss)...................... 1,046 108 (212) (2,437) 6 (1,163)
Income (loss) per share from:
Continuing operations................ $.13 $.06 $.04 $.05 $.00 $(.22)
Discontinued operations.............. $.01 $(.04) $(.08) $(.53) $.00 $.09
Weighted average shares outstanding.... 7,336 5,095 5,098 5,125 5,299 9,106
BALANCE SHEET DATA
Working capital (deficit).............. $11,343 $ 7,983 $ 8,130 $ 9,141 $ 9,086 $(13,555)
Total assets........................... 16,665 15,304 13,486 10,130 10,313 70,125
Long-term debt, including current 0 0 0 0 0 5,170
Stockholders' equity................... 14,506 13,759 12,395 9,314 9,608 23,148
Cash dividends declared per common
share................................ $0.24 $0.24 $0.24 $0.18 $0.00 $0.00
Number of employees.................... 82 71 62 41 37 376
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following factors should be considered carefully in evaluating the
Company and its business. The risk factors described below contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the
forward-looking statements.
The purpose of the following discussion is to facilitate the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of the Company, including changes arising
from recent acquisitions by the Company, the timing and nature of which have
significantly affected the Company's results of operations. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto included in Part II, Item 8 of the Form 10-K.
GENERAL
During the current fiscal year, the Company changed its strategic direction
by pursuing consolidation of the scrap metal recycling business. In conjunction
with this new strategy, the Company divested its color printers and related
businesses during the year by selling the Spectra*Star & VideoShow businesses.
The operations of these businesses are treated as discontinued operations in the
Company's financial statements. All prior year information has been restated to
conform to reflect the results of the disposed businesses as discontinued
operations.
In April 1996, the Company completed its first acquisition in the scrap
metal recycling business by merging with EMCO. This was followed by the
acquisitions of MacLeod and HouTex in January 1997. These transactions were
accounted for by the purchase method of accounting and their results are
included in the Company's consolidated results for the year ended March 31, 1997
from the time of acquisition. On May 1, 1997, the Company acquired Reserve also
to be accounted for under the purchase method of accounting. On May 16, 1997,
the Company executed a definitive agreement to merge a subsidiary of the Company
with Cozzi. In March 1997, the Company announced that it signed a binding letter
of intent to acquire Proler. The Cozzi and Proler transactions are expected to
close during the second quarter of fiscal 1998 and will be
10
<PAGE> 13
accounted for under the purchase method of accounting, but no assurance can be
provided that either transaction will close.
FISCAL YEAR ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
Consolidated revenues for the year ended March 31, 1997 in broad product
categories were as follows: ($ in thousands):
<TABLE>
<CAPTION>
COMMODITY WEIGHT AMOUNT %
- --------- ------ ------ -
<S> <C> <C> <C>
Ferrous Metals (tons)............................... 151,782 $20,744 32%
Non-ferrous metals (pounds)......................... 64,898,364 43,531 67%
Other............................................... -- 921 1%
------- ---
$65,196 100%
======= ===
</TABLE>
Consolidated revenues for the year ended March 31, 1997 reflect twelve
months of results for EMCO and three months for MacLeod and HouTex,
respectively. Revenues in the scrap metal industry during fiscal 1997 were
negatively impacted by market conditions that reduced prices for scrap metals.
Prices for ferrous scrap metals declined significantly in the third quarter of
fiscal 1997. In addition, prices for non-ferrous metals consisting principally
of copper and aluminum also declined during fiscal 1997.
The price of scrap metal is impacted by regional and seasonal variations.
Furthermore, prices for scrap metal are also impacted by broad and global
cyclical movements and as such equilibrates supply and demand. The Company
believes one of the factors that contributed to the price decline in fiscal 1997
for nonferrous metals was the negative reaction caused by the much publicized
speculative trading losses sustained by a major copper trader. The Company
believes one of the factors that contributed to the price decline in ferrous
metals during the third quarter was weaknesses in export markets for ferrous
metals.
Consolidated gross margin for fiscal 1997 was $6.8 million, or 10.4% of net
sales. As indicated above, gross margins for scrap processors were negatively
impacted in fiscal 1997 by general declines in scrap prices. Gross margins were
also impacted by losses at the Company's EMCO subsidiary. During the third
quarter, the Company initiated efforts to restructure the operations at EMCO and
intends to reduce future operating expenses through the restructuring plan. No
provisions were recorded on the balance sheet for the restructuring costs.
Restructuring costs are being expensed as incurred. For further discussion, see
section entitled "Factors Affecting Future Results and Accuracy of
Forward-Looking Statements."
Consolidated operating expenses of $8.5 million consists of general and
administrative costs of $6.2 million and depreciation and amortization of $2.3
million. Approximately $2.0 million of the general and administrative costs
represents corporate overhead. As mentioned earlier, the Company's EMCO
subsidiary has initiated an operational restructuring plan that management
believes will reduce certain overhead expenses.
Net interest and other expense for the year was $1.3 million. This was
comprised of $1.6 million in interest expense, offset by $.2 million in interest
income and $.1 million of other income. In the prior fiscal years, the Company
had excess cash invested in government and corporate bonds which generated
interest income for the Company. During the current fiscal year, the Company
began to incur interest expense associated with the financing of its
acquisitions. See the section titled "Liquidity and Capital Resources" for
further discussion.
Net loss from continuing operations was $2.0 million ($.22 per share). The
net loss from continuing operations was mainly due to losses incurred at the
Company's EMCO subsidiary and corporate overhead costs, partially offset by
operating income at the Company's HouTex and MacLeod subsidiaries. The financial
results for HouTex and MacLeod are only included from their acquisition dates in
January 1997. Losses at EMCO were mainly due to unfavorable market conditions,
inefficient operating processes and inefficient machinery and equipment.
11
<PAGE> 14
Income from discontinued operations was $847,000 ($.09 per share). During
the fiscal year, the Company realized an after-tax gain, including royalty
income of $351,000, of $500,000 on the sale of assets of the Spectra*Star and
VideoShow businesses. The results of discontinued operations reflect the
operations of the Spectra*Star business up to the divestiture date (July 16,
1996) as well as severance and other costs incurred to discontinue the business.
Severance costs were not material to the Company.
FISCAL 1996 TO FISCAL 1995
Fiscal 1996 represents the five month period from November 1, 1995 to March
31, 1996. Net loss from continuing operations represents certain corporate
overhead costs offset by interest income and a tax benefit.
Interest and other income remained consistent during fiscal 1996 as
compared to fiscal 1995. Interest and other income was $142,000 for the five
months ended March 31, 1996, an average of $28,000 per month compared to
interest and other income of $312,000 for fiscal 1995, an average of $26,000 per
month.
Income from discontinued operations was $22,000 ($.00 per share) for the
five months ended March 31, 1996, versus a loss of $2.7 million ($.53 per share)
in fiscal 1995. Fiscal 1995 results reflect one time charges of $2.2 million
relating to restructuring of the color printer business and the discontinuance
of a portion of the electronic presentation business. The results for fiscal
1996 were impacted by lower shipments of the Company's products due to
competitive pressures in the market. This was slightly offset by lower operating
expenses as a result of planned reductions in payroll and related expenditures
as well as less time and costs spent by the Company on research and development.
FISCAL 1995 TO FISCAL 1994
Income from continuing operations of $261,000 ($.05 per share) represents
interest income and a provision for income taxes. Interest income was $312,000
during fiscal 1995, compared to $229,000 during fiscal 1994. The increase was
primarily attributed to the recording of a loss during fiscal 1994 of $78,000
for certain of the Company's investments.
Loss from discontinued operations was $2.7 million ($.53 per share) in
fiscal 1995 versus a loss of $440,000 ($.08 per share) in fiscal 1994. Fiscal
1995 results reflect one time charges of approximately $2.2 million relating to
the restructuring of the color printer business and the discontinuance of a
portion of the electronic presentation business. Without the one time charges,
net loss from discontinued operations for fiscal 1995 would have been $500,000.
The Company's color printer business remained flat with the prior year. The
electronic presentation business experienced weakness due to competitive product
pressures, softness in governmental purchases and lower sales outside the United
States. The Company was able to control expenses through reductions in staff and
less time and costs spent on research and development.
LIQUIDITY AND CAPITAL RESOURCES
As previously discussed, the Company will continue to pursue acquisitions
in the scrap metal recycling industry and anticipates financing acquisitions
with debt and equity transactions. The Company will require substantial capital
to fund future acquisitions and current operations. There can be no assurance
that any additional financing will be available, or, in the event that it is,
that it will be available in the amounts and on terms acceptable to the Company.
CASH FLOWS FROM CONTINUING OPERATIONS
The Company's net cash flows from continuing operations decreased
significantly during fiscal 1997 as a result of significant losses incurred by
EMCO and an increase in accounts receivable balances as a result of the
acquisitions of EMCO, MacLeod and HouTex.
12
<PAGE> 15
CASH FLOWS FROM INVESTING ACTIVITIES
The Company made capital expenditures of approximately $5.7 million during
fiscal 1997 which included purchases of property and equipment ($3.2 million)
and cash paid for the acquisitions of EMCO, MacLeod and HouTex ($2.5 million).
These cash outflows were partially offset by $2.8 million of proceeds received
from the sale of marketable securities. Management anticipates continuing to
make acquisitions, capital expenditures for new equipment, and upgrading and
expanding existing equipment and facilities. The Company expects that these
expenditures may increase in the future due to the internal growth of the
Company and business combinations.
CASH FLOWS FROM FINANCING ACTIVITIES
During fiscal 1997, the Company obtained $7.8 million from issuances of
term debt. $6.5 million of the term debt is due on June 30, 1997, but may be
extended at the Company's option and for a fee, to July 1, 1998. Proceeds from
the term debt were utilized to fund capital expenditures, acquisitions and make
payments on existing debt. The Company also made net payments of $926,000 on its
various lines of credits. At March 31, 1997, the Company had utilized
predominately all the availability under its lines of credit. Management
anticipates obtaining additional debt financing to fund its acquisition strategy
as well as provide additional working capital for its existing operations. See
"Factors Affecting Future Results and Accuracy of Forward-Looking Statements --
Immediate and Future Capital Requirements; Short-term Borrowing Strategies to
Fund Acquisitions; and Substantial Leverage."
CASH FLOWS FROM DISCONTINUED OPERATIONS
The Company generated $2.7 million of cash flows from discontinued
operations during fiscal 1997. The cash flows generated are a result of proceeds
received from the sale of assets of the Spectra*Star business, royalty income
received from the sale of products from the discontinued businesses and
collection of accounts receivable related to the discontinued operations.
FINANCIAL CONDITION
The Company's principal sources of cash are its existing cash and cash
equivalents balances, collection of accounts receivable and proceeds from lines
of credit and other borrowing agreements. At March 31, 1997, the Company had
$5.7 million in cash, cash equivalents and marketable securities.
Significant Cash Transactions Subsequent to Year-End
On June 19, 1997, the Company concluded its private sale of 2,025,000
shares of restricted common stock which to date has raised approximately $13.0
million in cash. The Company expects to receive an additional $1.75 million from
the collection of a short term note provided by a purchaser of common stock in
the private placement. In connection with the Company's acquisition of Reserve
on May 1, 1997, a cash payment of $5.9 million was made.
Cash Requirements for Maturing Debt Obligations
The Company has a loan from a commercial bank in the principal amount of
$10.0 million ($9.5 million is currently outstanding) which is due and payable
on June 30, 1997, but can be extended, at the Company's option, to July 1, 1998,
for a fee. The Company also has an $5.0 million line of credit ($3.4 million is
currently outstanding and available) which matures in August 1998. In connection
with the Reserve acquisition, the Company assumed certain debt of approximately
$26.0 million of which $1.5 million is currently outstanding. The Company made
arrangements with Reserve's lender to provide for the existing loans to remain
in place without changes to terms and conditions of the credit agreement.
13
<PAGE> 16
Cash Requirements for Pending Acquisitions
The Cozzi and Proler acquisitions will require cash payments to sellers at
closing of approximately $6.0 million and $15.0 million, respectively. Both
acquisitions are expected to close during the second quarter of fiscal 1998,
although no assurance can be provided that either transaction will close. The
Company's existing cash and cash equivalents will not be sufficient to fund the
Cozzi and Proler acquisitions. The Company is seeking other financing sources to
meet such obligations but no assurances can be provided that such financing will
be available when needed, or that, if available, it will be on satisfactory
terms. See "Business -- Recent Developments."
Working Capital Availability and Requirements
Accounts receivable balances increased from $1.5 million at March 31, 1996
to $9.6 million at March 31, 1997. The increase in accounts receivable is
attributable to the acquisitions of EMCO, MacLeod and HouTex, offset by
collections of accounts receivable from the Spectra*Star business. Accounts
payable increased from $0.3 million at March 31, 1996 to $5.2 million at March
31, 1997. The increase in accounts payable is attributable to the acquisitions
of EMCO, MacLeod and HouTex.
Inventory levels vary at each of the Company's subsidiaries. Inventory
levels are determined by managers of subsidiaries and can vary significantly
between subsidiaries. Inventory on hand at March 31, 1997 consisted of the
following ($ in thousands):
<TABLE>
<CAPTION>
COMMODITY WEIGHT AMOUNT %
--------- ------ ------ -
<S> <C> <C> <C>
Ferrous (tons)........................................ 39,983 $2,707 32%
Non-ferrous (pounds).................................. 9,073,387 4,754 57%
Other................................................. -- 954 11%
------ ---
$8,415 100%
====== ===
</TABLE>
The Company expects to make substantial investments in additional equipment
and property for expansion, for replacement of assets, and in connection with
future acquisitions. In particular, the Company's EMCO subsidiary requires
substantial capital investment to replace old equipment and to put into service
additional processing equipment.
The Company and its wholly-owned subsidiaries have various revolving lines
of credit with commercial lenders which provide for revolving credit at interest
rates that range from 0% to 1.75% in excess of the lenders' prime rates. The
Company's ability to borrow under the lines of credit is based primarily on its
accounts receivable and inventory balances. As of March 31, 1997, the Company
had fully drawn predominately all of the availability under the lines of credit.
The lines expire at various dates through August 1998. On May 30, 1997, the
Company entered into a $6.0 million revolving and term loan agreement with a
commercial bank under which the Company received proceeds of $4.5 million which
is due on July 1, 1998. That loan has an interest rate equal to 1% above the
lenders' prime rate.
The weighted average interest rate on the borrowings outstanding at March
31, 1997 was 9.59%. Average borrowings under the various lines of credit during
fiscal 1997 were approximately $4.7 million. During fiscal 1997, amounts
outstanding under the various lines of credit ranged from $2.5 million to $7.9
million.
Scrap metal recycling companies have substantial ongoing working capital
and capital equipment requirements in order to continue to operate and grow. For
example, through March 31, 1997, the Company advanced approximately $4.7 million
to its EMCO subsidiary for short-term working capital requirements. As a result,
the Company will seek equity or debt financing to fund future improvements and
expansion of its scrap metal recycling business as well as to make other
acquisitions of scrap metal recycling facilities. There can be no assurance that
such financing will be available when needed, or that, if available, it will be
on satisfactory terms. The failure to obtain financing may cause the Company to
default on certain existing debt obligations and would hinder the Company's
ability to make continued investments in capital equipment and pursue
expansions, which could materially adversely affect results of operations and
financial condition. Any
14
<PAGE> 17
equity financing which is undertaken would result in dilution to the
then-existing stockholders of the Company. See "Factors Influencing Future
Results -- Risk of Dilution to Existing Stockholders."
FACTORS INFLUENCING FUTURE RESULTS AND ACCURACY OF FORWARD-LOOKING STATEMENTS
In the normal course of its business, the Company, in an effort to help
keep its stockholders and the public informed about the Company's operations,
may from time to time issue or make certain statements, either in writing or
orally, that are or contain forward-looking statements, as that term is defined
in the U.S. federal securities laws. Generally, these statements relate to
business plans or strategies, projected or anticipated benefits from
acquisitions made by or to be made by the Company, or projections involving
anticipated revenues, earnings, or other aspects of operating results. The words
"expect," "believe," "anticipate," "project," "estimate," and similar
expressions are intended to identify forward-looking statements. The Company
cautions readers that such statements are not guarantees of future performance
or events and are subject to a number of factors that may tend to influence the
accuracy of the statements and the projections upon which the statements are
based, including but not limited to those discussed below. As noted elsewhere in
this report, all phases of the Company's operations are subject to a number of
uncertainties, risks, and other influences, many of which are outside the
control of the Company, and any one of which, or a combination of which, could
materially affect the results of the Company's operations and whether forward-
looking statements made by the Company ultimately prove to be accurate.
The following discussion outlines certain factors that could affect the
Company's consolidated results of operations for fiscal 1998 and beyond and
cause them to differ materially from those that may be set forth in
forward-looking statements made by or on behalf of the Company.
GENERAL
The Company's Board of Directors intends to actively pursue acquisitions
and mergers in scrap metal recycling. Depending on the nature and size of
potential acquisitions, mergers and other transactions, if any, the Company's
cash flows from operating and investing activities, together with its cash, cash
equivalents and marketable securities may not be sufficient in the future.
Therefore, the Company will have to supplement these sources of liquidity with
additional sources of funds such as borrowings or stock offerings. No assurance
can be provided that such financing will be available or available on reasonable
terms.
RECENT CHANGE IN STRATEGIC DIRECTION AND LIMITED OPERATING HISTORY
In the past year, the Company has undergone a significant change in
strategic direction and emphasis. Immediately prior to April 11, 1996, the
Company's business had consisted of designing, manufacturing and marketing color
printers and related consumables, including ribbons, transparencies and paper.
Then, on April 11, 1996, the Company acquired EMCO, which was engaged in scrap
metal recycling. On July 16, 1996, the Company sold to Mannesmann Tally the
inventory and related production equipment of its Spectra*Star printer and
consumables business. This was followed by the acquisitions of MacLeod, HouTex
and Reserve. The Company anticipates future acquisitions of other companies in
the scrap metal recycling industry. Reflective of the Company's overall change
in emphasis is its corporate name change on April 9, 1996, from General
Parametrics Corporation ("GPC") to Metal Management, Inc. Given the substantial
changes in the Company's business in the past year, past financial performance
should not be considered a reliable indicator of future performance. Potential
purchasers should not use historical trends to anticipate results or trends in
future periods.
Prior to the EMCO merger in April 1996, the Company had no history of
operations in the scrap metal recycling industry. The Acquired Companies have
not previously operated as subsidiaries of a public holding company subject to
formal accounting and reporting requirements. Consequently, in order to
transition the Acquired Companies, the Company will have to establish
information systems, internal controls, and hire managers with appropriate
skills to insure the timeliness and accuracy of financial reports. During fiscal
1997,
15
<PAGE> 18
the Company announced restatement of certain financial results due to accounting
errors at its EMCO subsidiary. In addition, the Acquired Companies have
historically been organized in a manner in which its management and ownership
were the same. The management of the Acquired Companies have not previously
reported to management responsible for diverse operations and have had limited
experience in executing consolidation strategies on the scale being pursued by
the Company. Furthermore, the success of the consolidation strategy is dependent
in part on the ability of the Company's management to oversee diverse operations
and to successfully integrate processing, marketing and other resources of the
Acquired Companies. The Company's management team has not previously had
experience in such capacity.
IMMEDIATE AND FUTURE CAPITAL REQUIREMENTS
The Company is pursuing an aggressive acquisition strategy which requires
substantial amounts of capital. For example, to accomplish the acquisitions of
Cozzi and Proler, the Company will need to obtain $21.0 million to fund the cash
portions of purchase consideration. The Cozzi merger agreement also requires the
Company to either have received a capital infusion or a commitment be made for a
capital infusion of $50.0 million on terms acceptable to the Cozzi shareholders.
The Company is evaluating various financing strategies and alternatives to
obtain sufficient capital to close the acquisition of Cozzi and Proler and to
provide working capital support and to fund future acquisitions; however, no
assurance can be provided that sufficient funds on acceptable terms will become
available. Failure to raise sufficient capital to close the Cozzi and Proler, or
other acquisitions could adversely affect the Company and its stock price.
SHORT TERM BORROWING STRATEGIES TO FUND ACQUISITIONS
The Company intends to continue an acquisition strategy which will utilize
seller note obligations with short term as well as long term maturities. The
issuances of seller notes may provide restrictive covenants on the Company. For
example, the seller notes issued to acquire HouTex and MacLeod provided
restrictions on the ability of the Company to unilaterally direct or control the
operations of HouTex or MacLeod until the seller notes were repaid. The seller
notes issued to HouTex and MacLeod also provided pledges of the stock of the
acquired entities and certain other restrictive covenants. No assurance can be
provided that the Company will access capital on acceptable terms in adequate
time frames to repay seller note obligations issued in the future. An inability
to repay seller note obligations would have adverse consequences to the Company.
Subsequent to closing the HouTex and MacLeod acquisitions, and prior to the
various maturity dates on the seller notes issued in the acquisitions of MacLeod
and HouTex, the Company arranged for funds to be available to repay principal
and interest on such seller notes. However, no assurance can be provided that
the Company will be able to pay future seller notes when due. The Company has
provided a $1.541 million note payable to certain sellers of Reserve. The note
is due on May 1, 1998 and places restrictions on the ability of the Company to
unilaterally direct or control the operations of Reserve until the note is
repaid. The $1.541 million seller note to Reserve is secured by a stock pledge
agreement.
SUBSTANTIAL LEVERAGE
As a result of the recent mergers and acquisitions, the Company, as of
March 31, 1997, had approximately $36.4 million in consolidated liabilities owed
either to the sellers of the Company's completed acquisitions or to third
parties. In particular, the Company issued an aggregate of approximately $16.0
million principal amount in promissory notes to the sellers of MacLeod and
HouTex. All seller notes payable to the former shareholders of MacLeod and
HouTex which became payable were extinguished through payments made in March
1997, April 1997 and May 1997 and the execution of a note for $3.0 million due
in 2002. $1.5 million of promissory notes were issued in connection with the
Reserve acquisition, which are due in May 1998. In order to pursue expansion and
acquisition opportunities, the Company expects to incur additional debt, either
through bank or credit lines or the sale of debt securities in registered or
unregistered transactions, in addition to additional equity financing it may
undertake. The servicing of such present and future debt of the Company will
utilize cash either in the form of cash on hand or cash generated by operating
and financing activities.
16
<PAGE> 19
As of March 31, 1997, the Company had a debt to equity ratio of 157%. The
degree to which the Company is leveraged could have adverse consequences to the
Company including the following: (1) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired; (2) a substantial
portion of the Company's cash flow from operations will be dedicated to the
payment of principal and interest; and (3) the Company will be more vulnerable
to an economic downturn in the scrap metal recycling industry which has
historically been sensitive to changes in general economic conditions.
RISK OF EXPANSION AND CONSOLIDATION STRATEGIES
The Company currently plans to continue to pursue additional acquisitions
in the scrap metal recycling industry. There can be no assurance that any
previously announced or unannounced mergers will be consummated nor that, if
they are, the Company will be able to effectively manage disparate business
enterprises. The ability of the Company to achieve its expansion objectives and
to manage its growth effectively depends on a variety of factors, including the
ability to identify appropriate acquisition targets and to negotiate acceptable
terms for their acquisition, the integration of new businesses into the
Company's operations and the availability of capital. The inability to control
or manage growth effectively or to successfully integrate future new business
into the Company's operations would have a material adverse effect on the
Company's financial condition and results of operations. There can be no
assurance that the Company will be able to successfully expand or that growth
and expansion will result in profitability. There can be no assurance that the
Company will be able to realize any of the other anticipated benefits of future
mergers or acquisitions that it may undertake or achieve its financial goals and
operational objectives in execution of its consolidation strategy.
COMPANY MANAGEMENT FACTORS
Due to the limited experience of the Company's management in the scrap
metal recycling business, the Company relies substantially on the scrap metal
recycling experience of the current management teams at each of its wholly-owned
subsidiaries. While certain of the management personnel of the acquired
facilities have executed employment agreements, there can be no assurance that
such personnel will continue to serve at the acquired businesses. The loss of a
significant number of management personnel of the Company's acquired businesses
could have a material adverse effect on the Company's efforts to effectively
manage and integrate these operations. In addition, the loss of executive
officers of the Company would also adversely impact the Company's performance
and ability to successfully expand the business.
A condition of the Cozzi merger agreement contemplates the Company
appointing Albert A. Cozzi to be the President and Chief Operating Officer of
the Company. While Mr. Cozzi has substantial experience in the scrap metal
industry and would be an important part of the Company's senior management team,
no assurance can be provided that the Cozzi merger will close.
POTENTIAL CHANGES IN MANAGEMENT AND GOVERNANCE
Changes in Management
Upon the closing of the Cozzi merger, material changes will occur in the
management and governance structure of the Company. The Cozzi merger agreement
contemplates that T. Benjamin Jennings will remain as the Chairman of the Board
and Chief Development Officer of the Company, Gerard M. Jacobs will remain as
Chief Executive Officer of the Company, Robert C. Larry will remain as Chief
Financial Officer of the Company, and Albert A. Cozzi will be appointed
President and Chief Operating Officer of the Company. In addition, the Cozzi
merger agreement contemplates that an Executive Committee will be formed
comprised of Messrs. Albert A. Cozzi, Jacobs, Jennings, and possibly other
individuals. The Company has not previously operated with a Chief Operating
Officer or with an Executive Committee. There can be no assurance that these
changes in management structure will be successful in carrying out the
acquisition and operating plans of the Company.
17
<PAGE> 20
Changes in Governance
Upon the closing of the Cozzi merger, the Cozzi merger agreement
contemplates that the Company's Board of Directors will likely be comprised of
directors equally nominated by the shareholders of Cozzi and by Messrs. Jacobs
and Jennings. The Cozzi merger agreement contemplates that two outside directors
will be nominated who are mutually agreeable to both sides of the Cozzi merger.
The Cozzi merger is an example of the willingness of the Company to rapidly
change the management and governance of the Company, if necessary or desirable.
No assurance can be provided that the proposed changes in management and
governance as contemplated in the Cozzi merger agreement will occur or that a
subsequent acquisition or merger will not similarly change the management and
governance structure of the Company nor can there be assurance that any changes
to the corporate governance will be advantageous to the Company.
CONTROL OF COMPANY BY MANAGEMENT, PRINCIPAL STOCKHOLDERS AND MEMBERS OF THE
BOARD OF DIRECTORS
As a result of the mergers and acquisition, Messrs. Jacobs and Jennings,
together with other members of the Board of Directors, have sufficient voting
power to control the outcome of all matters (including the election of directors
and future mergers, acquisitions or sale of assets) submitted to stockholders
for approval and may be deemed to have effective control over the affairs and
management of the Company. Messrs. Jacobs and Jennings along with the existing
members of the Board of Directors of the Company, currently beneficially own
approximately 51% of the Company's common stock on a fully diluted basis. To
date, the Directors of the Company have voted in support of initiatives
recommended by Messrs. Jacobs and Jennings. There can be no assurance that such
support will continue in the future with respect to voting by Directors. The
Cozzi merger, if consummated, will result in 75% ownership of the Company's
common stock on a fully diluted basis by management, principal stockholders and
current and former members of the Board of Directors which further concentrates
ownership and control among principals of the Company.
IMPACT OF THE COZZI DEFINITIVE AGREEMENTS ON MANAGEMENT OF THE COMPANY AND
STRATEGIC ACTIONS CONSIDERED BY THE COMPANY PRIOR TO CLOSING OF THE COZZI MERGER
On May 16, 1997, the Company executed a definitive agreement to merge a
subsidiary of the Company with Cozzi. The definitive agreement requires the
Company to seek approval from Cozzi shareholders prior to executing certain
strategic actions up to the closing of the Cozzi merger or termination thereof.
Actions that require approval by the Cozzi shareholders included but are not
limited to:
Amendments to or changes of the Company's charter or bylaws.
Issuance of equity, except those contemplated by Section 5.2(b) of the
merger agreement.
Changes in management of the Company or changes in the compensation
provided to officers and directors of the Company.
Acquisitions of companies, except those contemplated by Section 5.2(e)
of the merger agreement.
Incurrence of any indebtedness or other significant financing
transactions.
No assurance can be provided that the Cozzi merger will be consummated.
CYCLICALITY OF OPERATING RESULTS
The operating results of the scrap metal recycling processing industry in
general, are highly cyclical in nature as they tend to reflect and amplify the
general national economic condition. In periods of national recession or periods
of minimal economic growth, the operations of scrap metal recycling companies
have been materially adversely affected. During recessions or periods of minimal
economic growth, the automobile and the construction industries typically
experience major cutbacks in production, resulting in decreased demand for
steel, copper and aluminum supplies. For example, the scrap metal recycling
industry was adversely affected for a period of five years from approximately
1988 to 1993. Future economic downturns would materially and adversely affect
the operating results of the Company. The ability of the Company to withstand
significant economic downturns in the future will depend in part on the amount
of cash maintained
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and availability under lines of credit for the Company. Recently, EMCO has
required substantial cash infusions from the Company. The Company believes that
EMCO will require additional working capital funding during fiscal 1998.
PRICE FLUCTUATIONS
EMCO, MacLeod and HouTex's results of operations have been in the past, and
the results of operations of the overall Company are expected to be, subject to
price fluctuations that occur in the metals commodities markets. For example, up
to December 31, 1996, prices of non-ferrous metals generally declined during the
previous five quarters, which adversely affected revenues and net income through
the third quarter of fiscal 1997. The fourth quarter of fiscal 1997 showed
improvement for certain categories of scrap metal prices. A further decline in
commodity prices could further reduce revenues and net income prospectively.
Such losses could have a material adverse effect on the Company's results of
operations and liquidity of the Company.
DEPENDENCE ON SCRAP SUPPLIERS
The Company's scrap recycling operations are dependent upon the supply of
scrap materials from its suppliers. Few of such suppliers are bound by long-term
supply arrangements, and therefore they have no obligation to continue to supply
scrap materials to the Company. In the event that substantial numbers of scrap
suppliers cease supplying scrap materials to the Company, the financial
condition and results of operations of the Company would be materially and
adversely affected.
CONCENTRATION OF CUSTOMERS AND CREDIT RISK
13 customers represented 37% of revenues for the year ended March 31, 1997.
These customers comprised approximately 53% of accounts receivable at March 31,
1997. The Company's largest customer accounted for 9% of revenues and 22% of
accounts receivable for the year ended March 31, 1997. For the year ended
December 31, 1996, Cozzi generated approximately 42% of its revenue from 3
customers, including 1 customer that accounted for 23% of sales. The loss of any
one of the Company's or Cozzi's significant customers, if the Cozzi merger is
consummated, could affect the Company's results of operations and cash flows.
Financial instruments that potentially subject the Company to significant
concentration of credit risk are primarily trade accounts receivable. The
Company sells its products primarily to scrap metal brokers and steel mills
located in the United States. Generally, the Company does not require collateral
or other security to support customer receivables. Historically, the Company's
wholly-owned subsidiaries have not experienced material losses from the
noncollection of receivables, however, certain of the Company's subsidiaries
have significant balances owing from customers that operate in cyclical
industries and leveraged conditions which may impair the collectibility of
receivables.
OPERATING LOSSES AT EMCO
EMCO has incurred operating losses and required capital infusions since the
April 1996 merger. Management believes that the losses have resulted primarily
from unfavorable market conditions in Arizona, from operation of antiquated and
inefficient machinery and equipment, from lack of certain machinery and
equipment, and from certain operational issues. In October 1996, in an effort to
abate such operating losses, the Company initiated efforts to restructure the
operations of its EMCO subsidiary. The restructuring has reduced expenses by
primarily eliminating the utilization of certain leased equipment, eliminating
35 jobs representing approximately 16% of the workforce, and reducing the cost
of outside processing from certain vendors. In addition, as a part of the
restructuring program, EMCO management initiated a review of the buying and
selling departments. The Company is not certain whether it will be able to
accomplish a successful restructuring of EMCO's business. See "Recent Change in
Strategic Direction and Limited Operating History."
As part of the Cozzi merger, the Company will own 50% of a joint venture
owned by Cozzi in Phoenix, Arizona. It is the Company's intention to acquire the
remaining 50% interest in the joint venture and combine
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the operations of the Cozzi joint venture with the EMCO operations. There can be
no assurance that the Cozzi transaction will close nor if the Cozzi transaction
closes, that the Company will be successful in acquiring the other 50% interest
in the joint venture. Nor can any assurance be provided that any integration or
consolidation of EMCO's business with Cozzi will be successful.
RISK OF DILUTION TO EXISTING STOCKHOLDERS
The Company's strategy of expansion and additional acquisitions will
require it to issue additional shares of common stock or securities convertible
into common stock as consideration for additional acquisitions. Common stock may
be issued at a discount to the market price and issuance of a material amount of
common stock or such securities would result in significant dilution to the
then-existing stockholders of the Company. For example, the Cozzi merger, if
consummated, will result in the issuance of an additional 11.5 million shares of
common stock and warrants to purchase at least 1.5 million shares of common
stock. The Company expects to be required to seek equity financing to meet
future capital requirements, which would also result in additional dilution. See
"Immediate and Future Capital Requirements."
VOLATILITY OF STOCK PRICE
The Company's stock price has been, and in the future is expected to be,
volatile and to experience market fluctuation as a result of a number of
factors, including, but not limited to, merger and acquisition announcements and
developments, current and anticipated results of operations, future product
offerings by the Company or its competitors and factors unrelated to the
operating performance of the Company. The trading price of the Company's Common
Stock may also vary as a result of changes in the business, operations, or
financial results of the Company, prospects of general market and economic
conditions, additional future proposed acquisitions by the Company and other
factors. Failure in any quarter to meet the investment community's revenues or
earnings expectations, if any, could have an adverse impact on the Company's
stock price, as could sales of large amounts of stock by existing stockholders.
In addition, sales of substantial amounts of the Company's common stock in the
public market could adversely affect the market price of the Company's common
stock. In the event the market price were adversely affected by such sales, the
Company's access to equity capital markets could be adversely affected and
issuances of common stock by MTLM in connection with acquisitions, or otherwise,
could dilute future earnings per share.
Management believes that the investment public has factored the closing of
the Cozzi and Proler mergers as well as potential future acquisitions into the
Company's current stock price. If the Cozzi, Proler or any future acquisitions
do not close, an adverse impact may occur on the Company's stock price.
ENVIRONMENTAL MATTERS
COMPREHENSIVE REGULATORY REQUIREMENTS
The Company and its subsidiaries are subject to significant government
regulation including stringent environmental laws and regulations. Among other
things, these laws and regulations impose comprehensive local, state, federal,
foreign and supranational statutory and regulatory requirements concerning,
among other matters, the treatment, acceptance, identification, storage,
handling, transportation and disposal of industrial by-products, hazardous and
solid waste materials, waste water, stormwater effluent, air emissions, soil
contamination, surface and ground water pollution, employee health and safety,
operating permit standards, monitoring and spill containment requirements,
zoning, and land use, among others. Various laws and regulations set
prohibitions or limits on the release of contaminants into the environment. Such
laws and regulations also require permits to be obtained and manifests to be
completed and delivered in connection with any shipment of prescribed materials
so that the movement and disposal of such material can be traced and the persons
responsible for any mishandling of such material can be identified. This
regulatory framework imposes significant compliance burdens, costs and risks on
the Company and its subsidiaries. Violation of such laws and regulations may
give rise to significant liability of the Company, including fines, damages,
fees and expenses.
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Releases of certain industrial by-products and waste materials are subject
to particular laws and regulations. While the specific provisions of releases
related laws and regulations vary among jurisdictions, such laws and regulations
typically require that the relevant authorities be notified promptly, that the
release be cleaned up promptly, and that remedial action be taken by the
responsible party and/or owner of the site to restore the environment to levels
protective of human health and the environment. Generally, the governmental
authorities are empowered to act to clean up and remediate releases and
environmental damage and to charge the costs of such cleanup to one or more of
the owners of the property, the person responsible for the spill, the generator
of the contaminant and certain other parties or to direct the responsible party
to take such action. Such authorities may also impose a tax or other liens to
secure such parties' reimbursement obligations. Environmental laws and
regulations impose strict operational requirements on the performance of certain
aspects of hazardous or toxic substances remedial work. These requirements
specify complex methods for identification, monitoring, storage, treatment and
disposal of waste materials managed during a project. Failure to meet these
requirements could result in substantial fines and other penalties.
Environmental legislation and regulations have changed rapidly in recent
years, and it is likely that the Company and its subsidiaries will be subject to
even more stringent environmental standards in the future. For example, the
ultimate effect of the regulations to be implemented under the Clean Air Act
Amendments of 1990 (the "Clean Air Act") on the Company and its subsidiaries,
and the actual amount of any capital expenditures required thereby, will depend
on how the Clean Air Act is interpreted and implemented pursuant to regulations
that are currently being developed and on such additional factors as the
evolution of environmental control technologies and the economic viability of
such operations at the time. For these reasons, future capital expenditures for
environmental control facilities cannot be predicted with accuracy; however, one
may expect that environmental control standards will become increasingly
stringent and that the expenditures necessary to comply with them could increase
substantially.
Local, state, federal, foreign and supranational governments and agencies
have also from time to time proposed or adopted other types of laws, regulations
or initiatives with respect to the scrap metal recycling industry. Included
among them are laws, regulations and initiatives intended to ban or restrict the
intrastate, interstate or international shipment of wastes, to impose higher
taxes or fees on certain shipments of waste, or to classify or reclassify
certain categories of non-hazardous wastes as hazardous. Certain local, state,
federal, foreign and international governments and agencies have promulgated
"flow control" or other regulations, which attempt to require that all waste (or
certain types of waste) generated within the jurisdiction in question must go to
certain disposal sites. From time to time legislation is considered that would
enable or facilitate such laws, regulations or initiatives. Due to the
complexity of regulation of the industry and to public and political pressure,
implementation of existing or future laws, regulations or initiatives by
different levels of governments may be inconsistent and are difficult to
foresee.
The principal services of the Company and its subsidiaries are detailed in
and regulated by various permits and licenses governing their scrap metal
recycling operations. Government agencies continually monitor the performance of
a permit or license holder in relation to the terms of its permit or license.
The Company and its subsidiaries' facilities are subject to periodic unannounced
inspection by local, state and federal authorities to ensure compliance with
permit and license terms and applicable laws and regulations. The Company and
its subsidiaries work with the authorities to remedy any deficiencies found
during such inspections. If serious violations are found or deficiencies, if
any, are not remedied, the Company and its subsidiaries could incur substantial
fines and could be required to close a site.
Governmental authorities have a wide variety of powerful administrative
enforcement actions and remedial orders available to them to cause compliance
with environmental laws or to remedy or punish violations of such laws. Such
orders may be directed to various parties, including present or former owners or
operators of the concerned sites, or parties that have or had control over the
sites. In certain instances, fines and treble damages may be imposed. In the
event that administrative actions fail to cure a perceived problem or where the
relevant regulatory agency so desires, an injunction or temporary restraining
order or damages may be sought in a court proceeding. Some laws give private
parties the right, in addition to existing common laws claims, to file claims
for injunctive relief or damages against the owners or operators of the site.
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The Company believes that with heightened legal, political and citizen
awareness and concerns, all companies in the scrap metal recycling industry may
be faced, in the normal course of operating their businesses, with fines and
penalties and the need to expend substantial funds for capital projects,
remedial work and operating activities, such as environmental contamination
monitoring, and related activities. Regulatory or technological developments
relating to the environment may require companies engaged in the scrap metal
recycling industry to modify, supplement or replace equipment and facilities at
costs which may be substantial. Because the scrap metal recycling industry has
the potential for discharge of materials into the environment, a material
portion of the capital expenditures by the Company and its subsidiaries is
expected to relate, directly or indirectly, to such equipment and facilities.
Moreover, it is possible that future developments, such as increasingly strict
requirements of environmental laws and regulations, and enforcement policies
will require even more significant capital investments in this regard.
Due to the nature of the scrap metal recycling business, it is possible
that inquiries or claims based upon environmental laws may be made in the future
by governmental bodies or individuals against the Company and any other scrap
metal recycling entities that the Company may acquire. The location of the
Company's facilities in large urban areas may increase the risk of scrutiny and
claims. The Company is unable to predict whether any such future inquiries or
claims will in fact arise or the outcome of such matters. Additionally, it is
not possible to predict the total size of all capital expenditures or the amount
of any increases in operating costs or other expenses that may be incurred by
the Company to comply with the environmental requirements applicable to the
Company and its operations, or whether all such cost increases can be passed on
to customers through product price increases. Moreover, environmental
legislation has been enacted, and may in the future be enacted, to create
liability for past actions that were lawful at the time taken but that have been
found to affect the environment and to create public rights of action for
environmental conditions and activities. As is the case with scrap recyclers in
general, if damage to persons or the environment has been caused, or is in the
future caused, by hazardous materials activities of the Company or its
subsidiaries, the Company or its subsidiaries may be fined and held liable for
such damage. In addition, the Company and such subsidiaries may be required to
remedy such conditions and/or change procedures. Thus, there can be no assurance
that potential liabilities, expenditures, fines and penalties associated with
environmental laws and regulations will not be imposed on the Company in the
future or that such liabilities, expenditures, fines or penalties will not have
a material adverse effect on the Company.
In addition, public interest groups, local citizens, local municipalities
and other persons or organizations may have a right to seek relief from court
for purported violations of law. In some jurisdictions, recourse to the courts
for individuals under common law principles such as trespass or nuisance have
been or may be enhanced by legislation providing members of the public with
statutory rights of action to protect the environment. In such cases, even if a
scrap metals recycling facility is operated in full compliance with applicable
laws and regulations, local citizens and other persons and organizations may
seek compensation for damages caused by the operation of the facility. In some
cases, the operation of scrap metal recycling facilities is subjected to
heightened public scrutiny because of residential or other non-industrial
property uses that have developed around such facilities. So-called "Not In My
Backyard" ("NIMBY") grass roots community opposition to such facilities can
materially interfere with such facilities' on-going operations and growth.
SIGNIFICANT POTENTIAL ENVIRONMENTAL LIABILITY
General
The Company and its subsidiaries are subject to potential liability and may
also be required from time to time to clean up or take certain remediation
action with regard to sites currently or formerly used in connection with their
operations. Furthermore, the Company and its subsidiaries may be required to pay
for all or a portion of the costs of clean up or remediation at sites the
Company and its subsidiaries never owned or on which they never operated if they
are found to have arranged for transportation, treatment or disposal of
pollutants or hazardous substances on or to such sites. The Company and its
subsidiaries are also subject to potential liability for environmental damage
that their assets or operations may cause nearby landowners, particularly as a
result of any contamination of drinking water sources or soil, including damage
resulting from conditions existing prior to the acquisition of such assets or
operations. Any substantial liability for
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environmental damage could materially adversely affect the operating results and
financial condition of the Company, and could materially adversely affect the
marketability and price of the Company's stock. Risk factors include the
following:
Incompleteness of Site Investigations
As part of its pre-transaction "due diligence" investigations, the Company
typically hires an environmental consulting firm to conduct transaction screen
reviews, or Phase I and/or Phase II site assessments of the sites owned or
leased by particular acquisition or merger candidates (the "Pre-Transaction Site
Assessments"). However, such Pre-Transaction Site Assessments have not covered
(and will not in the future cover) all of the sites owned or leased by the
companies which are acquired by or merge with the Company or its subsidiaries.
Moreover, such Pre-Transaction Site Assessments which have occurred have not
been designed or expected (and will not in the future be designed or expected)
to disclose all material contamination that may be present. For example, the
Company does not include soil sampling or core borings as a standard part of its
Pre-Transaction Site Assessments, even though such sampling and core borings
might increase the chances of finding contamination on a particular site.
Failure to conduct soil sampling and core borings on a particular site could
result in the Company failing to identify a seriously contaminated site prior to
an acquisition or merger, and could materially adversely affect the Company.
Likelihood of Contamination at Some Sites
Pre-Transaction Site Assessments of the Company's current subsidiaries'
sites conducted by independent environmental consulting firms have revealed that
some soil, surface water and/or groundwater contamination is likely at certain
of such sites, and have recommended that certain additional investigations and
remediation be conducted. Based upon its review of these reports, the Company
believes that it is likely that contamination exists at certain of its
subsidiaries' sites and that it is likely that additional investigation,
monitoring and remediation will be required at some of the sites. Also based
upon its review of these reports, the Company believes that such contamination
is likely to include, but not be limited to: polychlorinated biphenyls (PCBs);
total petroleum hydrocarbons; volatile organic compounds (VOCs); antimony;
arsenic; cadmium; copper; lead; mercury; silver; zinc; waste oil; toluene; meta-
and para-xylenes; baghouse dust; and/or aluminum dross. The ultimate extent of
such contamination cannot be stated with any certainty at this point, and there
can be no assurance that the cost of remediation will be immaterial. The
existence of such contamination could result in federal, state, local or private
enforcement or cost recovery actions against the Company, possibly resulting in
disruption of Company operations, and substantial fines, penalties, damages,
costs and expenses being imposed against the Company and its subsidiaries.
The Company has supplied its Pre-Transaction Site Assessments to the
management of its subsidiaries, who are responsible for reviewing them,
examining ongoing operations, and taking any necessary steps to achieve and/or
maintain compliance with the environmental laws, including but not limited to
any necessary remedial measures or operational changes. The Company expects to
require future cash outlays as it incurs the actual costs relating to the
remediation of environmental liabilities. No assurance can be provided that such
costs will not be significant. The Company and its subsidiaries expect cash
flows from operations to provide the funds for environmental capital, operating
and remediation expenditures; however, no assurance can be given that such cash
flows will be adequate for this purpose.
Uncertain Costs of Environmental Compliance and Remediation
It must be emphasized that, as a result of certain factors which impact
upon the Company and its subsidiaries' future expenditures to comply with
environmental requirements -- such as new local, state and federal laws and
regulations; the developing nature of administrative standards promulgated under
Superfund and other environmental laws, and changing interpretations of such
laws; uncertainty regarding adequate control levels, testing and sampling
procedures, new pollution control technology and cost benefit analysis based on
market conditions; the incompleteness of information regarding the condition of
certain sites; the lack of standards and information for use in the
apportionment of remedial responsibilities; the numerous choices and costs
associated with diverse technologies that may be used in remedial actions at
such sites; the
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possible ability to recover indemnification or contribution from third parties;
and the time periods over which eventual remediation may occur -- the estimated
costs for future environmental compliance (capital expenditures or increases in
operating costs or other expenditures) and remediation cannot be accurately
predicted and are necessarily imprecise; however, such costs could be material
to future quarterly or annual results of operations of the Company. In addition
to not being possible to predict the amount or timing of future costs of
environmental compliance and remediation, it is not possible to predict whether
or not such costs can be passed on to customers through price increases.
Lack of Environmental Impairment Insurance
The Company and its subsidiaries do not carry environmental impairment
liability insurance. The Company and its subsidiaries operate under general
liability insurance policies, which Company management considers to be adequate
to protect the Company and its subsidiaries' assets and operations from other
risks but which does not cover environmental damage. If the Company and its
subsidiaries were to incur significant liability for environmental damage not
covered by environmental impairment insurance, or for other claims in excess of
its general liability insurance and umbrella coverage, the Company's financial
condition could be materially adversely affected.
Risks Associated With Certain By-Products
While the majority of the Company's metal products are currently exempt
from applicable solid waste regulations, the scrap metal recycling operations of
the Company's subsidiaries produce significant amounts of by-products.
Heightened environmental risk is associated with certain of these by-products
For example, the Company's EMCO subsidiary operates a shredder for which the
primary feed materials are automobile hulks and obsolete household appliances.
Approximately twenty percent (20%) of the weight of an automobile hulk consists
of material (shredder fluff) which remains after the segregation of ferrous and
saleable non-ferrous metals. Federal environmental regulations require shredder
fluff to pass a toxic leaching test to avoid classification as a hazardous
waste. The Company's EMCO subsidiary endeavors to have hazardous contaminants
removed from the feed material prior to shredding and as a result the Company
believes the shredder fluff generated is properly not considered a hazardous
waste. Should the laws, regulations or testing methods change with regard to
shredder fluff disposal, the Company and its EMCO subsidiary may incur
additional significant expenditures.
Potential Superfund Liability
The Company's Reserve subsidiary has received a notice from the United
States Environmental Protection Agency (the "EPA") that Reserve and numerous
other parties are considered potentially responsible parties (a "PRP") and may
be obligated under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("Superfund" or "CERCLA") to pay a portion of the cost of
remedial investigation, feasibility studies and ultimately remediation to
correct alleged releases of hazardous substances at the Standard Scrap
Metal/Chicago International Exporting Removal Action Site. Superfund may impose
joint and several liability for the costs of remedial investigations and actions
on the entities that arranged for disposal of certain wastes, the waste
transporters that selected the disposal sites, and the owners and operators of
such sites. Responsible parties (or any one of them) may be required to bear all
of such costs regardless of fault, legality of the original disposal, or
ownership of the disposal site. Based upon its analysis of the situation, the
management of Reserve currently does not expect such potential liability to be
in excess of $100,000.
Unregistered Storage Tanks
Underground storage tanks (UST's) exist at several of the Company's
subsidiaries' sites. UST's are subject to various federal, state and local laws
on their operation. In the event a release of regulated product has occurred,
the Company may incur significant costs to investigate and remediate the
release.
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Environmental consultants to the Company have reported that an underground
storage tank (UST) located at one of the Company's EMCO subsidiary's yards had
not been reported to the Arizona environmental authorities as required by law.
EMCO, as the lessee, reported the matter to the owner of the property, and
believes that such report is the extent of its obligations with respect to this
matter. However, there can be no assurance that any failure of the owner to
report will not result in liability or the assessment of penalties against the
Company or EMCO. Environmental consultants to the Company have also reported
that an above-ground storage tank at the Company's HouTex subsidiary is required
to be registered but is not yet registered.
Employee Health and Safety Issues
The Company and its subsidiaries are regulated by federal, state and local
agencies responsible for employee health and safety, including OSHA. A total of
two accidental deaths of, and one serious accidental injury to, employees have
occurred at the Company's HouTex and Reserve subsidiaries during the past three
years. Reserve has been fined by OSHA in regard to such incidents. HouTex has
also been cited and fined by OSHA for alleged failure to establish energy
control procedures and employee training in regard to mobile shearing equipment.
No assurance can be given that potential liabilities of the Company or its
subsidiaries in regard to such death and injuries, or in regard to any future
deaths of or injuries to employees of the Company's subsidiaries, will not be
material.
Recommendations of Environmental Consultants
Environmental consultants to the Company have recommended that a variety of
remedial actions be undertaken in regard to its subsidiaries, including: the
sampling of soil, surface and ground water at its various facilities; the
remediation of any existing contamination under applicable regulations; the
development of Spill Prevention Control and Countermeasure Plans ("SPCC"); the
completion of certain actions in regard to Storm Water Pollution Prevention
Plans; the timely completion and/or filing of certain annual reports and
summaries required by governmental agencies; the completion of Oil Discharge and
Response Plans; and the remediation of certain materials suspected of containing
asbestos. If these recommendations were to be not followed by the Company and
its subsidiaries for an indefinite period of time, one or more of the sites
might, potentially, be subject to a governmental enforcement action, the
imposition of fines, penalties and damages, and/or require remediation at some
future time at a cost which the Company cannot guarantee would not be material.
Compliance History
The Company's subsidiaries have, in the past, been found not to be in
compliance with certain environmental laws and regulations, and have incurred
fines associated with such violations which have not been material in amount.
The Company's subsidiaries have also paid a portion of the costs of certain
remediation actions at certain sites. No assurance can be given that additional
compliance issues and liabilities will not occur in the future, or that the
fines, penalties, damages and expenses might not be material.
EFFECT OF ANTITAKEOVER PROVISIONS OF DELAWARE LAW, THE COMPANY'S CHARTER
DOCUMENTS AND EMPLOYMENT AGREEMENTS
The Company is a corporation governed by the laws of the state of Delaware.
Certain provisions of Delaware law and the charter documents of the Company may
have the effect of delaying, deferring or preventing changes in control or
management of the Company. Specifically, the Company's Board of Directors may
issue shares of Preferred Stock without stockholder approval on such terms as
the Board may determine. The rights of the holders of Common Stock of the
Company are subject to, and may be adversely affected by, the rights of any
Preferred Stock that may be issued in the future. The Company is subject to the
provisions of Section 203 of the Delaware General Corporation Law, which has the
effect of making changes in control of a company more difficult. The Company
entered into employment agreements with Gerard M. Jacobs, T. Benjamin Jennings
and George O. Moorehead. Such agreements provide for certain payments to be made
to such persons in the event of a change of control of the Company. The effects
of the
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antitakeover protections of Delaware corporate law, the Company charter
documents and these employment agreements could be to make it more difficult for
a third party to acquire, or could discourage a third party from acquiring, a
majority of the outstanding stock of Company.
The Cozzi merger, if consummated, contemplates a shareholder agreement
among Messrs. Jacobs, Jennings and the Cozzi shareholders which could discourage
a third party from acquiring a majority of the outstanding common stock of the
Company. Upon closing of the Cozzi merger, the Company expects to enter into
employment agreements with Albert, Frank and Greg Cozzi as well as new
employment agreements with Gerard M. Jacobs and T. Benjamin Jennings. Prior to
the closing, the Cozzi merger agreement forbids the Company from initiating
discussions or negotiations with third parties or responding to solicitations by
third persons relating to any merger, sale or other disposition of any
substantial part of the Company's assets, without an approval from Cozzi.
RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, entitled "EARNINGS PER SHARE" ("SFAS No. 128"), in
February 1997. The Company is required to adopt the provisions of SFAS No. 128
for its year ended March 31, 1998. Initial adoption of this standard is not
expected to have a material impact on the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The Consolidated Balance Sheets as of October 31, 1995 and March 31,
1997, and the Consolidated Statements of Income, and of Stockholders' Equity and
of Cash Flows for the years ended October 31, 1994 and 1995, the five months
ended March 31, 1996, and the year ended March 31, 1997 and the Notes to the
Consolidated Financial Statements are included by reference to Part IV Item 14
of this Form 10-K.
(b) Selected Quarterly Financial Data (Unaudited) is set forth in Note 18
to the Consolidated Financial Statements referred to in Item 8(a) above.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
26
<PAGE> 29
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file its definitive proxy statement pursuant to Rule
14a-3 (the "Proxy Statement") not later than 120 days after the end of the
fiscal year covered by this Report, and certain information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
information set forth under the caption "Directors and Executive Officers" in
the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information set forth under the caption "Executive Compensation" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the 1997
Annual Meeting of Stockholders.
ITEM 13.. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the Company's
Proxy Statement for the 1997 Annual Meeting of Stockholders.
27
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Form 10-K.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Financial Statements
Report of Independent Public Accountants.................... F-1
Consolidated Statements of Income for the years ended
October 31, 1994 and 1995, the five months ended March 31,
1996, and the year ended March 31, 1997................... F-2
Consolidated Balance Sheets for the years ended October 31,
1995 and March 31, 1997................................... F-3
Consolidated Statements of Cash Flows for the years ended
October 31, 1994 and 1995, the five months ended March 31,
1996, and the year ended March 31, 1997................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended October 31, 1994 and 1995, the five months
ended March 31, 1996, and the year ended March 31, 1997... F-5
Notes to Consolidated Financial Statements.................. F-6
(2) Schedule II -- Valuation and Qualifying Accounts........ F-25
</TABLE>
All other schedules have been omitted because the required information is
not significant or is not applicable.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the fourth quarter of
fiscal 1997:
(1) The Company filed a Form 8-K on January 15, 1997, dated January 1,
1997, disclosing the terms of the acquisition of the MacLeod Companies.
(2) The Company filed a Form 8-K on January 22, 1997, dated January 7,
1997, disclosing the terms of the acquisition of HouTex Metals Company,
Inc.
(3) The Company filed an Amendment Number 1 on Form 8-K on March 17, 1997,
dated January 1, 1997, and Amendment Number 2 on Form 8-K on April 26,
1997, dated January 1, 1997, to provide interim financial statements
and pro forma financial information relating to the acquisition of the
MacLeod Companies.
(4) The Company filed an Amendment Number 1 on Form 8-K on March 17, 1997,
dated January 7, 1997, and Amendment Number 2 on Form 8-K on April 26,
1997, dated January 7, 1997, to provide interim financial statements
and pro forma financial information relating to the acquisition of the
HouTex Metals Company, Inc.
(c) Exhibits
See Exhibit Index
28
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
METAL MANAGEMENT, INC.
By:
-----------------------------------------
Gerard M. Jacobs
Director, President and Chief Executive
Officer
By:
-----------------------------------------
T. Benjamin Jennings
Director, Chairman of the Board and Chief
Development Officer
Date: June 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
DATE SIGNATURE AND TITLE
---- -------------------
<C> <S>
June 19, 1997 By:
----------------------------------------------------------------
Gerard M. Jacobs
Director, President and Chief Executive Officer
June 19, 1997 By:
----------------------------------------------------------------
T. Benjamin Jennings
Director, Chairman of the Board and Chief Development Officer
June 19, 1997 By:
----------------------------------------------------------------
Robert C. Larry
Vice President of Finance and Chief Financial Officer
(Principal Financial Officer)
June 19, 1997 By:
----------------------------------------------------------------
Xavier Hermosillo
Director
June 19, 1997 By:
----------------------------------------------------------------
Paul D. Joseph
Director and President of Reserve
June 19, 1997 By:
----------------------------------------------------------------
Ian MacLeod
Director
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
DATE SIGNATURE AND TITLE
---- -------------------
<C> <S>
June 19, 1997 By:
------------------------------------------------------------
Mike Melnik
Director and President of HouTex
June 19, 1997 By:
----------------------------------------------------------------
Donald F. Moorehead, Jr.
Director
June 19, 1997 By:
----------------------------------------------------------------
George O. Moorehead
Director, Executive Vice President and President of EMCO
June 19, 1997 By:
----------------------------------------------------------------
Harold Rubenstein
Director
</TABLE>
30
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Metal Management, Inc.
(formerly General Parametrics Corporation)
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Metal Management, Inc. (formerly General Parametrics Corporation)
and its subsidiaries at March 31, 1997 and October 31, 1995, and the results of
their operations and their cash flows for the year ended March 31, 1997, the
five months ended March 31, 1996 and for each of the two years in the period
ended October 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
May 21, 1997, except as to Notes 16 and 17,
which are as of June 19, 1997
F-1
<PAGE> 34
METAL MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED FIVE MONTHS ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, MARCH 31, MARCH 31,
1994 1995 1996 1997
----------- ----------- ----------------- ----------
<S> <C> <C> <C> <C>
Net sales................................... $ 0 $ 0 $ 0 $65,196
Cost of sales............................... 0 0 0 58,324
------ ------- ------- -------
Gross profit................................ 0 0 0 6,872
Operating expenses:
General and administrative................ 0 0 210 6,174
Depreciation and amortization............. 0 0 0 2,282
------ ------- ------- -------
Total operating expenses.................... 0 0 210 8,456
------ ------- ------- -------
Operating loss from continuing operations... 0 0 (210) (1,584)
Interest expense............................ 0 0 0 (1,449)
Interest income............................. 229 312 142 222
Other financing costs....................... 0 0 0 (166)
Other income................................ 0 0 0 125
------ ------- ------- -------
Income (loss) from continuing operations
before income taxes and discontinued
operations................................ 229 312 (68) (2,852)
Provision (benefit) for income taxes........ 1 51 (52) (842)
------ ------- ------- -------
Income (loss) from continuing operations.... 228 261 (16) (2,010)
Discontinued operations (Note 3):
Gain on sale of assets on former product
lines of GPAR, net of income tax
benefit................................ 0 0 0 502
Income (loss) from operations of former
product lines of GPAR, net of income tax
provision (benefit)....................... (440) (2,698) 22 345
------ ------- ------- -------
Net income (loss)........................... $ (212) $(2,437) $ 6 $(1,163)
======== ======== ============== ========
Earnings (loss) per share for:
Continuing operations..................... $ 0.04 $ 0.05 $ 0.00 $ (0.22)
Gain on sale of discontinued operations... $ 0.00 $ 0.00 $ 0.00 $ 0.05
Income (loss) from discontinued
operations............................. $(0.08) $ (0.53) $ 0.00 $ 0.04
Net income (loss)......................... $(0.04) $ (0.48) $ 0.00 $ (0.13)
Dividends declared per share of common
stock..................................... $ .24 $ .18 $ .00 $ .00
Weighted average common shares
outstanding............................... 5,098 5,125 5,299 9,106
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-2
<PAGE> 35
METAL MANAGEMENT INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
OCTOBER 31, MARCH 31,
1995 1997
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,032 $ 5,718
Marketable securities..................................... 3,246 14
Accounts receivable, net.................................. 1,599 9,560
Notes receivable from related parties..................... 0 406
Inventories............................................... 1,718 8,415
Prepaid expenses and other assets......................... 362 1,491
Current deferred taxes.................................... 0 104
------- -------
Total current assets................................. 9,957 25,708
Marketable securities....................................... 115 0
Property and equipment, net................................. 58 20,208
Goodwill and other intangibles, net......................... 0 23,484
Long-term notes receivable from related parties............. 0 300
Restricted cash............................................. 0 184
Other assets................................................ 0 241
------- -------
Total assets......................................... $10,130 $70,125
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Operating line of credit.................................. $ 0 $ 7,887
Accounts payable.......................................... 331 5,246
Other accrued liabilities................................. 485 2,746
Current portion of notes payable to related parties....... 0 12,575
Current portion of long-term debt......................... 0 10,809
------- -------
Total current liabilities............................ 816 39,263
Long-term notes payable to related parties, less current
portion................................................... 0 1,430
Long-term debt, less current portion........................ 0 3,740
Deferred taxes.............................................. 0 1,411
Other liabilities........................................... 0 1,133
------- -------
Total liabilities.................................... 816 46,977
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred Stock, $.01 par value -- 2,000,000 shares
authorized; none outstanding........................... 0 0
Common Stock, $.01 par value -- 40,000,000 shares
authorized; 10,154,740 issued and outstanding............. 52 102
Warrants, 2,015,038 issued and outstanding.................. 0 1,351
Additional paid-in-capital.................................. 3,038 16,628
Retained earnings........................................... 6,224 5,067
------- -------
Total stockholders' equity........................... 9,314 23,148
------- -------
Total liabilities and stockholders' equity............. $10,130 $70,125
======== =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-3
<PAGE> 36
METAL MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED FIVE MONTHS ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, MARCH 31, MARCH 31,
1994 1995 1996 1997
----------- ----------- ----------------- ----------
<S> <C> <C> <C> <C>
Cash flows from continuing operations:
Net income (loss) from continuing
operations................................. $ 228 $ 261 $ (16) $(2,010)
Adjustments to reconcile net income (loss)
from continuing operations to cash flows
from continuing operations:
Depreciation and amortization............ 0 0 0 2,273
Gain on sale of assets................... 0 0 0 (19)
Deferred income taxes.................... 0 0 0 (733)
Other.................................... 0 0 0 273
Changes in assets and liabilities, net of
acquisitions:
Accounts and notes receivable............ 0 0 0 (1,413)
Inventories.............................. 0 0 0 42
Accounts payable......................... 0 0 0 (1,099)
Other.................................... 0 0 0 938
------- ------ ------- -------
Cash flows from continuing operations........ 228 261 (16) (1,748)
Cash flows provided (used) by investing
activities:
Marketable securities matured.............. 1,959 1,524 637 2,794
Marketable securities purchased............ (1,652) (33) 0 0
Purchases of property and equipment........ 0 0 0 (3,209)
Acquisitions, net of cash acquired......... 0 0 0 (2,545)
Proceeds from sale of assets............... 0 0 0 67
------- ------ ------- -------
Net cash provided (used) by investing
activities................................. 307 1,491 637 (2,893)
Cash flows provided (used) by financing
activities:
Net payments on lines-of-credit............ 0 0 0 (926)
Issuances of long-term debt................ 0 0 0 7,806
Repayments of long-term debt............... 0 0 0 (2,699)
Issuances of common stock.................. 68 276 288 317
Payment of cash dividends.................. (1,220) (920) 0 0
------- ------ ------- -------
Net cash provided (used) by financing
activities................................. (1,152) (644) 288 4,498
------- ------ ------- -------
Cash flows from discontinued operations, net
of divestiture proceeds.................... 363 1,285 (831) 2,751
Net increase (decrease) in cash and cash
equivalents................................ (254) 2,393 78 2,608
Cash and cash equivalents at beginning of
period..................................... 893 639 3,032 3,110
------- ------ ------- -------
Cash and cash equivalents at end of period... $ 639 $3,032 $3,110 $ 5,718
======= ====== ======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-4
<PAGE> 37
METAL MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except shares)
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN- RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL WARRANTS EARNINGS EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1993...... 5,067,389 $ 51 $ 2,695 $ 0 $11,013 $13,759
Common Stock issued under
Employee Stock Purchase Plan... 21,002 0 41 0 0 41
Common Stock issued upon exercise
of options..................... 7,200 0 22 0 0 22
Common Stock issued under
Executive Bonus Plan........... 2,300 0 5 0 0 5
Payment of cash dividends........ 0 0 0 0 (1,220) (1,220)
Net loss......................... 0 0 0 0 (212) (212)
---------- ---- ------- ------ ------- -------
Balance at October 31, 1994...... 5,097,891 51 2,763 0 9,581 12,395
Common Stock issued upon exercise
of options..................... 92,000 1 244 0 0 245
Common Stock issued under
Employee Stock Purchase Plan... 24,927 0 31 0 0 31
Payment of cash dividends........ 0 0 0 0 (920) (920)
Net loss......................... 0 0 0 0 (2,437) (2,437)
---------- ---- ------- ------ ------- -------
Balance at October 31, 1995...... 5,214,818 52 3,038 0 6,224 9,314
Common Stock issued upon exercise
of options..................... 108,636 1 271 0 0 272
Common Stock issued under
Employee Stock Purchase Plan... 11,199 0 16 0 0 16
Net income....................... 0 0 0 0 6 6
---------- ---- ------- ------ ------- -------
Balance at March 31, 1996........ 5,334,653 53 3,325 0 6,230 9,608
Common Stock and warrants issued
for acquisitions............... 4,700,000 47 12,759 1,048 0 13,854
Common Stock issued upon exercise
of options..................... 103,850 2 281 0 0 283
Common Stock issued under
Employee Stock Purchase Plan... 16,237 0 34 0 0 34
Other issuances of stock options
and warrants................... 0 0 122 303 0 425
Tax benefit on stock options
exercised...................... 0 0 107 0 0 107
Net loss......................... 0 0 0 0 (1,163) (1,163)
---------- ---- ------- ------ ------- -------
Balance at March 31, 1997........ 10,154,740 $102 $16,628 $1,351 $ 5,067 $23,148
========== ==== ======= ====== ======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-5
<PAGE> 38
METAL MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
Description of business
Metal Management Inc., (herein referred to as "Company" or "MTLM"),
formerly General Parametrics Corporation ("GPAR"), a Delaware corporation, and
its wholly-owned subsidiaries are engaged in the business of dismantling,
processing, marketing, brokering and recycling both ferrous and non-ferrous
metals. These services are provided through MTLM's seventeen recycling centers
located in Arizona, California and Texas. Upon completion of the pending
acquisitions (see Note 2 -- Acquisitions and Mergers), MTLM will operate an
additional eighteen recycling centers in Arizona, Illinois, Indiana,
Mississippi, Ohio, Pennsylvania, Tennessee and Texas.
Previously, the Company was engaged in the business of designing,
manufacturing and marketing color printers and related color printer consumable
products (see Note 3 -- Discontinued Operations).
Change of company name and fiscal year
On April 9, 1996, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to change the name of the Company from
General Parametrics Corporation to Metal Management, Inc. Effective April 15,
1996, the Company formally changed its Nasdaq stock symbol to "MTLM".
On April 25, 1996, the Board of Directors of the Company approved a change
in the Company's fiscal year end from October 31 to March 31, effective April 1,
1996.
Basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts,
transactions and profits have been eliminated in consolidation.
Uses of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from these
estimates.
Cash equivalents
Highly liquid investments with original maturities of three months or less
are classified as cash equivalents. Restricted cash represents funds on deposit
with an outside lender related to outstanding borrowings. These funds are not
legally restricted from withdrawal.
Accounts receivable
Accounts receivable represents amounts due from customers on product sales.
A reserve for tonnage variances of $101,000 has been provided at March 31, 1997
to account for allowances in scrap metal shipment weights which are settled on a
quarterly basis. A reserve for uncollectible accounts of $414,000 related to
sales of color printers and related products was provided at October 31, 1995.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation.
Major renewals and improvements are capitalized while repairs and maintenance
are expensed as incurred. Property, plant and
F-6
<PAGE> 39
equipment acquired in purchase transactions are recorded at its estimated fair
value at the time of the acquisition. Depreciation is computed using the
straight-line method over estimated useful lives of 29 to 39 years for buildings
and improvements, 3 to 15 years for operating machinery, equipment, furniture
and fixtures and 3 to 7 years for automobiles and trucks. When assets are sold
or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in results of
operations.
Goodwill and other intangible assets
Goodwill represents the excess of consideration paid for companies acquired
in purchase transactions over the fair value of net assets acquired. Goodwill is
amortized on a straight-line basis over a period of 40 years. Non-compete
agreements are amortized on a straight-line basis over a period of 10 years.
Other intangible assets are amortized on a straight-line basis over the lesser
of their legal or estimated useful lives. The following items comprised the
balance at March 31, 1997 (in thousands):
<TABLE>
<S> <C>
Goodwill.................................................... $21,653
Non-compete agreements...................................... 1,403
Deferred financing and acquisition charges.................. 956
Other intangibles........................................... 23
-------
24,035
Less -- accumulated amortization............................ (551)
-------
$23,484
=======
</TABLE>
Amortization expense for the year ended March 31, 1997 was $551,000. The
ongoing value and remaining useful life of goodwill and intangible assets are
subject to periodic evaluation and the Company currently expects the carrying
amounts to be fully recoverable.
Revenue recognition
The Company recognizes revenue when title passes to the customer, which
generally occurs at the time of shipment.
Income taxes
The Company utilizes the liability method of accounting for income taxes,
as set forth in Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". Under this method, deferred income taxes are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Income tax benefits related to
non-qualified stock option exercises are credited to additional paid-in-capital
when recognized.
Financial instruments
The carrying values of financial instruments including cash and cash
equivalents, accounts receivable, notes receivable from related parties and
accounts payable approximate the related fair values because of the relatively
short maturity of these instruments. The carrying values of line of credit
borrowings, notes payable to related parties and long-term debt, including the
current portion, approximate the related fair values as the stated interest
rates approximate market rates. The Company does not enter into futures
contracts to hedge the effect of commodity prices.
Major customers and concentration of credit risk
13 customers represented 37% of revenues for the year ended March 31, 1997.
These customers comprised approximately 53% of accounts receivable at March 31,
1997. The Company's largest customer accounted for 9% of revenues and 22% of
accounts receivable for the year ended March 31, 1997.
F-7
<PAGE> 40
Financial instruments that potentially subject the Company to significant
concentration of credit risk are primarily trade accounts receivable. The
Company sells its products primarily to scrap metal brokers and mills located in
the United States. Generally, the Company does not require collateral or other
security to support customer receivables. Historically, the Company's
wholly-owned subsidiaries have not experienced material losses from the
noncollection of receivables.
Reclassifications
Certain prior year financial information has been reclassified to conform
to the current year presentation. Such reclassifications had no material effect
on the previously reported consolidated balance sheet, results of operations or
cash flows of the Company.
Income (loss) per common share
Income (loss) per share is based upon weighted average common shares
outstanding and common stock equivalents, when dilutive. Common stock
equivalents are determined assuming the exercise of all dilutive stock options
and warrants adjusted for the assumed repurchase of common stock, at the average
market price, from the exercise proceeds. Due to the net loss for the years
ended October 31, 1994, October 31, 1995 and March 31, 1997, common stock
equivalents were not added to weighted average common shares outstanding as the
result would have been antidilutive. For the five months ended March 31, 1996,
the dilutive effect of common stock equivalents was immaterial and they were
therefore not added to weighted average shares outstanding.
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings
per Share". SFAS No. 128 replaces primary earnings per share with basic earnings
per share, which excludes dilution, and requires presentation of both basic and
diluted earnings per share on the face of the income statement. Diluted earnings
per share is computed similarly to the current fully diluted earnings per share.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, and requires restatement of all prior-period earnings
per share data presented. The adoption of this statement is not expected to
materially impact the Company's earnings per share computations.
Impairment of long-lived assets
Effective April 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of". SFAS No. 121 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement No. 121 is applicable for most long-lived
assets, identifiable intangibles and goodwill related to those assets.
Management has determined that long-lived assets are fairly stated in the
accompanying balance sheets, and that no indicators of impairment are present.
NOTE 2 -- ACQUISITIONS AND MERGERS
Transactions during fiscal 1997
The Company merged with EMCO Recycling Corp. ("EMCO"), headquartered in
Phoenix, Arizona, and acquired The MacLeod Companies ("MacLeod"), headquartered
in Los Angeles, California and
F-8
<PAGE> 41
HouTex Metals Company, Inc. ("HouTex"), headquartered in Houston, Texas. The
purchase consideration for each of the transactions as of March 31, 1997 was as
follows (in thousands, except shares and warrants):
<TABLE>
<CAPTION>
EMCO MACLEOD HOUTEX TOTAL
---- ------- ------ -----
<S> <C> <C> <C> <C>
Date of acquisition................ April 11, 1996 January 1, 1997 January 7, 1997
Shares of restricted MTLM common
stock issued..................... 3,500,000 725,000 475,000 4,700,000
Warrants issued for MTLM common
stock............................ 1,000,000 175,000 310,000 1,485,000
Cash paid, including transaction
costs............................ $ 2,219 $ 1,119 $ 1,121 $ 4,459
Value of MTLM common stock
issued........................... 8,807 2,330 1,669 12,806
Value of MTLM warrants issued...... 316 137 596 1,049
Promissory notes issued............ 0 6,600 6,655 13,255
Other liabilities incurred......... 1,403 0 0 1,403
-------------- --------------- --------------- ---------
Total purchase
consideration............... $12,745 $10,186 $10,041 $32,972
============== =============== =============== =========
</TABLE>
In connection with the above transactions, the Company also acquired
certain real property utilized in the scrap metal business. In connection with
the EMCO merger, the Company acquired certain real property which was indirectly
owned by one of the former principal owners of EMCO for $1.1 million ($150,000
in cash and $950,000 in 9% notes payable due in three years, see Note 8 -- Notes
Receivable/Payable to Related Parties and Note 14 -- Related Party
Transactions). In connection with the MacLeod acquisition, the Company acquired
certain real property on which the principal MacLeod operations are performed,
for $3.5 million ($500,000 in cash and $3.0 million in 8% mortgage notes payable
to an unrelated third party due on May 31, 1997, see Note 9 -- Long term Debt
and Leases).
The above transactions have been accounted for by the purchase method of
accounting and the results of the operations of the acquired companies have been
included in the consolidated financial statements since the date of acquisition.
The purchase price was allocated based on estimated fair values at the date of
acquisition. This resulted in an excess of purchase price over net assets
acquired of $9.8 million, $5.6 million and, $6.2 million for EMCO, MacLeod and
HouTex, respectively, as of March 31, 1997.
Transactions subsequent to year-end
On May 1, 1997, the Company acquired Reserve Iron & Metal L.P. ("Reserve"),
headquartered in Cleveland, Ohio. The acquisition of Reserve resulted in the
issuance of $5.9 million in cash, $1.5 million in promissory notes, warrants to
purchase up to 1.4 million shares of common stock and the assumption of debt.
Excess purchase price over net assets acquired will be approximately $4.5
million. The Company made arrangements with Reserve's lender to provide for the
existing loans to remain in place without changes to terms and conditions of the
credit agreement. The warrants have varying vesting provisions, and their
effective exercise prices will depend in part upon the resolution of specified
potential liabilities referred to in the following paragraph. The Company
entered into ten-year employment agreements with certain former shareholders of
Reserve and also entered into employment agreements with certain key employees
of Reserve for which warrants to purchase an aggregate of up to 175,000 shares
of common stock of the Company was issued.
The Company agreed, in principle, with certain of the sellers of Reserve to
amend the Purchase Agreement. Among other matters, certain of the sellers of
Reserve (the "Indemnifying Parties") have agreed to indemnify the Company and
its affiliates against a significant portion of specified potential liabilities.
As is customary with certain types of potential liabilities, Reserve's insurance
carriers have accepted the defense of Reserve, but have done so subject to
reserving their respective rights to deny coverage under certain circumstances.
Assuming, for hypothetical purposes, that insurance coverage would not be
available or would be inadequate, such potential liabilities, were they to
become actual liabilities, could be significant. Any amounts payable by the
Indemnifying Parties will be funded by reducing the purchase price note owed by
the
F-9
<PAGE> 42
Company and/or by increasing the exercise price on warrants issued to such
Indemnifying Parties as part of the original terms of the Purchase Agreement and
the ten-year employment agreements, respectively. With reference to these
certain potential liabilities, Reserve has advised the Company it believes it
has adequate insurance coverage and has denied any liability for these potential
liabilities. There can be no assurance, however, that Reserve will not suffer
actual liability or that it will have adequate insurance to cover the liability.
Pro forma financial information (unaudited)
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company, MacLeod, HouTex and Reserve
as if the acquisitions had occurred on April 1, 1996. These unaudited pro forma
results have been prepared for comparative purposes only and include certain
adjustments, such as additional depreciation expense as a result of a step-up in
basis of fixed assets, additional amortization expense as a result of goodwill
and interest expense on acquisition debt. They do not purport to be indicative
of the results of operations which actually would have resulted had the
combination been in effect on April 1, 1996 (in thousands, except share data).
<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED
MARCH 31, 1997
--------------
<S> <C>
Net sales................................................... $222,090
Net loss from continuing operations......................... $ (4,038)
Net loss per share from continuing operations............... $ (.40)
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31, 1997
--------------
<S> <C>
ASSETS
Current assets.............................................. $ 58,970
Property & equipment, net................................... 31,043
Other assets................................................ 1,556
Goodwill.................................................... 27,499
--------
Total assets.................................... $119,068
========
LIABILITIES & EQUITY
Current liabilities......................................... $ 56,609
Non-current liabilities..................................... 33,823
Stockholder's equity........................................ 28,636
--------
Total liabilities and equity........................... $119,068
========
</TABLE>
See Note 16 -- Subsequent Events -- Financing Transactions.
Pending acquisitions
On May 16, 1997, the Company signed a definitive agreement to merge Cozzi
Iron & Metal, Inc. ("Cozzi"), headquartered in Chicago, Illinois with and into a
subsidiary of the Company. Cozzi will be the surviving entity. The closing of
the Cozzi merger is subject to shareholder and government approvals and is also
subject to certain other conditions precedent. At the closing of this merger,
the shareholders of Cozzi will likely receive 11.5 million shares of the
Company's common stock, 1.5 million warrants to purchase common stock, and $6.0
million in cash. Further, at the effective time of the merger, the Company
intends to appoint Albert A. Cozzi as President and the Chief Operating Officer
of the Company. T. Benjamin Jennings will remain Chairman of the Board and Chief
Development Officer, and Gerard M. Jacobs will remain the Chief Executive
Officer of the Company. Contemporaneous with closing, Albert A. and Frank J.
Cozzi, as well as T. Benjamin Jennings and Gerard M. Jacobs, anticipate entering
into five-year employment agreements with the Company. In addition, Albert A.,
Frank J. and Gregory P. Cozzi and T. Benjamin Jennings and Gerard M. Jacobs
intend to enter into a ten-year stockholder agreement to, among other things,
vote their
F-10
<PAGE> 43
respective shares in a common fashion in regard to elections of directors and
officers and in certain other circumstances.
On March 18, 1997, the Company signed a binding Letter of Intent to acquire
Proler Southwest Inc., and Proler Steelworks LLC ("Proler"). Proler Southwest
Inc. and Proler Steelworks LLC have operations in Houston, Texas and Jackson,
Mississippi, respectively. The transaction is expected to be effected by the
Company acquiring all of the equity interests in Proler Southwest Inc., and
Proler Steelworks LLC in exchange for $15.0 million in cash, a $2.0 million
promissory note, 1.75 million shares of common stock of the Company and warrants
to purchase 375,000 shares of common stock.
NOTE 3 -- DISCONTINUED OPERATIONS
In October 1995, the Company elected to discontinue a portion of its
electronic presentation products, including the VideoShow, VideoShow PRESENTER
and related products and recorded restructuring costs of $1.44 million. Also in
October 1995, the Company recorded a $716,000 special charge for the
repositioning of its color printer products. These costs are reflected in
discontinued operations. The charges were comprised of: writedowns of
discontinued ($530,000) and slow-moving ($395,000) inventory, write-offs of
capitalized software development costs for discontinued products ($524,000) and
color printers ($321,000), write-off of fixed assets ($203,000) associated with
the manufacture of discontinued products and a reserve of $180,000 for lease
costs related to excess facilities to be vacated and sub-leased.
During the first quarter of fiscal 1997, management made the decision to
exit the Spectra*Star printer and consumables business and the VideoShow and
related products lines. In accordance with Accounting Principles Board (APB)
Opinion Number 30, the Company's consolidated statements of operations present
the operating results of discontinued operations separately from continuing
operations. Prior periods have been restated to conform with this presentation.
On July 16, 1996, Mannesmann Tally ("Tally") acquired the Spectra*Star
inventory and related production equipment for approximately $1.3 million in
cash and other contingent consideration in the form of royalties on future
revenues from the sale of Spectra*Star printers and related consumables by
Tally. The company recognized an after-tax gain of $502,000 (after transaction
related expenses) on the disposition of the assets, including $351,000 of
royalties.
The VideoShow business was sold in the third quarter of fiscal 1997 for
consideration in the form of royalties on future revenues from the sale of
VideoShow products. Future royalties are not expected to be material to the
Company. The after-tax gain on the disposition of these assets was not
considered material to the Company.
Net revenues recognized for the discontinued operations were $12.3 million,
$9.5 million, $3.1 million and $2.3 million for the years ended October 31, 1994
and 1995, the five months ended March 31, 1996 and the year ended March 31,
1997, respectively. Additional consideration from royalty income will be
recorded as earned and will be reported as adjustments to the gain on sale of
discontinued operations.
Income tax provisions (benefits) for the discontinued operations were
($389,000), ($551,000), $52,000, and ($307,000) for the years ended October 31,
1994 and 1995, the five months ended March 31, 1996 and the year ended March 31,
1997, respectively. Income tax benefit for the gain on sale of assets of
Spectra*Star was $15,000 for the year ended March 31, 1997.
NOTE 4 -- MARKETABLE SECURITIES
Marketable securities are stated at cost, which approximates market value.
Marketable securities maturing within one year are classified as current assets.
The Company's marketable securities are classified as "available for sale" in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", which the Company adopted in fiscal 1995. There was no
material impact on the
F-11
<PAGE> 44
Company's financial position or results of operations as a result of the
adoption of this standard. Marketable securities consist of the following (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31, MARCH 31,
1995 1997
----------- ---------
<S> <C> <C>
Municipal Bonds and Obligations.......................... $2,253 $ 0
Corporate Notes, Bonds and Obligations................... 1,108 14
------ ---
$3,361 $14
====== ===
</TABLE>
NOTE 5 -- INVENTORIES
Inventories for all periods presented are stated at the lower of cost or
market. Cost is determined principally on the average cost method.
Discontinued operations
During the year ended October 31, 1995, a $925,000 charge was recorded to
write-off certain discontinued inventory items. Net inventories consisted of the
following at October 31, 1995 (in thousands):
<TABLE>
<S> <C>
Raw materials............................................... $ 534
Work-in-process............................................. 111
Finished goods.............................................. 1,073
------
$1,718
======
</TABLE>
Continuing operations
Inventories consist of the following at March 31, 1997 (in thousands):
<TABLE>
<S> <C>
Ferrous metals.............................................. $2,707
Non-ferrous metals.......................................... 4,754
Other....................................................... 954
------
$8,415
======
</TABLE>
NOTE 6 -- PROPERTY AND EQUIPMENT
The cost and accumulated depreciation of property and equipment are as
follows (in thousands):
<TABLE>
<CAPTION>
DISCONTINUED CONTINUING
OPERATIONS OPERATIONS
OCTOBER 31, 1995 MARCH 31, 1997
---------------- --------------
<S> <C> <C>
Land and improvements............................. $ 0 $ 5,759
Buildings and improvements........................ 77 1,577
Operating machinery and equipment................. 2,936 8,799
Automobiles and trucks............................ 0 2,550
Furniture and fixtures............................ 0 3,221
------- -------
3,013 21,906
Less -- accumulated depreciation.................. (2,955) (1,698)
------- -------
$ 58 $20,208
======= =======
</TABLE>
Depreciation expense for property and equipment of continuing operations
was $1.73 million for the year ended March 31, 1997.
F-12
<PAGE> 45
NOTE 7 -- LINES OF CREDIT
The Company and its wholly-owned subsidiaries have various revolving lines
of credit with commercial lenders which provide for revolving credit at interest
rates that range from 0% to 1.75% in excess of the lenders' prime rates. The
Company's ability to borrow under the lines of credit is based primarily on its
accounts receivable and inventory balances. As of March 31, 1997, the Company
had fully drawn predominately all of the availability under the lines of credit.
The lines expire at various dates through August 1998. The Company is in
compliance with all covenants under the various lines of credit. One of the
revolving lines of credit requires an annual fee of .5% of the amount of the
line.
The weighted average interest rate on the borrowings outstanding at March
31, 1997 was 9.59%. Average borrowings under the various lines of credit during
fiscal 1997 were approximately $4.7 million. During fiscal 1997, amounts
outstanding under the various lines of credit ranged from $2.5 million to $7.9
million.
See Note 16 -- Subsequent Events -- Financing Transactions
NOTE 8 -- NOTES RECEIVABLE/PAYABLE TO RELATED PARTIES
Notes receivable/payable to related parties consists of the following at
March 31, 1997 (in thousands):
<TABLE>
<S> <C>
Notes receivable:
8% Notes receivable from Mike and Zalman Melnik, repaid as
due with accrued interest on April 30, 1997............... 406
9% Notes receivable from Ellis Metals, due with monthly
interest, principal due on April 11, 2006................. 300
--------
706
Less: current portion....................................... (406)
--------
Long-term notes receivable from related parties............. $ 300
========
Notes payable:
8% Notes payable to Ian MacLeod, due May 31, 1997, secured
by a stock pledge agreement (Note A)...................... $ 5,800
6% Notes payable to Clend Investment, due June 30, 1997,
secured by a stock pledge agreement....................... 5,000
6% Notes payable to Mike Melnik, due April 30, 1997, secured
by a stock pledge agreement............................... 960
6% Notes payable to Zalman Melnik, due April 30, 1997,
secured by a stock pledge agreement....................... 695
8% Notes payable to Ian MacLeod, due in annual installments
of $120 through January 1, 2002, secured by a stock pledge
agreement (Note B)........................................ 600
9% Notes payable to H&S Broadway, due April 11, 1999,
secured by real property.................................. 547
9% Notes payable to Harold Rubenstein, due April 11, 1999,
secured by real property.................................. 403
--------
14,005
Less: current portion....................................... (12,575)
--------
Long-term notes payable to related parties.................. $ 1,430
========
</TABLE>
H&S Broadway is principally owned by Harold Rubenstein, a former principal
owner of EMCO, a current Director of the Company, and the Company's largest
shareholder. During the current fiscal year, $78,000 of interest was
collectively paid to H&S Broadway and Harold Rubenstein.
Ian MacLeod, the former owner of MacLeod, is employed by and also serves as
a Director of the Company. At March 31, 1997, the Company had a $129,000 of
interest payable due to Ian MacLeod.
F-13
<PAGE> 46
Clend Investment ("Clend") is beneficially owned by Mike Melnik and Zalman
Melnik, who are the former owners of HouTex, and are currently employed by the
Company. Mike Melnik also serves as a Director of the Company. At March 31,
1997, the Company had an aggregate $92,000 interest payable due to Clend, Mike
Melnik and Zalman Melnik.
The HouTex acquisition agreement provided certain rights to Clend to
convert principal amounts of its note to common stock of the Company. Also, the
terms of the HouTex acquisition agreement require the Company to grant up to
250,000 warrants ("Limited Warrants") as contingent purchase consideration to
Clend if the entire principal amount of the note is not paid within specified
dates. The Limited Warrants are subject to early expiration if the Company's
closing stock price exceeds an amount equal to 175% of the exercise price for a
period of twenty consecutive trading days. Certain acceleration provisions in
the Limited Warrants are expected to result in the issuance of additional
restricted shares of common stock in fiscal 1998. In such case, the Limited
Warrants would expire 30 days from the date the Company gives the Limited
Warrant holder notice that the closing stock price has exceeded 175% of the
exercise price. As of March 31, 1997, the Company had issued 150,000 Limited
Warrants to Mike and Zalman Melnik, collectively, and 60,000 Limited Warrants to
Clend.
Scheduled maturities of notes payable to related parties are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING, MARCH 31
- ----------------------------
<S> <C>
1998........................................................ 12,575
1999........................................................ 120
2000........................................................ 1,070
2001........................................................ 120
2002........................................................ 120
-------
$14,005
=======
</TABLE>
See Note 16 -- Subsequent Events -- Financing Transactions.
NOTE 9 -- LONG-TERM DEBT AND LEASES
At March 31, 1997, long-term debt consisted of the following (in
thousands):
<TABLE>
<S> <C>
Term loan, interest at LIBOR +1.75%, due on June 30, 1997... $ 6,500
Mortgage note payable, interest at 8%, due with accrued
interest on May 31, 1997, secured by real property........ 3,000
Mortgage note payable, interest at 8%, payable in monthly
installments of $25 including interest through May 1998
and a $1,300 balloon payment, secured by real property.... 1,374
Term loan, interest at 9.75% payable in monthly installments
of $21 including interest through December 2001, secured
by equipment.............................................. 905
Note payable, interest at 9.25%, payable in monthly
installments of $19 including interest through October
1999, secured by vehicles and equipment................... 522
State of California Pollution Control Bonds, interest
ranging from 5.5% to 6.1%, payable in monthly installments
of $8 including interest, due November 2001............... 385
Other notes payable (24 notes with balances ranging from $6
to $266) maturing at various dates through 2001, interest
at rates ranging from 7.31% to 12.46%, secured by
equipment................................................. 1,863
--------
14,549
Less current portion........................................ (10,809)
--------
$ 3,740
========
</TABLE>
F-14
<PAGE> 47
The $6.5 million term loan may be extended, at the Company's option and for
a fee of $25,000, to September 30, 1997. The loan can be extended further, at
the Company's option and for a fee of $100,000, to July 1, 1998. This loan was
unsecured, except for personal guarantees from certain officers and directors of
the Company (See Note 14 -- Related Party Transactions).
The State of California Pollution Control Bonds are guaranteed by the Small
Business Association (SBA) and require monthly base loan payments in amounts
necessary to fund annual redemption and interest. Funds received in excess of
current interest and principal reductions accumulate for the benefit of the
Company in a restricted cash account. In addition, a deposit is maintained equal
to three months of base loan payments plus interest earned. The Company's plant
and equipment are security for the indebtedness.
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING, MARCH 31
- ----------------------------
<S> <C>
1998........................................................ $10,809
1999........................................................ 2,132
2000........................................................ 811
2001........................................................ 527
2002........................................................ 270
-------
$14,549
=======
</TABLE>
See Note 16 -- Subsequent Events -- Financing Transactions.
The Company leases certain facilities and equipment under operating and
capital leases expiring at various dates. Rent expense for buildings and land
was $476,000 and rent expense for equipment was $2,000 for the year ended March
31, 1997. Payments under capital leases were $91,000 for the year ended March
31, 1997. Most of the operating leases contain renewal options. Future minimum
lease payments are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR ENDING, MARCH 31 LEASES LEASES
---------------------------- --------- -------
<S> <C> <C>
1998........................................................ $ 597 $121
1999........................................................ 476 83
2000........................................................ 490 81
2001........................................................ 491 79
2002........................................................ 403 34
Thereafter.................................................. 1,642 0
------ ----
$4,099 $398
====== ====
</TABLE>
F-15
<PAGE> 48
NOTE 10 -- INCOME TAXES
The provision (benefit) for federal and state income taxes from continuing
operations is as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, MARCH 31, MARCH 31,
1994 1995 1996 1997
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Federal:
Current.............................. $1 $40 $(41) $(170)
Deferred............................. 0 0 0 (649)
-- --- ---- -----
1 40 (41) (819)
-- --- ---- -----
State:
Current.............................. 0 11 (11) 61
Deferred............................. 0 0 0 (84)
-- --- ---- -----
0 11 (11) (23)
-- --- ---- -----
Total tax provision (benefit).......... $1 $51 $(52) $(842)
== === ===== ======
</TABLE>
The components of deferred tax liabilities and assets are comprised of the
following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, MARCH 31,
1995 1997
----------- ---------
<S> <C> <C>
Cash to accrual adjustment............................... $ 0 $ 255
Depreciation............................................. 5 2,329
----- -------
Gross deferred income tax liabilities...................... 5 2,584
----- -------
Accounts receivable reserves............................. (165) 0
Inventory................................................ (103) (221)
Vacation reserve......................................... (67) (65)
Fixed asset reserves..................................... (93) 0
Lease reserve............................................ (72) (2)
NOL carryforward......................................... 0 (792)
Financing costs.......................................... 0 (60)
Other.................................................... (10) (137)
----- -------
Gross deferred income tax assets........................... (510) (1,277)
----- -------
Deferred tax asset valuation allowance..................... 505 0
----- -------
$ 0 $ 1,307
===== =======
</TABLE>
Realization of deferred tax assets is dependent upon generating sufficient
future taxable income in the periods in which the assets reverse or the benefits
expire. Although realization is not assured, management believes it is more
likely than not that the Company's deferred tax assets will be realized through
future taxable earnings. The current year U.S. federal net operating loss
carryforward expires in 2012.
The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the company's effective rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1994 % 1995 %
----------- - ----------- -
<S> <C> <C> <C> <C>
Normal statutory rate............................. $ 78 34.0 $ 106 $ 34.0
State income taxes, net of federal benefit........ 0 0.0 11 3.5
Tax exempt interest............................... (77) (33.6) (66) (21.2)
---- ------ ----- ------
$ 1 .4 $ 51 16.3
==== ====== ===== ======
</TABLE>
F-16
<PAGE> 49
<TABLE>
<CAPTION>
5 MONTHS ENDED YEAR ENDED
MARCH 31, 1996 % MARCH 31, 1997 %
-------------- - -------------- -
<S> <C> <C> <C> <C>
Normal statutory rate.......................... $(23) (34.0) $(998) (35.0)
State income taxes, net of federal benefit..... (11) (16.1) (105) (3.7)
Non-deductible goodwill........................ 0 0.0 145 5.1
Non-deductible acquisition costs............... 0 0.0 70 2.5
Non-deductible meals & entertainment........... 0 0.0 56 2.0
Other.......................................... (18) (26.4) (10) (.4)
---- ----- ----- -----
$(52) (76.5) $(842) (29.5)
==== ===== ====== =====
</TABLE>
NOTE 11 -- STOCKHOLDERS' EQUITY
Common stock and preferred stock
On April 9, 1996, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of the Company's common stock to 40,000,000. The Company's Certificate of
Incorporation also allows the issuance of up to 2,000,000 shares of preferred
stock. No preferred shares have been issued to date. See Note 16 -- Events --
Financing Transactions.
Stock option plans
On April 9, 1996, the Company's stockholders approved the adoption of the
1996 Director Option Plan (the "Director Plan") and the reservation of 100,000
shares of common stock for issuance thereunder. The Director Plan provides for
options to be granted to outside directors of the Company who are subject to the
reporting requirements of Section 16 of the Securities Exchange Act of 1934.
Under the Director Plan, each outside director is automatically granted an
option to purchase 10,000 shares on the date on which such person first becomes
an outside director. Thereafter, each outside director is automatically granted
an option to purchase 2,500 shares on January 15th of each year, as long as such
outside director has served on the Board of Directors for at least one month.
The options are granted at 100% of the market price on the date of the grant,
become fully vested and exercisable on such date and expire 10 years from the
date of the grant.
On April 9, 1996, the Company's stockholders approved an amendment to the
Company's 1995 Stock Option Plan (the "1995 Plan") to reserve an additional
800,000 shares of common stock for an aggregate 1,300,000 shares of common stock
which can be issued under the 1995 Plan. The 1995 Plan allows the Board of
Directors to grant options to purchase shares to officers and employees in the
form of either incentive stock options (ISO's) or nonstatutory stock options
(NSO's). The Board of Directors determines, within limits set forth in the 1995
Plan, the term of each option, the option exercise price, the number of shares
subject to each option and the times at and conditions under which each option
is or becomes exercisable.
During fiscal 1995, the Board of Directors terminated the 1986 Stock Option
Plan with respect to future grants. The following summarizes the activity of the
Director Plan, 1995 Plan and the 1986 Plan for the year ended March 31, 1997,
the five months ended March 31, 1996 and the years ended October 31, 1995 and
1994, respectively:
<TABLE>
<CAPTION>
DIRECTOR & 1995 PLAN
---------------------------------------------------
1997 1996
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Beginning balance................................ 716,750 $3.92 51,000 $3.22
Granted.......................................... 110,000 $4.53 665,750 $3.97
Exercised........................................ (16,750) $2.90 0 $0.00
Canceled......................................... (57,500) $3.89 0 $0.00
------- -------
Ending balance................................... 752,500 $4.03 716,750 $3.92
======= =======
Exercisable at end of period..................... 667,500 $3.96 669,750 $3.91
======= =======
Options available for grant...................... 530,750 83,250
======= =======
</TABLE>
F-17
<PAGE> 50
For the year ended March 31, 1997 and the five months ended March 31, 1996,
the weighted average fair value and weighted average exercise price of options
granted was as follows:
<TABLE>
<CAPTION>
DIRECTOR & 1995 PLAN
----------------------------------------------------------------------------
1997 1996
------------------------------------ -------------------------------------
SHARES FAIR VALUE EXERCISE PRICE SHARES FAIR VALUE EXERCISE PRICE
------ ---------- -------------- ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Exercise price > Market
price........................ 95,000 $1.59 $4.53 562,500 $0.99 $4.01
Exercise price = Market
price........................ 15,000 $2.07 $4.54 84,000 $1.26 $4.00
Exercise price < Market
price........................ n/a n/a n/a 19,250 $1.80 $2.85
</TABLE>
<TABLE>
<CAPTION>
DIRECTOR & 1995 PLAN
-----------------------------------------------
1995 1994
----------------------- ---------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Beginning balance.................................. 0 $0.00 0 $0.00
Granted............................................ 51,000 $1.57 - $4.00 0 $0.00
Exercised.......................................... 0 $0.00 0 $0.00
Canceled........................................... 0 $0.00 0 $0.00
------- --
Ending balance..................................... 51,000 $1.57 - $4.00 0 $0.00
======= ==
Exercisable at end of period....................... 25,000 $2.50
=======
Options available for grant........................ 449,000
=======
</TABLE>
<TABLE>
<CAPTION>
1986 PLAN
----------------------------------------------------
1997 1996
------------------------ -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Beginning balance............................... 156,850 $2.82 304,800 $2.71
Granted......................................... 0 $0.00 0 $0.00
Exercised....................................... (87,100) $2.65 (108,636) $2.55
Canceled........................................ (64,750) $3.07 (39,314) $2.77
------- --------
Ending balance.................................. 5,000 $2.50 156,850 $2.82
======= ========
Exercisable at end of period.................... 5,000 $2.50 141,788 $2.87
======= ========
Options available for grant..................... 0 0
======= ========
</TABLE>
<TABLE>
<CAPTION>
1986 PLAN
---------------------------------------------------
1995 1994
------------------------ ------------------------
OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Beginning balance............................ 572,800 $1.90 - $6.00 569,600 $1.90 - $6.00
Granted...................................... 1,500 $1.57 - $1.63 190,000 $1.88 - $2.75
Exercised.................................... (92,000) $2.34 - $2.98 (7,200) $1.90 - $2.34
Canceled..................................... (177,500) $2.23 - $3.56 (179,600) $2.23 - $4.25
-------- --------
Ending balance............................... 304,800 $1.57 - $6.00 572,800 $1.90 - $6.00
======== ========
Exercisable at end of period................. 277,497 $1.88 - $6.00 353,785 $1.90 - $6.00
======== ========
Options available for grant.................. 0 462,630
======== ========
</TABLE>
Exercise price for options outstanding at March 31, 1997 ranged from $2.50
to $5.00. The weighted average remaining contractual life of the outstanding
options is 8.73 years. The exercise of non-qualified stock options resulted in
income tax benefits of $107,000 for the year ended March 31, 1997, which were
credited to
F-18
<PAGE> 51
additional paid-in-capital. The income tax benefits are the tax effect of the
difference between market price on the date of exercise and option price.
Warrants
The Company has issued warrants to purchase restricted common stock,
primarily as consideration for acquisitions and loan guarantees. The summary of
warrant activity for the year ended March 31, 1997, five months ended March 31,
1996 and the years ended October 31, 1995, and 1994, respectively, is as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
WARRANTS EXERCISE PRICE WARRANTS EXERCISE PRICE
-------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Beginning balance.......................... 20,000 $3.50 10,000 $3.00
Granted.................................... 1,995,038 $4.66 10,000 $4.00
Exercised.................................. 0 $0.00 0 $0.00
Canceled................................... 0 $0.00 0 $0.00
--------- -------
Ending balance............................. 2,015,038 $4.65 20,000 $3.50
========= =======
Exercisable at end of period............... 2,015,038 $4.65 20,000 $3.50
========= =======
</TABLE>
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
WARRANTS EXERCISE PRICE WARRANTS EXERCISE PRICE
-------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Beginning Balance........................... 0 $0.00 0 $0.00
Granted..................................... 10,000 $3.00 0 $0.00
Exercised................................... 0 $0.00 0 $0.00
Canceled.................................... 0 $0.00 0 $0.00
------- -
Ending Balance.............................. 10,000 $3.00 0 $0.00
======= ==
Exercisable at end of period................ 10,000 $3.00
=======
</TABLE>
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan ("Plan") was initiated in fiscal
1987. The Plan allowed employees to purchase shares of the Company's Common
Stock at the lower of 85% of the fair market value of the Common Stock, as
determined by the closing bid price on the NASDAQ National Market System, on the
first and last day of the offering period. Shares issued for the year ended
March 31, 1997, five months ended March 31, 1996, and the years ended October
31, 1995 and 1994 were 16,237, 11,199, 24,927 and 21,002, respectively.
Pro forma disclosures
The Company has adopted SFAS No. 123 "Accounting for Stock-Based
Compensation". However, in accordance with the provisions of SFAS No. 123, the
Company continues to account for stock-based compensation under the provisions
of APB 25, "Accounting for Stock Issued to Employees", and accordingly does not
recognize compensation cost for options with exercise prices equal to market
value at the date of grant. As required by SFAS No. 123, the following
disclosure of pro forma information provides the effects on net income (loss)
and net income (loss) per share as if the Company had accounted for its employee
stock awards under the fair value method prescribed by SFAS 123 (in thousands,
except per share data).
<TABLE>
<CAPTION>
YEAR ENDED 5 MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
Pro forma net (loss).............................. $(1,290) $(556)
Pro forma net (loss) per share.................... $ (.14) $(.10)
</TABLE>
F-19
<PAGE> 52
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants for the year ended March 31, 1997 and the five months ended March 31,
1996: expected dividend yield of 0% and expected option lives of 3 years for
both years, an expected volatility of 60.0% and 34.2% and risk free interest
rate of 6.52% and 5.89%, respectively. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options which have
no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimate, it is management's opinion that the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
NOTE 12 -- EMPLOYEE BENEFIT PLANS
The Company offers a defined contribution 401(k) Plan covering eligible
employees. Participants can elect to contribute up to 15% of their qualified
pre-tax compensation. The Company may match participant contributions as
determined at the sole discretion of the Company. Since inception of the plan,
the Company has made no contributions to the plan.
The Company's wholly-owned EMCO subsidiary offers a defined contribution
401(k) Plan and a profit-sharing Plan. Eligible employees can contribute up to
15% of their qualified pre-tax compensation. EMCO matches 50% of participant
contributions up to 6% of compensation. EMCO made matching contributions of
$52,000 for the year ended March 31, 1997. No contributions were made to the
profit-sharing plan.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES (SEE NOTE 2 -- ACQUISITIONS AND
MERGERS)
Environmental matters
The Company is subject to comprehensive local, state and international
regulatory and statutory requirements relating to the acceptance, storage,
handling and disposal of solid waste and waste water, air emissions, soil
contamination and employee health, among others. The Company believes that it
and its subsidiaries are in material compliance with currently applicable
environmental and other applicable laws and regulations. However, environmental
legislation may in the future be enacted and create liability for past actions
and the Company or its subsidiaries may be fined or held liable for damages.
There can be no assurance that potential damages, liabilities, expenditures,
fines and penalties will not have a material adverse effect on the Company's
financial condition or results of operations.
Substantial leverage
The Company has substantial leverage which could have adverse consequences
to the Company including the following: (1) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired; (2)
a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal and interest; and (3) the Company will be
more vulnerable to an economic downturn in the scrap metal recycling industry
which has historically been sensitive to changes in general economic conditions.
See Note 16 -- Subsequent Events -- Financing Transactions and Note 17 --
Management's Plan Regarding Current Debt Obligations.
Purchase of real property
On January 7, 1997, the Company's HouTex subsidiary entered into a 10 year
lease agreement with 15/21 Japhet Realty Ltd. ("Japhet"), which is principally
owned by the former HouTex shareholders, Mike and Zalman Melnik. Rent paid for
the year ended March 31, 1997 was $51,000. The lease agreement allows Japhet to
sell the property to the Company for $4.0 million between the 54th month and the
89th month of the lease term. The Company also has an option to buy the property
for $4.0 million during the same period.
F-20
<PAGE> 53
NOTE 14 -- RELATED PARTY TRANSACTIONS
See Note 8 Notes Receivable/Payable to Related Parties, Note 11 --
Stockholder's Equity, Note 13 -- Commitments and Contingencies and Note 16 --
Subsequent Events -- Financing Transactions.
On April 11, 1996, the Company and Harold Rubenstein entered into a five
year consulting agreement. The services provided include consultation and direct
management assistance with respect to operations, strategic planning and other
aspects of the Company's business. Fees paid for these services amounted to
$84,000 for the year ended March 31, 1997.
The Company has entered into various transactions with Ellis Metals, Inc.
("Ellis Metals") and Empire Metals ("Empire") which are companies principally
owned by Harold Rubenstein. On April 11, 1996, the Company entered into a five
year exclusive supply agreement with Ellis Metals, which requires Ellis Metals
to sell all of its inventory to the Company's wholly owned EMCO subsidiary or to
EMCO's customers through a direct shipment arrangement. In the latter
arrangement, EMCO receives a brokerage fee. In consideration for entering into
this agreement, Ellis Metals receives a monthly exclusivity fee of $2,500 during
the term of the agreement. During the current year, the Company paid Ellis
Metals $30,000 under terms of the agreement. The Company also advanced $300,000
to Ellis Metals which is reflected as a note receivable. The Company also
purchases inventory from Empire, from time to time, at prices equivalent to
market value. During the current year, the Company purchased $3.9 million and
$.3 million of inventory from Ellis Metals and Empire, respectively, and also
had sales of $.3 million to Ellis Metals. At March 31, 1997, the Company had
accounts payable of $93,000 and $84,000 to Ellis Metals and Empire,
respectively.
The Company owns the land on which certain Ellis Metals operations are
located and leases the land to Ellis Metals. During the current fiscal year, the
Company received $78,000 in rent payments from Ellis Metals. The Company has a
five year option, beginning June 1, 1999, to purchase certain assets of Ellis
Metals for $1.364 million, subject to certain adjustments. It is the Company's
intention to exercise such option.
In conjunction with a loan obtained from a commercial bank on January 7,
1997 (see Note 9 -- Long-term Debt and Leases), personal guarantees were
provided by certain corporate officers an six directors of the Company,
including Gerard M. Jacobs, T. Benjamin Jennings, Donald F. Moorehead, Jr.,
George O. Moorehead, Harold Rubenstein and Raymond F. Zack. These individuals
received warrants to purchase an aggregate of 500,000 shares of restricted
common stock of the Company at $4.00 per share (subject to certain restrictions)
in consideration for making such guarantees. The warrants were recorded as other
financing costs during the current fiscal year based on the estimated fair value
of the loan guaranty of $302,000. The cost is being amortized over the six month
term of the loan.
The Company receives investor and public relations services from Xavier
Hermosillo, a Director of the Company. The Company paid fees of $15,000 and
$36,000 for the five months ended March 31, 1996 and the year ended March 31,
1997, respectively, for these services.
Certain of the Company's wholly-owned MacLeod subsidiaries lease space on
which certain MacLeod operations are located from Ian MacLeod. Rent paid for the
year ended March 31, 1997 was $13,200. This lease expires on January 31, 1998.
The Company owns the real property on which MacLeod's principal activities are
performed.
F-21
<PAGE> 54
NOTE 15 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
OCTOBER 31, OCTOBER 31, MARCH 31, MARCH 31,
1994 1995 1996 1997
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Interest paid..................................... $ 0 $ 0 $ 0 $ 1,085
Income taxes refunded............................. $17 $320 $256 $ 1,184
Details of business acquisitions:
Fair value of assets acquired................... $ 0 $ 0 $ 0 $ 58,455
Liabilities assumed............................. 0 0 0 (25,483)
Stock and warrants issued....................... 0 0 0 (13,855)
Promissory notes and other consideration
issued....................................... 0 0 0 (14,658)
--- ---- ---- --------
Cash paid....................................... 0 0 0 4,459
Less: cash acquired............................... 0 0 0 (1,914)
--- ---- ---- --------
Net cash paid for acquisitions.................... $ 0 $ 0 $ 0 $ 2,545
=== ==== ==== ========
Noncash investing and financing activities:
Notes payable issued for real estate............ $ 0 $ 0 $ 0 3,950
tax benefit on stock options exercised.......... $ 0 $ 0 $ 0 107
</TABLE>
NOTE 16 -- SUBSEQUENT EVENTS -- FINANCING TRANSACTIONS
Subsequent to March 31, 1997, the Company completed several financing and
capital transactions which raised additional cash and refinanced or paid down
existing related party and third party debt. The transactions were as follows:
1. During April 1997, the Board of Directors approved a private sale of up to
2,025,000 restricted shares of the Company's common stock at $7.25 (the
"Private Placement"). As of June 19, 1997, all the restricted shares
available for sale in the private placement had been sold, including the sale
of 260,000 shares, collectively, to five directors of the Company, including
Gerard M. Jacobs, T. Benjamin Jennings, Gerard M. Jacobs, Harold Rubenstein,
Donald F. Moorehead, Jr., and George O. Moorehead and Harold Rubenstein. A
purchaser of the restricted stock that is not a Director or employee of the
Company exchanged consideration comprised of cash and a short term note. The
short term note, in the principal amount of $2.25 million, accrues interest
at the prime rate and is payable on or before June 30, 1997. On June 16,
1997, the Company received a $500,000 payment on the note.
2. On April 1, 1997, the Company issued 60,000 Limited Warrants to Clend, which
resulted in additional goodwill of $216,000 (see Note 8).
3. On April 15, 1997, Clend converted $1.0 million of its note payable into
182,481 restricted shares of common stock of the Company (see Note 8).
4. On April 30, 1997, the Company made a $200,000 payment on Promissory Note A
due to Ian MacLeod and paid the $960,000 and $695,000 notes payable due to
Mike and Zalman Melnik, respectively (see Note 8).
5. On May 1, 1997, the Company issued 60,000 Limited Warrants to Clend, which
resulted in additional goodwill of $221,000 (see Note 8).
6. On May 21, 1997, Mike and Zalman Melnik exercised their Limited Warrants to
purchase 150,000 shares of restricted common stock in exchange for aggregate
cash payments to the Company of $600,000 (see Note 8). Also, on May 21, 1997,
Clend exercised its Limited Warrants to purchase 180,000 shares of restricted
common stock in exchange for a $720,000 reduction of the amount owned by the
Company pursuant to the Clend Note.
F-22
<PAGE> 55
7. On May 27, 1997, the Company made a $1.0 million payment on a line of credit
from a commercial bank (see Note 7).
8. On May 29, 1997, the Company made a payment of all principal and interest on
its $3.0 million mortgage payable (see Note 9). Also, on May 29, 1997, Ian
MacLeod and the Company agreed to amend the acquisition agreement dated
January 1, 1997, whereby the Company agreed to issue 160,000 restricted
shares of common stock of the Company in exchange for a $1.0 million
reduction of Promissory Note A. In addition, Ian MacLeod agreed to eliminate
the restrictions on the Company's ability to incur indebtedness involving the
MacLeod subsidiaries and to release stock pledges involving MacLeod. At the
same time, the Company made a $1.6 million payment on Promissory Note A and
executed a note to refinance the remaining $3.0 million principal portion of
Promissory Note A into a 5 year note due June 29, 2002 which accrues interest
at 8.5% (see Note 8).
9. On May 30, 1997, the Company entered into a $6.0 million revolving and term
loan agreement with a commercial bank under which the Company received
proceeds of $4.5 million. The loans are due on July 1, 1998 and carry an
interest rate equal to 1% above the lenders' prime rate. The proceeds from
the loans were utilized to repay the remaining $3.28 million balance on the
Clend Note (thereby ceasing the issuance of any additional Limited Warrants),
to repay the $600,000 MacLeod Promissory Note B (see Note 8 -- Notes
Receivable/Payable to Related Parties), and for working capital purposes.
There was no material gain or loss, individually or in the aggregate, as a
result of the above transactions. The following tables summarizes the unaudited
pro forma outstanding debt and equity balances of the Company at March 31, 1997,
giving effect to the debt assumed in the Reserve acquisition (see Note 2) and
the transactions described above (in thousands):
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
SUBSEQUENT UNAUDITED
ACTUAL FINANCINGS AND PRO FORMA
MARCH 31, 1997 ACQUISITIONS REF MARCH 31, 1997
-------------- --------------- --- --------------
<S> <C> <C> <C> <C>
Operating line of credit....................... 7,887 (1,000) 7 6,887
0 4,500 9 4,500
-------- -------- -------
7,887 3,500 11,387
======== ======== =======
Notes payable to Related Parties:
Promissory note A to Ian MacLeod............. 5,800 (200) 4 0
-- (5,600) 8 --
Note payable to Clend Investment............. 5,000 (1,000) 3 0
-- (720) 6 --
-- (3,280) 9 --
Note payable to Mike and Zalman Melnik....... 1,655 (1,655) 4 0
Promissory note B to Ian MacLeod............. 600 (600) 9 0
Note payable to H&S Broadway................. 547 -- 547
Note payable to Harold Rubenstein............ 403 -- 403
Note payable issued to Ian MacLeod........... 0 3,000 8 3,000
Note payable issued for Reserve
acquisition............................... 0 1,542 1,542
-------- -------- -------
14,005 (8,513) 5,492
Less: current portion........................ (12,575) (12,575) 0
-------- -------- -------
Long-term notes payable to Related Parties..... 1,430 4,062 5,492
======== ======== =======
</TABLE>
F-23
<PAGE> 56
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
SUBSEQUENT UNAUDITED
FINANCINGS AND PRO FORMA
MARCH 31, 1997 ACQUISITIONS REF MARCH 31, 1997
-------------- --------------- --- --------------
<S> <C> <C> <C> <C>
Long-term debt................................. 14,549 (3,000) 8 11,549
Debt assumed from Reserve...................... 0 27,126 27,126
-------- -------- -------
14,549 24,126 38,675
Less: current portion........................ (10,809) 1,546 (9,263)
-------- -------- -------
3,740 25,672 29,412
======== ======== =======
Common stock and paid in capital............... 16,730 14,681 1 31,411
-- 1,000 3 1,000
-- 2,142 6 2,142
0 1,000 8 1,000
-------- -------- -------
16,730 18,823 35,553
======== ======== =======
Warrants....................................... 1,351 216 2 1,567
-- 221 5 221
-- (822) 6 (822)
Warrants issued for Reserve acquisition........ 0 5,488 5,488
-------- -------- -------
1,351 5,103 6,454
======== ======== =======
</TABLE>
NOTE 17 -- MANAGEMENT'S PLAN REGARDING CURRENT DEBT OBLIGATIONS
As outlined in Notes 7, 8, and 9, certain of the Company's debt obligations
at March 31, 1997 existed under facilities that were scheduled to mature within
approximately one year. In addition, the Company assumed $1,454,000 of
short-term debt obligations when it acquired Reserve on May 1, 1997 (see Notes 2
and 16). Management's current projections indicate that there will not be
sufficient cash flow from operations to fund the repayment of all principal
obligations on maturing short-term debt. Substantially all of the Company's
assets are pledged as collateral under the Company's various borrowing
facilities.
As described in Note 16, the Company has completed several debt and capital
transactions since March 31, 1997 that have raised cash or refinanced or repaid
existing debt. Additionally, management has entered into amendments or obtained
binding commitments from certain current lenders to extend maturities of
existing current obligations beyond June 30, 1998. These transactions and
commitments should provide the Company with sufficient cash and available
borrowings to fund the Company's current debt obligations and anticipated
operating cash needs for fiscal 1998. Management continues to explore various
other financing strategies, including the refinancing of certain existing debt
facilities on a long-term basis, the issuance of convertible or other types of
debt, and the issuance of equity securities. There can be no assurance that the
Company will be able to access sufficient capital on acceptable terms.
F-24
<PAGE> 57
NOTE 18 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
information for the Company's last ten fiscal quarters (in thousands, except per
share amounts).
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
FISCAL 1995
Net sales............................................... $ 0 $ 0 $ 0 $ 0
Gross profit............................................ 0 0 0 0
Net income from continuing operations................... 76 49 74 62
Net income (loss) from discontinued operations.......... 14 (136) (329) (2,247)
Net income (loss)....................................... $ 90 $ (87) $(255) $(2,185)
Earnings (loss) per share for:
Continuing operations................................. $.02 $ .01 $ .01 $ .01
Discontinued operations............................... .00 (.03) (.06) (.44)
Net income (loss)..................................... .02 (.02) (.05) (.43)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED TWO MONTHS ENDED
JANUARY 31 MARCH 31
------------- ----------------
<S> <C> <C>
FISCAL 1996
Net sales................................................... $ 0 $ 0
Gross profit................................................ 0 0
Net income (loss) from continuing operations................ (20) 4
Net income (loss) from discontinued operations.............. 68 (46)
Net income (loss)........................................... 48 (42)
Earnings (loss) per share for:
Continuing operations..................................... $.00 $.00
Discontinued operations................................... .01 (.01)
Net income (loss)......................................... .01 (.01)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
------- ------------ ----------- --------
<S> <C> <C> <C> <C>
FISCAL 1997
Net sales.......................................... $15,978 $13,963 $10,402 $24,853
Gross profit....................................... 2,000 823 382 3,667
Net income (loss) from continuing operations....... 5 (915) (1,160) 60
Net income from discontinued operations............ 146 147 25 529
Net income (loss).................................. 151 (768) (1,135) 589
Earnings (loss) per share for:
Continuing operations............................ $ .00 $ (.10) $ (.13) $ .01
Discontinued operations.......................... .02 .02 .00 .05
Net income (loss)................................ .02 (.08) (.13) .06
</TABLE>
Fiscal 1995 and 1996 results are restated to reflect the results of
discontinued operations (see Note 3 -- Discontinued Operations).
F-25
<PAGE> 58
METAL MANAGEMENT, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Fiscal 1994 and 1995 represents the twelve month period ended October 31.
Fiscal 1996 represents the five month period from November 1, 1995 to March 31,
1996. Fiscal 1997 represents the twelve month period ended March 31.
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS, BALANCE AT
FISCAL BEGINNING COSTS AND OTHER NET OF END
YEAR DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD
- ------ ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1997 Allowance for doubtful accounts... $474,000 $ 223,000 $ 0 $(596,000) $101,000
Tax valuation allowance........... $505,000 $(505,000) $ 0 $ 0 $ 0
1996 Allowance for doubtful accounts... $414,000 $ 60,000 $ 0 $ 0 $474,000
Tax valuation allowance........... $505,000 $ $ 0 $ 0 $505,000
1995 Allowance for doubtful accounts... $373,000 $ 231,000 $10,000 $(200,000) $414,000
Tax valuation allowance........... $ 0 $ 505,000 $ 0 $ 0 $505,000
1994 Allowance for doubtful accounts... $311,000 $ 35,000 $27,000 $ 0 $373,000
</TABLE>
F-26
<PAGE> 59
METAL MANAGEMENT, INC.
EXHIBIT INDEX
NUMBER AND DESCRIPTION OF EXHIBIT
<TABLE>
<C> <S>
2.1 Merger Agreement dated as of December 1, 1995, and as
amended through March 7, 1996, among the Registrant, GPAR
Merger, Inc., EMCO and the direct and indirect beneficial
owners of EMCO's Common Stock (incorporated by reference
from Definitive Proxy Statement of the Company and EMCO,
dated March 8, 1996).
2.2 Form of Asset Purchase and Sale Agreement by and between the
Registrant and Mannesmann Tally Corporation dated July 16,
1996 (incorporated by reference to Exhibit 2.2 of the
Registrant's report on Form 8-K dated July 16, 1996).
2.3 Acquisition Agreement by and among the Registrant; MMI
Acquisition, Inc., a California corporation and wholly owned
subsidiary of the Registrant, Metal Management Realty, Inc.,
an Arizona corporation and a wholly owned subsidiary of the
Registrant, California Metals Recycling, Inc., a California
corporation ("CA Metals"), Firma, Inc., a California
corporation ("Firma"), MacLeod Metals Co., a California
corporation ("MacLeod Metals"), Firma Plastic Co., Inc., a
California corporation ("Plastics"), Trojan Trading Co., a
California corporation (together with Firma, CA Metals,
MacLeod Metals and Plastics, the "MacLeod Companies"), Ian
MacLeod, an individual and shareholder of each of the
MacLeod Companies, Marilyn MacLeod, an individual and
shareholder of each of the MacLeod Companies and the MacLeod
Family Trust dated January 30, 1993 (incorporated by
reference to Exhibit 2.1 of the Registrant's report on Form
8-K dated January 1, 1997).
2.4 Merger Agreement by and among the Registrant, MTLM Merger,
Inc., HouTex Metals Company, Inc., Mike Melnik, Zalman
Melnik, and Clend Investment Holdings, Ltd., dated as of
December 10, 1996 (incorporated by reference to Exhibit 2.1
of the Registrant's report on Form 8-K dated January 7,
1997).
2.5 First Amendment to Merger Agreement among the Registrant,
MTLM Merger Inc., HouTex Metals Company, Inc., Mike Melnik,
Zalman Melnik and Clend Investment Holdings, Ltd., dated as
of December 10, 1996 (incorporated by reference to Exhibit
2.2 of the Registrant's report on Form 8-K dated January 7,
1997).
2.6 Purchase Agreement, dated as of March 10, 1997, between
Registrant and BancBoston Ventures, Inc. (incorporated by
reference to Exhibit 2.1 of the Registrant's report on Form
8-K dated May 15, 1997).
2.7 Purchase Agreement, dated as of January 17, 1997, among
Registrant, P. Joseph Iron & Metal, Inc., the sole general
partner of Reserve Iron & Metal Limited Partnership, and
Paul D. Joseph, Steven Joseph and Scott Joseph (incorporated
by reference to Exhibit 2.2 of the Registrant's report on
Form 8-K dated May 15, 1997).
2.8 First Amendment to Purchase Agreement, dated as of March 6,
1997, among Registrant, P. Joseph Iron & Metal, Inc., the
sole general partner of Reserve Iron & Metal Limited
Partnership, and Paul D. Joseph, Steven Joseph and Scott
Joseph (incorporated by reference to Exhibit 2.3 of the
Registrant's report on Form 8-K dated May 15, 1997).
2.9 Second Amendment to Purchase Agreement, dated May 1, 1997,
among Registrant, P. Joseph Iron & Metal, Inc., the sole
general partner of Reserve Iron & Metal Limited Partnership,
and Paul D. Joseph, Steven Joseph and Scott Joseph
(incorporated by reference to Exhibit 2.4 of the
Registrant's report on Form 8-K dated May 15, 1997).
2.10 Agreement and Plan of Merger dated May 16, 1997 among Cozzi
Iron & Metal, Inc. and its Shareholders, Metal Management,
Inc. and CIM Acquisition Co.
2.11 Form of Stockholders' Agreement for Metal Management, Inc..
</TABLE>
EX-1
<PAGE> 60
<TABLE>
<C> <S>
3.1 Restated Certificate of Incorporation, as amended through
April 12, 1996 (incorporated by reference to Exhibit 3.1 of
the Registrant's Quarterly Report on Form 10-Q for the
period ended September 30, 1996).
3.2 Amended and Restated Bylaws, as amended through May 24,
1997.
4.1 Specimen of Stock Certificate
4.2 1995 Stock Plan and Form of Option Agreement (incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-8, File No. 0-14836).
4.3 1996 Director Option Plan and Form of Option Agreement
(incorporated by reference to Exhibit 4.2 of the
Registrant's Registration Statement on Form S-8, File No.
0-14836).
10.1 1996 Director Option Plan (incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1996).
10.2 1995 Stock Plan (incorporated by reference to Exhibit 10.3
to the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1996).
10.3 Subordination Agreement dated April 11, 1996 among the
Registrant, Fidelity Funding of California, Inc. and EMCO
(incorporated by reference to Exhibit 10.6 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1996).
10.4 Assignment of Lease between Empire and EMCO, dated April 11,
1996 (incorporated by reference to Exhibit 10.9 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1996).
10.5 Assignment of Lease between Empire CAN and EMCO, dated April
11, 1996 (incorporated by reference to Exhibit 10.10 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1996).
10.6 Employment Agreement dated April 11, 1996 between EMCO and
Raymond Zack (incorporated by reference to Exhibit 10.20 to
the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1996).
10.7 Employment Agreement dated April 11, 1996 between the
Registrant and George Moorehead (incorporated by reference
to Exhibit 10.21 to the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1996).
10.8 Employment Agreement dated April 11, 1996 between the
Registrant and T. Benjamin Jennings (incorporated by
reference to Exhibit 10.22 to the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1996).
10.9 Employment Agreement dated April 11, 1996 between the
Registrant and Gerard M. Jacobs (incorporated by reference
to Exhibit 10.23 to the Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1996).
10.10 Consulting Agreement between EMCO and Harold Rubenstein
dated April 11, 1996 (incorporated by reference to Exhibit
10.24 to the Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1996).
10.11 Employment Agreement dated August 26, 1996 between the
Registrant and Robert C. Larry (incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the period ended December 31, 1996.)
10.12 Employment Agreement dated January 1, 1997 by the Registrant
and Ian MacLeod.
10.13 Guaranty, dated as of January 7, 1997, by certain directors
of the Registrant to and for the benefit of LaSalle National
(re loan to Registrant, incorporated by reference to Exhibit
10.1 on the Registrant's 8-K dated January 7, 1997).
10.14 Guaranty, dated as of January 7, 1997, by certain directors
of the Registrant to and for the benefit of LaSalle National
(re loan to HouTex incorporated by reference to Exhibit 10.2
on the Registrant's 8-K dated January 7, 1997).
10.15 Loan Agreement, dated as of January 7, 1997, by and among
the Registrant, HouTex and LaSalle National (incorporated by
reference to Exhibit 10.3 on the Registrant's 8-K dated
January 7, 1997).
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10.16 Subordination Agreement, dated as of January 7, 1997, by and
between the Registrant and LaSalle National (incorporated by
reference to Exhibit 10.7 on the Registrant's 8-K dated
January 7, 1997).
10.17 Employment Agreement dated January 7, 1997 between the
Registrant and Mike Melnik.
10.18 Office Lease between Friedman Properties, Ltd., and the
Registrant (incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996).
10.19 Employment Agreement effective as of May 1, 1997, entered
into by and between Paul D. Joseph and Reserve Iron & Metal
Limited Partnership.
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse, L.L.P.
27.1 Financial Data Schedule.
</TABLE>
EX-3
<PAGE> 1
EXHIBIT 2.10
EXECUTION COPY
________________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
DATED MAY 16, 1997
AMONG
COZZI IRON & METAL, INC. AND ITS SHAREHOLDERS
METAL MANAGEMENT, INC.
AND
CIM ACQUISITION, CO.
________________________________________________________________________________
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TABLE OF CONTENTS
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ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Filing and Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Conversion Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Conversion of Merger Sub Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Exchange of Certificates; Payment of Merger Consideration . . . . . . . . . . . . . . . . . . . 3
1.7 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Estate of James H. Cozzi Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
REPRESENTATIONS AND WARRANTIESOF MTLM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 No Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 MTLM Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.10 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.12 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.14 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.15 Good Title to and Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.16 Labor and Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.17 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.18 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.19 SEC Filings; Accuracy of Information Furnished by MTLM . . . . . . . . . . . . . . . . . . . . . 10
2.20 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.21 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.22 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.23 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.24 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.25 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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2.26 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.27 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.28 Conduct of Business Since March 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MERGECO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.1 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.2 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.3 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.5 No Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.6 Mergeco Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.7 Business Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OFTHE SHAREHOLDERS AND THE COMPANY . . . . . . . . . . . . . . . . . . . 19
4.1 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.3 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5 Shareholders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.10 Changes Since the Current Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.11 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.14 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.15 Good Title to and Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.16 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.17 Labor and Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.18 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.19 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.21 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.22 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.23 Adequacy of the Assets; Relationships with Customers and Suppliers;
Affiliated Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.24 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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4.25 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.26 Customer Lists and Recurring Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.27 Accuracy of Information Furnished by the Shareholders . . . . . . . . . . . . . . . . . . . . . 37
4.28 Investment Intent; Accredited Investor Status; Securities Documents . . . . . . . . . . . . . . 37
4.29 Business Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.30 Names; Prior Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.31 No Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.32 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.33 Identification, Acquisition and Disposition of Material Assets. . . . . . . . . . . . . . . . . 38
4.34 Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.35 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.1 Conduct of Business of the Company Pending the Closing . . . . . . . . . . . . . . . . . . . . . 38
5.2 Conduct of Business of MTLM Pending the Closing . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.2 Compliance with Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.3 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.4 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.6 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.7 Confidentiality; Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.8 No Other Discussions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.9 Restrictive Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.10 Environmental Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.11 Trading in MTLM's Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.12 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.13 HSR Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.14 Corporate Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.15 Certification of Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.16 Purchase of Joint Venture Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.17 Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.18 Pre-Clear Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.19 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.20 Conduct of MTLM's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.21 Disclosure Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF MTLM AND MERGECO . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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7.1 Accuracy of Representations and Warranties and Compliance with
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.3 Corporate Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.4 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.6 No Adverse Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.7 MTLM's Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.8 Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.9 Other Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.10 Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.11 Cozzi Building Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.12 Estate of James H. Cozzi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.13 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.14 MetricMetal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.15 East Chicago Indiana Revenue Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 51
8.1 Accuracy of Representations and Warranties and Compliance with Obligations . . . . . . . . . . . 51
8.2 Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.3 No Adverse Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.5 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.7 Other Closing Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.8 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE IX
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.1 Agreement by the Shareholders to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.2 Agreement by MTLM to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.4 Security for the Shareholders's Indemnification Obligation . . . . . . . . . . . . . . . . . . . 56
9.5 The James H. Cozzi Estate Special Indemnification . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE X
SECURITIES LAW MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.1 Disposition of MTLM Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.2 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
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ARTICLE XI
<S> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE XIII
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
13.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
13.4 Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
13.5 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
13.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
13.7 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
13.8 Governing Law; Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
13.9 Arm's Length Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
v
<PAGE> 7
INDEX OF SCHEDULES
<TABLE>
<S> <C>
Schedule 2.1 Jurisdictions in which Qualified to do Business
Schedule 2.6 Capitalization of the Companies
Schedule 2.7 Violations; Conflicts; etc.
Schedule 2.8 Subsidiaries
Schedule 2.9 Financial Statements
Schedule 2.10 Liabilities
Schedule 2.11 Litigation
Schedule 2.12 Compliance with Laws
Schedule 2.14 Contracts
Schedule 2.15 Title to and Condition of Assets
Schedule 2.16 Labor and Employment Matters
Schedule 2.17 Tax Matters
Schedule 2.18 Receivables
Schedule 2.19 SEC Filings
Schedule 2.21 Restrictions
Schedule 2.24 Environmental Matters
Schedule 2.25 Employee Benefit Plans
Schedule 2.27(a) and (b) Real Estate
Schedule 2.28 Conduct of Business
Schedule 4.1 Jurisdictions in which Qualified to do Business
Schedule 4.4 Capitalization of the Companies
Schedule 4.5 Shareholders
Schedule 4.6 Violations; Conflicts; etc.
Schedule 4.8 Subsidiaries
Schedule 4.9 Financial Statements
Schedule 4.10 Changes since the Current Balance Sheet Date
Schedule 4.11 Liabilities
Schedule 4.12 Litigation
Schedule 4.13 Environmental Matters
Schedule 4.14(a) Owned Real Estate
Schedule 4.14(b) Leases
Schedule 4.15 Title to and Condition of Assets
Schedule 4.16 Compliance with Laws
Schedule 4.17 Labor and Employment Matters
Schedule 4.18 Employee Benefit Plans
Schedule 4.19 Tax Matters
Schedule 4.20 Insurance
Schedule 4.21 Receivables
Schedule 4.22 Permits
Schedule 4.23 Relationships with Customers and Suppliers
Schedule 4.25 Contracts
</TABLE>
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<PAGE> 8
Schedule 4.30 Names
Schedule 4.31 Commissions
Schedule 4.33(a) Asset Update Schedule
Schedule 4.33(b) Liability Update Schedule
Schedule 4.34 Restrictions
Schedule 5.1 Conduct of Business Pending Closing
Schedule 5.2 Conduct of MTLM Business Pending Closing
Schedule 11.1 List of SEC Filings
INDEX OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Stockholders Agreement
Exhibit C Form of Warrant
Exhibit D Form of Registration Rights Agreement
vii
<PAGE> 9
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT") is entered
into effective as of May 16, 1997, by and among Metal Management, Inc., a
Delaware corporation ("MTLM"); CIM Acquisition, Co., an Illinois
corporation, and a wholly owned subsidiary of MTLM ("MERGECO"); Cozzi Iron
& Metal, Inc., an Illinois corporation ("COZZI" or "COMPANY"); Albert A.
Cozzi, Frank J. Cozzi and Gregory P. Cozzi, being the sole shareholders of
the Company (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
the Company (the "COZZI SHARES");
B. MTLM desires to acquire all of the Cozzi Shares in
exchange for shares of common stock, $.01 par value per share, of MTLM
(the "MTLM SHARES") and a cash payment, upon the terms and subject to the
conditions set forth herein;
C. MTLM and the Company have agreed to accomplish this
transaction through a reverse triangular merger whereby Mergeco will merge
with and into Cozzi, and Cozzi will be the surviving corporation (the
"MERGER");
D. Each of the Boards of Directors of MTLM, the Company and
Mergeco have approved this Agreement, the Shareholders of the Company have
approved this Agreement and the Board of Directors of MTLM have directed
that this Agreement be submitted to its shareholders for approval; and
E. It is intended that the Merger qualify as a
reorganization within the meaning of the appropriate subsection of Section
368 of the Internal Revenue Code of 1986, as amended.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties,
covenants and agreements contained herein, the parties hereto agree as
follows:
<PAGE> 10
ARTICLE I
THE MERGER
1.1 MERGER. Upon and subject to the terms and conditions set
forth in this Agreement and in accordance with the Illinois Business
Corporation Act of 1983, as amended (the "BCA"), Mergeco shall be merged
with and into Cozzi. Following the Merger, Cozzi shall continue to exist
as the surviving corporation (sometimes referred to as the "SURVIVING
CORPORATION") and the separate corporate existence of Mergeco shall cease.
1.2 FILING AND EFFECTIVE TIME. At the Closing, Mergeco and
Cozzi shall file with the Secretary of State of the State of Illinois the
Articles of Merger, appropriately completed and executed in accordance
with Section 11.25 of the BCA. The Merger shall become effective upon
filing and the issuance of the certificate of merger, in accordance with
Section 11.40 of the BCA (the "EFFECTIVE TIME," and the date thereof
hereinafter referred to as the "EFFECTIVE DATE").
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in Section 11.50 of the BCA. In addition:
(a) The Articles of Incorporation of Cozzi as in
effect at the Effective Time shall be and constitute the Articles
of Incorporation of the Surviving Corporation until amended or
changed in accordance with applicable law;
(b) The bylaws of Cozzi as in effect at the
Effective Time shall be and constitute the bylaws of the
Surviving Corporation until amended or changed in accordance with
applicable law; and
(c) The officers and directors of the Surviving
Corporation shall be as follows:
Directors: T. Benjamin Jennings
Frank J. Cozzi
Gerard M. Jacobs
Albert A. Cozzi
Officers: Frank J. Cozzi - President
1.4 CONVERSION FORMULA. At the Effective Time, each Cozzi
Share, issued and outstanding at and as of the Effective Time, by virtue
of the Merger and without any further action on the part of the holder
thereof, shall be converted into 105,747 shares of MTLM Shares, and a
right to receive $55,172.41 per share payable upon the shareholder's
surrender of his stock certificate(s), subject to adjustment as provided
for in Section 1.8. None of the equity securities of the Company held in
the Company's treasury at the Effective Time shall be converted into MTLM
Shares and the
2
<PAGE> 11
right to receive a cash payment. At the Effective Time of the Merger,
all of such equity securities of the Company shall be canceled.
1.5 CONVERSION OF MERGER SUB SHARES. At and as of the
Effective Time, by virtue of the Merger and without any further action on
the part of MTLM, each share of no par value common stock of Mergeco
issued and outstanding to MTLM immediately prior to the Effective Time
shall by virtue of the Merger be converted into one share of common stock
of the Surviving Corporation.
1.6 EXCHANGE OF CERTIFICATES; PAYMENT OF MERGER
CONSIDERATION. At the closing, the Shareholders shall surrender to MTLM
their stock certificates representing their Cozzi Shares. Upon receipt of
the stock certificates, MTLM shall cancel such stock certificates and MTLM
shall promptly pay the cash portion of the Merger consideration and issue
a certificate representing the MTLM Shares into which such Cozzi Shares
previously represented by the surrendered certificate shall have been
converted at the Effective Time; provided, however, MTLM shall withhold
from each Shareholder his pro-rata portion of 1,150,000 MTLM Shares
(collectively, the "ESCROW SHARES") and shall deliver a certificate
representing the Escrow Shares to an escrow agent acceptable to MTLM and
the Shareholders (the "ESCROW AGENT"). The Escrow Agent shall hold the
Escrow Shares in escrow pursuant to an escrow agreement in the form
attached hereto as Exhibit A (the "ESCROW AGREEMENT"). Until so
surrendered, the certificates representing the Cozzi Shares shall, at and
after the Effective Time, be deemed for all purposes to represent and
evidence only the right to receive the per share consideration set forth
in Section 1.4, for each share represented by such certificates, and no
interest shall be paid or accrued on such amount and the holders of such
Cozzi stock certificates shall cease to have any rights as common
shareholders of the Company.
1.7 THE CLOSING. The Closing of the Merger (the "CLOSING")
shall take place as promptly as practicable (and in any event within five
business days) after satisfaction or waiver of the conditions set forth in
Articles VII and VIII (the "CLOSING DATE"), at the offices of MTLM's
counsel in Chicago, Illinois, or such other place as the parties may
otherwise agree.
1.8 ESTATE OF JAMES H. COZZI ADJUSTMENT. The consideration
set forth in Section 1.4 shall be decreased for any payments made by the
Company between the date hereof and the Closing Date or required to be
made by the Company or MTLM after the Closing Date of (i) "Additional
Consideration" due under that certain Sales Agreement dated June 25, 1996
by and between Irene Cozzi, as executor of the estate of James H. Cozzi,
and the Company (the "JAMES H. COZZI SALES AGREEMENT"), or (ii) any other
amounts payable pursuant to the James H. Cozzi Sales Agreement or any
other documents or instruments executed in connection therewith in excess
of the amount reflected on the Company's Current Balance Sheet. The
parties hereto shall make such appropriate adjustments to the cash and
non- cash portion of the Merger consideration that reasonably reflect the
amount and type of settlement paid to the estate of James H. Cozzi, as
mutually agreed to by the parties hereto.
3
<PAGE> 12
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF MTLM
As a material inducement to the Company and the Shareholders to
enter into this Agreement and to consummate the transactions contemplated
hereby, MTLM makes the following representations and warranties to the
Company and the Shareholders:
2.1 CORPORATE STATUS. MTLM is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. MTLM has the requisite power and authority to own or lease its
property and to carry on its business as now being conducted. MTLM 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 and is in good standing in each of
the jurisdictions in which it is so qualified, except where the failure to
so qualify would not have a Material Adverse Effect on MTLM. There is no
pending or threatened proceeding for the dissolution, liquidation,
insolvency or rehabilitation of MTLM. Each entity listed as a subsidiary
of MTLM on Schedule 2.8 hereto (each a "MTLM SUBSIDIARY" and collectively
the "MTLM SUBSIDIARIES") is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation. Each
MTLM Subsidiary has the requisite power and authority to own or lease its
property and to carry on its business as now being conducted. Each MTLM
Subsidiary 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 2.1) 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 MTLM Subsidiary. MTLM owns all of the issued and
outstanding capital stock of each MTLM Subsidiary.
2.2 CORPORATE POWER AND AUTHORITY. MTLM has the corporate
power and authority to execute and deliver this Agreement and to perform
its obligations hereunder and will have, at the time of Closing, the
corporate power and authority to consummate the transactions contemplated
hereby. MTLM has taken all action necessary by its board of directors to
authorize its execution and delivery of this Agreement and the performance
of its obligations hereunder and will have, at the time of Closing, taken
all actions necessary (including stockholder approval) to authorize the
consummation of the transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed
and delivered by MTLM and constitutes a legal, valid and binding
obligation of MTLM, enforceable against MTLM 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
<PAGE> 13
2.4 NO COMMISSIONS. Neither MTLM nor any MTLM Subsidiary has
incurred any obligation for any finder's or broker's or agent's fees or
commissions or similar compensation in connection with the transactions
contemplated hereby.
2.5 RECORDS. The copies of the respective articles of
incorporation and bylaws of MTLM which were provided to the Shareholders
are true, accurate and complete and reflect all amendments made through
the date of this Agreement. The minute books for MTLM provided to the
Shareholders for review were correct and complete as of the date of such
review, 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 MTLM taken by written consent or at a meeting since
incorporation. All material corporate actions taken by MTLM have been
duly authorized or ratified. All accounts, books, ledgers and official
and other records of MTLM 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 MTLM, as previously provided to the Shareholders, or as
reflected in Schedule 2.6, contain accurate and complete records of all
issuances, transfers and cancellations of shares of the capital stock of
MTLM.
2.6 CAPITALIZATION. Schedule 2.6 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 of each class of its
capital stock which are held in treasury. All of the issued and
outstanding shares of capital stock of MTLM and each MTLM Subsidiary (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 or any MTLM Subsidiary, and no such rights arise by virtue of or
in connection with the transactions contemplated hereby. Except as set
forth on Schedule 2.6, 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 or any MTLM Subsidiary 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 MTLM or any MTLM Subsidiary. Except as set forth on
Schedule 2.6, there are no proxies, voting rights or other agreements or
understandings with respect to the voting or transfer of the capital stock
of MTLM or any MTLM Subsidiary. Neither MTLM nor any MTLM Subsidiary is
obligated to redeem or otherwise acquire any of its outstanding shares of
capital stock.
2.7 NO VIOLATION. Except as set forth on Schedule 2.7 and
any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations promulgated
thereunder (the "HSR ACT"), the execution and delivery of this Agreement
by MTLM, the performance by it of its obligations hereunder and the
consummation of the transactions
5
<PAGE> 14
contemplated by this Agreement will not (i) contravene any provision of
the certificate of incorporation or bylaws of MTLM, (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 MTLM; (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 MTLM, (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 (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 the SEC or other filings required to be made by MTLM.
2.8 MTLM SUBSIDIARIES. Except as set forth on Schedule 2.8,
MTLM does not own, directly or indirectly, more than fifty percent (50%)
of any outstanding voting securities of or other interests in, or control,
any other corporation, partnership, joint venture or other business
entity. In addition, Schedule 2.8 lists every other business entity in
which MTLM or its MTLM Subsidiaries has any ownership interest. Except as
set forth on Schedule 2.8, MTLM does not have any liabilities or
obligations, whether accrued, absolute, contingent or otherwise, arising
from its interest in the entities set forth on such schedule.
2.9 FINANCIAL STATEMENTS. MTLM has delivered to the
Shareholders (i) the consolidated financial statements of MTLM as of
October 31, 1995 and 1994, including the notes thereto, audited by Price
Waterhouse L.L.P. and (ii) the March 31, 1997 unaudited consolidated
financial statements of MTLM (collectively, the "MTLM FINANCIAL
STATEMENTS"), copies of which are attached as Schedule 2.9 hereto. The
balance sheet dated as of March 31, 1997 included in the MTLM Financial
Statements is referred to herein as the "MTLM CURRENT BALANCE SHEET". The
MTLM Financial Statements fairly present the combined and consolidated
financial position of MTLM and the MTLM Subsidiaries at each of the
balance sheet dates and the results of operations for the periods covered
thereby, and have been prepared in accordance with GAAP consistently
applied throughout the periods indicated. The books and records of MTLM
and each MTLM Subsidiary fully and fairly reflect the transactions,
properties, assets and liabilities of MTLM and each MTLM Subsidiary.
Unless noted therein, there are no material special or non-recurring items
of income or expense during the periods covered by the MTLM Financial
Statements, and the balance sheets included in the MTLM Financial
Statements do not reflect any writeup or revaluation increasing the book
value of any assets, except as specifically disclosed in the notes thereto
or otherwise in accordance with GAAP. The MTLM Financial Statements
reflect all adjustments necessary for a fair presentation of the financial
information contained therein.
2.10 LIABILITIES. Except as set forth in the SEC Filings or
on Schedule 2.10, neither MTLM nor any MTLM Subsidiary has any liabilities
or obligations, whether accrued, absolute, contingent or otherwise, except
(i) to the extent reflected or taken into account in the MTLM Current
Balance Sheet (and the notes thereto) 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,
6
<PAGE> 15
(iii) liabilities incurred in the ordinary course of business consistent
with past practice since the date of the MTLM 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 MTLM Current Balance Sheet
which, in accordance with GAAP consistently applied, were not recorded
thereon. For purposes of this Agreement, the phrase "IN THE ORDINARY
COURSE OF BUSINESS" (or words having similar meaning) used in reference to
MTLM's business, shall be deemed to include all of MTLM's activities
relating to acquiring businesses in the scrap metal industry, and all
related financing or borrowing activities, including issuing additional
MTLM Shares, notes, debentures or other securities.
2.11 LITIGATION. Except as set forth on Schedule 2.11, there
is no action, suit, or other legal or administrative proceeding or
governmental investigation, pending or, to the best of MTLM's knowledge,
threatened, anticipated or contemplated against, by or affecting MTLM or
any MTLM Subsidiary or any of their properties or assets, or which
question the validity or enforceability of this Agreement or the
transactions contemplated hereby, and there is no basis for any of the
foregoing. There are no outstanding orders, decrees or stipulations
issued by any Governmental Authority in any proceeding to which MTLM or
any MTLM Subsidiary 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
MTLM Subsidiary.
2.12 COMPLIANCE WITH LAWS.
(a) Except as set forth in the SEC Filings, MTLM and
each MTLM Subsidiary is in material compliance with all laws, regulations
and orders applicable to it, its respective business and operations (as
currently conducted) and its properties and assets (in each case currently
owned or used by it). Except as set forth in the SEC Filings or on
Schedule 2.12, neither MTLM nor any MTLM Subsidiary has been cited, fined
or otherwise notified of any present material failure to comply with any
material laws, regulations or orders and no proceeding with respect to any
such material violation is pending or, to the best of MTLM's knowledge,
threatened.
(b) Neither MTLM nor any MTLM Subsidiary 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) MTLM and each MTLM Subsidiary is in material
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 MTLM for whom
compliance with the Immigration Act as employer is required, to the best
of MTLM's knowledge, MTLM and each MTLM Subsidiary 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
7
<PAGE> 16
or other papers prepared, procured and/or retained by MTLM and each MTLM
Subsidiary pursuant to the Immigration Act. Neither MTLM nor any MTLM
Subsidiary 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 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 in the SEC Filings or
on Schedule 2.12, neither MTLM nor any MTLM Subsidiary 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.
2.13 PERMITS. MTLM and each MTLM Subsidiary possess all
material licenses and required governmental or official approvals, permits
or authorizations (collectively, the "PERMITS") for its business and
operations, including the operation of its properties (whether owned or
leased). All such Permits are valid and in full force and effect, MTLM
and each MTLM Subsidiary is in material compliance with the requirements
thereof, and no proceeding is pending or threatened to revoke or amend any
of them. None of such Permits is or will be impaired or in any way
affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.14 CONTRACTS. The SEC Filings set forth a list of each
Contract which is required to be disclosed pursuant to Item 601(b)(10) of
Regulation S-K (the "DISCLOSED CONTRACTS"), true and correct copies of
which have been provided to the Company. Except as set forth in the SEC
Filings or on Schedule 2.14 no event has occurred which constitutes, or
after notice or the passage of time, or both, would constitute, a material
default by MTLM or any MTLM Subsidiary under any Disclosed Contract, and
no such event has occurred which constitutes or would constitute a
material default by any other party. Neither MTLM nor any MTLM Subsidiary
is subject to any material liability or payment resulting from
renegotiation of amounts paid it under any Disclosed Contract.
2.15 GOOD TITLE TO AND CONDITION OF ASSETS.
(a) Except as set forth on Schedule 2.15, MTLM and
each MTLM Subsidiary has good and marketable title to all of its
respective MTLM Assets (as hereinafter defined), free and clear of any
Liens or restrictions on use. For purposes of this Agreement, the term
"MTLM ASSETS" means all of the properties and assets of MTLM and its MTLM
Subsidiaries, other than owned real property and leased real property,
whether personal or mixed, tangible or intangible, wherever located.
(b) To the best of MTLM's knowledge, the MTLM Fixed
Assets (as hereinafter defined) currently in use or necessary for the
business and operations of MTLM and its MTLM Subsidiaries 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 "MTLM FIXED ASSETS" means all vehicles,
machinery, equipment, tools, supplies, leasehold
8
<PAGE> 17
improvements, furniture and fixtures used by or located on the premises of
MTLM or any MTLM Subsidiary or set forth on the MTLM Current Balance Sheet
or acquired by MTLM or any MTLM Subsidiary since the date of the MTLM
Current Balance Sheet.
2.16 LABOR AND EMPLOYMENT MATTERS. Except as set forth on
Schedule 2.16, neither MTLM nor any MTLM Subsidiary 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 MTLM or any
MTLM Subsidiary into one or more collective bargaining units. There is no
pending, or to the best of MTLM's knowledge, threatened labor dispute,
strike or work stoppage which affects or which may affect the business of
MTLM or any MTLM Subsidiary which may interfere with its continued
operations. Neither MTLM nor any MTLM Subsidiary 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, to the best
of MTLM's knowledge, threatened charge or complaint against MTLM or any
MTLM Subsidiary by or with the National Labor Relations Board or any
representative thereof. There has been no strike, walkout or work
stoppage involving any of the employees of MTLM or any MTLM Subsidiary
during the 24 months prior to the date hereof. MTLM is not aware that any
executive or key employee or group of employees has any plans to terminate
his, her or their employment with MTLM or any MTLM Subsidiary as a result
of this Agreement or otherwise; provided, that there may be transitioning
of responsibilities as a result of Albert A. Cozzi assuming the position
of Chief Operating Officer of MTLM. MTLM and each MTLM Subsidiary has
complied in all material respects 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.
2.17 TAX MATTERS. Except as set forth in Schedule 2.17
hereto, all Tax Returns required to be filed prior to the date hereof with
respect to MTLM, the MTLM Subsidiaries or any of their income, properties,
franchises or operations have been filed, each such Tax Return has been
prepared in 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 MTLM and the MTLM
Subsidiaries have been paid or accrued on the MTLM Current Balance Sheet
or will be accrued on its books and records as of the Closing. Except as
set forth in Schedule 2.17 hereto: (i) with respect to each taxable
period of MTLM and each MTLM Subsidiary after January 1, 1992, 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) neither MTLM nor any MTLM Subsidiary has consented
to extend the time in which any Taxes may be assessed or collected by any
taxing authority; (iv) neither MTLM nor any MTLM Subsidiary has requested
or been granted an extension of the time for filing any Tax Return to a
date later than the Closing Date; (v) there is no action, suit, taxing
authority proceeding, or audit or claim for refund now in progress,
pending or threatened against or with respect to MTLM or any MTLM
Subsidiary regarding Taxes; (vi) neither MTLM nor any MTLM Subsidiary has
made an election or filed a consent under Section 341(f) of the Internal
Revenue Code of 1986, as amended (the "CODE") (or any corresponding
provision of state, local or
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foreign law) on or prior to the Closing Date; (vii) there are no Liens for
Taxes (other than for current Taxes not yet due and payable) upon the
assets of MTLM or any MTLM Subsidiary; (viii) neither MTLM nor any MTLM
Subsidiary will be required (A) as a result of a change in method of
accounting for a taxable period ending on or prior to the Closing Date, to
include any adjustment under Section 481(c) of the Code (or any
corresponding provision of state, local or foreign law) in taxable income
for any taxable period (or portion thereof) beginning after the Closing
Date 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
Closing Date; (ix) neither MTLM nor any MTLM Subsidiary 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) there is no basis for any assessment, deficiency
notice, 30-day letter or similar notice with respect to any Tax to be
issued to MTLM or any MTLM Subsidiary with respect to any period on or
before the Closing Date; (xi) neither MTLM nor any MTLM Subsidiary has
made any payments, and is or will not become obligated (under any contract
entered into on or before the Closing Date) to make any payments, that
will be non-deductible under Section 280G of the Code (or any
corresponding provision of state, local or foreign law); (xii) neither
MTLM nor any MTLM Subsidiary 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
MTLM or a MTLM Subsidiary, as the case may be, does not file Tax Returns
that is or may be subject to Taxes assessed by such jurisdiction; (xiv)
MTLM and the MTLM Subsidiaries do not have any permanent establishment in
any foreign country, as defined in the relevant tax treaty between the
United States of America and such foreign country; (xv) true, correct and
complete copies of all income and sales Tax Returns filed by or with
respect to MTLM and the MTLM Subsidiaries for the past two years have been
furnished or made available to the Shareholders; and (xvi) MTLM and the
MTLM Subsidiaries will not be subject to any Taxes pursuant to Section
1374 or Section 1375 of the Code (or any corresponding provision of state,
local or foreign law) for the period ending at the Closing Date for any
period for which a Tax Return has not been filed.
2.18 RECEIVABLES. All of the MTLM Receivables (as hereinafter
defined) are valid and legally binding, represent bona fide transactions
and arose in the ordinary course of business of MTLM and the MTLM
Subsidiaries. Except as set forth on Schedule 2.18, all of the MTLM
Receivables are good and collectible receivables, and will be collected in
full in accordance with the terms of such receivables (and in any event
within six months following the Closing), without set off or
counterclaims, subject to the allowance for doubtful accounts, if any, set
forth on the MTLM Current Balance Sheet as reasonably adjusted since the
date of the MTLM Current Balance Sheet in the ordinary course of business
consistent with past practice. For purposes of this Agreement, the term
"MTLM RECEIVABLES" means all receivables of MTLM and the MTLM
Subsidiaries, including all trade account receivables arising from the
provision of services or sale of inventory but excluding notes receivable,
and insurance proceeds receivable.
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2.19 SEC FILINGS; ACCURACY OF INFORMATION FURNISHED BY MTLM.
Except as set forth on Schedule 2.19, MTLM has made all filings required
to be made by it with the SEC. No representation, statement or
information made or furnished by MTLM to the Shareholders or any of the
Shareholders' representatives, including those contained in this
Agreement, and the various Schedules attached hereto and the other
information and statements referred to herein and previously furnished by
MTLM and the MTLM Subsidiaries or made in the SEC Filings, 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 in light of the circumstances in which they were made.
MTLM has provided the Shareholders with true, accurate and complete copies
of all documents listed or described in the SEC Filings or on the various
Schedules attached hereto.
2.20 INVENTORY. All MTLM 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, in
the aggregate, of a quality, quantity, and condition useable or saleable
in the ordinary course of business within MTLM and the MTLM Subsidiaries'
normal inventory turnover experience; and (iii) are valued at the lower of
cost or net realizable market value. Neither MTLM nor any MTLM Subsidiary
has any material liability with respect to the return or repurchase of any
goods in the possession of any customer.
2.21 RESTRICTIONS. Schedule 2.21 sets forth a list of all
non-competition, non-solicitation, confidentiality and other restrictive
covenants to which MTLM and/or any MTLM Subsidiary is a party or otherwise
bound. Except as set forth on Schedule 2.21, there are no contracts or
other conditions, circumstances, events or agreements which would in any
way limit or restrict the rights of MTLM, MTLM's Affiliates, or the MTLM
Subsidiaries from engaging in any business anywhere in the world.
2.22 FULL DISCLOSURE. No statement by MTLM contained in this
Article II, the SEC Filings and the Schedules hereto or any written
statement or certificate furnished to the Shareholders as of its
respective date contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements
contained herein or therein not materially and adversely misleading in
light of the circumstances under which they were made.
2.23 NO MATERIAL ADVERSE CHANGE. Since March 31, 1997, there
has been no Material Adverse Change in the assets, liabilities, business
or financial condition of MTLM or a Material Adverse Effect on the ability
of MTLM to consummate the transactions contemplated hereby. For purposes
of this Section 2.23 and Section 8.8, a "MATERIAL ADVERSE CHANGE" or a
"MATERIAL ADVERSE EFFECT" shall not include (i) the acquisition of or
agreement to acquire any companies or the assets of any companies; (ii)
the termination of any agreement to acquire or the unwind or sale of any
companies or the assets of any companies; (iii) the employment of any
executive officers; (iv) the placement of, or entering into or termination
of any agreement to place, any debt or equity securities of MTLM; (v) any
change in the trading price of the MTLM Shares; or (vi) any change in the
Board of Directors of MTLM.
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<PAGE> 20
2.24 ENVIRONMENTAL MATTERS. Except as set forth on Schedule
2.24:
(a) To the best of MTLM's knowledge, MTLM and each
MTLM Subsidiary is in material compliance with all Environmental, Health
and Safety Laws (as defined herein) governing its business, operations,
properties and assets. Neither MTLM nor any MTLM Subsidiary is currently
liable for any penalties, fines or forfeitures for failure to comply with
any Environmental, Health and Safety Laws.
(b) MTLM and each MTLM Subsidiary has obtained, or
caused to be obtained, and to the best of the MTLM's knowledge, is in
material compliance with, all applicable and material licenses,
certificates, permits, approvals and registrations required by the
Environmental, Health and Safety Laws (collectively "LICENSES"). Copies
of such Licenses have been made available to the Shareholders. There are
no administrative or judicial investigations, notices, claims or other
proceedings pending or threatened by any Governmental Authority or third
parties against MTLM or any MTLM Subsidiary, their respective businesses,
operations, properties, or assets, which question the validity or
entitlement of MTLM or any MTLM Subsidiary to any License wherein an
unfavorable decision, ruling or finding could have a Material Adverse
Effect on MTLM or any MTLM Subsidiary.
(c) Neither MTLM nor any MTLM Subsidiary 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 threatened against or
involving MTLM or any MTLM Subsidiary, issued by any Governmental
Authority or third party with respect to any Environmental, Health and
Safety Laws, which has not been resolved to the satisfaction of the
issuing Governmental Authority or third party and which could have a
Material Adverse Effect on MTLM or any MTLM Subsidiary.
(d) To the best of the MTLM's knowledge, neither
MTLM nor any MTLM Subsidiary has generated, manufactured, used,
transported, transferred, stored, handled, treated, Discharged, Released
or disposed of, nor has it allowed or arranged for any third parties to
generate, manufacture, use, transport, transfer, store, handle, treat,
Discharge, Release or dispose of, Hazardous Substances or other Waste (as
defined herein) to or at any location other than a site lawfully permitted
to receive such Hazardous Substances or other waste for such purposes, nor
has it performed, arranged for or allowed by any method or procedure such
generation, manufacture, use, transportation, transfer, storage,
treatment, spillage, leakage, dumping, Discharge, Release or disposal in
material contravention of any Environmental, Health and Safety Laws. To
the best of the MTLM's knowledge, neither MTLM nor any MTLM Subsidiary has
generated, manufactured, used, stored, handled, treated, Discharged,
Released or disposed of, or allowed or arranged for any third parties to
generate, manufacture, use, store, handle, treat, spill, leak, dump,
discharge, release or dispose of, any material quantities of Hazardous
Substances or other waste upon property currently or previously owned or
leased by it, except as permitted by law. For purposes of this Agreement,
the term "HAZARDOUS SUBSTANCES" means 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,
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<PAGE> 21
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 or become regulated, listed or controlled by, under or
pursuant to any Environmental Health and Safety Laws. For purposes of
this Agreement, the term "WASTE" means 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.
(e) To the best of MTLM's knowledge, neither MTLM
nor any MTLM Subsidiary 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 MTLM Owned Properties or
the MTLM Leased Premises or to any properties adjacent thereto which would
have a Material Adverse Effect on MTLM or the MTLM Subsidiaries. To the
best of MTLM's knowledge, there has not occurred, nor is there presently
occurring, a Release or Discharge, or, threatened Release or Discharge, of
any material quantity of Hazardous Substances on, into or beneath the
surface of any parcel of the MTLM Owned Properties or the MTLM Leased
Premises or to any properties adjacent thereto which would have a Material
Adverse Effect on MTLM or the MTLM Subsidiaries. For purposes of this
Agreement, the terms "RELEASE" and "DISCHARGE" shall have the meanings
given them in the Environmental, Health and Safety Laws.
(f) To the best of MTLM's knowledge, neither MTLM
nor any MTLM Subsidiary 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 Substances or other Waste
to or at a site which, pursuant to CERCLA or any similar state law has
been placed or been proposed for placement on the National Priorities List
or its state equivalent. Neither MTLM nor any MTLM Subsidiary has
received notice, and neither MTLM nor any MTLM Subsidiary has knowledge of
any facts which could give rise to any notice, that MTLM or any MTLM
Subsidiary is a potentially responsible party for a federal or state
environmental cleanup site or for corrective action under Environmental
Health and Safety Laws. Neither MTLM nor any MTLM Subsidiary has
submitted or was required to submit any notice pursuant to Section 103(c)
of CERCLA with respect to the MTLM Leased Premises or the MTLM Owned
Properties. Neither MTLM nor any MTLM Subsidiary 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 MTLM or any MTLM Subsidiary has transported, transferred
or disposed of other Wastes. Neither MTLM nor any MTLM Subsidiary has
been required to or has 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. To the best of
MTLM's knowledge, neither MTLM nor any MTLM Subsidiary has any material
liability under any Environmental, Health and Safety Laws for personal
injury, property damage, natural resource damage, or clean up obligations.
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(g) To the best of MTLM's knowledge, there are no
Aboveground Storage Tanks or Underground Storage Tanks on the MTLM Owned
Properties or the MTLM Leased Premises. For purposes of this Agreement,
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.
(h) Schedule 2.24 identifies (i) all material
environmental audits, assessments or occupational health studies, of which
MTLM is aware, undertaken by MTLM, the MTLM Subsidiaries or their agents,
or by any Governmental Authority, or by any third party, relating to or
affecting MTLM, the MTLM Subsidiaries or any of the MTLM Leased Premises
or the MTLM Owned Properties; and (ii) all material citations issued under
OSHA, or similar state or local statutes, laws, ordinances, codes, rules,
regulations, orders, rulings, or decrees, relating to or affecting MTLM or
any MTLM Subsidiary or any of the MTLM Leased Premises or the MTLM Owned
Properties.
(i) Schedule 2.24 contains a list of the assets of
MTLM and the MTLM Subsidiaries which have been confirmed to contain
"ASBESTOS" or "ASBESTOS-CONTAINING MATERIAL" (as such terms are identified
under the Environmental, Health and Safety Laws). MTLM and each of the
MTLM Subsidiaries has operated and continues to operate in material
compliance with all Environmental, Health and Safety Laws governing the
handling, use and exposure to and disposal of asbestos or
asbestos-containing materials. There are no claims, actions, suits,
governmental investigations or proceedings before any Governmental
Authority or third party pending, or threatened against or directly
affecting MTLM, the MTLM Subsidiaries, 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.
(j) As used in this Agreement, "ENVIRONMENTAL,
HEALTH AND SAFETY LAWS" means all federal, state, regional or local
statutes, laws, rules, regulations, codes, orders, plans, injunctions,
decrees, rulings, and changes or ordinances or judicial or administrative
interpretations thereof, any of which govern (or purport to govern) or
relate to pollution, protection of the environment, public health and
safety, air emissions, water discharges, hazardous or toxic substances,
solid or hazardous waste or occupational health and safety, as any of
these terms are or may be defined in such statutes, laws, rules,
regulations, codes, orders, plans, injunctions, decrees, rulings and
changes or ordinances, or judicial or administrative interpretations
thereof, including, without limitation, 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
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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 or shall be
determined or interpreted at any time by any Governmental Authority to be
a hazardous or toxic substance regulated under any other statute, law,
regulation, order, code, rule, order, or decree.
(k) Schedule 2.24 identifies the operations and
activities, and locations thereof, which have been conducted and are being
conducted by MTLM or any MTLM Subsidiary on any of the MTLM Owned
Properties or the MTLM 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.
(l) To the best of MTLM's knowledge, none of the
MTLM Owned Properties or MTLM Leased Premises presently includes, or has
been constructed upon, any "WETLANDS" as defined under applicable
Environmental, Health and Safety Laws.
(m) As used in this Section 2.24, the term "MTLM"
is deemed to refer to MTLM or any of the MTLM Subsidiaries.
(n) As used in Section 2.24, the terms "MTLM OWNED
PROPERTIES" and "MTLM LEASED PREMISES" are deemed to refer only to the
properties currently owned or leased by MTLM.
2.25 EMPLOYEE BENEFIT PLANS.
(a) Compliance with Law. With respect to each MTLM
Employee Benefit Plan (as defined below) (i) each has been administered in
all material respects in compliance with its terms and with all applicable
laws, including, but not limited to, the Employee Retirement Income and
Security Act of 1974, as amended ("ERISA") and the Code; (ii) no actions,
suits, claims or disputes are pending or, to the best of MTLM's knowledge,
threatened; (iii) no audits, inquiries, reviews, proceedings, claims, or
demands are pending with any governmental or regulatory agency; (iv) there
are no facts which could give rise to any material liability in the event
of any such investigation, claim, action, suit, audit, review, or other
proceeding; (v) all material reports, returns, and similar documents
required to be filed with any governmental agency or distributed to any
plan participant have been duly or timely filed or distributed; and (vi)
no "PROHIBITED TRANSACTION" which could give rise to any material
liability of MTLM or any MTLM Subsidiary has occurred within the meaning
of the applicable provisions of ERISA or the Code. As used in this
Section 2.25, MTLM Employee Benefit Plan means any employee benefit plan
or arrangement of MTLM and each MTLM Subsidiary, including but not limited
to employee pension benefit plans, as defined in Section 3(2) of 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,
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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 MTLM or any MTLM Subsidiary participate.
(b) Multiemployer Plans. With respect to any
multiemployer plan, as described in Section 4001(a)(3) of ERISA ("MPPA
PLAN") (i) all contributions required to be made with respect to employees
of MTLM or any MTLM Subsidiary have been timely paid; (ii) neither MTLM
nor any MTLM Subsidiary has incurred or is expected to incur, directly or
indirectly, any withdrawal liability under ERISA with respect to any such
plan (whether by reason of the transactions contemplated by the Agreement
or otherwise); (iii) Schedule 2.25 sets forth (A) the withdrawal liability
under ERISA to each MPPA Plan, (B) the date as of which such amount was
calculated, and (C) the method for determining the withdrawal liability;
and (iv) no such plan is (or is expected to be) insolvent or in
reorganization and no accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists or is expected to exist with respect to any such plan.
(c) Welfare Plans. Other than as disclosed in
Schedule 2.25, (i) neither MTLM nor any MTLM Subsidiary is obligated under
any employee welfare benefit plan as described in Section 3(1) of ERISA
("WELFARE PLAN"), whether or not disclosed in Schedule 2.25, to provide
medical or death benefits with respect to any employee or former employee
of MTLM, any MTLM Subsidiary or their predecessors after termination of
employment, other than as required by Section 4980B of the Code; (ii) MTLM
and each MTLM Subsidiary have complied in all material respects with the
notice and continuation coverage requirements of Section 4980B of the Code
and the regulations thereunder with respect to each Welfare Plan that is,
or was during any taxable year for which the statute of limitations on the
assessment of federal income taxes remains, open, by consent or otherwise,
a group health plan within the meaning of Section 5000(b)(1) of the Code,
and (iii) there are no reserves, assets, surplus or prepaid premiums under
any Welfare Plan which is an Employee Benefit Plan. The consummation of
the transactions contemplated by this Agreement will not entitle any
individual to severance pay, and, will not accelerate the time of payment
or vesting, or increase the amount of compensation, due to any individual.
2.26 INSURANCE. MTLM and each MTLM Subsidiary 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 "MTLM INSURANCE POLICIES"), provided,
however, MTLM and the MTLM Subsidiaries generally do not insure their
machinery and equipment except as MTLM or the MTLM Subsidiaries may be
required to insure such assets by third party lenders or lessors. Such
MTLM Insurance Policies are in full force and effect, and all premiums due
thereon have been paid. As of the Closing Date each of the MTLM Insurance
Policies will be in full force and effect. None of the MTLM Insurance
Policies will lapse or terminate as a result of the transactions
contemplated by this Agreement. MTLM and each MTLM Subsidiary has complied
with the provisions of such MTLM Insurance Policies. Schedule 2.26
contains (i) a complete and correct list of all MTLM Insurance Policies
and all
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amendments and riders thereto (copies of which have been provided to the
Shareholders) and (ii) a detailed description of each pending claim under
any of the MTLM Insurance Policies for an amount in excess of $50,000 that
relates to loss or damage to the properties, assets or businesses of MTLM
or any MTLM Subsidiary. Neither MTLM nor any MTLM Subsidiary has failed to
give, in a timely manner, any notice required under any of the MTLM
Insurance Policies to preserve its rights thereunder.
2.27 REAL ESTATE. Attached hereto as Schedule 2.27(a) are
true and correct copies of all schedules listing each parcel of real
property owned (the "MTLM OWNED PROPERTIES") or leased (the "MTLM LEASED
PROPERTIES") by MTLM or the MTLM Subsidiaries that were given to MTLM in
connection with MTLM's acquisition of (i) HouTex; (ii) MacLeod; (iii)
Reserve; and (iv) EMCO, together with the corresponding representations
and warranties contained in the respective purchase agreements. Other
than (i) the properties listed in such schedules, (ii) MTLM principal
office located at 500 N. Dearborn Street, and (iii) the properties listed
on Schedule 2.27(b), MTLM and the MTLM Subsidiaries do not own or lease
any parcel of property. To the best of MTLM's knowledge, nothing has
occurred since the respective closing dates of the acquisitions of (i)
HouTex (ii) MacLeod (iii) Reserve and (iv) EMCO to cause the
representations and warranties contained in the respective purchase
agreements to become inaccurate in any material respects.
2.28 CONDUCT OF BUSINESS SINCE MARCH 31, 1997. Except as set
forth on Schedule 2.28, MTLM between March 31, 1997 and the date of this
Agreement has conducted the businesses of MTLM and each MTLM Subsidiary
only in the ordinary course of business, consistent with past practice.
By way of amplification and not limitation, except as set forth on
Schedule 2.28, the SEC Filings, or as otherwise contemplated by this
Agreement neither MTLM nor any MTLM Subsidiary has directly or indirectly,
done or agreed to do any of the following:
(a) amended or otherwise changed its charter or
bylaws;
(b) issued, sold, pledged, disposed of, granted,
encumbered, or authorized the issuance, sale, pledge, disposition, grant
or encumbrance of (i) with respect to MTLM or any MTLM Subsidiary, 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) increased the compensation payable or to become
payable to its respective officers or directors, or, except as presently
bound to do, granted any severance or termination pay to, or entered into
any employment or severance agreement with, any of its respective
directors or officers, or established, adopted, entered into or amended or
took 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;
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(d) taken 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; or
(e) (i) acquired (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 of any assets, or made 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) incurred any indebtedness for borrowed money or issued
any debt securities or assumed, guaranteed or endorsed or otherwise as an
accommodation became responsible for, the obligations of any Person, or
made any loans or advances, or (iii) entered into any Contract other than
in the ordinary course of business, consistent with past practice.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF MERGECO
As a material inducement to the Company and the Shareholders to
enter into this Agreement and to consummate the transactions contemplated
hereby, MTLM and Mergeco jointly and severally make the following
representations and warranties to the Company and the Shareholders:
3.1 CORPORATE STATUS. Mergeco is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Illinois.
3.2 CORPORATE POWER AND AUTHORITY. Mergeco has the corporate
power and authority to execute and deliver this Agreement and to perform
its obligations hereunder and will have, at the time of Closing, the
corporate power and authority to consummate the transactions contemplated
hereby. Mergeco has taken all action necessary to authorize its execution
and delivery of this Agreement and the performance of its obligations
hereunder and will have, at the time of Closing, taken all actions
necessary to authorize the consummation of the transactions contemplated
hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed
and delivered by Mergeco and constitutes a legal, valid and binding
obligation of Mergeco, enforceable against Mergeco 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 VIOLATION. Except for any applicable requirements of
the HSR Act, the execution and delivery of this Agreement by Mergeco, the
performance by it of its obligations hereunder and
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the consummation by it of the transactions contemplated by this Agreement
will not (i) contravene any provision of the articles of incorporation or
bylaws of Mergeco, (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 Mergeco, (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 Mergeco, (iv) result in or require
the creation or imposition of any Lien upon or with respect to any of the
property or assets of Mergeco, 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
the Secretary of State of the State of Illinois, or the SEC or other
filings required to be made by MTLM.
3.5 NO COMMISSIONS. Mergeco has incurred no obligation for
any finder's or broker's or agent's fees or commissions or similar
compensation in connection with the transactions contemplated hereby.
3.6 MERGECO CAPITALIZATION. Mergeco's authorized capital
stock consists of one thousand (1000) shares of common stock, no par
value, of which one hundred (100) shares are issued and outstanding all of
which are validly issued, fully paid and non-assessable. Except for this
Agreement, there are no options, warrants, preemptive rights, conversion
privileges or other contracts which give any Person the right to acquire
any capital stock of Mergeco or any interest therein. MTLM is the
beneficial and record owner of all of the outstanding shares of common
stock of Mergeco, free and clear of all Liens.
3.7 BUSINESS ACTIVITY. Mergeco has not engaged in any
business activity of any nature prior to the date of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS AND THE COMPANY
As a material inducement to MTLM to enter into this Agreement and
to consummate the transactions contemplated hereby, the Shareholders and
the Company hereby jointly and severally make the following
representations and warranties to MTLM:
4.1 CORPORATE STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Illinois. The Company has the requisite power and authority to
own or lease its property and to carry on its business as now being
conducted. The 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
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jurisdictions are listed on Schedule 4.1) and is in good standing in each
of the jurisdictions in which it is so qualified, except where the failure
to so qualify would not have a Material Adverse Effect on the Company.
There is no pending or threatened proceeding for the dissolution,
liquidation, insolvency or rehabilitation of the Company. Each entity
listed as a subsidiary of the Company on Schedule 4.8 hereto (each a
"SUBSIDIARY" and collectively the "SUBSIDIARIES") is a corporation duly
organized, validly existing and in good standing under the laws of its
state of incorporation. Each Subsidiary has the requisite power and
authority to own or lease its property and to carry on its business as now
being conducted. Each Subsidiary 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 Subsidiary. Except as set forth on
Schedule 4.8, the Company owns all of the issued and outstanding capital
stock of each Subsidiary.
4.2 POWER AND AUTHORITY. The Company has the power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated
hereby. The 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. Each of the Shareholders is a resident of the State
of Illinois and has the requisite competence to execute and deliver this
Agreement and to perform his obligations hereunder and to consummate the
transactions contemplated hereby.
4.3 ENFORCEABILITY. This Agreement has been duly executed
and delivered by the Company and each of the Shareholders and constitutes
the legal, valid and binding obligation of each of them, enforceable
against them in accordance with its terms, except as the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally
and general equitable principles regardless of whether such enforceability
is considered in a proceeding at law or in equity.
4.4 CAPITALIZATION. Schedule 4.4 sets forth, with respect to
the Company and each Subsidiary, (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 the Company and each
Subsidiary (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 the Company or any Subsidiary, 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 the Company or any Subsidiary to issue or sell any
shares of its capital stock (or securities convertible into or
exchangeable for shares of its capital stock).
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Except as set forth on Schedule 4.4, there are no outstanding stock
appreciation, phantom stock, profit participation or other similar rights
with respect to the Company or any Subsidiary. Other than pursuant to the
James H. Cozzi Sales Agreement, there are no proxies, voting rights or
other agreements or understandings with respect to the voting or transfer
of the capital stock of the Company or any Subsidiary. Neither the
Company nor any Subsidiary is obligated to redeem or otherwise acquire any
of its outstanding shares of capital stock.
4.5 SHAREHOLDERS OF THE COMPANY. Schedule 4.5 sets forth,
with respect to the 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 Company, and the Shareholders own such shares as set
forth 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.
4.6 NO VIOLATION. Except as set forth on Schedule 4.6 and
any applicable requirements of the HSR Act, the execution and delivery of
this Agreement by the Company 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 the 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 the 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 the 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 the Company,
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 the Secretary of State of the State
of Illinois.
4.7 RECORDS. The copies of the respective articles of
incorporation and bylaws of the Company which were provided to MTLM are
true, accurate and complete and reflect all amendments made through the
date of this Agreement. The minute books for the Company provided to MTLM
for review were correct and complete as of the date of such review, 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 the Company taken by written consent or at a meeting since
incorporation. All material corporate actions taken by the
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Company have been duly authorized or ratified. All accounts, books,
ledgers and official and other records of the 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 the Company, as previously provided to
MTLM, contain accurate and complete records of all issuances, transfers
and cancellations of shares of the capital stock of the Company.
4.8 SUBSIDIARIES. Except as set forth on Schedule 4.8, the
Company does not own, directly or indirectly, more than fifty percent
(50%) of any outstanding voting securities of or other interests in, or
control, any other corporation, partnership, joint venture or other
business entity. In addition, Schedule 4.8 lists every other business
entity in which the Company or its Subsidiaries has any ownership
interest. Except as set forth on Schedule 4.8, the Company does not have
any liabilities or obligations, whether accrued, absolute, contingent or
otherwise, arising from its interest in the entities set forth on such
schedule.
4.9 FINANCIAL STATEMENTS. The Shareholders have delivered to
MTLM (i) the consolidated financial statements of the Company as of
December 31, 1996 and 1995, including the notes thereto, audited by
Deloitte & Touche LLP and (ii) the March 31, 1997 unaudited consolidated
financial statements of the Company (collectively, the "FINANCIAL
STATEMENTS"), copies of which are attached as Schedule 4.9 hereto. The
balance sheet dated as of March 31, 1997 included in the Financial
Statements is referred to herein as the "CURRENT BALANCE SHEET". The
Financial Statements fairly present the combined and consolidated
financial position of the Company and the Subsidiaries at each of the
balance sheet dates and the results of operations for the periods covered
thereby, and have been prepared in accordance with GAAP consistently
applied throughout the periods indicated; provided, however, the parties
hereto acknowledge that the March 31, 1997 consolidated financial
statements omit footnotes. The books and records of the Company and each
Subsidiary fully and fairly reflect the transactions, properties, assets
and liabilities of the Company and each Subsidiary. Unless noted therein,
there are no material special or non-recurring items of income or expense
during the periods covered by the Financial Statements, and the balance
sheets included in the Financial Statements do not reflect any writeup or
revaluation increasing the book value of any assets, except as
specifically disclosed in the notes thereto or otherwise in accordance
with GAAP. 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,
neither the Company nor any Subsidiary 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 $100,000 in the aggregate out of the ordinary
course of business, except for this Agreement and the transactions
contemplated hereby; (viii) suffered any theft, damage, destruction or
casualty loss, not covered by insurance and for which a timely claim was
filed, in excess of $100,000 in the aggregate; (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
$100,000 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
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into any transaction with any Affiliate other than intercompany
transactions in the ordinary course of business consistent with past
practice; (xiv) entered into any employment agreement; (xv) terminated,
amended or modified any agreement involving an amount in excess of
$100,000; (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 account payable which is due and
payable except to the extent being contested in good faith and 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) entered into any other transaction or
been subject to any event which has or may have a Material Adverse Effect
on the Company or any Subsidiary; or (xx) agreed to do or authorized any
of the foregoing.
4.11 LIABILITIES. Except as set forth on Schedule 4.11,
neither the Company nor any Subsidiary 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
Balance Sheet which, in accordance with GAAP consistently applied, were
not recorded thereon. The consolidated net worth of the Company and its
Subsidiaries will be no less than $7.5 million as of the Closing Date.
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 best of the Shareholders'
knowledge, threatened, anticipated or contemplated against, by or
affecting the Company or any Subsidiary or any of their properties or
assets, or the Shareholders, or which question the validity or
enforceability of this Agreement or the transactions contemplated hereby,
and there is no basis for any of the foregoing. There are no outstanding
orders, decrees or stipulations issued by any Governmental Authority in
any proceeding to which the Company or any Subsidiary is or was a party
which have not been complied with in full or which continue to impose any
material obligations on the Company or any Subsidiary.
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4.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule
4.13:
(a) To the best of the Shareholders' knowledge, the
Company and each Subsidiary is in material compliance with all
Environmental, Health and Safety Laws (as defined herein) governing its
business, operations, properties and assets. Neither the Company nor any
Subsidiary is currently liable for any penalties, fines or forfeitures for
failure to comply with any Environmental, Health and Safety Laws.
(b) The Company and each Subsidiary has obtained, or
caused to be obtained, and to the best of the Shareholders' knowledge, is
in material compliance with, all applicable and material Licenses. Copies
of such Licenses have been provided to MTLM. There are no administrative
or judicial investigations, notices, claims or other proceedings pending
or threatened by any Governmental Authority or third parties against the
Company or any Subsidiary, their respective businesses, operations,
properties, or assets, which question the validity or entitlement of the
Company or any Subsidiary to any License wherein an unfavorable decision,
ruling or finding could have a Material Adverse Effect on the Company or
any Subsidiary.
(c) Neither the Company nor any Subsidiary 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 threatened against or
involving the Company or any Subsidiary, issued by any Governmental
Authority or third party with respect to any Environmental, Health and
Safety Laws, which has not been resolved to the satisfaction of the
issuing Governmental Authority or third party and which could have a
Material Adverse Effect on the Company or any Subsidiary.
(d) To the best of the Shareholders' knowledge,
neither the Company nor any Subsidiary has generated, manufactured, used,
transported, transferred, stored, handled, treated, Discharged, Released
or disposed of, nor has it allowed or arranged for any third parties to
generate, manufacture, use, transport, transfer, store, handle, treat,
Discharge, Release or dispose of, Hazardous Substances or other Waste (as
defined herein) to or at any location other than a site lawfully permitted
to receive such Hazardous Substances or other waste for such purposes, nor
has it performed, arranged for or allowed by any method or procedure such
generation, manufacture, use, transportation, transfer, storage,
treatment, spillage, leakage, dumping, Discharge, Release or disposal in
material contravention of any Environmental, Health and Safety Laws. To
the best of the Shareholders' knowledge, neither the Company nor any
Subsidiary has generated, manufactured, used, stored, handled, treated,
Discharged, Released or disposed of, or allowed or arranged for any third
parties to generate, manufacture, use, store, handle, treat, spill, leak,
dump, discharge, release or dispose of, any material quantities of
Hazardous Substances or other waste upon property currently or previously
owned or leased by it, except as permitted by law.
(e) To the best of the Shareholders' knowledge,
neither the Company nor any Subsidiary 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
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on, into or beneath the surface of any parcel of the Owned Properties or
the Leased Premises or to any properties adjacent thereto which would have
a Material Adverse Effect on the Company and its Subsidiaries. To the
best of Shareholders' knowledge, there has not occurred, nor is there
presently occurring, a Release or Discharge, or threatened Release or
Discharge, of any material quantity of Hazardous Substances on, into or
beneath the surface of any parcel of the Owned Properties or the Leased
Premises or to any properties adjacent thereto which would have a Material
Adverse Effect on the Company and its Subsidiaries.
(f) To the best of the Shareholders' knowledge,
neither the Company nor any Subsidiary 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
Substances or other Waste to or at a site which, pursuant to CERCLA or any
similar state law has been placed or been proposed for placement on the
National Priorities List or its state equivalent. Neither the Company,
any Subsidiary nor the Shareholders has received notice, and neither the
Company, any Subsidiary nor the Shareholders has knowledge of any facts
which could give rise to any notice, that the Company or any Subsidiary is
a potentially responsible party for a federal or state environmental
cleanup site or for corrective action under Environmental Health and
Safety Laws. Neither the Company nor any Subsidiary 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. Neither the
Company nor any Subsidiary 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 the
Company or any Subsidiary has transported, transferred or disposed of
other Wastes. Neither the Company nor any Subsidiary has been required or
has 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. To the best of the Shareholders' knowledge,
neither the Company nor any Subsidiary has any material liability under
any Environmental, Health and Safety Laws for personal injury, property
damage, natural resource damage, or clean up obligations.
(g) To the best of the Shareholders' knowledge,
there are no Aboveground Storage Tanks or Underground Storage Tanks on the
Owned Properties or the Leased Premises.
(h) Schedule 4.13 identifies (i) all material
environmental audits, assessments or occupational health studies, of which
the Company or the Shareholders are aware, undertaken by the Company, the
Subsidiaries or their agents, or by the Shareholders, or by any
Governmental Authority, or by any third party, relating to or affecting
the Company, the Subsidiaries or any of the Leased Premises or the Owned
Properties; and (ii) all material citations issued under OSHA, or similar
state or local statutes, laws, ordinances, codes, rules, regulations,
orders, rulings, or decrees, relating to or affecting the Company or any
Subsidiary or any of the Leased Premises or the Owned Properties.
(i) Schedule 4.13 contains a list of the assets of
the Company and the Subsidiaries which have been confirmed to contain
"ASBESTOS" or "ASBESTOS-CONTAINING MATERIAL" (as such terms
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are identified under the Environmental, Health and Safety Laws). The
Company and each of the Subsidiaries has operated and continues to operate
in material compliance with all Environmental, Health and Safety Laws
governing the handling, use and exposure to and disposal of asbestos or
asbestos-containing materials. There are no claims, actions, suits,
governmental investigations or proceedings before any Governmental
Authority or third party pending, or threatened against or directly
affecting the Company, the Subsidiaries, 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.
(j) Schedule 4.13 identifies the operations and
activities, and locations thereof, which have been conducted and are being
conducted by the Company or any Subsidiary 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.
(k) To the best of Shareholders' knowledge, none of
the Owned Properties or Leased Premises presently includes, or has been
constructed upon, any "WETLANDS" as defined under applicable
Environmental, Health and Safety Laws.
(l) As used in this Section 4.13, the term "COMPANY"
is deemed to refer to the Company or any of its Subsidiaries.
(m) As used in Section 4.13, the terms "OWNED
PROPERTIES" and "LEASED PREMISES" are deemed to refer to only the
properties currently owned or leased by the Company.
4.14 REAL ESTATE.
(a) Neither the Company nor any Subsidiary owns any
real property or any interest therein except as set forth 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) the Company or a Subsidiary 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 materially impair the current use,
occupancy or value of the property subject thereto, and (z)
encumbrances and restrictions described in the title insurance
policies therefor, all of which policies have been previously
delivered to MTLM.
(ii) there are no pending or, to the best of the
Shareholders' knowledge, threatened condemnation proceedings,
suits or administrative actions relating to the
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Owned Properties or other matters affecting adversely the current
use, occupancy or value thereof;
(iii) to the best of the Shareholders' knowledge, (w)
the legal descriptions for the parcels of Owned Property
contained in the deeds thereof describe such parcels fully and
adequately; (x) 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; (y) the land does not serve any adjoining property for
any purpose inconsistent with the use of the land; and (z) 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 best of the Shareholders' knowledge, all
facilities have received all material 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(b);
(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 Company and
its Subsidiaries) in possession of the parcels of Owned Property,
other than tenants under any leases disclosed in Schedule 4.14(b)
who are in possession of space to which they are entitled;
(viii) all facilities located on the parcels of Owned
Property are supplied with utilities and other services necessary
for the operation of such facilities, including gas, electricity,
water, telephone, sanitary sewer and storm sewer, all of which
services, to the best of the Shareholders' knowledge, are
adequate in accordance with all applicable laws, ordinances,
rules and regulations, and, to the best of the Shareholders'
knowledge, are provided via public roads or via permanent,
irrevocable, appurtenant easements benefitting the parcels of
Owned Property;
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(ix) each parcel of Owned Property abuts on and has
direct vehicular access to a public road, or has access to a
public road via a permanent, irrevocable, appurtenant easement
benefitting the parcel of Owned Property; access to the property
is provided by paved public right-of-way; and there is no pending
or, to the best of the Shareholders' knowledge, threatened
termination of the foregoing access rights;
(x) to the best of the Shareholders' knowledge, all
improvements and buildings on the Owned Property are in good
repair (normal wear and tear excepted) 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
material leases, licenses or similar agreements ("LEASES") to which the
Company or any Subsidiary 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 of the principal improvements and buildings thereon (the
"LEASED PREMISES"), all of which are within the property set-back and
building lines of the respective property. The Leases are in full force
and effect and have not been amended except as set forth on Schedule
4.14(b), and, to the best of the Shareholders' knowledge, no party thereto
is in default or breach under any such Lease. No event has occurred
which, with the passage of time or the giving of notice or both, would
cause a material breach of or default under any of such Leases. To the
best of the Shareholders' knowledge, 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) the Company or the Subsidiary has valid
leasehold interests in the Leased Premises leased by it, which
leasehold interests are free and clear of any Liens;
(ii) the portions of the buildings located on the
Leased Premises that are used in the business of the Company or a
Subsidiary are in good repair and condition, normal wear and tear
excepted, and are in the aggregate sufficient to satisfy the
Company or such Subsidiary'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
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sufficient to satisfy the current and reasonably anticipated
normal transportation requirements of the Company or such
Subsidiary'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) neither the Company nor any Subsidiary has
received notice of (a) any condemnation proceeding with respect
to any portion of the Leased Premises or any access thereto, and,
to the best of Shareholders' knowledge, 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 best of the Shareholders' knowledge, 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, the
Company and each Subsidiary 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 the Company and its
Subsidiaries, other than the Owned Properties and the Leased Premises,
whether personal or mixed, tangible or intangible, wherever located.
(b) To the best of the Shareholders' knowledge, the
Fixed Assets (as hereinafter defined) currently in use or necessary for
the business and operations of the Company and its Subsidiaries 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 the Company or set forth on the
Current Balance Sheet or acquired by the Company or any Subsidiary since
the date of the Current Balance Sheet. Schedule 4.15 lists the vehicles
owned, leased or used by the Company or any Subsidiary to transport,
transfer, handle, dispose or haul Waste materials.
4.16 COMPLIANCE WITH LAWS.
(a) The Company and each Subsidiary is in material
compliance with all laws, regulations and orders applicable to it, its
respective business and operations (as currently conducted), the Assets,
the Owned Properties and the Leased Premises and any other properties and
assets (in each case currently owned or used by it). Except as set forth
on Schedule 4.16, neither the Company nor any Subsidiary has been cited,
fined or otherwise notified of any present material failure to comply with
any material laws, regulations or orders and no proceeding with respect to
any such material violation is pending or, to the best of the
Shareholders' knowledge, threatened.
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(b) Neither the Company nor any Subsidiary 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) The Company and each Subsidiary is in material
compliance with the terms and provisions of the Immigration Act. With
respect to each Employee (as defined in 8 C.F.R. 274a.1(f)) of the Company
for whom compliance with the Immigration Act as employer is required, to
the best of the Shareholders' knowledge, the Company and each Subsidiary
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 the
Company and each Subsidiary pursuant to the Immigration Act. Neither the
Company nor any Subsidiary 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 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,
neither the Company nor any Subsidiary 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. Except as set forth on
Schedule 4.17(a), neither the Company nor any Subsidiary 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 the
Company or any Subsidiary into one or more collective bargaining units.
There is no pending or, to the best of the Shareholders' knowledge,
threatened labor dispute, strike or work stoppage which affects or which
may affect the business of the Company or any Subsidiary which may
interfere with its continued operations. Neither the Company nor any
Subsidiary 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, to the best of the Shareholders' knowledge,
threatened charge or complaint against the Company or any Subsidiary by or
with the National Labor Relations Board or any representative thereof.
There has been no strike, walkout or work stoppage involving any of the
employees of the Company or any Subsidiary 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 Company or any Subsidiary as a result of this
Agreement or otherwise. Schedule 4.17(b) contains detailed information
about each contract, agreement or plan of the following nature, whether
formal or informal, and whether or not in writing, to which the Company or
any Subsidiary 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. The Company and each Subsidiary has complied in all material
respects 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.
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4.18 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 4.18 contains
a list setting forth each employee benefit plan or arrangement of the
Company and each Subsidiary, including but not limited to employee pension
benefit plans, as defined in Section 3(2) of 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 the Company or any Subsidiary
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 best of the Shareholders' knowledge, threatened;
(iii) no audits, inquiries, reviews, proceedings, claims, or demands are
pending with any governmental or regulatory agency; (iv) there are no
facts which could give rise to any material liability in the event of any
such investigation, claim, action, suit, audit, review, or other
proceeding; (v) all material reports, returns, and similar documents
required to be filed with any governmental agency or distributed to any
plan participant have been duly or timely filed or distributed; and (vi)
no "PROHIBITED TRANSACTION" which could give rise to any material
liability of the Company or any Subsidiary 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 has issued a favorable determination letter,
true and correct copies of which have been furnished to MTLM, that such
plans are qualified and exempt from federal income taxes, or an
application therefor has been filed with the Internal Revenue Service;
(ii) no such determination letter has been revoked nor has revocation been
threatened, nor has any amendment or other action or omission occurred
with respect to any such plan since the date of its most recent
determination letter or application therefor in any respect which would
adversely affect its qualification or materially increase its costs; (iii)
no such plan has been amended in a manner that would require security to
be provided in accordance with Section 401(a)(29) of the Code; (iv) no
reportable event (within the meaning of Section 4043 of ERISA) has
occurred, other than one for which the 30-day notice requirement has been
waived; and (v) as of the Effective Date except as disclosed on Schedule
4.18, 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 have been
required to be made in accordance with such plans and, when
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applicable, Section 302 of ERISA or Section 412 of the Code, have been
timely made; (vii) all such contributions to the plans, and all payments
under the plans (except those to be made from a trust qualified under
Section 401(a) of the Code) and all payments with respect to the plans
(including, without limitation, PBGC and insurance premiums) for any
period ending before the Closing Date that are not yet, but will be,
required to be made are properly accrued and reflected on the Current
Balance Sheet or are disclosed on Schedule 4.18.
(d) Multiemployer Plans. With respect to any MPPA
Plan (i) all contributions required to be made with respect to employees
of the Company or any Subsidiary have been timely paid; (ii) neither the
Company nor any Subsidiary has incurred or is expected to incur, directly
or indirectly, any withdrawal liability under ERISA with respect to any
such plan (whether by reason of the transactions contemplated by the
Agreement or otherwise); (iii) Schedule 4.18 sets forth (A) the withdrawal
liability under ERISA to each MPPA Plan, (B) the date as of which such
amount was calculated, and (C) the method for determining the withdrawal
liability; and (iv) no such plan is (or is expected to be) insolvent or in
reorganization and no accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists or is expected to exist with respect to any such plan.
(e) Welfare Plans. Other than as disclosed in
Schedule 4.18, (i) neither the Company nor any Subsidiary is obligated
under any 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 the Company, any Subsidiary or their predecessors after
termination of employment, other than as required by Section 4980B of the
Code; (ii) the Company and each Subsidiary have complied in all material
respects with the notice and continuation coverage requirements of Section
4980B of the Code and the regulations thereunder with respect to each
Welfare Plan that is, or was during any taxable year for which the statute
of limitations on the assessment of federal income taxes remains, open, by
consent or otherwise, a group health plan within the meaning of Section
5000(b)(1) of the Code, and (iii) there are no reserves, assets, surplus
or prepaid premiums under any Welfare Plan which is an Employee Benefit
Plan. The consummation of the transactions contemplated by this Agreement
will not entitle any individual to severance pay, and, will not accelerate
the time of payment or vesting, or increase the amount of compensation,
due to any individual.
(f) Controlled Group Liability. Neither the
Company, any Subsidiary 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 in any material respect
Code Section 4980B or Section 601 through 608 of ERISA.
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(g) Other Liabilities. Except as set forth on
Schedule 4.18, (i) none of the Employee Benefit Plans obligates the
Company or any Subsidiary to pay separation, severance, termination or
similar benefits solely as a result of any transaction contemplated by
this Agreement or solely as a result of a "CHANGE OF CONTROL" (as such
term is defined in Section 280G of the Code), (ii) all required or
discretionary (in accordance with historical practices) payments,
premiums, contributions, reimbursements, or accruals for all periods
ending prior to or as of the Effective Date shall have been made or
properly accrued on the Current Balance Sheet or will be properly accrued
on the books and records of the Company and the Subsidiaries as of the
Effective Date, and (iii) none of the Employee Benefit Plans has any
unfunded liabilities which are not reflected on the Current Balance Sheet
or the books and records of the Company and the Subsidiaries.
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 the Company, its Subsidiaries or any of its income, properties,
franchises or operations have been filed, each such Tax Return has been
prepared in 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 the Company and its
subsidiaries have been paid or accrued on the Current Balance Sheet or
will be accrued on its books and records as of the Closing. Except as set
forth in Schedule 4.19 hereto: (i) with respect to each taxable period of
the Company and each Subsidiary after January 1, 1992, 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) neither the Company nor any Subsidiary has consented to extend the
time in which any Taxes may be assessed or collected by any taxing
authority; (iv) neither the Company nor any Subsidiary has requested or
been granted an extension of the time for filing any Tax Return to a date
later than the Closing Date; (v) there is no action, suit, taxing
authority proceeding, or audit or claim for refund now in progress,
pending or threatened against or with respect to the Company or any
Subsidiary regarding Taxes; (vi) neither the Company nor any Subsidiary
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 Closing Date; (vii) there are no Liens for Taxes (other than
for current Taxes not yet due and payable) upon the assets of the Company
or any Subsidiary; (viii) neither the Company nor any Subsidiary will be
required (A) as a result of a change in method of accounting for a taxable
period ending on or prior to the Closing Date, to include any adjustment
under Section 481(c) of the Code (or any corresponding provision of state,
local or foreign law) in taxable income for any taxable period (or portion
thereof) beginning after the Closing Date 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 Closing Date; (ix) neither the
Company nor any Subsidiary 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) there
is no basis for any assessment, deficiency notice, 30-day letter or
similar notice with respect to any Tax to be issued to the Company or any
Subsidiary with respect to any period on or before the Closing Date; (xi)
neither the Company nor any Subsidiary has made any payments, and is or
will not become obligated (under any contract entered into on or before
the Closing Date) to
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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) neither the Company nor any Subsidiary 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 the Company or a Subsidiary, as the case may be, does not file Tax
Returns that is or may be subject to Taxes assessed by such jurisdiction;
(xiv) the Company and its Subsidiaries do not have any permanent
establishment in any foreign country, as defined in the relevant tax
treaty between the United States of America and such foreign country; (xv)
true, correct and complete copies of all income and sales Tax Returns
filed by or with respect to the Company and its Subsidiaries for the past
two years has been furnished or made available to MTLM; and (xvi) the
Company and its Subsidiaries will not be subject to any Taxes pursuant to
Section 1374 or Section 1375 of the Code (or any corresponding provision
of state, local or foreign law) for the period ending at the Closing Date
for any period for which a Tax Return has not been filed.
4.20 INSURANCE. The Company and each Subsidiary 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"), provided, however,
the Company and its Subsidiaries generally do not insure their machinery
and equipment except as the Company or its Subsidiaries may be required to
insure such assets by third party lenders or lessors. Such Insurance
Policies are in full force and effect, and all premiums due thereon have
been paid. As of the Closing Date each of the Insurance Policies will be
in full force and effect. None of the Insurance Policies will lapse or
terminate as a result of the transactions contemplated by this Agreement.
The Company and each Subsidiary 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 Policies for
an amount in excess of $50,000 that relates to loss or damage to the
properties, assets or businesses of the Company or any Subsidiary. Neither
the Company nor any Subsidiary 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 Receivables (as hereinafter
defined) are valid and legally binding, represent bona fide transactions
and arose in the ordinary course of business of the Company and its
Subsidiaries. Except as set forth on Schedule 4.21, all of the
Receivables are good and collectible receivables, and will be collected in
full in accordance with the terms of such receivables (and in any event
within six months following the Closing), without set off or
counterclaims, subject to the allowance for doubtful accounts, if any, set
forth on the Current Balance Sheet as reasonably adjusted since the date
of the Current Balance Sheet in the ordinary course of business consistent
with past practice. For purposes of this Agreement, the term
"RECEIVABLES" means all receivables of the
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Company and the Subsidiaries, including all trade account receivables
arising from the provision of services or sale of inventory, but excluding
notes receivable, and insurance proceeds receivable.
4.22 PERMITS. Except as set forth on Schedule 4.22, the
Company and each Subsidiary possess all material Permits for its business
and operations, including the operation of the Owned Properties and Leased
Premises. All such Permits are valid and in full force and effect, the
Company and each Subsidiary is in material compliance with the
requirements thereof, and no proceeding is pending or threatened to revoke
or amend any of them. None of such Permits is or will be impaired or in
any way affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
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 Company and
the Subsidiaries in the manner in which and to the extent to which such
business is currently being conducted. To the best knowledge of the
Shareholders, no current supplier to the Company or any Subsidiary of
items essential to the conduct of its business will or has threatened to
terminate its respective business relationship with it for any reason.
Except as set forth on Schedule 4.23, neither the Company nor any
Subsidiary has any direct or indirect interest in any customer, supplier
or competitor of the Company or any Subsidiary, or in any person from whom
or to whom the Company or any Subsidiary leases real or personal property.
Except as set forth on Schedule 4.23, no officer, director or shareholder
of the Company or any Subsidiary, nor any person related by blood or
marriage to any such person, nor any entity in which any such person owns
any beneficial interest, is a party to any Contract or transaction with
the Company or any Subsidiary or has any interest in any property used by
the Company.
4.24 INTELLECTUAL PROPERTY. The Company and its Subsidiaries
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
the Company and its Subsidiaries 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 to the best of the Shareholders' knowledge,
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, to the best of the Shareholders'
knowledge, threatened action for opposition, cancellation, declaration,
infringement, or invalidity, unenforceability or misappropriation or like
claim, action or proceeding.
4.25 CONTRACTS. Schedule 4.25 sets forth a list of each
Contract to which the Company and its Subsidiaries 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
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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.
Except as set forth on Schedule 4.25, neither the Company nor any
Subsidiary 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, to
the best of the Shareholders' knowledge, all of the covenants to be
performed by any other party thereto have been fully performed and there
are no claims for breach or indemnification or notice of default or
termination under any Designated Contract. Except as set forth on Schedule
4.25, no event has occurred which constitutes, or after notice or the
passage of time, or both, would constitute, a material default by the
Company or any Subsidiary under any Designated Contract, and no such event
has occurred which constitutes or would constitute a material default by
any other party. Neither the Company nor any Subsidiary 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 include, without limitation, (a) loan agreements,
indentures, mortgages, pledges, hypothecations, deeds of trust,
conditional sale or title retention agreements, security agreements,
equipment financing obligations or guaranties, or other sources of
contingent liability in respect of any indebtedness or obligations to any
other Person, or letters of intent or commitment letters with respect to
same; (b) contracts obligating the Company to purchase or sell products or
services; (c) leases of real property, and leases of personal property not
cancelable without penalty on notice of 60 days or less or calling for
payment of an annual gross rental exceeding $50,000; (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 the Company or any Subsidiary; (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 the Company or any Subsidiary; and (h) other
material Contracts or understandings, irrespective of subject matter and
whether or not in writing, not entered into in the ordinary course of
business by the Company or any Subsidiary and not otherwise disclosed on
the Schedules.
4.26 CUSTOMER LISTS AND RECURRING REVENUE. The Company and
the Shareholders have made available to MTLM for MTLM's review, a true,
correct and complete list of each of the Company and each Subsidiary's 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 Closing have been
furnished by the Shareholders to MTLM. Other than Material Customers, no
customer of the Company or any Subsidiary as of the date of this Agreement
accounts for more than 1% of its combined annual revenue.
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, including those
contained in this Agreement and the various Schedules attached hereto and
the other information and statements referred to herein and previously
furnished by the
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Company, the Subsidiaries and the Shareholders, contains or shall contain
any untrue statement of a material fact or omits or shall omit any
material fact necessary to make the information contained therein not
misleading in light of the circumstances in which they were made. The
Shareholders have provided MTLM with true, accurate and complete copies of
all documents listed or described in the various Schedules attached
hereto.
4.28 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES
DOCUMENTS. Each of the Shareholders is acquiring his interest in the MTLM
Shares 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. Each of the
Shareholders has been provided, to his satisfaction, the 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. Each of the Shareholders is an "ACCREDITED
INVESTOR" within the meaning of Regulation D promulgated under the
Securities Act. Each of the Shareholders has such knowledge and
experience in business and financial matters that he is capable of
evaluating the merits and risks of an investment in MTLM Shares, and is
capable of bearing the economic risks of such investment and is able to
bear a complete loss of his investment in MTLM Shares. Each of the
Shareholders acknowledges that MTLM Shares have not been registered under
the Securities Act and understands that MTLM Shares must be held
indefinitely unless they are subsequently registered under the Securities
Act or such sale is permitted pursuant to an available exemption from such
registration requirement.
4.29 BUSINESS LOCATIONS. As of the date hereof, neither the
Company nor any Subsidiary has any office or place of business other than
as identified on Schedules 4.14(a) and 4.14(b) and the Company and each
Subsidiary's principal place of business and chief executive office (as
such terms are used in subsection 9-401 of the Uniform Commercial Code as
enacted in the State of Illinois 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 the Company and the
Subsidiaries 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 the
Company and each Subsidiary does business as of the date hereof are
specified on Schedule 4.30. Except as set forth on Schedule 4.30, neither
the Company nor any Subsidiary 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. Except as set forth on Schedule 4.31,
neither the Company, any Subsidiary nor 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,
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in the aggregate, of a quality, quantity, and condition useable or
saleable in the ordinary course of business within the Company and the
Subsidiary's normal inventory turnover experience; and (iii) are valued
at the lower of cost or net realizable market value. Neither the Company
nor any Subsidiary has any material liability with respect to the return
or repurchase of any goods in the possession of any customer.
4.33 IDENTIFICATION, ACQUISITION AND DISPOSITION OF MATERIAL
ASSETS. Schedule 4.33 sets forth a listing of all material Assets
(including real, personal and mixed) acquired or disposed of by the
Company or any Subsidiary since December 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 the Company, any Subsidiary and/or any Shareholder is a
party or otherwise bound. Except as set forth on Schedule 4.34, there are
no contracts or other conditions, circumstances, events or agreements
which would in any way limit or restrict the rights of MTLM, MTLM's
Affiliates, the Company or its Subsidiaries from engaging in any business
anywhere in the world.
4.35 FULL DISCLOSURE. No statement by the Company contained
in this Article IV and the Schedules hereto or any written statement or
certificate furnished to MTLM as of its respective date contains any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
materially and adversely misleading in light of the circumstances under
which they were made.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
5.1 CONDUCT OF BUSINESS OF THE COMPANY PENDING THE CLOSING .
Except as set forth on Schedule 5.1, the Company covenants and agrees
that, between the date of this Agreement and the Closing Date, the
business of the Company and each Subsidiary shall be conducted only in,
and the Company and each Subsidiary shall not take any action except in,
the ordinary course of business, consistent with past practice and in
compliance with all rules, regulations and laws. The Company and each
Subsidiary 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, neither the Company nor any Subsidiary 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, which consent shall not be unreasonably withheld:
(a) amend or otherwise change its articles of
incorporation or bylaws;
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(b) issue, sell, pledge, dispose of, encumber, or,
authorize the issuance, sale, pledge, disposition, grant or encumbrance of
(i) with respect to the Company or any Subsidiary, 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;
(e) (i) acquire (including, without limitation, for
cash or shares of stock, by merger, consolidation, or acquisition of stock
or assets) any interest in any corporation, partnership or other business
organization or division thereof or any assets, or make any investment
either by purchase of stock or securities, contributions of capital or
property transfer, or, except in the ordinary course of business,
consistent with past practice, purchase any property or assets of any
other Person, (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any Person, or
make any loans or advances, or (iii) 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 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 and other than the payment of a pending claim by Employers
Insurance of Wausau (as described on Schedule 4.12) in an amount not to
exceed $1.4 million;
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<PAGE> 48
(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.
5.2 CONDUCT OF BUSINESS OF MTLM PENDING THE CLOSING. Except
as set forth on Schedules 2.28 and 5.2, MTLM covenants and agrees that,
between the date of this Agreement and the Closing Date, the business of
MTLM and each MTLM Subsidiary shall be conducted only in, and MTLM and
each MTLM Subsidiary 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. MTLM and each MTLM
Subsidiary 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, neither MTLM nor any MTLM Subsidiary 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
the Shareholders, which consent shall not be unreasonably withheld:
(a) amend or otherwise change its charter or bylaws;
(b) except for the issuance of common stock in
connection with any of the mergers, acquisitions or other transactions
contemplated by Section 5.2(e) below, private placements of common stock
not to exceed $15 million in the aggregate, the private placement of up to
$10 million of securities convertible into or exchangeable for common
stock of MTLM and/or the sale of non-convertible high yield debt of MTLM
of up to $200 million, or the incurrence of a non-convertible bridge loan
which will be repaid with the proceeds of the foregoing, issue, sell,
pledge, dispose of, grant, encumber, or authorize the issuance, sale,
pledge, disposition, grant or encumbrance of (i) with respect to MTLM or
any MTLM Subsidiary, 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) 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;
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<PAGE> 49
(d) 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; or
(e) except for mergers or acquisitions by MTLM of
The Isaac Corporation and its affiliates, Kankakee Scrap Corporation and
its affiliates, Proler Southwest Inc. and Proler Steelworks L.L.C., and a
joint venture or acquisition of a joint venture interest from Perlco,
L.L.C. (each substantially on the terms and conditions set forth in the
respective letters of intent relating thereto, true and complete copies of
which have been given to the Shareholders) and any acquisitions involving
consideration of less than $5 million, and any contracts, agreements and
transactions related thereto, (i) acquire (including, without limitation,
for cash or shares of stock, by merger, consolidation, or acquisition of
stock or assets) any interest in any corporation, partnership or other
business organization or division thereof or any assets, or make any
investment either by purchase of stock or securities, contributions of
capital or property transfer, or, except in the ordinary course of
business of a MTLM Subsidiary, consistent with past practice, purchase any
property or assets of any other Person, (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or
endorse or otherwise as an accommodation become responsible for, the
obligations of any Person, or make any loans or advances, or (iii) enter
into any Contract other than in the ordinary course of business of a MTLM
Subsidiary, consistent with past practice;
(f) 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 II untrue or incorrect.
ARTICLE 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
the Company to comply with all of the respective covenants of the Company
under this Agreement.
6.3 COOPERATION. Each of the parties agrees to cooperate
with the other in the preparation and filing of all forms, notifications,
reports and information, if any, required or reasonably deemed advisable
pursuant to any law, rule or regulation or the rules of any exchange on
which the Common Stock is listed (the Nasdaq Stock Market) in connection
with the transactions contemplated by this Agreement and to use their
respective best efforts to agree jointly on a method to overcome any
objections by any Governmental Authority to any such transactions.
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6.4 ACCESS TO INFORMATION. From the date hereof to the
Closing Date, the 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 any of the parties hereto 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 opinions 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 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 MTLM may make such public disclosure which MTLM 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. Neither the Company, 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 Company (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, the Shareholders agree with MTLM
that they shall not for a period of thirty-six (36) months from the later
of the Closing Date or the date each such Shareholder ceases to be an
employee, officer or director of MTLM or the Company (with regard to each
Shareholder, a "TERMINATION DATE"):
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(a) directly or indirectly, alone or as a partner,
joint venturer, officer, director, employee, consultant, agent,
independent contractor or stockholder of any company or business, engage
in any business activity in the Restricted Territory (as defined below),
and which is directly or indirectly in competition with the business
conducted by the Company at the Closing Date; 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. As
used in this Section 6.9, the term "RESTRICTED TERRITORY" means (i) with
respect to Albert A. Cozzi, all states in which MTLM or any of its
Subsidiaries operates a facility on the Termination Date, and (ii) with
respect to Frank J. Cozzi and Gregory P. Cozzi, all states in which the
Surviving Corporation or its Subsidiaries operates a facility on the
Termination Date;
(b) directly or indirectly (i) induce any Person
which is a customer of the Company or any Subsidiary at the Closing Date
to patronize any business directly or indirectly in competition with the
business conducted by the Company and its Subsidiaries; (ii) canvass,
solicit or accept from any Person which is a customer of the Company or
any Subsidiary, any such competitive business, or (iii) request or advise
any Person which is a customer of the Company or any Subsidiary at the
Closing Date to withdraw, curtail or cancel any such customer's business
with the Company or any Subsidiary;
(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 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;
(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 Company or any Subsidiary's 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).
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6.10 ENVIRONMENTAL ASSESSMENT. MTLM shall be entitled to have
conducted prior to Closing an environmental assessment and compliance
review of the Owned Properties and Leased Premises (hereinafter referred
to as the "ENVIRONMENTAL ASSESSMENT") and Cozzi's operations. The
Environmental Assessment may include a physical examination of the Owned
Properties or Leased Premises, and any structures, facilities, or
equipment located thereon, review of pertinent permits, reports and
records, documents, and Licenses of the Company and its Subsidiaries.
MTLM shall not be entitled to take any soil samples, ground and surface
water samples, or storage tank testing unless MTLM obtains Cozzi's prior
written consent. The Shareholders shall provide MTLM or its designated
agents or consultants with the access to such property and all permits,
records and reports which MTLM, their respective agents or consultants
require to conduct the Environmental Assessment. If the Environmental
Assessment identifies any conditions or environmental contamination which
requires remediation or further evaluation under the Environmental,
Health, and Safety Laws or if the results of the Environmental Assessment
are otherwise not satisfactory to MTLM in its sole discretion, and if the
Company elects not to remediate or otherwise satisfy MTLM (in the sole
discretion of MTLM), then MTLM may elect not to close the transactions
contemplated by this Agreement as provided in Section 12.1.
6.11 TRADING IN MTLM'S COMMON STOCK. Except as otherwise
expressly consented to by MTLM, from the date of this Agreement until the
Closing Date, neither the Company, 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.
6.12 OTHER AGREEMENTS. Upon the Closing, each party shall
cause their respective affiliates to execute and deliver the following
agreements (collectively, the "COLLATERAL AGREEMENTS"):
(a) an employment agreement for each of (i) Albert
A. Cozzi, (ii) Frank J. Cozzi, (iii) Gerard M. Jacobs, (iv) T.
Benjamin Jennings, and (v) Gregory P. Cozzi in a form reasonably
acceptable to the parties hereto, which form shall be agreed upon
on or prior to May 30, 1997 and attached to this Agreement as an
exhibit. The parties agree that the employment agreements will
contain non-competition covenants and that such covenants are an
integral part of this Agreement;
(b) the Stockholders' Agreement in the form attached
hereto as Exhibit B (the "STOCKHOLDERS AGREEMENT");
(c) the Escrow Agreement;
(d) warrants in the form of Exhibit C to be issued
to each of the Shareholders pursuant to their employment
agreements as follows:
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(i) Albert A. Cozzi shall receive warrants
exercisable for 755,172 MTLM Shares for a period of five
(5) years, half of which will have an exercise price of
$5.91 per share and half of which will have an exercise
price per share equal to seventy-five percent (75%) of
the last sales price of a MTLM Share on the day before
the Closing Date;
(ii) Frank J. Cozzi shall receive warrants
exercisable for 582,759 MTLM Shares for a period of five
(5) years, half of which will have an exercise price of
$5.91 per share and half of which will have an exercise
price per share equal to seventy-five percent (75%) of
the last sales price of a MTLM Share on the day before
the Closing Date; and
(iii) Gregory P. Cozzi shall receive warrants
exercisable for 162,069 MTLM Shares for a period of five
(5) years, half of which will have an exercise price of
$5.91 per share and half of which will have an exercise
price per share equal to seventy-five percent (75%) of
the last sales price of a MTLM Share on the day before
the Closing Date.
(e) the Registration Rights Agreement in the form
attached hereto as Exhibit D.
6.13 HSR ACT COMPLIANCE. The Company, the Shareholders and
MTLM will as promptly as practicable, but in no event later than 10
business days following the execution and delivery of this Agreement, file
or cause to be filed with the United States Federal Trade Commission (the
"FTC") and the United State Department of Justice (the "DOJ") the
notification and report form required for the transactions contemplated
hereby and any supplemental information requested in connection therewith
pursuant to the HSR Act. Any such notification and report form and
supplemental information will be in substantial compliance with the
requirements of the HSR Act. Each of MTLM, the Company and the
Shareholders will furnish to the others such necessary information and
reasonable assistance as the others may request in connection with the
preparation of any filing or submission which is necessary under the HSR
Act. Each of the Company, the Shareholders and MTLM will keep each other
apprised of the status of any communications with, and inquiries or
requests for additional information addressed to the entity that filed a
notification and report form as an acquired or acquiring person from, the
FTC or the DOJ and shall comply or cause its respective filing person to
comply promptly with any such inquiry or request. Each of the Company,
the Shareholders and MTLM will use commercially reasonable efforts to
obtain any clearance required under the HSR Act for the purchase and sale
of the Cozzi Shares.
6.14 CORPORATE AUTHORITY. MTLM, the Company 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.
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6.15 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 Cozzi Shares do not constitute a U.S. real property
interest.
6.16 PURCHASE OF JOINT VENTURE INTEREST. The Company will use
its best efforts to negotiate and enter into agreements for the
acquisition by the Surviving Corporation of all interests held by the
Company's joint venture partners in both of (i) Perlco, L.L.C. and (ii)
Salt River Recycling, L.L.C. The agreements shall provide that the
closings will occur as promptly as possible after the Effective Time of
the Merger. Prior to the Closing Date, the Company shall obtain releases
and/or waivers of any restrictive covenants, which would, following the
Merger, bind MTLM, the Surviving Corporation or any of their Affiliates,
other than a covenant not to compete in favor of MetricMetal, L.L.C. and a
covenant not to compete in favor of Fulton Street Trading Company. The
Company shall obtain MTLM's prior written approval of the price, terms and
conditions of any acquisition of such interests and releases or waivers of
any restrictive covenants.
6.17 MEETING OF SHAREHOLDERS. MTLM shall take all actions
necessary, in accordance with General Corporation Law of Delaware, its
Certificate of Incorporation and its By-laws, to duly call, give notice
of, convene and hold a meeting of its shareholders as promptly as
practicable (or have executed a written consent of its shareholders in
lieu thereof), to adopt and approve the Agreement and the Merger
contemplated hereby, any amendments to the Articles of Incorporation or
By-laws of MTLM as required by this Agreement, and the other transactions
contemplated by the Agreement to the extent such approval is required.
6.18 PRE-CLEAR MERGER. MTLM, Mergeco and the Company shall
take all necessary steps to pre-clear the Merger with the Secretary of
State of the State of Illinois, in order that on the Closing Date, the
Articles of Merger may be filed with the Secretary of State of the State
of Illinois and become effective upon filing.
6.19 FINANCING. MTLM will use reasonable efforts to raise at
least $50.0 million of additional financing by offering convertible
debentures, high-yield debt, equity or some combination of the foregoing
(a "FINANCING"). MTLM shall use the funds from such Financing to retire
existing indebtedness, provide for working capital and finance
acquisitions by MTLM. If MTLM has not received a firm commitment for the
placement of such Financing or closed such Financing on or prior to June
30, 1997, the Company shall have the right to terminate this Agreement.
6.20 CONDUCT OF MTLM'S BUSINESS. From and after the Effective
Time of the Merger and for so long as the Stockholders Agreement shall
remain in effect:
(a) the Shareholders, acting as a group, shall have the right
to nominate that number of persons constituting one-half of the total
number of directors of MTLM; provided that one of such nominees shall be
an independent director reasonably acceptable to T. Benjamin Jennings and
Gerard M. Jacobs all as further provided in the Stockholders Agreement;
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(b) T. Benjamin Jennings and Gerard M. Jacobs, acting as a
group, shall have the right to nominate that number of persons
constituting one-half of the total number of directors of MTLM; provided
that one of such nominees, shall be an independent director reasonably
acceptable to the Shareholders, all as further provided in the
Stockholders Agreement;
(c) the directors of MTLM shall appoint the following persons
to the offices set forth opposite their names, all as further provided in
the Stockholders Agreement:
<TABLE>
<S> <C> <C>
(i) Albert A. Cozzi: President, Chief Operating Officer
(ii) Gerard M. Jacobs: Chief Executive Officer
(iii) T. Benjamin Jennings: Chairman and Chief Development Officer
(iv) Frank J. Cozzi: Vice President and President of the Surviving
Corporation
</TABLE>
(d) the Board of Directors of MTLM will create an Executive
Committee of the Board of Directors, including Albert A. Cozzi, Gerard M.
Jacobs and T. Benjamin Jennings, which committee shall be delegated all
the powers and authority of the Board of Directors relating to the
management of the business and affairs of MTLM as permitted under Section
141 (c) (l) of the General Corporation Law of the State of Delaware;
provided, that, in the event of the death or disability of Albert A.
Cozzi, Frank J. Cozzi shall assume Albert A. Cozzi's position on such
Executive Committee; provided, further, that any action to be taken by the
Executive Committee shall require the unanimous consent of Albert A. Cozzi
(or in the event of his death or disability, Frank J. Cozzi), Gerard M.
Jacobs and T. Benjamin Jennings; and
(e) Albert A. Cozzi shall periodically convene a meeting of
all members of the Office of the President, which members shall consist of
at least one executive officer of each principal subsidiary of MTLM, and
he shall lead discussions regarding the strategic direction of MTLM and
key operating issues affecting MTLM at such time.
6.21 DISCLOSURE SUPPLEMENTS. From time to time prior to the
Closing, the Company and the Shareholders, on one hand, and MTLM and
Mergeco, on the other hand, shall supplement or amend the Schedules hereto
with respect to any matter hereafter arising which, if existing or
occurring at or prior ro the date of this Agreement, would have been
required to be set forth or described in any such Schedule or which is
necessary to complete or correct any information in any such Schedule or
in any representation or warranty of the Company and the Shareholders, on
one hand, or MTLM and Mergeco, on the other hand, which has been rendered
inaccurate thereby. For purposes of determining the satisfaction of the
conditions set forth in Sections 7.1 and 8.1 hereof, no such supplement or
amendment shall be given effect unless expressly agreed so by each of the
parties hereto.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF MTLM AND MERGECO
The obligations of MTLM and Mergeco to effect the Transaction
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions, any or all of which may be waived in whole or in
part by MTLM:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE
WITH OBLIGATIONS. The representations and warranties of the Shareholders
contained in this Agreement shall be true and correct at and as of the
Closing Date with the same force and effect as though made at and as of
that time except (i) for changes specifically permitted by or disclosed
pursuant to this Agreement, and (ii) that those representations and
warranties which address matters only as of a particular date shall remain
true and correct as of such date. The Company and the Shareholders shall
have performed and complied with all of their respective obligations
required by this Agreement to be performed or complied with at or prior to
the Closing Date. The Company and the Shareholders shall have delivered
to MTLM a certificate, dated as of the Closing Date, duly signed (in the
case of the Company by its respective chief executive officer and chief
financial officer), stating that such representations and warranties are
true and correct and that all such obligations have been performed and
complied with.
7.2 FINANCING. MTLM shall have received the written consent
of Bank of America, Illinois to the transactions contemplated hereby on
terms and conditions reasonably satisfactory to MTLM.
7.3 CORPORATE CERTIFICATE. The Shareholders shall have
delivered to MTLM (i) copies of the articles of incorporation and bylaws
of the Company as in effect immediately prior to the Closing Date, (ii)
copies of resolutions adopted by the Board of Directors of the Company and
the Shareholders authorizing the transactions contemplated by this
Agreement, and (iii) certificates of good standing of the Company issued
by the State of Illinois 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 Closing Date, certified in each case as of the Closing Date by the
Secretary as being true, correct and complete.
7.4 OPINIONS OF COUNSEL. MTLM shall have received opinions
dated as of the Closing Date from counsels for the Company and the
Shareholders, in form and substance acceptable to MTLM, to the aggregate
effect that:
(i) the Company and each Subsidiary 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;
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(ii) the Company has obtained all necessary
authorizations and consents of its governing board to effect the
transactions contemplated in this Agreement;
(iii) all issued and outstanding shares of
capital stock of the Company and each Subsidiary are owned as set
forth on Schedule 4.5 hereto;
(iv) except as set forth in Schedule 4.12,
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 Company or the Subsidiaries, or which
questions the validity of this Agreement;
(v) counsel has no actual knowledge (without
any independent investigation of any sort) that any event has
occurred or state of facts exist which would constitute a breach
of any of the representations and warranties made by the
Shareholders pursuant to Article IV of this Agreement; and
(vi) this Agreement is a valid and binding
obligation of the 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 and general
equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.
7.5 GOVERNMENTAL APPROVALS. All consents, authorizations
and approvals from, and all declarations, filings and registrations with
any governmental authority required to consummate the transactions
contemplated by this Agreement, including those set forth on Schedule 4.6,
shall have been obtained or made without the imposition of any material
conditions, and all applicable waiting periods under the HSR Act shall have
expired or terminated.
7.6 NO ADVERSE LITIGATION. There shall not be pending or
threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit, invalidate or
collect damages arising out of the Agreement or any other transaction
contemplated hereby, and which, in the judgment of MTLM, makes it
inadvisable to proceed with the Agreement and other transactions
contemplated hereby.
7.7 MTLM'S APPROVALS. The shareholders of MTLM shall have
authorized and approved this Agreement and the transactions contemplated
hereby.
7.8 FAIRNESS OPINION. MTLM shall have received a fairness
opinion, in form and content acceptable to MTLM in its sole discretion, as
to the fairness of the transactions contemplated
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by this Agreement to MTLM and its shareholders and such opinion shall not
have been withdrawn prior to Closing.
7.9 OTHER CLOSING DELIVERIES. At Closing, MTLM shall have
received:
(a) a current commitment for title insurance insuring title
to the real property owned by the Company and the Subsidiaries as set
forth on Schedule 4.14 (a) which shows no Liens other than current real
estate/general taxes and Liens disclosed on such Schedule 4.14(a);
(b) each Collateral Agreement executed by the Company, the
Shareholders and/or their Affiliates, as the case may be, who is a party
thereto;
(c) resignations effective as of the Closing Date from such
officers and directors of the Company and the Subsidiaries as MTLM shall
have requested in writing;
(d) the stock books, stock ledgers, minute books, and other
books and records of the Company; and
(e) all other previously undelivered agreements,
certificates, documents, instruments or writings required to be delivered
by the Company and/or the Shareholders at or prior to the Closing 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.
7.10 DISSENTING SHAREHOLDERS. No shareholders of the Company
shall have elected to exercise any appraisal rights with respect to the
Merger as provided for under Section 11.65 of the BCA.
7.11 COZZI BUILDING CORPORATION. The Company shall own all of
the issued and outstanding shares of Cozzi Building Corporation.
7.12 ESTATE OF JAMES H. COZZI. The Company shall have
obtained a general release from the Estate of James H. Cozzi and Irene
Cozzi releasing the Company, MTLM and their respective affiliates from all
claims, obligations, liabilities, promises, agreements, suits, demands or
debts, other than the amount reflected in the Company's Current Balance
Sheet, that they may have against such entities and persons, in a form and
substance satisfactory to MTLM, in its sole discretion.
7.13 NO MATERIAL ADVERSE CHANGE. Between the date hereof and
the Closing Date, there has been no Material Adverse Change to the
Company.
7.14 METRICMETAL. The Company shall have taken all action
necessary to cause the dissolution of MetricMetal, L.L.C.
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7.15 EAST CHICAGO INDIANA REVENUE BONDS. The Company shall
have received the written consent of G.E. Capital Public Finance, Inc. to
the transactions contemplated hereby under that certain Loan Agreement
dated July 1, 1996 among G.E. Capital Public Finance, Inc., the City of
East Chicago, Indiana, and American Scrap Processing, Inc.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY AND THE SHAREHOLDERS
The obligations of the Company and each of the Shareholders to
effect the Transaction shall be subject to the fulfillment at or prior to
the Closing Date of the following conditions, any or all of which may be
waived in whole or in part by the Company and the Shareholders:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE
WITH OBLIGATIONS. The representations and warranties of MTLM and Mergeco
contained in this Agreement shall be true and correct at and as of the
Closing Date with the same force and effect as though made at and as of
that time except (i) for changes specifically permitted by or disclosed
pursuant to this Agreement, and (ii) that those representations and
warranties which address matters only as of a particular date shall remain
true and correct as of such date. Each of MTLM and Mergeco shall have
performed and complied with all of their obligations required by this
Agreement to be performed or complied with at or prior to the Closing
Date. Each of MTLM and Mergeco shall have delivered to the Shareholders
a certificate, dated as of the Closing Date, and signed by an executive
officer (in the case of MTLM by its respective chairman and chief
financial officer), certifying that such representations and warranties
are true and correct and that all such obligations have been performed and
complied with.
8.2 MERGER CONSIDERATION. At the Closing, MTLM shall have
delivered to the Shareholders the merger consideration provided for in
Section 1.4.
8.3 NO ADVERSE LITIGATION. There shall not be pending or
threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit, invalidate or
collect damages arising out of the Agreement or any of the transactions
contemplated hereby, and which in the judgment of the Shareholders makes
it inadvisable to proceed with the Agreement or any other transaction
contemplated hereby.
8.4 OPINION OF COUNSEL. The Shareholders shall have received
an opinion dated as of the Closing Date from counsel for MTLM, in form and
substance acceptable to the Shareholders, to the effect that:
(i) MTLM is a corporation duly organized
and existing and in good standing under the laws of the State of
Delaware and is authorized to carry on
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the business now conducted by it and to own or lease the
properties now owned or leased by it;
(ii) Mergeco is a corporation duly organized
and existing and in good standing under the laws of the State of
Illinois, and is authorized to carry on the business now
conducted by it and to own or lease the properties now owned or
leased by it;
(iii) Each of MTLM and Mergeco has obtained
all necessary authorizations and consents of its Board of
Directors and Shareholders to effect the transactions
contemplated in this Agreement;
(iv) 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;
(v) such counsel has no actual knowledge
(without any independent investigation of any sort) that any
event has occurred or state of facts exists which would
constitute a breach of any of the representations and warranties
made by MTLM or Mergeco pursuant to Article II and III of this
Agreement; and
(vi) this Agreement is a valid and binding
obligation of each of MTLM and Mergeco, and enforceable against
it 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 general equitable principles regardless of whether
such enforceability is considered in a proceeding at law or in
equity.
8.5 TAX OPINION. The Shareholders shall have received an
opinion from its counsel to the effect that the merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code.
8.6 CONSENTS. The Company shall have received the written
consent of Bank of America Illinois to the transactions contemplated
hereby, on the terms and conditions reasonably satisfactory to MTLM,
including, the Company shall not be required to pay any fees or other
costs in exchange for such consent and the Shareholders shall not be
required to personally guaranty any indebtedness owed by the Company to
Bank of America Illinois.
8.7 OTHER CLOSING DELIVERIES. At Closing, the Companies and
the Shareholders shall have received each Collateral Agreement to which
MTLM and/or its Affiliates are a party, duly executed by MTLM and/or its
Affiliates, as the case may be.
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8.8 NO MATERIAL ADVERSE CHANGE. Between the date hereof and
the Closing Date, there has been no Material Adverse Change (as defined in
Section 2.23) to MTLM.
ARTICLE IX
INDEMNIFICATION
9.1 AGREEMENT BY THE SHAREHOLDERS TO INDEMNIFY. The
Shareholders agree, jointly and severally, to indemnify, defend and hold
MTLM harmless from and against the aggregate of all Indemnifiable Damages
(as defined below) if and when such Indemnifiable Damages exceed $500,000
in the aggregate, and then only to the extent of such excess.
(a) For purposes of this Agreement, "INDEMNIFIABLE
DAMAGES" means, without duplication, the aggregate of all expenses,
losses, costs, deficiencies, liabilities and damages (including, without
limitation, related counsel and paralegal fees and expenses) incurred or
suffered by MTLM, on a pre-tax consolidated basis, to the extent (i)
resulting from any breach of a representation or warranty made by the
Company or the Shareholders in or pursuant to this Agreement, (ii)
resulting from any breach of the covenants or agreements made by the
Company or the Shareholders pursuant to this Agreement, or (iii) resulting
from any inaccuracy in any certificate or environmental report delivered
by the Company or any Shareholders pursuant to this Agreement.
(b) Without limiting the generality of the
foregoing, with respect to the measurement of Indemnifiable Damages, MTLM
shall have the right to be put in the same pre-tax consolidated financial
position as MTLM would have been in had each of the representations and
warranties of the Shareholders hereunder been true and correct and had the
covenants and agreements of the 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 twelve (12) months after the Closing Date except as follows:
(i) the representations and warranties of the Shareholders contained in
Section 4.19 (Tax Matters) and Section 4.18 (ERISA), and to the extent
relating to tax attributes or liabilities with respect to Taxes of the
Company, 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; and (ii) the representations and warranties of the
Shareholders contained in Sections 4.1, 4.2, 4.3, 4.4, and 4.5 shall not
expire, but shall continue indefinitely. 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
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agreements of the other parties contained in this Agreement or in any
other documents or papers delivered in connection herewith. Each
representation, warranty, covenant and agreement of the parties contained
in this Agreement is independent of each other representation, warranty,
covenant and agreement.
(d) In the event that MTLM believes it is entitled
to a claim for any Indemnifiable Damages hereunder, MTLM shall promptly
give written notice to the Shareholders of such claim and the amount or
the estimated amount of such claim, and the basis for such claim. If the
Shareholders do not pay the amount of the claim for Indemnifiable Damages
to MTLM within ten (10) days, then MTLM may exercise its respective rights
under Section 9.4 and/or take any action or exercise any remedy available
to them by appropriate legal proceedings to collect the Indemnifiable
Damages.
9.2 AGREEMENT BY MTLM TO INDEMNIFY. MTLM agrees to
indemnify, defend and hold the Shareholders harmless from and against the
Shareholders Indemnifiable Damages (as defined below) if and when such
Shareholders Indemnifiable Damages exceed $500,000 in the aggregate and
then only to the extent of such excess.
(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 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 or Mergeco in or pursuant to this Agreement, (ii)
resulting from any breach of the covenants or agreements made by MTLM or
Mergeco in or pursuant to this Agreement, or (iii) resulting from any
inaccuracy in any certificate delivered by MTLM or Mergeco 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 would have been in had each of the
representations and warranties of MTLM hereunder been true and correct and
had the covenants and agreements of MTLM hereunder been performed in full.
(c) Each of the representations and warranties made
by MTLM and Mergeco in this Agreement or pursuant hereto shall survive for
a period of twelve (12) months after the Closing Date, notwithstanding any
investigation at any time made by or on behalf of the Shareholders, and
upon expiration of such twelve (12) month period, such representations and
warranties shall expire, except as follows: (i) the representations and
warranties of MTLM contained in Section 2.17 (Tax Matters) and Section
2.25 (ERISA), and to the extent relating to tax attributes or liabilities
with respect to Taxes of MTLM, 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 representation and warranties relate; and (ii) the
representations contained in Sections 2.1, 2.2, 2.3 and 2.6 and Article
III shall survive and continue indefinitely. No claim for the recovery of
Shareholders
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Indemnifiable Damages may be asserted by the Shareholders against MTLM
after such representations and warranties shall thus expire, provided,
however, that claims for Indemnifiable Damages first asserted within the
applicable period shall not thereafter be barred. Notwithstanding any
knowledge of facts determined or determinable by any party by
investigation, each party shall have the right to fully rely on the
representations, warranties, covenants and agreements of the other parties
contained in this Agreement or in any other documents or papers delivered
in connection herewith. Each representation, warranty, covenant and
agreement of the parties contained in this Agreement is independent of
each other representation, warranty, covenant and agreement.
(d) In the event that the Shareholders believe they
are entitled to a claim for any Shareholder 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. If MTLM does not pay the amount of the claim for
Shareholder Indemnifiable Damages to the Shareholders within ten (10)
days, then the Shareholders may take any actions or exercise any remedy
available to them by appropriate legal proceeding to collect the
Shareholder Indemnifiable Damages.
9.3 CONDITIONS OF INDEMNIFICATION. The obligations and
liabilities of the Shareholders and MTLM hereunder with respect to their
respective indemnities pursuant to this 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 twenty (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
which exceeds the value of the Escrow Shares 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
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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, its officers, directors and agents 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 SECURITY FOR THE SHAREHOLDERS'S INDEMNIFICATION
OBLIGATION. As security for the agreement by the Shareholders to
indemnify and hold MTLM harmless as described in Section 9.1, MTLM shall
have the right to offset any Indemnifiable Damages against the Escrow
Shares. Notwithstanding anything contained herein to the contrary, the
aggregate Indemnifiable Damages which the Shareholders are obligated to
indemnify and hold harmless MTLM against pursuant to Section 9.1 shall be
limited to the Escrow Shares.
9.5 THE JAMES H. COZZI ESTATE SPECIAL INDEMNIFICATION. In
addition to the agreement of the Shareholders set forth in Section 9.1 and
without regard to any limitations thereon contained in Section 9.1 or
Section 9.4, if MTLM waives its condition set forth in Section 7.12, the
Shareholders jointly and severally agree to indemnify, defend and hold
MTLM, the Company and their respective Affiliates harmless from and
against all expenses, losses, costs, deficiencies, liabilities and damages
(including, without limitation, related counsel and paralegal fees and
expenses) incurred or suffered by any of them arising out of or resulting
from (i) any payment required to be made by MTLM or the Company of
Additional Consideration (as that term is defined in the James H. Cozzi
Sales Agreement which is not reflected in the adjustment pursuant to
Section 1.8 hereof, or (ii) any breach or alleged breach by the Company or
MTLM of any agreement, covenant, or obligation in favor of the Estate of
James H. Cozzi, or any beneficiary thereof; provided, however, that the
Shareholders shall have no obligation to indemnify MTLM, the Company or
their Affiliates for any amount reflected on the Company's Current Balance
Sheet. Albert A. Cozzi, for and on behalf of MTLM and the Company, shall
have the exclusive power and authority to defend, conduct, control,
compromise and settle all matters, claims and controversies relating to
the James H. Cozzi Sales Agreement, including the power and authority to
cause MTLM and the Company to pay any obligations relating thereto. Any
amounts paid or otherwise validly demanded to be paid by MTLM or the
Company for which MTLM, the Company or their Affiliates are entitled to
indemnification pursuant to this Section 9.5, shall be immediately paid by
the Shareholders to MTLM or the Company as the case may be, upon written
demand therefor, without deduction or setoff.
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ARTICLE X
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale or other
disposition after the Closing Date of MTLM Shares:
10.1 DISPOSITION OF MTLM SHARES. Each of the Shareholders
represents and warrants that each of the MTLM Shares 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) an
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 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 MTLM Shares shall bear the following
legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, 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 MTLM
Shares, place stop transfer orders with its transfer agents with respect
to such certificates in accordance with federal securities laws.
ARTICLE XI
DEFINITIONS
11.1 DEFINED TERMS. As used herein, the following terms shall
have the following meanings:
"Aboveground Storage Tanks" defined in Section 2.24 (g).
"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.
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"Agreement" defined in the introductory paragraph of
this Agreement.
"Asbestos" or "Asbestos-containing material" defined in
Section 2.24 (i).
"Assets" defined in Section 4.15 (a).
"BCA" defined in Section 1.1.
"CERCLA" defined in Section 2.24 (j).
"Claims" defined in Section 9.3.
"Closing" defined in Section 1.7.
"Closing Date" defined in Section 1.7.
"Code" defined in Section 2.17.
"Common Stock" means the common stock, par value of $.01
per share, of MTLM.
"Collateral Agreements" defined in Section 6.12.
"Company" defined in the introductory paragraph and for
purposes of Section 4.13, more particularly defined in
Section 4.13 (l).
"Contract" means any indenture, lease, sublease, license,
loan agreement, mortgage, note, restriction, will, trust,
commitment, obligation or other contract, agreement or
instrument, whether written or oral.
"Cozzi" defined in the introductory paragraph of this
Agreement.
"Cozzi Shares" defined in the Recitals hereto.
"Current Balance Sheet" defined in Section 4.9.
"Designated Contracts" defined in Section 4.25.
"Discharge" defined in Section 2.24 (e).
"Disclosed Contracts" defined in Section 2.14.
"DOJ" defined in Section 6.13.
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"Effective Date" defined in Section 1.2.
"Effective Time" defined in Section 1.2.
"EMCO" means EMCO Recycling Corp.
"Employee Benefit Plans" defined in Section 4.18 (a).
"Environmental Assessment" defined in Section 6.10.
"Environmental, Health and Safety Laws" defined in
Section 2.24 (j).
"EPCRA" defined in Section 2.24 (j).
"ERISA" defined in Section 2.25 (a).
"Escrow Agreement" defined in Section 1.6.
"Escrow Agent" defined in Section 1.6.
"Escrow Shares" defined in Section 1.6.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"FIFRA" defined in Section 2.24 (j).
"FTC" defined in Section 6.13.
"Financial Statements" defined in Section 4.9.
"Financing" defined in Section 6.19.
"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.
"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.
"Hazardous Substances" defined in Section 2.24 (d).
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"HSR Act" defined in Section 2.7.
"HouTex" means HouTex Metals Company, Inc.
"Immigration Act" defined in Section 2.12(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.
"In the ordinary course of business" as used in reference
to MTLM's business, is defined in Section 2.9.
"James H. Cozzi Sales Agreement" defined in Section 1.8.
"Leased Premises" defined in Section 4.14 (b) and for
purposes of Section 4.13, more particularly defined in
Section 4.13 (m).
"Leases" defined in Section 4.14 (b).
"Licenses" defined in Section 2.24 (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 of any jurisdiction in
connection with such mortgage, pledge, security interest,
encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties,
assets, liabilities, rights, obligations, operations, business or
prospects which change (or effect) individually or in the
aggregate, is materially adverse to such condition, properties,
assets, liabilities, rights, obligations, operations, business or
prospects.
"Material Customers" defined in Section 4.26.
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"MacLeod" means MacLeod Metals Company.
"Mergeco" defined in the introductory paragraph of this
Agreement.
"Merger" defined in the Recitals.
"MPPA Plan" defined in Section 2.25(b).
"MTLM" defined in the introductory paragraph of this
Agreement and for purposes of Section 2.24, more particularly defined in
Section 2.24 (m).
"MTLM Assets" defined in Section 2.15.
"MTLM Current Balance Sheet" defined in Section 2.9.
"MTLM Financial Statements" defined in Section 2.9.
"MTLM Fixed Assets" defined in Section 2.15.
"MTLM Insurance Policy" defined in Section 2.26.
"MTLM Leased Premises" defined in Section 2.27 and for
purposes of Section 2.24, more particularly defined in Section 2.24(n).
"MTLM Owned Properties" defined in Section 2.27 and for
purposes of Section 2.24, more particularly defined in Section 2.24(n).
"MTLM Receivables" defined in Section 2.18.
"MTLM Shares" defined in the Recitals.
"MTLM Subsidiary" defined in Section 2.1.
"OSHA" defined in Section 2.24(j).
"Owned Properties" defined in Section 4.14(a) and for
purposes of Section 4.13, more particularly defined in Section
4.13(m).
"Permits" defined in Section 2.13.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust,
unincorporated association, joint venture, limited liability
company, Governmental Authority or other entity, of whatever
nature.
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"PBGC" defined in Section 4.18 (f).
"RCRA" defined in Section 2.24(j).
"Receivables" defined in Section 4.21.
"Release" defined in Section 2.24(e).
"Reserve" means Reserve Iron & Metals L.P.
"Restricted Territory" defined in Section 6.9(a).
"SEC" means the Securities and Exchange Commission.
"SEC Filings" means the documents listed on Schedule
11.1.
"Securities Act" means the Securities Act of 1933, as
amended.
"Shareholders" defined in the introductory paragraph of
this Agreement
"Stockholders Agreement" defined in Section 6.12 (b).
"Shareholders Indemnifiable Damages" defined in Section
9.2 (a).
"Subsidiary" is defined in Section 4.1.
"Surviving Corporation" defined in Section 1.1.
"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect
to any Taxes; and
"Taxes" means all taxes, fees or other assessments,
including, but not limited to, income, excise, property, sales,
franchise, intangible, withholding, social security and
unemployment taxes imposed by any federal, state, local or
foreign governmental agency, and any interest or penalties
related thereto.
"Termination Date" defined in Section 6.9.
"Underground Storage Tanks" defined in Section 2.24 (g).
"Waste" defined in Section 2.24 (d).
"Welfare Plan" defined in Section 2.25 (c).
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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.
(e) As used herein, the term "to the best knowledge
of MTLM" or any similar term relating to the knowledge of MTLM means the
actual knowledge, after reasonably inquiry, of any of the officers of MTLM
or the MTLM Subsidiaries. "Reasonable inquiry" shall mean communication
by any of the officers of MTLM or the MTLM Subsidiaries with the other
officers of MTLM or the relevant MTLM Subsidiary with responsibility for
the matter in question and to counsel with respect to matters involving
questions or law, requesting such individual to review specified
provisions of this Agreement and to advise such person of any matter
relevant to the specified representation, warranty or provision.
(f) As used herein, the term "to the best of the
Shareholders' knowledge" or any similar term relating to the knowledge of
the Shareholders means the actual knowledge, after reasonable inquiry, of
any of the officers of the Company and the Subsidiaries. "Reasonable
inquiry" shall mean communication by any of the officers of the Company or
the Subsidiaries with the other officers of the Company or relevant
Subsidiary with responsibility for the matter in question and to counsel
with respect to matters involving questions or law, requesting such
individual to review specified provisions of this Agreement and to advise
such person of any matter relevant to the specified representation,
warranty or provision.
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
12.1 TERMINATION. This Agreement may be terminated:
(a) at any time prior to the Closing Date, by mutual
written consent of all of the parties hereto at any time prior to the
Closing;
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(b) at any time prior to the Closing Date, by MTLM
in the event of a material breach by the Company or the Shareholders of
any provision of this Agreement;
(c) at any time prior to the Closing Date, by the
Shareholders in the event of a material breach by MTLM or Mergeco of any
provision of this Agreement;
(d) at any time prior to the Closing Date, by MTLM
in the event (i) MTLM is not satisfied, in its sole discretion, with the
results of the Environmental Assessment; (ii) MTLM does not receive
authorization and approval of this Agreement and the transactions
contemplated hereby by its shareholders at the meeting referred to in
Section 6.17; (iii) MTLM has not received from its investment advisor a
written opinion satisfactory to MTLM in its sole discretion, that this
Agreement and the transactions set forth herein are fair to MTLM and its
shareholders;
(e) at any time prior to the Closing Date, by the
Shareholders if the Shareholders have not received from their tax counsel
an opinion to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code;
(f) at any time prior to the Closing Date, by any of
MTLM or the Shareholders if the Closing shall not have occurred by
September 30, 1997; provided, however, that neither MTLM, nor the
Shareholders shall be entitled to terminate this Agreement pursuant to
this Section 12.1(f), if such party's knowing or willful breach of this
Agreement has prevented the consummation of the transactions contemplated
hereby; or
(g) by the Company, as provided in Section 6.19.
12.2 EFFECT OF TERMINATION. Except as provided in Article VI,
in the event of termination of this Agreement pursuant to Section 12.1,
this Agreement shall forthwith become void; provided, however, that
nothing herein shall relieve any party from liability for the willful
breach of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
ARTICLE XIII
GENERAL PROVISIONS
13.1 NOTICES. All notices, requests, demands, claims, and
other communications hereunder shall be in writing and shall be delivered
by certified or registered mail (first class postage prepaid), guaranteed
overnight delivery, or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage
pre-paid) or guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to such other addresses or telecopy numbers which
such party shall designate in writing to the other party):
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(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 2400
Chicago, IL 60611
Attn: Erhard R. Chorle
Telecopy No.: (312) 527-5921
(b) IF TO THE COMPANY OR THE SHAREHOLDERS TO:
Albert A. Cozzi
Cozzi Iron & Metal, Inc.
2232 South Blue Island Avenue
Chicago, IL 60608
Telecopy No.: (773) 254-8201
WITH A COPY TO:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: M. Finley Maxson
Telecopy No.: (312) 558-5700
13.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits
and Schedules attached hereto) and other documents delivered at the
Closing pursuant hereto, contains the entire understanding of the parties
in respect of its subject matter and supersedes all prior agreements and
understandings (oral or written) between or among the parties with respect
to such subject matter; provided, however, that, notwithstanding the
foregoing, the provisions of that certain Exchange of Information and
Nondisclosure Agreement dated as of October 23, 1996 by and between MTLM
and the Company shall remain in full force and effect. The Exhibits and
Schedules constitute a part hereof as though set forth in full above.
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13.3 EXPENSES. Except as otherwise provided herein, MTLM,
Mergeco and the Company shall pay their own fees and expenses, including
their own counsel fees, incurred in connection with this Agreement or any
transaction contemplated hereby; provided, however, the Company shall not
pay any fees and expenses relating to the Shareholders' estate planning
activities.
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 without the prior written consent of MTLM.
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
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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.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first above
written.
METAL MANAGEMENT, INC., A
DELAWARE CORPORATION
Date:______________________ By:_____________________________
Name:___________________________
Title:__________________________
CIM ACQUISITION, CO.,
AN ILLINOIS CORPORATION
Date:______________________ By:_____________________________
Name:___________________________
Title:__________________________
COZZI IRON & METAL, INC.,
AN ILLINOIS CORPORATION
Date:______________________ By:_____________________________
Name:___________________________
Title:__________________________
Date:______________________ ___________________________________
ALBERT A. COZZI
Date:______________________ ___________________________________
FRANK J. COZZI
Date:______________________ ___________________________________
GREGORY P. COZZI
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Ex-2.11
EXHIBIT B
- --------------------------------------------------------------------------------
STOCKHOLDERS' AGREEMENT
FOR
METAL MANAGEMENT, INC.
Dated: ________ ___, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
CORPORATE STRUCTURE AND OPERATION .................................. 1
1.1 Board of Directors ........................................... 1
(a) Board Size ..... ....................................... 1
(b) Election of Directors ................................... 2
(c) Removal ................................................. 2
(d) Vacancies ............................................... 2
1.2 Management Provisions ........................................ 3
1.3 Committees ................................................... 4
1.4 Election of Officers ......................................... 4
1.5 Agreement to Vote Shares...................................... 4
ARTICLE II
RESTRICTIONS UPON AND OBLIGATIONS WITH
RESPECT TO DISPOSITION OF SHARES ................................... 4
2.1 Certain Definitions .......................................... 5
2.2 General Restriction .......................................... 5
2.3 First Refusal Options ........................................ 5
(a) Receipt of Offer ........................................ 5
(b) Order of First Refusal Options .......................... 6
(c) Place of Closing ........................................ 7
(d) Date of Closing ......................................... 7
(e) Deliveries at Closing ................................... 7
(f) Right to Accept ......................................... 7
2.4 Tag Along Rights ............................................. 8
2.5 Effect of Giving of Notice ................................... 8
2.6 Restrictive Legend on Securities ............................. 8
2.7 Permitted Transfers .......................................... 9
2.8 Requirements for Transfer .................................... 10
2.9 Rights and Obligations of Transferor ......................... 10
ARTICLE III
GENERAL PROVISIONS ................................................. 10
3.1 Term of This Agreement ....................................... 10
3.2 Remedies ..................................................... 10
3.3 Notices ...................................................... 10
3.4 Legal Fees ................................................... 12
3.5 Successors and Assigns ....................................... 12
3.6 Governing Law ................................................ 12
3.7 Further Assurances ........................................... 12
3.8 Counterparts ................................................. 12
3.9 Headings ..................................................... 12
3.10 Entire Agreement ............................................. 12
3.11 Severability ................................................. 12
3.12 Waivers ...................................................... 12
3.13 Gender References ............................................ 13
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<PAGE> 3
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT ("AGREEMENT"), made and entered into as of
the ___ day of ______, 1997, by and among T. Benjamin Jennings ("TBJ"), Gerard
M. Jacobs ("GMJ"), Albert A. Cozzi ("AAC"), Frank J. Cozzi ("FJC") and Gregory
P. Cozzi ("GPC") (each a "STOCKHOLDER" and collectively the "STOCKHOLDERS") and
Metal Management, Inc., a Delaware corporation (the "CORPORATION").
R E C I T A L S
A. Pursuant to that certain Agreement and Plan of Merger dated May ___,
1997 (the "MERGER AGREEMENT") among the Corporation, CIM Acquisition, Co., Cozzi
Iron & Metal, Inc., AAC, FJC and GPC (AAC, FJC and GPC being sometimes
hereinafter referred to collectively as the "COZZI STOCKHOLDERS"), the Cozzi
Stockholders will receive [11,500,000] shares of common stock, $.01 par value
per share, of the Corporation (the "COMMON STOCK"), subject to adjustment as
provided in the Merger Agreement.
B. TBJ and GMJ (the "JJ STOCKHOLDERS") currently own an aggregate of
1,020,000 shares of the Common Stock of the Corporation.
C. The Stockholders desire to provide for the manner in which they will
vote their shares of Common Stock as to the management of the Corporation and
for the imposition of certain restrictions upon the disposition of shares of
Common Stock of the Corporation held by the Stockholders;
NOW, THEREFORE, in consideration of the mutual covenants and provisions
herein set forth, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, IT IS HEREBY AGREED as follows:
ARTICLE I
CORPORATE STRUCTURE AND OPERATION
1.1 BOARD OF DIRECTORS.
(a) BOARD SIZE. The Board of Directors of the Corporation shall at
all times consist of an even number of directors, which shall be not less than
eight (8) nor more than sixteen (16).
(b) ELECTION OF DIRECTORS. At all meetings (and written actions in
lieu of meetings) of stockholders of the Corporation at which directors are to
be elected, each Stockholder shall vote all of such Stockholder's shares of
Common Stock to elect as directors of the Corporation the persons nominated in
accordance with the following provisions:
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(i) The JJ Stockholders shall have the right to nominate that
number of persons (each, a "JJ DIRECTOR") constituting one-half of the
total number of directors of the Corporation; provided, that one of
such nominees shall be an Independent Director (as defined below), who
shall be reasonably acceptable to the Cozzi Stockholders; and
(ii) The Cozzi Stockholders shall have the right to nominate
that number of persons (each, a "COZZI DIRECTOR") constituting
one-half of the total number of directors of the Corporation;
provided, that one of such nominees shall be an Independent Director
(as defined below), who shall be reasonably acceptable to the JJ
Stockholders.
For purposes of this Agreement, an "INDEPENDENT DIRECTOR" shall mean a
director who is not an employee, officer or director of the Corporation or
any of its subsidiaries or a relative or an Associate of any of the
Stockholders. "ASSOCIATE" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations of the Securities Exchange Act
of 1934, as amended.
(c) REMOVAL. Each Stockholder agrees to vote such Stockholder's
shares of Common Stock to remove a JJ Director upon request at any time by
the unanimous consent of the JJ Stockholders, and to remove a Cozzi
Director upon request at any time by the holders of a majority of the
shares of Common Stock held by the Cozzi Stockholders, provided, that the
Stockholders making such request shall simultaneously designate a
replacement to fill any vacancy so created, which replacement, if such
replacement is an Independent Director, shall be reasonably acceptable to
the other group.
(d) VACANCIES. Each Stockholder agrees to vote such Stockholder's
shares of Common Stock to fill any vacancy on the Board of Directors caused
by the death, disability, resignation or removal of any JJ Director or
Cozzi Director, with a nominee selected by the JJ Stockholders or the Cozzi
Stockholders, respectively; provided, that if such nominee is to fill the
vacancy of an Independent Director, such nominee shall be reasonably
acceptable to the other group.
(e) SELECTION OF NOMINEES. Any person nominated by the holders of a
majority of the shares of Common Stock held by the Cozzi Stockholders, as
to the Cozzi Directors, and by the unanimous approval of the JJ
Stockholders, as to the JJ Directors, shall be deemed to be the nominee of
such group. Each group shall notify the Corporation of its nominees not
less than forty-five (45) days prior to the Corporation's annual meeting,
and not less than forty-five (45) days prior to any special meeting at
which directors are to be elected.
1.2 MANAGEMENT PROVISIONS. Without limiting the actions that may be
required, by applicable law or otherwise, to be approved by the Board of
Directors, the parties expressly agree that, unless approved by a two-thirds
vote of the Board of Directors, neither the Corporation nor any of its
subsidiaries may take or agree to take, and no Stockholder shall cause the
Corporation or any subsidiary to take or agree to take, any of the following
actions:
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(i) amend the Certificate of Incorporation or By-laws of the
Corporation;
(ii) wind-up, liquidate, dissolve or reorganize the
Corporation or adopt a plan or proposal contemplating any of the
foregoing;
(iii) approve the annual budget of the Corporation for any
fiscal year or approve any course of action which would cause the
Corporation to materially deviate from its budget;
(iv) elect or remove Officers;
(v) change the level of compensation of or modify or
terminate any written agreement with AAC, FJC, GPC, GMJ or TBJ;
(vi) issue securities of the Corporation including debt or
equity securities, options, rights or warrants, or any other
securities which are convertible into or exchangeable for shares of
Common Stock of the Corporation;
(vii) register any securities of the Corporation;
(viii) borrow funds in excess of $5,000,000 or provide a
guarantee in respect of the obligations of another person or request
any waiver from a lender to the Corporation;
(ix) merge, consolidate or combine the Corporation with any
person or sell substantially all of its assets;
(x) purchase, sell, lease, acquire or dispose of assets
valued at $5,000,000 or more, including acquiring another company,
division or line of business (other than matters provided for in the
Corporation's annual budget approved in accordance with this
Agreement);
(xi) declare or pay any dividends or any other distribution
in respect of any securities of the Corporation or redeem, acquire or
retire any securities of the Corporation;
(xii) make or commit to make during any fiscal year capital
expenditures (other than capital expenditures provided for in the
Corporation's annual budget approved in accordance with this
Agreement) which, in the aggregate, exceed $5,000,000;
(xiii) create any committee of the Board of Directors or change
a committee of the Board of Directors; and
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(xiv) make any decision involving a matter referred to in (i)
through (xiii), inclusive, relating to any subsidiary of the
Corporation.
1.3 COMMITTEES. The Board of Directors shall establish and at all times
maintain an Executive Committee consisting of at least the Chairman of the
Board, the President, and the Chief Executive Officer; provided, that in the
event of the death or disability of Albert A. Cozzi, Frank J. Cozzi shall
assume Albert A. Cozzi's position on such Executive Committee. The Board of
Directors shall delegate to the Executive Committee all the power and authority
of the Board of Directors, including those matters set forth in Section 1.2,
relating to the management of the business and affairs of the Corporation to
the extent permitted under Section 141 (c) (i) of the General Corporation Law
of the State of Delaware. Any action to be taken by the Executive Committee
shall require the unanimous consent of Albert A. Cozzi, Gerard M. Jacobs and T.
Benjamin Jennings.
1.4 ELECTION OF OFFICERS. The Stockholders shall cause their designees on
the Board of Directors to elect the following persons to the offices set forth
opposite their names:
(a) Albert A. Cozzi President, Chief Operating Officer
(b) Gerard M. Jacobs Chief Executive Officer
(c) T. Benjamin Jennings Chairman of the Board and Chief Development Officer
(d) Frank J. Cozzi Vice President and President of Cozzi Iron &
Metal, Inc.
1.5 AGREEMENT TO VOTE SHARES. Each Stockholder shall vote all of his
shares of Common Stock (or such other securities of the Corporation which
entitle such Stockholder to vote on such matters), execute and deliver such
further documents, take such further action and cause its designees on the
Board of Directors to vote in such a manner as may be necessary or desirable to
carry out the purposes and intent of this Agreement, including, without
limitation, any amendments to the Certificate of Incorporation or By-Laws which
are required by law or prudent business practices in order to make the terms of
this Agreement effective and binding on the Corporation and all of its
stockholders or otherwise to effectuate any of the terms, conditions,
provisions or purposes hereof.
ARTICLE II
RESTRICTIONS UPON AND OBLIGATIONS WITH
RESPECT TO DISPOSITION OF SHARES
2.1 CERTAIN DEFINITIONS. The term "CORPORATION SECURITIES" as used herein
shall mean any shares of capital stock of the Corporation at any time owned or
subscribed for by any party hereto, and any subscriptions, options, warrants,
calls, commitments, or rights of any kind whatsoever to purchase or otherwise
acquire any shares of capital stock of the Corporation.
2.2 GENERAL RESTRICTION. During the term of this Agreement, each
Stockholder covenants and agrees that such Stockholder will not, directly or
indirectly, voluntarily or
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involuntarily, sell, assign, transfer, pledge, hypothecate, encumber or
otherwise dispose (each, a "TRANSFER") of the Corporation Securities at any
time owned by such Stockholder, or any interest therein, except for (i)
Transfers of up to that amount of Corporation Securities that such Stockholder
is permitted (or would be permitted) to sell in reliance upon Rule 144 of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), as specified in
paragraph (c) of such Rule 144, (ii) Transfers to Permitted Transferees (as
hereinafter defined), (iii) Transfers in accordance with the terms and
conditions of the provisions of Section 2.3 or 2.4, (iv) Transfers of
Corporation Securities registered under the Securities Act, or (v) Transfers
between the Escrow Agent (as such term is defined in that certain Escrow
Agreement by and among the Corporation, the Stockholders and [Chicago Title &
Trust Corp.]) and the Stockholders or the Corporation pursuant to the terms of
the Escrow Agreement.. Any attempted Transfer not in accordance with the terms
and conditions of this Agreement shall be void and of no force or effect.
2.3 FIRST REFUSAL OPTIONS.
(a) RECEIPT OF OFFER. If at any time after the date hereof any
Stockholder shall at any time desire to sell all or a portion of the Corporation
Securities owned by such Stockholder (the "OFFERED CORPORATION SECURITIES"),
other than a Transfer of up to that number of Corporation Securities that such
Stockholder is permitted (or would be permitted) to sell in reliance upon Rule
144 of the Securities Act pursuant to Section 2.2(i) of this Agreement, a
Transfer to a Permitted Transferee pursuant to Section 2.2 (ii) of this
Agreement, or a Transfer of Corporation Securities registered under the
Securities Act, and shall have received a bona fide written offer for the
purchase thereof, with a proposed closing required within a reasonable time (an
"OFFER"), which such Stockholder desires to accept, such Stockholder (the
"SELLING STOCKHOLDER") shall within five (5) days thereafter transmit executed
or true and correct photostatic copies of the Offer to each of the other
Stockholders (the "REMAINING STOCKHOLDERS") and to the Corporation. For
purposes of this Section 2.3, if any portion of the purchase price for the
Offered Corporation Securities is payable in property other than in cash or a
promissory note (the "NON-CASH PORTION") the Non-Cash Portion shall be valued at
its fair market value on the date of the Offer, and shall be payable by the
Remaining Stockholders in cash in accordance with the payment terms set forth in
the Offer. The fair market value of the Non-Cash Portion shall be mutually
determined by the Selling Stockholder on the one hand, and the Remaining
Stockholders, on the other. If the two sides cannot agree on the fair market
value of the Non-Cash Portion within a fifteen (15) day period, the two sides
shall mutually select an appraiser to value such property. The option periods
set forth in Section 2.3(b) and (c), and 2.4 shall not begin to run until the
parties have assigned a value to the Non-Cash Portion.
(b) ORDER OF FIRST REFUSAL OPTIONS. All of the Offered Corporation
Securities shall thereupon be subject to the following options to purchase from
the Selling Stockholder at the price and terms set forth in the Offer, in the
following order of priority:
(i) In the event that the Selling Stockholder is a Cozzi
Stockholder, each of the remaining Cozzi Stockholders shall have the
first option to purchase any Offered Corporation Securities on a pro
rata basis (determined by reference to the
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remaining Cozzi Stockholders only) or in such proportions as is
otherwise agreed upon by the remaining Cozzi Stockholders. The
remaining Cozzi Stockholders shall exercise this option by giving
notice to the Corporation and the Selling Stockholder not later than
fifteen (15) days after the giving of the notice of Offer. If the
Cozzi Stockholders exercise the first options with respect to less
than all of the Offered Corporation Securities or fail to exercise the
options within such fifteen (15) day period, each of the JJ
Stockholders shall have the second option to purchase any remaining
Offered Corporation Securities on a pro rata basis (determined by
reference to the JJ Stockholders only) or in such proportions as is
otherwise agreed upon by the remaining JJ Stockholders. The JJ
Stockholders shall exercise their option by giving notice to the
Selling Stockholder and the Corporation not later than fifteen (15)
days after notice from the Cozzi Stockholders, or if the Cozzi
Stockholders fail to give notice, fifteen (15) days after the
expiration of the first option period. If the remaining Cozzi
Stockholders and the JJ Stockholders have in the aggregate exercised
their respective options with respect to less than all of the Offered
Corporation Securities, then the Corporation shall have a third option
to purchase any remaining Offered Corporation Securities. The
Corporation shall exercise its option by giving notice to the Selling
Stockholder not later than five (5) days after notice from the JJ
Stockholders, or if the JJ Stockholders fail to give notice, five (5)
days after the expiration of the second option period. If after the
exercise or expiration of the foregoing options there remain any
Offered Corporation Securities for sale, then no Offered Corporation
Securities may be purchased pursuant to such options and such options
shall be deemed to have expired without exercise.
(ii) In the event that the Selling Stockholder is a JJ
Stockholder, each of the remaining JJ Stockholders shall have the
first option to purchase any Offered Corporation Securities on a pro
rata basis (determined by reference to the remaining JJ Stockholders
only) or in such proportions as is otherwise agreed upon by the
remaining JJ Stockholders. The remaining JJ Stockholders shall
exercise this option by giving notice to the Corporation and the
Selling Stockholder not later than fifteen (15) days after the giving
of the notice of Offer. If the JJ Stockholders exercise the first
options with respect to less than all of the Offered Corporation
Securities or fail to exercise the options within such fifteen (15)
day period, each of the Cozzi Stockholders shall have the second
option to purchase any remaining Offered Corporation Securities on a
pro rata basis (determined by reference to the Cozzi Stockholders
only) or in such proportions as is otherwise agreed upon by the
remaining Cozzi Stockholders. The Cozzi Stockholders shall exercise
their option by giving notice to the Selling Stockholder and the
Corporation not later than fifteen (15) days after notice from the JJ
Stockholders, or if the JJ Stockholders fail to give notice, fifteen
(15) days after the expiration of the first option period. If the
remaining JJ Stockholders and the Cozzi Stockholders have in the
aggregate exercised their respective options with respect to less than
all of the Offered Corporation Securities, then the Corporation shall
have a third option to purchase any remaining Offered Corporation
Securities. The Corporation shall exercise its option
6
<PAGE> 9
by giving notice to the Selling Stockholder not later than five (5)
days after notice from the Cozzi Stockholders, or if the Cozzi
Stockholders fail to give notice, five (5) days after the expiration
of the second option period. If after the exercise or expiration of
the foregoing options there remain any Offered Corporation Securities
for sale, then no Offered Corporation Securities may be purchased
pursuant to such options and such options shall be deemed to have
expired without exercise.
(c) PLACE OF CLOSING. Unless otherwise agreed by the parties, all
purchases pursuant to exercise of any options hereunder shall be
consummated at the offices of the Corporation, and the date of Closing
shall be as provided in Section 2.3 (d) below.
(d) DATE OF CLOSING. The purchase of Offered Corporation Securities
pursuant to the exercise of one or more of the options provided for in this
Section 2.3 shall be consummated on the date specified in the Offer or
sixty (60) days after the exercise or expiration of the last such option,
whichever is later (an "OPTION CLOSING DATE").
(e) DELIVERIES AT CLOSING. The cash portion of the purchase price of
any Corporation Securities purchased hereunder shall be paid on the Option
Closing Date by certified or bank cashier's check or by wire transfer as
designated by the Selling Stockholder. Simultaneously with such payment,
the Selling Stockholder shall deliver to the purchaser a certificate or
certificates representing all of the Corporation Securities so purchased,
duly endorsed in blank, or with separate assignments attached duly executed
in blank, in either case with signatures guaranteed and appropriate tax
stamps, if any, affixed, in form satisfactory to transfer such Corporation
Securities to the order of such purchaser, free and clear of any liens,
claims or encumbrances thereon. Each Selling Stockholder shall furnish to
each purchaser such additional evidence and executed documents as such
purchaser may reasonably request to establish that the transfer of such
shares is valid and free and clear of any liens, claims or encumbrances.
(f) RIGHT TO ACCEPT. In the event that the options provided for in
Section 2.3 (b) hereof expire without exercise or the Offered Corporation
Securities are not purchased pursuant to exercise thereof, then within
sixty (60) days after all rights to make such purchase shall have expired,
the Selling Stockholder, subject to the provisions of Section 2.4, shall
have the right to consummate the sale of all of the Offered Corporation
Securities, upon terms and conditions no less favorable than those
contained in the Offer, to the offeror thereunder. If for any reason the
sale is not consummated within the period provided for herein, the Selling
Stockholder shall not thereafter dispose of the Offered Corporation
Securities unless and until it has again complied with all of the
provisions hereof.
2.4 TAG ALONG RIGHTS. In addition to the options set forth in Section
2.3, if a Selling Stockholder has given notice of an Offer to sell more than
that number of Corporation Securities that such Stockholder is permitted (or
would be permitted) to sell in reliance upon Rule 144 of the Securities Act
pursuant to Section 2.2(i) of this Agreement to any person other than the
Corporation or a Permitted Transferee (the "PROPOSED TRANSFEREE") other than an
offer of Corporation Securities registered under the Securities Act, the
Remaining Stockholders shall have the right to elect to
7
<PAGE> 10
participate in the contemplated transaction by delivering a notice to the
Selling Stockholder within five (5) days of the expiration of all of the options
set forth in Section 2.3. If any Remaining Stockholder elects to participate in
the proposed sale, he shall have the right to sell, at the same price and on the
same terms as set forth on the Offer, that number of shares of Common Stock
equal to the product of (i) the number obtained by dividing (A) the number of
shares of Common Stock owned by such Remaining Stockholder, by (B) the aggregate
number of shares owned by the Selling Stockholder and all Remaining Stockholders
electing to participate in the sale, and (ii) the number of shares of Common
Stock to be sold to the Proposed Transferee pursuant to the Offer (the
"TAG-ALONG SHARES"). The Tag-Along Shares shall either (i) be purchased by the
Proposed Transferee in addition to the Selling Stockholder's shares, or (ii) be
purchased by the Proposed Transferee in lieu (and reduction) of the number of
shares being sold by the Selling Stockholder. The Selling Stockholder will use
his best efforts to obtain the agreement of the Proposed Transferee to the
participation of the Remaining Stockholders in such sale. The Selling
Stockholder will be prohibited from transferring any of his shares of Common
Stock to the Proposed Transferee if the Proposed Transferee declines to allow
the participation of the Remaining Stockholders electing to participate.
2.5 EFFECT OF GIVING OF NOTICE. The giving of any notice of exercise of
any option to purchase, or to require any other party to sell, any Corporation
Securities shall, subject to revocation of such as herein expressly permitted,
create a binding contract for the sale and purchase of such Corporation
Securities on the Option Closing Date in accordance with the provisions hereof.
2.6 RESTRICTIVE LEGEND ON SECURITIES. Each stock certificate or
instrument representing any Corporation Securities shall be endorsed with the
following legend:
"The shares represented by this Certificate have not been registered
under the Securities Act of 1933 (the "ACT") or any state securities
law. This Certificate may not be transferred or otherwise disposed of
unless an effective registration statement under the Act and all
applicable state securities laws is then in effect or, in the opinion
of counsel for the Corporation, such registration is not necessary.
The transfer or other disposition of the shares represented by this
Certificate is also restricted under the terms of a Stockholders'
Agreement dated _________, 1997 by and among T. Benjamin Jennings,
Gerard M. Jacobs, Albert A. Cozzi, Frank J. Cozzi and Gregory P.
Cozzi, a copy of which is available in the office of the Corporation."
2.7 PERMITTED TRANSFERS.
(a) Notwithstanding anything contained in Section 2.2 to the
contrary, a Stockholder may transfer any or all of his Corporation
Securities to a Permitted Transferee, as defined below, subject to the
terms and conditions contained in this Section 2.7.
(b) A "PERMITTED TRANSFEREE" of a Stockholder is hereby defined as
and construed to mean any one or more of the following:
(i) With respect to a Cozzi Stockholder, to any other Cozzi
Stockholder;
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<PAGE> 11
(ii) With respect to a JJ Stockholder, to any other JJ
Stockholder;
(iii) An executor(s), administrator(s) or conservator(s) of
the Stockholder;
(iv) A beneficiary of a deceased Stockholder's will or trust;
(v) A trustee or trustees of a trust or a beneficiary or
beneficiaries of a trust created by a Stockholder, but only if (A) the
beneficiary or beneficiaries of such trust are one or more of a group
consisting of the Stockholder, the spouse of the Stockholder and the
descendants and/or the adopted children of the Stockholder or the
Stockholder's parents, and (B) the trustee or other person exercising
dominion or control over such trust is a Stockholder or former
Stockholder; and
(vi) A Transferee of a Permitted Transferee if the transfer
would have been permissible under the provisions hereof if made by the
Stockholder who originally transferred the Corporation Securities to
the Permitted Transferee.
(c) All Permitted Transferees shall execute an appropriate supplement
to this Agreement pursuant to which the Permitted Transferee agrees to
assume and become subject to all of the rights and obligations hereunder of
the party whose Corporation Securities it has acquired and upon such
execution shall be deemed a Stockholder hereunder; provided, however, that
with respect to a Permitted Transferee under Section 2.7(b)(iii) and (iv),
the Permitted Transferee shall further execute a proxy granting to the
Remaining Stockholders of the deceased Stockholder's group the right to
vote the transferred Corporation Securities with respect to the
designation, nomination and/or election of directors. The proxy shall be
in a form acceptable to the Remaining Stockholders. The Permitted
Transferee shall assume and become subject to all of the rights and
obligations hereunder of the Stockholder whose Corporation Securities it
has acquired. Until a Permitted Transferee shall execute such a supplement
to this Agreement, and a proxy, if necessary, the transfer and conveyance
of the Corporation Securities to such Permitted Transferee shall be void
and of no effect and he or she shall not be deemed a Stockholder hereunder
and shall have none of the rights and benefits of a Stockholder hereunder.
2.8 REQUIREMENTS FOR TRANSFER. Other than Transfers permitted pursuant to
Section 2.2(i), (iii) and (iv) of this Agreement, no Corporation Securities
shall be transferred upon the books of the Corporation, nor shall any sale or
transfer or any other disposition thereof be effective, unless and until (a) all
of the terms and conditions of this Agreement and applicable law have been first
complied with and, with respect to compliance with applicable law, the
Corporation has been provided with an opinion of counsel in form and substance
satisfactory to the Corporation's counsel, and (b) the transferees shall have
executed an agreement in form and substance satisfactory to counsel for the
Corporation to assume and become subject to all of the rights and obligations
hereunder of the party whose Corporation Securities it has acquired, including,
without limitation, the obligation to make payment for any unpaid stock
subscriptions and the obligations and
9
<PAGE> 12
restrictions under Article II hereof with respect to disposition of the
Corporation Securities with the same full force and effect as if originally a
signatory hereto.
2.9 RIGHTS AND OBLIGATIONS OF TRANSFEROR. Following disposition of all of
its Corporation Securities in compliance with this Agreement, a party hereto
shall have no further rights or obligations hereunder.
ARTICLE II
GENERAL PROVISIONS
3.1 TERM OF THIS AGREEMENT. This Agreement shall continue in full force
and effect for a period of ten (10) years unless sooner terminated by the
unanimous consent of the Stockholders. No termination of this Agreement, by
lapse of time or otherwise shall affect any rights or obligations created by
exercise of any option to purchase or sell the Corporation Securities in
accordance with any of the provisions of Article II hereof.
3.2 REMEDIES. Each of the parties to this Agreement acknowledges that (a)
the rights of the Stockholders concerning the restrictions on the transfer of
the Corporation Securities, and in the management and affairs of the Corporation
are unique, and (b) any failure of any Stockholder to perform any of such
party's obligations under this Agreement will cause irreparable harm for which
any remedies at law would be inadequate. Accordingly, each of the parties
agrees that, in the event of any actual or threatened or attempted failure of
any party to perform any of its obligations hereunder, each of the other parties
shall, in addition to all other remedies, be entitled to a decree for specific
performance of the provisions of this Agreement and to temporary and permanent
injunctions restraining such failure or commanding performance of such
obligations, without being required to show actual damage or to furnish any bond
or other security.
3.3 NOTICES. All notices required or permitted hereunder shall be in
writing, signed by the party giving notice or an officer thereof, and shall be
deemed to have been given when delivered by personal delivery, by Federal
Express or similar courier service, by facsimile or three (3) days after deposit
in the United States mail, registered or certified, with postage prepaid,
addressed as follows:
(A) If to AAC, FJC or GPC at:
Cozzi Iron & Metal, Inc.
2232 South Blue Island Avenue
Chicago, Illinois 60608
Tel.: (773) 254-1200
Fax: (773) 254-8201
(B) If to TBJ, at:
12 Country Lane
10
<PAGE> 13
Northfield, Illinois 60093
with a copy to:
[Personal Representative]
(C) If to GMJ, at:
7600 Augusta
River Forest, Illinois 60305
with a copy to:
[Personal Representative]
(D) If to the Corporation, at:
500 North Dearborn Street
Suite 405
Chicago, Illinois 60610
Attn:Chief Financial Officer
Fax:(312) 645-0714
With a copy to:
SHEFSKY & FROELICH LTD.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
Attn: Erhard R. Chorle
Fax: (312) 527-5921
or such other address as any party may designate for himself or itself by
notice given to the other parties from time to time in accordance with the
provisions hereof.
3.4 LEGAL FEES. In the event that any action is filed to enforce any of
the terms, covenants or provisions of this Agreement, the prevailing party in
such action shall be entitled to payment from the other party of all costs and
expenses, including reasonable attorney fees, court costs and ancillary
expenses incurred by such prevailing party in connection with such action.
3.5 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
personal representatives, successors and assigns.
11
<PAGE> 14
3.6 GOVERNING LAW. This Agreement shall be controlled, construed and
enforced in accordance with the substantive laws of the United States and the
State of Illinois, notwithstanding any choice of law conflicts.
3.7 FURTHER ASSURANCES. Each party agrees to cooperate with the others,
and to execute and deliver, or cause to be executed and delivered, all such
other instruments, and to take all such other actions as it may be reasonably
required to take, from time to time, in order to effect the provisions and
purposes hereof.
3.8 COUNTERPARTS. This Agreement may be executed in any one or more
counterparts, each of which shall constitute an original, no other counterpart
needing to be produced and all of which, when taken together, shall constitute
but one and the same instrument.
3.9 HEADINGS. The headings of Articles and subdivisions herein are merely
for convenience of reference and shall not affect the interpretation of any of
the provisions hereof.
3.10 ENTIRE AGREEMENT. This Agreement and the Merger Agreement contain the
entire understanding among the parties with respect to the subject matter of
this Agreement. Any modification hereof may be made only by an instrument in
writing signed by all of the parties hereto.
3.11 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be construed and interpreted in such a manner as to be effective and
valid under applicable law. If any provision of this Agreement or the
application thereof to any party or circumstance shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition without invalidating the remainder of such provision or any
other provision of this Agreement or the application of such provision to other
parties or circumstances.
3.12 WAIVERS. No delay on the part of any party in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by any party or any remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy.
3.13 GENDER REFERENCES. Whenever appropriate, the singular form of a word
shall be interpreted in the plural and vice versa. All words and phrases shall
be construed as masculine, feminine or neuter gender, according to the context.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first above written.
METAL MANAGEMENT, INC.,
a Delaware corporation
By:________________________________
Its:_______________________________
_______________________________________
T. Benjamin Jennings
_______________________________________
Gerard M. Jacobs
_______________________________________
Albert A. Cozzi
_______________________________________
Frank J. Cozzi
_______________________________________
Gregory P. Cozzi
13
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
METAL MANAGEMENT, INC.
(FORMERLY GENERAL PARAMETRICS CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I: CORPORATE OFFICES........................................... 1
1.1 REGISTERED OFFICE...................................... 1
1.2 OTHER OFFICES.......................................... 1
ARTICLE II: MEETINGS OF STOCKHOLDERS................................... 1
2.1 PLACE OF MEETINGS...................................... 1
2.2 ANNUAL MEETING......................................... 1
2.3 SPECIAL MEETING........................................ 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS....................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.......... 2
2.6 QUORUM................................................. 2
2.7 ADJOURNED MEETING; NOTICE............................. 3
2.8 VOTING................................................. 3
2.9 WAIVER OF NOTICE....................................... 3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING................................................ 4
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS............................................... 4
2.12 PROXIES................................................ 5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.................. 5
2.14 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND CUMULATIVE
VOTING................................................. 5
2.15 ADVANCE NOTICE OF STOCKHOLDER BUSINESS................. 6
ARTICLE III: DIRECTORS................................................. 7
3.1 POWERS................................................. 7
3.2 NUMBER OF DIRECTORS.................................... 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF
DIRECTORS.............................................. 7
3.4 RESIGNATION AND VACANCIES.............................. 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.............. 8
3.6 FIRST MEETINGS......................................... 8
3.7 REGULAR MEETINGS....................................... 9
3.8 SPECIAL MEETINGS; NOTICE.............................. 9
3.9 QUORUM................................................. 9
3.10 WAIVER OF NOTICE....................................... 10
3.11 ADJOURNED MEETING; NOTICE............................. 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING...... 10
3.13 FEES AND COMPENSATION OF DIRECTORS..................... 10
3.14 APPROVAL OF LOANS TO OFFICERS.......................... 10
3.15 REMOVAL OF DIRECTORS................................... 11
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<PAGE> 3
ARTICLE IV: COMMITTEES................................................. 11
4.1 COMMITTEES OF DIRECTORS................................ 11
4.2 COMMITTEE MINUSES...................................... 12
4.3 MEETINGS AND ACTION OF COMMITTEES...................... 12
ARTICLE V: OFFICERS.................................................... 12
5.1 OFFICERS............................................... 12
5.2 ELECTION OF OFFICERS................................... 12
5.3 SUBORDINATE APPOINTED OFFICERS......................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS.................... 13
5.5 VACANCIES IN OFFICES................................... 13
5.6 CHAIRMAN OF THE BOARD.................................. 13
5.7 PRESIDENT.............................................. 14
5.8 VICE PRESIDENTS........................................ 14
5.9 SECRETARY.............................................. 14
5.10 CHIEF FINANCIAL OFFICER................................ 15
5.11 AUTHORITY AND DUTIES OF OFFICERS....................... 15
ARTICLE VI: INDEMNITY.................................................. 15
6.1 THIRD PARTY ACTIONS.................................... 15
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.......... 16
6.3 SUCCESSFUL DEFENSE..................................... 16
6.4 DETERMINATION OF CONDUCT............................... 16
6.5 PAYMENT OF EXPENSES IN ADVANCE......................... 16
6.6 INDEMNITY NOT EXCLUSIVE................................ 17
6.7 INSURANCE INDEMNIFICATION.............................. 17
6.8 THE CORPORATION........................................ 17
6.9 EMPLOYEE BENEFIT PLANS................................. 17
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES............................................... 18
ARTICLE VII: RECORDS AND REPORTS....................................... 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS.................. 18
7.2 INSPECTION BY DIRECTORS................................ 19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS....................... 19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS......... 19
ARTICLE VIII: GENERAL MATTERS.......................................... 19
8.1 CHECKS................................................. 19
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS....... 19
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES................ 20
8.4 SPECIAL DESIGNATION ON CERTIFICATES.................... 20
8.5 LOST CERTIFICATES...................................... 21
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<PAGE> 4
8.6 CONSTRUCTION; DEFINITIONS............................. 21
8.7 DIVIDENDS.............................................. 21
8.8 FISCAL YEAR............................................ 21
8.9 SEAL................................................... 21
8.10 TRANSFER OF STOCK...................................... 21
8.11 STOCK TRANSFER AGREEMENTS.............................. 22
8.12 REGISTERED STOCKHOLDERS................................ 22
ARTICLE IX: AMENDMENTS................................................. 22
ARTICLE X: CUSTODIAN................................................... 22
10.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES............ 22
10.2 DUTIES OF CUSTODIAN.................................... 23
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<PAGE> 5
AMENDED AND RESTATED BY-LAWS
OF
METAL MANAGEMENT, INC.
(FORMERLY GENERAL PARAMETRICS CORPORATION)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices,
including a principal executive office, at any place or places within or outside
of the State of Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
<PAGE> 6
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president or
chief executive officer, or by one or more stockholders holding shares in the
aggregate entitled to cast not less than ten percent of the votes at that
meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, the
chief executive officer, or the secretary of the corporation. Any of such
officers receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of this Article II, that a meeting will be held at the time requested by
the person or persons who called the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after the receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the board
of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these by-laws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
the place, date, and hour of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at
which a quorum is present or
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<PAGE> 7
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
by-laws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these
by-laws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of votes which such stockholder normally is entitled to cast). Each
holder of stock, or of any class or classes or of a series or series thereof,
who elects to cumulate votes shall be entitled to as many votes as equals the
number of votes which (absent this provision as to cumulative voting) he or she
would be entitled to cast for the election of directors with respect to his
shares of stock multiplied by the number of directors to be elected by him, and
he or she may cast all of such votes for a single director or may distribute
them among the number to be voted for, or for any two or more of them, as he or
she may see fit.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these by-laws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
by-laws.
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<PAGE> 8
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation or the
General Corporation Law of Delaware, any action required to be taken at any
annual or special meeting of stockholders of a corporation, or any action that
may be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice, and without a vote if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
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A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.14 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND CUMULATIVE
VOTING
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this Section 2.14. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation. Timely notice
shall also be given of any stockholder's intention to cumulate votes in the
election of directors at a meeting. In either case, to be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than twenty (20) days
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event less than thirty (30) days notice or prior public disclosure of the
date of the meeting is given or made to stock holders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. Such stockholder's notice shall set
forth (a) as to each person, if any, whom the stockholder proposes to nominate
for election or re-election as a director: (i) the name, age, business
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address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
corporation that are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such person's written consent to being
named in the proxy statement, if any, as a nominee and to serving as a director
if elected); and (b) as to the stockholder giving the notice: (i) the name and
address, as they appear on the corporation's books, of such stockholder, (ii)
the class and number of shares of the corporation that are beneficially owned by
such stockholder, and (iii) whether such stockholder intends to request
cumulative voting in the election of directors at the meeting. At the request of
the Board of Directors, any person nominated by the Board for election as a
director shall furnish to the Secretary of the corporation the information
required to be set forth in the stockholder's notice of nomination that pertains
to the nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 2.14. The chairman of the meeting shall, if the facts warrant, determine
and declare at the meeting that a nomination was not made in accordance with the
procedures prescribed by these Bylaws, and if he or she should so determine, he
or she shall so declare at the meeting and the defective nomination shall be
disregarded.
2.15 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (a) as specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than fifty (50) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting: (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the corporation that are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business, and
(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, in his or her capacity as a proponent of a stock holder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholders' meeting, stockholders must provide notice as required by the
regulations promulgated under the Securities Exchange Act of 1934, as amended,
and must meet the technical and substantive requirements of Rule 14a-8
thereunder.
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Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this Section 2.15. The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section 2.15, and, if he or she should so determine, he or she shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these by-laws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of ten (10) persons. This number
may be changed by a duly adopted amendment to the Certificate of Incorporation
or by an amendment to this Section 3.2 that is duly adopted by the Board of
Directors or approved by the vote or written consent of a majority of the votes
entitled to be cast by the holders of all outstanding shares of stock.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these by-laws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these by-laws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided in this section in the filling of other vacancies.
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Unless otherwise provided in the certificate of incorporation or these
by-laws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these by-laws, or may
apply to the Court of Chancery for a decree summarily ordering an election as
provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
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shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, the chief
executive officer, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone or telecopy to each director or sent by electronic
mail, first-class mail or telegram, charges prepaid, addressed to each director
at that director's address as it is shown on the records of the corporation. If
the notice is mailed, it shall be deposited in the United States mail at least
four (4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy, electronic mail or telegram, it
shall be delivered personally or by telephone or transmitted via telecopy or
electronic mail or delivered to the telegraph company, as the case may be, at
least forty-eight (48) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated (i) to the
director or (ii) to a person at the office of the director who the person giving
the notice has reason to believe will promptly communicate it to the director or
(iii) to the director's voice message box. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjournment the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these by-laws, a written waiver thereof, signed by the
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person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these by-laws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these by-laws, the board of directors shall have the authority to fix the
compensation of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these by-laws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
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No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the board
of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the by-laws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the by-laws of the corporation; and, unless the
board resolution establishing the committee, the by-laws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUSES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
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4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these by-laws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), and Section 3.12 (action without a meeting), with such changes in
the context of those by-laws as are necessary to substitute the committee and
its members for the board of directors and its members; provided, however, that
the time of regular meetings of committees may also be called by resolution of
the board of directors and that notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
by-laws.
4.4 EXECUTIVE COMMITTEE
An Executive Committee of the Board of Directors 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
those certain actions to be specified in Section 1.2 of the stockholders'
agreement for the Corporation to be dated as of the closing of the merger of a
subsidiary of the Corporation with and into Cozzi Iron & Metal, Inc. by and
among T. Benjamin Jennings, Gerard M. Jacobs, Albert A. Cozzi, Frank J. Cozzi,
Gregory P. Cozzi and the Corporation. The Executive Committee shall consist of
the Chairman of the Board of Directors, the President and Chief Operating
Officer of the Corporation or his successor on the Executive Committee, Frank
J. Cozzi, and the Chief Executive Officer of the Corporation, and one or more
senior company executives chosen by the Executive Committee. 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
Corporation, and (iii) Gerard M. Jacobs, so long as he is then employed by the
Corporation.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, a chief executive officer, one
or more elected vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and any such other officers (including appointed vice
presidents) as may be appointed in accordance with the provisions of Section 5.3
of these by-laws. Any number of offices may be held by the same person. Two
persons may hold the same office as co-officers if so specified by the board of
directors.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
by-laws, shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment. An officer of the
corporation elected pursuant to this Section 5.2 may also serve as an appointed
officer pursuant to Section 5.3 hereof.
5.3 SUBORDINATE APPOINTED OFFICERS
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require. Each of such appointed officers shall hold office for such period, have
such authority, and perform such duties as are provided in these by-laws (if
any) or as the board of directors or the president, as the case may be, may from
time to time determine. Such appointed officers may have titles such as vice
president of the corporation or a division of the corporation or president of a
division of the corporation, or similar such titles, subject to such limits in
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appointment power as the board may determine. An appointed officer, absent
specific election by the board of directors as an elected corporate officer: (a)
shall not be considered an officer elected by the board of directors pursuant to
Section 5.2 of these bylaws and shall not have the executive powers or
policy-making authority of officers elected by the board of directors pursuant
to Section 5.2 hereof; (b) shall not be considered an "officer" within the
meaning of Rule 3b-2 or Rule 16a-1(f) promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or an "executive officer" of the
corporation within the meaning of Rule 3b-7 promulgated under the Exchange Act,
and such a person shall not be given the access to inside information of the
corporation enjoyed by elected officers of the corporation; (c) shall not be
considered a "corporate officer" within the meaning of Section 312 of the
California Corporations Code, except in any such case as is otherwise required
by law; and (d) shall be empowered to represent himself or herself to third
parties as an appointed officer only, and shall only be empowered to execute
documents, bind the corporation or otherwise act on behalf of the corporation as
authorized by the president of the corporation or by resolution of the board of
directors.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any office may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer elected by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these by-laws. The chairman of the
board shall also be the chief executive officer of the corporation, unless board
of directors appoints another person to such office, and shall have general
supervision, direction, and control of the business and the officers of the
corporation. He or she shall preside at all meetings of the stockholders and at
all meetings of the board of directors.
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5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief operating officer of the corporation and shall,
subject to the control of the board of directors, have the general powers and
duties of management usually vested in the off ice of president of a corporation
and shall have such other powers and duties as may be prescribed by the board of
directors or these by-laws. If the chairman of the board is not appointed as
chief executive officer, then the president shall be the chief executive officer
and shall have the powers and duties prescribed in Section 5.6 of these by-laws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, elected pursuant to this Section 5.8 and not those appointed pursuant to
Section 5.3, in order of their rank as fixed by the board of directors or, if
not ranked, a vice president designated by the board of directors, shall perform
all the duties of the president and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the president. Such vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these
by-laws, the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these by-laws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these by-laws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation,
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<PAGE> 19
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, retained earnings, and shares. The books of account shall at
all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. He or she shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all his transactions as chief financial officer and of the
financial condition of the corporation, and shall have other powers and perform
such other duties as may be prescribed by the board of directors or the by-laws.
5.11 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonable believed to be in
or not opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to
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<PAGE> 20
procure a judgment in its favor by reason of the fact that he or she is or was a
director, officer, employee or agent of corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a
court) shall be made by only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall
be made (1) by the Board of Directors or the Executive Committee by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding or (2) or if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he or she is not entitled to be indemnified
by the corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of
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<PAGE> 21
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under and subject to the provisions of this Article VI (including,
without limitation the provisions of Section 6.4) with respect to the resulting
or surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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<PAGE> 22
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these by-laws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, a least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
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<PAGE> 23
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these by-laws,
may authorize any officer or officers, or agent or agents to enter into any
contract or execute any instrument in the name of' and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer,- agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or
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<PAGE> 24
in the name of the corporation by the chairman or vice-chairman of the board of
directors, or the president or vice-president, and by the chief financial
officer or an assistant treasurer, or the secretary or an assistant secretary of
such corporation representing the number of shares registered n certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
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<PAGE> 25
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these by-laws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation shall adopt a corporate seal, which may be altered at
pleasure, and use the same by causing it or a facsimile thereof, to be impressed
or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
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<PAGE> 26
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other by-laws of the corporation may be adopted,
amended or repealed by the stockholders entitled to vote; provided, however,
that the corporation may, in its certificate of incorporation, confer the power
to adopt, amend or repeal by-laws upon the directors. The fact that such power
has been so conferred upon the directors shall not divest the stockholders of
the power, nor the limit their power to adopt, amend or repeal by-laws.
ARTICLE X
CUSTODIAN
10.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.
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<PAGE> 27
10.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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<PAGE> 28
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS
OF
METAL MANAGEMENT, INC.
(FORMERLY GENERAL PARAMETRICS CORPORATION)
Certificate by Secretary of Adoption by Stockholders' Vote
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of Metal Management, Inc., and that the
foregoing Amended and Restated Bylaws, comprising twenty-three (23) pages, were
submitted to the stockholders at their Annual Meeting held on April 9, 1996, and
to the Board of Directors on April 9, 1996, and recorded in the minutes thereof
and were adopted by the Board and ratified by the vote of stockholders entitled
to exercise the majority of the voting power of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 11th day of April, 1996.
/s/ Xavier Hermosillo
-----------------------------
Xavier Hermosillo,
Secretary
<PAGE> 1
Ex-4.1
COMMON STOCK COMMON STOCK
NUMBER [METAL MANAGEMENT, INC. LOGO] SHARES
<TABLE>
<S> <C>
SEE REVERSE FOR CERTAIN DEFINITIONS AND A
STATEMENT AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS OF SHARES
CUSIP 591097 10 0
</TABLE>
METAL MANAGEMENT, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN SAN FRANCISCO OR NEW YORK
THIS CERTIFIES THAT
SPECIMEN
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
METAL MANAGEMENT, INC.
CERTIFICATE OF STOCK
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney, upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
<TABLE>
<S><C>
[METAL MANAGEMENT, INC. SEAL]
SPECIMEN SPECIMEN
[SIG] [SIG]
CHAIRMAN OF THE BOARD OF DIRECTORS PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
METAL MANAGEMENT, INC.
The Company is authorized to issue Common Stock and Preferred Stock.
The Board of Directors of the Company has authority to fix the number of shares
and the designation of any series of Preferred Stock and to determine or alter
the rights, preferences, privileges, and restrictions granted or imposed upon
any unissued series of Preferred Stock.
A statement of the rights, preferences, privileges, and restrictions
granted to or imposed upon the respective classes or series of shares and upon
the holders thereof as established, from time to time, by the Certificate of
Incorporation of the Company and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Transfer Agent of the Company at its offices in San Francisco or New
York.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ................Custodian...................
TEN ENT - as tenants by the entireties (Cus) (Minor)
JT TEN - as joint tenants with rights of under Uniform Gifts to Minors
survivorship and not as tenants Act.........................................
in common (State)
UNIF TRF MIN ACT - ..............Custodian (until age.........)
(Cus)
.....................under Uniform Transform
(Minor)
to Minors Act...............................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________________
____________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
___________________________________________________________________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated ________________________________________
X __________________________________________________________________________
X __________________________________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
NOTICE: WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By__________________________________________________________________________________
THIS SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17AD-15.
</TABLE>
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This Agreement dated as of January 1, 1997 (the "Effective Date") is made by
and among Trojan Trading Co., Firma Plastic Co., Inc., Firma, Inc., California
Metals Recycling, Inc. and MacLeod Metals Co., each California corporations
(the "Companies" or individually, a "Company"), and Ian MacLeod ("Employee").
1. DUTIES AND SCOPE OF EMPLOYMENT.
a) EMPLOYMENT AND DUTIES. Beginning on the
Effective Date, the Companies agree to employ the Employee,
and Employee agrees to be employed, as President and Chief
Executive Officer of each of the Companies. Employee shall
assume and discharge such duties as are mutually agreed upon
by the Companies and Employee and as are commensurate with
such position, except that Employee shall not have the
ability to terminate the Controller of the Companies, which
power shall be vested solely in the Board of Directors of
the Company. During the term of the Employee's employment
with the Companies, the Employee shall devote his full time,
skill and attention to his duties and responsibilities,
which the Employee shall perform faithfully, diligently and
competently, and the Employee shall use his best efforts to
further the business of the Companies and their affiliated
entities.
b) TERM OF EMPLOYMENT. Employee's employment
with the Companies pursuant to this Agreement shall commence
on the Effective Date and shall continue until the repayment
or termination of the Class A Note (as defined in the
Acquisition Agreement dated January 1, 1997 among Metal
Management, Inc., MMI Acquisition, Inc., Metal Management
Realty, Inc., California Metals Recycling, Inc., Firma,
Inc., MacLeod Metals Co., Firma Plastic Co., Inc., Trojan
Trading Co., Ian MacLeod, Marilyn MacLeod and the MacLeod
Family Trust dated January 30, 1993) (the "Term"), unless
terminated earlier as provided herein.
2. BASE COMPENSATION. The Companies (collectively) shall
pay the Employee as compensation for his services hereunder a base
salary at the annualized rate of $60,000 (the "Base Salary"). Such
salary shall be paid periodically in accordance with normal payroll
practices of the Companies.
3. EMPLOYEE BENEFITS. The Employee shall be eligible to
participate in the employee benefit plans and executive compensation
programs maintained by the Companies applicable to other key
executives of the Companies, including (without limitation) retirement
plans, savings or profit sharing plans, stock option, incentive or
other bonus plans, life, disability, health, accident and other
insurance programs, paid vacations, and similar plans or programs,
subject, in each case, to the generally applicable terms and
conditions of the applicable plan or program in question and to the
determination of any committee administering such plan or program.
<PAGE> 2
4. EXPENSES. The Companies shall pay or reimburse
Employee for reasonable travel, entertainment or other expenses
incurred by Employee in the furtherance of or in connection with the
performance of Employee's duties hereunder in accordance with
established policies of the Companies. Employee shall furnish the
Companies with evidence of the incurrence of such expenses within a
reasonable period of time from the date that they were incurred.
5. TERMINATION.
a) TERMINATION BY THE COMPANIES. If
Employee is terminated for Cause (as defined below), then
Employee shall not be entitled to receive severance or other
benefits, except for those, if any, as may then be
established and applicable under the Companies' severance
and benefits plans and policies existing at the time of such
termination. The Companies shall not terminate Employee's
employment with them during the term other than for Cause.
After the Term, Employee's employment with the Companies
shall be at will.
b) TERMINATION BY EMPLOYEE. If Employee
voluntarily terminates his employment with any of the
Companies, then Employee shall not be entitled to receive
severance or other benefits.
c) DEFINITION OF CAUSE. For purposes of
this Agreement, the term "Cause" is defined as any one or
more of the following occurrences:
i) Employee's conviction by, or entry of a plea of
guilty or nolo contendere in, a court of competent
and final jurisdiction for any crime which
constitutes a felony in the jurisdiction involved;
or
ii) Employee's commission of an act of fraud or
misappropriation of funds upon any of the
Companies; or
iii) Employee's breach of a material provision of this
Agreement or any other agreement with any of the
Companies; or
iv) Gross negligence by Employee in the scope of his
services to any of the Companies; or
v) Employee's commencement of employment with another
employer while he is an Employee of any of the
Companies; or
vi) Material nonconformance with any of the Companies
standard business practices and policies generally
known by employees of the Companies, made known to
Employee or delivered in writing to Employee.
<PAGE> 3
d) Notwithstanding the foregoing, Employee shall not be deemed
to have been terminated for Cause without (i) reasonable
notice to Employee setting forth the reasons for such
Company's intention to terminate for Cause, and (ii) an
opportunity for Employee, together with his counsel, if any,
to be heard before the Board of Directors of such Company.
6. ARBITRATION; CONSENT TO PERSONAL JURISDICTION.
a) Employee agrees that any dispute or controversy
arising out of, relating to, or in connection with this
Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof, shall be
finally settled by binding arbitration to be held in San
Francisco County, California under the Commercial
Arbitration Rules, of the American Arbitration Association
as then in effect (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive
and binding on the parties to the arbitration. Judgment
may be entered on the arbitrator's decision in any court
having jurisdiction.
b) The arbitrator(s) shall apply California law to the
merits of any dispute or claim, without reference to rules
of conflicts of law. The arbitration proceedings shall be
governed by federal arbitration law and by the Rules,
without reference to state arbitration law.
c) The Companies, on the one hand, and the Employee, on
the other hand, shall each pay one-half of the costs and
expenses of such arbitration and each shall separately pay
its counsel fees and expenses.
d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION 6, WHICH
DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING
THIS AGREEMENT, EMPLOYEE AGREES TO SUBMIT ANY CLAIMS ARISING
OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT,
OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND
THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF
EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE
RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED
TO, THE FOLLOWING CLAIMS:
i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND
IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND
FAIR DEALING, BOTH EXPRESS AND
<PAGE> 4
IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL
INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY
FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT
NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT
OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE
AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR
LABOR STANDARDS ACT, THE CALIFORNIA FAIR
EMPLOYMENT AND HOUSING ACT, AND LABOR CODE
SECTION 201, et eq;
iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR
EMPLOYMENT DISCRIMINATION.
7. GENERAL PROVISIONS.
a) ENTIRE AGREEMENT. This Agreement represents the
entire agreement and understanding between the parties as
to the subject matter hereof, and supersede all prior or
contemporaneous agreements, whether written or oral. No
waiver, alteration, or modification, if any, of the
provisions of this Agreement shall be binding unless in
writing and signed by duly authorized representatives of the
parties hereto.
b) SEVERABILITY. If one or more of the provisions in this
Agreement are deemed void by law, then the remaining
provisions will continue in full force and effect.
c) SUCCESSORS.
i) COMPANY'S SUCCESSORS. Any successor(s)
to any of the Companies (whether direct or indirect and
whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of any
such Company's business and/or assets shall assume the
obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same
manner and to the same extent as such Company would be
required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term
"Company" shall include any successor to any Company's
business and/or assets which executes and delivers the
assumption agreement described in this subsection (a) or
which becomes bound by the terms of this Agreement by
operation of law.
<PAGE> 5
ii) EMPLOYEE'S SUCCESSORS. The
terms of this Agreement and all rights of the
Employee hereunder shall inure to the benefit of,
and be enforceable by, the Employee's personal or
legal representatives, executors, administrators,
successors, heirs, distributees, devisees and
legatees.
d) CONFLICTING OBLIGATIONS. Employee represents
that he has not entered into, and will not enter into, any
oral or written agreement in conflict herewith.
e) COUNTERPARTS. This Agreement may be executed
by either of the parties hereto in counterparts, each of
which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same
instrument.
f) GOVERNING LAW; CONSENT TO PERSONAL
JURISDICTION. This Agreement shall be governed by and
construed in accordance with the internal substantive laws,
and not the choice of law rules, of the State of California.
Employee hereby consents to the personal jurisdiction of the
state and federal courts located in California for any
action or proceeding arising from or relating to this
Agreement or relating to any arbitration in which the
parties are participants.
<PAGE> 6
g) NOTICE. Any notice or communication required or
permitted under this Agreement shall be made in writing and
delivered personally to the other party or sent by certified
or registered mail, return receipt requested and postage
prepaid.
h) IN WITNESS WHEREOF, this Employment agreement is entered
into the date first written above.
IAN MACLEOD
TROJAN TRADING CO.
By:
Print Name
Title
FIRMA PLASTIC CO., INC.
By:
Print Name
Title
FIRMA, INC.
By:
Print Name
Title
<PAGE> 7
CALIFORNIA METALS RECYCLING, INC.
By:
Print Name
Title
MACLEOD METALS CO.
By:
Print Name
Title
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
(Mike Melnik)
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into on the _______
day of January, 1997, by and between METAL MANAGEMENT, INC., a Delaware
corporation ("Corporation") and Mike Melnik ("Employee").
WITNESSETH:
WHEREAS, Employee desires to serve the Corporation in a position of
substantial responsibility; and
WHEREAS, the Board of Directors of the Corporation recognizes that the
efforts of certain employees identified by the Board as key management
employees will contribute to the growth and success of the Corporation; and
WHEREAS, the Board of Directors of the Corporation believes that, in the
best interests of the Corporation, it is essential that key management
employees, including Employee, be retained and that the Corporation be in a
position to rely on their dedication and commitment to render services to the
Corporation, irrespective of whether the Corporation is or may be acquired or
merged with or into another corporation.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Corporation and Employee agree as follows:
1. Employment. The Corporation shall employ Employee and Employee shall
serve as an employee of the Corporation for a term of Sixty (60) months from
the date hereof ("Employment Period"). The Employment Period and this
Agreement shall automatically be extended for an additional one (1) year term
following the expiration of each Employment Period unless either the
Corporation or the Employee notifies the other in writing at least thirty (30)
days prior to such expiration that the Employment Period and this Agreement
shall not be so extended. Employee shall serve as Vice President of the
Corporation and President, Chief Executive Officer and Chairman of the Board of
Directors of HouTex Metals Company, Inc., the Corporation's wholly-owned
subsidiary ("HouTex"), and shall perform the functions typically associated
with such offices. Employee shall also perform such other managerial,
administrative, technical, and other services as may be designated from time to
time by the Board of Directors of the Corporation appropriate for such officer
positions. Corporation shall not require Employee to be based at an office
location other than Harris County, Texas. Employee shall devote time and
attention to the matters of the Corporation such that Employee's services to
the Corporation constitute his sole business activity. During the Employment
Period Employee will not engage in any outside business activity, other than
purely passive investments, without obtaining the prior written consent of the
Corporation.
<PAGE> 2
2. Compensation.
(a) Employee shall initially receive as compensation for all services
performed by him hereunder an annual salary of not less than One Hundred
Thirty-Five Thousand and No/100 Dollars ($135,000). Employee's salary
hereunder shall be reviewed and may be increased by the Board of Directors of
the Corporation or HouTex from time to time. In addition to such annual base
salary, Employee shall receive such annual bonus, if any, in an amount to be
determined by the Board of Directors of the Corporation or HouTex.
(b) Employee shall be entitled to participate in all bonus, incentive,
stock option, stock purchase and other compensation plans during the Employment
Period on a basis commensurate with his position as an executive officer of the
Corporation and consistent with (but not necessarily exactly equal to) the top
executive officers of the Corporation. Specifically, Employee will receive
annual incentive bonuses and other benefits which will be determined by the
Board of Directors of the Corporation within a range of such bonuses and
benefits designated by the Board of Directors of the Corporation for its senior
executive officers who head the Corporation's regional scrap metal operating
subsidiaries or divisions.
3. Fringe Benefits. Employee shall be entitled to not less than four (4)
weeks paid vacation per year during the one year period ending on the first
anniversary date of this Agreement and shall thereafter be entitled to six (6)
weeks paid vacation for each succeeding annual period during the Employment
Period. The Corporation shall adopt a reasonable policy for sick leave and
short-term disability during which the Employee will be compensated as provided
in Section 2, above. The Corporation shall reimburse Employee for other
ordinary and necessary business expenses incurred by Employee in the course of
his employment. Employee shall also receive such other fringe benefits as the
Corporation's Board of Directors may deem appropriate, including not less than
those fringe benefits set forth on Exhibit A attached hereto. Additionally,
Employee shall be entitled to be absent from work for up to twelve (12) days
per year for purposes of observing religious holidays.
4. Termination Generally. This Agreement and Employee's employment may be
terminated by the Corporation prior to its expiration in accordance with this
Section as follows:
(a) Disability; Retirement. If, as a result of Employee's incapacity due
to physical or mental illness, Employee shall have been absent from the
performance of his duties with the Corporation for six (6) consecutive months
and, within thirty (30) days after written notice of termination is given,
Employee shall not have returned to the full-time performance of his duties,
the Corporation may terminate Employee's employment for "Disability."
Termination by the Corporation or by Employee of Employee's employment by
reason of "Retirement" shall mean termination on or after Employee's "Normal
Retirement Date" which shall be when Employee attains the age of 65, or in
accordance with any retirement arrangement established with Employee's consent
with respect to Employee.
- 2 -
<PAGE> 3
(b) The Corporation may terminate this Agreement and Employee's employment
for "Cause." "Cause" shall mean any one of the following:
(i) The willful and continued failure by Employee to substantially
perform his duties with the Corporation (other than any such failure resulting
from termination for Good Reason, Disability or Retirement) after a demand for
substantial performance is delivered to Employee that specifically identifies
the manner in which the Corporation believes that Employee has not
substantially performed his duties, and Employee failing 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
Employee 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 Employee to resume
such substantial performance;
(ii) The willful engaging by Employee in conduct which is demonstrably
and materially injurious to the Corporation, monetarily or otherwise, and
Employee's failure to cease engaging in such conduct within fourteen (14) days
after a demand for such cessation is delivered to Employee by the Corporation
that specifically identifies such conduct; provided, however, that if it is not
reasonably possible for Employee 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 Employee to
cease such conduct; or
(iii) Employee's conviction of a felony or conviction of a misdemeanor
which materially impairs Employee's ability substantially to perform his duties
with the Corporation. For purposes of this subsection, no act, or failure to
act, on Employee's part shall be deemed "willful" unless done, or omitted to be
done, by Employee not in good faith and without reasonable belief that his
action or omission was in the best interest of the Corporation.
(c) Notice of Termination. Any termination by the Corporation for
Cause or by Employee for Good Reason shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Employee's employment under the provision so
indicated.
(d) Date of Termination. "Date of Termination" shall mean the date
specified in the Notice of Termination where required or, in any other case,
the date upon which Employee ceases to perform services to the Corporation;
provided that if within thirty (30) days after any Notice of Termination one
party notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date finally determined to be
the Date of Termination, either by mutual written agreement of the parties or
by the final, nonappealable determination of a court of competent jurisdiction.
- 3 -
<PAGE> 4
5. Compensation Upon Termination Generally. Employee shall be entitled
to the following benefits upon termination as set forth in Section 0 hereof, as
additional benefits under this Agreement and as additional compensation for the
Employee's strict adherence to the Covenant Not to Compete set forth in Section
0 hereof:
(a) During any portion of the Employment Period that Employee fails
to perform his full-time duties with the Corporation as a result of incapacity
due to physical or mental illness or other disability, Employee shall continue
to receive his Base Salary at the rate in effect at the commencement of any
such portion of the Employment Period, until Employee's employment is
terminated pursuant to subsection 0(a) hereof. Thereafter, Employee's benefits
shall be determined in accordance with the Corporation's retirement, insurance
and other applicable programs and plans then in effect.
(b) If Employee's employment shall be terminated by the Corporation
for Cause, the Corporation shall pay Employee his full Base Salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given or on the Date of Termination if no Notice of Termination is required
hereunder, plus all other amounts to which Employee is entitled under any
compensation plan of the Corporation at the time such payments are due, and the
Corporation shall have no further obligations to Employee under this Agreement.
(c) If Employee voluntarily terminates his employment, for any reason
Employee shall be entitled to receive only his Base Salary through the date of
termination and thereafter shall receive no further compensation from the
Corporation.
6. Restrictive Covenants. Employee agrees with the Corporation that he
will not for a period of three full years (36 months) measured from the date he
ceases to be an officer, director, employee or consultant of the Corporation or
HouTex:
(a) directly or indirectly, alone or as a partner, joint venturer,
officer, director, employee, consultant, advisor, proprietor, agent,
independent contractor, stockholder or holder of any other ownership interest
in any company or business, assist or engage in any business activity in the
State of Texas that is in Competition with the Business conducted by HouTex or
the Corporation as of the date hereof, or in any way participate in the
financing, operation, management or control of, any firm, partnership,
corporation, entity or business that engages or participates in any business
activity in the State of Texas that is in Competition with the business
conducted by HouTex or the Corporation as of the date hereof; provided,
however, that the beneficial ownership of less than five percent (5%) of the
shares of stock of any corporation having a class of equity shares 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 that is a customer
of HouTex or
-4-
<PAGE> 5
The Corporation as of the date hereof to patronize any business in Competition
with the Business conducted by HouTex or the Corporation; (ii) canvass, solicit
or accept from any Person that is a customer of HouTex or the Corporation, any
such Competitive business; or (iii) request or advise any Person that is a
customer of HouTex or the Corporation as of the date hereof to withdraw,
curtail or cancel any such customer's business with HouTex or the Corporation.
(c) directly or indirectly employ, or knowingly permit any company or
business directly or indirectly controlled by him, to employ, any Person who
was employed by HouTex or the Corporation at or within six months prior to the
date hereof, or in any manner solicit, encourage, or take any other action
intended or seeking to induce such Person to leave his or her employment;
For purposes of this Agreement, the term "Business" shall mean the buying,
selling, brokering, trading, processing, recycling, shipping and/or handling of
scrap metals or other metals or metal products, and the terms "Competitive" and
"Competition" shall mean a business whose primary activity is the buying,
selling, brokering, trading, processing, recycling, shipping and/or handling of
scrap metals or other metals or metal products.
Employee agrees and acknowledges that the restrictions contained herein
are reasonable in scope and duration and are necessary to protection HouTex and
the Corporation. 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 HouTex and the Corporation, that it would be impossible or inadequate
to measure and calculate HouTex and the Corporation's damages from any such
breach and that upon breach of any provision of this Section, HouTex and the
Corporation 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 HouTex and the Corporation may have (including, without
limitation, the right to seek monetary damages). Employee further agrees that
no bond or other security shall be required in obtaining such equitable relief,
nor will proof of actual damages be required for such equitable relief.
Employee hereby expressly consents to the issuance of such injunction and to
the ordering of such specific performance. For purposes of this Section,
"Person" means an individual, partnership, corporation, business trust, joint
stock company, estate, trusts, unincorporated association, joint venture,
governmental authority or other entity, of whatever nature.
7. Confidential Information. Employee shall not, during the Employment
Period or thereafter, disclose to any person any confidential information
obtained from or regarding the Corporation or its affiliates, including,
without limitation, contracts, business plans, forms, lists,
-5-
<PAGE> 6
manuals, or any budgetary, sales, marketing, financial, procedural or
operations materials or information, or any other nonpublic information
intended to be confidential prepared by or for the benefit of the Corporation
or its affiliates. If Employee shall leave the employment of the Corporation
for any reason, the Employee agrees not to take with him any such documents,
materials or information or other data of any description or any copy or
reproduction of any of the foregoing.
8. Enforceability. The failure of either party at any time to require
performance by the other party of any provision hereunder shall in no way
affect the right of that party thereafter to enforce the same, nor shall it
affect any other party's right to enforce the same, or to enforce any of the
other provisions in this Agreement; nor shall the waiver by either party of the
breach of any provision hereof be taken or held to be a waiver of any
subsequent breach of such provision or as a waiver of the provision itself.
9. Successors; Binding Agreement.
(a) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation or of any
division or subsidiary thereof employing Employee to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such assumption and agreement
prior to the effective of any such succession shall be a breach of this
Agreement and shall entitle Employee to compensation from the Corporation in
the same amount and on the same terms as Employee would be entitled hereunder
if Employee terminated his employment for Good Reason, except that, for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors, administrator,
successors, heirs, distributees, devisees and legatees. If Employee 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 Employee's devisee, legatee or
other designees or, if there is no such designee, to Employee's estate.
10. Modification. This Agreement may not be canceled, changed, modified
or amended, and no cancellation, change, modification or amendment will be
effective or binding unless in writing and signed by both parties to this
Agreement.
11. Severability; Survival. In the event any provision of this Agreement
is found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
- 6 -
<PAGE> 7
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflicts of laws principles thereof.
13. Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which will be an original, but all of which
together will constitute one and the same original.
14. Entire Agreement. This Agreement represents the entire agreement
between the Corporation and the Employee with respect to the subject matter
hereof, and all prior agreements relating to the relationship between the
Employee and the Corporation, written or oral, are nullified and superseded
hereby.
15. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
METAL MANAGEMENT, INC.
By:
----------------------------------------
Name: Gerard M. Jacobs
Title: Chief Executive Officer
EMPLOYEE:
--------------------------------------------
MIKE MELNIK
-7-
<PAGE> 8
EXHIBIT A
1. $1,200 per month car allowance.
2. Car phone or cellular phone.
3. Employee shall initially be entitled to receive the same health
insurance, life insurance, and deferred compensation benefits he currently
receives from HouTex. However, prior to the end of the initial 12 months
of the Employment Period, the Corporation will propose a group health
insurance, life insurance and deferred compensation package for all of its
Senior Executives (the "Senior Executive Benefit Package") and Employee
will be entitled to participate in the Senior Executive Benefit Package in
lieu of his existing health insurance, life insurance, and deferred
compensation benefits.
- 8 -
<PAGE> 1
EXHIBIT 10.19
EXHIBIT C
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), effective as of May 1, 1997,
is entered into by and between PAUL D. JOSEPH (the "Employee") and RESERVE IRON
& METAL LIMITED PARTNERSHIP, A Delaware limited partnership ("Reserve"), in
consideration of, and upon, the terms and conditions set forth herein.
I. Recitals
1 Reserve is in the business of processing scrap metals and materials
with its offices located in the State of Ohio (the "Business"). Employee is a
founder and key employee of Reserve.
2 Reserve recognizes that the Employee's contribution as a founder and
employee has been substantial, and Reserve desires to assure the Employee's
continued integral involvement in the development and growth of the Business
through employment with Reserve on the terms set forth herein, and Employee is
desirous of committing himself to serve Reserve and MTLM (as defined below) on
the terms set forth herein.
3 It is a material condition to the Purchase Agreement entered into
effective as of , 1997, by and among Metal Management, Inc. a
Delaware corporation ("MTLM"); P. Joseph Iron & Metal, Inc., an Ohio
Corporation and the sole general partner of Reserve ("P. Joseph Iron & Metal");
and Employee, Steven C. Joseph and Scott H. Joseph (the "Purchase Agreement")
that the Employee enter into this Agreement.
4 Reserve desires to obtain the services of the Employee, in the
capacity described below, on the terms and conditions hereinafter set forth, and
the Employee is willing to accept such employment on such terms and conditions.
<PAGE> 2
II. Employment By Reserve
Except as set forth below, Reserve does hereby employ, engage, and hire the
Employee on a full-time basis, and the Employee does hereby accept and agrees to
such full-time employment, engagement and hiring. The Employee's duties during
the employment period shall be to serve as the Chief Executive Officer of
Reserve or to serve in such other managerial capacity for Reserve as the Board
of Directors of P. Joseph Iron & Metal (the "Board of Directors" or "Board") as
the sole general partner of Reserve shall from time to time prescribe. Except
as set forth below, the Employee will devote his full working time, energy and
skill to the performance of his duties for Reserve and for the benefit of
Reserve excepting only as expressly permitted in Article III below.
Employee's services hereunder shall be performed in Ohio, (except for
temporary out of town work from time to time in the ordinary course of
business). Employee shall not be relocated except upon express written consent
of Employee and upon such terms and conditions as Employee and Reserve may
agree.
III. Other Activities
The Employee may continue to attend to its ownership interests in Reserve
Recycling, Inc., Reserve F.T.L., Inc. and such other businesses in which it may
have an interest as of the date of the Purchase Agreement, in the same manner
and to the same extent as currently occurs.
Notwithstanding the foregoing, Employee shall not directly or indirectly
assist, participate nor otherwise engage in any other commercial activity
(either within or outside of the United States) without the prior express
written consent of Reserve and MTLM, which consent may be granted or withheld in
their sole discretion.
2
<PAGE> 3
IV. Board and Advisory Positions
A. On the closing of the purchase and sale of the equity securities of
P. Joseph Iron & Metal as contemplated in the Purchase Agreement (the "Effective
Time" or "Closing Date"), Reserve agrees to cause the Board of Directors of MTLM
to elect either Employee, Steven C. Joseph ("Steven") or Scott H. Joseph
("Scott") to the Board of Directors of Metal Management, to serve until the next
election of the Board of Directors.
B. On the Closing Date, P. Joseph Iron & Metal agrees to cause to be
elected each of Employee, Steven and Scott to the Board of Directors of P.
Joseph Iron & Metal to serve until the "Article IV Termination Date" as defined
below. Four (4) additional Directors designated by Metal Management will be
elected to the Board of Directors of P. Joseph Iron & Metal.
C. Following the Closing Date and until the Article IV Termination Date,
as long as either Gerard M. Jacobs or T. Benjamin Jennings are serving as
executive officers of MTLM, Reserve agrees to cause MTLM to invite either
Employee, Steven or Scott to attend meetings of the advisory group within MTLM
to be known as the "Office of the President". Such invitee may participate in
the "Office of the President" at the same time and in the same manner as other
members of this advisory group. As presently contemplated, such advisory group
is to be comprised of key regional executives of MTLM, and is to meet
periodically with Gerard M. Jacobs and T. Benjamin Jennings to discuss business
issues and strategies.
D. The "Article IV Termination Date" shall mean the first to occur of
any of the following:
(i) the termination of this Agreement;
3
<PAGE> 4
(ii) any event which would permit MTLM to terminate this Agreement
for "cause" as defined in Article IX(B); or
(iii) a sale of a controlling interest in Reserve by MTLM.
V. Employment Period
A. Initial Term - The Employee shall be employed by Reserve for the
duties set forth in Article II above for a ten (10) year period, commencing as
of the Closing Date and ending on the tenth anniversary thereof (the "Initial
Term"), unless sooner terminated in accordance with the provisions of this
Agreement. Thereafter, this Agreement shall automatically renew for an
additional period of one (1) year on each subsequent anniversary of the
Effective Time (each such one-year period is referred to as the "Renewal Term")
unless either party gives written notice to the other to terminate this
Agreement not less than ninety (90) days prior to the scheduled end of such
Initial Term (or Renewal Term). The term "Initial Term" and the term "Renewal
Term" are collectively referred to as the "Employment Period."
VI. Compensation
A. Base Salary - Reserve shall pay the Employee, and the Employee agrees
to accept from Reserve, a base salary of $168,000 per year ("Base Salary")
payable in weekly installments or at such other time or times as the Employee
and Reserve shall agree. Such Base Salary will be reviewed at least once
annually by the Board of Directors of P. Joseph Iron & Metal.
B. Executive Bonus and Additional Compensation Plans - Employee shall be
entitled to participate in all present and future bonus, incentive, stock
option, stock purchase and other compensation plans during the Employment Period
on a basis commensurate with his position as an executive officer of P. Joseph
Iron & Metal and consistent with (but not necessarily exactly equal to)
4
<PAGE> 5
the top executive officers of P. Joseph Iron & Metal. Notwithstanding the
foregoing, Employee shall be entitled to a bonus ("Bonus") to be paid to
Employee annually of a minimum guaranteed amount of 50% of Base Salary.
VII. Benefits
The Employee shall be entitled to the fringe benefits Employee is currently
receiving at Reserve as set forth on Schedule A attached hereto and the
following fringe benefits:
A. Insurance Coverage - Reserve shall provide Employee with medical
insurance coverage for Employee and Employee's immediate family in accordance
with the terms and conditions established from time to time in Reserve's
insurance plan. Medical insurance benefits provided to Employee and his
immediate family hereunder shall be no less than those previously provided to
Employee by Reserve.
B. Vacation - Employee shall be entitled to four (4) weeks paid vacation
during each year, or such greater period as the Board of Directors of P. Joseph
Iron & Metal determine, in addition to all paid holidays given by Reserve to its
employees generally. Such vacation days to be taken at times mutually agreed
upon by Employee and Reserve consistent with his duties hereunder and in
accordance with Reserve's vacation policies and reasonable needs of the Employee
and Reserve.
C. Warrants - On the date of execution of the Agreement (the "Execution
Date"), Employee will be issued two types of warrants to purchase shares of
common stock of MTLM. The first type of warrant will be exercisable at $3.50
per share (subject to adjustment as provided in such warrant) and will expire,
if not exercised, thirty (30) months after the Execution Date, subject to
extension as provided in such warrant, (the "$3.50 Warrants"). Employee will be
issued 420,000 of
5
<PAGE> 6
the $3.50 Warrants. The second type of warrants will be exercisable at $4.00
per share (subject to adjustment as provided in such warrant) and will expire,
if not exercised, sixty (60) months after the Execution Date, subject to
extension as provided in such warrant, (the "$4.00 Warrants"). Employee will be
issued 420,000 of the $4.00 Warrants. 105,000 of the $3.50 Warrants and 105,000
of the $4.00 Warrants will vest and be exercisable six (6) months following the
Execution Date. 105,000 of the $3.50 Warrants and 105,000 of the $4.00 Warrants
will vest and be exercisable twelve (12) months following the Execution Date.
105,000 of the $3.50 Warrants and 105,000 of the $4.00 Warrants will vest and be
exercisable eighteen (18) months following the Execution Date. 105,000 of the
$3.50 Warrants and 105,000 of the $4.00 Warrants will vest and be exercisable
twenty-four (24) months following the Execution Date. Notwithstanding the
foregoing, the terms and conditions of such warrants shall be set forth in the
warrant, dated of even date herewith, issued by MTLM, which terms and conditions
together with this Employment Agreement shall control Employee's rights with
respect to such warrants. In connection with the issuance of the $3.50 Warrants
and $4.50 Warrants, Employee hereby acknowledges and agrees to comply with the
following:
In the event that the Employee or its permitted transferee of the Warrant
intends to sell any of the shares issued to Employee or such permitted
transferee pursuant to exercise of any of Employee's Warrants, MTLM may require
Employee to furnish MTLM with information in connection with the original
filing, amending or supplementing of the registration statement, regarding the
ownership and distribution of the shares as MTLM may from time to time
reasonably request and Employee agrees to promptly supply MTLM with such
information.
Employee agrees that upon receipt of notice from MTLM (a "Blackout Notice")
of (i) any request by the Securities and Exchange Commission (the "SEC") for
amendment or supplement to
6
<PAGE> 7
a registration statement or for additional information; (ii) the issuance by the
SEC of any stop order suspending the effectiveness of the registration statement
or initiating proceedings for that purpose; (iii) the receipt by MTLM of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the shares for sale or exchange in any jurisdiction
of the United States or initiating proceedings for that purpose; (iv) the
happening of any event that makes any statement of a material fact made in the
registration statement or prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue or requires revisions to the
registration statement or prospectus so that these documents will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein in
light of the circumstances under which they were made, not misleading; or (v)
the determination by MTLM that a post-effective amendment to the registration
statement, or supplement to the prospectus would be appropriate, the Employee
shall, or shall cause its permitted transferee to, immediately discontinue
disposition of the shares covered by the registration statement and related
prospectus until: (x) receipt by Employee of the supplemented or amended
prospectus or (y) notice from MTLM that use of the prospectus may be resumed.
D. Automobile Expenses - Employee shall receive a car allowance of
$700.00 per month to cover expenses incurred by Employee pursuant to Employee's
use of an automobile, plus a reasonable amount for gas, oil, and maintenance as
a result of extraordinary trip expenses, if any, on Reserve business approved by
Reserve, in an amount calculated in accordance with the "standard mileage rate"
as established and adjusted by the Internal Revenue Service.
VIII. Business Expenses
7
<PAGE> 8
Reserve will reimburse the Employee for any and all necessary, customary
and usual expenses, properly receipted in accordance with Reserve's policies
applicable to all executive employees, incurred by the Employee on behalf of
Reserve, including, but not limited to, reasonable expenses relating to meals
and entertainment, and other professional expenses.
IX. Termination
The compensation and other benefits provided to the Employee pursuant to
this Agreement, and the employment of the Employee by Reserve, shall be
terminated prior to the expiration of the Initial Term or Renewal Term only as
provided in this Article IX.
A. Termination Due to Death or Disability - The Employee's obligations
under this Agreement shall automatically terminate (i) upon the Employee's
death, or (ii) if the Employee becomes "disabled" (as defined below), on the
date such disability is determined. The Employee shall be considered to be
"disabled" for purposes of this Article IX upon the earlier of (x) the end of a
one hundred eighty (180) day period during which, by reason of physical or
mental injury or disease, the Employee has been unable to perform substantially
the Employee's usual and customary duties under this Agreement and (y) the date
that a reputable physician selected by the Board of Directors of P. Joseph Iron
& Metal to whom the Employee has no reasonable objection determines in writing
that the Employee will, by reason of physical or mental injury or disease, be
unable to perform substantially all of the Employee's usual and customary duties
under this Agreement for a period of at least one hundred eighty (180) days. If
any question arises as to whether the Employee is disabled, upon reasonable
request therefor by the Board of Directors of P. Joseph Iron & Metal, the
Employee shall submit to reasonable medical examination for the purpose of
determining the existence, nature and extent of any such disability. The Board
of Directors of P. Joseph Iron & Metal shall promptly
8
<PAGE> 9
give the Employee written notice of any such determination of the Employee's
disability and of the decision of the Board of Directors of P. Joseph Iron &
Metal to terminate the Employee's employment by reason thereof.
B. Termination for Cause - Reserve may terminate this Agreement at any
time during the Employment Period for "cause". The term "cause" as used herein
shall mean:
(i) the continued failure by the Employee to substantially
perform his duties under this Agreement (other than any such failure resulting
from the Employee's incapacity due to physical or mental illness) after demand
for substantial performance delivered by Reserve to the Employee in a writing
that specifically identifies the manner in which Reserve believes the Employee
has not substantially performed his duties and the Employee is given a
reasonable opportunity to cure such failure;
(ii) the conviction of the Employee of a felony charge involving
moral turpitude, or the engagement by the Employee in misconduct relating to
Reserve which is materially injurious to Reserve, monetarily or otherwise,
including, but not limited to, sexual misconduct, fraud, theft, or embezzlement;
or
(iii) the intentional violation by the Employee of any material
provision of this Agreement, which violation is not cured within twenty (20)
days after written notice thereof by Reserve to the Employee, or within
forty-eight (48) hours for a violation which is not capable of being cured.
C. Termination Without Cause - Either Reserve or the Employee may
terminate this Agreement without cause at any time during the Employment Period
by providing the other with thirty (30) days' advance written notice of
termination.
9
<PAGE> 10
D. Obligations of Reserve Upon Termination
(i) Death, Disability or Termination by Employee: If the
Employee's employment is terminated by reason of death or because he is
disabled, or if the Agreement is terminated by Employee at any time for any
reason after the date hereof and either Gerard M. Jacobs or T. Benjamin Jennings
is Chief Executive Officer of MTLM, Reserve shall pay to the Employee (or his
estate) 50% of the Employee's Base Salary in bi-monthly installments until the
sooner of the end of the Initial Term (or Renewal Term, as the case may be), or
one (1) year from such event, but in no event shall Employee or his estate be
entitled to receive any Bonus or other fringe benefits following death or
disability or termination by Employee.
If the Employee's employment is terminated by reason of death or because he
is disabled, or if the Agreement is terminated by Employee at any time for any
reason and neither Gerard M. Jacobs nor T. Benjamin Jennings is Chief Executive
Officer of MTLM, Reserve shall pay to Employee 100% of Employee's Base Salary in
bi-monthly installments until the sooner of (a) the end of the Initial Term (or
Renewal Term, as the case may be), or (b) two (2) years from such event, but in
no event shall Employee be entitled to receive any Bonus or other fringe
benefits following death or disability or termination by Employee.
(ii) Cause: If the Employee's employment is terminated for cause,
Employee shall receive none of the Base Salary remaining during the Initial Term
and/or Renewal Term, nor shall Employee receive any Bonus or fringe benefits.
(iii) Termination Without Cause by Reserve: In the event that this
Agreement is terminated without cause by Reserve, (a) until the end of the
Initial Term or Renewal Term, the Employee shall receive from Reserve and
Reserve shall pay to the Employee (1) the Employee's entire
10
<PAGE> 11
Base Salary in bi-monthly installments and (2) the annual Bonus and (b) Reserve
shall continue to provide all insurance coverage, fringe benefits and benefit
plan participation provided to Employee as set forth above.
X. Restrictive Covenants
In order to assure that Reserve will realize the benefits of the Purchase
Agreement and in consideration of the transactions set forth in this Agreement,
Employee agrees that except as permitted in Article III hereof, he will not for
a period of three (3) years from the later of the Effective Time or the date he
ceases to be an employee of Reserve or an officer or director of P. Joseph Iron
& Metal or MTLM:
(a) directly or indirectly, alone or as a partner, joint venturer,
officer, director, employee, consultant, agent, independent contractor or
stockholder of any company or business, engage in any business activity in the
States of Ohio, Michigan, Indiana, Illinois or Pennsylvania which is directly in
competition with the business conducted by Reserve at the Effective Time;
provided, however, that, the beneficial ownership of less than five percent (5%)
of the shares of stock of any corporation having a class of equity securities
actively traded on a national securities exchange, over-the-counter market or
foreign exchange 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 Reserve at the Effective Time to patronize any business directly or
indirectly in competition with the business conducted by Reserve; (ii) canvass,
solicit or accept from any person which is a customer of Reserve, any such
competitive business, or (iii) request or advise any person which is a customer
of Reserve at the Effective Time to withdraw, curtail or cancel any such
customer's business with Reserve;
11
<PAGE> 12
(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 Reserve at or within six (6) months prior to the Effective Time, or
in any manner seek to induce any such person to leave his or her employment;
(d) directly or indirectly, at any time following the Effective Time,
in any way utilize, disclose, copy, reproduce or retain in his possession any of
Reserve's proprietary rights or records, including, but not limited to, any of
their customer lists.
Employee acknowledges that the restrictions contained in this Section are
reasonable in scope and duration and are necessary to protect Reserve after the
Effective Time. If any provision of this Section as applied to any party or to
any circumstance is adjudged by a court to be invalid or unenforceable, the same
will in no way affect any other circumstance or the validity or enforceability
or 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 Reserve and upon breach
of any provision of this Section, Reserve 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 Reserve may have (including,
without limitation, the right to seek monetary damages). Anything in this
Agreement to the contrary notwithstanding, the provisions of this Article X
shall survive any termination of this Agreement or of Employee's obligations
hereunder.
12
<PAGE> 13
XI. General Provisions
A. Assignment - This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other party, assign or transfer
this Agreement or any rights or obligations hereunder.
B. Governing Law - This Agreement and the legal relations hereby created
between the parties hereto shall be governed by and construed under and in
accordance with the laws of the State of Delaware.
C. Entire Agreement - This Agreement embodies the entire agreement of the
parties respecting the matters within its scope, supersedes any prior agreements
concerning these matters and may be modified only in writing.
D. Waiver - Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of, or failure to
insist upon strict compliance with, any right or power hereunder at any one or
more times be deemed a waiver or relinquishment of such right or power at any
other time or times.
E. Attorneys' Fees - The Employee and Reserve agree that in any
arbitration or legal proceedings arising out of this Agreement the prevailing
party shall be entitled to his or its reasonable attorneys' fees and costs of
litigation in addition to any other relief granted.
F. Severability - In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, then only the portions of this Agreement which violate such
statute or public policy shall be stricken. All portions of this Agreement
which do not violate any statute or public policy shall continue in full force
and effect.
13
<PAGE> 14
Further, any court order striking any portion of this Agreement shall modify the
stricken terms to give as much effect as possible to the intentions of the
parties under this Agreement.
G. Indemnification - Reserve shall indemnify and hold the Employee
harmless to the maximum extent permitted by law against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
incurred by the Employee in connection with the defense of, or as a result of
any action or proceeding (or any appeal from any action or proceeding) to which
the Employee is made or is threatened to be made a party by reason of the fact
that the Employee is or was an officer, director or employee in any capacity of
Reserve or any of its affiliates or any employee benefit plan of Reserve or its
affiliates, regardless of whether such action or proceeding is brought by or in
the right of Reserve, to procure a judgment in its favor, or other than by or in
the right of Reserve. The Employee shall not be entitled to indemnification for
any judgments, fines, amounts paid or settlement or expenses arising out of any
action or omission by the Employee which is determined, pursuant to a final,
nonappealable order of any court of competent jurisdiction, to be grossly
negligent, to constitute willful misconduct, or to be in violation of any law or
regulation of the State of Delaware or the United States of America, unless such
action or omission was taken or omitted in good faith (i) pursuant to a
directive or policy of the Board of Directors of P. Joseph Iron & Metal or (ii)
in the ordinary course of business. Notwithstanding anything to the contrary
contained herein, Reserve's indemnification obligations hereunder shall
terminate upon Reserve's lawful termination of this Agreement pursuant to
Article IX(B).
H. Arbitration - All disputes or claims between Employee and Reserve
relating to this Agreement shall be submitted for resolution exclusively to
arbitration under the Commercial Rules of Arbitration of the American
Arbitration Association in Cleveland, Ohio, no later than one (1) year
14
<PAGE> 15
from the date such claim arises. As a condition precedent to any such
arbitration, the parties shall first participate in non-binding mediation in
Cleveland with costs shared between them.
I. Remedies Not Exclusive - No remedy expressly provided in this
Agreement shall limit the right of either party to avail itself or himself of
any other remedy available to such party, at law or in equity.
15
<PAGE> 16
IN WITNESS WHEREOF, Reserve has caused this Agreement to be executed by
a duly authorized officer of P. Joseph Iron & Metal which is its sole general
partner and the Employee has hereunto signed this Agreement as of the day first
above written.
"EMPLOYEE"
____________________________________
Paul D. Joseph
"RESERVE"
Reserve Iron & Metal Limited
Partnership, a Delaware limited
partnership
By: P. Joseph Iron & Metal, Inc., an
Ohio corporation and the sole
general partner of Reserve Iron &
Metal Limited Partnership
By: _________________
Its: _________________
16
<PAGE> 1
EXHIBIT 11.1
METAL MANAGEMENT
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended Year Ended Five Months
October 31, October 31, Ended Year Ended
1994 1995 March 31, 1996 March 31, 1997
Earnings: ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ 228 $ 261 $ (16) $(2,010)
Gain on sale of discontinued operations 0 0 0 502
Operating income (loss) from discontinued
operations (440) (2,698) 22 345
------ -------- -------- -------
Net income (loss) $ (212) $ (2,437) $ 6 $(1,163)
====== ======== ======== =======
Weighted average common shares outstanding 5,098 5,125 5,299 9,106
Common stock equivalents (1) 0 0 0 0
------ -------- -------- -------
Total 5,098 5,125 5,299 9,106
====== ======== ======== =======
Per share amounts:
Income (loss) from continuing operations $ 0.04 $ 0.05 $ 0.00 $ (0.22)
Gain on sale of discontinued operations 0.00 0.00 0.00 0.05
Operating income (loss) from discontinued
operations (0.08) (0.53) 0.00 0.04
------ -------- -------- -------
Net income (loss) $(0.04) $ (0.48) $ 0.00 $ (0.13)
====== ======== ======== =======
</TABLE>
(1) Due to the net loss for the years ended October 31, 1994, October 31,
1995 and March 31, 1997, common stock equivalents were not added to
weighted average common shares outstanding as the result would have been
antidilutive. For the five months ended March 31, 1996, the dilutive
effect of common stock equivalents was immaterial and they were
therefore, not added to weighted average shares outstanding.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
EMCO Recycling Corp. Metal Management Realty, Inc.
California Metals Recycling, Inc. Firma, Inc.
MacLeod Metals Co. Firma Plastics Co., Inc.
Trojan Trading Co. HouTex Metals Company, Inc.
Reserve Iron & Metal Limited Partnership Parametrics, Ltd.
P. Joseph Iron & Metal, Inc.
R&M Iron, Ltd.
General Parametrics International, Ltd.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-10487) and in the Prospectus constituting part
of the Registration Statement on Form S-3 (No. 333-07581) of Metal Management,
Inc. of our report dated May 21, 1997, except as to Notes 16 and 17, which are
as of June 19, 1997, appearing in this Form 10-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
June 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 5,718,000
<SECURITIES> 14,000
<RECEIVABLES> 9,966,000
<ALLOWANCES> 0
<INVENTORY> 8,415,000
<CURRENT-ASSETS> 25,708,000
<PP&E> 21,906,000
<DEPRECIATION> 1,698,000
<TOTAL-ASSETS> 70,125,000
<CURRENT-LIABILITIES> 39,263,000
<BONDS> 0
0
0
<COMMON> 102,000
<OTHER-SE> 23,046,000
<TOTAL-LIABILITY-AND-EQUITY> 70,125,000
<SALES> 65,196,000
<TOTAL-REVENUES> 65,196,000
<CGS> 58,324,000
<TOTAL-COSTS> 58,324,000
<OTHER-EXPENSES> 8,456,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,449,000
<INCOME-PRETAX> (2,852,000)
<INCOME-TAX> (842,000)
<INCOME-CONTINUING> (2,010,000)
<DISCONTINUED> 847,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,163,000)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
