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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-14836
METAL MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 94-2835068
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
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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 15, 1998 as reported on the NASDAQ National Market System, was
approximately $175.8 million. 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 15, 1998, the Registrant had 34,333,963 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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TABLE OF CONTENTS
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PART I
Item 1: Business.................................................... 1
Item 2: Properties.................................................. 11
Item 3: Legal Proceedings........................................... 12
Item 4: Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5: Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 13
Item 6: Selected Consolidated Financial Data........................ 16
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 7A: Quantitative and Qualitative Disclosures About Market
Risk........................................................ 32
Item 8: Financial Statements and Supplementary Data................. 32
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 32
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 33
Item 11: Executive Compensation...................................... 36
Item 12: Security Ownership of Certain Beneficial Owners and
Management.................................................. 41
Item 13: Certain Relationships and Related Transactions.............. 42
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 46
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PART I
Certain statements contained in this Form 10-K under Item 1, in addition to
certain statements contained elsewhere in this Form 10-K, including statements
qualified by the words "believes," "intends," "anticipates," "expects" and words
of similar import, are "forward-looking statements" and are thus prospective.
These statements reflect the current expectations of Metal Management, Inc.
(herein, "Metal Management" or the "Company") regarding (i) the future
profitability of the Company and its subsidiaries, (ii) the benefits to be
derived from the Company's execution of its industry consolidation strategy and
(iii) other future developments in the affairs of the Company or the industry in
which it conducts business. All such forward-looking statements are subject to
risks, uncertainties and other factors that could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. These and other risks, uncertainties and other factors are discussed
under the heading "Investment Considerations" in Part II, Item 7 of this report.
ITEM 1. BUSINESS.
GENERAL
Metal Management is one of the largest and fastest-growing full service
metals recyclers in the United States, with 54 recycling facilities in 12
states. The Company is a leading consolidator in the metals recycling industry
and has achieved this position primarily through the implementation of its
national strategy of completing and integrating regional acquisitions. The
Company believes that its consolidation strategy will enhance the competitive
position and profitability of the operations that it acquires through improved
managerial and financial resources and increased economies of scale.
Metal Management is primarily engaged in the collection and processing of
ferrous and non-ferrous metals for resale to metals brokers, steel producers,
and producers and processors of other metals. The Company collects industrial
scrap and obsolete scrap, processes it into reusable forms, and supplies the
recycled metals to its customers, including mini-mills, integrated steel mills,
foundries and metals brokers. The Company believes that it provides one of the
most comprehensive offerings of both ferrous and non-ferrous scrap metals in the
industry. The Company's ferrous products primarily include shredded, sheared,
hot briquetted, cold briquetted and bundled scrap and broken furnace iron. The
Company also processes non-ferrous metals, including aluminum, copper, stainless
steel, brass, titanium and high-temperature alloys, using similar techniques and
through application of the Company's proprietary technologies. For the year
ended March 31, 1998, the Company sold approximately 3.1 million tons of ferrous
scrap and approximately 178.1 million pounds of non-ferrous scrap.
The Company's predecessor was incorporated on September 24, 1981 as a
California corporation under the name General Parametrics Corporation, and was
re-incorporated as a Delaware corporation in June 1986 under the same name.
Prior to April 1996, the Company manufactured and marketed color thermal and dye
sublimation printers and related consumables, including ribbons, transparencies
and paper. The Company sold this business in two separate transactions in July
and December of 1996 for $1.3 million in cash and future royalty streams which
the Company does not anticipate will result in material payments to the Company.
On April 12, 1996, the Company changed its name to "Metal Management, Inc."
The Company's common stock, par value $.01 per share ("Common Stock"), is
traded on the NASDAQ Stock Market under the trading symbol "MTLM". The Company's
principal executive offices are located at 500 North Dearborn Street, Suite 405,
Chicago, Illinois 60610, and its telephone number is (312) 645-0700.
INDUSTRY OVERVIEW
According to government sources, total revenues generated in the metals
recycling industry in 1995 were approximately $19.3 billion. The Company
believes that the scrap metals industry is composed of more than 3,000
independent metals recyclers. Many of these companies are family-owned and
operate only in local or regional markets. The Company believes that no single
scrap metals recycler has a significant share of the domestic market, although
certain recyclers may have significant shares of their local or regional
markets.
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Within this industry framework, a consolidation is taking place. Several factors
account for the consolidation: (i) the reduction in purchasing, processing,
transportation, labor and selling, general and administrative costs associated
with large, integrated companies; (ii) the desire of the owners of closely-held
family businesses to gain liquidity by merging with large, public companies
while maintaining managerial input; and (iii) the ability of large, public
companies to attract the capital necessary to make the significant investments
in plant and equipment that are required due to increasingly stringent
environmental regulation and the need to upgrade processing facilities.
Ferrous Scrap Industry. Ferrous scrap is the primary raw material for
mini-mill steel producers that utilize electric arc furnance ("EAF") technology.
According to industry sources, domestic ferrous scrap production is
approximately 75 to 80 million tons, of which 8 to 10 million tons is exported.
In addition, approximately 1 to 3 million tons of ferrous scrap are imported
annually. Demand for processed ferrous scrap is highly dependent on the overall
strength of the domestic steel industry, particularly production utilizing EAF
technology.
Much of the growth in the scrap metals industry in recent years has
occurred as a result of the proliferation of mini-mill steel producers which
utilize EAF technology. EAF production has increased from 14.8 million tons
(11.1% of total domestic steel production) in 1966 to 46.4 million tons (43.2%
of total domestic steel production) in 1997. The Company expects this trend to
continue in the next few years as several new EAF facilities start production.
The Company believes that as a large, reliable supplier of scrap metals it is
well positioned to take advantage of the growth in this industry.
The growth in EAF production has been fueled by the historically low price
of prepared ferrous scrap, which gives EAF producers a product cost advantage
over integrated steel producers which operate blast furnaces whose primary raw
materials are coke and iron ore, although some of this cost advantage has been
eroded by increases in ferrous scrap prices in recent years. As the price of
ferrous scrap metals increase, EAF operators look for alternatives to prepared
steel scrap, such as pre-reduced iron pellets or pig iron, to supply their EAF
operations. The Company does not believe that these alternatives to ferrous
scrap will replace ferrous scrap in EAF operations, but will be used as
supplemental feedstock thereby allowing EAF operators to utilize lower grades of
prepared scrap. Industry analysts continue to predict rising demand for ferrous
scrap over the next several years.
Due to its low price-to-weight ratio, raw ferrous scrap is generally
purchased locally from industrial companies, demolition firms, junk yards,
railroads, the military, scrap dealers and various other sources, typically in
the form of automobile bodies, appliances and structural steel. Ferrous scrap
prices are local and regional in nature; however, where there are overlapping
regional markets, the prices do not tend to differ significantly between the
regions due to the ability of companies to ship scrap cost-effectively from one
region to the other. The most significant limitation on the size of the
geographic market for ferrous scrap is the transportation cost for the raw or
processed scrap. Therefore, scrap processing facilities are typically located on
or near key modes of transportation, such as railways, interstate highways or
waterways.
Non-Ferrous Scrap Industry. Non-ferrous metals include aluminum, copper,
brass, stainless steel, high-temperature alloys and other exotic metals. The
geographic markets for non-ferrous scrap tend to be larger than those for
ferrous scrap due to the higher selling prices of non-ferrous metals, which
justify the cost of shipping over greater distances. Non-ferrous scrap is sold
on a spot basis, either directly or through brokers, to intermediate or
end-users, which include smelters, foundries and aluminum sheet and ingot
manufacturers. Prices for non-ferrous scrap are driven by demand for finished
non-ferrous metal goods and by the general level of economic activity, with
prices generally pegged to the price of the primary metal on the London Metals
Exchange or COMEX. Suppliers and consumers of non-ferrous metals can also use
these exchanges to hedge against future price fluctuations by buying or selling
futures contracts.
Secondary smelters, utilizing processed non-ferrous scrap as raw material,
can produce non-ferrous metals at a lower cost than primary smelters producing
such metals from ore. This is due to the savings in energy consumption,
environmental compliance, and labor costs enjoyed by the secondary smelters.
These cost advantages, and the long lead-time necessary to construct new
non-ferrous primary smelting capacity, have
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resulted in sustained demand and strong prices for processed non-ferrous scrap
during periods of high demand for finished non-ferrous metal products.
Raw non-ferrous scrap is typically generated and supplied by: (i)
manufacturers and other sources that generate or sell non-ferrous metals; (ii)
telecommunications, aerospace, defense and recycling companies that generate
obsolete scrap consisting primarily of copper wire, used beverage cans and other
non-ferrous metal alloys; and (iii) ferrous scrap operations that recover
aluminum, zinc, die-cast metal, stainless steel and copper as by-products of
their processing of ferrous scrap. The most widely recycled non-ferrous metals
are aluminum, copper and stainless steel. According to industry sources,
domestic recyclers annually process approximately 3.5 million tons of aluminum,
1.5 million tons of copper and 0.9 million tons of stainless steel.
COMPANY STRENGTHS
Market Leadership in Major Metropolitan and Regional Markets. In executing
its acquisition strategy, the Company has focused on establishing a significant
presence in major metropolitan or regional markets, where sources of prime
industrial and obsolete scrap (i.e., automobiles and industrial equipment) are
more readily available and from where the Company believes that it can provide
better service to its customers. As a result, the Company has become one of the
leading metals recyclers in the Chicago, Phoenix, Cleveland, Houston, Pittsburgh
and Los Angeles metropolitan markets.
Strong Operational Management. The Company believes that the scrap metals
recycling business is, and will continue to be, locally and regionally based. As
a result, Metal Management has adopted a philosophy of decentralized operational
management, which it believes promotes the continued successful management of
its acquired companies. In considering its core regional acquisitions, the
Company has targeted regional leaders in the scrap metals industry with proven
operational management capabilities. Following these acquisitions, the Company
has generally retained the services of the acquired companies' senior management
teams through the use of multi-year employment agreements and provided
incentives for such managers to contribute to the growth and profitability of
the Company through the use of stock options and warrants.
Proven Integration Synergies. The Company believes that the operations of
its acquired companies have benefited, and will continue to benefit, from
joining the Metal Management group of companies. The Company believes that the
metals recycling industry is becoming more capital-intensive and that production
efficiencies are best realized by, among other things, the purchase and
maintenance of sophisticated equipment (such as automobile shredders) and the
sharing of information concerning sources of raw scrap, production technologies
and customer needs. Accordingly, the Company believes that its regional "hub and
spoke" acquisition strategy has benefited, and will continue to benefit, the
operations of its acquired companies by making available to such companies,
often for the first time, access to greater financial resources, complementary
regional management, purchasing strength in raw scrap and increased distribution
channels. As a further effort to identify synergies, the Company has created the
Office of the President, in which its senior management and regional managers
participate to provide a forum for the sharing of "best practices" and the
exchange of other ideas among the Company's regional operations.
Favorable Distribution Channels. The Company believes that its facilities
are situated in locations that afford the Company competitive advantages in
distribution efficiency, both in terms of cost and reliability. The Company
believes that water transportation is the most cost-effective manner to ship
scrap metals over long distances. A significant portion of the Company's
revenues are generated by operations that have direct or convenient access to
water or rail transportation. Such water or rail access significantly expands
the markets for the Company's products, particularly the markets for ferrous
scrap.
Broad Product Offering. The Company has a broad range of product offerings
in both ferrous and non-ferrous metals. The Company's ferrous products include
shredded, sheared, hot briquetted, cold briquetted and bundled scrap and broken
furnace iron. The Company's non-ferrous products include aluminum, copper,
stainless steel, brass and high temperature alloys. The Company believes it
currently offers one of the most comprehensive lines of products available
within its markets. By offering a broad range of products, the Company's
customers are able to purchase all of their scrap metal needs from one supplier,
thereby reducing the administrative and logistical burden associated with
supporting multiple supplier relationships. In addition,
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the Company's size and processing capabilities allow it to offer pre-packaged
blends of scrap metals that are immediately available for melting upon delivery
to customers, thereby eliminating the time and space required for customers to
purchase and blend various metals themselves to meet particular chemistry
requirements. The Company also continually seeks to develop and introduce new
products. For example, the Company has invested in sophisticated processing
equipment capable of producing the type of "clean" ferrous scrap that is
increasingly demanded by companies using EAF technology. This "clean" ferrous
scrap, which contains fewer contaminants such as lead, copper and other
non-ferrous metals, commands a premium over the prices charged for other ferrous
products. The Company is currently a significant supplier to companies such as
Nucor Corporation, United States Steel International, Inc., Inland Steel
Industries Inc., North Star Steel Co. and General Motors Corporation. By working
with its major customers to provide a reliable and broad product mix and
applying the knowledge gained to the rest of its business, the Company believes
that it can better develop mutually beneficial partnerships with its customers.
BUSINESS STRATEGY
Continue Regional-Based Acquisitions. The Company intends to continue to
grow by implementing its national strategy of completing and integrating
regional acquisitions. The Company's acquisition strategy is to acquire scrap
metals processors in large metropolitan or regional markets that will serve as
platform companies for subsequent "tuck-in" acquisitions of smaller metals
processors. The Company believes that the highly fragmented nature of the scrap
metals recycling industry offers significant opportunities for acquisitions that
meet these criteria and allows for the execution of its acquisition strategy. By
aggressively pursuing this consolidation strategy within the highly fragmented
and growing metals recycling industry, the Company believes that it can enhance
the competitive position and profitability of the operations that it acquires
through improved managerial and financial resources and increased economies of
scale. The Company also believes that the geographic diversity resulting from
the implementation of its acquisition strategy will reduce its vulnerability to
the dynamics of any particular local or regional market. Furthermore, the
Company believes that multi-regional and national steel manufacturers and other
customers for the Company's ferrous and non-ferrous scrap will increasingly
prefer to do business with processed scrap suppliers, such as Metal Management,
that can provide a dependable quantity and quality of processed scrap, as well
as a high degree of service.
Develop and Foster Mutually Beneficial Customer Relationships. The Company
believes that scrap metals recyclers have historically competed primarily on the
basis of price, seeking the highest possible price for processed scrap through
negotiation and attempting to sell more processed scrap when the market prices
for scrap are highest. The Company believes, however, that competing in such a
manner focuses on short-term gain at the expense of long-term profitability. The
Company's strategy, instead, focuses on establishing long-term customer
relationships. The Company believes that it can develop better relationships
with customers by using its numerous processing facilities to provide them with
a consistent supply of high-quality processed scrap, thereby building
"partnership-type" relationships that the Company believes will be
longer-lasting, more stable and profit enhancing.
Maximize Inventory Turnover. In order to maximize the efficiency and
profitability of its processing operations, the Company's business strategy is
to maximize the turnover of its scrap metals inventory, as opposed to collecting
scrap and holding it in speculation of higher unit prices. The Company believes
that this strategy of reducing cycle time serves to reduce exposure to price
fluctuations in the markets for scrap metals. The Company also believes that
this strategy is beneficial to customer relationships, because it allows
customers to depend on a reliable and steady supply of scrap metals that is not
subject to volume limitations during periods of changing prices.
Decentralized Management and Incentives. An important element of the
Company's acquisition strategy is to identify companies with strong, stable and
well-respected management. Metal Management recognizes that business practices
and strategies in the scrap metals industry differ, sometimes significantly,
among metropolitan and regional markets. As a result, the Company manages its
recycling operations on a decentralized basis. To secure the continuity of
strong local management, the Company generally seeks to execute multi-year
employment agreements with the senior management of the "hub" acquisitions for
each
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particular metropolitan or regional market. In addition, the Company often pays
a significant portion of the purchase price for its acquisitions in restricted
Common Stock and also makes use of warrants and options to acquire Common Stock,
resulting in the Company's management having significant incentive to maximize
the operating performance of the Company's subsidiaries.
ACQUISITION STRATEGY
Since entering the scrap metals recycling business in April 1996, the
Company has consummated 18 acquisitions (herein, the "Completed Acquisitions")
and now operates recycling facilities at 54 locations in 12 states. In pursuing
its acquisition strategy, the Company seeks to identify companies that meet
certain acquisition criteria which the Company believes suggest a strong
potential for future growth.
In pursuing its acquisition strategy, the Company seeks to identify
companies that (i) have a successful operating history; (ii) are located in
major metropolitan or regional markets (population of 1,000,000 or more) and
present synergies with existing or planned acquisition candidates in a
particular region; (iii) offer strong management which can be retained following
an acquisition; (iv) complement the Company's regional and national customer
base; (v) have a history of high integrity in their management and operations;
(vi) have convenient access to water or rail transportation facilities; (vii) do
not present serious environmental or regulatory issues; and (viii) either have
existing shredder operations or the ability to support the installation of such
equipment. While a target company does not have to meet all of the acquisition
criteria, it is important that a metropolitan or regional "hub" company meet
most of the criteria and that other acquisition candidates that can complement
the operations of the "hub" company are identified within a region.
Once an acquisition candidate has been identified, the Company conducts
financial, legal and operational due diligence investigations of the target
company. This due diligence investigation will generally include an
environmental site assessment and a review of the target company's environmental
compliance procedures and practices, a review of the legal and regulatory
affairs of the target, and a review of the target company's financial books and
records, including an independent audit of its financial statements, in certain
cases.
The Company generally enters into multi-year employment contracts with
certain senior managers of the acquired company which often provide for
incentive compensation in the form of stock options and warrants. In addition, a
significant portion of the purchase price for an acquired company is often paid
in restricted Common Stock. The Company believes that these arrangements provide
strong incentives for the management of the regional operations to maximize the
operating performance of the Company's subsidiaries.
Set forth below is a table identifying the recycling operations acquired by
the Company from April 1996 through June 15, 1998:
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LOCATION OF
PRINCIPAL PROCESSING DATE OF
NAME FACILITIES ACQUISITION
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EMCO Recycling Corp. ("EMCO Recycling")(1) Phoenix, Arizona April 1996
California Metals Recycling, Inc., Firma, Inc., Firma Los Angeles County, California January 1997
Plastic Co., Inc., MacLeod Metals Co. and Trojan
Trading Co. (collectively, the "MacLeod Companies")
HouTex Metals Company, Inc. ("HouTex") Houston, Texas January 1997
Reserve Iron & Metal Limited Partnership ("Reserve Cleveland, Ohio May 1997
Iron & Metal")(2) Chicago, Illinois
Attalla, Alabama
Briquetting Corporation of America, Ferrex Trading Bryan, Ohio June 1997
Corporation, The Isaac Corporation and Paulding Cleveland, Ohio
Recycling, Inc. (collectively, the "Isaac Group") Dayton, Ohio
Defiance, Ohio
Proler Southwest Inc. and Proler Steelworks L.L.C. Houston, Texas August 1997
(collectively, "Proler Southwest") Jackson, Mississippi
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LOCATION OF
PRINCIPAL PROCESSING DATE OF
NAME FACILITIES ACQUISITION
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Cozzi Iron & Metal, Inc. ("Cozzi Iron & Metal")(3) Chicago, Illinois December 1997
East Chicago, Indiana
Pittsburgh, Pennsylvania
Memphis, Tennessee
Kankakee Scrap Corporation ("Kankakee Scrap") Kankakee, Illinois December 1997
Houston Compressed Steel Corp. ("Houston Compressed") Houston, Texas January 1998
Aerospace Metals, Inc. ("Aerospace") Hartford, Connecticut January 1998
Salt River Recycling, L.L.C. ("Salt River")(4) Phoenix, Arizona January 1998
Accurate Iron & Metal Co. ("Accurate Iron & Metal")(5) Franklin Park, Illinois February 1998
Superior Forge, Inc. ("Superior Forge") Huntington Beach, California March 1998
Ellis Metals, Inc. ("Ellis Metals") Tucson, Arizona March 1998
Midwest Industrial Metals Corp. ("Midwest Chicago, Illinois April 1998
Industrial")(5)
138 Scrap, Inc. and Katrick, Inc. ("138 Scrap") Riverdale, Illinois May 1998
Charles Bluestone Company, R&P Holdings, Inc. and R&P Elizabeth, Pennsylvania May 1998
Real Estate, Inc. (collectively, "Bluestone")(6) Sharon, Pennsylvania
Goldin Industries, Inc., Goldin Industries Louisiana, Gulfport, Mississippi June 1998
Inc. and Goldin of Alabama, Inc. (collectively, the Mobile, Alabama
"Goldin Companies")(7) Harvey, Louisiana
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(1) On March 12, 1998, EMCO Recycling changed its legal name to Metal Management
Arizona, Inc. ("Metal Management Arizona").
(2) The Attalla, Alabama recycling facility is operated through a joint venture
in which the Company's subsidiary, Reserve Iron & Metal, holds a 50%
interest.
(3) The Memphis, Tennessee recycling facility is operated through a joint
venture in which the Company's subsidiary, Cozzi Iron & Metal, holds a 50%
interest.
(4) At the time it was acquired by the Company, Cozzi Iron & Metal held a 50%
joint venture interest in Salt River.
(5) The Company purchased substantially all of the assets of Accurate Iron &
Metal and certain of the assets of Midwest Industrial, both of which have
been integrated into the Company's Cozzi Iron & Metal operations.
(6) The Sharon, Pennsylvania recycling facility is operated through a joint
venture in which the Company's subsidiary, Bluestone, holds a 50% interest.
(7) A new subsidiary, Metal Management Gulf Coast, Inc. ("Metal Management Gulf
Coast"), was formed with which the Company purchased substantially all of
the scrap metal assets of the Goldin Companies.
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PENDING ACQUISITIONS
In addition to the Completed Acquisitions, the Company is in various stages
of negotiation to acquire a number of additional scrap metals recycling and
related operations. As of June 15, 1998, the Company has publicly announced
definitive agreements or binding letters of intent to acquire the recycling
operations of the following (herein, the "Pending Acquisitions"):
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LOCATION OF
PRINCIPAL PROCESSING
NAME FACILITIES
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M. Kimerling & Sons, Inc. ("Kimerling").................. Birmingham, Alabama
Naporano Iron & Metal, Co. and NIMCO Shredding Co.
(collectively, "Naporano")............................. Newark, New Jersey
Newell Recycling of Denver, Inc. and Newell Recycling of Denver, Colorado
Utah, L.L.C. (collectively, "Newell Recycling")........ Colorado Springs, Colorado
Nicroloy Company ("Nicroloy")............................ Heidelberg, Pennsylvania
Michael Schiavone & Sons, Inc. ("Schiavone")............. North Haven, Connecticut
Universal Scrap Metals, Inc. ("Universal")............... Chicago, Illinois
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All of the Pending Acquisitions are either subject to the negotiation of
definitive purchase agreements or are otherwise subject to definitive purchase
agreements with various closing conditions, accordingly, there can be no
assurance that all or any one of the Pending Acquisitions will be successfully
completed by the Company.
COMPANY RECYCLING OPERATIONS
The recycling operations of the Company involve 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: (i) manufacturers who process steel and iron ("industrial
scrap"); and (ii) 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. The Company also 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, briquetting or breaking. The Company produces 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
further processing. The Company separates scrap for further processing
according to its size and composition by using 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
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metal. The shredding process uses magnets and other technologies 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.
Shearing or Cutting. Pieces of oversized ferrous scrap, such as
obsolete steel girders and used drill pipes which are too large for other
processing, are cut with hand torches, crane-mounted alligator shears or
stationary guillotine shears. After being reduced to a more manageable
size, the scrap is then sold to those customers who can accommodate larger
materials, such as mini-mills.
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.
Briquetting. The Company processes borings and turnings made of steel
and iron into briquettes using both hot and cold briquetting methods, and
subsequently sells these briquettes to steel mills or foundries. The
Company possesses the technology to control the metallurgical content of
briquettes to meet customer specifications. The majority of the Company's
cold briquetting capacity is located at the Isaac Group's facility in
Defiance, Ohio.
Breaking of Furnace Iron. The Company processes furnace iron which
includes blast furnace iron, steel pit scrap, steel skulls and beach iron.
Large pieces of iron are broken down by the impact of eight- to ten-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 brokers who
aggregate materials for other large 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 sells its products to
end-users and brokers through its sales force. The price charged by the Company
for ferrous scrap depends upon market demand, as well as quality and grade of
the scrap. The Company believes offering a broad product line to its customers
may enhance profitability. 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 secure large amounts of raw
materials.
Non-Ferrous Operations
Non-Ferrous Scrap Purchasing. The Company purchases non-ferrous scrap from
three primary sources: (i) manufacturers and other non-ferrous scrap sources who
generate or sell aluminum, copper, stainless steel, brass, high-temperature
alloys and other metals; (ii) telecommunications, aerospace, defense, and
recycling companies that generate obsolete scrap consisting primarily of copper
wire, exotic metal alloys and used aluminum beverage cans; and (iii) peddlers
who deliver directly to the Company's facilities material which they collect
from a variety of sources. The Company collects non-ferrous scrap from sources
other than those that deliver directly to the Company's processing facilities by
placing retrieval bins near these sources. Periodically, the bins are
transported to the Company's processing facilities.
The Company also generates non-ferrous scrap as a by-product of its ferrous
scrap processing operations. Non-ferrous scrap is recovered from the Company's
ferrous operations through two primary activities: (i) 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 (ii)
non-ferrous materials are identified visually and by using magnets.
A number of factors can influence the continued availability of non-ferrous
scrap such as the level of manufacturing activity and the quality of the
Company's supplier relationships. Consistent with industry
8
<PAGE> 11
practice, the Company has certain long-standing supply relationships (generally
not the subject of written agreements) that management believes will improve as
a result of implementing its consolidation strategy.
Non-Ferrous Scrap Processing. The Company prepares non-ferrous scrap
metals, principally copper, aluminum and stainless steel, for resale by sorting,
shearing, cutting, chopping or baling.
Sorting. The Company's sorting operations separate non-ferrous scrap
by using conveyor systems and front-end loaders. In addition, many
non-ferrous metals are sorted and identified by using grinders, hand
torches, eddy current separation systems and spectrometers. The Company's
ability to identify metallurgical composition is critical to realizing high
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 methods to meet customer specifications.
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.
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 are stainless steel, titanium, brass and high-temperature alloys.
Non-Ferrous Scrap Sales. The Company sells processed non-ferrous scrap to
end-users such as specialty steelmakers, foundries, aluminum sheet and ingot
manufacturers, copper refineries and smelters, and brass and bronze ingot
manufacturers. The Company sells its products to end-users and brokers through
its sales force. 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 Metals Exchange.
SEASONALITY
The Company believes that its operations can be adversely affected by
protracted periods of inclement weather, which could reduce the volume of
material processed at its facilities. In addition, periodic maintenance
shutdowns by the Company's larger customers may have a temporary adverse impact
on the Company's operations.
CENTRALIZED FUNCTIONS
Although the Company's operations are regionally organized and managed,
certain overlapping functions are centrally administered out of the Company's
headquarters in Chicago, Illinois. These functions include acquisitions,
financial reporting, investor relations, insurance, treasury, and certain legal
and financial services. The Company believes that by centralizing these
functions it is able to complement the operational strengths and expertise of
its regional operations and thereby improve operating efficiency and control
administrative expenses.
OFFICE OF THE PRESIDENT
The Company has established an Office of the President as a forum for the
Company's regional management to share "best practices" with one another, as
well as discuss operational issues, market conditions, equipment needs, and
marketing and cross-selling opportunities. Formal meetings of the Office of
9
<PAGE> 12
the President are held on a monthly basis and typically include participation
from the management of each of the Company's regional operations, as well as the
Company's Chairman and Chief Development Officer, Chief Executive Officer,
President and Chief Operating Officer and Chief Financial Officer.
EMPLOYEES
As of March 31, 1998, the Company had 1,360 employees, 520 of which were
represented by unions. The Company considers relations with its employees to be
satisfactory.
ENVIRONMENTAL MATTERS
The Company's operations are subject to environmental regulation by
federal, state and local authorities. For information about these regulations
and other environmental matters, see "Risk Factors -- Comprehensive Regulatory
Requirements" and "Investment Considerations -- Potential Environmental
Liability" in Part II, Item 7 of this report.
RESEARCH AND DEVELOPMENT
The Company's expenditures on research and development have not been
material for any of the years ended March 31, 1998 and 1997, the five months
ended March 31, 1996 or the year ended October 31, 1995, and the Company is not
currently involved in any significant research and development projects.
SIGNIFICANT CUSTOMERS
The Company's ten largest customers represented 40.6% of consolidated net
sales for the year ended March 31, 1998. For the year ended March 31, 1998, no
single customer represented more than 10% of the Company's consolidated net
sales. The loss of any one of the Company's significant customers could have a
material and adverse effect on the Company's results of operations and financial
condition.
COMPETITION
The markets for scrap metals are regionally competitive, both in the
purchase of raw scrap and the sale of processed scrap. With regard to the
purchase of raw scrap, the Company competes with numerous independent recyclers,
as well as smaller scrap yards. Competition is based primarily on the price
offered by the purchaser for the raw scrap and the proximity of the processing
facility to the source of the raw scrap. With regard to the sale of processed
scrap, the Company competes with other regional and local scrap metals
recyclers. Competition for sales of processed scrap is based primarily on the
price and quality of the scrap metals, as well as the level of service provided
in terms of reliability and timing of delivery. The Company believes that its
ability to handle substantial volumes, broad product line, geographic diversity
and ability to provide value-added services will provide it with a competitive
advantage.
The Company faces potential competition for sales of processed scrap from
producers of steel products, such as integrated steel mills and mini-mills,
which may vertically integrate their current operations by entering the scrap
metals recycling business. Many of these producers have substantially greater
financial, marketing, and other resources than the Company. Scrap metals
processors also face competition from substitutes for prepared ferrous scrap,
such as pre-reduced iron pellets, hot briquetted iron, pig iron, iron carbide
and other forms of processed iron. The availability of substitutes for ferrous
scrap could result in a decreased demand for processed ferrous scrap, which
could result in lower prices for such products. See "Investment
Considerations -- Use of Scrap Alternatives".
In addition, in pursuing its acquisition strategy, the Company faces
significant competition from other consolidators in the scrap metals recycling
industry. The Company believes that during fiscal 1998 Philip Services
Corporation, Recycling Industries, Inc., Commercial Metals Corporation,
Omnisource Corporation, David J. Joseph Company and Schnitzer Steel Industries
Inc. are each pursuing, to varying degrees, consolidation of the recycling
industry. Some of these competitors may have greater resources than the Company.
10
<PAGE> 13
BACKLOG
The processing time for scrap metals is generally sufficiently short so as
to permit the Company to fill orders for most of its products in a short time
period. Accordingly, the Company does not consider backlog to be material to its
business.
PATENTS AND TRADEMARKS
Although the Company and its subsidiaries own certain patents and
trademarks, the Company does not believe that its business is dependent on its
intellectual property rights.
ITEM 2. PROPERTIES.
The Company's facilities generally are comprised of: (i) administrative
offices; (ii) warehouses for the storage of repair parts and certain types of
raw and processed scrap; (iii) covered and open storage areas for raw and
processed scrap; (iv) a machine or repair shop for the maintenance and repair of
the facility's vehicles and equipment; (v) scales for weighing scrap; and (vi)
loading and unloading facilities. Facilities generally have specialized
equipment for processing all grades of raw scrap which may include a heavy duty
automotive shredder to process both ferrous and non-ferrous scrap, crane-mounted
alligator or stationary guillotine shears to process large pieces of heavy
scrap, wire stripping and chopping equipment, baling equipment and torch cutting
facilities.
The following table sets forth information regarding the principal
properties of the Company as of June 15, 1998:
<TABLE>
<CAPTION>
LOCATION OPERATION SQUARE FEET LEASED/OWNED
- -------- --------- ----------- ------------
<S> <C> <C> <C>
Aerospace
500 Flatbush Ave., Hartford, CT.................... Office/Processing 1,481,040 Leased
Bluestone
2045 Lincoln Blvd., Elizabeth, PA.................. Office/Processing/Maintenance 413,820 Owned
200 Stewart Ave., Sharon, PA....................... Office/Processing 1,742,400 Leased
Corporate Headquarters
500 N. Dearborn St., Chicago, IL .................. Corporate Offices 11,200 Leased
Cozzi Iron & Metal
2232 S. Blue Island Ave., Chicago, IL.............. Office 10,095 Owned
2305/2500 S. Paulina St., Chicago,IL............... Office/Warehouse/Shear 560,295 Owned
2425/2451 S. Wood St., Chicago, IL................. Office/Maintenance/Baler 281,882 Owned
350 N. Artesian Ave., Chicago, IL.................. Office/Maintenance/Shredder 348,480 Owned
6660 S. Nashville Ave., Bedford Park, IL........... Office/Warehouse/Baler 304,223 Owned
3601 Canal St., East Chicago, IN................... Maintenance/Balers(2)/Shear 588,784 Owned
77 E. Railroad Street, Mononghahela, PA............ Office/Warehouse/Baler/Shear 174,240 Owned
1509 W. Cortland St., Chicago, IL.................. Warehouse 162,540 Owned
1831 N. Elston Ave., Chicago, IL................... Warehouse 35,695 Owned
26th and Paulina Streets, Chicago, IL.............. Office/Maintenance/Baler/Crusher 323,848 Owned
9331 S. Ewing Ave., Chicago, IL.................... Office/Maintenance/Shredder 293,087 Owned
3200 E. 96th St., Chicago, IL...................... Office/Maintenance/Eddy Current 364,969 Owned
Separation System
3151 S. California Ave., Chicago, IL............... Office/Maintenance/Shredder 513,500 Leased
1000 N. Washington, Kankakee, IL................... Office/Maintenance/Warehouse 217,800 Owned
564 N. Entrance Ave., Kankakee, IL................. Office/Warehouse 206,910 Owned
1201 W. 138th St., Riverdale, IL................... Office/Warehousing/Dismantling 9,000 Leased
3640 S. 35th Ave., Phoenix, AZ..................... Shear/Shredder 1,121,670 Leased
526 Weakly St., Memphis, TN........................ Warehouse/Baler/Shear/Shredder 1,038,470 Leased
HouTex
15-21 Japhet, Houston, TX.......................... Office/Warehouse/Barge 1,960,200 Leased
Terminal/Processing
Houston Compressed
100 Yale, Houston, TX.............................. Office/Warehouse/Processing 174,240 Leased
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
LOCATION OPERATION SQUARE FEET LEASED/OWNED
- -------- --------- ----------- ------------
<S> <C> <C> <C>
Isaac Group
Rte. 281 East, Defiance, OH........................ Office/Maintenance/Briquetting 3,267,000 Owned
1645 Indian Wood Circle, Maumee, OH................ Office 24,000 Leased
715 E. Perry St., Bryan, OH........................ Warehouse/Briquetting 187,308 Owned
15360 State Rte. 613 East, Paulding, OH............ Office/Warehouse 130,680 Leased
18899 Snow Rd., Brook Park, OH..................... Office/Maintenance/Briquetting 1,437,480 Owned
MacLeod Companies
833 W. 182nd St., Gardena, CA...................... Office/Warehouse/Processing 4,700 Leased
1022 W. Lomita Blvd., Harbor City, CA.............. Warehouse 19,223 Leased
1675 E. Maurentania Blvd., Wilmington, CA.......... Warehouse 20,000 Leased
8973 Kendall Ave., Southgate, CA................... Office/Processing 10,800 Leased
9309 Rayo Ave., Southgate, CA...................... Warehouse/Processing 304,920 Owned
Metal Management Arizona
3700 W. Lower Buckeye Rd., Phoenix, AZ............. Office/Shredder/Baler 1,089,000 Owned
6962 NW Grand Ave., Glendale, AZ................... Feeder Yard 10,890 Leased
4457 Gila Ridge Rd., Yuma, AZ...................... Feeder Yard 217,800 Leased
Bell Rd. and 31st St., Maricopa County, AZ......... Feeder Yard 10,890 Leased
12 W. Southern, Mesa, AZ........................... Feeder Yard 10,890 Leased
3501 NW Grand Ave., Phoenix, AZ.................... Feeder Yard 10,890 Leased
1800 N. Stone, Tucson, AZ.......................... Office/Warehouse 152,460 Owned
1804 S. Euclid, Tuscon, AZ......................... Feeder Yard 10,890 Owned
1900 Rio Solado Parkway, Tempe, AZ................. Feeder Yard 108,900 Owned
5851 E. 22nd St., Tucson, AZ....................... Feeder Yard 10,890 Owned
201-205 E. Main St., Casa Grande, AZ............... Feeder Yard 21,780 Leased
1327 N. Hwy 89, Prescott, AZ....................... Feeder Yard 1,070 Leased
4117 N. 23rd Ave., Phoenix, AZ..................... Feeder Yard 65,340 Leased
2651 S. 19th Ave., Phoenix, AZ..................... Feeder Yard 10,890 Leased
9601 N. 19th Ave., Phoenix, AZ..................... Feeder Yard 10,890 Leased
513 E. Chicago Circle, Chandler, AZ................ Feeder Yard 10,890 Leased
Metal Management Gulf Coast
12440 Seaway Road, Gulport, MS..................... Office/Processing 435,600 Leased
Seaway Road at Goldin Lane, Gulfport, MS........... Barge Terminal 435,600 Owned
1360 Conception St., Mobile, AL.................... Office/Processing 522,720 Leased
Industrial Canal Road, Mobile, AL.................. Barge Terminal 215,622 Leased
400 Peters Road, Harvey, LA........................ Barge Terminal 696,960 Leased
Proler Southwest
90 Hirsch Rd., Houston, TX......................... Office/Warehouse/Processing 378,972 Owned
120/121 Apache Dr., Jackson, MS.................... Office/Processing 522,720 Owned
Reserve Iron & Metal
4431 W. 130th St., Cleveland, OH................... Iron Breaking/Aluminum 2,178,000 Leased
12701 S. Doty Ave., Chicago, IL.................... Shear/Iron Breaking 784,080 Leased
1007 Lake Rhea Rd., Attalla, Alabama............... Iron Breaking 19,950 Leased
Superior Forge
5322 Oceanus Drive, Huntington Beach, CA........... Office/Processing 21,780 Leased
5271 Argosy Drive, Huntington Beach, CA............ Maintenance/Processing 47,916 Leased
</TABLE>
The Company believes that its facilities are suitable for their present and
intended purposes and have adequate capacity for the Company's current levels of
operation.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in various litigation matters
involving ordinary and routine claims incidental to the Company's business.
There are presently no legal proceedings pending against the Company which, in
the opinion of management, are likely to have a material adverse effect on the
Company's business, financial position or results of operations. These legal
proceedings include the following proceedings related to environmental matters:
(a) The Company's Reserve Iron & Metal, Cozzi Iron & Metal and Kankakee
Scrap subsidiaries have received notices from the United States Environmental
Protection Agency (the "EPA") that each such
12
<PAGE> 15
company and numerous other parties are considered potentially responsible
parties ("PRPs") 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 their analysis of the
situation, the management of Reserve Iron & Metal, Cozzi Iron & Metal and
Kankakee Scrap currently do not expect their aggregate potential liability to be
in excess of $175,000. There can be no assurance, however, that their aggregate
potential liability may not be greater than $175,000.
(b) Cozzi Iron & Metal has received a notice from the EPA that Cozzi Iron &
Metal is a PRP under Superfund in regard to the site referred to as H&H
Recycling in Gary, Indiana. Cozzi Iron & Metal believes that a settlement may be
reached with respect to the H&H Recycling site which would result in a cost of
approximately $600,000. There can be no assurance that such potential liability
will not be material.
(c) Bluestone has received notice from the EPA that it is a PRP under
Superfund in regard to the site referred to as the Jacks Creek/Sitkin Smelting
Facility Superfund Site in Mifflin County, Pennsylvania. Bluestone joined a PRP
group which has submitted a good faith offer to the EPA to enter into a consent
decree. Based on its analysis of the situation, Bluestone expects that its share
of the cleanup costs at this site will not exceed $250,000. Although Bluestone
has reserved funds to address such cleanup costs and has obtained an indemnity
from the previous owners of the company for costs which exceed this reserve,
there can be no assurance that Bluestone may not be required to make additional
expenditures in connection with this site.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the shareholders of Metal Management during
the fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock has traded on the NASDAQ National Market System
under the symbol MTLM since April 1996. Previously, the Common Stock traded
under the symbol GPAR. The following table sets forth the high and low bid
information for the 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.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1998 (YEAR ENDED 3/31/98)
Fourth Quarter.............................................. $17.38 $11.13
Third Quarter............................................... 29.38 14.50
Second Quarter.............................................. 29.50 13.88
First Quarter............................................... 15.00 8.13
FISCAL 1997 (YEAR ENDED 3/31/97)
Fourth Quarter.............................................. $10.38 $ 3.63
Third Quarter............................................... 4.00 3.25
Second Quarter.............................................. 4.38 3.13
First Quarter............................................... 5.44 4.25
</TABLE>
13
<PAGE> 16
The number of registered stockholders of record of the Company's Common
Stock, based on the transfer records of the Company at March 31, 1998, was 333.
On March 31, 1998, the closing price per share of the Company's Common Stock as
reported on the NASDAQ National Market System was $14.375.
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 its business operations.
UNREGISTERED SALES OF SECURITIES
The following discusses all unregistered sales of the Company's Common
Stock during the last fiscal year.
On April 1, 1997, the Company issued warrants to purchase 60,000 shares of
Common Stock at $4.00 per share to a Clend Investment, Inc. The warrants were
issued as contingent purchase consideration for the HouTex acquisition and were
valued at $216,000 for financial reporting purposes.
On April 15, 1997, the Company issued 182,482 shares of Common Stock to
Clend Investment, Inc. in exchange for a note payable in the aggregate principal
amount of $1,000,000.
From April 28, 1997 through June 4, 1997, the Company sold an aggregate of
2,025,000 shares of Common Stock for an aggregate price of $14,681,000 to
certain individuals, including 260,000 shares of Common Stock to certain
officers and directors of the Company, the proceeds of which were used to fund
certain acquisitions and for general corporate purposes.
On May 1, 1997, the Company issued warrants to purchase 60,000 shares of
Common Stock at $4.00 per share to Clend Investment, Inc. The warrants were
issued as contingent purchase consideration for the HouTex acquisition and were
valued at $220,800 for financial reporting purposes.
On May 1, 1997, the Company issued warrants to purchase an aggregate of
700,000 shares of Common Stock at $3.50 per share and warrants to purchase an
aggregate of 700,000 shares of Common Stock at $4.00 per share, each subject to
adjustment, to the former limited partners of Reserve Iron & Metal as partial
consideration for the Company's acquisition of their partnership interests. The
warrants were valued at $8,118,000 for financial reporting purposes.
On May 1, 1997, the Company issued warrants to purchase an aggregate of
175,000 shares of Common Stock at $9.90 per share to certain employees in
consideration for services rendered or to be rendered.
On May 29, 1997, the Company issued 160,000 shares of Common Stock to Ian
MacLeod in exchange for a note payable in the aggregate principal amount of
$1,000,000.
On June 23, 1997, the Company issued an aggregate of 1,942,857 shares of
Common Stock and warrants to purchase an aggregate 462,500 shares of Common
Stock at exercise prices ranging from $10.80 to $11.70 per share to the former
shareholders of the Isaac Group in partial consideration for the Company's
acquisition of the Isaac Group's stock. The Common Stock and warrants were
valued at $25,911,000 for financial reporting purposes. The Company issued
warrants to purchase 287,500 shares of Common Stock at $11.70 per share to a
former shareholder of the Isaac Group in consideration for entering into a
non-compete agreement with the Company. The warrants were valued at $1,833,963
for financial reporting purposes. The Company also issued warrants to purchase
76,923 shares of Common Stock at $13.00 per share to a former shareholder of the
Isaac Group in consideration for services rendered or to be rendered.
On August 28, 1997, the Company issued an aggregate of 1,750,000 shares of
Common Stock and warrants to purchase an aggregate 375,000 shares of Common
Stock at $6.00 per share to the former shareholders of Proler Southwest as
partial consideration for the Company's acquisition of Proler Southwest's stock.
The Common Stock and warrants were valued at $12,704,000 for financial reporting
purposes.
On December 1, 1997, the Company issued an aggregate of 11,499,986 shares
of Common Stock, warrants to purchase 750,001 shares of Common Stock at $5.91
per share and warrants to purchase 750,001 shares of Common Stock at $15.84 per
share to the former shareholders of Cozzi Iron & Metal as
14
<PAGE> 17
partial consideration for the Company's acquisition of the stock of Cozzi Iron &
Metal. The Common Stock and warrants were valued at $73,369,000 for financial
reporting purposes.
On December 1, 1997, the Company issued warrants to purchase an aggregate
of 1,855,000 shares of Common Stock at exercise prices ranging from $4.00 to
$12.00 per share to certain employees and directors of the Company for services
rendered. In accordance with an APB No. 25, the Company recognized expense of
$20,750,000.
On December 1, 1997, the Company issued warrants to purchase an aggregate
of 120,000 shares of Common Stock at exercise prices ranging from $7.25 to
$26.00 per share to certain consultants for services performed on behalf of the
Company. The warrants were valued at $1,479,000 for financial reporting
purposes.
On December 18, 1997, the Company issued an aggregate of 155,000 shares of
Common Stock to the former shareholders of Kankakee Scrap as partial
consideration for the Company's acquisition of Kankakee Scrap's stock. The
Common Stock was valued at $2,437,000 for financial reporting purposes.
On December 19, 1997, the Company sold 1,470,558 shares of Common Stock,
warrants to purchase 200,000 shares of Common Stock at $23.00 per share and
warrants to purchase 400,000 shares of Common Stock at $20.00 per share for an
aggregate price of approximately $25,000,000 to Samstock, L.L.C. The proceeds
were used to fund certain acquisitions and for general corporate purposes.
On January 7, 1998, the Company issued an aggregate of 253,176 shares of
Common Stock to the former shareholders of Houston Compressed as consideration
for the Company's acquisition of Houston Compressed's stock. The Common Stock
was valued at $4,010,000 for financial reporting purposes.
On January 14, 1998, the Company issued an aggregate of 182,087 shares of
Common Stock to certain former limited partners of Reserve Iron & Metal as the
result of the conversion of a note payable and accrued interest in the aggregate
amount of $1,639,000.
On January 20, 1998, the Company issued an aggregate of 402,983 shares of
Common Stock to the former shareholders of Aerospace as partial consideration
for the Company's acquisition of certain assets of Aerospace. The Common Stock
was valued at $5,318,000 for financial reporting purposes. The Company also
issued warrants to purchase an aggregate of 5,000 shares of Common Stock at
$15.75 per share to a former shareholder of Aerospace in consideration for
services rendered under an employment agreement.
On January 30, 1998, the Company issued 100,000 shares of Common Stock to
the members of Newell Phoenix, L.L.C. ("Newell Phoenix") as consideration for
the Company's acquisition of the 50% membership interest in Salt River held by
Newell Phoenix. The Common Stock was valued at $1,224,000 for financial
reporting purposes.
On February 26, 1998, the Company issued an aggregate of 10,000 shares of
Common Stock to the shareholders of Accurate Iron & Metal as partial
consideration for the Company's acquisition of certain assets of Accurate Iron &
Metal. The Common Stock was valued at $111,000 for financial reporting purposes.
The Company also issued warrants to purchase 20,000 shares of Common Stock at
$13.00 per share to a former shareholder of Accurate Iron & Metal in
consideration for services rendered to be rendered.
On March 17, 1998, the Company issued an aggregate of 866,667 shares of
Common to the former shareholders of Superior Forge as partial consideration for
the Company's acquisition of Superior Forge's stock. The Common Stock was valued
at $10,279,000 for financial reporting purposes.
On March 18, 1998, the Company issued warrants to purchase 20,000 shares of
Common Stock at $15.00 per share to an employee of the Company for services
rendered.
None of these sales was underwritten, and all of the shares issued were
taken for investment purposes by the entity or individual to whom they were
issued. The Company believes all of the securities issued were exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended. As to
approximately 33% of the shares issued in the above transactions, such shares
have been subsequently registered for resale, or the Rule 144 holding period
restricting the sale of such shares has lapsed.
15
<PAGE> 18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(in thousands, except per share and employee data)
The following table sets forth selected consolidated financial data of the
Company for the periods indicated. The information contained in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
related notes thereto included in Part IV, Item 14 of this report. The financial
data included in the table below reflect the results of the Company's prior
operations of designing, manufacturing and marketing electronic presentation
products and color printers and related consumable products as discontinued
operations. The Company sold the assets relating to these operations in July and
December 1996. For information about principal acquisitions and divestitures,
see notes 2 and 3 to the consolidated financial statements included in Part IV,
Item 14 of this report. The historical results are not necessarily indicative of
results to be expected for any future period.
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED FIVE MONTHS FOR THE YEARS ENDED
OCTOBER 31, ENDED MARCH 31,
--------------------------- MARCH 31, -------------------
1993 1994 1995 1996 1997 1998
------- ------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales......................... $ 0 $ 0 $ 0 $ 0 $ 65,196 $479,707
Gross profit...................... 0 0 0 0 6,872 47,760
General and administrative
expenses........................ 0 0 0 210 6,174 24,396
Depreciation and amortization..... 0 0 0 0 2,282 10,019
Non-recurring expenses............ 0 0 0 0 0 33,710
Interest expense.................. 0 0 0 0 1,449 9,018
Interest and other income, net.... 310 229 312 142 181 363
Net income (loss) from continuing
operations applicable to Common
Stock........................... 310 228 261 (16) (2,010) (35,713)
Income (loss) from discontinued
operations...................... (202) (440) (2,698) 22 847 200
Net income (loss) applicable to
Common Stock.................... $ 108 $ (212) $(2,437) $ 6 $ (1,163) $(35,513)
Basic income (loss) per share
applicable to Common Stock:
Continuing operations............. $ .06 $ .04 $ .05 $ .00 $ (.22) $ (1.81)
Discontinued operations........... (.04) (.08) (.53) .00 .09 .01
------- ------- ------- ------- -------- --------
Net income (loss)............... $ .02 $ (.04) $ (.48) $ .00 $ (.13) $ (1.80)
======= ======= ======= ======= ======== ========
Weighted average shares
outstanding..................... 5,051 5,087 5,125 5,299 9,106 19,727
Diluted income (loss) per share
applicable to Common Stock:
Continuing operations............. $ .06 $ .04 $ .05 $ .00 $ (.22) $ (1.81)
Discontinued operations........... (.04) (.08) (.53) .00 .09 .01
------- ------- ------- ------- -------- --------
Net income (loss)............... $ .02 $ (.04) $ (.48) $ .00 $ (.13) $ (1.80)
======= ======= ======= ======= ======== ========
Weighted average diluted shares
outstanding..................... 5,095 5,091 5,125 5,299 9,106 19,727
BALANCE SHEET DATA
(AT END OF PERIOD)
Working capital (deficit)......... $ 7,983 $ 8,130 $ 9,141 $ 9,086 $(13,555) $ 88,438
Total assets...................... 15,304 13,486 10,130 10,313 70,125 480,811
Long-term debt, including
current......................... 0 0 0 0 36,441 141,135
Convertible preferred stock....... 0 0 0 0 0 33,008
Stockholders' equity.............. 13,759 12,395 9,314 9,608 23,148 248,882
Cash dividends declared per share
of Common Stock................. $ 0.24 $ 0.24 $ 0.18 $ 0.00 $ 0.00 $ 0.00
Number of employees............... 71 62 41 37 376 1,360
</TABLE>
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 "Investment
Considerations" below.
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. The following
discussion and analysis does not include a comparison of the financial condition
and results of operation for the year ended March 31, 1997 to any prior periods.
The Company's prior operations of designing, manufacturing and marketing
electronic presentation products and color printers and related consumable
products were sold in July and December 1996 and since April 1996, the Company
consummated 18 acquisitions and now operates 54 recycling facilities in 12
states. In the opinion of management, any comparison of the results of
operations for the year ended March 31, 1997 to prior periods would not provide
information relevant to an assessment of the financial condition or results of
operations of the Company. This discussion should be read in conjunction with
the consolidated financial statements and notes thereto included in Part IV,
Item 14 of this report.
GENERAL
Metal Management is one of the largest and fastest-growing full-service
metals recyclers in the United States, with 54 recycling facilities in 12
states. Metal Management is primarily engaged in the collection and processing
of ferrous and non-ferrous metals for resale to metals brokers, steel producers,
and producers and processors of other metals. The Company collects industrial
and obsolete scrap, processes it into reusable forms and supplies the recycled
metals to its approximately 800 customers, including mini-mills, integrated
steel mills, foundries and metals brokers. Since April 1996 the Company has
experienced significant growth, principally through acquisitions.
The Company's revenues consist primarily of revenues derived from the sale
and brokerage of scrap metals. The Company recognizes revenues from processed
product sales at the time of shipment. Revenues related to brokerage sales are
generally recognized upon receipt of the material by the customer.
Cost of sales consists primarily of the cost of metals sold, direct and
indirect labor and related taxes and benefits, repairs and maintenance, and
freight.
General and administrative expenses include management salaries, clerical
and administrative costs, professional services, facility rentals and related
insurance and utility costs, as well as costs related to the Company's marketing
and business development activities.
Non-recurring expenses include costs recognized during December 1997 that
were principally non-cash and which were incurred with respect to write-offs of
certain of its investments in EMCO Recycling, severance benefits for a former
officer, and the cost of certain compensatory warrants which were issued on
December 1, 1997.
Other income and expense consists principally of interest income, gains or
losses on the sale of fixed assets, and income and losses from joint ventures
which represent an allocation of income and losses
17
<PAGE> 20
attributable to investments made by the Company in two joint ventures. Both
joint ventures are accounted for under the equity method of accounting.
RESULTS OF OPERATIONS
Year Ended March 31, 1998 Compared to Year Ended March 31, 1997
Consolidated net sales for the years ended March 31, 1998 and 1997 in broad
product categories were as follows ($ in thousands):
<TABLE>
<CAPTION>
3/31/98 (FISCAL 1998) 3/31/97 (FISCAL 1997)
----------------------------- ---------------------------
COMMODITY WEIGHT NET SALES % WEIGHT NET SALES %
--------- --------- --------- ----- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Ferrous metals
(tons)............. 2,126,834 $266,372 55.5 151,782 $20,744 31.8
Non-ferrous metals
(pounds, in
000's)............. 178,102 97,665 20.4 64,898 43,531 66.8
Brokerage (tons)..... 956,054 113,585 23.7 -- -- --
Other................ -- 2,085 0.4 -- 921 1.4
-------- ----- ------- -----
$479,707 100.0 $65,196 100.0
======== ===== ======= =====
</TABLE>
Consolidated net sales for the year ended March 31, 1998 were $479.7
million compared with consolidated net sales of $65.2 million for the year ended
March 31, 1997. The significant increase in consolidated net sales is
principally due to the inclusion of the net sales of the companies acquired by
Metal Management during the year ended March 31, 1998.
Ferrous sales represented 55.5% of consolidated net sales for the year
ended March 31, 1998, as compared to 31.8% of consolidated net sales for the
year ended March 31, 1997. The significant increase in ferrous sales, both in
tons sold and as a percentage of total net sales, is due primarily to the
inclusion of ferrous sales of HouTex, Reserve Iron & Metal, the Isaac Group,
Proler Southwest and Cozzi Iron & Metal, each of which is primarily engaged in
the sale of ferrous metals.
Non-ferrous sales represented 20.4% of consolidated net sales for the year
ended March 31, 1998 as compared to 66.8% of consolidated net sales in the
comparable prior period. The decrease in percentage of non-ferrous sales is due
to substantial amounts of ferrous sales resulting from the acquisitions of
HouTex, Reserve Iron & Metal, the Isaac Group, Proler Southwest and Cozzi Iron &
Metal, which primarily sell ferrous metals. The increase in pounds of
non-ferrous metals sold is due to the inclusion of non-ferrous sales of MacLeod
and Aerospace, which are primarily engaged in the sale of non-ferrous metals.
A portion of Reserve Iron & Metal, the Isaac Group and Cozzi Iron & Metal's
businesses involve the brokering of scrap iron and other metals for sale to
foundries, mills and other brokers. Brokered metals are shipped directly to the
customer from the supplier, thereby, eliminating processing costs and inventory
holding costs. Brokerage revenues are principally derived from ferrous metals.
For the year ended March 31, 1998, the Company realized a 5.2% gross profit
margin on brokered sales. Gross profits on brokered sales will vary depending on
the type of metals and markets in which metals are brokered.
Consolidated gross profit was $47.8 million (10.0% of consolidated net
sales) for the year ended March 31, 1998 compared with consolidated gross profit
of $6.9 million (10.5% of consolidated net sales) for the year ended March 31,
1997. The price of scrap metal is affected 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.
Consolidated general and administrative expenses were $24.4 million (5.1%
of consolidated net sales) for the year ended March 31, 1998 compared with $6.2
million (9.5% of consolidated net sales) for the year ended March 31, 1997. The
increase in general and administrative expenses primarily reflects the inclusion
of a full year of administrative expenses for those operations acquired during
the year ended March 31, 1997 and the inclusion of a partial year of
administrative expenses for the operations acquired by the Company during the
year ended March 31, 1998. Corporate overhead has also increased due to
additions in corporate staff and
18
<PAGE> 21
corporate expenses (i.e. legal, audit, travel, etc.) to support the acquisition
strategy the Company is pursuing. The reduction in general and administrative
expenses as a percent of consolidated net sales reflects the large scale of
operations at Reserve Iron & Metal, the Isaac Group and Cozzi Iron & Metal that
provides for more efficient allocation of administrative expenses.
Depreciation and amortization expense was $10.0 million (2.1% of
consolidated net sales) for the year ended March 31, 1998, compared with $2.3
million (3.5% of consolidated net sales) for the year ended March 31, 1997. The
increase is attributed to the inclusion of goodwill amortization and
depreciation of fixed assets of those operations acquired by the Company since
the year ended March 31, 1997.
During the year ended March 31, 1998, the Company recorded the following
non-recurring pre-tax charges, totaling $33.7 million (7.0% of consolidated net
sales) ($ in thousands):
<TABLE>
<S> <C>
Non-cash warrant compensation expense....................... $19,050
Severance and other termination benefits.................... 2,814
EMCO Recycling Shut-down.................................... 11,846
-------
$33,710
=======
</TABLE>
See Note 4 to the Consolidated Financial Statements included in Part IV,
Item 14 of this report.
Interest expense was $9.0 million (1.9% of consolidated net sales) for the
year ended March 31, 1998, versus $1.4 million (2.2% of consolidated net sales)
for the year ended March 31, 1997. This increase is due to the issuance of notes
to sellers and the incurrence and/or assumption of debt associated with the
Completed Acquisitions.
Net loss from continuing operations, after preferred stock dividends and
accretion, was $35.7 million ($1.81 per share) for the year ended March 31, 1998
compared to a net loss of $2.0 million ($.22 per share) for the year ended March
31, 1997. The increase in the net loss is primarily attributable to the
non-recurring charges recorded by the Company in the third quarter of the year
ended March 31, 1998. Net loss from continuing operations excluding the
non-recurring charges and the one-time non-cash dividend charge was $0.2 million
($.01 per share) for the year ended March 31, 1998 compared to $2.0 million
($.22 per share) for the year ended March 31, 1997.
Income from discontinued operations was $0.2 million ($.01 per share) for
the year ended March 31, 1998 compared to $0.8 million ($.09 per share) for the
comparable prior period. Income during the current fiscal year mainly reflects
the royalty income recognized by the Company from the sale of its discontinued
operations, net of certain expenses paid. Prior year results reflect three
months of operations of the discontinued operations as well as the gain on sale
of the discontinued operations.
Income tax benefit for the year ended March 31, 1998 was $0.4 million (0.1%
of consolidated net sales), which yields an effective tax rate of 1.4%. The
effective tax rate differs from the statutory rate primarily due to the
permanent differences represented by non-deductible goodwill amortization and
certain non-deductible, non-recurring expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company will continue to pursue acquisitions in the scrap metal
recycling industry and anticipates financing these acquisitions through a
combination of cash and the issuance of debt and equity. 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 on
terms acceptable to the Company, if at all.
Cash Flows from Continuing Operations
The Company generated $0.6 million of cash flows from continuing operations
during the year ended March 31, 1998 compared with cash outflows of $1.7 million
during the year ended March 31, 1997. The increase mainly reflects cash flows
generated from operations acquired during the year ended March 31, 1998.
19
<PAGE> 22
Cash Flows from Investing Activities
The Company made capital expenditures of approximately $7.6 million during
the year ended March 31, 1998, compared with capital expenditures of $3.2
million during the year ended March 31, 1997. The Company utilized cash of
approximately $43.9 million to complete the acquisitions of, and transaction
costs related to, the operations acquired by the Company during the year ended
March 31, 1998. Management anticipates continuing to make acquisitions, make
capital expenditures for new equipment, and upgrade and expand existing
equipment and facilities. The Company expects that these expenditures may
increase in the future due to the internal and external growth of the Company.
Cash Flows from Financing Activities
During the year ended March 31, 1998, the Company issued 3,495,588 shares
of restricted Common Stock and warrants to purchase 600,000 shares of Common
Stock in two private offerings which aggregated $39.7 million and received
proceeds from the issuance of 45,000 shares of Series A Preferred Stock and
Series B Preferred Stock which aggregated $42.8 million (collectively, the
"Private Placements"). The proceeds from the Private Placements were used to
fund purchase consideration with respect to acquisitions, repay debt and provide
working capital. The Company anticipates growing through acquisitions and will
require additional debt or equity to fund its potential and future acquisitions.
Cash Flows from Discontinued Operations
The Company's cash flows from discontinued operations for the year ended
March 31, 1998 reflects royalty income recognized from the sale of the assets of
the discontinued operations, net of expenses paid. Cash flows during the year
ended March 31, 1997 reflect the cash generated by the discontinued operations
as well as the proceeds related to the sale of 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 borrowings. At March 31, 1998, the Company had $4.4 million
in cash and cash equivalents, compared with cash and cash equivalents of $5.7
million at March 31, 1997.
Significant Transactions
During the year ended March 31, 1998, the Company completed certain
significant debt and equity transactions. The Company raised approximately $39.7
million from the issuance of restricted Common Stock and raised approximately
$42.8 million from the issuance of convertible preferred stock (see Note 9 to
the Consolidated Financial Statements included in Part IV, Item 14 of this
report). The Company utilized a portion of the cash to pay approximately $36.0
million of notes which were issued in connection with certain acquisitions, to
pay a $6.5 million term loan and to fund $33.8 million of the cash portion of
the purchase price for certain acquisitions.
Cash Requirements for Maturing Debt Obligations
In connection with the acquisition of the Isaac Group, the Company issued
and assumed notes payable. The notes require quarterly interest payments and
require principal payments of $10.8 million on February 15, 1999 and $10.8
million on February 15, 2000.
Cash Requirements for Pending Acquisitions
The Company expects that the cash component of purchase price for Pending
Acquisitions, if all such acquisitions are completed, will be $155.1 million.
20
<PAGE> 23
Working Capital Availability and Requirements
Accounts receivable balances increased from $9.6 million at March 31, 1997
to $107.8 million at March 31, 1998, primarily as a result of the inclusion of
the accounts receivable of the operations acquired by the Company since March
31, 1997. Accounts payable increased from $5.2 million at March 31, 1997 to
$60.2 million at March 31, 1998, primarily as a result of such acquisitions.
Inventory levels can vary significantly among the Company's subsidiaries.
Inventory on hand at March 31, 1998 and March 31, 1997, respectively, consisted
of the following categories and amounts (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Ferrous metals............................................. $35,933 $2,707
Non-ferrous metals......................................... 20,075 4,754
Other...................................................... 786 954
------- ------
$56,794 $8,415
======= ======
</TABLE>
The increase in the value of inventory is primarily due to the inclusion of
the inventories of Reserve Iron & Metal, the Isaac Group, Aerospace and Cozzi
Iron & Metal, all of which were acquired during the year ended March 31, 1998.
The Company expects to make substantial investments in additional equipment
and property for expansion, for replacement of assets, and in connection with
future acquisitions.
At March 31, 1998, the Company and its wholly-owned subsidiaries had
outstanding borrowings with commercial lenders under various short-term
revolving lines of credit in the aggregate principal amount of $48.6 million.
The facilities provided for revolving credit at interest rates that range from
8.5% to 16.5%.
On March 31, 1998, the Company and its subsidiaries entered into a credit
facility (the "Senior Credit Facility") with BT Commercial Corporation, as agent
for the lenders (the "Agent"), and certain commercial lending institutions
providing for a revolving credit and letter of credit facility of $200.0
million. On June 19, 1998, the Senior Credit Facility was amended to increase
the facility to $250.0 million. The Senior Credit Facility matures on March 31,
2001. The Senior Credit Facility bears interest at a floating rate per annum
equal to (at the Company's option): (i) 1.75% over LIBOR or (ii) 0.5% over
Bankers Trust Company's prime rate as in effect from time to time. The Senior
Credit Facility is available for working capital and general corporate purposes,
including acquisitions. The Company and its subsidiaries are required under the
Senior Credit Facility to pay the Agent and the lenders certain fees and
expenses which include an unused line fee on a monthly basis. The obligations of
the Company and its subsidiaries under the Senior Credit Facility are secured by
a security interest in substantially all of the assets and properties of the
Company and its subsidiaries. Availability of loans and letters of credit under
the Senior Credit Facility is generally limited to a borrowing base constituted
of 85% of eligible accounts receivable, 70% of eligible inventory and a $40
million fixed asset sublimit that amortizes on a quarterly basis.
On April 1, 1998, the Company made borrowings of $106.8 million under the
Senior Credit Facility to: (i) repay outstanding secured debt of approximately
$96.5 million; (ii) buyout operating leases of approximately $9.3 million; and
(iii) pay prepayment penalties of approximately $1.0 million, leaving the
Company with approximately $17.3 million available under the Senior Credit
Facility as of such date. Borrowings outstanding under the Senior Credit
Facility as of April 1, 1998 bore interest at 9.0%.
On May 13, 1998, the Company sold, in a Rule 144A private offering and
pursuant to Regulation S under the Securities Act of 1933, as amended, $180
million of senior subordinated notes (the "Notes"). The Notes mature on May 15,
2008 and bear interest at the rate of 10% per annum. The proceeds of the
offering were used in part to repay indebtedness of the Company, with the
remainder used for acquisitions and general corporate purposes.
The weighted average interest rate on the borrowings outstanding under the
Company's working capital lines of credit at March 31, 1998 was 9.6%. Average
borrowings under the various working capital lines of
21
<PAGE> 24
credit during fiscal 1998 were approximately $17.1 million. During fiscal 1998,
amounts outstanding under the various working capital lines of credit ranged
from $7.3 million to $48.6 million.
YEAR 2000 LIABILITY
The Company is in the process of reviewing its existing computer software
systems, and in connection with that process is analyzing whether or not the
Company faces a "Year 2000" problem, a problem that is expected to arise with
respect to computer programs that use only two digits to identify a year in the
date field, and which were designed and developed without considering the impact
of the upcoming change in the century. Although the Company has not yet made a
final determination as to whether the various computer systems at its operations
will give rise to a "Year 2000" problem, the Company believes that any such
problem, if it arises in the future, should not be material to the Company's
operations.
INVESTMENT CONSIDERATIONS
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, projections involving
anticipated revenues, earnings, profitability or other aspects of operating
results or other future developments in the affairs of the Company or the
industry in which it conducts business. 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. 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 financial condition or results of
operations of the Company, the trading price of the Company's Common Stock, 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 financial condition, results of operations or future prospects 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.
LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS; CAPITAL REQUIREMENTS
As reflected in the Company's periodic reports filed from time to time
under the Securities Exchange Act of 1934, as amended, the Company is, and may
continue to be, highly leveraged. The degree to which the Company is leveraged
could have important consequences to the Company, including, but not limited to,
the following: (i) a substantial portion of the Company's cash flow from
operations will be required to be dedicated to debt service and will not be
available to the Company for its operations; (ii) the Company's ability to
obtain additional financing in the future for acquisitions, capital
expenditures, working capital or general corporate purposes could be limited;
(iii) the Company will have increased vulnerability to adverse general economic
and scrap metals industry conditions; and (iv) the Company may be vulnerable to
higher interest rates because borrowings under certain of its credit
arrangements are at variable rates of interest. The Company's ability to make
scheduled payments of principal, to pay interest on or to refinance its
indebtedness depends on its future performance and financial results, which, to
a certain extent, are subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond the Company's control. There
can be no assurance that the Company's business will generate sufficient cash
flow from operations or that future working capital borrowings will be available
in an amount sufficient to enable the Company to service its indebtedness or
make necessary capital expenditures.
22
<PAGE> 25
Implementing the Company's acquisition strategy will require substantial
amounts of capital. The Company will need large amounts of cash in order to fund
the cash portion of current pending and future acquisitions. There can be no
assurance that sufficient funds for these acquisitions will be available on
acceptable terms, if at all. Failure to raise sufficient capital when required
or needed could adversely affect the implementation of the Company's acquisition
strategy.
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The Company's Senior Credit Facility and the Indenture governing the Notes
(the "Indenture") contain, and future financings of the Company are likely to
contain, covenants that, among other things and subject to certain exceptions,
restrictions on ability of the Company to incur additional indebtedness, pay
dividends, prepay subordinated indebtedness, dispose of certain assets, create
liens and make certain investments or acquisitions, and otherwise restrict
corporate activities. In addition, under the Senior Credit Facility, the Company
is required to satisfy specified financial covenants, including an interest
coverage ratio and ratio of capital expenditures to consolidated revenues. The
ability of the Company to comply with such provisions may be affected by general
economic conditions and other events beyond the Company's control. The breach of
any of these covenants could result in a default under the Senior Credit
Facility. In the event of any such default, depending on the actions taken by
the lenders under the Senior Credit Facility, such lenders could elect to
declare all amounts borrowed under the Senior Credit Facility, together with
accrued interest, to be due and payable. A default under the Senior Credit
Facility may cause a cross-default under the Indenture.
POTENTIAL SUBSTANTIAL DILUTION TO EXISTING STOCKHOLDERS; REGISTRATION RIGHTS
The Company's amended certificate of incorporation authorizes the issuance
of: (i) 80,000,000 shares of Common Stock, of which 33,046,004 were issued and
outstanding as of March 31, 1998; (ii) 4,000,000 shares of "blank check"
preferred stock ("Preferred Stock"), of which 59,000 have been designated as
either Series A or Series B Preferred Stock (as defined herein) and 35,904 of
which were outstanding as of March 31, 1998. The Company's board of directors
has the authority to issue additional shares of common or preferred shares, or
securities convertible or exercisable into such shares such as options or
warrants, as the case may be for a variety of purposes including as
consideration for additional acquisitions. These additional shares may be
issued, or be subject to exercise, at prices below prevailing market prices of
the Common Stock or at prices below the Company's book value. Common Stock sold
at such a discount would result in dilution to the then-existing stockholders of
the Company as well as reduce each stockholders' percentage ownership interest
in the Company. Further, the Company may issue additional shares of preferred
stock on terms and conditions which may discourage, impede or prevent a merger,
tender offer or proxy contest even though such an event may be favorable to the
interest of stockholders as a whole. Any registration statement filed by the
Company relating to the Common Stock will increase the number of shares
available for sale in the public market and may have an adverse impact on the
market price of the Common Stock.
POTENTIAL INABILITY TO CONTROL OR MANAGE GROWTH OR TO SUCCESSFULLY INTEGRATE
ACQUIRED BUSINESSES
The Company intends to continue to actively pursue mergers and acquisitions
in the scrap metals recycling industry. There can be no assurance that the
Company will be successful in acquiring other entities or that it will be able
to effectively manage these acquired entities. The Company's ability 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, the achievement of cost savings
and the availability of capital. The inability to control or manage growth
effectively or to successfully integrate new businesses into the Company's
operations would have a material adverse effect on the Company's results of
operations and financial condition. Depending on the nature and size of these
transactions, if any, the Company may experience working capital and liquidity
shortages. There can be no assurance that additional financing will be available
on terms and conditions acceptable to the Company, if at all.
23
<PAGE> 26
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES
The Company has only recently entered the scrap metals recycling industry.
Accordingly, past financial performance should not be considered as a reliable
indicator of future performance, and historical trends should not be used to
anticipate results or trends in future periods. Due to the limited experience of
management in effecting a consolidation strategy on the scale being pursued by
the Company, there can be no assurance that the Company will be able to
successfully effect its consolidation strategy, even if the Company is able to
acquire other entities on acceptable terms and conditions. In addition, none of
the Company's existing subsidiaries has, and only a limited number of the
Company's future acquisitions likely will have, experience operating as a
subsidiary of a public holding company subject to formal accounting and
reporting requirements. The Company will be required to continue to devote
significant management time and capital to enhance information systems and to
improve and monitor internal controls, as well as to recruit managers with
appropriate skills to insure the timeliness and accuracy of financial reports.
The success of the consolidation strategy depends in part on the ability of the
Company's management to oversee diverse operations and to successfully integrate
processing, marketing and other resources.
In addition, the Company's Metal Management Arizona subsidiary has incurred
operating losses and required capital infusions since its acquisition in April
1996. There can be no assurance that the Company will not be required to provide
additional funding to Metal Management Arizona. Further, there can be no
assurance that existing or future subsidiaries will not require similar
infusions or that the Company will be able to provide such fundings if needed.
The need to provide this funding or its inability to do so could have a material
adverse effect on the Company's results of operations or financial condition.
CYCLICALITY OF THE METALS RECYCLING INDUSTRY
The operating results of the scrap metals recycling industry in general,
and the Company's operations specifically, are highly cyclical in nature as they
tend to reflect and be amplified by general economic conditions. Historically,
in periods of national recession or periods of minimal economic growth, the
operations of scrap metals recycling companies have been materially and
adversely affected. For example, 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 and significant fluctuations in demand and pricing
for the Company's products. Future economic downturns in the national economy
would likely materially and adversely affect the Company's results of operations
and financial condition. The ability of the Company to withstand significant
economic downturns in the future will depend in part on the level of the
Company's capital and liquidity.
POTENTIAL INABILITY TO COMPLETE PENDING ACQUISITIONS
The Company engages in discussions with third parties regarding potential
acquisitions of companies or businesses in the metals recycling industry. If the
parties are able to agree generally on the nature, terms and conditions of a
transaction, a letter of intent is typically prepared to reflect this
understanding. In many cases, these letters of intent are structured as "binding
letters of intent" to purchase the business, although each such letter of intent
is still generally subject to a number of terms and conditions, including but
not limited to negotiation and execution of definitive purchase agreements. In
addition, each potential acquisition may be subject to additional contingencies
specific to that acquisition. There can be no assurance that any such potential
acquisition will result in the execution of a definitive agreement or that such
acquisition will be completed on terms and conditions acceptable to the Company,
if at all.
COMMODITY PRICE RISK
Although the Company has a policy of turning over its inventory of raw or
processed scrap metals as rapidly as possible, the Company is exposed to
commodity price risk during the period that it has title to products that are
held in inventory for processing and/or resale. Prices of commodities can be
volatile due to numerous factors beyond the Company's control, including general
economic conditions, labor costs, competition, availability of scrap metal
substitutes, import duties, tariffs and currency exchange rates. In an
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increasing price environment, competitive conditions may limit the Company's
ability to pass on price increases to its customers. In a decreasing price
environment, the Company may not have the ability to fully recoup the cost of
raw scrap it processes and sells to its customers. The lack of long-term
purchase agreements with the Company's significant customers also may exacerbate
this risk.
COMPREHENSIVE REGULATORY REQUIREMENTS
The Company is 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 groundwater 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.
Violation of such laws and regulations may give rise to significant liability to
the Company, including fines, damages, fees and expenses.
Releases of certain industrial by-products and waste materials are subject
to particular laws and regulations. Although the specific provisions of laws and
regulations related to such releases 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. These 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 substance remediation. 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 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"), 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 additional
factors such as the evolution of environmental control technologies and the
economic viability of these technologies. 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 metals recycling industry, including
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.
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 difficult to foresee.
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The Company requires, and must comply with, various permits and licenses to
conduct its operations. Government agencies continually monitor compliance with
permits and licenses and the Company's facilities are subject to periodic
unannounced inspection by local, state and federal authorities. Violations of
any permit or license, if not remedied, could result in the Company incurring
substantial fines, suspension of operations or closure of 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 also 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. Public interest groups, local citizens, local
municipalities and other persons or organizations may have a right to seek
judicial relief for purported violations of law or releases of pollutants into
the environment. In some jurisdictions, recourse to the courts by 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 allegedly caused by the operation of the facility. In
some cases, the operation of scrap metals 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.
The Company believes that, with heightened legal, political and citizen
awareness and concerns, all companies in the scrap metals 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, soil removal, groundwater treatment, creation of engineered
barriers, establishing institutional controls and related activities. Regulatory
or technological developments relating to the environment may require companies
engaged in the scrap metals recycling industry to modify, supplement or replace
equipment and facilities at costs which may be substantial. Because the scrap
metals recycling industry has the potential for discharge of materials into the
environment, a material portion of the capital expenditures by the Company 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.
POTENTIAL ENVIRONMENTAL LIABILITY
General. The Company is subject to potential liability and may also be
required from time to time to clean up or take certain remedial action with
regard to sites currently or formerly used in connection with its operations.
Furthermore, the Company may be required to pay for all or a portion of the
costs to clean up or remediate sites the Company never owned or on which it
never operated if it is found to have arranged for transportation, treatment or
disposal of pollutants or hazardous or toxic substances on or to such sites. The
Company also is subject to potential liability for environmental damage that its
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 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.
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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. 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 or liability that
may be present. For example, the Company does not include soil sampling or core
borings as a standard part of the Phase I portion 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 sites conducted by independent environmental consulting
firms have revealed that some soil, surface water and/or groundwater
contamination is likely at certain of these 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 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, and it is not unlikely that the Company will
establish one or more reserves relating to environmental remediation in the
future. 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, the need for proactive
remedial measures, and substantial fines, penalties, damages, costs and expenses
being imposed against the Company.
The Company expects to require future cash outlays as it incurs the actual
costs relating to the remediation of environmental liabilities. The incurrence
of the costs may have a material adverse effect on the Company's results of
operation and financial condition.
In connection with the acquisition of the assets of Aerospace Metals, Inc.
("Aerospace"), the Company has identified certain on-site contamination which
will require remediation in accordance with a remediation plan prepared by an
independent engineering firm. The costs of such remediation will be paid by the
seller of the assets of Aerospace from an escrow fund established for such
purpose out of the purchase consideration paid by the Company for such assets.
Uncertain Costs of Environmental Compliance and Remediation. Many factors
affect the level of expenditures the Company will be required to make in the
future to comply with environmental requirements, including: (i) new local,
state and federal laws and regulations; (ii) the developing nature of
administrative standards promulgated under Superfund and other environmental
laws, and changing interpretations of such laws; (iii) uncertainty regarding
adequate control levels, testing and sampling procedures, new pollution control
technology and cost benefit analyses based on market conditions; (iv) the
incompleteness of information regarding the condition of certain sites; (v) the
lack of standards and information for use in the apportionment of remedial
responsibilities; (vi) the numerous choices and costs associated with diverse
technologies that may be used in remedial actions at such sites; (vii) the
possible ability to recover indemnification or contribution from third parties;
and (viii) the time periods over which eventual remediation may occur.
Therefore, the estimated costs, and the timing of such 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
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annual results of operations of the Company. In addition, 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. In general, the Company's
subsidiaries do not carry environmental impairment liability insurance. In
general, the Company's subsidiaries operate under general liability insurance
policies, which do not cover environmental damage. If one or more of the
Company's 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
results of operations and financial condition could be materially adversely
affected.
Risks Associated With Certain By-Products. Although the majority of the
Company's metal products are currently exempt from applicable solid waste
regulations, the Company's scrap metals recycling operations produce significant
amounts of by-products. Heightened environmental risk is associated with certain
of these by-products. For example, certain of the Company's subsidiaries operate
shredders for which the primary feed materials are automobile hulks and obsolete
household appliances. Approximately 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 endeavors to have hazardous contaminants from the
feed material removed 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 may incur additional significant expenditures.
Potential Superfund Liability. (a) The Company's Reserve Iron & Metal,
Cozzi Iron & Metal and Kankakee Scrap subsidiaries have received notices from
the EPA that each such company and numerous other parties are considered PRPs
and may be obligated under Superfund 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 their analysis of the situation, the management of
Reserve Iron & Metal, Cozzi Iron & Metal and Kankakee Scrap currently do not
expect their aggregate potential liability to be in excess of $175,000. There
can be no assurance, however, that their aggregate potential liability may not
be greater than $175,000.
(b) Cozzi Iron & Metal has received a notice from the EPA that Cozzi Iron &
Metal is a PRP under Superfund in regard to the site referred to as H&H
Recycling in Gary, Indiana. Cozzi Iron & Metal believes that a settlement may be
reached with respect to the H&H Recycling site which would result in a cost of
approximately $600,000. There can be no assurance that such potential liability
will not be material.
(c) Cozzi Iron & Metal was served in a private cost recovery action
alleging that Cozzi Iron & Metal is a PRP under Superfund in regard to the site
referred to as Gould Battery Site in Pennsylvania. Based upon its analysis of
the situation, including transaction documentation and indemnifications, Cozzi
Iron & Metal currently expects that its ultimate liability in regard to this
matter will be de minimus, but there can be no assurance this will be the case.
(d) Cozzi Iron & Metal has received a notice from the Port Refinery Joint
Defense Group that an entity known as Riverside Trading has been joined as a
defendant in a cost recovery action brought on behalf of the EPA under
Superfund. Cozzi Iron & Metal is the parent of a subsidiary that operates a
facility known as Riverside Iron & Steel. Based upon its analysis of the
situation, including transaction documentation, Cozzi Iron & Metal currently
expects that its ultimate liability in regard to this matter will be de minimus,
but there can be no assurance this will be the case.
(e) Bluestone has received notice from the EPA that it is a PRP under
Superfund in regard to the site referred to as the Metcoa Site in Pulaski,
Pennsylvania. Bluestone has entered into a settlement agreement with the EPA
regarding the cleanup of this site and has paid its initial settlement share
under the settlement
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agreement. However, the aggregate costs of cleaning up this site are likely to
exceed the original estimate of the aggregate cleanup costs upon which the
initial settlement amount paid by Bluestone was based. Based on its current
analysis of the situation, Bluestone expects that its share of the additional
cleanup costs at this site will not exceed $100,000. Although Bluestone has
reserved funds to address additional cleanup costs and has obtained an indemnity
from the previous owners of the company for costs which exceed this reserve,
there can be no assurance that Bluestone may not be required to make additional
expenditures in connection with this site.
(f) Bluestone has received notice from the EPA that it is a PRP under
Superfund in regard to the site referred to as the Jacks Creek/Sitkin Smelting
Facility Superfund Site in Mifflin County, Pennsylvania. Bluestone joined a PRP
group which has submitted a good faith offer to the EPA to enter into a consent
decree. Based on its analysis of the situation, Bluestone expects that its share
of the cleanup costs at this site will not exceed $250,000. Although Bluestone
has reserved funds to address such cleanup costs and has obtained an indemnity
from the previous owners of the company for costs which exceed this reserve,
there can be no assurance that Bluestone may not be required to make additional
expenditures in connection with this site.
Underground Storage Tanks ("USTs") exist at several of the Company's sites.
USTs 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.
Recommendations of Environmental Consultants. Environmental consultants to
the Company have recommended that a variety of preventative and/or remedial
actions be undertaken, including: the sampling of soil, surface and groundwater
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 the Company fails to follow these
recommendations 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 may have an adverse effect on the Company's results
of operations and financial condition.
Compliance History. The Company has, in the past, been found not to be in
compliance with certain environmental laws and regulations, and has incurred
fines associated with such violations which have not been material in amount and
may in the future incur additional fines associated with such violations. The
Company has also paid a portion of the costs of certain remediation actions at
certain sites. No assurance can be given that material fines, penalties, damages
and expenses resulting from additional compliance issues and liabilities will
not be imposed on the Company in the future.
EMPLOYEE HEALTH AND SAFETY
The Company's operations are subject to regulation by federal, state and
local agencies responsible for employee health and safety, including the
Occupational Safety and Health Administration ("OSHA"). A total of four
accidental deaths of, and two serious accidental injuries to, employees have
occurred at the Company's Cozzi Iron & Metal, HouTex and Reserve Iron & Metal
subsidiaries during the past four years. Cozzi Iron & Metal and Reserve Iron &
Metal have 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 in regard to
such deaths and injuries, or in regard to any future deaths of or injuries to
the Company's employees, will not be material.
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LABOR RELATIONS
Many of the Company's active employees are represented by various labor
unions, including the Teamsters Union, the United Steel Workers Union and the
United Auto Workers. As the Company's (and its subsidiaries') agreements with
these unions expire, there can be no assurance that the Company will be able to
negotiate extensions or replacements thereof on terms favorable to the Company,
or at all, or that the Company will not experience strikes, lockouts or other
actions from time to time. There can be no assurance that new labor agreements
will be reached with the Company's unions as such labor contracts expire. Any
labor action resulting from the foregoing may have a material adverse effect on
the Company or its results of operations.
CONTROL BY PRINCIPAL STOCKHOLDERS; POTENTIAL CONFLICTS OF INTEREST
Pursuant to the stockholder's agreement (the "Stockholders Agreement"),
among Albert A. Cozzi, Frank J. Cozzi and Gregory P. Cozzi (the "Cozzi
Shareholders"), T. Benjamin Jennings and Gerard M. Jacobs (the "MTLM
Shareholders"), Samstock, L.L.C. ("Samstock") and the Company, the Company's
Board of Directors is comprised of five directors nominated by the Cozzi
Shareholders, five directors nominated by the MTLM Shareholders, and one
director nominated by Samstock. Further, the Cozzi Shareholders, the MTLM
Shareholders and Samstock as of March 31, 1998 owned approximately 43% of the
issued and outstanding shares of Common Stock. As a result of their
shareholdings, the Cozzi Shareholders, the MTLM Shareholders and Samstock may be
deemed to have effective control over the affairs and management of the Company.
There can be no assurance that this influence will be used in a manner that is
consistent with the interests of the other holders of the Company's securities.
The parties to the Stockholders Agreement also have agreed to vote for
proposals, if and when presented by the Company, to amend the Company's
organizational documents to require the approval of at least two-thirds of the
Board of Directors to take certain actions. If the Company's organizational
documents are amended to reflect these restrictions, and the Board of Directors
cannot agree on the Company's strategic direction, a minority of four dissenting
directors could prevent the Company from taking certain actions. Should the
Board of Directors be unable to act because a minority of dissenting directors
prevents it from taking a significant action, this impasse could have a material
adverse effect on the Company's results of operations and financial condition.
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the Company's shareholders and
its creditors. For example, if the Company encounters financial difficulties or
is unable to pay its debts as they become due, the interests of the Company's
shareholders might conflict with those of its creditors. The Company's
shareholders also may have an interest in pursuing acquisitions, divestitures,
financings or other transactions that could enhance their equity investment,
even though such transactions might involve risk to the Company's creditors.
Because the members of the Company's senior management team are significant
shareholders of the Company, any such conflict of interest may be resolved in
favor of the Company's shareholders to the detriment of the Company's creditors.
DEPENDENCE ON KEY PERSONNEL
The Company's operations to date have depended in large part on the skills
and efforts of its senior management team, including T. Benjamin Jennings, its
Chairman and Chief Development Officer, Gerard M. Jacobs, its Chief Executive
Officer, and Albert A. Cozzi, its President and Chief Operating Officer. In
addition, because the Company's senior management team (other than Mr. Cozzi)
has limited experience in the scrap metals recycling business, the Company
relies substantially on the experience of the management of its subsidiaries
with regard to day-to-day operations. While the Company has employment
agreements with Messrs. Jennings, Jacobs and Cozzi and certain members of its
management team at the subsidiary level, there can be no assurance that the
Company will be able to retain the services of any of the foregoing. The loss of
any member of its senior management team or a significant number of managers
could have a material
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adverse effect on the Company's efforts to manage and integrate acquisitions and
may also adversely impact the Company's ability to implement its consolidation
strategy.
DEPENDENCE ON SCRAP SUPPLIERS
The profitability of the Company's scrap recycling operations depends, in
part, on the availability of an adequate source of supply. The Company acquires
its scrap inventory from numerous sources. These suppliers generally are not
bound by long-term contracts and have no obligation to continue selling scrap
materials to the Company. If a substantial number of scrap suppliers cease
selling scrap metals to the Company, the Company's results of operations or
financial condition would be materially and adversely affected.
CONCENTRATION OF CUSTOMERS AND CREDIT RISK
The Company's ten largest customers represented approximately 40.6% of
consolidated net sales for the year ended March 31, 1998. Accounts receivable
balances from these customers represented approximately 36.1% of consolidated
accounts receivable at March 31, 1998. The loss of any one of the Company's
significant customers could adversely affect the Company's results of operations
or financial condition.
In connection with the sale of the Company's products, the Company
generally does not require collateral as security for customer receivables.
Certain of the Company's subsidiaries have significant balances owing from
customers that operate in cyclical industries and under leveraged conditions
that may impair the collectibility of these receivables. Failure to collect a
significant portion of amounts due on these receivables could have a material
adverse effect on the Company's results of operations or financial condition.
COMPETITION
The metals recycling industry is highly competitive and subject to
significant changes in overall market conditions. Certain of the Company's
competitors may have greater financial, marketing and other resources. There can
be no assurance that the Company will be able to obtain its desired market share
or compete effectively in its markets.
USE OF SCRAP ALTERNATIVES
The increased demand for scrap metals by the expanding mini-mill industry
has caused a tightness in the supply and demand balance for ferrous scrap. The
relative scarcity of ferrous scrap, particularly the "cleaner" grades, and its
high price have created opportunities for producers of alternatives to scrap
metals. Although these alternatives have not been a major factor in the industry
to date, there can be no assurance that the use of alternatives to scrap metals
will not proliferate if the prices for scrap metals continue to rise and if the
levels of available unprepared ferrous scrap continue to decrease. Any
significant increase in the use of scrap metals alternatives by current
consumers of processed scrap metals could have a material adverse effect on the
Company.
POTENTIAL RESTRICTIONS ON MERGERS AND OTHER ACTIONS
Section 203 of the Delaware General Corporation Law (the "Delaware Business
Combination Statute") prohibits, under certain circumstances, "business
combinations" between a Delaware corporation whose stock is publicly-traded and
an "interested stockholder" of such corporation. The provisions prohibiting
"business combinations" could delay or frustrate the removal of incumbent
directors or a change in control of the Company. The provisions could also
discourage, impede, or prevent a merger, tender offer or proxy contest, even if
such an event would be favorable to the interest of stockholders. In addition,
the Company's certificate of incorporation authorizes the issuance of 4,000,000
shares of undesignated Preferred Stock, which the Board of Directors may cause
the Company to issue in one or more series. The Board of Directors has
designated 36,000 and 23,000 shares, respectively, of the Preferred Stock for
issuance as Series A Convertible Preferred Stock ("Series A Preferred Stock")
and Series B Convertible Preferred Stock ("Series B Preferred Stock"). The Board
of Directors has the authority to fix the number of shares of Preferred Stock
and determine or alter for each series, the voting powers, designations,
preferences and rights of such shares. If the Company should
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ever issue Preferred Stock in addition to the Convertible Preferred Stock, such
Preferred Stock could contain voting or other rights which could discourage,
impede, or prevent a merger, tender offer or proxy contest which could be
favorable to the interests of the stockholders.
So long as shares of Series A or Series B Preferred Stock are outstanding,
the Company is required to obtain the prior approval of the holders of at least
a majority of all shares of the applicable Series of Preferred Stock outstanding
at the time before: (i) increasing the authorized number of shares of such
Series of Preferred Stock; (ii) altering or changing the rights, preferences or
privileges of such Series of Preferred Stock or any other capital Stock of the
Company so as to adversely affect such Series of Preferred Stock; or (iii)
creating any new class or series of capital Stock having a preference over such
Series of Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company. This restriction could prevent the
Company from taking actions which could be favorable to the interests of the
stockholders.
VOLATILITY OF TRADING PRICE
The trading price of the Common Stock has been, and in the future is
expected to be, volatile and subject to 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,
execution of private or public equity or debt placements, filing and
effectiveness of registration statements relating to the Common Stock, future
product offerings by the Company or its competitors and factors unrelated to the
operating performance of the Company. The trading price of the Common Stock may
also vary as a result of changes in the business, operations, prospects or
financial results of the Company, general market and economic conditions,
additional future proposed acquisitions by the Company and other factors.
Failure in any fiscal quarter to meet the investment community's revenues or
earnings expectations, if any, could have an adverse impact on the trading price
of the Common Stock, as could sales of large amounts of Common Stock by existing
stockholders. In addition, sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock. In
the event the market price of Common Stock were adversely affected by such
sales, the Company's access to equity capital markets could be adversely
affected and issuances of Common Stock in connection with acquisitions, or
otherwise, could dilute future earnings per share. Management believes that the
Company's stock price reflects an assumption that its existing pending
acquisitions will be completed. If these acquisitions are not completed, the
trading price of the Common Stock could be adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See "Index to Consolidated Financial Statements of Metal Management, Inc.
and Subsidiaries" set forth in Part IV, Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
32
<PAGE> 35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the executive
officers and directors of the Company as of June 22, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
T. Benjamin Jennings........... 34 Director, Chairman of the Board, Member of the Executive
Committee and Chief Development Officer
Gerard M. Jacobs............... 43 Director, Member of the Executive Committee and Chief Executive
Officer
Albert A. Cozzi................ 52 Director, Member of the Executive Committee, President and Chief
Operating Officer
George A. Isaac III............ 45 Director, Member of the Executive Committee, Executive Vice
President and President and Chief Executive Officer of the
Isaac Group
Frank J. Cozzi................. 48 Director, Vice President and President of Cozzi Iron & Metal
Gregory P. Cozzi............... 43 Director and Executive Vice President of Cozzi Iron & Metal
Rod F. Dammeyer................ 57 Director
Christopher G. Knowles......... 55 Director
Donald F. Moorehead............ 47 Director
William T. Proler.............. 50 Director and President and Chief Executive Officer of Proler
Southwest
Harold Rubenstein.............. 70 Director
Daniel B. Burgess.............. 34 Executive Vice President
David A. Carpenter............. 35 Vice President, General Counsel and Secretary
Xavier Hermosillo.............. 48 Vice President, Investor Relations and Corporate Communications
Robert C. Larry................ 37 Vice President, Finance, Treasurer and Chief Financial Officer
</TABLE>
T. Benjamin Jennings has served as Director, Chairman of the Board and
Chief Development Officer of the Company and its predecessor, General
Parametrics Corporation ("GPC"), since April 1996 and as a member of the
Executive Committee of the Board of Directors since June 1996. From August 1995
through April 1996, Mr. Jennings served as Co-Chairman of the Board,
Co-President and Co-Chief Executive Officer of the Company. From 1993 through
1995, Mr. Jennings was a Director of First Southwest Company, a private
investment banking firm based in Dallas, Texas. From 1990 to 1993, Mr. Jennings
was a Vice President of Kidder Peabody & Co. Inc., where he concentrated on
asset management, investment banking, private debt and equity placements, and
related financing activities. Mr. Jennings is a graduate of Rice University and
serves as Chairman of Chicago Inner-City Games Foundation and is also a Director
of the YMCA of Metropolitan Chicago.
Gerard M. Jacobs has served as Director and Chief Executive Officer of the
Company and its predecessor, GPC, since April 1996 and as a member of the
Executive Committee of the Board of Directors since June 1996. From April 1996
through December 1997, Mr. Jacobs also served as President of the Company. From
August 1995 through April 1996, Mr. Jacobs served as Co-Chairman of the Board,
Co-President and Co-Chief Executive Officer of the Company. From 1983 to 1995,
Mr. Jacobs developed resource recovery, landfill and hydroelectric projects for
his own account and for the investment banking firm of Russell, Rea & Zappala,
Inc. in Pittsburgh, Pennsylvania. From 1978 to 1983 Mr. Jacobs practiced
securities, corporate and banking law with the firms of Reed, Smith, Shaw &
McClay and Manion, Alder & Cohen, P.C., both in Pittsburgh, Pennsylvania. Mr.
Jacobs is a Director of Crown Group, Inc., a publicly traded company engaged in
various businesses. Mr. Jacobs is a graduate of Harvard University, where he was
elected to Phi Beta Kappa, and The University of Chicago School of Law, which he
attended as Weymouth Kirkland Law Scholar. Mr. Jacobs is an elected member of
the Board of Education of District 200, Oak Park and River Forest High School,
Oak Park, Illinois and is a Director of Chicago Inner-City Games Foundation.
33
<PAGE> 36
Albert A. Cozzi joined the Board of Directors, including its Executive
Committee, and became President of the Company in December 1997 following the
Company's merger with Cozzi Iron & Metal. Mr. Cozzi was employed by Cozzi Iron &
Metal from 1963 to December 1997, and from 1980 to December 1997 served as its
President. Mr. Cozzi became Chief Operating Officer and Senior Vice President of
the Company on September 1, 1997. Mr. Cozzi received an MBA from the University
of Chicago in 1988. From 1990 to 1992 he served as Chairman of the Ferrous
Committee of the Institute of Scrap Recycling Industries ("ISRI"), an industry
association. Mr. Cozzi is the brother of Frank J. Cozzi and Gregory P. Cozzi.
George A. Isaac III joined the Board of Directors of the Company, including
the Executive Committee, and became an Executive Vice President of the Company
in June 1997, following the Company's acquisition of the Isaac Group. Since
1988, he has served as President and Chief Executive Officer of the four
companies in the Isaac Group. From 1977 through 1988 he worked as a management
consultant at Deloitte and Touche LLP, where he was elected a partner. Mr. Isaac
is on the Board of Directors/Advisors of several companies in the Toledo, Ohio
area including Capital Bank, N.A. (a public bank holding company), Stonebridge
Associates (a private acquisition holding company) and Betco, Inc. (a
manufacturer of chemicals). He received a B.S. and an MBA with distinction from
the University of Michigan.
Frank J. Cozzi joined the Board of Directors of the Company in December
1997 following the Company's merger with Cozzi Iron & Metal. Mr. Cozzi has been
employed by Cozzi Iron & Metal since 1967 and became President in December 1997.
From 1981 to December 1997, Mr. Cozzi served as Cozzi Iron & Metal's Treasurer
and Secretary. From 1990 to 1991 he served as President of the Chicago Chapter
of ISRI, and from 1988 to 1990 was national chairman of ISRI's transportation
committee. Mr. Cozzi completed Harvard University's Owner President Management
executive program in 1991. He also has served local and national positions with
ISRI. Mr. Cozzi is the brother of Albert A. Cozzi and Gregory P. Cozzi.
Gregory P. Cozzi joined the Board of Directors of the Company in December
1997 following the Company's merger with Cozzi Iron & Metal. Mr. Cozzi has been
employed by Cozzi Iron & Metal since 1977 and became Executive Vice President
and Secretary in December 1997. From 1977 to December 1997, Mr. Cozzi was a Vice
President of Cozzi Iron & Metal. Mr. Cozzi is a graduate of Northern Michigan
University. Mr. Cozzi is the brother of Albert A. Cozzi and Frank J. Cozzi.
Rod F. Dammeyer joined the Board of Directors of the Company in January
1998. Mr. Dammeyer is currently the Vice Chairman of Anixter International, Inc.
("Anixter"), a distributor of networking and cabling products, where he has been
employed since 1985. From 1985 to February 1998, Mr. Dammeyer served as
President of Anixter. From 1993 to February 1998, he also served as Chief
Executive Officer of Anixter. He is also the managing partner of Equity Group
Investments, Inc. which has, among other things, investments in approximately 30
companies, several of which are public entities. Mr. Dammeyer is a Director of
Anixter International, Inc., Antec Corporation, CNA Surety Corporation, Group
Azucarero Mexico (GAM), IMC Global Inc., Jacor Communications, Inc., Lukens,
Inc., Stericycle, Inc., TeleTech Holdings, Inc. and Transmedia Network Inc. He
is also a trustee of Van Kampen American Capital, Inc. closed-end funds.
Christopher G. Knowles joined the Board of Directors of the Company in
December 1997 following the Company's merger with Cozzi Iron & Metal. Mr.
Knowles was employed by Insurance Auto Auctions, Inc. from January 1994 through
March 1996 and from April 1994 through March 1996 served as its President and
Chief Operating Officer. From 1980 to 1994 he was Chairman, Chief Executive
Officer and principal owner of Underwriters Salvage Company. Mr. Knowles
graduated from Indiana University. Mr. Knowles is a Director of Insurance Auto
Auctions, Inc. and Zebra Technologies Corporation.
Donald F. Moorehead joined the Board of Directors of the Company in April
1996 following the Company's merger with EMCO Recycling Corp. Mr. Moorehead is
the founder of USA Waste Services, Inc. ("USA Waste"). USA Waste is the third
largest solid waste management company in the United States as ranked by gross
revenues. He served as Chief Executive Officer of USA Waste from 1990 through
1994 and as Chief Development Officer and Vice Chairman from 1994 through August
1997. Mr. Moorehead currently is serving as a consultant to USA Waste. From 1985
through 1990, he served as Chairman of the Board and Chief Executive Officer of
MidAmerican Waste Systems, Inc. Mr. Moorehead is a graduate of the University of
Tulsa. Mr. Moorehead served as Vice Chairman of the Board of the Company until
his resignation from
34
<PAGE> 37
that position on June 19, 1998 and he has resigned from the Board of Directors
of the Company effective July 1, 1998.
William T. Proler joined the Board of Directors of the Company in August
1997 following the Company's acquisition of Proler Southwest. Since 1992, he has
served as President and Chief Executive Officer of Proler Southwest Inc., and
since 1994, he has served as a managing member of Proler Steelworks L.L.C.
Harold Rubenstein joined the Board of Directors of the Company in April
1996 following the Company's merger with EMCO Recycling. Prior to April 1996, he
served as President and Chief Executive Officer of Empire Scrap Metals, Inc.
("Empire"). Mr. Rubenstein has over 40 years of experience in owning and
managing scrap metal operations.
Daniel B. Burgess has served as an Executive Vice President of the Company
since September 1995. Prior to July 1996, Mr. Burgess was the Executive Vice
President responsible for business operations which were subsequently
discontinued by the Company. From June 1992 until September 1995, Mr. Burgess
served as a Global Account and Marketing Manager for AT&T Corp. Mr. Burgess
graduated from Rice University and earned an MBA from Southern Methodist
University.
David A. Carpenter joined the Company in March 1998 as Vice President,
General Counsel and Secretary. From October 1987 through March 1998, Mr.
Carpenter was a corporate and securities law practitioner in the Chicago and
London offices of Mayer, Brown & Platt, where he was a partner from and after
January 1, 1997. Mr. Carpenter is a graduate of the University of Illinois and
DePaul University College of Law. Mr. Carpenter is a Director of Metropolitan
Family Services and a member of the Chicago Bar Association.
Xavier Hermosillo has served as Vice President, Investor Relations and
Corporate Communications since December 1997. From August 1995 through March
1998, he served as Secretary of the Company. From August 1995 through September
1997, he served as a Director of the Company. From August 1995 through November
1997, he also provided investor and public relations services to the Company
through Xavier Hermosillo & Associates, a public relations, marketing and
government affairs firm which Mr. Hermosillo founded in 1985.
Robert C. Larry has served as Vice President, Finance, Treasurer and Chief
Financial Officer of the Company since August 1996. He served as Director of
Finance and Investments for Caremark International, Inc., a diversified,
publicly traded company engaged in providing health care services, from March
1995 to August 1996. In 1991, Mr. Larry co-founded The Grabscheid Group, Ltd., a
professional services firm which specialized in financial restructuring and
recapitalization services for private and publicly held firms. Mr. Larry served
as an accountant and consultant at Ernst & Young, L.L.P., an international
professional services firm, from 1983 to 1991. He graduated from Purdue
University and received an MBA from the University of Chicago. Mr. Larry is a
certified public accountant.
Each Director participated in at least 75% of the board meetings held
during the time such individual served as a Director of the Company during
fiscal 1998, except that Michael Melnik attended only one of two board meetings
during the period of fiscal 1998 that he was a Director.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of the relationship on Form 3 and changes in
ownership on Forms 4 or 5 with the Securities and Exchange Commission (the
"SEC") and the NASDAQ. These officers, directors and ten percent shareholders
are also required by SEC rules to furnish the Company with copies of all forms
they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons, the Company
believes that its officers, directors and ten percent shareholders complied with
the requirements of Section 16(a) of the Exchange Act for the fiscal year ended
March 31,
35
<PAGE> 38
1998, except that Harold Rubenstein, a director of the Company, was delinquent
in filing reports on Form 4 showing sales of an aggregate of 60,000 shares of
Common Stock in eight separate transactions during February and March of 1998.
All such sales were subsequently reported on a Form 5, filed on May 14, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The following tables set forth information with respect to those persons
who: (i) served as the chief executive officer of the Company during the fiscal
year ended March 31, 1998; and (ii) were the most highly compensated executive
officers of the Company at March 31, 1998 whose total annual salary and bonus
exceeded $100,000 for the year. Compensation paid to these individuals for the
years ended March 31, 1998 and 1997, and the five months ended March 31, 1996 is
as follows:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ------------------------ --------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARD(S) WARRANTS(#) PAYOUTS SATION
--------------------------- ---- -------- -------- -------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T. Benjamin Jennings(1).......... 1998 $269,180 $118,750 $ -- $ -- 725,000 $ -- $19,613(5)
Chairman of the Board and 1997 177,500 -- -- -- 200,000 -- 9,841
Chief Development Officer 1996 30,000 75,000 -- -- -- -- 1,623
Gerard M. Jacobs(1).............. 1998 269,180 118,750 -- -- 725,000 -- 19,550(6)
Chief Executive Officer 1997 177,500 -- -- -- 200,000 -- 8,450
1996 30,000 75,000 -- -- -- -- 1,623
George A. Isaac III(2)........... 1998 221,539 68,750 -- -- 76,923 -- 25,049(7)
Executive Vice President 1997 N/A
1996 N/A
Robert C. Larry (3).............. 1998 134,708 74,500 -- -- 30,000 -- 5,219(8)
Vice President, Finance,
Treasurer 1997 72,500 -- -- -- 25,000 -- 3,215
and Chief Financial Officer 1996 N/A
Daniel B. Burgess (4)............ 1998 128,500 64,500 -- -- 37,500 -- 5,238(9)
Executive Vice President 1997 105,000 17,750 -- -- 30,000 -- 4,296
1996 42,500 -- -- -- 50,000 -- 1,790
</TABLE>
- ---------------
(1) Messrs. Jacobs and Jennings served without compensation from the Company
during the time from their appointment to their respective positions in
August 1995 through December 31, 1995. During the five months ended March
31, 1996, the Company paid Messrs. Jacobs and Jennings each a $75,000 bonus
for their services during the period August 1995 through December 31, 1995.
(2) Mr. Isaac joined the Company on June 23, 1997 following the Company's
acquisition of the Isaac Group.
(3) Mr. Larry joined the Company in August 1996.
(4) Mr. Burgess joined the Company in September 1995.
(5) During fiscal 1998, the Company paid on behalf of Mr. Jennings the
following: $3,747 in auto reimbursement, $5,724 of health insurance
premiums, $7,777 of other health benefits and $2,365 of membership dues.
During fiscal 1997, the Company paid on behalf of Mr. Jennings $945 in auto
reimbursement, $5,574 of health insurance premiums, $2,902 of other health
benefits and $420 of long-term disability insurance premiums. During fiscal
1996, the Company paid on behalf of Mr. Jennings $1,623 of health insurance
benefits.
(6) During fiscal 1998, the Company paid on behalf of Mr. Jacobs the following:
$4,473 in auto reimbursement, $7,128 of health insurance premiums, $6,784 of
other health benefits and $1,165 of membership dues. During fiscal 1997, the
Company paid on behalf of Mr. Jacobs the following: $945 in auto
reimbursement, $6,941 of health insurance premiums, and $564 of long-term
disability insurance premiums. During fiscal 1996, the Company paid on
behalf of Mr. Jacobs $1,623 of health insurance benefits.
36
<PAGE> 39
(7) During fiscal 1998, the Company paid on behalf of Mr. Isaac the following:
$2,018 of long-term disability insurance premiums, $1,305 in auto
reimbursements, $11,698 of life insurance premiums, $5,388 of membership
dues, $1,440 in 401(k) matching contributions and $3,200 of contributions to
a profit sharing plan.
(8) During fiscal 1998, the Company paid on behalf of Mr. Larry the following:
$4,940 of health insurance premiums and $279 of other health benefits.
During fiscal 1997, the Company paid on behalf of Mr. Larry the following:
$2,990 of health insurance premiums and $225 of other health benefits.
(9) During fiscal 1998, 1997 and 1996, the Company paid on behalf of Mr. Burgess
$5,238, $3,744 and $1,560, respectively, in health insurance premiums, and
$0, $552 and $230, respectively, in long-term disability premiums.
OPTION AND WARRANT GRANTS IN FISCAL 1998
The following table sets forth information concerning grant of stock
options and warrants during fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SECURITIES PERCENT OF TOTAL ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS/WARRANTS STOCK APPRECIATION FOR
OPTIONS AND GRANTED TO OPTION TERM(2)
WARRANTS EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME GRANTED(1) FISCAL YEAR PRICE DATE 5% 10%
---- ------------ ---------------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
T. Benjamin Jennings... 375,000 11.1% $ 5.91 12/1/02 $7,595,165 $10,164,546
350,000 10.4% 12.00 12/1/02 4,957,320 7,355,409
Gerard M. Jacobs....... 375,000 11.1% 5.91 12/1/02 7,595,165 10,164,546
350,000 10.4% 12.00 12/1/02 4,957,320 7,355,409
George A. Isaac III.... 76,923 2.3% 13.00 2/15/98 27,198 48,809
Robert C. Larry........ 25,000 0.7% 12.00 4/29/02 0 62,365
5,000 0.1% 19.00 1/15/03 0 14,716
Daniel B. Burgess...... 7,500 0.2% 19.00 1/15/03 0 22,074
30,000 0.9% 4.00 12/1/02 664,913 870,464
</TABLE>
- ---------------
(1) All options/warrants are exercisable immediately, except for all shares
granted to Mr. Larry which vest over 2 years, and 7,500 shares granted to
Mr. Burgess which vest over 2 years.
(2) In accordance with SEC rules, these columns show gains that might exist for
the respective options and warrants, assuming the market price of the
Company's Common Stock appreciates from the date of grant over the term of
the option/warrant at the annualized rates of five and ten percent,
respectively. If the stock price does not increase above the exercise price
at the time of exercise, realized value to these named executives will be
zero.
AGGREGATED OPTION AND WARRANT EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION AND WARRANT VALUES
The following table sets forth the employee stock options and warrants
exercised during fiscal year 1998 by the executive officers listed below and the
number and value of securities underlying unexercised options and warrants held
by the executive officers at March 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AND WARRANTS OPTIONS AND WARRANTS
ACQUIRED ON VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
---- ----------- -------- -------------------------- ---------------------------------
(1) (2)
<S> <C> <C> <C> <C>
T. Benjamin Jennings........ 0 $0 925,000/0 6,0$80,625/0
Gerard M. Jacobs............ 0 0 925,000/0 6,080,625/0
George A. Isaac III......... 0 0 0/0 0/0
Robert C. Larry............. 0 0 33,333/21,667 279,166/39,584
Daniel B. Burgess........... 0 0 110,000/7,500 1,178,750/0
</TABLE>
- ---------------
(1) Value Realized is determined by multiplying the number of shares by the
difference between the closing price on the trade date and the exercise
price.
37
<PAGE> 40
(2) Based on March 31, 1998 closing price of Common Stock of $14.375.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with T. Benjamin
Jennings, Gerard M. Jacobs, Albert A. Cozzi, Frank J. Cozzi and George A. Isaac
III (each, an "Executive"). The terms of each Executive's employment agreement
are substantially the same. Each agreement provides for a minimum annual base
salary of $275,000, plus a minimum cash bonus equal to 25% of the Executive's
then-current base salary. The agreements with Messrs. Jennings and Jacobs
provide that each will receive an identical salary, bonus, vacation, disability
and other benefits. Each employment agreement also restricts the Executive's
ability to compete with the Company during the term of the agreement and for
three years following the termination of his employment. However, the employment
agreements with Messrs. Jennings and Jacobs acknowledge that they may devote a
portion of their time to entities other than the Company.
The employment agreement of each Executive has a term of five years,
beginning on December 1, 1997 or, in the case of Mr. Isaac, June 23, 1997. The
employment agreements with Messrs. Jennings, Jacobs, A. Cozzi and F. Cozzi
provide that on each anniversary the term is automatically extended for one
additional year unless either the Company or the Executive elects prior to such
anniversary not to extend the term. The employment agreement with Mr. Isaac
provides that, after the initial five-year term, the agreement is automatically
extended by one-year periods unless either the Company or Mr. Isaac elects prior
to such anniversary not to extend the term.
As additional compensation under their employment agreements, the Company
issued warrants to each Executive to purchase Common Stock. Each of Messrs.
Jennings and Jacobs received warrants to purchase: (i) 375,000 shares of Common
Stock at an exercise price of $5.91 per share, exercisable until December 1,
2002; and (ii) 350,000 shares of Common Stock at an exercise price of $12.00 per
share, exercisable until December 1, 2002. Each of Messrs. A. Cozzi and F. Cozzi
received warrants to purchase: (a) 377,586 and 291,380 shares of Common Stock,
respectively, at an exercise price of $5.91 per share, exercisable until
December 1, 2002; and (b) 377,586 and 291,380 shares of Common Stock,
respectively, at an exercise price of $15.84 per share, exercisable until
December 1, 2002. Mr. Isaac received warrants to purchase: (x) 76,923 shares of
Common Stock at an exercise price of $13.00 per share, which expired
unexercised; and (y) 287,500 shares of Common Stock at an exercise price of
$11.70 per share, exercisable until June 23, 2002.
Each employment agreement also contains certain provisions in the event the
Executive is terminated due to a "change in control" of the Company (as such
term is defined in each employment agreement). The employment agreements with
Messrs. Jennings, Jacobs, A. Cozzi and F. Cozzi provide that such Executives
will be entitled to receive, in addition to other benefits, a cash payment equal
to: (i) any accrued but unpaid salary, pro-rated bonus, pro-rated vacation and
any other amounts accrued but unpaid at the time of termination, and (ii) a
lump-sum payment equal to the greater of: (A) the Executive's then-current
salary and annual cash bonus for the balance of the term of the employment
agreement, or (B) the product of 5.00 multiplied by the highest total annual
cash compensation earned in any one of the previous three calendar years. The
employment agreement with Mr. Isaac provides that he will be entitled to
receive, in addition to other benefits, a cash payment equal to the greater of:
(a) Mr. Isaac's then-current salary and annual cash bonus for the balance of the
term of the employment agreement; or (b) the product of 2.99 multiplied by the
highest total annual cash compensation earned in any one of the previous three
calendar years. However, in no event will the formula used to calculate this
cash payment to Mr. Isaac be less than that for any other member of the
Executive Committee.
The Company has also entered into an employment agreement with Robert C.
Larry. The employment agreement has a term of forty-eight (48) months, beginning
on August 26, 1996. The agreement provides for a minimum base salary of
$120,000, subject to adjustments, plus a cash bonus of up to 25% of his
then-current base salary. As additional compensation under the employment
agreement, the Company issued Mr. Larry incentive stock options under the
Company's 1995 Stock Option Plan to purchase 25,000 shares of Common Stock. The
employment agreement also contains certain provisions in the event Mr. Larry is
terminated following a "change in control" of the Company (as such term is
defined in his employment agreement). The
38
<PAGE> 41
employment agreement provides that Mr. Larry will be entitled to receive, in
addition to other benefits, a cash payment equal to twice his then-current base
salary and that all options and warrants to purchase Common Stock then held by
Mr. Larry will immediately and fully vest.
In addition to the employment agreements discussed above, the Company has
entered into numerous other employment agreements with certain key employees of
the companies it has acquired. The employment agreements have durations of one
to ten years and generally contain provisions concerning the employee's duties,
salary, bonus and benefits. Each employment agreement contains a confidentiality
provision and also restricts the employee's ability to compete with the Company
during the term of the agreement and for two to five years after employment is
terminated. Furthermore, each employment agreement allows the Company to
terminate the employee for "cause" (as such term is defined in each employment
agreement), and certain employment agreements allow the Company or the employee
to terminate the agreement without cause upon thirty to ninety days' prior
written notice to the other party.
DIRECTOR COMPENSATION
Directors are paid a fee of $1,000 for each board or committee meeting
attended in person (other than board and committee meetings held on the same
day) and are reimbursed for their reasonable expenses in attending such
meetings. Under the Company's 1996 Director Option Plan, each non-employee
director of the Company is automatically granted an option to purchase 10,000
shares of Common Stock on the date of his or her election or appointment to the
board plus an annual option, awarded on January 15 of each year, to purchase
2,500 shares of Common Stock. The Board of Directors is currently reviewing its
Director compensation policies.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee is comprised of Messrs. Jennings,
Knowles and Dammeyer. Mr. Jennings currently serves as a Director, Chairman of
the Board and Chief Development Officer of the Company. Messrs. Knowles and
Dammeyer currently serve as Directors of the Company.
Messrs. Donald F. Moorehead, Kenneth Merlau and Harold Rubenstein also
served on the Executive Compensation Committee during the year ended March 31,
1998. Mr. Merlau is a former Director of the Company. Messrs. Moorehead and
Rubenstein currently serve as Directors of the Company. Mr. Moorehead resigned
from the Executive Compensation Committee effective June 19, 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company, with the advice of the Executive Compensation Committee and
outside compensation consultants, is currently effecting an extensive review of
its compensation practices.
39
<PAGE> 42
STOCK PRICE PERFORMANCE GRAPH
The following graph compares total return of the Company's Common Stock
during the five year period beginning March 31, 1993, with the NASDAQ Composite
Index and the Russell 2000 Index. Each index assumes $100 invested at the close
of trading on March 31, 1993, and reinvestment of dividends.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) MTLM NASDAQ Russell 2000
<S> <C> <C> <C>
1993 100 100 100
1994 95.30 107.73 109.53
1995 73.48 118.41 113.77
1996 206.51 159.98 144.31
1997 396.04 117.03 152.24
1998 650.63 265.99 209.71
</TABLE>
40
<PAGE> 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1998 by: (i) each person
who is known by the Company to own more than 5% of the Company's Common Stock;
(ii) the directors, the chief executive officer and each of the executive
officers of the Company named in the Summary Compensation Table; and (iii) all
current officers and directors as a group. Share amounts and percentages shown
for each person or entity are adjusted to give effect to shares of the Company's
Common Stock that are not outstanding but may be acquired by a person or entity
upon exercise of all options and warrants exercisable by such entity or person
within 60 days March 31, 1998. However, those shares of Common Stock are not
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person.
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OF
OF BENEFICIAL OWNER(1) NUMBER OF SHARES TOTAL SHARES
---------------------- ---------------- ------------
<S> <C> <C>
Albert A. Cozzi.......................................... 6,496,873(2) 19.2%
2232 South Blue Island Ave.
Chicago, IL 60608
Frank J. Cozzi........................................... 5,013,570(3) 14.9%
2232 South Blue Island Ave.
Chicago, IL 60608
Harold Rubenstein........................................ 2,677,083(4) 7.9%
2010 W. Lower Buckeye Dr.
Phoenix, AZ 85009
Samstock, L.L.C.......................................... 2,070,588(5) 6.2%
2 North Riverside Plaza, Suite 600
Chicago, IL 60606
Gerard M. Jacobs......................................... 1,688,051(6) 5.0%
500 North Dearborn, Suite 405
Chicago, IL 60610
T. Benjamin Jennings..................................... 1,687,849(7) 5.0%
500 North Dearborn, Suite 405
Chicago, IL 60610
Gregory P. Cozzi......................................... 1,394,307(8) 4.2%
2232 South Blue Island Ave.
Chicago, IL 60608
George A. Isaac III...................................... 1,296,856(9) 3.8%
1645 Indian Wood Circle
Maumee, OH 43537
William T. Proler........................................ 743,750 2.3%
90 Hirsh Road
Houston, TX 77020
Donald F. Moorehead...................................... 360,405(10) 1.1%
2141 Looscan Lane
Houston, TX 77019
Daniel B. Burgess........................................ 115,056(11) *
500 North Dearborn, Suite 405
Chicago, IL 60610
Robert C. Larry.......................................... 41,666(12) *
500 North Dearborn, Suite 405
Chicago, IL 60610
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OF
OF BENEFICIAL OWNER(1) NUMBER OF SHARES TOTAL SHARES
---------------------- ---------------- ------------
<S> <C> <C>
Christopher G. Knowles................................... 12,500(13) *
305 Ridge Road
Barrington Hills, IL 60010
Rod F. Dammeyer.......................................... 12,500(13) *
2 North Riverside Plaza, Suite 600
Chicago, IL 60606
All current officers and directors as a group (15
persons)............................................... 21,615,466 56.1%
</TABLE>
- ---------------
* Less than 1%
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes to this table.
(2) Consists of warrants to purchase 755,172 shares and 5,741,701 shares issued
to Mr. Cozzi in connection with the Company's acquisition of Cozzi Iron &
Metal.
(3) Consists of warrants to purchase 582,760 shares and 4,430,810 shares issued
to Mr. Cozzi in connection with the Company's acquisition of Cozzi Iron &
Metal.
(4) Consists of warrants to purchase 83,333 shares, 32,500 shares purchased by
Mr. Rubenstein, 70,000 shares issued to Mr. Rubenstein in a private
offering, warrants to purchase 562,900 shares issued to Empire, and
1,928,350 shares beneficially owned by Empire and a trust established by
Mr. Rubenstein.
(5) Consists of warrants to purchase 600,000 shares and 1,470,588 shares issued
to Samstock in a private offering.
(6) Consists of warrants to purchase 808,333 shares, 99,718 shares issued upon
conversion of Series A preferred stock, 510,000 shares purchased by Mr.
Jacobs, 70,000 shares issued to Mr. Jacobs in a private offering, and
options to purchase 200,000 shares.
(7) Consists of warrants to purchase 808,333 shares, 99,516 shares issued upon
conversion of Series A preferred stock, 510,000 shares purchased by Mr.
Jennings, 70,000 shares issued to Mr. Jennings in a private offering, and
options to purchase 200,000 shares.
(8) Consists of warrants to purchase 162,070 shares and 1,232,237 shares issued
to Mr. Cozzi in connection with the Company's acquisition of Cozzi Iron &
Metal.
(9) Consists of warrants to purchase 750,000 shares, 540,856 shares issued to
the George A. Isaac III Second Revocable Trust in connection with the
Company's acquisition of the Isaac Group and 6,000 shares purchased by Mr.
Isaac.
(10) Consists of warrants to purchase 251,913 shares, 43,492 shares issuable
upon conversion of Series A preferred stock, 50,000 shares purchased by Mr.
Moorehead and options to purchase 15,000 shares. Mr. Moorehead resigned
from the Board of Directors of the Company effective July 1, 1998.
(11) Consists of warrants to purchase 30,000 shares, 5,056 shares purchased by
Mr. Burgess and options to purchase 80,000 shares.
(12) Consists of options to purchase 41,666 shares.
(13) Consists of options to purchase 12,500 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
STOCKHOLDERS AGREEMENTS
The Cozzi Shareholders, the MTLM Shareholders and Samstock (collectively,
the "Shareholders") together own approximately 43% of the Company's issued and
outstanding Common Stock (without giving effect to the issuance of Common Stock
issuable upon exercise of warrants and options granted by the Company).
42
<PAGE> 45
Under the Stockholders Agreement, the Shareholders have agreed that the
Cozzi Shareholders and the MTLM Shareholders will each have the right to
nominate: (i) at any time the total number of directors is an even number,
one-half of the total number of directors slated for election, or (ii) at any
time the total number of directors is an odd number, one-half of the next lowest
even number of directors slated for election, provided in any case that each
group must nominate one individual, independent and unaffiliated from the
Shareholders or the Company. The Stockholders Agreement also provides that, so
long as the Purchaser Condition is satisfied, Samstock has the right to
designate either Sam Zell or Rod F. Dammeyer as a nominee for director, and has
so nominated Rod F. Dammeyer. The Purchaser Condition is satisfied if both: (i)
the date is prior to December 19, 2000, and (ii) Samstock and its Permitted
Transferees (as such term is defined in the Stockholders Agreement) have not
sold or transferred more than one-third of their shares (including shares
issuable upon the exercise of warrants). The Stockholders Agreement further
requires each Shareholder to vote for the other parties' nominees for election
to the Board of Directors.
The parties to the Stockholders Agreement also have agreed to vote for
proposals, if and when presented by the Company, to amend the Company's
organizational documents to require the approval of at least two-thirds of the
Board of Directors to, among other things: (i) amend the Company's certificate
of incorporation or bylaws; (ii) liquidate or merge the Company; (iii) sell
substantially all of the Company's assets; (iv) elect or remove officers; (v)
adopt an annual budget; (vi) borrow funds, sell assets or make capital
expenditures exceeding $5 million; (vii) issue or register the Company's
securities; (viii) declare or pay any dividends or distributions; (ix) change
the compensation of or modify or terminate any written agreement with any of the
Cozzi Shareholders or the MTLM Shareholders; or (x) create or change any
committee of the Board of Directors.
Under the Stockholders Agreement, the Cozzi Shareholders and the MTLM
Shareholders are prohibited from transferring or disposing of their shares, or
any interest therein, for the term of the agreement except in accordance with
the terms of the Stockholders Agreement. Samstock is prohibited from
transferring or disposing of its shares, or any interest therein, for a period
of one year except in accordance with the terms of the Stockholders Agreement.
If any of the Cozzi Shareholders or the MTLM Shareholders desire to sell their
respective shares of Common Stock, the selling shareholder must generally offer
its shares to members of its own shareholder group, members of the other
shareholder group (excluding Samstock), and the Company, in that order, before
selling to a third party. Also, if either group receives an offer to buy its
shares from a third party, it generally must offer the other Shareholders
(including Samstock) the right to participate in the offer on the same terms and
conditions.
In connection with the Company's acquisition of Proler Southwest, the
former equity owners of Proler Southwest Inc. (the "Proler Shareholders") have
entered into a two-year stockholders agreement with T. Benjamin Jennings, dated
August 27, 1997, pursuant to which the parties agree to vote their shares of
Common Stock in favor of William T. Proler (or, if he is unable to serve,
another individual chosen by the Proler Shareholders) as a Director of the
Company.
RESIGNATION OF GEORGE O. MOOREHEAD
On December 1, 1997, the Company and George O. Moorehead, a former Director
and Executive Vice President of the Company, entered into two agreements, a
Separation Agreement and a Stock Warrant Settlement Agreement, resolving all
outstanding issues between the Company and Mr. Moorehead. Pursuant to the
Separation Agreement: (i) Mr. Moorehead resigned as an officer and employee of
the Company and EMCO Recycling, and as a director of EMCO Recycling, effective
December 1, 1997; (ii) Mr. Moorehead delivered to the Company a Non-Compete,
Non-Solicitation and Confidentiality Covenant and Agreement; and (iii) the
Company (a) paid Mr. Moorehead $250,000 on December 1, 1997, (b) agreed to
provide Mr. Moorehead certain insurance and other benefits for a period of five
years, (c) paid certain legal fees to Mr. Moorehead's counsel, and (d) agreed to
permit Mr. Moorehead to exercise certain warrants to acquire Common Stock
previously granted to him on a "net cashless" basis, subject to the Company's
right to refuse "net cashless" exercises under certain circumstances. Pursuant
to the Stock Warrant Settlement Agreement, the Company issued Mr. Moorehead
warrants to purchase 200,000 shares of Common Stock at an exercise
43
<PAGE> 46
price of $12.00 per share, exercisable until December 1, 2002, and paid Mr.
Moorehead approximately $665,000.
ISAAC GROUP NOTES
In connections with the Company's acquisition of the Isaac Group on June
23, 1997, the Company incurred $45.0 million of indebtedness to former Isaac
Group shareholders, of which $21.6 million remains outstanding (the "Isaac
Notes"). The Isaac Notes bear interest at 8.5% per annum, payable quarterly, and
mature in two equal installments on February 15, 1999 and February 15, 2000. The
Isaac Notes are secured by a letter of credit that is provided under the Senior
Credit Facility and is applied against the Company's availability thereunder.
OTHER RELATED PARTY TRANSACTIONS
From August 1995 to November 1997, Xavier Hermosillo, an employee of the
Company, provided investor relations services for the Company through his firm,
Xavier Hermosillo & Associates. Under an agreement with Mr. Hermosillo's firm,
the Company paid up to $4,000 per month for these services. The Company paid
fees of $36,000 for the year ended March 31, 1998 for these services. On
December 1, 1997, Mr. Hermosillo became an employee of the Company. As a
finder's fee in connection with the Superior Forge acquisition, the Company
issued to Xavier Hermosillo warrants to purchase 20,000 shares of Common Stock
at an exercise price of $15.00 per share, exercisable for three years from the
date of issuance, and also made a cash payment to him of $25,000.
On April 11, 1996, the Company and Harold Rubenstein, a Director of the
Company and one of the Company's largest shareholders, entered into a five-year
consulting agreement. Under this Agreement, Mr. Rubenstein provides the Company
with consulting and 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 each of the years ended March 31, 1997 and
1998.
The Company issued a promissory note, due April 11, 1999, bearing interest
at 9% per year and a balance outstanding as of March 31, 1998 of approximately
$547,000, to H&S Broadway, an entity principally owned by Harold Rubenstein. The
Company has also issued a promissory note, due April 11, 1999, bearing interest
at 9% per year, with a balance outstanding as of March 31, 1998 of approximately
$403,000, to Harold Rubenstein. During the year ended March 31, 1998, the
Company paid $85,501 of interest to H&S Broadway and Harold Rubenstein. On May
14, 1998, the Company repaid both obligations.
On March 13, 1998, the Company purchased certain of the assets of Ellis
Metals, which was principally owned by Harold Rubenstein. Prior to the
acquisition date, the Company had entered into various transactions with Ellis
Metals, including a five-year exclusive supply agreement, whereby Ellis Metals
sold all of its inventory to EMCO Recycling or to EMCO Recycling's customers
through a direct shipment arrangement. In the latter arrangement, EMCO Recycling
received a brokerage fee. In consideration for entering into the agreement,
Ellis Metals received a fee of $2,500 per month. The Company paid Ellis Metals
$30,000 and $27,500 under the terms of the agreement for the years ended March
31, 1997 and March 31, 1998, respectively. Inventory purchases from Ellis Metals
were $3.9 million for the year ended March 31, 1997 and $2.7 million for the
year ended March 31, 1998. The Company had sales to Ellis Metals of $0.3 million
for the year ended March 31, 1997. Sales to Ellis Metals were insignificant for
the year ended March 31, 1998. The Company also advanced $300,000 to Ellis
Metals under an unsecured promissory note, due April 12, 2001, bearing an
interest rate of 9% per year. This note was discharged in connection with the
Company's acquisition of the assets of Ellis Metals.
The Company has also entered into various transactions with Empire Scrap
Metals, Inc. ("Empire"), which is principally owned by Harold Rubenstein. The
Company purchases inventory from Empire, from time to time, at prices equivalent
to market value. Inventory purchases from Empire were insignificant for the year
ended March 31, 1998 and $0.3 million for the year ended March 31, 1997.
44
<PAGE> 47
The Company also leased certain land to Ellis Metals. The Company received
$85,500 and $78,000 in rent payments from Ellis Metals for the years ended March
31, 1998 and March 31, 1997, respectively.
To facilitate a loan to the Company from a commercial bank, on January 7,
1997, Gerard M. Jacobs, T. Benjamin Jennings, Donald F. Moorehead, George O.
Moorehead, Harold Rubenstein and Raymond F. Zack, each of whom is or was a
Director at the time of the loan, provided personal guaranties to the bank. In
consideration of the guaranties, the Company issued warrants to these
individuals (the "Guaranty Warrants") to purchase an aggregate of 500,000 shares
of Common Stock at $4.00 per share (subject to certain restrictions). The
Guaranty Warrants expire on or about January 7, 2002. For a description of
certain other transactions with officers of the Company, see "Employment
Agreements" in Part III, Item 11 of this report.
The Isaac Group leases certain property from a company in which George A.
Isaac III, a Director and Executive Vice President of the Company, is a
shareholder. The property is subject to a lease which commenced with the
acquisition of the Isaac Group on June 23, 1997. The annual base rent for the
property is approximately $317,000.
HouTex leases a 45-acre processing facility located in Houston, Texas from
a limited partnership affiliated with Mike Melnik, a former Director of the
Company for an annual rent of $228,000.
45
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
METAL MANAGEMENT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-1
Consolidated Statements of Operations for the year ended
October 31, 1995, the five months ended March 31, 1996,
and the years ended March 31, 1997 and 1998............... F-2
Consolidated Balance Sheets at March 31, 1997 and 1998...... F-3
Consolidated Statements of Cash Flows for the year ended
October 31, 1995, the five months ended March 31, 1996,
and the years ended March 31, 1997 and 1998............... F-4
Consolidated Statements of Stockholders' Equity for the year
ended October 31, 1995, the five months ended March 31,
1996, and the years ended March 31, 1997 and 1998......... F-5
Notes to Consolidated Financial Statements.................. F-6
(a)(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and qualifying accounts -- for the
year ended October 31, 1995, the five months ended March
31, 1996, and the years ended March 31, 1997 and 1998..... F-27
</TABLE>
Schedules not listed above have been omitted because they are not required
or they are inapplicable.
(a)(3) EXHIBITS:
A list of the exhibits included as part of this Form 10-K is set forth in
the Exhibit Index that immediately precedes such exhibits, which is incorporated
herein by reference.
(b) REPORTS ON FORM 8-K:
The following reports on Form 8-K were filed during the fourth quarter of
fiscal 1998:
(1) The Company filed a report on Form 8-K on January 2, 1998, dated
December 18, 1997, disclosing the Securities Purchase Agreement
between the Company and Samstock, L.L.C.
(2) The Company filed a report on Form 8-K on January 22, 1998, dated
January 8, 1998, disclosing the terms of the acquisition of
Houston Compressed Steel Corp.
(3) The Company filed a report on Form 8-K on February 4, 1998, dated
January 20, 1998, disclosing the terms of the acquisition of
Aerospace Metals, Inc., Aerospace Parts Security, Inc. and The
Suisman Titanium Corporation.
46
<PAGE> 49
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, in Chicago, Illinois
on June 23, 1998.
METAL MANAGEMENT, INC.
By: /s/ GERARD M. JACOBS
-----------------------------------------
Gerard M. Jacobs
Director and Chief Executive Officer
By: /s/ T. BENJAMIN JENNINGS
-----------------------------------------
T. Benjamin Jennings
Director, Chairman of the Board and
Chief Development Officer
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 indicated on June 23, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ GERARD M. JACOBS Director and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer)
Gerard M. Jacobs
/s/ T. BENJAMIN JENNINGS Director, Chairman of the Board and Chief
- ----------------------------------------------------- Development Officer
T. Benjamin Jennings
/s/ ALBERT A. COZZI Director, President and Chief Operating
- ----------------------------------------------------- Officer
Albert A. Cozzi
/s/ GEORGE A. ISAAC III Director and Executive Vice President
- -----------------------------------------------------
George A. Isaac III
/s/ DONALD F. MOOREHEAD Director
- -----------------------------------------------------
Donald F. Moorehead
/s/ FRANK J. COZZI Director and Vice President
- -----------------------------------------------------
Frank J. Cozzi
/s/ GREGORY P. COZZI Director
- -----------------------------------------------------
Gregory P. Cozzi
/s/ WILLIAM T. PROLER Director
- -----------------------------------------------------
William T. Proler
/s/ HAROLD RUBENSTEIN Director
- -----------------------------------------------------
Harold Rubenstein
/s/ CHRISTOPHER G. KNOWLES Director
- -----------------------------------------------------
Christopher G. Knowles
/s/ ROD F. DAMMEYER Director
- -----------------------------------------------------
Rod F. Dammeyer
/s/ ROBERT C. LARRY Vice President, Finance, Treasurer and Chief
- ----------------------------------------------------- Financial Officer (Principal Financial and
Robert C. Larry Accounting Officer)
</TABLE>
47
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Stockholders of Metal Management, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Metal
Management, Inc. and its subsidiaries at March 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the two years in
the period ended March 31, 1998, the five months ended March 31, 1996 and for
the year 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 of 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 28, 1998
F-1
<PAGE> 51
METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997 1998
----------- ----------------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales................................... $ 0 $ 0 $65,196 $479,707
Cost of sales............................... 0 0 58,324 431,947
------- ------- ------- --------
Gross profit................................ 0 0 6,872 47,760
Operating expenses:
General and administrative................ 0 210 6,174 24,396
Depreciation and amortization............. 0 0 2,282 10,019
Non-recurring expenses (Note 4)........... 0 0 0 33,710
------- ------- ------- --------
Total operating expenses.................... 0 210 8,456 68,125
------- ------- ------- --------
Operating loss from continuing operations... 0 (210) (1,584) (20,365)
Income from joint ventures.................. 0 0 0 135
Interest expense............................ 0 0 (1,449) (9,018)
Interest and other income, net.............. 312 142 181 228
------- ------- ------- --------
Income (loss) from continuing operations
before
income taxes and discontinued
operations................................ 312 (68) (2,852) (29,020)
Provision (benefit) for income taxes........ 51 (52) (842) (407)
------- ------- ------- --------
Income (loss) from continuing operations.... 261 (16) (2,010) (28,613)
Discontinued operations (Note 3):
Gain on sale of discontinued operations,
net of
income taxes........................... 0 0 502 200
Income (loss) from discontinued
operations, net of income taxes........ (2,698) 22 345 0
------- ------- ------- --------
Net income (loss)........................... (2,437) 6 (1,163) (28,413)
Accretion of preferred stock to redemption
value..................................... 0 0 0 (57)
Non-cash beneficial conversion feature of
convertible preferred stock............... 0 0 0 (5,592)
Preferred stock dividends................... 0 0 0 (1,451)
------- ------- ------- --------
Net income (loss) applicable to Common
Stock..................................... $(2,437) $ 6 $(1,163) $(35,513)
======= ======= ======= ========
Basic earnings (loss) per share:
Income (loss) from continuing
operations............................. $ 0.05 $ 0.00 $ (0.22) $ (1.81)
Gain on sale of discontinued operations... 0.00 0.00 0.05 0.01
Income (loss) from discontinued
operations............................. (0.53) 0.00 0.04 0.00
------- ------- ------- --------
Net income (loss) applicable to Common
Stock.................................. $ (0.48) $ 0.00 $ (0.13) $ (1.80)
======= ======= ======= ========
Weighted average shares outstanding....... 5,125 5,299 9,106 19,727
Diluted earnings (loss) per share:
Income (loss) from continuing
operations............................. $ 0.05 $ 0.00 $ (0.22) $ (1.81)
Gain on sale of discontinued operations... 0.00 0.00 0.05 0.01
Income (loss) from discontinued
operations............................. (0.53) 0.00 0.04 0.00
------- ------- ------- --------
Net income (loss)......................... $ (0.48) $ 0.00 $ (0.13) $ (1.80)
======= ======= ======= ========
Weighted average diluted shares
outstanding............................ 5,125 5,299 9,106 19,727
Dividends declared per share of Common
Stock..................................... $ .18 $ .00 $ .00 $ .00
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-2
<PAGE> 52
METAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,718 $ 4,443
Accounts receivable, net.................................. 9,560 107,805
Inventories............................................... 8,415 56,794
Prepaid expenses and other assets......................... 1,911 5,969
Deferred taxes............................................ 104 2,558
------- --------
Total current assets.............................. 25,708 177,569
Property and equipment, net................................. 20,208 109,086
Goodwill and other intangibles, net......................... 23,484 186,503
Investments in joint ventures............................... 0 6,639
Other assets................................................ 725 1,014
------- --------
Total assets...................................... $70,125 $480,811
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Operating lines of credit................................. $ 7,887 $ 0
Accounts payable.......................................... 5,246 60,187
Other accrued liabilities................................. 2,746 17,078
Current portion of notes payable to related parties....... 12,575 10,830
Current portion of long-term debt......................... 10,809 1,036
------- --------
Total current liabilities......................... 39,263 89,131
Long-term notes payable to related parties, less current
portion................................................... 1,430 31,572
Long-term debt, less current portion........................ 3,740 97,697
Deferred taxes.............................................. 1,411 11,997
Other liabilities........................................... 1,133 1,532
------- --------
Total liabilities................................. 46,977 231,929
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred Stock, $.01 par value -- 4,000,000 shares
authorized:
Convertible preferred stock -- Series A, $1,000 stated
value; 25,759 shares issued; 15,094 shares
outstanding............................................ 0 13,981
Convertible preferred stock -- Series B, $1,000 stated
value; 20,000 shares issued and outstanding............ 0 19,027
Common Stock, $.01 par value -- 80,000,000 shares
authorized; 10,154,740 and 33,046,004 issued and
outstanding at March 31, 1997 and 1998, respectively...... 102 330
Warrants, 2,015,038 and 8,224,540 exercisable into Common
Stock at March 31, 1997 and 1998, respectively............ 1,351 45,870
Additional paid-in-capital.................................. 16,628 200,120
Retained earnings (deficit)................................. 5,067 (30,446)
------- --------
Total stockholders' equity........................ 23,148 248,882
------- --------
Total liabilities and stockholders' equity............. $70,125 $480,811
======= ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-3
<PAGE> 53
METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS
OCTOBER 31, ENDED YEAR ENDED YEAR ENDED
1995 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1998
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from continuing operations:
Net income (loss) from continuing
operations................................ $ 261 $ (16) $(2,010) $(28,613)
Adjustments to reconcile net income (loss)
from continuing operations to cash flows
from continuing operations:
Depreciation and amortization........... 0 0 2,273 10,019
Non-cash, non-recurring expenses........ 0 0 0 32,055
Deferred income taxes................... 0 0 (733) (2,472)
Other................................... 0 0 254 567
Changes in assets and liabilities, net of
acquisitions:
Accounts and notes receivable........... 0 0 (1,413) (4,654)
Inventories............................. 0 0 42 17,382
Accounts payable........................ 0 0 (1,099) (20,304)
Other................................... 0 0 938 (3,348)
------ ------ ------- --------
Cash flows from continuing operations....... 261 (16) (1,748) 632
Cash flows provided (used) by investing
activities:
Marketable securities matured............. 1,524 637 2,794 10
Purchases of property and equipment,
net..................................... 0 0 (3,209) (7,573)
Acquisitions, net of cash acquired........ 0 0 (2,545) (43,905)
Other..................................... (33) 0 67 675
------ ------ ------- --------
Net cash provided (used) by investing
activities................................ 1,491 637 (2,893) (50,793)
Cash flows provided (used) by financing
activities:
Net borrowings (repayments) on
lines-of-credit......................... 0 0 (926) 15,323
Issuances of long-term debt............... 0 0 7,806 21,343
Repayments of long-term debt.............. 0 0 (2,699) (73,274)
Issuances of Common Stock, net............ 276 288 317 42,196
Issuances of convertible preferred stock,
net..................................... 0....... 0 0 42,846
Payment of cash dividends................. (920) 0 0 0
------ ------ ------- --------
Net cash provided (used) by financing
activities................................ (644) 288 4,498 48,434
------ ------ ------- --------
Cash flows from discontinued operations, net
of divestiture proceeds................... 1,285 (831) 2,751 452
Net increase (decrease) in cash and cash
equivalents............................... 2,393 78 2,608 (1,275)
Cash and cash equivalents at beginning of
period.................................... 639 3,032 3,110 5,718
------ ------ ------- --------
Cash and cash equivalents at end of
period.................................... $3,032 $3,110 $ 5,718 $ 4,443
====== ====== ======= ========
Supplemental Cash Flow Information:
Interest paid............................... $ 0 $ 0 $ 1,085 $ 8,655
Income taxes paid (refunded)................ $ (320) $ (256) $(1,184) $ 2,709
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-4
<PAGE> 54
METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except shares)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- -------------------
NUMBER ADDITIONAL RETAINED
OF PAID-IN- EARNINGS
SERIES A SERIES B SHARES AMOUNT CAPITAL WARRANTS (DEFICIT) TOTAL
------- ------- ---------- ---- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31,
1994...................... $ 0 $ 0 5,097,891 $ 51 $ 2,763 $ 0 $ 9,581 $ 12,395
Exercise of stock options... 0 0 92,000 1 244 0 0 245
Common Stock issued under
Employee Stock Purchase
Plan...................... 0 0 24,927 0 31 0 0 31
Payment of cash dividends... 0 0 0 0 0 0 (920) (920)
Net loss.................... 0 0 0 0 0 0 (2,437) (2,437)
------- ------- ---------- ---- -------- ------- -------- --------
Balance at October 31,
1995...................... 0 0 5,214,818 52 3,038 0 6,224 9,314
Exercise of stock options... 0 0 108,636 1 271 0 0 272
Common Stock issued under
Employee Stock Purchase
Plan...................... 0 0 11,199 0 16 0 0 16
Net income.................. 0 0 0 0 0 0 6 6
------- ------- ---------- ---- -------- ------- -------- --------
Balance at March 31, 1996... 0 0 5,334,653 53 3,325 0 6,230 9,608
Equity issued for
acquisitions.............. 0 0 4,700,000 47 12,759 1,049 0 13,855
Exercise of stock options... 0 0 103,850 2 281 0 0 283
Common Stock issued under
Employee Stock Purchase
Plan 0 0 16,237 0 34 0 0 34
Tax benefit on option
exercises................. 0 0 0 0 107 0 0 107
Other....................... 0 0 0 0 122 302 0 424
Net loss.................... 0 0 0 0 0 0 (1,163) (1,163)
------- ------- ---------- ---- -------- ------- -------- --------
Balance at March 31, 1997... 0 0 10,154,740 102 16,628 1,351 5,067 23,148
Issuance of preferred stock,
net....................... 23,819 19,027 0 0 0 0 0 42,846
Conversion of preferred
stock..................... (10,211) 0 1,032,874 10 10,971 0 0 770
Issuance of Common Stock and
warrants in private
offerings, net............ 0 0 3,495,588 35 34,940 4,450 0 39,425
Equity issued for
acquisitions.............. 0 0 16,980,579 170 121,252 22,496 0 143,918
Common Stock issued upon
conversion of debt........ 0 0 524,569 5 3,634 0 0 3,639
Exercise of stock options
and warrants.............. 0 0 857,654 8 6,590 (3,177) 0 3,421
Preferred stock dividends... 316 0 0 0 0 0 (1,451) (1,135)
Non-cash dividend on
beneficial conversion
feature of preferred
stock..................... 0 0 0 0 5,592 0 (5,592) 0
Warrants issued to employees
and consultants........... 0 0 0 0 0 20,750 0 20,750
Other....................... 57 0 0 0 513 0 (57) 513
Net loss.................... 0 0 0 0 0 0 (28,413) (28,413)
------- ------- ---------- ---- -------- ------- -------- --------
Balance at March 31, 1998... $13,981 $19,027 33,046,004 $330 $200,120 $45,870 $(30,446) $248,882
======= ======= ========== ==== ======== ======= ======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
F-5
<PAGE> 55
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 principally engaged in the business of
collection and processing of ferrous and non-ferrous metals for resale to metals
brokers, steel producers, and producers and processors of other metals. The
Company collects industrial scrap and obsolete scrap, processes it into reusable
forms, and supplies the recycled metals to its customers, including mini-mills,
integrated steel mills, foundries and metals brokers. These services are
provided through the Company's 54 recycling facilities located in 12 states. The
Company's ferrous products primarily include shredded, sheared, hot briquetted,
cold briquetted, bundled scrap and broken furnace iron. The Company also
processes non-ferrous metals, including aluminum, stainless steel, copper,
brass, titanium and high-temperature alloys, using similar techniques and
through application of certain of the Company's proprietary technologies. Prior
to April 1996, 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 changed its name 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. Investments in
two joint ventures engaged in ferrous and non-ferrous scrap metals recycling, in
which the Company through its subsidiaries own a 50% interest, are accounted for
using the equity method.
Reclassifications
In order to maintain consistency and comparability between periods, 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.
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.
Revenue recognition
The Company recognizes revenue from processed product sales at the time of
shipment. Revenue relating to brokered sales are generally recognized upon
receipt of the materials by the customer.
F-6
<PAGE> 56
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 realized.
Earnings (loss) per common share
During fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share."
SFAS No. 128 established requirements for the computation of basic earnings per
share and diluted earnings per share. Earnings per share amounts for prior
periods have been restated to conform with SFAS No. 128.
Cash and cash equivalents
Highly liquid investments with original maturities of three months or less
are classified as cash equivalents.
Accounts receivable
Accounts receivable represents amounts due from customers on product sales.
Reserves for uncollectible accounts and for tonnage variances were approximately
$0.1 million and $1.6 million at March 31, 1997 and 1998, respectively.
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 and equipment acquired in purchase
transactions are recorded at its estimated fair value at the time of the
acquisition. Depreciation is determined for financial reporting purposes using
the straight-line method over the following estimated useful lives: 10 to 40
years for buildings and improvements, 3 to 15 years for operating machinery and
equipment, 2 to 10 years for furniture and fixtures and 3 to 15 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 purchase consideration paid 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 the period of the non-compete agreements, generally 8
to 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 (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Goodwill................................................ $ 21,653 $ 184,167
Non-compete agreements.................................. 1,403 3,236
Deferred financing costs................................ 0 890
Other intangibles....................................... 979 1,778
-------- ---------
24,035 190,071
Less -- accumulated amortization........................ (551) (3,568)
-------- ---------
$ 23,484 $ 186,503
======== =========
</TABLE>
F-7
<PAGE> 57
Amortization expense for the year ended March 31, 1997 and 1998 was $0.5
million and $3.5 million, respectively. The Company assesses the recoverability
of its goodwill and intangible assets on an annual basis or whenever adverse
events or changes in circumstances or business climate indicate that expected
undiscounted future cash flows may not be sufficient to recover the recorded
goodwill and intangible assets. During fiscal 1998, the Company recognized a
charge of approximately $9.3 million relating to unamortized goodwill resulting
from the Company's acquisition of its EMCO subsidiary.
Impairment of long-lived assets
During fiscal 1997, 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.
Financial instruments
The carrying values of financial instruments including cash and cash
equivalents, accounts receivable 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.
Concentration of credit risk
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 accounts receivables.
For the year ended March 31, 1998, the Company's 10 largest customers
represented approximately 40.6% of consolidated net sales. These customers
comprised approximately 36.1% of accounts receivable at March 31, 1998. No
single customer accounted for more than 10% of consolidated net sales.
Recent Accounting Standards
SFAS No. 130, "Reporting Comprehensive Income," was issued by the Financial
Accounting Standards Board ("FASB") in June 1997. This Statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
will adopt SFAS No. 130 in fiscal 1999 and does not expect the impact to be
material to the Company.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued by the FASB in June 1997. This Statement establishes
standards for reporting of selected information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is currently evaluating the
impact of SFAS No. 131.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued by the FASB in February 1998. This
Statement revises employers' disclosures about pension and other postretirement
benefit plans. The Company will adopt SFAS No. 132 in fiscal 1999 and does not
expect the impact to be material to the Company.
F-8
<PAGE> 58
NOTE 2 -- ACQUISITIONS
Acquisitions completed during fiscal 1997
- In April 1996, the Company merged with EMCO Recycling Corp. ("EMCO"),
headquartered in Phoenix, Arizona.
- In January 1997, the Company acquired five companies comprising the
MacLeod Group ("MacLeod"), headquartered in SouthGate, California. The
MacLeod Group is comprised of MacLeod Metals Co., California Metals
Recyling, Inc., Trojan Trading Co., Firma, Inc. and Firma Plastics Co.,
Inc.
- In January 1997, the Company acquired HouTex Metals Company, Inc.
("HouTex"), headquartered in Houston, Texas.
The purchase consideration for the acquisitions completed during fiscal
1997 was as follows (in thousands):
<TABLE>
<CAPTION>
EMCO MACLEOD HOUTEX TOTAL
---- ------- ------ -----
<S> <C> <C> <C> <C>
Shares of restricted Common Stock issued.............. 3,500 725 475 4,700
Warrants issued to purchase Common Stock.............. 1,000 175 310 1,485
Cash paid, including transaction costs................ $2,219 $1,119 $1,121 $4,459
Value of Common Stock issued.......................... 8,807 2,330 1,669 12,806
Value of 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>
Acquisitions completed during fiscal 1998
- In May 1997, the Company acquired Reserve Iron & Metal L.P. ("Reserve").
Reserve operates two processing facilities in Cleveland, Ohio and Chicago,
Illinois and has a 50% interest in a joint venture which operates in
Atalla, Alabama.
- In June 1997, the Company acquired four companies under common ownership
comprising The Isaac Group ("Isaac"), headquartered in Maumee, Ohio. The
Isaac Group is comprised of Ferrex Trading Corporation, the Isaac
Corporation, Paulding Recycling, Inc. and Briquetting Corporation of
America.
- In August 1997, the Company acquired Proler Southwest, Inc. and Proler
Steelworks, L.L.C. (collectively "Proler"). Proler operates a facility in
Houston, Texas and Jackson, Mississippi.
- In December 1997, the Company acquired Cozzi Iron & Metal, Inc. ("Cozzi")
headquartered in Chicago, Illinois. Cozzi also operates facilities in East
Chicago, Indiana and Pittsburgh, Pennsylvania and has a 50% interest in a
joint venture which operates in Memphis, Tennessee. In December 1997, the
Company, through its Cozzi subsidiary, acquired Kankakee Scrap
Corporation, located in Kankakee, Illinois.
- In January 1998, the Company acquired Houston Compressed Steel Corp.,
headquartered in Houston, Texas.
- In January 1998, the Company, through its Cozzi subsidiary, purchased
Newell Phoenix, L.L.C.'s 50% membership interest in Salt River Recycling,
L.L.C. ("Salt River"). At the time of the acquisition, Cozzi owned a 50%
membership interest in Salt River.
- In January 1998, the Company purchased substantially all of the assets of
Aerospace Metals, Inc. ("Aerospace"), and certain of its affiliates
headquartered in Hartford, Connecticut.
- In February 1998, the Company, through its Cozzi subsidiary, acquired
substantially all of the assets of Accurate Iron and Metal, located in
Chicago, Illinois.
F-9
<PAGE> 59
- In March 1998, the Company, through its Metal Management Arizona
subsidiary, acquired certain assets of Ellis Metals, Inc., ("Ellis
Metals") headquartered in Tucson, Arizona.
- In March 1998, the Company acquired Superior Forge, Inc., headquartered
in Huntington Beach, California.
The purchase consideration for the acquisitions completed during fiscal
1998 was as follows (in thousands):
<TABLE>
<CAPTION>
RESERVE ISAAC PROLER COZZI AEROSPACE OTHER TOTAL
------- ----- ------ ----- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Shares of restricted Common
Stock issued.............. 0 1,943 1,750 11,500 403 1,385 16,981
Warrants issued to purchase
Common Stock.............. 1,400 462 375 1,500 0 120 3,857
Cash paid, including
transaction costs......... $ 6,589 $ 536 $ 7,760 $ 7,807 $14,802 $ 7,866 $ 45,360
Value of Common Stock
issued.................... 0 21,049 11,130 65,864 5,318 18,060 121,421
Value of warrants issued.... 8,118 4,862 1,574 7,505 0 368 22,427
Promissory notes issued..... 1,542 36,547 10,500 0 0 1,991 50,580
------- ------- ------- ------- ------- ------- --------
Total purchase
consideration... $16,249 $62,994 $30,964 $81,176 $20,120 $28,285 $239,788
======= ======= ======= ======= ======= ======= ========
</TABLE>
The purchase consideration was allocated as follows at March 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Fair value of tangible assets acquired.................. $ 35,399 $ 262,426
Goodwill................................................ 21,653 170,422
Identifiable intangibles................................ 1,403 1,834
Liabilities assumed..................................... (25,483) (195,569)
Stock and warrants issued............................... (13,855) (143,848)
Promissory notes and other consideration issued......... (14,658) (50,580)
-------- ---------
Cash paid............................................... 4,459 44,685
Less: cash acquired................................... (1,914) (780)
-------- ---------
Net cash paid for acquisitions.......................... $ 2,545 $ 43,905
======== =========
</TABLE>
The above transactions have been accounted for by the purchase method of
accounting and are included in the Company's results of operations from the
effective date of each respective acquisition. The purchase price was allocated
based on estimates of the fair value of assets acquired and liabilities assumed.
These estimates may be revised as necessary when information becomes available
to finalize amounts allocated to assets acquired and liabilities assumed. The
allocation period varies by acquisition but does not usually exceed one year. It
is not expected that the finalization of purchase accounting will have any
significant effect on the financial position or results of operations of the
Company.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company, MacLeod, HouTex, Reserve,
Isaac, Proler, Cozzi, and Aerospace as if these acquisitions had occurred on
April 1, 1996. The 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 the fixed assets and
additional amortization expense as a result of goodwill. The pro forma results
do not purport to be indicative of the results of operations which actually
would have resulted had the acquisitions been in effect on April 1, 1996 (in
thousands, except per share data).
F-10
<PAGE> 60
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
------------------- -------------------
<S> <C> <C>
Net sales................................... $697,037 $766,724
Net income (loss) from continuing operations
applicable to Common Stock................ $ 723 $(37,897)
Basic and diluted net income (loss) from
continuing operations applicable to Common
Stock..................................... $ 0.02 $ (1.15)
</TABLE>
In addition to the completed acquisitions, the Company is in various stages
of negotiation to acquire a number of additional scrap metals recycling and
related operations.
See Note 15 -- Subsequent Events.
NOTE 3 -- DISCONTINUED OPERATIONS
During the second and third quarter of fiscal 1997, the Company sold its
computer printer and related products business for approximately $1.3 million in
cash and other contingent consideration in the form of royalties on future
product sales. Accordingly, the operating results and gain on sale have been
classified as discontinued operations for all periods presented in the financial
statements.
Net revenues recognized for the discontinued operations were $9.5 million,
$3.1 million and $2.3 million for the year ended October 31, 1995, the five
months ended March 31, 1996 and the year ended March 31, 1997, respectively.
Additional consideration from royalty income is being recognized as earned and
is reported as an additional gain on sale of discontinued operations.
Income tax provision (benefit) for the discontinued operations were
approximately ($551,000), $52,000, and ($307,000) for the year ended October 31,
1995, the five months ended March 31, 1996 and the year ended March 31, 1997,
respectively. Income tax provision (benefit) for the gain on sale of assets of
discontinued operations was ($15,000) and $133,000 for the years ended March 31,
1997 and 1998, respectively.
NOTE 4 -- NON-RECURRING EXPENSES
During fiscal 1998, the Company recorded the following non-recurring
pre-tax charges (in thousands):
<TABLE>
<S> <C>
Non-cash warrant compensation expense....................... $19,050
Severance and other termination benefits.................... 2,814
EMCO shutdown............................................... 11,846
-------
$33,710
=======
</TABLE>
On December 1, 1997, the Company issued warrants to purchase 1,655,000
shares of Common Stock at exercise prices ranging from $4.00 per share to $12.00
per share. These warrants were issued to certain officers, employees and an
outside director. The warrants, for accounting purposes, were valued using the
"intrinsic value method" as prescribed under Accounting Practice Board (APB) No.
25 "Accounting for Stock Based Compensation".
On December 1, 1997, the Company entered into a Separation Agreement and a
Stock Warrant Settlement Agreement with a former officer resulting in a
non-recurring charge totaling $2.8 million comprised of (a) $0.9 million of cash
payments, (b) an accrual of $0.2 million for other benefits under the Separation
Agreement, and (c) $1.7 million representing the value (calculated in accordance
with APB No. 25) of warrants issued to purchase 200,000 shares of Common Stock.
Upon completion of the Cozzi acquisition in December 1997, the Company
adopted a formal plan to shut down its EMCO operations and to transfer certain
of EMCO's assets to Salt River Recycling, which the Company will operate under
the name of Metal Management Arizona. In connection with the plan to shut
F-11
<PAGE> 61
down EMCO, the Company recorded a pre-tax charge of approximately $11.8 million,
comprised of $9.3 million for the impairment of EMCO goodwill, $2.0 million for
the write-down to fair value (less selling costs) of the EMCO fixed assets to be
sold or otherwise abandoned, and $0.5 million for other exit-related costs. The
costs of transferring EMCO's remaining assets to Metal Management Arizona will
be expensed as incurred. The exit plan is expected to be completed by December
31, 1998.
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. Inventories
consisted of the following categories and amounts at March 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
Ferrous metals.............................................. $2,707 $35,933
Non-ferrous metals.......................................... 4,754 20,075
Other....................................................... 954 786
------ -------
$8,415 $56,794
====== =======
</TABLE>
NOTE 6 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following categories and amounts at
March 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Land and improvements................................... $ 5,759 $ 18,883
Buildings and improvements.............................. 1,577 13,974
Operating machinery and equipment....................... 11,149 70,518
Automobiles and trucks.................................. 2,550 10,057
Furniture and fixtures.................................. 871 1,934
Construction in progress................................ 0 1,749
-------- ---------
21,906 117,115
Less -- accumulated depreciation........................ (1,698) (8,029)
-------- ---------
$ 20,208 $ 109,086
======== =========
</TABLE>
Depreciation expense for property and equipment was $1.7 million and $7.1
million for the years ended March 31, 1997 and 1998, respectively. During the
current fiscal year, the Company wrote off approximately $2.0 million of net
fixed assets at its EMCO subsidiary. See Note 4 -- Non-recurring expenses.
NOTE 7 -- DEBT
Lines-of-credit
At March 31, 1997 and 1998, the Company and its wholly-owned subsidiaries
had various revolving lines of credit with commercial lenders which provided for
revolving credit at interest rates that ranged from 8.5% to 16.5%. The weighted
average interest rate on the borrowings outstanding at March 31, 1997 and 1998
was 9.6%. The lines were secured by substantially all of the assets and stock of
the Company's subsidiaries. Availability under the lines of credit is determined
primarily based on levels of inventory and accounts receivable. Average
borrowings under the various lines of credit during fiscal 1997 and 1998 were
approximately $4.7 million and $17.1 million, respectively. Amounts outstanding
under the various lines of credit ranged from $2.5 million to $7.9 million
during fiscal 1997 and $7.3 million to $48.6 million during fiscal 1998. At
March 31, 1998, the Company was in compliance with all covenants under its
various lines of credit. These lines were repaid with proceeds from a new
long-term credit facility and were terminated subsequent to March 31, 1998, or
were consolidated with the new facility. As a result, outstanding balances are
classified within long-term debt at March 31, 1998. See subsequent debt
transactions below.
F-12
<PAGE> 62
Notes payable to related parties
Notes payable to related parties were issued by the Company for
acquisitions or for the purchase of real estate. The Company also assumed notes
payable to related parties in connection with certain acquisitions. At March 31,
notes payable to related parties were issued to the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Notes issued for acquisitions:
Former shareholder of MacLeod (interest rate of 8.0% in
1997 and 8.5% in 1998)................................. $ 6,400 $ 2,981
Former shareholders of HouTex (interest rate of 6.0% in
1997), secured by a stock pledge agreement............. 6,655 0
Former shareholder of Ellis Metals (interest rate of
9.0%).................................................. 0 1,691
Former shareholders of Isaac, due 2/15/00, (interest rate
of
8.5% in 1998), secured by a letter of credit........... 0 15,965
Former shareholders of Proler (interest rate of 7.0% in
1998).................................................. 0 2,400
Notes assumed in connection with acquisitions:
Former shareholders of Isaac, due 2/15/00, (interest rate
of
8.5% in 1998), secured by a letter of credit........... 0 5,696
Former shareholder of Cozzi, (interest rate of 6.4% in
1998).................................................. 0 12,719
Notes issued for real estate purchases:
Former shareholder of Ellis Metals (interest rate of 9.0%
in 1997
and 1998), secured by real property.................... 950 950
-------- --------
14,005 42,402
Less: current portion.................................... (12,575) (10,830)
-------- --------
Long-term notes payable to related parties............... $ 1,430 $ 31,572
======== ========
</TABLE>
See subsequent debt transactions below.
During fiscal 1998, certain selling shareholders converted an aggregate
$3.6 million of notes payable into 524,569 shares of Common Stock of the
Company.
Scheduled maturities of notes payable to related parties are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING, MARCH 31
----------------------------
<S> <C>
1999........................................................ $10,830
2000........................................................ 10,831
2001........................................................ 0
2002........................................................ 0
2003 and thereafter......................................... 20,741
-------
$42,402
=======
</TABLE>
Long-term debt
At March 31, long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Term loans, due 1998 to 2001, average interest rate of
8.45%,
secured by equipment or personal guarantees............ $ 7,405 $ 40,221
Operating lines of credit, average interest rate of 9.6%,
reclassed to
long-term debt......................................... 0 48,597
Mortgage loans, due 1998 to 1999, average interest rate
of 8.20%,
secured by real property............................... 4,374 2,019
Other debt, due 1998 to 2006, average interest rate of
7.87%,
generally secured by equipment......................... 2,770 7,896
-------- --------
14,549 98,733
Less current portion..................................... (10,809) (1,036)
-------- --------
Long-term debt........................................... $ 3,740 $ 97,697
======== ========
</TABLE>
F-13
<PAGE> 63
See subsequent debt transactions below. Scheduled maturities of long-term
debt are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING, MARCH 31
----------------------------
<S> <C>
1999........................................................ $ 1,036
2000........................................................ 1,485
2001........................................................ 757
2002........................................................ 219
2003 and thereafter......................................... 95,236
-------
$98,733
=======
</TABLE>
Subsequent debt transactions
On March 31, 1998, the Company and its subsidiaries entered into a three
year Senior Credit Facility. The Senior Credit Facility provides for a revolving
credit and letter of credit facility of $200.0 million, subject to borrowing
base limitations. The Senior Credit Facility bears interest at a floating rate
per annum equal to (at the Company's option): (i) 1.75% over LIBOR or (ii) 0.5%
over the agent lender's prime rate. The Company pays a unused line fee of .375%
and is subject to debt covenants including an interest coverage ratio and
limitations with respect to capital expenditures. The Senior Credit Facility is
available for working capital and general corporate purposes, including
acquisitions. The obligations of the Company and its subsidiaries under the
Senior Credit Facility are secured by a security interest in substantially all
of the assets and properties of the Company and its subsidiaries including
pledges of stock of subsidiaries. Availability of loans and letters of credit
under the Senior Credit Facility is generally limited to a borrowing base of 85%
of eligible accounts receivable, 70% of eligible inventory and a $40 million
fixed asset sublimit that amortizes on a quarterly basis.
On April 1, 1998, the Company borrowed $106.8 million under the Senior
Credit Facility to: (i) repay outstanding secured debt of approximately of $96.5
million; (ii) buyout operating leases of approximately $9.3 million; and (iii)
pay prepayment penalties of approximately $1.0 million. The prepayment penalties
will be reflected as an extraordinary charge in the first quarter of fiscal
1999. Borrowings outstanding under the Senior Credit Facility bore interest at
9.0% as of April 1, 1998.
On May 13, 1998, the Company issued $180.0 million, 10.0% Senior
Subordinated Notes due on May 15, 2008 (the "Notes") in a private placement (the
"Subordinated Debt Placement"). Interest on the Notes will be payable
semi-annually. The Company received net proceeds of $174.6 million in the
Subordinated Debt Placement. The Notes are general unsecured obligations of the
Company and are subordinated in right to payment to all senior debt of the
Company, including the indebtedness of the Company under the Senior Credit
Facility. The Company's payment obligations are jointly and severally guaranteed
by the Company's current and certain future subsidiaries. The proceeds of the
Notes were used to repay approximately $119.0 million outstanding under the
Company's Senior Credit Facility and approximately $19.1 million of notes
payable to related parties. The balance of the proceeds were invested in
marketable securities held for working capital and general corporate purposes,
including acquisitions.
Except as described below, the Notes are not redeemable at the Company's
option prior to May 15, 2003. After May 15, 2003, the Notes are redeemable by
the Company at the redemption prices (expressed as a percentage of the principal
amount) plus accrued and unpaid interest, if redeemed during the twelve month
period beginning on May 15 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................ 105%
2004........................ 103%
2005........................ 102%
2006 and thereafter......... 100%
</TABLE>
F-14
<PAGE> 64
Also, prior to March 15, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Notes at a redemption price of 110% of the
principal amount of the Notes, plus accrued and unpaid interest from the
proceeds of one or more sales of Common Stock. The Notes are also redeemable at
the option of the holder thereof at a repurchase price of 101% of the principal
amount thereof, plus accrued and unpaid interest in the event of certain change
of control events with respect to the Company.
The Indenture governing the Notes (the "Indenture") contains certain
covenants that limit, among other things, the ability of the Company and its
subsidiaries to (i) incur additional indebtedness (including by way of
guarantee), subject to certain exceptions, unless the Company meets a fixed
charge ratio of 2 to 1 or certain other conditions apply; (ii) issue certain
types of securities containing mandatory redemption rights or which otherwise
are redeemable at the option of the holder thereof prior to the maturity of the
Notes; (iii) pay dividends or distributions, or make certain types of
investments or other payments, unless the Company meets a fixed charge coverage
ratio of 2 to 1 and the amount of the dividend or distribution, investment or
other payment (together with all such other dividend, distributions, investments
or other payments made through the date thereof) is less than 50% of the
consolidated net income of the Company from the beginning of the fiscal quarter
immediately following the date of the Indenture through the most recently ended
fiscal quarter plus the aggregate amount of net equity proceeds received by the
Company in such period; (iv) enter into certain transactions with affiliates;
(v) dispose of certain assets, (vi) incur liens securing pari passu or
subordinated indebtedness of the Company or (vii) engage in certain mergers and
consolidations.
NOTE 8 -- INCOME TAXES
The provision (benefit) for federal and state income taxes from continuing
operations is as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997 1998
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Federal:
Current............................... $40 $(41) $(170) $ 1,162
Deferred.............................. 0 0 (649) (1,740)
--- ---- ----- -------
40 (41) (819) (578)
--- ---- ----- -------
State:
Current............................... 11 (11) 61 903
Deferred.............................. 0 0 (84) (732)
--- ---- ----- -------
11 (11) (23) 171
--- ---- ----- -------
Total tax provision (benefit)........... $51 $(52) $(842) $ (407)
=== ==== ===== =======
</TABLE>
F-15
<PAGE> 65
The deferred tax liabilities, net of deferred tax assets, are comprised of
the following at March 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Cash to accrual adjustment.............................. $ 255 $ 389
Non-compete agreements.................................. 0 795
Depreciation............................................ 2,329 15,281
Other................................................... 0 75
------- --------
Gross deferred income tax liabilities..................... 2,584 16,540
------- --------
Accounts receivable reserves............................ 0 (315)
Inventory............................................... (221) (97)
Deferred compensation................................... 0 (759)
Employee benefit accruals............................... (65) (403)
Workers compensation.................................... 0 (793)
NOL carryforward........................................ (792) 0
Stock based compensation................................ 0 (4,389)
Other................................................... (199) (345)
------- --------
Gross deferred income tax assets.......................... (1,277) (7,101)
------- --------
Deferred tax asset valuation allowance.................... 0 0
------- --------
$ 1,307 $ 9,439
======= ========
</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 fiscal 1997 U.S. federal net operating loss
carryforward was utilized in fiscal 1998.
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 ($
in thousands):
<TABLE>
<CAPTION>
5 MONTHS
YEAR ENDED ENDED
OCTOBER 31, MARCH 31,
1995 % 1996 %
----------- ----- -------------- -----
<S> <C> <C> <C> <C>
Normal statutory rate................................. $106 34.0 $(23) (34.0)
State income taxes, net of federal benefit............ 11 3.5 (11) (16.1)
Tax exempt interest................................... (66) (21.2) (18) (26.4)
---- ----- ---- -----
Provision (benefit) for income taxes.................. $ 51 16.3 $(52) (76.5)
==== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1997 % MARCH 31, 1998 %
--------------- ------ -------------- ------
<S> <C> <C> <C> <C>
Normal statutory rate............................ $(998) (35.0) $(10,157) (35.0)
State income taxes, net of federal benefit....... (105) (3.7) 278 1.0
Non-deductible goodwill.......................... 145 5.1 887 3.1
Non-deductible goodwill write-off................ 0 0.0 3,259 11.2
Non-deductible stock based compensation.......... 0 0.0 4,968 17.1
Other............................................ 116 4.1 358 1.2
----- ------ -------- ------
Provision (benefit) for income taxes............. $(842) (29.5) $ (407) (1.4)
===== ====== ======== ======
</TABLE>
F-16
<PAGE> 66
NOTE 9 -- STOCKHOLDERS' EQUITY
Common Stock
On November 29, 1997, 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 from 40,000,000 to 80,000,000.
During April and May 1997, the Company completed a private sale of
2,025,000 shares of the Company's Common Stock, par value $.01 per share, at
$7.25 per share (the "Private Placement"), including the sale of 260,000 shares
to certain officers and directors of the Company. The Company received net
proceeds of approximately $14.7 million in the Private Placement.
On December 19, 1997, the Company issued to Samstock, L.L.C., a Delaware
limited liability corporation ("Samstock") 1,470,588 shares of the Company's
Common Stock, (the "Samstock Shares"), pursuant to a Securities Purchase
Agreement (the "Purchase Agreement") between the Company and Samstock. The
Company also issued warrants to Samstock exercisable at any time prior to
December 18, 2002 for: (i) 400,000 shares of Common Stock at an exercise price
of $20.00 per share; and (ii) 200,000 shares of Common Stock at an exercise
price of $23.00 per share. The aggregate purchase price of the Samstock Shares
and warrants issued to Samstock was approximately $25.0 million.
Convertible Preferred Stock
The Company's Certificate of Incorporation allows the issuance of up to
4,000,000 shares of preferred stock.
In accordance with Emerging Issues Task Force (EITF) Topic No. D-60,
"Accounting for the Issuance of Convertible Preferred Stock and Debt Securities
with a Nondetachable Conversion Feature", the Company recorded a one-time non
cash dividend of approximately $5.6 million. EITF Topic No. D-60 requires that a
beneficial conversion feature be recognized if preferred stock is convertible
into common stock at the lower of a conversion rate fixed at the date of issue
or a fixed discount to the common stock's market price at the time of
conversion.
On August 8, 1997, the Company issued 21,000 shares and between August 21,
1997 and September 8, 1997, the Company issued 4,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share, stated value of $1,000
per share, (the "Series A Preferred Stock"). Two thousand five hundred shares of
the Series A Preferred Stock were purchased by certain officers and a director
of the Company. On December 1, 1997, the Company issued an aggregate of 20,000
shares of Series B Convertible Preferred Stock, par value $.01 per share, stated
value of $1,000 per share (the "Series B Preferred Stock").
Dividends on the Series A Preferred Stock and Series B Preferred Stock
accrue, whether or not declared by the Board of Directors, at an annual rate of
6.0% and 4.5%, respectively, of the Stated Value of each outstanding share of
Series A Preferred Stock and Series B Preferred Stock. Dividends are payable in
cash or, at the Company's option, in additional shares of Preferred Stock.
Dividends in arrears at March 31, 1998 for the Series A Preferred Stock and
Series B Preferred Stock were approximately $63,000 and $298,000, respectively.
The Series A Preferred Stock and the Series B Preferred Stock have a
"Liquidation Preference" equal to $1,000 per share plus any accrued and unpaid
dividends. Upon the liquidation, dissolution or winding up of the Company,
holders of the Series A Preferred Stock and Series B Preferred Stock are
entitled to receive payment of the Liquidation Preference before any payment is
made to holders of Common Stock or any stock of the Company junior to the Series
A Preferred Stock and Series B Preferred Stock.
The holders of Series A Preferred Stock are able to convert the shares into
Common Stock at a price equal to the lower of: (i) $18.30; or (ii) 85% of the
average closing bid price for the Common Stock for the five trading days prior
to the date of the conversion notice. At March 31, 1998, the outstanding shares
of the Series A Preferred Stock would have converted into approximately 1.3
million shares of Common Stock, if all holders converted on that date.
F-17
<PAGE> 67
If the conversion of the Series A Preferred Stock would result in the
holders receiving more than 2,500,000 Shares of Common Stock, then the Company,
at its option and under certain circumstances, may redeem any shares of Series A
Preferred Stock in excess of 2,500,000 shares at a redemption price equal to:
(i) 117% of the Stated Value of the shares; plus (ii) any accrued and unpaid
dividends on such shares. Any shares of Series A Preferred Stock which have not
been converted on or before August 8, 2000 (the "Maturity Date") will
automatically be converted to shares of Common Stock at the Maturity Date based
on the above conversion price. However, if, at the Maturity Date a Registration
Statement covering the resale of the shares issuable upon conversion is not
effective or a resale of the shares issuable upon conversion cannot be made
pursuant to Rule 144(k), then the Company will be required to pay to the holders
of Series A Preferred Stock, in cash, an amount equal to the Liquidation
Preference for the shares which they own.
The Series A Preferred Stock does not grant holders voting rights except
that, so long as shares of Series A Preferred Stock are outstanding, without the
prior approval of the holders of at least a majority of all shares of the Series
A Preferred Stock outstanding at the time, the Company may not: (i) increase the
number of shares of Series A Preferred Stock which the Company is authorized to
issue; (ii) alter or change the rights, preferences or privileges of the Series
A Preferred Stock or any other capital stock of the Company so as to adversely
affect the Series A Preferred Stock; or (iii) create any new class or series of
capital stock having a preference over the Series A Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Company. Approval of holders of the Series A Preferred Stock as to actions
described in (ii) and (iii) above will not be required if the average closing
price for the Common Stock on the five trading days immediately preceding the
effective date of such a change is equal to or exceeds $27.45.
The holders of Series B Preferred Stock are able to convert the shares into
Common Stock at a price equal to the lowest of: (i) 120% of the closing bid
price for the Common Stock on the date of purchase of the Series B Preferred
Stock (the "Fixed Conversion Price"); (ii) 92.5% of the average closing bid
price for the Common Stock for the five trading days prior to the date of the
conversion notice; or (iii) if applicable, the lowest traded price of the Common
Stock during the time when the Common Stock is not listed on a national
securities exchange. At March 31, 1998, the outstanding shares of the Series B
Preferred Stock would have converted into approximately 1.6 million shares of
Common Stock, if all holders converted on that date.
If the conversion of the Series B Preferred Stock would result in the
holders receiving more than 2,000,000 Shares of Common Stock, then the Company
may redeem any shares of Series B Preferred Stock in excess of 2,000,000 shares
at a redemption price equal at its option and under certain circumstances to:
(i) 117% of the Stated Value of the shares; plus (ii) any accrued and unpaid
dividends on such shares. Any shares of Series B Preferred Stock which have not
been converted on or before three years after the date the Series B Preferred
Stock was issued (the "Maturity Date") will automatically be converted to shares
of Common Stock at the Maturity Date based on the above conversion price.
However, if at the Maturity Date a Registration Statement covering the resale of
the shares issuable upon conversion is not effective or a resale of the shares
issuable upon conversion cannot be made pursuant to Rule 144(k), then the
Company will be required to pay to the holders of Series B Preferred Stock, in
cash, an amount equal to the Liquidation Preference for the shares which they
own.
The Series B Preferred Stock does not grant holders voting rights except
that, so long as shares of Series B Preferred Stock are outstanding, without the
prior approval of the holders of at least a majority of all shares of the Series
B Preferred Stock outstanding at the time, the Company may not: (i) increase the
number of shares of Series B Preferred Stock which the Company is authorized to
issue; (ii) alter or change the rights, preferences or privileges of the Series
B Preferred Stock or any other capital stock of the Company so as to adversely
affect the Series B Preferred Stock; or (iii) create any new class or series of
capital stock having a preference over the Series B Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Company. Approval of holders of the Series B Preferred Stock as to actions
described in (ii) and (iii) above will not be required if the average closing
price for the Common Stock on the five trading days immediately preceding the
effective date of such a change is equal to or exceeds 150% of the Fixed
Conversion Price.
F-18
<PAGE> 68
The following presents a summary of the Series A Preferred Stock and Series
B Preferred Stock issued and converted during fiscal 1998:
<TABLE>
<CAPTION>
SERIES A SERIES B
-------- --------
<S> <C> <C>
Beginning balance........................................... 0 0
Shares issued............................................... 25,000 20,000
Shares converted into Common Stock.......................... (10,665) 0
Shares issued for dividends................................. 759 0
------- ------
Shares outstanding at March 31, 1998........................ 15,094 20,000
======= ======
</TABLE>
NOTE 10 -- EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period. Diluted earnings (loss) per common share includes the incremental shares
issuable upon the assumed exercise of stock options and warrants, using the
treasury stock method.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings (loss) from continuing operations per share
computations (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1995 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1998
---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income (Numerator):
Net income (loss) from continuing
operations.......................... $ 261 $ (16) $(2,010) $(28,613)
Dividends and accretion applicable to
convertible preferred stock......... 0 0 0 (7,100)
------ ------- ------- --------
Net income (loss) applicable to Common
Stock............................... $ 261 $ (16) $(2,010) $(35,713)
====== ======= ======= ========
Shares (Denominator):
Weighted average number of shares
outstanding during the period....... 5,125 5,299 9,106 19,727
Incremental common shares attributable
to
dilutive options and warrants....... 0 0 0 0
------ ------- ------- --------
Diluted shares outstanding during the
period.............................. 5,125 5,299 9,106 19,727
====== ======= ======= ========
Basic earnings (loss) per share....... $ 0.05 $ 0.00 $ (0.22) $ (1.81)
====== ======= ======= ========
Diluted earnings (loss) per share..... $ 0.05 $ 0.00 $ (0.22) $ (1.81)
====== ======= ======= ========
</TABLE>
Due to the net loss applicable to Common Stock for the five months ended
March 31, 1996 and the years ended March 31, 1997 and 1998, the effect of
dilutive stock options and warrants were not included as their effect would have
been anti-dilutive. However, if the Company would have reported net earnings,
the incremental shares attributable to dilutive stock options and warrants would
have been 125,656 for the five months ended March 31, 1996, 236,469 for the year
ended March 31, 1997 and 3,388,202 for the year ended March 31, 1998. Also, the
potentially dilutive effect of the Company's convertible preferred stock were
not used in the diluted earnings per share calculation as its effect was
anti-dilutive.
F-19
<PAGE> 69
NOTE 11 -- STOCK OPTIONS AND WARRANTS
Stock option plans
On November 29, 1997, the Company's stockholders approved an amendment to
the Company's 1996 Director Option Plan (the "Director Plan") to reserve an
additional 100,000 shares for an aggregate 200,000 shares of Common Stock which
can be issued under the Director Plan. The Director Plan provides for options to
be granted to outside directors of the Company. 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 November 29, 1997, the Company's stockholders approved an amendment to
the Company's 1995 Stock Option Plan (the "1995 Plan") to reserve an additional
1,300,000 shares of Common Stock for an aggregate 2,600,000 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 October 31, 1995,
the five months ended March 31, 1996 and the years ended March 31, 1997 and
1998, respectively:
<TABLE>
<CAPTION>
DIRECTOR & 1995 PLAN
-------------------------------------------------------------------------------------
1995 1996 1997 1998
------------------ ------------------ ------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance..... 0 $0.00 51,000 $3.22 716,750 $3.92 752,500 $ 4.03
Granted............... 51,000 $3.22 665,750 $3.97 110,000 $4.53 1,218,650 $16.01
Exercised............. 0 $0.00 0 $0.00 (16,750) $2.90 (150,000) $ 4.00
Canceled.............. 0 $0.00 0 $0.00 (57,500) $3.89 0 $ 0.00
------- ----- ------- ----- ------- ----- ----------- ------
Ending balance........ 51,000 $3.22 716,750 $3.92 752,500 $4.03 1,821,150 $12.05
======= ===== ======= ===== ======= ===== =========== ======
Exercisable at end of
period.............. 25,000 $2.50 669,750 $3.91 667,500 $3.96 649,333 $ 5.28
======= ===== ======= ===== ======= ===== =========== ======
Options available for
grant............... 449,000 83,250 630,750 812,100
======= ======= ======= ===========
</TABLE>
F-20
<PAGE> 70
<TABLE>
<CAPTION>
1986 PLAN
-----------------------------------------------------
1995 1996
------------------------ --------------------------
OPTION WEIGHTED
PRICE PER AVERAGE
SHARES SHARE SHARES EXERCISE PRICE
------ --------- ------ --------------
<S> <C> <C> <C> <C>
Beginning balance..................................... 572,800 $1.90 - $6.00 304,800 $2.71
Granted............................................... 1,500 $1.57 - $1.63 0 $0.00
Exercised............................................. (92,000) $2.34 - $2.98 (108,636) $2.55
Canceled.............................................. (177,500) $2.23 - $3.56 (39,314) $2.77
-------- ------------- --------- -----
Ending balance........................................ 304,800 $1.57 - $6.00 156,850 $2.82
======== ============= ========= =====
Exercisable at end of period.......................... 277,497 $1.88 - $6.00 141,788 $2.87
======== ============= ========= =====
Options available for grant........................... 0 0
======== =========
</TABLE>
<TABLE>
<CAPTION>
1986 PLAN
---------------------------------------------------
1997 1998
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Beginning balance......................................... 156,850 $2.82 5,000 $2.50
Granted................................................... 0 $0.00 0 $0.00
Exercised................................................. (87,100) $2.65 (5,000) $2.50
Canceled.................................................. (64,750) $3.07 0 $0.00
------- -------
Ending balance............................................ 5,000 $2.50 0 $0.00
======= =======
Exercisable at end of period.............................. 5,000 $2.50 0 $0.00
======= =======
Options available for grant 0 0
======= =======
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- --------------------
WEIGHTED
AVERAGE WIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE (YRS) PRICE SHARES PRICE
------------------------ ------ ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$2.50 to $7.00.............................. 606,000 6.9 $ 4.05 578,500 $ 4.00
$10.00 to $15.13............................ 697,900 4.7 $13.01 50,833 $ 13.38
$16.50 to $22.13............................ 517,250.. 4.9 $20.20 20,000 $ 21.50
--------- -------
1,821,150 649,333
========= =======
</TABLE>
Warrants
The Company issues warrants to purchase restricted Common Stock in
connection with acquisitions or for issuance to employees or consultants for
services. The summary of warrant activity for the year ended October 31, 1995,
the five months ended March 31, 1996 and the years ended March 31, 1997 and
1998, respectively, is as follows:
F-21
<PAGE> 71
<TABLE>
<CAPTION>
1995 1996 1997 1998
----------------- ------------------ -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning balance.... 0 $0.00 10,000 $3.00 20,000 $3.50 2,015,038 $ 4.65
Granted.............. 10,000 $3.00 10,000 $4.00 1,995,038 $4.66 7,016,925 $ 9.69
Exercised............ 0 $0.00 0 $0.00 0 $0.00 (702,654) $ 4.14
Canceled............. 0 $0.00 0 $0.00 0 $0.00 (104,769) $12.72
------ ----- ------- ----- --------- ----- --------- ------
Ending balance....... 10,000 $3.00 20,000 $3.50 2,015,038 $4.65 8,224,540 $ 8.89
====== ===== ======= ===== ========= ===== ========= ======
</TABLE>
To facilitate a loan to the Company from a commercial bank, on January 7,
1997, Gerard M. Jacobs, T. Benjamin Jennings, Donald F. Moorehead, George O.
Moorehead, Harold Rubenstein and Raymond F. Zack, each of whom is or was a
director at the time of the loan, provided personal guaranties to a bank. In
consideration for the guaranties, the Company issued warrants to these
individuals to purchase an aggregate of 500,000 shares of restricted Common
Stock of the Company at $4.00 per share (subject to certain restrictions). The
value of the warrants were recorded as other financing costs and the Company
recognized an expense of $151,000 for both the years ended March 31, 1997 and
1998 for the estimated fair value of the loan guaranty.
In fiscal 1998, the Company recognized approximately $20.7 million of
non-cash compensation expense associated with the issuance of warrants to
certain employees, officers and directors. See Note 4 -- Non-recurring expenses.
The following table summarizes information about compensation based
warrants outstanding at March 31, 1998:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING WARRANTS EXERCISABLE
---------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE (YRS) PRICE SHARES PRICE
- ------------------------------------------- --------- ---- ------ --------- ------
<S> <C> <C> <C> <C> <C>
$4.00 to $5.91............................. 805,000 4.67 $ 5.81 805,000 $ 5.81
$9.90 to $15.75............................ 1,346,923 4.30 $11.86 1,195,673 $12.05
</TABLE>
Pro forma disclosures
The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." 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 and warrants 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 loss and net loss per share as if the
Company had accounted for its employee stock based compensation under the fair
value method prescribed by SFAS No. 123 (in thousands, except per share data and
assumptions).
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1998
----------------- -------------- --------------
<S> <C> <C> <C>
Pro forma net loss............................... $ (556) $(1,290) $(41,527)
Pro forma basic and diluted net loss per share... $ (.10) $ (.14) $ (2.11)
Assumptions:
Expected life (years)............................ 3 3 3
Expected volatility.............................. 34.2% 60.0% 63.7%
Dividend yield................................... -- -- --
Risk-free interest rate.......................... 5.89% 6.52% 5.65%
</TABLE>
F-22
<PAGE> 72
For the years ended March 31, 1997 and 1998, the weighted average fair
value of options and warrants granted was as follows:
<TABLE>
<CAPTION>
1997 1998
------------------- ----------------------
SHARES FAIR VALUE SHARES FAIR VALUE
------ ----- --------- ------
<S> <C> <C> <C> <C>
Exercise price . Market price......................... 95,000 $1.59 338,750 $ 4.37
Exercise price = Market price......................... 15,000 $2.07 1,173,323 $ 7.24
Exercise price , Market price......................... n/a n/a 1,858,500 $14.10
</TABLE>
The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option-pricing model. The Black-Scholes option
valuation model was originally developed for use in estimating the fair value of
traded options, which have different characteristics than the Company's employee
stock options and warrants. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. As a result, it is management's opinion that the Black-Scholes model
may not necessarily provide a reliable single measure of the fair value of
employee stock options and warrants.
NOTE 12 -- EMPLOYEE BENEFIT PLANS
401K Plans
The Company and its wholly-owned subsidiaries sponsor qualified 401(k)
plans and profit sharing plans covering certain eligible employees. Participants
can elect to contribute up to a certain percentage of their qualified pre-tax
compensation. Certain of the qualified 401(k) plans allow the Company to match a
percentage of the contributions of participating employees as specified in the
respective plans and also enable the Company to make a discretionary
contribution based on the plan provisions. For the years ended March 31, 1997
and 1998, expense under the Company's 401(k) and profit sharing plans were
approximately $52,000 and $361,000, respectively.
Defined Benefit Plans
During fiscal 1998 , the Company completed acquisitions in which it
provided for the continuation of two defined benefit pension plans covering
certain employees and groups of employees. The benefits are generally based on
years of service and the employees' ending compensation. The Company's general
funding policy is to contribute annually an amount that falls within the range
determined to be deductible for federal tax purposes. Plan assets consist
primarily of stocks, bonds and a receivable from the seller for a fully funded
plan.
Net pension cost includes the following components at March 31, 1998 (in
thousands):
<TABLE>
<S> <C>
Service cost................................................ $ 95
Interest cost............................................... 291
Actual return on plan assets................................ (494)
Net amortization and deferral............................... 228
-----
Net pension cost............................................ $ 120
=====
</TABLE>
F-23
<PAGE> 73
The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated balance sheet at March 31, 1998 (in
thousands):
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $ 7,121
Non-vested benefit obligation............................. 258
-------
Accumulated benefit obligation............................ 7,379
Excess of projected benefit obligation over
accumulated benefit obligation......................... 1,653
-------
Projected benefit obligation.............................. 9,032
Plan assets at fair value................................. 7,982
-------
Projected benefit obligation in excess of
plan assets............................................ 1,050
Unrecognized net gain..................................... (228)
-------
Accrued pension liabilities $ 1,278
=======
</TABLE>
In determining the actual actuarial present value of the projected benefit
obligation, the weighted average discount rate was 7.5% as of March 31, 1998;
the rate of increase in future compensation levels was 0%-5% as of March 31,
1998; and the expected long-term rate of return on assets was 7.5%-9.0% for
1998.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities and equipment under operating leases
expiring at various dates. Rent expense was $0.5 million and $3.0 million for
the years ended March 31, 1997 and 1998, respectively. Most of the operating
leases contain renewal options. Future minimum lease payments are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING, MARCH 31
----------------------------
<S> <C>
1999........................................................ $3,380
2000........................................................ 3,310
2001........................................................ 3,028
2002........................................................ 2,458
2003 and thereafter......................................... 7,806
</TABLE>
Environmental matters
The Company is subject to comprehensive local, state, federal 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. The Company and its
subsidiaries may, however, be required from time to time to engage in certain
remedial activities with regard to sites owned or leased by the Company or its
subsidiaries in connection with their business. Furthermore, the Company and its
subsidiaries may be required to pay for a portion of the costs of certain
remedial activities in regard to certain sites owned by third parties under
applicable Federal Superfund laws and regulations. While it is not possible to
predict the ultimate costs of resolving environmental matters, such costs are
not expected to have a material effect on the consolidated financial condition
or results of operations of the Company based on information currently available
to the Company. However, 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. In
addition, 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.
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 former HouTex shareholders. The lease
F-24
<PAGE> 74
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.
NOTE 14 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
information for the Company's last eight fiscal quarters (in thousands, except
per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------
JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- -------- ------- -------
<S> <C> <C> <C> <C>
FISCAL 1997
Net sales............................................. $15,978 $13,964 $10,402 $24,852
Gross profit.......................................... 2,000 824 382 3,666
Net income (loss) from continuing operations.......... 5 (916) (1,160) 61
Net income from discontinued operations............... 146 148 25 528
Net income (loss)..................................... 151 (768) (1,135) 589
Basic earnings (loss) per share:
Continuing operations............................... $ .00 $ (.10) $ (.13) $ .01
Discontinued operations............................. .02 .02 .00 .05
Net income (loss)................................... .02 (.08) (.13) .06
Diluted earnings (loss) per share:
Continuing operations............................... $ .00 $ (.10) $ (.13) $ .00
Discontinued operations............................. .02 .02 .00 .05
Net income (loss)................................... .02 (.08) (.13) .05
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------
JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- -------- ------- -------
<S> <C> <C> <C> <C>
FISCAL 1998
Net sales............................................ $54,435 $102,911 $126,007 $196,354
Gross profit......................................... 5,974 10,154 11,646 19,986
Non-recurring expenses............................... 0 0 (33,710) 0
Net income (loss) from continuing operations*........ 221 (67) (36,200) 333
Net income from discontinued operations.............. 101 107 (42) 34
Net income (loss)*................................... 322 40 (36,242) 367
Basic earnings (loss) per share:
Continuing operations*............................. $ .02 $ .00 $ (1.75) $ .01
Discontinued operations............................ .00 .01 .00 .00
Net income (loss)*................................. .02 .01 (1.75) .01
Diluted earnings (loss) per share:
Continuing operations*............................. $ .02 $ .00 $ (1.75) $ .01
Discontinued operations............................ .00 .01 .00 .00
Net income (loss)*................................. .02 .01 (1.75) .01
</TABLE>
- ---------------
* amounts include preferred stock dividends, accretion of preferred stock
discount to redemption value and non-cash beneficial conversion feature of
convertible preferred stock.
NOTE 15 -- SUBSEQUENT EVENTS
Purchase transactions
In April 1998, the Company, through its Cozzi subsidiary, acquired certain
assets of Midwest Industrial Scrap, Inc., located in Chicago, Illinois. In May
1998, the Company acquired substantially all of the assets of 138 Scrap, Inc.
and Katrick, Inc., headquartered in Riverdale, Illinois.
F-25
<PAGE> 75
Pooling transactions
On May 28, 1998, the Company's wholly owned subsidiary, CB Acquisition
Corporation merged with R&P Holdings, Inc., ("Bluestone") in a tax free stock
for stock exchange. The Company issued approximately 1,035,000 shares of Common
Stock in connection with the merger. The merger will be accounted for using the
pooling-of-interests method of accounting. Beginning in fiscal 1999, the
Company's historical results will be restated to include the results of
Bluestone. Merger related expenses will be recognized as a one time charge in
the first quarter of fiscal 1999.
The following information summarizes the financial results of the Company
and Bluestone for the periods presented. These results include a conforming
accounting adjustment to change Bluestone's inventory valuation methodology from
LIFO to FIFO (in thousands, except share data).
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, FIVE MONTHS YEAR ENDED YEAR ENDED
1995 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1998
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales...................................... $112,775 $36,366 $141,830 $570,035
Net income (loss) from continuing operations
applicable to Common Stock................... $ 1,138 $ (953) $ (2,108) $(35,863)
Basic and diluted net income (loss) per share
from continuing operations applicable to
Common Stock................................. $ 0.18 $ (0.15) $ (0.21) $ (1.73)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current assets.............................................. $48,873 $196,443
Property & equipment, net................................... 21,262 109,886
Other assets................................................ 1,845 8,923
Goodwill.................................................... 23,484 186,503
------- --------
Total assets...................................... $95,464 $501,755
======= ========
LIABILITIES & EQUITY
Current liabilities......................................... $58,879 $106,485
Non-current liabilities..................................... 9,404 143,210
Stockholder's equity........................................ 27,181 252,060
------- --------
Total liabilities and equity...................... $95,464 $501,755
======= ========
</TABLE>
F-26
<PAGE> 76
METAL MANAGEMENT, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Fiscal 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 and 1998 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 OF
YEAR DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES PERIOD
- ------ ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful
1998 accounts....................... $101,000 $ 641,000 $1,013,000 $(126,000) $1,629,000
Allowance for doubtful
1997 accounts....................... $474,000 $ 223,000 $ 0 $(596,000) $ 101,000
Tax valuation allowance $505,000 $(505,000) $ 0 $ 0 $ 0
Allowance for doubtful
1996 accounts....................... $414,000 $ 60,000 $ 0 $ 0 $ 474,000
Tax valuation allowance........ $505,000 $ $ 0 $ 0 $ 505,000
Allowance for doubtful
1995 accounts....................... $373,000 $ 231,000 $ 10,000 $(200,000) $ 414,000
Tax valuation allowance........ $ 0 $ 505,000 $ 0 $ 0 $ 505,000
</TABLE>
F-27
<PAGE> 77
METAL MANAGEMENT, INC.
EXHIBIT INDEX
NUMBER AND DESCRIPTION OF EXHIBIT
<TABLE>
<C> <S>
2.1 Purchase Agreement, dated as of March 10, 1997, between the
Company and BancBoston Ventures, Inc. (incorporated by
reference to Exhibit 2.1 of the Company's report on Form 8-K
dated May 2, 1997).
2.2 Purchase Agreement, dated as of January 17, 1997, among the
Company, 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 Company's report on Form
8-K dated May 2, 1997).
2.3 First Amendment to Purchase Agreement, dated as of March 6,
1997, among the Company, 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
Company's report on Form 8-K dated May 2, 1997).
2.4 Second Amendment to Purchase Agreement, dated May 1, 1997,
among the Company, 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 Company's
report on Form 8-K dated May 2, 1997).
2.5 Purchase Agreement, dated as of June 23, 1997, among the
Company, Isaac Corporation, Ferrex Trading Corporation,
Paulding Recycling, Inc. and Briquetting Corporation of
America (incorporated by reference to Exhibit 2.1 of the
Company's report on Form 8-K dated June 23, 1997).
2.6 Agreement and Plan of Merger, dated as of August 27, 1997,
by and among the Company, Proler Acquisition, Inc., Proler
Southwest Inc. and the Shareholders of Proler Southwest Inc.
(incorporated by reference to Exhibit 2.1 of the Company's
report on Form 8-K dated August 28, 1997).
2.7 Purchase Agreement for Membership Interests of Proler
Steelworks L.L.C., dated as of August 27, 1997, by and among
the Company, Proler Steelworks L.L.C. and the Members of
Proler Steelworks L.L.C. (incorporated by reference to
Exhibit 2.2 of the Company's report on Form 8-K dated August
28, 1997).
2.8 Agreement and Plan of Merger, dated May 16, 1997 (as
amended), among Cozzi Iron & Metal, Inc. and its
shareholders, the Company and CIM Acquisition, Co.
(incorporated by reference to Exhibit 2.1 of the Company's
report on Form 8-K dated December 1, 1997).
2.9 Asset Purchase Agreement, dated as of January 20, 1998,
between the Company, AMI Acquisition Co., Aerospace Metals,
Inc., Aerospace Parts Security, Inc., Suisman Titanium
Corporation, and Michael Suisman, the sole shareholder of
Aerospace Metals, Inc. and Aerospace Parts Security, Inc.
(incorporated by reference to Exhibit 2.1 of the Company's
report on Form 8-K dated January 20, 1998).
3.1* Certificate of Incorporation of the Company, as amended
through June 23, 1998.
3.2* Amended and Restated Bylaws of the Company.
4.1 Specimen of Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-K for
the year ended March 31, 1997).
4.2 1995 Stock Plan and Form of Option Agreement (incorporated
by reference to Exhibit 4.2 of the Company's Annual Report
on Form 10-K for the year ended March 31, 1997).
4.3 1996 Director Option Plan and Form of Option Agreement
(incorporated by reference to Exhibit 4.3 of the Company's
Annual Report on Form 10-K for the year ended March 31,
1997).
</TABLE>
EX-1
<PAGE> 78
<TABLE>
<C> <S>
4.4* Registration Rights Agreement, dated as of June 23, 1997, by and between the Company and the George A.
Isaac, III Second Revocable Trust.
4.5 Registration Rights Agreement, dated as of November 20, 1997, by and among the Company, Proprietary
Convertible Investment Group, Inc., and Capital Ventures International (incorporated by reference to
Exhibit 10.5 of the Company's report on Form 8-K dated December 1, 1997).
4.6 Shelf Registration Rights Agreement, dated December 19, 1997, between the Company and Samstock, L.L.C.
(incorporated by reference to Exhibit 4.2 of the Company's report on Form 8-K dated December 18, 1997).
4.7 Amended and Restated Registration Rights Agreement, dated December 19, 1997, among the Company, T.
Benjamin Jennings, Gerard M. Jacobs, Albert A. Cozzi, Frank J. Cozzi, Gregory P. Cozzi and Samstock,
L.L.C. (incorporated by reference to Exhibit 4.3 of the Company's report on Form 8-K dated December 18,
1997).
4.8 Registration Rights Agreement, dated December 18, 1997, between the Company and Ronald I. Romano, Lolita
A. Romano, Ronald T. Romano and Ryan E. Romano (incorporated by reference to Exhibit 4.4 of the Company's
report on Form 8-K dated January 2, 1998).
4.9 Registration Rights Agreement, dated January 20, 1998, by and between the Company and Aerospace Metals,
Inc. (incorporated by reference to Exhibit 10.3 of the Company's report on Form 8-K dated January 20,
1998).
4.10 Registration Rights Agreement, dated January 30, 1998, by and between the Company and Newell Phoenix,
L.L.C. (incorporated by reference to Exhibit 4.5 of the Company's registration statement on Form S-3
dated February 10, 1998).
4.11 Indenture, dated as of May 13, 1998, among the Company, the Guarantors (as defined therein) and LaSalle
National Bank, as Trustee (incorporated by reference to Exhibit 10.2 of the Company's report on Form 8-K
dated May 13, 1998).
4.12* First Supplemental Indenture, dated as of May 31, 1998, executed by R&P Holdings, Inc., Charles Bluestone
Company and R&P Real Estate, Inc., amending Indenture, dated as of May 13, 1998, among the Company, the
Guarantors and LaSalle National Bank, as Trustee.
4.13* Second Supplemental Indenture, dated as of June 19, 1998, executed by Metal Management Gulf Coast, Inc.,
amending Indenture, dated as of May 13, 1998, among the Company, the Guarantors and LaSalle National
Bank, as Trustee.
4.14 Exchange and Registration Rights Agreement, dated as of May 13, 1998, by and among the Company, the
Guarantors, Goldman, Sachs & Co., BT Alex. Brown Incorporated and Salomon Brothers Inc (incorporated by
reference to Exhibit 10.3 of the Company's report on Form 8-K dated May 13, 1998).
10.1 Employment Agreement, dated August 26, 1996, between the Company and Robert C. Larry (incorporated by
reference to Exhibit 10.1 of the Company's report on Form 10-Q for the quarter ended December 31, 1996).
10.2 Employment Agreement, dated June 23, 1997, between the Company and George A. Isaac III (incorporated by
reference to Exhibit 2.2 of the Company's report on Form 8-K dated June 23, 1997).
10.3* Warrant to Purchase 462,500 shares of Common Stock, dated June 23, 1997, issued by the Company to the
George A. Isaac, III Second Revocable Trust.
10.4 Warrant to purchase 105,000 shares of Common Stock, dated May 1, 1997, issued by the Company to Paul D.
Joseph (incorporated by reference to Exhibit 4.5 of the Company's registration statement on Form S-3
dated January 13, 1998).
10.5 Employment Agreement, dated as of August 27, 1997, by and between the Company and William T. Proler
(incorporated by reference to Exhibit 10.1 of the Company's report on Form 8-K dated August 28, 1997).
</TABLE>
EX-2
<PAGE> 79
<TABLE>
<C> <S>
10.6 Form of Stock Warrant Settlement Agreement, dated as of
November 7, 1997, between the Company, EMCO Recycling Corp.
and George O. Moorehead (incorporated by reference to
Exhibit 10.1 of the Company's report on Form 8-K dated
December 1, 1997).
10.7 Form of Letter regarding Separation Agreement, dated as of
November 7, 1997, between the Company and George O.
Moorehead (incorporated by reference to Exhibit 10.2 of the
Company's report on Form 8-K dated December 1, 1997).
10.8 Form of Non-Compete, Non-Solicitation and Confidentiality
Covenant and Agreement, dated as of November 7, 1997, by and
between the Company and George O. Moorehead (incorporated by
reference to Exhibit 10.3 of the Company's report on Form
8-K dated December 1, 1997).
10.9 Securities Purchase Agreement, dated as of November 20,
1997, among the Company, Proprietary Convertible Investment
Group, Inc., and Capital Ventures International
(incorporated by reference to Exhibit 10.4 of the Company's
report on Form 8-K dated December 1, 1997).
10.10 Employment Agreement, dated December 1, 1997, between the
Company and T. Benjamin Jennings (incorporated by reference
to Exhibit 10.6 of the Company's report on Form 8-K dated
December 1, 1997).
10.11 Employment Agreement, dated December 1, 1997, between the
Company and Gerard M. Jacobs (incorporated by reference to
Exhibit 10.9 of the Company's report on Form 8-K dated
December 1, 1997).
10.12 Employment Agreement, dated December 1, 1997, between the
Company and Albert A. Cozzi (incorporated by reference to
Exhibit 10.12 of the Company's report on Form 8-K dated
December 1, 1997).
10.13 Employment Agreement, dated December 1, 1997, between the
Company and Frank J. Cozzi (incorporated by reference to
Exhibit 10.15 of the Company's report on Form 8-K dated
December 1, 1997).
10.14 Warrant to purchase 350,000 shares of Common Stock at an
exercise price of $12.00 per share, dated December 1, 1997,
issued by the Company to T. Benjamin Jennings (incorporated
by reference to Exhibit 10.7 of the Company's report on Form
8-K dated December 1, 1997).
10.15 Warrant to purchase 375,000 shares of Common Stock at an
exercise price of $5.91 per share, dated December 1, 1997,
issued by the Company to T. Benjamin Jennings (incorporated
by reference to Exhibit 10.8 of the Company's report on Form
8-K dated December 1, 1997).
10.16 Warrant to purchase 350,000 shares of Common Stock at an
exercise price of $12.00 per share, dated December 1, 1997,
issued by the Company to Gerard M. Jacobs (incorporated by
reference to Exhibit 10.10 of the Company's report on Form
8-K dated December 1, 1997).
10.17 Warrant to purchase 375,000 shares of Common Stock at an
exercise price of $5.91 per share, dated December 1, 1997,
issued by the Company to Gerard M. Jacobs (incorporated by
reference to Exhibit 10.11 of the Company's report on Form
8-K dated December 1, 1997).
10.18 Warrant to purchase 377,586 shares of Common Stock at an
exercise price of $5.91 per share, dated December 1, 1997,
issued by the Company to Albert A. Cozzi (incorporated by
reference to Exhibit 10.13 of the Company's report on Form
8-K dated December 1, 1997).
10.19 Warrant to purchase 377,586 shares of Common Stock at an
exercise price of $15.84 per share, dated December 1, 1997,
issued by the Company to Albert A. Cozzi (incorporated by
reference to Exhibit 10.14 of the Company's report on Form
8-K dated December 1, 1997).
10.20 Warrant to purchase 291,380 shares of Common Stock at an
exercise price of $5.91 per share, dated December 1, 1997,
issued by the Company to Frank J. Cozzi (incorporated by
reference to Exhibit 10.16 of the Company's report on Form
8-K dated December 1, 1997).
10.21 Warrant to purchase 291,380 shares of Common Stock at an
exercise price of $15.84 per share, dated December 1, 1997,
issued by the Company to Frank J. Cozzi (incorporated by
reference to Exhibit 10.17 of the Company's report on Form
8-K dated December 1, 1997).
</TABLE>
EX-3
<PAGE> 80
<TABLE>
<C> <S>
10.22 Warrant to purchase 81,035 shares of Common Stock at an
exercise price of $5.91 per share, dated December 1, 1997,
issued by the Company to Gregory P. Cozzi (incorporated by
reference to Exhibit 10.19 of the Company's report on Form
8-K dated December 1, 1997).
10.23 Warrant to purchase 81,035 shares of Common Stock at an
exercise price of $15.84 per share, dated December 1, 1997,
issued by the Company to Gregory P. Cozzi (incorporated by
reference to Exhibit 10.20 of the Company's report on Form
8-K dated December 1, 1997).
10.24 Warrant to purchase 600,000 shares of Common Stock, dated
December 19, 1997, issued by the Company to Samstock, L.L.C.
(incorporated by reference to Exhibit 4.1 of the Company's
report on Form 8-K dated December 18, 1997).
10.25 Securities Purchase Agreement, dated December 19, 1997,
between the Company and Samstock, L.L.C. (incorporated by
reference to Exhibit 10.1 of the Company's report on Form
8-K dated December 18, 1997).
10.26 Amended and Restated Stockholders Agreement, dated December
19, 1997, among T. Benjamin Jennings, Gerard M. Jacobs,
Albert A. Cozzi, Frank J. Cozzi, Gregory P. Cozzi, Samstock,
L.L.C. and the Company (incorporated by reference to Exhibit
10.2 of the Company's report on Form 8-K dated December 18,
1997).
10.27 Credit Agreement, dated March 31, 1998, by and among the
Company and its subsidiaries named therein and BT Commercial
Corporation (incorporated by reference to Exhibit 10.1 of
the Company's report on Form 10-K dated March 31, 1998).
10.28* Amendment No. 1 to Credit Agreement, dated as of June 12,
1998, by and among the Company and its subsidiaries named
therein and BT Commercial Corporation.
10.29* Amendment No. 2 to Credit Agreement, dated as of June 19,
1998, by and among the Company and its subsidiaries named
therein and BT Commercial Corporation.
10.30 Purchase Agreement, dated May 8, 1998, among the Company,
the Guarantors, Goldman, Sachs & Co., BT Alex. Brown
Incorporated and Salomon Brothers Inc (incorporated by
reference to Exhibit 10.1 of the Company's report on Form
8-K dated May 13, 1998).
11.1* Computation of Earnings Per Share.
21.1* Subsidiaries of the Company.
23.1* Consent of Price Waterhouse LLP.
27.1* Financial Data Schedule.
</TABLE>
- -------------------------
* Included with this Annual Report on Form 10-K.
EX-4
<PAGE> 1
EXHIBIT 3.1(1)
CERTIFICATE OF INCORPORATION
OF
GENERAL PARAMETRICS CORPORATION
1. The name of the corporation is GENERAL PARAMETRICS CORPORATION (the
"Corporation").
2. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, zip code 19801. The name of its registered
agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
4. (a) The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Preferred Stock" and "Common Stock." The number of
shares of Preferred Stock authorized to be issued is Two Million (2,000,000)
and the number of shares of Common Stock authorized to be issued is Twenty
Million (20,000,000). The Preferred Stock and the Common Stock shall each have
a par value of $.01 per share.
(b) The shares of Preferred Stock may be issued from time to time in
one or more series. The Board of Directors of the Corporation is authorized, by
filing a certificate pursuant to the applicable law of the State of Delaware,
to: (i) establish from time to time the number of shares to be included in each
such series; (ii) fix the voting powers, designations, powers, preferences and
relative, participating, optional or other rights of the shares of each such
series and the qualifications, limitations or restrictions thereof, including
but not limited to the fixing or alteration of the dividend rights, dividend
rate, conversion rights, conversion rate, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
and the liquidation preferences of any wholly unissued series of shares of
Preferred Stock; (iii) increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be os decreased, the number of shares constituting such decrease
shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
<PAGE> 2
5. The name and mailing address of the incorporator are as follows:
Judith Twilla Prickett, Jones, Elliott
Kristol & Schnee
1310 King Street
Box 1328
Wilmington, Delaware 19899
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the By-Laws of the Corporation.
8. The number of directors which will constitute the whole Board of
Directors of the Corporation shall be as specified in the By-Laws of the
Corporation.
9. The election of directors need not be written ballot unless the By-Laws
of the Corporation shall so provide.
10. At all elections of directors of the corporation, each holder of stock
or of any class or classes or of a series or series thereof shall be entitled
to as many votes as shall equal the number of votes which (except for such
provision as to cumulative voting) he 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 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 may see fit.
11. Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
12. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders from monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (ii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
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<PAGE> 3
13. (a) 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 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 acted
in good faith and in a manner he 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 reasonably 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.
(b) 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 procure a judgment in its
favor by reason of the fact that he is or was 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) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he 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 Court of Chancery or such other court shall deem proper.
(c) 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
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<PAGE> 4
subparagraphs (a) and (b), or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
(d) Any indemnification under subparagraphs (a) and (b) (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in subparagraphs (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit
or proceeding, or (2) if such a 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.
(e) 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 as authorized by the Board of Directors 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 is not
entitled to be indemnified by the Corporation as authorized in this Article 13.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subparagraphs of this Article 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
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.
(g) 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 13.
(h) For purposes of this Article 13, references to "the Corporation"
shall include, in addition to the resulting corporation,
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<PAGE> 5
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,
officer, 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 the provisions of this
Article 13 with respect to the resulting or surviving corporation as he would
have with respect to the resulting or surviving corporation as he would have
with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this Article 13, 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
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 13.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article 13 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.
14. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and
certifying that this is my act and deed and the facts herein stated are true,
and accordingly have hereunto set my hand this 5th day of June, 1986.
/s/ Judith Twilla
--------------------------------
Judith Twilla
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<PAGE> 6
EXHIBIT 3.1(2)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GENERAL PARAMETRICS CORPORATION
GENERAL PARAMETRICS CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), does hereby certify as follows:
1. The Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware (the "Secretary of State") on June
5, 1986.
2. Subparagraph (a) of Paragraph 4 of the Certificate of Incorporation is
hereby amended to read as follows:
"4.(a) The Corporation is authorized to issue two classes of shares
to be designated, respectively, "Preferred Stock" and "Common Stock." The
number of shares of Preferred Stock authorized to be issued is Two Million
(2,000,000) and the number of shares of Common Stock authorized to be
issued is Forty Million (40,000,000). The Preferred Stock and the Common
Stock shall each have a par value of $.01 per share."
3. In accordance with Section 242 of the Delaware General Corporation Law,
the above statement of amendment has been duly approved by the board of
directors of General Parametrics Corporation at a meeting duly called and held
on January 5, 1996, and by the stockholders of General Parametrics Corporation
at the Annual Meeting of Stockholders duly called and held on April 9, 1996.
At the Annual Meeting, which was held upon notice duly given in accordance with
Section 222 of the General Corporation Law of the State of Delaware , at least
a majority of the shares issued and outstanding on the record date for the
meeting constituting the requisite vote as required by statute were voted in
favor of the Amendment.
IN WITNESS WHEREOF, said GENERAL PARAMETRICS CORPORATION has caused this
Certificate to be signed by Gerard M. Jacobs, its President and Chief Executive
Officer, and Xavier Hermosillo, its Secretary, who do make this certificate and
declare and certify under
<PAGE> 7
penalty of perjury that this is the act and deed of the Corporation, and that
the facts stated herein are true, and accordingly have set their hands hereto
this 11th day of April, 1996.
BY: /s/ Gerard M. Jacobs
-----------------------------
Gerard M. Jacobs,
President and
Chief Executive Officer
ATTEST: /s/ Xavier Hermosillo
-----------------------------
Xavier Hermosillo,
Secretary
<PAGE> 8
EXHIBIT 3.1(3)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GENERAL PARAMETRICS CORPORATION
GENERAL PARAMETRICS CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), does hereby certify as follows:
1. The Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware (the "Secretary of State") on June
5, 1986.
2. The first paragraph of the Certificate of Incorporation is hereby amended
to read as follows:
"1. The name of the corporation is METAL MANAGEMENT, INC. (the
"Corporation")."
3. In accordance with Section 242 of the Delaware General Corporation Law,
the above statement of amendment has been duly approved by the board of
directors of General Parametrics Corporation at a meeting duly called and held
on January 5, 1996, and by the stockholders of General Parametrics Corporation
at the Annual Meeting of Stockholders duly called and held on April 9, 1996.
At the Annual Meeting, which was held upon notice duly given in accordancce
with Section 222 of the General Corporation Law of the State of Delaware, at
least a majority of the shares issued and outstanding on the record date for
the meeting constituting the requisite vote as required by statute were voted
in favor of the Amendment.
IN WITNESS WHEREOF, said GENERAL PARAMETRICS CORPORATION has caused this
Certificate to be signed by Gerard M. Jacobs, its President and Chief Executive
Officer, and Robert T. Clarkson, its Assistant Secretary, who do make this
certificate and declare and certify under penalty of perjury that this is the
act and deed of the Corporation, and that the facts stated herein are
<PAGE> 9
herein are true, and accordingly have set their hands hereto this 11th day of
April, 1996.
BY: /s/ Gerard M. Jacobs
-----------------------------
Gerard M. Jacobs,
President and
Chief Executive Officer
ATTEST: /s/ Robert T. Clarkson
-----------------------------
Robert T. Clarkson
Assistant Secretary
<PAGE> 10
EXHIBIT 3.1(4)
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
METAL MANAGEMENT, INC.
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
Metal Management, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Company
pursuant to the authority of the Board of Directors as required by Section 151
of the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to the Board of Directors
in accordance with the provisions of the Company's Certificate of
Incorporation, the Board of Directors hereby authorizes a series of the
Company's previously authorized Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges and restrictions thereof as
follows:
1. DESIGNATION AND AMOUNT.
The designation of this series, which consists of 36,000 shares (the
"Preferred Shares") of Preferred Stock, is the Series A Convertible Preferred
Stock (the "Series A Preferred Stock") and the face amount shall be One
Thousand Dollars ($1,000) per share (the "Stated Value").
2. DIVIDENDS.
(a) Payment of Dividends. The holders of shares of Series A Preferred
Stock (each, a "Holder" and collectively, the "Holders") shall be entitled to
receive cumulative dividends ("Dividends") on the Series A Preferred Stock
accruing on each share thereof at an annual rate of (A) prior to the date (the
"Approval Date") on which Stockholder Approval (as defined below) is obtained,
nine percent (9%) and (B) on or after the Approval Date, six percent (6%), in
each such case, times the Stated Value per share (such rate subject to ratable
adjustment in the event of any stock split or combination and to equitable
adjustment in the event of a reclassification or other similar event).
Dividends shall accrue, whether or not declared, on each share of Series A
Preferred Stock from the date of original issuance thereof (the "Purchase
Date") through the date on which such Dividends are paid. Accrued but unpaid
Dividends shall be payable in cash or, at the option of the Company (the "Stock
Payment Option") and upon satisfaction of the conditions set forth in paragraph
2(c) below, in shares (the "Dividend Payment Shares") of Series A Preferred
<PAGE> 11
Stock, on each Conversion Date and Mandatory Redemption Date and on the
Maturity Date (each as defined below, a "Dividend Payment Date").
(b) Delivery of Dividend Payment Shares. If the Company elects to
exercise the Stock Payment Option upon a conversion by a Holder, the Company
shall deliver to such Holder, on or before the third business day following the
applicable Dividend Payment Date, one or more certificates representing the
aggregate number of whole Dividend Payment Shares that is determined by
dividing (x) the amount of the Dividend which has accrued with respect to all
of the Preferred Shares held by such Holder and would otherwise be payable in
cash on the applicable Dividend Payment Date by (y) one thousand dollars
($1,000). No fractional Dividend Payment Shares shall be issued; the Company
shall, in lieu thereof, either issue a number of Dividend Payment Shares which
reflects a rounding up to the next whole number of shares or pay such amount in
cash. The Dividend Payment Shares shall be fully paid and non-assessable, free
and clear of any liens, claims, preemptive rights or encumbrances imposed by or
through the company, entitled to all of the rights, preferences and privileges
set forth herein, and shall be issued and delivered to the Holder on or before
the third business day following the applicable Dividend Payment Date. The
company agrees to inform the Holder at least five (5) Trading Days prior to the
first day of each calendar quarter in which the Company intends to exercise the
Stock Payment Option.
(c) Conditions to Stock Payment Option. If the Company wishes to
exercise the Stock Payment Option with respect to Dividends payable to a
Holder, it may do so only if each of the following conditions has been
satisfied as of the applicable Dividend Payment Date:
(i) the number of shares of Series A Preferred Stock authorized,
unissued and unreserved for all other purposes, or held in the Company's
treasury, is sufficient to pay such Dividends in Dividend Payment Shares;
(ii) the Company's common stock, par value $.01 per share (the
"Common Stock"), is authorized for quotation on the Nasdaq National Market or
for listing or quotation on the New York Stock Exchange or any other national
securities exchange;
(iii) (x) the registration statement required to be maintained by
the Company (the "Registration Statement") pursuant to a registration rights
agreement by and among the Company and the Purchasers named therein (the
"Registration Rights Agreement") is effective and available for the sale of the
Dividend Payment Shares issuable pursuant to such exercise and of all Conversion
Shares (as defined below) then held by or issuable to the Holders, or (y) sales
of such Dividend Payment Shares may be made pursuant to Rule 144(k); provided,
however, that the Registration Statement will not be deemed unavailable during
a Standstill Period (as defined in the Registration Rights Agreement).
(iv) a Mandatory Redemption Event or a Liquidation Event (each as
defined herein) has not occurred and is continuing; and
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<PAGE> 12
(v) the Company has delivered to the Holder a certificate, signed
by an executive officer of the Company, setting forth:
- the amount of the Dividend to which the Holder is entitled;
- the number of Dividend Payment Shares to be delivered in
payment of such Dividend, and the calculation therefor;
and
- a statement to the effect that all of the conditions set
forth in paragraphs 2(c)(i) - (iv) have been satisfied.
3. PRIORITY.
(a) Payment upon Dissolution, Etc. Upon the occurrence and continuance
of (x) any insolvency or bankruptcy proceedings, or any receivership,
liquidation, reorganization or other similar proceedings in connection
therewith, commenced by the Company or by its creditors, as such, or relating
to its assets or (y) the dissolution or other winding up of the Company whether
total or partial, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy proceedings, or (z) any assignment for the benefit of
creditors or any marshaling of the material assets or material liabilities of
the Company (a "Liquidation Event"), no distribution shall be made to the
holders of any shares of capital stock (other than capital stock that ranks
pari passu with the Series A Preferred Stock) of the Company unless prior
thereto each Holder shall have received the Liquidation Preference (as defined
below) with respect to each share of Series A Preferred Stock then held by such
Holder. In the event that upon the occurrence of a Liquidation Event, the
assets available for distribution to the Holders of the Series A Preferred
Stock and to the holders of such pari passu securities are insufficient to pay
the Liquidation Preference with respect to all of the outstanding shares of
Series A Preferred Stock and of such pari passu securities, such assets shall
be distributed ratably among such shares in proportion to the ratio that the
liquidation preference payable on each such share bears to the aggregate
liquidation preference payable on all such shares.
(b) Liquidation Preference. The "Liquidation Preference" with respect to
a share of Series A Preferred Stock shall mean an amount equal to the Stated
Value of such share plus any accrued and unpaid Dividends thereon.
4. CONVERSION.
(a) Right to Convert. Subject to the limitations contained in paragraph
4(h) below, each Holder shall have the right to convert at any time and from
time to time after the earlier to occur of (i) the ninetieth (90th) day
following the date on which the Series A Preferred Stock is issued and (ii) the
effectiveness of the Registration Statement, each of its shares of Series A
Preferred Stock into such number of fully paid and non-assessable shares of
Common Stock, free and clear of any liens, claims, preemptive rights or
encumbrances imposed by or through the Company (the "Conversion Shares"), as is
computed in accordance with the terms hereof (a "Conversion");
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<PAGE> 13
provided, however, that the right of such Holder to convert the Series A
Preferred Stock into Conversion Shares shall not become effective unless and
until the Company has obtained the approval of the transactions contemplated
hereby, including without limitation the conversion of the Preferred Stock into
shares of Common Stock in accordance with the terms hereof, by a majority of
the holders of shares of its Common Stock entitled to vote thereon
("Stockholder Approval").
(b) Reservation of Common Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, free from any preemptive rights, solely for
the purpose of effecting Conversions hereunder, such number of its shares of
Common Stock (the "Reserved Amount") as shall from time to time be sufficient
to effect the Conversion of the Series A Preferred Stock. If at any time the
Reserved Amount is less than 125% of the number of shares of Common Stock
issuable upon Conversion of the then outstanding shares of Series A Preferred
Stock, the Company shall take immediate action (including seeking shareholder
authorization of additional shares of Common Stock) to increase the Reserved
Amount to 175% of the number of shares of Common Stock into which the
outstanding shares of Series A Preferred Stock are then convertible. If the
Company shall issue any securities or make any change in its capital structure
which would change the number of Conversion Shares deliverable upon the
Conversion of the outstanding shares of Series A Preferred Stock, the Company
shall at the same time also make proper provision so that thereafter there
shall be a sufficient number of shares of Common Stock authorized and reserved,
free from any preemptive rights, for such Conversion.
(c) Conversion Notice. In order to convert shares of Series A Preferred
Stock, or any portion thereof, the Holder shall send by facsimile transmission
(with a hard copy to follow by first class mail), at any time prior to 11:59
p.m., eastern time, on the date on which the Holder wishes to effect such
Conversion (the "Conversion Date"), (i) a notice of conversion to the Company
and to its designated transfer agent for the Common Stock (the "Transfer
Agent") stating the number of shares of Series A Preferred Stock to be
converted, the amount of Dividends accrued on the shares of Series A Preferred
Stock then held by the Holder up to and including the Conversion Date, the
applicable Conversion Price and a calculation of the number of shares of Common
Stock issuable upon such Conversion (a "Conversion Notice") and (ii) a copy of
the certificate or certificates representing the Series A Preferred Stock being
converted. The Holder shall thereafter send the original of such certificate
or certificates by overnight mail to the Company. In the case of a dispute as
to the calculation of the Conversion Price or the number of Conversion Shares
issuable upon a Conversion, the Company shall promptly issue to the Holder the
number of Conversion Shares that are not disputed and shall submit the disputed
calculations to its independent accountants within one (1) business day of
receipt of the Holder's Conversion Notice. The Company shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Company and the Holder of the results in writing no later than two business
days following the day on which it received the disputed calculations. Such
accountant's calculation shall be deemed conclusive absent manifest error. The
fees of any such accountant shall be borne by the Company.
(d) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Company pursuant to a Conversion shall
be determined by dividing the Stated
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<PAGE> 14
Value of the Series A Preferred Stock to be converted by the Conversion Price
(as defined herein) in effect on the Conversion Date. The "Conversion Price"
shall be the lesser of (A) the price determined by multiplying (x) the average
of the Closing Bid Prices (as defined below) for the Common Stock on the five
(5) Trading Days (as defined below) occurring immediately prior to (but not
including) the Conversion Date times (y) 85% (the "Floating Conversion Price")
and (B) $18.30 (the "Fixed Conversion Price"). "Trading Day" shall mean any day
on which the Common Stock is traded for any period on the Nasdaq National
Market or on the principal securities exchange or market on which the Common
Stock is then traded. "Closing Bid Price" means, with respect to a security,
the closing bid price is listed or traded as reported by Bloomberg Financial
Markets or a comparable reporting service of national reputation selected by
the Company and reasonably acceptable to holders of a majority of the then
outstanding shares of Series A Preferred Stock if Bloomberg Financial Markets
is not then reporting closing bid prices of such security (collectively,
"Bloomberg"), or, if the foregoing does not apply, the last reported sale price
of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no sale price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated
for such security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as
reasonably determined by an independent investment banking firm selected by the
Holders of a majority of the then outstanding shares of Series A Preferred
Stock, and reasonably acceptable to the Company, with the costs of such
appraisal to be borne by the Company.
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice pursuant to paragraph 4(c) above, the Company shall, no later
than the close of business on the later to occur of (i) the third (3rd)
business day following the Conversion Date set forth in such Conversion Notice
and (ii) the business day following the day on which the original certificate
or certificates representing the shares of Series A Preferred Stock being
converted are received by the Company (the "Delivery Date"), issue and deliver
or caused to be delivered to the Holder the number of Conversion Shares as
shall be determined as provided herein. Conversion shares delivered to the
Holder shall not contain any restrictive legend as long as the sale of such
Conversion Shares is covered by an effective Registration Statement or may be
made pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the
"Securities Act") or any successor rule or provision.
(f) Failure to Deliver Conversion Shares
(i) In the event that the Company fails for any reason to deliver to
the Holder certificates representing the number of Conversion Shares specified
in the applicable Conversion Notice on or before the Delivery Date therefor (a
"Conversion default"), the Company shall pay to the Holder payments ("Conversion
Default Payments") in the amount of (i) (N/365) multiplied by (ii) the aggregate
Stated Value of the shares of Series Preferred Stock represented by the
Conversion Shares which remain the subject of such Conversion Default multiplied
by (iii) the lower of twenty-four percent (24%) and the maximum interest rate
permitted by applicable law,
-5-
<PAGE> 15
where "N" equals the number of days elapsed between the original Delivery Date
of such Conversion Shares and the earlier to occur of (A) the date on which all
of such Conversion Shares are issued and delivered to the Holder and (B) the
date on which such shares are redeemed pursuant to the terms of this
Certificate of Designations. Cash amounts payable hereunder shall be paid on or
before the fifth (5th) business day of the calendar month following the
calendar month in which such amount as accrued. In the event that there occurs
a dispute between the Company a Holder as to the number of Conversion Shares
issuable pursuant to a Conversion as described in paragraph 4(c) above, and it
is finally determined that such Holder is not entitled to receive certain
Conversion Shares, the Company shall not owe Conversion Default Payments to
such Holder with respect to such Conversion Shares.
(ii) Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to issue and deliver Conversion Shares on the
applicable Delivery Date (including, without limitation, damages relating to
any purchase of shares of Common Stock by the Holder to make delivery on a sale
effected in anticipation of receiving Conversion Shares upon Conversion, such
damages to be in an amount equal to the difference between (A) the aggregate
purchase price for the shares of Common Stock so purchased and (B) the
aggregate number of net proceeds received by the Holder from the sale of the
Conversion Shares issued by the Company pursuant to such Conversion), and the
Holder shall have the right to pursue all other remedies available to it at law
or in equity (including, without limitation, a decree of specific performance
and/or injunctive relief).
(g) Conversion at Maturity.
(i) On the date which is three years from the Purchase Date (the
"Maturity Date"), and assuming the satisfaction of the Mandatory Conversion
Conditions (as defined below) the remaining shares of Series A Preferred Stock
then held by each Holder shall be automatically converted into the number of
shares of Common Stock equal to the Liquidation Preference of such shares
divided by the then applicable Conversion Price (a "Mandatory Conversion"), and
the Maturity Date shall be deemed to be the Conversion Date with respect to
such Mandatory Conversion. If a Mandatory Conversion occurs, the Company and
the Holder shall follow the procedures for Conversion set forth in this Section
4; provided, however, that the Holder shall not be required to send the
Conversion Notice contemplated by paragraph (4)c. In the event that the
Mandatory Conversion Conditions are not satisfied as of the Maturity Date, the
Company shall, within five (5) business days of the Maturity Date, pay an amount
in cash to each Holder equal to the Liquidation Preference for the shares of
Series A Preferred Stock then held by such Holder.
(ii) The "Mandatory Conversion Conditions" are as follows:
(1) the market value of the outstanding shares of Common Stock
on the Maturity Date (not including any such shares represented by the then
outstanding shares of Series A Preferred Stock) shall be greater than
seventy-five million dollars ($75,000,000);
(2) the Common Stock shall have an average daily trading
volume of at
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<PAGE> 16
least thirty (30) thousand shares during the period of one hundred and eighty
(180) days ending on the fifteenth (15th) day of the calendar month immediately
prior to the calendar month in which the Maturity Date occurs;
(3) the Common Stock shall be designated for quotation on the
Nasdaq National Market or listed on the New York Stock Exchange or other
national securities exchange; and
(4) a Registration Statement covering the resale of all of the
Conversion Shares issuable pursuant to such Mandatory Conversion shall be
effective, or such resale may be made pursuant to Rule 144(k).
(h) Limitations on Right to Convert.
(i) In the event that the number of Preferred Shares to be converted
by a Holder pursuant to a Conversion Notice exceeds that number of Preferred
Shares (the "Preferred Share Conversion Limit") which, if converted in full,
would result in the issuance of a number of Conversion Shares that would equal
such Holder's Cap Amount (as defined below), the Company shall have the option,
in lieu of converting the Preferred Shares which would exceed such Holder's
Preferred Share Conversion Limit, to redeem such Preferred Shares at the
Optional Redemption Price (as defined below)(an "Optional Redemption"). In order
to effect an Optional Redemption, the Company shall, within two (2) business
days of receiving a Conversion Notice from a Holder pursuant to which the
Preferred Shares to be converted thereby exceeds such Holder's Preferred Share
Conversion Limit, deliver a written notice to such Holder that the Company
intends to redeem such excess Preferred Shares (an "Optional Redemption
Notice"). In the event that the Company does not deliver an Optional Redemption
Notice within such two business day period, the Company will convert the
Preferred Shares represented by such Conversion Notice in accordance with terms
of this Certificate. A Holder shall have the right, upon converting Preferred
Shares in a number that equals or exceeds 99% of such Holder's Preferred Share
Conversion Limit, to deliver a written notice to the Company requesting whether
the Company intends to redeem such Holder's Preferred shares in excess of such
Holder's Preferred Share Conversion Limit. If the Company fails to deliver an
Optional Redemption Notice within five (5) business days of its receipt of such
request, the Company will not be entitled thereafter to exercise its right to an
Optional Redemption with respect to the Preferred Shares held by such Holder. A
Holder's "Cap Amount" at any given time shall be the number of shares of Common
Stock equal to, (A) for a Holder which purchased Preferred Shares from the
Company, (i) the aggregate Stated Value of all of the Preferred Shares purchased
by such Holder on or before such date, divided by (ii) ten dollars ($10), and
(B) for a Holder which purchased Preferred Shares from another Holder, a pro
rata portion of such other Holder's Cap Amount, in which case such other
Holder's Cap Amount shall be appropriately reduced. In the event that a Holder
converts all of such Holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such Holder's Cap Amount, then the
difference between such Holder's Cap Amount and the number of shares of Common
Stock actually issued to such Holder shall be allocated pro rata to the Cap
Amounts of the other Holders based on the number of Preferred Shares then held
by such Holders. The Optional redemption
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<PAGE> 17
Price for each Preferred Share redeemed pursuant to an Optional Redemption shall
be equal to (x) the Stated Value of such Preferred Share times 117.5% plus (y)
the amount of all Dividends accrued (and any other amounts payable pursuant to
this Certificate of Designations) on such Preferred Shares up to an including
the date on which the Company pays the Optional Redemption price to the
applicable Holder. Upon delivery an Optional Redemption Notice to a Holder, the
Company shall pay the Optional Redemption Price to such Holder within ninety
(90) days of such delivery (such ninetieth day being referred to as the
"Optional Redemption Date"). If the Optional Redemption Price is not paid to
such Holder on or before the Optional Redemption Date, interest shall accrue
thereon in the amount of (i) (N/365) multiplied by (ii) the Optional redemption
Price multiplied by (iii) the lower of twenty-four percent (24%) and the maximum
interest rate permitted by applicable law, where "N" equals the number of days
elapsed between the Optional Redemption Date and the date on which such payment
is made in full.
(ii) In no event shall a Holder be permitted to convert any shares of
Series A Preferred Stock in excess of that number of such shares upon the
Conversion of which (x) the number of shares of Common Stock beneficially owned
by such Holder (other than shares of Common Stock which may be deemed
beneficially owned except for being subject to a limitation on conversion or
exercise analogous to the limitation contained in this subparagraph (ii) plus
(y) the number of shares of Common Stock issuable upon the Conversion of such
shares is equal to or exceeds (z) 4.99% of the number of shares of Common Stock
then issued and outstanding. Delivery by a Holder of a Conversion Notice shall
be deemed to represent the determination by such Holder that the Conversion
represented thereby will not violate the provisions of this subparagraph (ii),
and the Company shall have neither the right nor the obligation to confirm such
determination. Nothing contained herein shall be deemed to restrict the right of
a Holder to convert such shares of Series A Preferred Stock at such time as such
Conversion will not violate the provisions of this subparagraph (ii).
5. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If (A) the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, reclassification, the distribution
to holders of Common Stock of rights or warrants entitling them to subscribe for
or purchase Common Stock at less than the then current market price thereof or
other similar event, the Fixed Conversion Price shall be proportionately
reduced, or (B) the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares or other
similar event, the Fixed Conversion Price shall be proportionately increased. In
such event, the Company shall notify the transfer Agent of such change on or
before the effective date thereof. For purposes hereof, the market price per
share of Common Stock on any date shall be the average of the closing sale
prices for the Common Stock as reported by Nasdaq, or by the principal
securities market on which the Common Stock is then traded, on the five (5)
consecutive Trading Days (as defined below) selected by the Company not later
than, the earlier of the date in question and the Trading Day before "ex" date,
if any, with respect to the issuance or distribution requiring such computation.
The term "ex" date", when used with respect to any issuance or distribution,
means the first Trading Day on which the Common
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<PAGE> 18
Stock trades regular way in the market from which such average closing price is
then to be determined without the right to receive such issuance or
distribution. In the absence of one or more such quotations, the Company shall
determine the current market price on the basis of such quotations as it
considers appropriate.
(b) Adjustment to Conversion Price. If, prior to the Conversion of all of
the shares of Series A Preferred Stock, the number of outstanding shares of
Common Stock is increased or decreased by a stock split, stock dividend,
combination, reclassification or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any Conversion thereof, the Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event for all Trading Days immediately
preceding the Conversion Date.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of all of the shares of Series A Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization,
redemption or other similar event, as a result of which shares of Common Stock
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another
entity or there is a sale of all or substantially all the company's assets or
there is a change of control transaction with respect to which, in any such
case, a Holder does not exercise its right to a Mandatory Redemption (as
defined below) of the Series A Preferred Stock, then such Holder shall
thereafter have the right to receive upon Conversion of the shares of Series A
Preferred Stock, upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore issuable upon Conversion,
such stock, securities and/or other assets, if any, which such Holder would
have been entitled to receive in such transaction had such shares been
converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of such Holder to the end that the provisions hereof (including, without
limitation, provisions for the adjustment of the Conversion Price and of the
number of shares issuable upon a Conversion) shall thereafter be applicable as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof. The Company shall not effect any
transaction described in this subsection 5(c) unless (i) it first gives to each
Holder prior notice of such merger, consolidation, exchange of shares,
recapitalization, reorganization, redemption or other similar event, and makes
a public announcement of such event at the same time that it gives such notice
and (ii) the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligations of the Company under this
Certificate of Designation, including the terms of this subsection 5(c).
(d) Distribution of Assets. If the Company shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise, including any dividend or distribution in shares of capital stock of
a subsidiary of the Company (collectively, a "Distribution"), then, upon a
Conversion by a Holder occurring after the record date for determining
shareholders entitled to such Distribution but prior to the effective date of
such Distribution, the Holder shall be entitled to receive the amount of such
assets which would have been payable to such Holder had such Holder been the
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<PAGE> 19
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution. The Fixed Conversion Price for
shares of Series A Preferred Stock not converted prior to the effective date of
a Distribution shall be reduced to a price determined by decreasing the Fixed
Conversion Price in effect immediately prior to the record date of the
Distribution by an amount equal to the fair market value of the assets so
distributed, as determined by mutual agreement of the Company and each Holder.
(e) No Fractional Shares. If any adjustment under this Section 5 would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon Conversion shall be the next higher
number of shares or, at the option of the Company, shall be paid in cash in an
amount calculated by multiplying the amount of the fractional share times the
Closing Bid Price used to calculate the Conversion Price for such Conversion.
6. MANDATORY REDEMPTION.
(a) Mandatory Redemption. In the event that a Mandatory Redemption Event
(as defined below) occurs, each Holder shall have the right, upon written notice
to the Company, to have all or any portion of the shares of Series A Preferred
Stock held by such Holder redeemed by the Company (a "Mandatory Redemption") at
the Mandatory Redemption Price (as defined herein) in same day funds. Such
notice shall specify the effective date of such Mandatory Redemption (the
"Mandatory Redemption Date") and the number of such shares to be redeemed.
(b) Mandatory Redemption Price. The "Mandatory Redemption Price" shall be
equal to the Liquidation Preference of the shares of Series A Preferred Stock
being redeemed multiplied by one hundred and twenty percent (120%); provided
that in the event of a Mandatory Redemption Event specified in subparagraph
6(d)(vii) below, the Mandatory Redemption Price shall be equal to fifteen
percent (15%) times the Stated Value of such shares times N/365, where N means
the number of days elapsed between the Purchase Date and the Mandatory
Redemption Date.
(c) Payment Of Mandatory Redemption Price.
(i) The Company shall pay the Mandatory Redemption Price to the
Holder exercising its right to redemption within five (5) business days of the
Mandatory Redemption Date. Upon redemption of a share of Series A Preferred
Stock, the Holder will return such share to the Company for cancellation against
payment of the Mandatory Redemption Price.
(ii) If Company fails to pay the Mandatory Redemption Price to the
Holder within five (5) business days of the Mandatory Redemption Date, the
Holder shall be entitled to interest thereon at an annual rate equal to the
lower of (x) the "prime" rate (as published in the Wall Street Journal) on such
fifth business day plus three percent (3%) and (y) the highest rate permitted by
applicable law from the Mandatory Redemption Date until the Mandatory Redemption
Price has been paid in full.
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<PAGE> 20
(d) Mandatory Redemption Event. Each of the following events shall be
deemed a "Mandatory Redemption Event":
(i) the Company fails for any reason (other than as a result of not
having a sufficient number of shares of Common Stock authorized and reserved for
issuance) to issue shares of Common Stock and to transfer certificates
representing such shares to the Holder in accordance with the provisions of
this Certificate of Designations upon Conversion of any shares of Series A
Preferred Stock, and such failure continues for fifteen (15) business days
following written notice thereof by the Holder to the Company and to counsel
designated by the Company;
(ii) the Company is unable to issue shares of Common Stock upon
Conversion of any shares of Series A Preferred Stock as a result of not having
a sufficient number of shares of Common Stock authorized and reserved for
issuance, and such inability continues for a period of thirty (30) days
thereafter;
(iii) the Company breaches, in a material respect, any covenant or
other material term or condition of the Securities Purchase Agreement between
the Company and the Purchasers named therein pursuant to which the Series A
Preferred Stock may be issued and sold (the "Securities Purchase Agreement"),
the Registration Rights Agreement or any other Transaction Document (as defined
in the Securities Purchase Agreement) and such breach continues for a period of
ten (10) business days after written notice thereof to the Company from the
Holder, provided that, if the Company is then using its best efforts to cure
any such breach, such ten business day period shall be extended for another ten
(10) business days;
(iv) the Registration Statement is not declared effective by the
registration Deadline (as defined in the Registration Rights Agreement) or, if
the Registration Statement has been declared effective by such date, and the
effectiveness of the Registration Statement lapses for any reason (including
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of Conversion Shares in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of ten (10) business days; provided that the Registration Statement will
not be considered unavailable for the number of days occurring during a
Standstill Period (as defined in the Registration Rights Agreement);
(v) the Common Stock is no longer quoted on the Nasdaq National
Market or listed on a national securities exchange;
(vi) the sale, conveyance or disposition of all or substantially all
of the assets of the Company, the effectuation of a transaction or series of
related transactions, in which more than 50% of the voting power of the Company
is disposed of, or the consolidation, merger or other business combination of
the Company with or into any other entity (other than the Company's merger
transaction with Cozzi Iron & Metal, Inc.), immediately following which the
prior stockholders of the Company fail to own, directly or indirectly, at least
fifty percent (50%) of the surviving entity; and
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<PAGE> 21
(vii) the Company fails to obtain Stockholder Approval within one
hundred and twenty (120) days of the Purchase Date.
7. MISCELLANEOUS.
(a) Transfer of Series A Preferred Stock. A Holder may sell, transfer or
otherwise dispose of all or any portion of the shares of Series A Preferred
Stock to any person or entity as long as such sale, transfer or disposition is
the subject of an effective registration statement under the Securities Act or
such Holder delivers an opinion of counsel to the effect that such sale,
transfer or disposition is exempt from registration thereunder; provided that no
such opinion shall be required in the event of a sale by such Holder to an
affiliate thereof or pursuant to Rule 144 under the Securities Act. From and
after the date of such sale, transfer or disposition, the transferee hereof
shall be deemed to be a Holder. Upon any such sale, transfer or disposition,
the Company shall, promptly following the return of the certificate or
certificates representing the shares of Series A Preferred Stock that are the
subject of such sale, transfer or disposition, issue and deliver to such
transferee a new Certificate in the name of such transferee.
(b) Lost or Stolen Certificate. Upon receipt by the Company of evidence
of the loss, theft, destruction or mutilation of a certificate representing
shares of Series A Preferred Stock, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of such certificate if mutilated, the
Company shall execute and deliver to the Holder a new certificate identical in
all respects to the original certificate.
(c) No Voting Rights. The Holders of the Series A Preferred Stock shall
have no voting rights with respect to the business, management or affairs of
the Company; provided that the Company shall provide each Holder with prior
notification of each meeting of shareholders (and copies of proxy statements
and other information sent to such shareholders).
(d) Cancellation of Preferred Shares. Upon the conversion or redemption
of a Preferred Share, the Company shall immediately cancel such Preferred Share
and shall not reissue such Preferred Share.
(e) Notices. Except as otherwise specified herein, any notice, demand
or request required or permitted to be given pursuant to the terms of this
Certificate of Designations shall be in writing and shall be deemed given (i)
when delivered personally or by verifiable facsimile transmission (with a hard
copy to follow) on or before 5:00 p.m., eastern time, on a business day or, if
such day is not a business day, on the next succeeding business day, (ii) on
the next business day after timely delivery to an overnight courier and (iii)
on the third business day after deposit in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed as
follows:
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<PAGE> 22
If To The Company
Metal Management, Inc.
500 North Dearborn Street, Suite 405
Chicago, Illinois 60610
Attn: Gerard M. Jacobs
Fax: 312-645-0714
With a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Chicago, Illinois 60611
Attn: Stuart M. Savitz, Esq.
Fax: 312-527-5921
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(f) Protective Provisions
So long as shares of Series A Preferred Stock are outstanding, the
Company shall not, without first obtaining the approval of the Holders of at
least a majority of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock or any other capital stock of the Company so as to
affect adversely the Series A Preferred Stock:
(b) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution os assets upon
a Liquidation Event or any other liquidation, dissolution or winding up of the
Company; or
(c) increase the authorized number of shares of Series A Preferred
Stock;
provided, however, that such approval shall not be required in the event that
the average Closing Bid Price of the Common Stock on the five (5) trading days
immediately preceding the effective date of such change is equal to or exceeds
one hundred and fifty percent (150%) of the Fixed Conversion Price.
In the event that Holders of at least a majority of the then outstanding
shares of Series A Preferred Stock agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to the terms hereof, so as to affect the Series A
Preferred Stock, then the Company will deliver notice of such approved change
to the
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<PAGE> 23
holders of the Series A Preferred Stock that did not agree to such alteration
or change (the "Dissenting Holders") and the Dissenting Holders shall have the
right for a period of thirty (30) days to convert their shares of Series A
Preferred Stock into Conversion Shares pursuant to the terms of this
Certificate of Designations as they existed prior to such alteration or change
and without regard to the limitations on Conversion contained in paragraph
4(h)(i) hereof, or continue to hold their shares of Series A Preferred Stock.
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<PAGE> 24
IN WITNESS WHEREOF, the Company has executed this Certificate of
Designations as of the 7th day of August, 1997.
METAL MANAGEMENT, INC.
By: /s/ GERARD M. JACOBS
--------------------------------------------------
Name: Gerard M. Jacobs
Title: President and Chief Executive Officer
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<PAGE> 25
EXHIBIT 3.1(5)
CORRECTED CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
METAL MANAGEMENT, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON AUGUST 7, 1997
METAL MANAGEMENT, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is METAL MANAGEMENT, INC.
2. That a Certificate of METAL MANAGEMENT, INC. was filed by the Secretary of
State of Delaware on August 7, 1997 and that said Certificate requires
correction as permitted by Section 103 of the General Corporation Law of the
State of Delaware.
3. The inaccuracies or defects of said Certificate to be corrected are as
follows:
1) The fourth line of subsection (b) of Section 6 of the Certificate is
corrected to add "(A) the Stated Value of such shares plus (B)"
2) The second clause of subsection (f) of Section 7 of the Certificate is
corrected to add "with respect to any action described in clause (b) or
clause (c) above"
3) The second clause of subsection (f) of Section 7 of the Certificate is
corrected to remove the word "change" and to replace it with the word
"action"
4. Said Certificate in corrected form is set forth in its entirety as Exhibit
A attached hereto.
IN WITNESS WHEREOF, METAL MANAGEMENT, INC. has caused this Certificate
to be signed by its President, Gerard M. Jacobs, this 26th day of September,
1997.
METAL MANAGEMENT, INC.
By: /s/ T. Benjamin Jennings
-------------------------
T. Benjamin Jennings,
Chief Development Officer
<PAGE> 26
EXHIBIT A TO CORRECTED CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF METAL MANAGEMENT, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON AUGUST 7, 1997
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
METAL MANAGEMENT, INC.
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
Metal Management, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Company
pursuant to the authority of the Board of Directors as required by Section 151
of the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to the Board of
Directors in accordance with the provisions of the Company's Certificate of
Incorporation, the Board of Directors hereby authorize a series of the Company's
previously authorized Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges and restrictions thereof as
follows:
1. DESIGNATION AND AMOUNT.
The designation of this series, which consists of 36,000 shares (the
"Preferred Shares") of Preferred Stock, is the Series A Convertible Preferred
Stock (the "Series A Preferred Stock") and the face amount shall be One
Thousand Dollars ($1,000) per share (the "Stated Value").
2. DIVIDENDS.
(a) Payment of Dividends. The holders of shares of Series A Preferred
Stock (each, a "Holder" and collectively, the "Holders") shall be entitled to
receive cumulative dividends ("Dividends") on the Series A Preferred Stock
accruing on each share thereof at an annual rate of (A) prior to the date (the
"Approval Date") on which Stockholder Approval (as defined below) is obtained,
nine percent (9%) and (B) on or after the Approval Date, six percent (6%), in
each such case, times the Stated Value per share (such rate subject to ratable
adjustment in the event of any stock split or combination and to equitable
adjustment in the event of a reclassification or other similar event).
Dividends shall accrue, whether or not declared, on each share of Series A
Preferred Stock from the date of original issuance thereof (the "Purchase
Date") through the date on which such Dividends are paid. Accrued but unpaid
Dividends shall be payable in cash or, at the option of the
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<PAGE> 27
Company (the "Stock Payment Option") and upon satisfaction of the conditions
set forth in paragraph 2(c) below, in shares (the "Dividend Payment Shares") of
Series A Preferred Stock, on each Conversion Date and Mandatory Redemption Date
and on the Maturity Date (each as defined below, a "Dividend Payment Date").
(b) Delivery of Dividend Payment Shares. If the Company elects to
exercise the Stock Payment Option upon a conversion by a Holder, the Company
shall deliver to such Holder, on or before the third business day following the
applicable Dividend Payment Date, one or more certificates representing the
aggregate number of whole Dividend Payment Shares that is determined by
dividing (x) the amount of the Dividend which has accrued with respect to all
of the Preferred Shares held by such Holder and would otherwise be payable in
cash on the applicable Dividend Payment Date by (y) one thousand dollars
($1,000). No fractional Dividend Payment Shares shall be issued; the Company
shall, in lieu thereof, either issue a number of Dividend Payment Shares which
reflects a rounding up to the next whole number of shares or pay such amount in
cash. The Dividend Payment Shares shall be fully paid and non-assessable, free
and clear of any liens, claims, preemptive rights or encumbrances imposed by or
through the Company, entitled to all of the rights, preferences and privileges
set forth herein, and shall be issued and delivered to the Holder on or before
the third business day following the applicable Dividend Payment Date. The
Company agrees to inform the Holder at least five (5) Trading Days prior to the
first day of each calendar quarter in which the Company intends to exercise the
Stock Payment Option.
(c) Conditions to Stock Payment Option. If the Company wishes to
exercise the Stock Payment Option with respect to Dividends payable to a
Holder, it may do so only if each of the following conditions has been
satisfied as of the applicable Dividend Payment Date:
(i) the number of shares of Series A Preferred Stock
authorized, unissued and unreserved or all other purposes, or held in the
Company's treasury, is sufficient to pay such Dividends in Dividend Payment
Shares;
(ii) the Company's common stock, par value $.01 per share (the
"Common Stock"), is authorized for quotation on the Nasdaq National Market or
for listing or quotation on the New York Stock Exchange or any other national
securities exchange;
(iii) (x) the registration statement required to be maintained
by the Company (the "Registration Statement") pursuant to a registration rights
agreement by and among the Company and the Purchasers named therein (the
"Registration Rights Agreement") is effective and available for the sale of the
Dividend Payment Shares issuable pursuant to such exercise and of all
Conversion Shares (as defined below) then held by or issuable to the Holders,
or (y) sales of such Dividend Payment Shares may be made pursuant to Rule
144(k); provided, however, that the Registration Statement will not be deemed
unavailable during a Standstill Period (as defined in the Registration Rights
Agreement).
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<PAGE> 28
(iv) a Mandatory Redemption Event or a Liquidation Event
(each as defined herein) has not occurred and is continuing: and
(v) the Company has delivered to the Holder a certificate,
signed by an executive officer of the Company, setting forth:
* the amount of the Dividend to which the Holder
is entitled:
* the number of Dividend Payment Shares to be
delivered in payment of such Dividend, and the
calculation therefor; and
* a statement to the effect that all of the
conditions set forth in paragraphs
2(c)(i) - (iv) have been satisfied.
3. PRIORITY.
(a) Payment upon Dissolution, Etc. Upon the occurrence and
continuance of (x) any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, commenced by the Company or by its creditors, as such, or
relating to its assets or (y) the dissolution or other winding up of the
Company whether total or partial, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy proceedings, or (z) any assignment
for the benefit of creditors or any marshaling of the material assets or
material liabilities of the Company (a "Liquidation Event"), no distribution
shall be made to the holders of any shares of capital stock (other than capital
stock that ranks pari passu with the Series A Preferred Stock) of the Company
unless prior thereto each Holder shall have received the Liquidation Preference
(as defined below) with respect to each share of Series A Preferred Stock then
held by such holder. In the event that upon the occurrence of a Liquidation
Event, the assets available for distribution to the Holders of the Series A
Preferred Stock and to the Holders of such pari passu securities are
insufficient to pay the Liquidation Preference with respect to all of the
outstanding shares of Series A Preferred Stock and of such pari passu
securities, such assets shall be distributed ratably among such shares in
proportion to the ratio that the liquidation preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.
(b) Liquidation Preference. The "Liquidation Preference" with
respect to a share of Series A Preferred Stock shall mean an amount equal to
the Stated Value of such share plus any accrued and unpaid Dividends thereon.
4. CONVERSION.
(a) Right to Convert. Subject to the limitations contained in
paragraph 4(h) below, each Holder shall have the right to convert at any time
and from time to time after the earlier to occur of (i) the ninetieth (90th)
day following the date on which the Series A Preferred Stock is issued and (ii)
the effectiveness of the Registration Statement, each of its shares of Series A
Preferred Stock into
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such number of fully paid and non-assessable shares of Common Stock, free and
clear of any liens, claims, preemptive rights or encumbrances imposed by or
through the Company (the "Conversion Shares"), as is computed in accordance
with the terms hereof (a "Conversion"); provided, however, that the right of
such Holder to convert the Series A Preferred Stock into Conversion Shares
shall not become effective unless and until the Company has obtained the
approval of the transactions contemplated hereby, including without limitation
the conversion of the Preferred Stock into shares of Common Stock in accordance
with the terms hereof, by a majority of the holders of shares of its Common
Stock entitled to vote thereon ("Stockholder Approval").
(b) Reservation of Common Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, free from any preemptive rights, solely for
the purpose of effecting Conversions hereunder, such number of its shares of
Common Stock (the "Reserved Amount") as shall from time to time be sufficient
to effect the Conversion of the Series A Preferred Stock. If at any time the
Reserved Amount is less than 125% of the number of shares of Common Stock
issuable upon Conversion of the then outstanding shares of Series A Preferred
Stock, the Company shall take immediate action (including seeking shareholder
authorization of additional shares of Common Stock) to increase the Reserved
Amount to 175% of the number of shares of Common Stock into which the
outstanding shares of Series A Preferred Stock are then convertible. If the
Company shall issue any securities or make any change in its capital structure
which would change the number of Conversion Shares deliverable upon the
Conversion of the outstanding shares of Series A Preferred Stock, the Company
shall at the same time also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved, free
from any preemptive rights, for such Conversion.
(c) Conversion Notice. In order to convert shares of Series A
Preferred Stock, or any portion thereof, the Holder shall send by facsimile
transmission (with a hard copy to follow by first class mail), at any time
prior to 11:59 p.m., eastern time, on the date on which the Holder wishes to
effect such Conversion (the "Conversion Date"), (i) a notice of conversion to
the Company and to its designated transfer agent for the Common Stock (the
"Transfer Agent") stating the number of share of Series A Preferred Stock to be
converted, the amount of Dividends accrued on the shares of Series A Preferred
Stock then held by the Holder up to and including the Conversion Date, the
applicable Conversion Price and a calculation of the number of shares of Common
Stock issuable upon such Conversion (a "Conversion Notice") and (ii) a copy of
the certificate or certificates representing the Series A Preferred Stock being
converted. The Holder shall thereafter send the original of such certificate or
certificates by overnight mail to the Company. In the case of a dispute as to
the calculation of the Conversion Price or the number of Conversion Shares
issuable upon a Conversion, the Company shall promptly issue to the Holder the
number of Conversion Shares that are not disputed and shall submit the disputed
calculations to its independent accountants within one (1) business day of
receipt of the Holder's Conversion Notice. The Company shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Company and the Holder of the results in writing no later than two business
days following the day on which it received the disputed calculations. Such
accountant's calculation shall be deemed conclusive absent manifest error. The
fees of any such accountant shall be borne by the Company.
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<PAGE> 30
(d) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Company pursuant to a Conversion shall
be determined by dividing the Stated Value of the Series A Preferred Stock to
be converted by the Conversion Price (as defined herein) in effect on the
Conversion Date. The "Conversion Price" shall be the lesser of (A) the price
determined by multiplying (x) the average of the Closing Bid Prices (as defined
below) for the Common Stock on the five (5) Trading Days (as defined below)
occurring immediately prior to (but not including) the Conversion Date times
(y) 85% (the "Floating Conversion Price") and (B) $18.30 (the "Fixed Conversion
Price"). "Trading Day" shall mean any day on which the Common Stock is traded
for any period on the Nasdaq National Market or on the principal securities
exchange or market on which the Common Stock is then traded. "Closing Bid
Price" means, with respect to a security, the closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg Financial Markets or a
comparable reporting service of national reputation selected by the Company and
reasonably acceptable to holders of a majority of the then outstanding shares
of Series A Preferred Stock if Bloomberg Financial Markets is not then
reporting closing bid prices of such security (collectively, "Bloomberg"), or
if the foregoing does not apply, the last reported sale price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no sale price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined by an
independent investment banking firm selected by the Holders of a majority of
the then outstanding shares of Series A Preferred Stock, and reasonably
acceptable to the Company, with the costs of such appraisal to be borne by the
Company.
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice pursuant to paragraph 4(c) above, the Company shall, no later
than the close of business on the later to occur of (i) the third (3rd)
business day following the Conversion Date set forth in such Conversion Notice
and (ii) the business day following the day on which the original certificate
or certificates representing the shares of Series A Preferred Stock being
converted are received by the Company (the "Delivery Date"), issue and deliver
or caused to be delivered to the Holder the number of Conversion Shares as
shall be determined as provided herein. Conversion Shares delivered to the
Holder shall not contain any restrictive legend as long as the sale of such
Conversion Shares is covered by an effective Registration Statement or may be
made pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the
"Securities Act") or any successor rule or provision.
(f) Failure to Deliver Conversion Shares.
(i) In the event that the Company fails for any reason to deliver to
the Holder certificates representing the number of Conversion Shares specified
in the applicable Conversion Notice on or before the Delivery Date therefor (a
"Conversion Default"), the Company shall pay to the Holder payments
("Conversion Default Payments") in the amount of (i) (N/365) multiplied by (ii)
the aggregate Stated Value of the shares of Series A Preferred Stock
represented by the
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<PAGE> 31
Conversion Shares which remain the subject of such Conversion Default
multiplied by (iii) the lower of twenty-four percent (24%) and the maximum
interest rate permitted by applicable law, where "N" equals the number of days
elapsed between the original Delivery Date of such Conversion Shares and the
earlier to occur of (A) the date on which all of such Conversion Shares are
issued and delivered to the Holder and (B) the date on which such shares are
redeemed pursuant to the terms of this Certificate of Designations. Cash
amounts payable hereunder shall be paid on or before the fifth (5th) business
day of the calendar month following the calendar month in which such amount has
accrued. In the event that there occurs a dispute between the Company and a
Holder as to the number of Conversion Shares issuable pursuant to a Conversion
as described in paragraph 4(c) above, and it is finally determined that such
Holder is not entitled to receive certain Conversion Shares, the Company shall
not owe Conversion Default Payments to such Holder with respect to such
Conversion Shares.
(ii) Nothing herein shall limit the Holder's right to pursue
actual damages for the Company's failure to issue and deliver Conversion Shares
on the applicable Delivery Date (including, without limitation, damages
relating to any purchase of shares of Common Stock by the Holder to make
delivery on a sale effected in anticipation of receiving Conversion Shares upon
Conversion, such damages to be in an amount equal to the difference between (A)
the aggregate purchase price for the shares of Common Stock so purchased and
(B) the aggregate number of net proceeds received by the Holder from the sale
of the Conversion Shares issued by the Company pursuant to such Conversion),
and the Holder shall have the right to pursue all other remedies available to
it at law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
(g) Conversion at Maturity.
(i) On the date which is three years from the Purchase Date
(the "Maturity Date"), and assuming the satisfaction of the Mandatory
Conversion Conditions (as defined below) the remaining shares of Series A
Preferred Stock then held by each Holder shall be automatically converted into
the number of shares of Common Stock equal to the Liquidation Preference of
such shares divided by the then applicable Conversion Price (a "Mandatory
Conversion"), and the Maturity Date shall be deemed to be the Conversion Date
with respect to such Mandatory Conversion. If a Mandatory Conversion occurs,
the Company and the Holder shall follow the procedures for Conversion set forth
in this Section 4; provided, however, that the Holder shall not be required to
send the Conversion Notice contemplated by paragraph 4(c). In the event that
the Mandatory Conversion Conditions are not satisfied as of the Maturity Date,
the Company shall, within five (5) business days of the Maturity Date, pay an
amount in cash to each Holder equal to the Liquidation Preference for the
shares of Series A Preferred Stock then held by such Holder.
(ii) The "Mandatory Conversion Conditions" are as follows:
(l) the market value of the outstanding shares of
Common Stock on the Maturity Date (not including any such shares represented by
the then outstanding shares of Series A Preferred Stock) shall be greater than
seventy-five million dollars ($75,000,000);
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<PAGE> 32
(2) the Common Stock shall have an average daily trading volume of at
least thirty (30) thousand shares during the period of one hundred and eighty
(180) days ending on the fifteenth (15th) day of the calendar month immediately
prior to the calendar month in which the Maturity Date occurs;
(3) the Common Stock shall be designated for quotation on the Nasdaq
National Market or listed on the New York Stock Exchange or other national
securities exchange; and
(4) a Registration Statement covering the resale of all of the
Conversion Shares issuable pursuant to such Mandatory Conversion shall be
effective, or such resale may be made pursuant to Rule 144(k).
(h) Limitations on Right to Convert.
(i) In the event that the number of Preferred Shares to be converted
by a Holder pursuant to a Conversion Notice exceeds that number of Preferred
Shares (the "Preferred Share Conversion Limit") which, if converted in full,
would result in the issuance of a number of Conversion Shares that would equal
such Holder's Cap Amount (as defined below), the Company shall have the
option, in lieu of converting the Preferred Shares which would exceed such
Holder's Preferred Share Conversion Limit, to redeem such Preferred Shares at
the Optional Redemption Price (as defined below)(an "Optional Redemption"). In
order to effect an Optional Redemption, the Company shall, within two (2)
business days of receiving a Conversion Notice from a Holder pursuant to which
the Preferred Shares to be converted thereby exceeds such Holder's Preferred
Share Conversion Limit, deliver a written notice to such Holder that the
Company intends to redeem such excess Preferred Shares (an "Optional Redemption
Notice"). In the event that the Company does not deliver an Optional
Redemption Notice within such two business day period, the Company will convert
the Preferred Shares represented by such Conversion Notice in accordance with
the terms of this Certificate. A Holder shall have the right, upon converting
Preferred Shares in a number that equals or exceeds 99% of such Holder's
Preferred Share Conversion Limit, to deliver a written notice to the Company
requesting whether the Company intends to redeem such Holder's Preferred Shares
in excess of such Holder's Preferred Share Conversion Limit. If the Company
fails to deliver an Optional Redemption Notice within five (5) business days of
its receipt of such request, the Company will not be entitled thereafter to
exercise its right to an Optional Redemption with respect to the Preferred
Shares held by such Holder. A Holder's "Cap Amount" at any given time shall be
the number of shares of Common Stock equal to, (A) for a Holder which purchased
Preferred Shares from the Company, (i) the aggregate Stated Value of all of the
Preferred Shares purchased by such Holder on or before such date, divided by
(ii) ten dollars ($10), and (B) for a Holder which purchased Preferred Shares
from another Holder, a pro rata portion of such other Holder's Cap Amount, in
which case such other Holder's Cap Amount shall be appropriately reduced. In
the event that a Holder converts all of such Holder's Preferred Shares
into a number of shares of Common Stock which, in the aggregate, is less than
such Holder's Cap Amount, then the difference between such Holder's Cap Amount
and the number of shares of Common Stock actually issued to such
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<PAGE> 33
Holder shall be allocated pro rata to the Cap Amounts of the other Holders
based on the number of Preferred Shares then held by such Holders. The Optional
Redemption Price for each Preferred Share redeemed pursuant to an Optional
Redemption shall be equal to (x) the Stated Value of such Preferred Share
times 117.5% plus (y) the amount of all Dividends accrued (and any other
amounts payable pursuant to this Certificate of Designations) on such Preferred
Shares up to and including the date on which the Company pays the Optional
Redemption Price to the applicable Holder. Upon delivering an Optional
Redemption Notice to a Holder, the Company shall pay the Optional Redemption
Price to such Holder within ninety (90) days of such delivery (such ninetieth
day being referred to as the "Optional Redemption Date"). If the Optional
Redemption Price is not paid to such Holder on or before the Optional
Redemption Date, interest shall accrue thereon in the amount of (i) (N/365)
multiplied by (ii) the Optional Redemption Price multiplied by (iii) the lower
of twenty-four percent (24%) and the maximum interest rate permitted by
applicable law, where "N" equals the number of days elapsed between the
Optional Redemption Date and the date on which such payments is made in full.
(ii) In no event shall a Holder be permitted to convert any shares of
Series A Preferred Stock in excess of that number of such shares upon the
Conversion of which (x) the number of shares of Common Stock beneficially owned
by such Holder (other than shares of Common Stock which may be deemed
beneficially owned except for being subject to a limitation on conversion or
exercise analogous to the limitation contained in this subparagraph (ii) plus
(y) the number of shares of Common Stock issuable upon the Conversion of such
shares is equal to or exceeds (z) 4.99% of the number of shares of Common Stock
then issued and outstanding. Delivery by a Holder of a Conversion Notice shall
be deemed to represent the determination by such Holder that the Conversion
represented thereby will not violate the provisions of this subparagraph (ii),
and the Company shall have neither the right nor the obligation to confirm such
determination. Nothing contained herein shall be deemed to restrict the right
of a Holder to convert such shares of Series A Preferred Stock at such time as
such Conversion will not violate the provisions of this subparagraph (ii).
5. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If (A) the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, reclassification, the distribution
to holders of Common Stock of rights or warrants entitling them to subscribe for
or purchase Common Stock at less than the then current market price thereof or
other similar event, the Fixed Conversion Price shall be proportionately
reduced, or (B) the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares or other
similar event, the Fixed Conversion Price shall be proportionately increased. In
such event, the Company shall notify the Transfer Agent of such change on or
before the effective date thereof. For purposes hereof, the market price per
share of Common Stock on any date shall be the average of the closing sale
prices for the Common Stock as reported by Nasdaq, or by the principal
securities market on which the Common Stock is then traded, on the five (5)
consecutive Trading Days (as defined below) selected by the Company not later
than, the earlier of
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<PAGE> 34
the date in question and the Trading Day before the "ex" date, if any, with
respect to the issuance or distribution requiring such computation. The term
"'ex' date", when used with respect to any issuance or distribution, means the
first Trading Day on which the Common Stock trades regular way in the market
from which such average closing price is then to be determined without the
right to receive such issuance or distribution. In the absence of one or more
such quotations, the Company shall determine the current market price on the
basis of such quotations as it considers appropriate.
(b) Adjustment to Conversion Price. If, prior to the Conversion of all
of the shares of Series A Preferred Stock, the number of outstanding shares of
Common Stock is increased or decreased by a stock split, stock dividend,
combination, reclassification or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any Conversion thereof, the Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event for all Trading Days immediately
preceding the Conversion Date.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of all of the shares of Series A Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization,
redemption or other similar event, as a result of which shares of Common Stock
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another
entity or there is a sale of all or substantially all the Company's assets or
there is a change of control transaction with respect to which, in any such
case, a Holder does not exercise its right to a Mandatory Redemption (as
defined below) of the Series A Preferred Stock, then such Holder shall
thereafter have the right to receive upon Conversion of the shares of Series A
Preferred Stock, upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore issuable upon
Conversion, such stock, securities and/or other assets, if any, which such
Holder would have been entitled to receive in such transaction had such shares
been converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of such Holder to the end that the provisions hereof (including, without
limitation, provisions for the adjustment of the Conversion Price and of the
number of shares issuable upon a Conversion) shall thereafter be applicable as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof. The Company shall not effect any
transaction described in this subsection 5(c) unless (i) it first gives to each
Holder prior notice of such merger, consolidation, exchange of shares,
recapitalization, reorganization, redemption or other similar event, and makes
a public announcement of such event at the same time that it gives such notice
and (ii) the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligations of the Company under this
Certificate of Designation, including the terms of this subsection 5(c).
(d) Distribution of Assets. If the Company shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise, including any dividend or distribution in shares of capital stock of
a subsidiary of the Company (collectively, a "Distribution"), then, upon a
Conversion by a Holder occurring after the record date for determining
shareholders entitled to such Distribution
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<PAGE> 35
but prior to the effective date of such Distribution, the Holder shall be
entitled to receive the amount of such assets which would have been payable to
such Holder had such Holder been the holder of such shares of Common Stock on
the record date for the determination of shareholders entitled to such
Distribution. The Fixed Conversion Price for shares of Series A Preferred
Stock not converted prior to the effective date of a Distribution shall be
reduced to a price determined by decreasing the Fixed Conversion Price in
effect immediately prior to the record date of the Distribution by an amount
equal to the fair market value of the Company and each Holder.
(e) No Fractional Shares. If any adjustment under this Section 5
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon Conversion shall be the
next higher number of shares or, at the option of the Company, shall be paid in
cash in an amount calculated by multiplying the amount of the fractional share
times the Closing Bid Price used to calculate the Conversion Price for such
Conversion.
6. MANDATORY REDEMPTION
(a) Mandatory Redemption. In the event that a Mandatory Redemption
Event (as defined below) occurs, each Holder shall have the right, upon written
notice to the Company, to have all or any portion of the shares of Series A
Preferred Stock held by such Holder redeemed by the Company (a "Mandatory
Redemption") at the Mandatory Redemption Price (as defined herein) in same day
funds. Such notice shall specify the effective date of such Mandatory
Redemption (the "Mandatory Redemption Date") and the number of such shares to
be redeemed.
(b) Mandatory Redemption Price. The "Mandatory Redemption Price"
shall be equal to the Liquidation Preference of the shares of Series A
Preferred Stock being redeemed multiplied by one hundred and twenty percent
(120%); provided that in the event of a Mandatory Redemption Event specified in
subparagraph 6(d)(vii) below, the Mandatory Redemption Price shall be equal to
(A) the Stated Value of such shares plus (B) fifteen percent (15%) times the
Stated Value of such shares times N/365, where N means the number of days
elapsed between the Purchase Date and the Mandatory Redemption Date.
(c) Payment of Mandatory Redemption Price.
(i) The Company shall pay the Mandatory Redemption Price to
the Holder exercising its right to redemption within five (5) business days of
the Mandatory Redemption Date. Upon redemption of a share of Series A
Preferred Stock, the Holder will return such share to the Company for
cancellation against payment of the Mandatory Redemption Price.
(ii) If Company fails to pay the Mandatory Redemption Price
to the Holder within five (5) business days of the Mandatory Redemption Date,
the Holder shall be entitled to interest thereon at an annual rate equal to the
lower of (x) the "prime" rate (as published in the Wall Street
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Journal) on such fifth business day plus three percent (3%) and (y) the highest
rate permitted by applicable law from the Mandatory Redemption Date until the
Mandatory Redemption Price has been paid in full.
(d) Mandatory Redemption Event. Each of the following events shall be
deemed a "Mandatory Redemption Event":
(i) the Company fails for any reason (other than as a result of not
having a sufficient number of shares of Common Stock authorized and reserved
for issuance) to issue shares of Common Stock and to transfer certificates
representing such shares to the Holder in accordance with the provisions of
this Certificate of Designations upon Conversion of any shares of Series A
Preferred Stock, and such failure continues for fifteen (15) business days
following written notice thereof by the Holder to the Company and to counsel
designated by the Company;
(ii) the Company is unable to issue shares of Common Stock upon
Conversion of any shares of Series A Preferred Stock as a result of not having
a sufficient number of shares of Common Stock authorized and reserved for
issuance, and such inability continues for a period of thirty (30) days
thereafter;
(iii) the Company breaches, in a material respect, any covenant or
other material term or condition of the Securities Purchase Agreement between
the Company and the Purchasers named therein pursuant to which the Series A
Preferred Stock may be issued and sold (the "Securities Purchase Agreement"),
the Registration Rights Agreement or any other Transaction Document (as defined
in the Securities Purchase Agreement) and such breach continues for a period of
ten (10) business days after written notice thereof to the Company from the
Holder; provided that, if the Company is then using its best efforts to cure
any such breach, such ten business day period shall be extended for another ten
(10) business days;
(iv) the Registration Statement is not declared effective by the
Registration Deadline (as defined in the Registration Rights Agreement) or, if
the Registration Statement has been declared effective by such date, and the
effectiveness of the Registration Statement lapses for any reason (including
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of Conversion Shares in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of ten (10) business days; provided that the Registration Statement will
not be considered unavailable for the number of days occurring during a
Standstill Period (as defined in the Registration Rights Agreement);
(v) the Common Stock is no longer quoted on the Nasdaq National
Market or listed on a national securities exchange;
(vi) the sale, conveyance or disposition of all or substantially all
of the assets of the Company, the effectuation of a transaction or series of
related transactions, in which more than 50% of the voting power of the Company
is disposed of, or the consolidation, merger or other business
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<PAGE> 37
combination of the Company with or into any other entity (other than the
Company's merger transaction with Cozzi Iron & Metal, Inc.), immediately
following which the prior stockholders of the Company fail to own, directly or
indirectly, at least fifty percent (50%) of the surviving entity; and
(vii) the Company fails to obtain Stockholder Approval within one
hundred and twenty (120) days of the Purchase Date.
7. MISCELLANEOUS
(a) Transfer of Series A Preferred Stock. A Holder may sell, transfer or
otherwise dispose of all or any portion of the shares of Series A Preferred
Stock to any person or entity as long as such sale, transfer or disposition is
the subject of an effective registration statement under the Securities Act or
such Holder delivers an opinion of counsel to the effect that such sale,
transfer or disposition is exempt from registration thereunder; provided that
no such opinion shall be required in the event of a sale by such Holder to an
affiliate thereof or pursuant to Rule 144 under the Securities Act. From and
after the date of such sale, transfer or disposition, the transferee hereof
shall be deemed to be a Holder. Upon any such sale, transfer or disposition,
the Company shall, promptly following the return of the certificate or
certificates representing the shares of Series A Preferred Stock that are the
subject of such sale, transfer or disposition, issue and deliver to such
transferee a new Certificate in the name of such transferee.
(b) Lost or Stolen Certificate. Upon receipt by the Company of evidence
of the loss, theft, destruction or mutilation of a certificate representing
shares of Series A Preferred Stock, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of such certificate if mutilated, the
Company shall execute and deliver to the Holder a new certificate identical in
all respects to the original certificate.
(c) No Voting Rights. The Holders of the Series A Preferred Stock shall
have no voting rights with respect to the business, management or affairs of
the Company; provided that the Company shall provide each Holder with prior
notification of each meeting of shareholders (and copies of proxy statements
and other information sent to such shareholders).
(d) Cancellation of Preferred Shares. Upon the conversion or redemption
of a Preferred Share, the Company shall immediately cancel such Preferred Share
and shall not reissue such Preferred Share.
(e) Notices. Except as otherwise specified herein, any notice, demand or
request required or permitted to be given pursuant to the terms of this
Certificate of Designations shall be in writing and shall be deemed given (i)
when delivered personally or by verifiable facsimile transmission (with a hard
copy to follow) on or before 5:00 p.m., eastern time, on a business day or, if
such day is not a business day, on the next succeeding business day, (ii) on
the next business day after timely
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<PAGE> 38
delivery to an overnight courier and (iii) on the third business day after
deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:
If to the Company:
Metal Management, Inc.
500 North Dearborn Street, Suite 405
Chicago, Illinois 60610
Attn: Gerard M. Jacobs
Fax: 312-645-0714
With a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Chicago, Illinois 60611
Attn: Stuart M. Savitz, Esq.
Fax: 312-527-5921
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(f) Protective Provisions
So long as shares of Series A Preferred Stock are outstanding, the
Company shall not, without first obtaining the approval of the Holders of at
least a majority of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series A Preferred Stock or any other capital stock of the Company so as to
affect adversely the Series A Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution of assets upon
a Liquidation Event or any other liquidation, dissolution or winding up of the
Company; or
(c) increase the authorized number of shares of Series A
Preferred Stock;
provided, however, that such approval shall not be required with respect to any
action described in clause (b) or clause (c) above in the event that the
average Closing Bid Price of the Common Stock on the five (5) trading days
immediately preceding the effective date of such action is equal to or exceeds
one hundred and fifty percent (150%) of the Fixed Conversion Price.
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In the event that Holders of at least a majority of the then
outstanding shares of Series A Preferred Stock agree to allow the Company to
alter or change the rights, preferences or privileges of the shares of Series
A Preferred Stock, pursuant to the terms hereof, so as to affect the Series A
Preferred Stock, then the Company will deliver notice of such approved change
to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders
shall have the right for a period of thirty (30) days to convert their shares
of Series A Preferred Stock into Conversion Shares pursuant to the terms of
this Certificate of Designations as they existed prior to such alteration or
change and without regard to the limitations on Conversion contained in
paragraph 4(h)(i) hereof, or continue to hold their shares of Series A
Preferred Stock.
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EXHIBIT 3.1(6)
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
METAL MANAGEMENT, INC.
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
Metal Management, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Company
pursuant to the authority of the Board of Directors as required by Section 151
of the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to the Board of Directors
in accordance with the provisions of the Company's Certificate of
Incorporation, the Board of Directors hereby authorizes a series of the
Company's previously authorized Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges and restrictions thereof as
follows:
1. DESIGNATION AND AMOUNT.
The designation of this series, which consists of 23,000 shares (the
"Preferred Shares") of Preferred Stock, is the Series B Convertible Preferred
Stock (the "Series B Preferred Stock") and the face amount shall be One
Thousand Dollars ($1,000) per share (the "Stated Value").
2. DIVIDENDS.
(a) Payment of Dividends. The holders of shares of Series B Preferred Stock
(each, a "Holder" and collectively, the "Holders") shall be entitled to receive
cumulative dividends ("Dividends") on the Series B Preferred Stock accruing on
each share thereof at an annual rate of four and one-half percent (4.5%) times
the Stated Value per share (such rate subject to ratable adjustment in the event
of any stock split or combination and to equitable adjustment in the event of a
reclassification or other similar event). Dividends shall accrue, whether or not
declared, on each share of Series B Preferred Stock from the date of original
issuance thereof (the "Purchase Date") through the date on which such Dividends
are paid. Accrued but unpaid Dividends shall be payable in cash or, at the
option of the Company (the "Stock Payment Option") and upon satisfaction of the
conditions set forth in paragraph 2(c) below, in shares (the "Dividend Payment
Shares") of Series B Preferred Stock, on each Conversion Date and Mandatory
Redemption Date and on the Maturity Date (each as defined below, a "Dividend
Payment Date").
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(b) Delivery of Dividend Payment Shares. If the Company elects to exercise
the Stock Payment Option upon a conversion by a Holder, the Company shall
deliver to such Holder, on or before the third business day following the
applicable Dividend Payment Date, one or more certificates representing the
aggregate number of whole Dividend Payment Shares that is determined by dividing
(x) the amount of the Dividend which has accrued with respect to all of the
Preferred Shares held by such Holder and would otherwise be payable in cash on
the applicable Dividend Payment Date by (y) one thousand dollars ($1,000). No
fractional Dividend Payment Shares shall be issued; the Company shall, in lieu
thereof, either issue a number of Dividend Payment Shares which reflects a
rounding up to the next whole number of shares or pay such amount in cash. The
Dividend Payment Shares shall be fully paid and non-assessable, free and clear
of any liens, claims, preemptive rights or encumbrances imposed by or through
the Company, entitled to all of the rights, preferences and privileges set forth
herein, and shall be issued and delivered to the Holder on or before the third
business day following the applicable Dividend Payment Date. The Company agrees
to inform the Holder at least five (5) Trading Days prior to the first day of
each calendar quarter in which the Company intends to exercise the Stock Payment
Option.
(c) Conditions to Stock Payment Option. If the Company wishes to exercise
the Stock Payment Option with respect to Dividends payable to a Holder, it may
do so only if each of the following conditions has been satisfied as of the
applicable Dividend Payment Date:
(i) the number of shares of Series B Preferred Stock authorized,
unissued and unreserved for all other purposes, or held in the Company's
treasury, is sufficient to pay such Dividends in Dividend Payment Shares;
(ii) the Company's common stock, par value $.01 per share (the "Common
Stock"), is authorized for quotation on the Nasdaq National Market or for
listing or quotation on the New York Stock Exchange or any other national
securities exchange;
(iii) (x) the registration statement required to be maintained by the
Company (the "Registration Statement") pursuant to a registration rights
agreement by and among the Company and the Purchasers named therein (the
"Registration Rights Agreement") is effective and available for the sale of all
of the Conversion Shares issuable upon conversion of the Dividend Payment Shares
issuable pursuant to such exercise and of all Conversion Shares (as defined
below) then held by or issuable to the Holders, or (y) sales of such Dividend
Payment Shares may be made pursuant to Rule 144(k); provided, however, that the
Registration Statement will not be deemed unavailable during a Standstill Period
(as defined in the Registration Rights Agreement).
(iv) after giving effect to the issuance of the Dividend Payment
Shares issuable pursuant to such exercise, the Company shall have reserved and
available out of its authorized but unissued Common Stock, free from any
preemptive rights, solely for the purpose of effecting Conversions, at least
125% of the number of shares issuable upon conversion of all outstanding shares
of Series B Preferred Stock.
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(v) a Mandatory Redemption Event or a Liquidation Event (each as
defined herein) has not occurred and is continuing; and
(vi) the Company has delivered to the Holder a certificate, signed by
an executive officer of the Company, setting forth:
* the amount of the Dividend to which the Holder is entitled;
* the number of Dividend Payment Shares to be delivered in
payment of such Dividend, and the calculation therefor; and
* a statement to the effect that all of the conditions set
forth in paragraphs 2(c)(i) - (v) have been satisfied.
3. PRIORITY.
(a) Payment upon Dissolution, Etc. Upon the occurrence and continuance of
(x) any insolvency or bankruptcy proceedings, or any receivership, liquidation,
reorganization or other similar proceedings in connection therewith, commenced
by the Company or by its creditors, as such, or relating to its assets or (y)
the dissolution or other winding up of the Company whether total or partial,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy proceedings, or (z) any assignment for the benefit of creditors or
any marshaling of the material assets or material liabilities of the Company (a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock (other than capital stock that ranks pari passu with the Series
B Preferred Stock) of the Company unless prior thereto each Holder shall have
received the Liquidation Preference (as defined below) with respect to each
share of Series B Preferred Stock then held by such Holder. In the event that
upon the occurrence of a Liquidation Event, the assets available for
distribution to the Holders of the Series B Preferred Stock and to the holders
of such pari passu securities are insufficient to pay the Liquidation Preference
with respect to all of the outstanding shares of Series B Preferred Stock and of
such pari passu securities, such assets shall be distributed ratably among such
shares in proportion to the ratio that the liquidation preference payable on
each such share bears to the aggregate liquidation preference payable on all
such shares.
(b) Liquidation Preference. The "Liquidation Preference" with respect to a
share of Series B Preferred Stock shall mean an amount equal to the Stated Value
of such share plus any accrued and unpaid Dividends thereon.
(c) Ranking. In the event of the liquidation, dissolution or other winding
up of the Company, the Holders of the Series B Preferred Stock shall be treated
pari passu with the holders of the Company's Series A Preferred Stock.
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<PAGE> 43
4. CONVERSION.
(a) Right to Convert. Subject to the limitations contained in paragraph
4(h) below, each Holder shall have the right to convert at any time and from
time to time after the earlier to occur of (i) the ninetieth (90th) day
following the date on which the Series B Preferred Stock is issued and (ii) the
effectiveness of the Registration Statement, each of its shares of Series B
Preferred Stock into such number of fully paid and non-assessable shares of
Common Stock, free and clear of any liens, claims, preemptive rights or
encumbrances imposed by or through the Company (the "Conversion Shares"), as is
computed in accordance with the terms hereof (a "Conversion"); provided,
however, that the right of such Holder to convert the Series B Preferred Stock
into Conversion Shares shall not become effective unless and until the Company
has obtained the approval of the transactions contemplated hereby, including
without limitation the conversion of the Preferred Stock into shares of Common
Stock in accordance with the terms hereof, by a majority of the holders of
shares of its Common Stock entitled to vote thereon ("Stockholder Approval").
(b) Reservation of Common Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, free from any preemptive rights, solely for the purpose
of effecting Conversions hereunder, such number of its shares of Common Stock
(the "Reserved Amount") as shall from time to time be sufficient to effect the
Conversion of the Series B Preferred Stock. If at any time the Reserved Amount
is less than 125% of the number of shares of Common Stock issuable upon
Conversion of the then outstanding shares of Series B Preferred Stock, the
Company shall take immediate action (including seeking shareholder authorization
of additional shares of Common Stock) to increase the Reserved Amount to 175% of
the number of shares of Common Stock into which the outstanding shares of Series
B Preferred Stock are then convertible. If the Company shall issue any
securities or make any change in its capital structure which would change the
number of Conversion Shares deliverable upon the Conversion of the outstanding
shares of Series B Preferred Stock, the Company shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from any preemptive rights, for
such Conversion.
(c) Conversion Notice. In order to convert shares of Series B Preferred
Stock, or any portion thereof, the Holder shall send by facsimile transmission
(with a hard copy to follow by first class mail), at any time prior to 11:59
p.m., eastern time, on the date on which the Holder wishes to effect such
Conversion (the "Conversion Date"), (i) a notice of conversion to the Company
and to its designated transfer agent for the Common Stock (the "Transfer Agent")
stating the number of shares of Series B Preferred Stock to be converted, the
amount of Dividends accrued on the shares of Series B Preferred Stock then held
by the Holder up to and including the Conversion Date, the applicable Conversion
Price and a calculation of the number of shares of Common Stock issuable upon
such Conversion (a "Conversion Notice") and (ii) a copy of the certificate or
certificates representing the Series B Preferred Stock being converted. The
Holder shall thereafter send the original of such certificate or certificates by
overnight mail to the Company. In the case of a dispute as to the calculation of
the Conversion Price or the number of Conversion Shares issuable upon a
Conversion, the Company shall promptly issue to the Holder the number of
Conversion Shares that are not disputed and shall submit the disputed
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<PAGE> 44
calculations to its independent accountants within one (1) business day of
receipt of the Holder's Conversion Notice. The Company shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Company and the Holder of the results in writing no later than two business
days following the day on which it received the disputed calculations. Such
accountant's calculation shall be deemed conclusive absent manifest error. The
fees of any such accountant shall be borne by the Company.
(d) Number of Conversion Shares; Conversion Price. The number of Conversion
Shares to be delivered by the Company pursuant to a Conversion shall be
determined by dividing the Stated Value of the Series B Preferred Stock to be
converted by the Conversion Price (as defined herein) in effect on the
Conversion Date. The "Conversion Price" shall be the lesser of (A) the price
determined by multiplying (x) the average of the Closing Bid Prices (as defined
below) for the Common Stock on the five (5) Trading Days (as defined below)
occurring immediately prior to (but not including) the Conversion Date times (y)
92.5% (the "Floating Conversion Price"); (B) the price determined by multiplying
(x) the Closing Bid Price for the Common Stock on the Purchase Date times (y)
120% (the "Fixed Conversion Price") and (C) the price equal to the lowest traded
price of a share of Common Stock during any period in which the Common Stock is
no longer listed for quotation on the Nasdaq National Market or listed on the
New York Stock Exchange or other national securities exchange. "Trading Day"
shall mean any day on which the Common Stock is traded for any period on the
Nasdaq National Market or on the principal securities exchange or market on
which the Common Stock is then traded. "Closing Bid Price" means, with respect
to a security, the closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg Financial Markets or a comparable reporting service of
national reputation selected by the Company and reasonably acceptable to holders
of a majority of the then outstanding shares of Series B Preferred Stock if
Bloomberg Financial Markets is not then reporting closing bid prices of such
security (collectively, "Bloomberg"), or if the foregoing does not apply, the
last reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an independent investment banking firm selected by
the Holders of a majority of the then outstanding shares of Series B Preferred
Stock, and reasonably acceptable to the Company, with the costs of such
appraisal to be borne by the Company.
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a Conversion
Notice pursuant to paragraph 4(c) above, the Company shall, no later than the
close of business on the later to occur of (i) the third (3rd) business day
following the Conversion Date set forth in such Conversion Notice and (ii) the
business day following the day on which the original certificate or certificates
representing the shares of Series B Preferred Stock being converted are received
by the Company (the "Delivery Date"), issue and deliver or caused to be
delivered to the Holder the number of Conversion Shares as shall be determined
as provided herein. Conversion Shares delivered to the Holder shall not contain
any restrictive legend as long as the sale of such Conversion Shares is covered
by an effective
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<PAGE> 45
Registration Statement or may be made pursuant to Rule 144(k) under the
Securities Act of 1933, as amended (the "Securities Act") or any successor rule
or provision.
(f) Failure to Deliver Conversion Shares.
(i) In the event that the Company fails for any reason to deliver to
the Holder certificates representing the number of Conversion Shares specified
in the applicable Conversion Notice on or before the Delivery Date therefor (a
"Conversion Default"), the Company shall pay to the Holder payments ("Conversion
Default Payments") in the amount of (i) (N/365) multiplied by (ii) the aggregate
Stated Value of the shares of Series B Preferred Stock represented by the
Conversion Shares which remain the subject of such Conversion Default multiplied
by (iii) the lower of twenty-four percent (24%) and the maximum interest rate
permitted by applicable law, where "N" equals the number of days elapsed between
the original Delivery Date of such Conversion Shares and the earlier to occur of
(A) the date on which all of such Conversion Shares are issued and delivered to
the Holder and (B) the date on which such shares are redeemed pursuant to the
terms of this Certificate of Designations. Cash amounts payable hereunder shall
be paid on or before the fifth (5th) business day of the calendar month
following the calendar month in which such amount has accrued. In the event that
the Company fails to make any Conversion Default Payment in accordance with this
paragraph 4(f)(i), a Holder may elect to receive such Conversion Default Payment
in cash or to convert all or any portion of such Conversion Default Payment, at
any time, into Common Stock at the Conversion Price in effect on the date such
Holder delivers a notice to the Company of its election to convert such
Conversion Default Payment into Common Stock. In the event that there occurs a
dispute between the Company and a Holder as to the number of Conversion Shares
issuable pursuant to a Conversion as described in paragraph 4(c) above, and it
is finally determined that such Holder is not entitled to receive certain
Conversion Shares, the Company shall not owe Conversion Default Payments to such
Holder with respect to such Conversion Shares.
(ii) Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to issue and deliver Conversion Shares on the
applicable Delivery Date (including, without limitation, damages relating to any
purchase of shares of Common Stock by the Holder to make delivery on a sale
effected in anticipation of receiving Conversion Shares upon Conversion, such
damages to be in an amount equal to the difference between (A) the aggregate
purchase price for the shares of Common Stock so purchased and (B) the aggregate
number of net proceeds received by the Holder from the sale of the Conversion
Shares issued by the Company pursuant to such Conversion), and the Holder shall
have the right to pursue all other remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
(g) Conversion at Maturity.
(i) On the date which is three years from the Purchase Date (the
"Maturity Date"), and assuming the satisfaction of the Mandatory Conversion
Conditions (as defined below) the remaining shares of Series B Preferred Stock
then held by each Holder shall be automatically converted into the number of
shares of Common Stock equal to the Liquidation Preference of such shares
divided
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by the then applicable Conversion Price (a "Mandatory Conversion"), and the
Maturity Date shall be deemed to be the Conversion Date with respect to such
Mandatory Conversion. If a Mandatory Conversion occurs, the Company and the
Holder shall follow the procedures for Conversion set forth in this Section 4;
provided, however, that the Holder shall not be required to send the Conversion
Notice contemplated by paragraph 4(c). In the event that the Mandatory
Conversion Conditions are not satisfied as of the Maturity Date, the Company
shall, within five (5) business days of the Maturity Date, pay an amount in
cash to each Holder equal to the Liquidation Preference for the shares of
Series B Preferred Stock then held by such Holder.
(ii) The "Mandatory Conversion Conditions" are as follows:
(1) a Registration Statement covering the resale of all of the
Conversion Shares issuable pursuant to such Mandatory Conversion shall be
effective, or such resale may be made pursuant to Rule 144(k).
(h) Limitations on Right to Convert.
(i) In the event that the number of Preferred Shares to be converted
by a Holder pursuant to a Conversion Notice exceeds that number of Preferred
Shares (the "Preferred Share Conversion Limit") which, if converted in full,
would result in the issuance of a number of Conversion Shares that would equal
such Holder's Cap Amount (as defined below), the Company shall have the option,
in lieu of converting the Preferred Shares which would exceed such Holder's
Preferred Share Conversion Limit, to redeem such Preferred Shares at the
Optional Redemption Price (as defined below)(an "Optional Redemption"). In order
to effect an Optional Redemption, the Company shall, within two (2) business
days of receiving a Conversion Notice from a Holder pursuant to which the
Preferred Shares to be converted thereby exceeds such Holder's Preferred Share
Conversion Limit, deliver a written notice to such Holder that the Company
intends to redeem such excess Preferred Shares (an "Optional Redemption
Notice"). In the event that the Company does not deliver an Optional Redemption
Notice within such two business day period, the Company will convert the
Preferred Shares represented by such Conversion Notice in accordance with the
terms of this Certificate. A Holder shall have the right, upon converting
Preferred Shares in a number that equals or exceeds 99% of such Holder's
Preferred Share Conversion Limit, to deliver a written notice to the Company
requesting whether the Company intends to redeem such Holder's Preferred Shares
in excess of such Holder's Preferred Share Conversion Limit. If the Company
fails to deliver an Optional Redemption Notice within five (5) business days of
its receipt of such request, the Company will not be entitled thereafter to
exercise its right to an Optional Redemption with respect to the Preferred
Shares held by such Holder. A Holder's "Cap Amount" at any given time shall be
the number of shares of Common Stock equal to, (A) for a Holder which purchased
Preferred Shares from the Company, (i) the aggregate Stated Value of all of the
Preferred Shares purchased by such Holder on or before such date, divided by
(ii) ten dollars ($10), and (B) for a Holder which purchased Preferred Shares
from another Holder, a pro rata portion of such other Holder's Cap Amount, in
which case such other Holder's Cap Amount shall be appropriately reduced. In the
event that a Holder converts all of such Holder's Preferred Shares into a number
of shares of Common Stock which, in the aggregate, is less than such Holder's
Cap Amount,
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<PAGE> 47
then the difference between such Holder's Cap Amount and the number of shares
of Common Stock actually issued to such Holder shall be allocated pro rata to
the Cap Amounts of the other Holders based on the number of Preferred Shares
then held by such Holders. The Optional Redemption Price for each Preferred
Share redeemed pursuant to an Optional Redemption shall be equal to (x) the
Stated Value of such Preferred Share times 117.5% plus (y) the amount of all
Dividends accrued (and any other amounts payable pursuant to this Certificate
of Designations) on such Preferred Shares up to and including the date on which
the Company pays the Optional Redemption Price to the applicable Holder. Upon
delivering an Optional Redemption Notice to a Holder, the Company shall pay the
Optional Redemption Price to such Holder within ninety (90) days of such
delivery (such ninetieth day being referred to as the "Optional Redemption
Date"). If the Optional Redemption Price is not paid to such Holder on or
before the Optional Redemption Date, interest shall accrue thereon in the
amount of (i) (N/365) multiplied by (ii) the Optional Redemption Price
multiplied by (iii) the lower of twenty-four percent (24%) and the maximum
interest rate permitted by applicable law, where "N" equals the number of days
elapsed between the Optional Redemption Date and the date on which such payment
is made in full.
(ii) In no event shall a Holder be permitted to convert any shares of
Series B Preferred Stock in excess of that number of such shares upon the
Conversion of which (x) the number of shares of Common Stock beneficially owned
by such Holder (other than shares of Common Stock issuable upon conversion of
the Series B Preferred Stock and shares of Common Stock which may be deemed
beneficially owned except for being subject to a limitation on conversion or
exercise analogous to the limitation contained in this subparagraph (ii)) plus
(y) the number of shares of Common Stock issuable upon the Conversion of such
shares, is equal to or exceeds (z) 4.99% of the number of shares of Common Stock
then issued and outstanding. Delivery by a Holder of a Conversion Notice shall
be deemed to represent the determination by such Holder that the Conversion
represented thereby will not violate the provisions of this subparagraph (ii),
and the Company shall have neither the right nor the obligation to confirm such
determination. Nothing contained herein shall be deemed to restrict the right of
a Holder to convert such shares of Series B Preferred Stock at such time as such
Conversion will not violate the provisions of this subparagraph (ii).
5. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If (A) the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, reclassification, the distribution
to holders of Common Stock of rights or warrants entitling them to subscribe for
or purchase Common Stock at less than the then current market price thereof or
other similar event, the Fixed Conversion Price shall be proportionately
reduced, or (B) the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares or other
similar event, the Fixed Conversion Price shall be proportionately increased. In
such event, the Company shall notify the Transfer Agent of such change on or
before the effective date thereof. For purposes hereof, the market price per
share of Common Stock on any date shall be the average of the closing sale
prices for the Common Stock as reported by Nasdaq, or by the principal
securities market on which the Common Stock is then traded, on the five (5)
consecutive
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<PAGE> 48
Trading Days (as defined below) selected by the Company not later than,
the earlier of the date in question and the Trading Day before the "ex" date,
if any, with respect to the issuance or distribution requiring such
computation. The term "'ex' date", when used with respect to any issuance or
distribution, means the first Trading Day on which the Common Stock trades
regular way in the market from which such average closing price is then to be
determined without the right to receive such issuance or distribution. In the
absence of one or more such quotations, the Company shall determine the current
market price on the basis of such quotations as it considers appropriate.
(b) Adjustment to Conversion Price. If, prior to the Conversion of all of
the shares of Series B Preferred Stock, the number of outstanding shares of
Common Stock is increased or decreased by a stock split, stock dividend,
combination, reclassification or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any Conversion thereof, the Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event for all Trading Days immediately
preceding the Conversion Date.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of all of the shares of Series B Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization,
redemption or other similar event (an "Organic Change"), as a result of which
shares of Common Stock shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Company or another entity or there is a sale of all or substantially all the
Company's assets or there is a change of control transaction with respect to
which, in any such case, a Holder does not exercise its right to a Mandatory
Redemption (as defined below) of the Series B Preferred Stock, then such Holder
shall thereafter have the right to receive upon Conversion of the shares of
Series B Preferred Stock, upon the terms and conditions specified herein and in
lieu of the shares of Common Stock which theretofore would have been issuable
upon Conversion had such Organic Change not occurred, such stock, securities
and/or other assets, if any, which such Holder would have been entitled to
receive in such Organic Change with respect to or in exchange for the number of
shares of Common Stock which would have been issuable upon conversion of such
Holder's Series B Preferred Stock had such Organic Change not taken place, and
in any such case appropriate provisions shall be made with respect to the rights
and interests of such Holder to the end that the provisions hereof (including,
without limitation, provisions for the adjustment of the Conversion Price and of
the number of shares issuable upon a Conversion, and if the Company is not the
surviving entity in such transaction, to adjust the Conversion Price to be based
upon the Closing Bid Prices of the surviving entity) shall thereafter be
applicable as nearly as may be practicable in relation to any securities
thereafter deliverable upon the exercise hereof. The Company shall not effect
any transaction described in this subsection 5(c) unless (i) it first gives to
each Holder prior notice of such merger, consolidation, exchange of shares,
recapitalization, reorganization, redemption or other similar event, and makes a
public announcement of such event at the same time that it gives such notice and
(ii) the resulting successor or acquiring entity (if not the Company) assumes by
written instrument the obligations of the Company under this Certificate of
Designation, including the terms of this subsection 5(c).
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<PAGE> 49
(d) Distribution of Assets. If the Company shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise, including any dividend or distribution in shares of capital stock of
a subsidiary of the Company (collectively, a "Distribution"), then, upon a
Conversion by a Holder occurring after the record date for determining
shareholders entitled to such Distribution but prior to the effective date of
such Distribution, the Holder shall be entitled to receive the amount of such
assets which would have been payable to such Holder had such Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution. The Fixed Conversion Price for
shares of Series B Preferred Stock not converted prior to the effective date of
a Distribution shall be reduced to a price determined by decreasing the Fixed
Conversion Price in effect immediately prior to the record date of the
Distribution by an amount equal to the fair market value of the assets so
distributed, as determined by mutual agreement of the Company and each Holder.
(e) No Fractional Shares. If any adjustment under this Section 5 would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon Conversion shall be the next higher
number of shares or, at the option of the Company, shall be paid in cash in an
amount calculated by multiplying the amount of the fractional share times the
Closing Bid Price used to calculate the Conversion Price for such Conversion.
6. MANDATORY REDEMPTION.
(a) Mandatory Redemption. In the event that a Mandatory Redemption Event
(as defined below) occurs, each Holder shall have the right, upon written notice
to the Company, to have all or any portion of the shares of Series B Preferred
Stock held by such Holder redeemed by the Company (a "Mandatory Redemption") at
the Mandatory Redemption Price (as defined herein) in same day funds. Such
notice shall specify the effective date of such Mandatory Redemption (the
"Mandatory Redemption Date") and the number of such shares to be redeemed.
(b) Mandatory Redemption Price. The "Mandatory Redemption Price" shall be
equal to the Liquidation Preference of the shares of Series B Preferred Stock
being redeemed multiplied by one hundred and twenty percent (120%).
(c) Payment of Mandatory Redemption Price.
(i) The Company shall pay the Mandatory Redemption Price to the
Holder exercising its right to redemption within five (5) business days of the
Mandatory Redemption Date. Upon redemption of a share of Series B Preferred
Stock, the Holder will return such share to the Company for cancellation
against payment of the Mandatory Redemption Price.
(ii) If Company fails to pay the Mandatory Redemption Price to the
Holder within five (5) business days of the Mandatory Redemption Date, the
Holder shall be entitled to interest thereon at an annual rate equal to the
lower of (x) the "prime" rate (as published in the Wall Street
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Journal) on such fifth business day plus three percent (3%) and (y) the highest
rate permitted by applicable law from the Mandatory Redemption Date until the
Mandatory Redemption Price has been paid in full.
(d) Mandatory Redemption Event. Each of the following events shall be
deemed a "Mandatory Redemption Event":
(i) the Company fails for any reason (other than as a result of not
having a sufficient number of shares of Common Stock authorized and reserved for
issuance) to issue shares of Common Stock and to transfer certificates
representing such shares to the Holder in accordance with the provisions of this
Certificate of Designations upon Conversion of any shares of Series B Preferred
Stock, and such failure continues for fifteen (15) business days following
written notice thereof by the Holder to the Company and to counsel designated by
the Company;
(ii) the Company is unable to issue shares of Common Stock upon
Conversion of any shares of Series B Preferred Stock as a result of not having a
sufficient number of shares of Common Stock authorized and reserved for
issuance, and such inability continues for a period of thirty (30) days
thereafter;
(iii) the Company breaches, in a material respect, any covenant or
other material term or condition of the Securities Purchase Agreement between
the Company and the Purchasers named therein pursuant to which the Series B
Preferred Stock may be issued and sold (the "Securities Purchase Agreement"),
the Registration Rights Agreement or any other Transaction Document (as defined
in the Securities Purchase Agreement) and such breach continues for a period of
ten (10) business days after written notice thereof to the Company from the
Holder; provided that, if the Company is then using its best efforts to cure any
such breach, such ten business day period shall be extended for another ten (10)
business days;
(iv) the Registration Statement is not declared effective by the
Registration Deadline (as defined in the Registration Rights Agreement) or, if
the Registration Statement has been declared effective by such date, and the
effectiveness of the Registration Statement lapses for any reason (including
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of Conversion Shares in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of ten (10) business days; provided that the Registration Statement will
not be considered unavailable for the number of days occurring during a
Standstill Period (as defined in the Registration Rights Agreement); and
(v) the sale, conveyance or disposition of all or substantially all of
the assets of the Company, the effectuation of a transaction or series of
related transactions, in which more than 50% of the voting power of the Company
is disposed of, or the consolidation, merger or other business combination of
the Company with or into any other entity (other than the Company's merger
transaction with Cozzi Iron & Metal, Inc.), immediately following which the
prior stockholders of the Company fail to own, directly or indirectly, at least
fifty percent (50%) of the surviving entity.
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(e) Redemption Defaults. If the Company fails to pay any Holder the
Mandatory Redemption Price with respect to any share of Series B Preferred Stock
within five (5) business days after its receipt of a notice requiring such
redemption ("Redemption Notice"), then the Holder of Series B Preferred Stock
delivering such Redemption Notice shall have, in addition to all other remedies
available at law or equity, the right, at any time and from time to time until
the Company's payment of such Mandatory Redemption Price, to require the
Company, upon written notice, to immediately convert (in accordance with the
terms of Subparagraph (a) of Paragraph IV) all or any portion of the Mandatory
Redemption Price, plus interest as aforesaid, into shares of Common Stock at the
Conversion Price in effect on the date such Holder delivers notice to the
Company of its election to convert such Mandatory Redemption Price into Common
Stock. In the event the Corporation is not able to redeem all of the shares of
Series B Preferred Stock subject to Redemption Notices delivered prior to the
date upon which such redemption is to be effected, the Corporation shall redeem
shares of Series B Preferred Stock from each holder pro rata, based on the total
number of shares of Series B Preferred Stock outstanding at the time of
redemption included by such Holder in all Redemption Notices delivered prior to
the date upon which such redemption is to be effected relative to the total
number of shares of Series B Preferred Stock outstanding at the time of
redemption included in all of the Redemption Notices delivered prior to the date
upon which such redemption is to be effected.
7. MISCELLANEOUS.
(a) Transfer of Series B Preferred Stock. A Holder may sell, transfer or
otherwise dispose of all or any portion of the shares of Series B Preferred
Stock to any person or entity as long as such sale, transfer or disposition is
the subject of an effective registration statement under the Securities Act or
such Holder delivers an opinion of counsel to the effect that such sale,
transfer or disposition is exempt from registration thereunder; provided that no
such opinion shall be required in the event of a sale by such Holder to an
affiliate thereof or pursuant to Rule 144 under the Securities Act. From and
after the date of such sale, transfer or disposition, the transferee hereof
shall be deemed to be a Holder. Upon any such sale, transfer or disposition, the
Company shall, promptly following the return of the certificate or certificates
representing the shares of Series B Preferred Stock that are the subject of such
sale, transfer or disposition, issue and deliver to such transferee a new
Certificate in the name of such transferee.
(b) Lost or Stolen Certificate. Upon receipt by the Company of evidence of
the loss, theft, destruction or mutilation of a certificate representing shares
of Series B Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of such certificate if mutilated, the Company shall execute and
deliver to the Holder a new certificate identical in all respects to the
original certificate.
(c) No Voting Rights. The Holders of the Series B Preferred Stock shall
have no voting rights with respect to the business, management or affairs of the
Company; provided that the Company shall provide each Holder with prior
notification of each meeting of shareholders (and copies of proxy statements and
other information sent to such shareholders).
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<PAGE> 52
(d) Cancellation of Preferred Shares. Upon the conversion or
redemption of a Preferred Share, the Company shall immediately cancel such
Preferred Share and shall not reissue such Preferred Share.
(e) Notices. Except as otherwise specified herein, any notice, demand
or request required or permitted to be given pursuant to the terms of this
Certificate of Designations shall be in writing and shall be deemed given (i)
when delivered personally or by verifiable facsimile transmission (with a hard
copy to follow) on or before 5:00 p.m., eastern time, on a business day or, if
such day is not a business day, on the next succeeding business day, (ii) on
the next business day after timely delivery to an overnight courier and (iii)
on the third business day after deposit in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed as
follows:
If to the Company:
Metal Management, Inc.
500 North Dearborn Street, Suite 405
Chicago, Illinois 60610
Attn: Gerard M. Jacobs
Fax: 312-645-0714
With a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Chicago, Illinois 60611
Attn: Stuart M. Savitz, Esq.
Fax: 312-527-5921
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(f) Protective Provisions
So long as shares of Series B Preferred Stock are outstanding, the
Company shall not, without first obtaining the approval of the Holders of at
least a majority of the then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock or any other capital stock of the Company so as to
affect adversely the Series B Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets upon a
Liquidation Event or any other liquidation, dissolution or winding up of the
Company;
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<PAGE> 53
(c) increase the authorized number of shares of Series B
Preferred Stock; or
(d) issue any Series B Preferred Stock other than pursuant to the
Securities Purchase Agreement;
provided, however, that such approval shall not be required with respect to any
action described in clause (b) or clause (c) above in the event that the
average Closing Bid Price of the Common Stock on the five (5) trading days
immediately preceding the effective date of such action is equal to or exceeds
one hundred and fifty percent (150%) of the Fixed Conversion Price.
In the event that Holders of at least a majority of the then
outstanding shares of Series B Preferred Stock agree to allow the Company to
alter or change the rights, preferences or privileges of the shares of Series B
Preferred Stock, pursuant to the terms hereof, so as to affect the Series B
Preferred Stock, then the Company will deliver notice of such approved change to
the holders of the Series B Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders shall
have the right for a period of thirty (30) days to convert their shares of
Series B Preferred Stock into Conversion Shares pursuant to the terms of this
Certificate of Designations as they existed prior to such alteration or change
and without regard to the limitations on Conversion contained in paragraph
4(h)(i) hereof, or continue to hold their shares of Series B Preferred Stock.
IN WITNESS WHEREOF, the Company has executed this Certificate of
Designations as of the 20th day of November, 1997.
METAL MANAGEMENT, INC.
By: /s/ Gerard M. Jacobs
----------------------------
Gerard M. Jacobs, President
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<PAGE> 54
EXHIBIT 3.1(7)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
METAL MANAGEMENT, INC.
METAL MANAGEMENT, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware (the "Secretary of State") on
June 5, 1986.
2. Subparagraph (a) of Paragraph 4 of the Certificate of Incorporation is
hereby amended to read as follows:
4. (a) The Corporation is authorized to issue two
classes of shares to be designated, respectively,
"Preferred Stock" and "Common Stock". The number of
shares of Preferred Stock authorized to be issued is
Four Million (4,000,000) and the number of shares of
Common Stock authorized to be issued is Eighty Million
(80,000,000). The Preferred Stock and Common Stock
shall each have a par value of $0.01 per share.
3. Paragraph 10 of the Certificate of Incorporation is hereby deleted
in its entirety and replaced by the following: "In voting for the
election of directors of the Corporation, holders of stock shall not have
the right to accumulate their votes."
4. The Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock filed on August 7, 1997, and corrected by a
Certificate of Correction thereto filed on October 17, 1997, shall be and
it hereby is amended by deleting in their entirety Sections 4(g)(ii)(1),
4(g)(ii)(2), 4(g)(ii)(3), 6(d)(v) and 6(d)(vii).
5. In accordance with Section 242 of the Delaware General Corporation
Law, the above statement of amendment has been duly approved by the
board of directors of Metal Management, Inc. at a meeting duly called and
held on September 7, 1997, and by the stockholders of Metal Management,
Inc. at the Annual Meeting of Stockholders duly called and held on
November 29, 1997. At the Annual Meeting, which was held upon notice duly
given in accordance with Section 222 of the General Corporation Law of the
State of Delaware, at least a majority of the shares issued and
outstanding on the record date for the meeting constituting the requisite
vote as required by statute were voted in favor of the amendment.
<PAGE> 55
IN WITNESS WHEREOF, said METAL MANAGEMENT, INC. has caused this
Certificate to be signed by Gerard M. Jacobs, its Chief Executive Officer, who
does make this certificate and declare and certify under penalty of perjury
that this is the act and deed of the Corporation, and that the facts stated
herein are true, and accordingly has set his hand hereto this 2nd day of
December, 1997.
METAL MANAGEMENT, INC.
By: /s/ Gerard M. Jacobs
----------------------------
Name: Gerard M. Jacobs
Title: Chief Executive Officer
<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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<PAGE> 9
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 eleven (11) 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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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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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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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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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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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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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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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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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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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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EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of the 23rd day of June, 1997, by and between Metal Management,
Inc., a Delaware corporation ("MTLM"), and the George A. Isaac, III Second
Revocable Trust (the "Holder").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Purchase Agreement and Plan of Merger
(the "Purchase Agreement") dated as of June __, 1997, by and among MTLM, Isaac
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
MTLM, The Isaac Corporation ("Isaac"), Ferrex Trading Corporation ("Ferrex"),
Paulding Recycling, Inc. ("Paulding"), Briquetting Corporation of America
("Briquetting"), all Ohio corporations (Isaac, Ferrex, Paulding and Briquetting
being sometimes hereinafter referred to collectively as the "Companies and
individually as a "Company") and all of the shareholders of the Companies,
Holder, a shareholder of the Companies, has agreed to acquire from MTLM 540,856
shares (the "Shares") of common stock, par value $.01 per share (the "Common
Stock"), of MTLM in consideration for the merger of Ferrex with Isaac
Acquisition Corporation. Capitalized terms used, but not defined herein, have
the same meaning as in the Purchase Agreement.
WHEREAS, as additional consideration for the purchase of the Shares by
the Holder, MTLM desires to grant to the Holder registration rights with respect
to the Shares;
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
1. (a) Piggyback Registration. If, at any time during the five-year
period commencing December 1, 1997 and regardless of any prior availability of
rights under this Section 1(a), MTLM shall file a registration statement (other
than a registration statement on Form S-4, Form S-8, or any successor form) with
the Securities and Exchange Commission (the "Commission") while any Registrable
Securities (as hereinafter defined) are outstanding, MTLM shall give all the
then holders of any Registrable Securities (the "Eligible Holders") at least 30
days' prior written notice of the filing of such registration statement,
including the proposed terms thereof. If requested by an Eligible Holder in
writing within 20 days after receipt of any such notice, MTLM shall, at MTLM's
sole expense (other than the fees and disbursements of counsel for the Eligible
Holders, and the underwriting discounts, if any, payable in respect of the
Registrable Securities sold by any Eligible Holder), register all or, at each
Eligible Holder's option, any portion of the Registrable Securities of any
Eligible Holders who shall have made such request, concurrently with the
registration of such other securities, all to the extent requisite to permit the
public offering and sale of the Registrable Securities (including in any
underwritten offering) through the facilities of all securities exchanges or
over-the-counter markets, if any, on which MTLM's Common Stock is then listed,
registered, traded or sold, will use its best efforts through its officers,
directors, auditors,
<PAGE> 2
and counsel to cause such registration statement to become effective as promptly
as practicable. Notwithstanding the foregoing, if the managing underwriter of
any such offering shall advise MTLM in writing that, in its opinion, the
distribution of all or a portion of the Registrable Securities requested to be
included in the registration concurrently with the securities being registered
by MTLM would materially adversely affect the distribution of such securities by
MTLM for its own account, then any Eligible Holder who shall have requested
registration of his or its Registrable Securities shall delay the offering and
sale of such Registrable Securities (or the portions thereof so designated by
such managing underwriter) for such period, not to exceed 120 days (the "Delay
Period"), as the managing underwriter shall request, provided that no such delay
shall be required as to any Registrable Securities if any securities of MTLM are
included in such registration statement and eligible for sale during the Delay
Period for the account of any person other than MTLM and any Eligible Holder
unless the securities included in such registration statement and eligible for
sale during the Delay Period for such other person shall have been reduced pro
rata to the reduction of the Registrable Securities which were requested to be
included and eligible for sale during the Delay Period in such registration. As
used herein, "Registrable Securities" shall mean the shares of Common Stock
issued or issuable by MTLM pursuant to the Purchase Agreement, the Additional
Shares issuable pursuant to Section 6.21 of the Purchase Agreement, the shares
of Common Stock issuable upon the conversion of the 462,500 Warrants issued
pursuant to the Purchase Agreement and the shares of Common Stock issuable upon
the conversion of the Warrants issuable under the Downpayment Notes which, in
each case, have not been previously sold pursuant to a registration statement or
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
(b) Demand Registration. If, at any time during the five-year
period commencing December 1, 1997, MTLM shall receive a written request from
Eligible Holders who in the aggregate own at least 50% of the total number of
shares of Common Stock then included (or upon such exercises would be included)
in the Registrable Securities (the "Majority Holders"), to register the sale of
all or part of such Registrable Securities, MTLM shall, as promptly as
practicable, and in any event not later than 45 days after such request, at
MTLM's sole cost and expense (other than the fees and disbursements of counsel
for the Eligible Holders, and the underwriting discounts if any, payable in
respect of the Registrable Securities sold by the Eligible Holders), prepare and
file with the Commission a registration statement sufficient to permit the
public offering and sale of the Registrable Securities through the facilities of
all securities exchanges or over-the-counter markets, if any, on which MTLM's
Common Stock is then listed, registered, traded or sold, and will use its best
efforts through its officers, directors, auditors, and counsel to cause such
registration statement to become effective as promptly as practicable; provided,
however, that MTLM shall only be obligated to file one such registration
statement. MTLM shall not be obligated to effect any registration of its
securities pursuant to this Section 1(b) within nine months after the effective
date of a previous registration statement prepared and filed in accordance with
Section 1(a) or 1(b). Within three business days after receiving any request
contemplated by this Section 1(b), MTLM shall give written notice to all the
other Eligible Holders, advising each of them that MTLM is proceeding with such
registration and offering to include therein all or any portion of any such
other
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<PAGE> 3
Eligible Holder's Registrable Securities, provided that MTLM receives a written
request to do so from such Eligible Holder within 30 days after receipt by him
or it of MTLM's notice.
(c) In the event of a registration pursuant to the provisions
of this Section 1, MTLM shall use its best efforts to cause the Registrable
Securities so registered to be listed, registered or qualified for sale on any
securities exchange or over-the-counter market on which MTLM's Common Stock is
then listed, registered, traded or sold and under the securities or blue sky
laws of such jurisdictions as the Eligible Holders may reasonably request;
provided, however, that MTLM shall not be required to qualify to do business in
any state by reason of this Section 1(c) in which it is not otherwise required
to qualify to do business.
(d) MTLM shall comply with the Securities Act and those blue
sky laws contemplated under Section 1(c), keep effective any registration or
qualification contemplated by this Section 1 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Registrable Securities covered thereby. MTLM shall in no event
be required to keep any such registration or qualification in effect for a
period in excess of nine months from the date on which the Eligible Holders are
first free to sell such Registrable Securities; provided, however, that, if MTLM
is required to keep any such registration or qualification in effect with
respect to securities other than the Registrable Securities beyond such period,
MTLM shall keep such registration or qualification in effect as it relates to
the Registrable Securities for so long as such registration or qualification
remains or is required to remain in effect in respect of such other securities.
(e) In the event of a registration pursuant to the provisions
of this Section 1, MTLM shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Securities Act and the rules and regulations
thereunder, and such other documents, as any Eligible Holder may reasonably
request, and MTLM shall take all such other actions as may reasonably be
required, to facilitate the disposition of the Registrable Securities included
in such registration.
(f) In the event of a registration pursuant to the provisions
of this Section 1, MTLM shall furnish each Eligible Holder of any Registrable
Securities so registered with an opinion of its counsel (reasonably acceptable
to the Eligible Holders) to the effect that (i) the registration statement has
become effective under the Securities Act and no order suspending the
effectiveness of the registration statement, preventing or suspending the use of
the registration statement, any preliminary prospectus, any final prospectus, or
any amendment or supplement thereto has been issued, nor has the Commission or
any securities or blue sky authority of any jurisdiction instituted or
threatened to institute any proceedings with respect to such an order, (ii) the
registration statement and each prospectus forming a part thereof (including
each preliminary prospectus), and any
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amendment or supplement thereto, comply as to form with the Securities Act and
the rules and regulations thereunder, and (iii) such counsel has no knowledge of
any material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Registrable Securities have been registered or
qualified for sale pursuant to the provisions of Section 1(c).
(g) In the event of a registration pursuant to the provisions
of this Section 1, MTLM agrees to take such steps as may be necessary or
appropriate to effect, on the closing date of any sale of Registrable Securities
pursuant to a registration statement, the delivery of certificates evidencing
such Registrable Securities, registered in such names and denominations as the
Eligible Holders may request.
(h) MTLM agrees that until all the Registrable Securities have
been sold under a registration statement or pursuant to Rule 144 under the
Securities Act, it shall use its best efforts to keep current in filing all
reports, statements and other materials required to be filed with the Commission
in accordance with Rule 144(c) to permit holders of the Registrable Securities
to sell such securities under Rule 144.
(i) MTLM shall notify the Eligible Holders of the Registrable
Securities promptly (i) when such registration statement has become effective or
a supplement to any prospectus forming a part of such registration statement has
been filed; and (i) of the issuance by the Commission of any stop or other order
suspending the effectiveness of the registration statement, or any order issued
by any state securities commission or other regulatory authority suspending the
qualification or exemption from qualification of such Registrable Securities
under state securities or "blue sky" laws. If at any time MTLM shall receive any
such order, MTLM shall use its best efforts to obtain the withdrawal or lifting
of such order at the earliest possible time.
(j) MTLM shall promptly notify the Eligible Holders of the
Registrable Securities at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of 1933, as amended (the
"Securities Act"), of the happening of any event or existence of any fact as a
result of which the prospectus included in such registration statement, or any
amendment or supplement thereto, as then in effect, would include an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the reasonable request of the
Eligible Holders of the Registrable Securities prepare and furnish to them such
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
under which they were made.
(k) If requested by the underwriter for any underwritten
offering of Registrable Securities on behalf of an Eligible Holder of
Registrable Securities pursuant to a registration
4
<PAGE> 5
requested under Section 1(b), MTLM and such Eligible Holder of Registrable
Securities will enter into an underwriting agreement with such underwriter for
such offering, which shall be reasonably satisfactory in substance and form to
MTLM and MTLM's counsel, such Eligible Holder of Registrable Securities and the
underwriter, and such agreement shall contain such representations and
warranties by MTLM and such Eligible Holder of Registrable Securities and such
other terms and provisions as are customarily contained in an underwriting
agreement with respect to secondary distributions solely by selling
stockholders, including, without limitation, indemnities substantially to the
effect and to the extent provided in Section 2 hereof.
2. Indemnification. (a) Subject to the conditions set forth below, MTLM
agrees to indemnify and hold harmless each Eligible Holder, its officers,
directors, partners, employees, agents, and counsel, and each person, if any,
who controls any such person within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all loss, liability, charge, claim, damage, and
expense whatsoever (which shall include, for all purposes of this Section 2, but
not be limited to, reasonable attorneys' fees and any and all reasonable
expenses whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in any
registration statement, preliminary prospectus, or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
relating to the sale of any of the Registrable Securities or (B) in any
application or other document or communication (in this Section 2 collectively
called an "application") executed by or on behalf of MTLM or based upon written
information furnished by or on behalf of MTLM filed in any jurisdiction in order
to register or qualify any of the Registrable Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities exchange;
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements made therein not misleading,
unless (x) such statement or omission was made in reliance upon and in
conformity with written information furnished to MTLM with respect to such
Eligible Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(y) such loss, liability, charge, claim, damage or expense arises out of such
Eligible Holder's failure to comply with the terms and provisions of this
Agreement, or (ii) any breach of any representation, warranty, covenant, or
agreement of MTLM contained in this Agreement. The foregoing agreement to
indemnify shall be in addition to any liability MTLM may otherwise have,
including liabilities arising under this Agreement.
If any action is brought against any Eligible Holder or any of
its officers, directors, partners, employees, agents, or counsel, or any
controlling persons of such person (an "indemnified party") in respect of which
indemnity may be sought against MTLM pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify MTLM in writing of the
institution of such action (but the failure so to notify shall not relieve MTLM
from any liability other than pursuant to this Section 2(a)) and MTLM shall
promptly assume the defense of such action,
5
<PAGE> 6
including the employment of counsel (reasonably satisfactory to such indemnified
party or parties), provided that the indemnified party shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by MTLM in
connection with the defense of such action or MTLM shall not have promptly
employed counsel reasonably satisfactory to such indemnified party or parties or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to MTLM, in
any of which events such fees and expenses shall be borne by MTLM and MTLM shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this Section 2 to the contrary
notwithstanding, MTLM shall not be liable for any settlement of any such claim
or action effected without its written consent, which shall not be unreasonably
withheld. MTLM shall not, without the prior written consent of each indemnified
party that is not released as described in this sentence, settle or compromise
any action, or permit a default or consent to the entry of judgment in or
otherwise seek to terminate any pending or threatened action, in respect of
which indemnity may be sought hereunder (whether or not any indemnified party is
a party thereto), unless such settlement, compromise, consent, or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. MTLM agrees promptly to notify Eligible Holders of
the commencement of any litigation or proceedings against MTLM or any of it
officers or directors in connection with the sale of any Registrable Securities
or any preliminary prospectus, prospectus, registration statement, or amendment
or supplement thereto, or any application relating to any sale of any
Registrable Securities.
(b) Each Eligible Holder agrees to indemnify and hold harmless
MTLM, each director of MTLM, each officer of MTLM who shall have signed any
registration statement covering Registrable Securities held by such Eligible
Holder, each other person, if any, who controls MTLM within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, and its or their
respective counsel, to the same extent as the foregoing indemnity from MTLM to
such Eligible Holder in Section 2(a), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to MTLM with respect to such
Eligible Holder by or on behalf of such Eligible Holder, expressly for inclusion
in any such registration statement, preliminary prospectus, or final prospectus,
or any amendment or supplement thereto, or in any application, as the case may
be. If any action shall be brought against MTLM or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against such Eligible Holder
pursuant to this Section 2(b), such Eligible Holder shall have the rights and
duties given to MTLM, and MTLM and each other person so indemnified shall have
the rights and duties given to the indemnified parties, by the provisions of
Section 2(a).
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<PAGE> 7
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 2(a) or
2(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such cases, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act or otherwise, then
MTLM (including for this purpose any contribution made by or on behalf of any
director of MTLM, any officer of MTLM who signed any such registration
statement, any controlling person of MTLM, and its or their respective counsel),
as one entity, and the Eligible Holders of the Registrable Securities, included
in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an indemnified party), as a second entity, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, on the basis of relevant equitable
considerations such as the relative fault of MTLM and such Eligible Holders in
connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission, or alleged omission shall be determined by,
among other things, whether such statement, alleged statement, omission, or
alleged omission relates to information supplied by MTLM or by such Eligible
Holders, and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement, alleged statement, omission,
or alleged omission. MTLM and Eligible Holders agree that it would be unjust and
inequitable if the respective obligations of MTLM and the Eligible Holders for
contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages, and expenses (even if each
Eligible Holder and the other indemnified parties were treated as one entity for
such purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 2(c). In no case shall any
Eligible Holder be responsible for a portion of the contribution obligation
imposed on all Eligible Holders in excess of its pro rata share based on the
number of shares of Common Stock owned by him or it and included in such
registration as compared to the number of shares of Common Stock owned by all
Eligible Holders and included in such registration. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 2(c),
each person, if any, who controls any Eligible Holder within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent, and counsel of Eligible Holder or
control person shall have the same rights to contribution as such Eligible
Holder or control person and each person, if any, who controls MTLM within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, each officer of MTLM who shall have signed any such registration statement,
each director of MTLM, and its or their respective counsel shall have the same
rights to contribution as MTLM, subject in each case to the provisions of this
Section 2(c). Anything in this Section 2(c) to the contrary notwithstanding, no
party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 2(c) is
intended to supersede any right to contribution under the Securities Act, the
Exchange Act or otherwise.
3. Miscellaneous.
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<PAGE> 8
(a) Remedies. In the event of a breach by MTLM of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement.
(b) Agreements and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, unless such amendment, modification or supplement is in writing
and signed by the parties hereto.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, or telecopies, initially to the address set forth
below, and thereafter at such other address, notice of which is given in
accordance with the provisions of this of this Section 3(c):
(i) If to MTLM:
Metal Management, Inc.
500 North Dearborn Street
Suite 405
Chicago, Illinois 60611
Attn: Chief Executive Officer
with a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
Attn: Erhard R. Chorle
(ii) If to the Holder:
William M. Isaac
435 L'Ambiance Drive
Penthouse J
Longboat Key, Florida 34228
and
L. A. Isaac
2625 Underhill Road
Toledo, Ohio 43615
8
<PAGE> 9
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; two business days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; and when receipt is acknowledged, if telecopied.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent holders of the Registrable Shares subject to the terms
hereof.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for
convenience of references only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without reference
to its conflicts of law provisions.
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application hereof in any circumstance is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any other provisions contained herein shall not be affected or
impaired thereby.
(i) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of this agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein, concerning the registration rights granted by MTLM
pursuant to this Agreement.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
METAL MANAGEMENT, INC.
By: /s/ Gerard M. Jacobs
---------------------------------------------
Name: Gerard M. Jacobs
Title: President
/s/ George A. Isaac
---------------------------------------------
GEORGE A. ISAAC, III, TRUSTEE UNDER
THE GEORGE A. ISAAC, III SECOND
REVOCABLE TRUST
10
<PAGE> 1
EXHIBIT 4.12
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of May 31, 1998, is executed
by CHARLES BLUESTONE COMPANY, a Pennsylvania corporation ("CBC"), R&P HOLDINGS,
INC., a Delaware corporation ("R&P Holdings"), and R&P REAL ESTATE, INC., a
Pennsylvania corporation ("R&P Real Estate"), each a wholly-owned subsidiary of
METAL MANAGEMENT, INC., a Delaware corporation (the "Company"), for the sole
purpose of granting a guarantee under the Indenture (as amended from time to
time, the "Indenture"), dated as of May 13, 1998, with respect to the Company's
10% Senior Subordinated Notes due 2008 (the "Notes"), entered into among the
Company, the Guarantors (as defined therein) and LASALLE NATIONAL BANK, as
trustee (the "Trustee").
PRELIMINARY STATEMENT
The Company, the Guarantors and the Trustee have entered into the
Indenture. Capitalized terms used herein, not otherwise defined herein, shall
have the meanings given them in the Indenture.
Section 4.18 of the Indenture expressly provides that any Restricted
Subsidiary (i) that has assets or revenues in any fiscal year in excess of
$200,000 or (ii) that is not a Guarantor and is a borrower under the Senior
Credit Facility shall execute a supplemental indenture to become a Guarantor of
the Company's Notes. Pursuant to Section 4.18 of the Indenture, each of CBC,
R&P Holdings and R&P Real Estate execute this First Supplemental Indenture to
become a Guarantor of the Company's Notes. Each of CBC, R&P Holdings and R&P
Real Estate have, by Board Resolution, authorized this First Supplemental
Indenture. The Trustee has determined that this First Supplemental Indenture
is in form satisfactory to it.
NOW, THEREFORE, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes issued under the Indenture
from and after the date of this First Supplemental Indenture, as follows:
Section 1. Guarantee on the Notes.
Each of CBC, R&P Holdings and R&P Real Estate hereby subjects itself to
the provisions of the Indenture as a Guarantor in accordance with Article 11 of
the Indenture.
Section 2. Counterparts
This First Supplemental Indenture may be executed in several counterparts,
all of which together shall constitute one agreement binding on all parties,
notwithstanding that all parties have not signed the same counterpart.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have caused this First Supplemental
Indenture to be duly executed by its respective officers as of the day and year
first above written.
CHARLES BLUESTONE COMPANY
R&P HOLDINGS, INC.
R&P REAL ESTATE, INC.
By: /s/ David A. Carpenter
-------------------------------
Name: David A. Carpenter
-----------------------------
Its: Vice President
-----------------------------
-2-
<PAGE> 1
EXHIBIT 4.13
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of June 19, 1998, is executed
by METAL MANAGEMENT GULF COAST, INC., a Delaware corporation ("Metal Management
Gulf Coast"), a wholly-owned subsidiary of METAL MANAGEMENT, INC., a Delaware
corporation (the "Company"), for the sole purpose of granting a guarantee under
the Indenture (as amended from time to time, the "Indenture"), dated as of May
13, 1998, with respect to the Company's 10% Senior Subordinated Notes due 2008
(the "Notes"), entered into among the Company, the Guarantors (as defined
therein) and LASALLE NATIONAL BANK, as trustee (the "Trustee").
PRELIMINARY STATEMENT
The Company, the Guarantors and the Trustee have entered into the
Indenture. Capitalized terms used herein, not otherwise defined herein, shall
have the meanings given them in the Indenture.
Section 4.18 of the Indenture expressly provides that any Restricted
Subsidiary (i) that has assets or revenues in any fiscal year in excess of
$200,000 or (ii) that is not a Guarantor and is a borrower under the Senior
Credit Facility shall execute a supplemental indenture to become a Guarantor of
the Company's Notes. Pursuant to Section 4.18 of the Indenture, Metal
Management Gulf Coast executes this Second Supplemental Indenture to a become
Guarantor of the Company's Notes. Metal Management Gulf Coast has, by Board
Resolution, authorized this Second Supplemental Indenture. The Trustee has
determined that this Second Supplemental Indenture is in form satisfactory to
it.
NOW, THEREFORE, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes issued under the Indenture
from and after the date of this Second Supplemental Indenture, as follows:
Section 1. Guarantee on the Notes.
Metal Management Gulf Coast hereby subjects itself to the provisions of
the Indenture as a Guarantor in accordance with Article 11 of the Indenture.
Section 2. Counterparts
This Second Supplemental Indenture may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties, notwithstanding that all parties have not signed the same
counterpart.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have caused this Supplemental
Indenture to be duly executed by its respective officers as of the day and year
first above written.
METAL MANAGEMENT GULF COAST, INC.
By: /s/ David A. Carpenter
-------------------------------
David A. Carpenter
Vice President
-2-
<PAGE> 1
EXHIBIT 10.3
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY HAVE BEEN ACQUIRED SOLELY
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL,
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ANY
APPLICABLE STATE SECURITIES LAWS.
No. IW-02 WARRANT June 23, 1997
To Purchase 462,500 Shares of Common Stock of
Metal Management, Inc.
1. Number of Shares; Exercise Price; Term. This certifies that, in partial
consideration of entering into the Purchase Agreement and Plan of Merger entered
into effective as of June 23, 1997, by and among Metal Management, Inc., a
Delaware corporation (the "Company"), Isaac Acquisition Corporation, The Isaac
Corporation ("Isaac"), Ferrex Trading Corporation ("Ferrex"), Paulding
Recycling, Inc. ("Paulding"), Briquetting Corporation of America ("Briquetting")
(Isaac, Ferrex, Paulding and Briquetting referred to collectively as the
"Companies") and all of the shareholders of the Companies (the "Purchase
Agreement"), George A. Isaac, III, Trustee of the George A. Isaac, III Second
Revocable Trust ("Holder") is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time after the date hereof and at or
prior to 11:59 p.m. Central Time, on June 22, 2002 (the "Expiration Time"), but
not thereafter, to acquire from the Company, in whole or in part, from time to
time, up to (i) 375,000 fully paid and nonassessable shares (the "Shares") of
common stock $.01 par value of the Company ("Common Stock") at a purchase price
equal to $10.80 per Share; and (ii) 87,500 Shares at a purchase price equal to
$11.70 per Share, all as adjusted pursuant to Section 11 hereof (the "Exercise
Price"). Such number of Shares, type of security and Exercise Price are subject
to adjustment as provided herein, and all references to "Common Stock" and
"Exercise Price" herein shall be deemed to include any such adjustment or series
of adjustments.
2. Exercise of Warrant. The purchase rights represented by this Warrant
are exercisable by the Holder, in whole or in part, at any time, or from time to
time, prior to the Expiration Time by the surrender of this Warrant and the
Notice of Exercise annexed hereto, all duly completed and executed on behalf of
the Holder, at the office of the Company in Chicago, Illinois (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company), and
upon payment of the Exercise Price for the Shares thereby purchased (by cash,
certified or cashier's check or wire transfer payable to the order of the
Company, at the time of exercise in an amount equal to the purchase price of the
Shares thereby purchased). Thereupon, the Holder, shall be entitled to receive
from the Company a stock certificate in proper form representing the number of
Shares so purchased, and a new Warrant in substantially identical form and dated
as of such exercise for the purchase of that number of Shares equal to the
difference, if any, between the number of Shares subject hereto and the number
of Shares as to which this Warrant is so exercised.
3. Issuance of Shares. Certificates for Shares purchased hereunder shall
be delivered to the Holder within a reasonable time after the date on which this
Warrant shall have been exercised in accordance with the terms hereof. The
Company hereby represents and warrants that all Shares that may be issued upon
<PAGE> 2
the exercise of this Warrant will, upon such exercise, be duly and validly
authorized and issued, fully paid and nonassessable and free from all taxes,
liens and charges in respect of the issuance thereof (other than liens or
charges created by or imposed upon the Holder or taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company
agrees that the Shares so issued shall be and shall for all purposes be deemed
to have been issued to the Holder as the record owner of such Shares as of the
close of business on the date on which this Warrant shall have been exercised or
converted in accordance with the terms hereof.
4. No Fractional Shares or Scrip. No fractional Shares or scrip
representing fractional Shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional Share to which the Holder would otherwise be
entitled, the Holder shall be entitled, at his option, to receive either (i) a
cash payment equal to the excess of fair market value for such fractional Share
above the Exercise Price for such fractional share (as determined in good faith
by the Company) or (ii) a whole Share if the Holder tenders the Exercise Price
for one whole share.
5. No Rights as Shareholders. This Warrant does not entitle the Holder
hereof to any voting rights or other rights as a shareholder of the Company
prior to the exercise hereof.
6. Charges, Taxes and Expenses. Certificates for Shares issued upon
exercise of this Warrant shall be issued in the name of the Holder. Issuance of
certificates for Shares upon the exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax or other incidental expense
in respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company.
7. Additional Registration Right. The Company shall use its best efforts
to file as soon as practicable, and shall use its best efforts to cause to
remain effective, a registration statement(s) as may be necessary to permit the
Holder to sell in the public market any and all Shares acquired hereunder,
provided, that the Holder understands and agrees that this undertaking shall not
be deemed to impose any obligation upon the Company to take any action
whatsoever that, in the opinion of the Company's Executive Committee, would or
might delay or hinder any material transaction involving the Company, including
but not limited to any of the Company's acquisitions (such as its pending
mergers with Cozzi Iron & Metal, Inc. and Proler Southwest) or any of the
Company's debt or equity financings (such as its contemplated high yield debt
ffering), or that would or might be deemed to be a default or violation of any
of the Company's contracts in regard to any of such transactions or financings,
including but not limited to any "blackout" periods imposed by the Company's
underwriters. Notwithstanding the foregoing, the Holder shall have the right to
participate on the same terms and conditions in any and all registration rights
afforded to T. Benjamin Jennings, Gerard M. Jacobs, Albert A. Cozzi, Frank J.
Cozzi, or Gregory P. Cozzi.
8. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the above-mentioned office or agency of
the Company, for a new Warrant in substantially identical form in the name of
the transferee(s) as designated by the Holder and dated as of such exchange. The
Company shall maintain at the above-mentioned office or agency a registry
showing the name and address of the Holder. This Warrant may be surrendered for
exchange or exercise, in accordance with its terms, at the office of the
Company, and the Company shall be entitled to rely in all respects, prior to
written notice to the contrary, upon such registry.
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in the
2
<PAGE> 3
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor and dated as of such cancellation and reissuance, in lieu of this Warrant.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
11. Adjustments and Termination of Rights. The Exercise Price per Share
and the number of Shares purchasable hereunder are subject to adjustment from
time to time as follows:
(a) Merger or Consolidation. If at any time there shall be a merger
or a consolidation of the Company with or into another corporation when
the Company is not the surviving corporation, then, as part of such merger
or consolidation, lawful provision shall be made so that the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the aggregate Exercise Price then in
effect, the number of shares of stock or other securities or property (including
cash) of the successor corporation resulting from such merger or consolidation,
to which the Holder as the holder of the stock deliverable upon exercise of this
Warrant would have been entitled in such merger or consolidation if this Warrant
had been exercised immediately before such merger or consolidation. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Warrant with respect to the rights and interests of the Holder after the
merger or consolidation. This provision shall apply to successive mergers or
consolidations.
(b) Reclassification, Recapitalization, etc. If the Company at any
time shall, by subdivision, combination or reclassification of securities,
recapitalization, automatic conversion, or other similar event affecting the
number or character of outstanding Shares, or otherwise, change any of the
securities as to which purchase rights under this Warrant exist into the same or
a different number of securities of any other class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities that were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change.
(c) Split, Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall split,
subdivide or combine the securities as to which purchase rights under this
Warrant exist, the Exercise Price shall be proportionately decreased in the case
of a split or subdivision or proportionately increased in the case of a
combination.
(d) Common Stock Dividends. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect to Common
Stock payable in Shares, or make any other distribution with respect to Common
Stock of Shares, then the Exercise Price shall be adjusted, from and
after the date of determination of the shareholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Exercise
Price in effect immediately prior to such date of determination by a fraction
(i) the numerator of which shall be the total number of Shares outstanding
immediately prior to such dividend or distribution, and (ii) the denominator of
which shall be the total
3
<PAGE> 4
number of Shares outstanding immediately after such dividend or distribution.
This paragraph shall apply only if and to the extent that, at the time of such
event, this Warrant is then exercisable for Common Stock.
(e) Adjustment of Number of Shares. Upon each adjustment in the
Exercise Price pursuant to 11(c) or 11(d) hereof, the number of Shares
purchasable hereunder shall be adjusted, to the nearest whole Share, to the
product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Exercise Price by a fraction (i) the numerator
of which shall be the Exercise Price immediately prior to such adjustment, and
(ii) the denominator of which shall be the Exercise Price immediately after such
adjustment.
(f) Other Adjustments. In the event of any change in the
capitalization of the Company or a corporate change other than those
specifically referred to in Sections 11(a) through (d), the Board of Directors
of the Company shall make appropriate adjustments in the number, class of, and
Exercise Price of, Shares subject to the Warrant on the date on which such
change occurs in order to prevent any enlargement or dilution of rights
hereunder.
12. Notice of Adjustments; Notices. Whenever the Exercise Price or number
or type of securities issuable hereunder shall be adjusted pursuant to Section
11 hereof, the Company shall issue and provide to the Holder a certificate
signed by an officer of the Company setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Exercise Price and number of Shares
purchasable hereunder after giving effect to such adjustment.
13. Governing Law. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under the laws
of Delaware and for all purposes shall be construed in accordance with and
governed by the laws of said state, without giving effect to the conflict of
laws principles.
14. Attorneys' Fees. In any litigation, arbitration or court proceeding
between the Company and the Holder relating hereto, the prevailing party shall
be entitled to reasonable attorneys' fees and expenses incurred in enforcing
this Warrant.
15. Amendments. This Warrant may be amended and the observance of any
term of this Warrant may be waived only with the written consent of the Company
and the Holder. Notwithstanding the foregoing, Holder shall be entitled to the
amendment of this Warrant to conform the terms hereof to more favorable warrant
terms and conditions afforded to T. Benjamin Jennings, Gerard M. Jacobs, Albert
A. Cozzi and Frank J. Cozzi, except for terms in warrants issued to such
individuals relating to number of warrants, exercise price and termination of
warrants.
16. Notice. All notices hereunder shall be in writing and shall be
effective (a) on the day on which delivered if delivered personally or
transmitted by telex or telegram or telecopier with evidence of receipt, (b) one
business day after the date on which the same is delivered to a nationally
recognized overnight courier service with evidence of receipt, or (c) five
business days after the date on which the same is deposited, postage prepaid, in
the U.S. mail, sent by certified or registered mail, return receipt requested,
and addressed to the party to be notified at the address indicated below for the
Company, or at the address for the Holder set forth in the registry maintained
by the Company pursuant to Section 8, or at such other
4
<PAGE> 5
address and/or telecopy or telex number and/or to the attention of such other
person as the Company or the Holder may designate by ten-day advance written
notice.
17. Entire Agreement. This Warrant and the forms attached hereto contain
the entire agreement between the parties with respect to the subject matter
hereof and supersede all prior and contemporaneous arrangements or undertakings
with respect thereto.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
Dated: June 23, 1997
METAL MANAGEMENT, INC., a Delaware
corporation
By: /s/ Gerard M. Jacobs
-------------------------------------
Name: Gerard M. Jacobs
Title: President and Chief Executive Officer
Address: 500 N. Dearborn St.
Suite 405
Chicago, Illinois 60610
5
<PAGE> 1
EXHIBIT 10.28
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT ("AMENDMENT") is dated as of June
12, 1998, by and among METAL MANAGEMENT, INC., a Delaware corporation ("MTLM"),
each of the corporations and other entities set forth on ANNEX 1 hereto (MTLM
and each of such corporations and other entities sometimes hereinafter are
referred to individually as a "BORROWER" and collectively as "BORROWERS");
MTLM, acting in its capacity as funds administrator for itself and the other
Borrowers (in such capacity, the "MTLM FUNDS ADMINISTRATOR"); BT COMMERCIAL
CORPORATION, a Delaware corporation (in its individual capacity, hereinafter
referred to as "BTCC"), acting in its capacity as agent (in such capacity,
hereinafter referred to as the "AGENT"), under the "CREDIT AGREEMENT" (as
hereinafter defined); and BTCC in its individual capacity as a "LENDER" (as
defined in the Credit Agreement). Capitalized terms used herein but not
otherwise defined herein shall have the respective meanings assigned to such
terms in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrowers, the MTLM Funds Administrator, the Agent and the
Lender have entered into that certain Credit Agreement dated as of March 31,
1998 (the "CREDIT AGREEMENT"), pursuant to which the Lender has agreed to make
certain loans and other financial accommodations to or for the account of the
Borrowers;
WHEREAS, the Borrowers, the Agent and the Lender have agreed to amend the
Credit Agreement, on the terms and subject to the conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the respective parties hereto hereby agree as follows:
1. AMENDMENT TO CREDIT AGREEMENT. Effective as of the date hereof, upon
satisfaction of the conditions precedent set forth in SECTION 2 below, and in
reliance upon the representations and warranties of the respective Borrowers
and the MTLM Funds Administrator set forth herein, the Credit Agreement is
hereby amended as follows:
1.1 SECTION 8.2 of the Credit Agreement is hereby deleted in its
entirety and the following language is hereby substituted therefor:
8.2 CAPITAL EXPENDITURES.
<PAGE> 2
The Borrowers shall not permit Capital Expenditures for the
Consolidated Entity in any fiscal year to exceed (A) Consolidated
Revenues for such fiscal year MULTIPLIED BY (B) two percent (2.00%);
PROVIDED, that, notwithstanding the foregoing, Borrowers' compliance with
this SECTION 8.2 shall be determined without giving effect to (I) any
Capital Expenditure made during the month of April, 1998, with the
proceeds of Indebtedness evidenced by the Subordinated Notes and (II) any
Capital Expenditure made after the Closing Date with Equity Offering
Proceeds constituting Unallocated Equity Proceeds at the time such
Capital Expenditure was made; PROVIDED, FURTHER, that, concurrently with
the making of any Capital Expenditure with Unallocated Equity Offering
Proceeds, the Funds Administrator shall have delivered to the Agent an
Equity Offering Proceeds Allocation Certificate with respect thereto.
1.2 SECTION 8.8(A) of the Credit Agreement is hereby amended by
deleting the reference to the amount of "$2,000,000" appearing in the second
line thereof and substituting the amount of "$5,000,000" therefor.
1.3 SECTION 8.8(F) of the Credit Agreement is hereby amended by
inserting the words "(I) those set forth on Schedule 8.8(i) (to the extent in
existence on the Closing Date) and (II)" immediately prior to the word
"Borrowers" appearing in the first line thereof.
1.4 SECTION 8.8(G)(VI) of the Credit Agreement is hereby amended by
inserting the words "except as otherwise consented to by the Agent,"
immediately prior to the words "prior to" appearing in the first line thereof.
1.5 SECTION 8.8(I) of the Credit Agreement is hereby amended by
deleting the words "SECTION 8.7(I)" appearing in the second line thereof and
substituting the words "SECTION 8.8(I)" therefor.
2. CONDITIONS PRECEDENT. This Amendment shall become effective as of
the date hereof, upon satisfaction of each of the following conditions:
(A) Agent shall have received six (6) copies of this Amendment, duly
executed by Lender, each of the Borrowers and the MTLM Funds Administrator.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 Each of the Borrowers and the MTLM Funds Administrator hereby
represents and warrants to the Agent and each of the Lenders that, after giving
effect to this Amendment:
(A) All representations and warranties contained in the
-2-
<PAGE> 3
Credit Agreement and the other Credit Documents are true and correct in
all material respects on and as of the date of this Amendment, in each
case as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such
representations and warranties remain true and accurate on and as of such
earlier date);
(B) No Default or Event of Default has occurred which is continuing;
(C) this Amendment, and the Credit Agreement, as amended hereby,
constitute legal, valid and binding obligations of the Borrowers and the
MTLM Funds Administrator, respectively, and are enforceable against each
of the Borrowers and the MTLM Funds Administrator in accordance with
their respective terms; and
(D) the execution and delivery by the Borrowers and the MTLM Funds
Administrator of this Amendment does not require the consent or approval
of any Person, except such consents and approvals as have been obtained.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
4.1 Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import, and each reference in each of the other Credit Documents to the
"Credit Agreement" shall in each case mean and be a reference to the Credit
Agreement as amended hereby.
4.2 Except as expressly set forth herein, (I) the execution and
delivery of this Amendment shall in no way affect any of the respective rights,
powers or remedies of the Agent or any of the Lenders with respect to any Event
of Default nor constitute a waiver of any provision of the Credit Agreement or
any of the other Credit Documents and (II) all of the respective terms and
provisions of the Credit Agreement, the other Credit Documents and all other
documents, instruments, amendments and agreements executed and/or delivered by
any of the Borrowers and/or the MTLM Funds Administrator pursuant thereto or in
connection therewith shall remain in full force and effect and are hereby
ratified and confirmed in all respects. The execution and delivery of this
Amendment by the Agent and each of the Lenders shall in no way obligate the
Agent or any of the Lenders, at any time hereafter, to consent to any other
amendment or modification of any term or provision of the Credit Agreement or
any of the other Credit Documents, whether of a similar or different nature.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL
LAWS AND DECISIONS OF THE STATE OF
-3-
<PAGE> 4
ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
6. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. Any such counterpart
which may be delivered by facsimile transmission shall be deemed the equivalent
of an originally signed counterpart and shall be fully admissible in any
enforcement proceedings regarding this Agreement.
[SIGNATURE PAGE FOLLOWS]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the date first set forth above.
BT COMMERCIAL CORPORATION, in its
individual capacity as a Lender
and in its capacity as Agent
By: /s/ Frank Fazio
----------------------------------
Name: Frank Fazio
--------------------------------
Title: Vice President
-------------------------------
METAL MANAGEMENT, INC., a Delaware
corporation, in its individual capacity as
a Borrower and in its capacity as MTLM
Funds Administrator
By: /s/ David A. Carpenter
-----------------------------------
Name: David A. Carpenter
---------------------------------
Title: Vice President, General Counsel
and Secretary
--------------------------------
<PAGE> 6
AEROSPACE METALS, INC.
AMERICAN SCRAP PROCESSING, INC.
BRIQUETTING CORPORATION OF AMERICA
C SHREDDING CORP.
CALIFORNIA METALS RECYCLING, INC.
CIM TRUCKING, INC.
COMETCO CORP.
COZZI BUILDING CORPORATION
COZZI IRON & METAL, INC.
EMCO TRADING, INC.
FERREX TRADING CORPORATION
FIRMA, INC.
FIRMA PLASTIC CO., INC.
HOUSTON COMPRESSED STEEL CORP.
HOUTEX METALS COMPANY, INC.
THE ISAAC CORPORATION
P. JOSEPH IRON & METAL, INC.
KANKAKEE SCRAP CORPORATION
MAC LEOD METALS CO.
METAL MANAGEMENT ARIZONA, INC.
METAL MANAGEMENT REALTY, INC.
PAULDING RECYCLING,INC.
PROLER SOUTHWEST INC.
PROLER STEELWORKS L.L.C.
SALT RIVER RECYCLING, L.L.C.
SCRAP PROCESSING, INC.
SUPERIOR FORGE, INC.
TROJAN TRADING CO.
USA SOUTHWESTERN CARRIERS, INC.
138 SCRAP ACQUISITION CORP.
R & P HOLDINGS, INC.
R & P REAL ESTATE, INC.
CHARLES BLUESTONE COMPANY
By: /s/ David A. Carpenter
----------------------------
Name: David A. Carpenter
--------------------------
Title: Vice President
-------------------------
RESERVE IRON & METAL LIMITED PARTNERSHIP
By: P. JOSEPH IRON & METAL, INC.,
its general partner
By: /s/ David A. Carpenter
----------------------------
Name: David A. Carpenter
--------------------------
Title: Vice President
-------------------------
<PAGE> 7
ANNEX 1
TO
AMENDMENT NO. 1
DATED AS OF JUNE 12, 1998
ADDITIONAL BORROWERS
1. AEROSPACE METALS, INC.
2. AMERICAN SCRAP PROCESSING, INC.
3. BRIQUETTING CORPORATION OF AMERICA
4. C SHREDDING CORP.
5. CALIFORNIA METALS RECYCLING, INC.
6. CIM TRUCKING, INC.
7. COMETCO CORP.
8. COZZI BUILDING CORPORATION
9. COZZI IRON & METAL, INC.
10. EMCO TRADING, INC.
11. FERREX TRADING CORPORATION
12. FIRMA, INC.
13. FIRMA PLASTIC CO., INC.
14. HOUSTON COMPRESSED STEEL CORP.
15. HOUTEX METALS COMPANY, INC.
16. THE ISAAC CORPORATION
17. P. JOSEPH IRON & METAL, INC.
18. KANKAKEE SCRAP CORPORATION
19. MAC LEOD METALS CO.
20. METAL MANAGEMENT ARIZONA, INC.
21. METAL MANAGEMENT REALTY, INC.
22. PAULDING RECYCLING,INC.
23. PROLER SOUTHWEST INC.
24. PROLER STEELWORKS L.L.C.
25. SALT RIVER RECYCLING, L.L.C.
26. SCRAP PROCESSING, INC.
27. SUPERIOR FORGE, INC.
28. TROJAN TRADING CO.
29. USA SOUTHWESTERN CARRIERS, INC.
30. RESERVE IRON & METAL LIMITED PARTNERSHIP
31. 138 SCRAP ACQUISITION CORP.
32. R & P HOLDINGS, INC.
33. R & P REAL ESTATE, INC.
34. CHARLES BLUESTONE COMPANY
<PAGE> 1
EXHIBIT 10.29
AMENDMENT NO. 2
TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT ("AMENDMENT") is dated as of June
19, 1998, by and among METAL MANAGEMENT, INC., a Delaware corporation ("MTLM"),
each of the corporations and other entities set forth on ANNEX 1 hereto (MTLM
and each of such corporations and other entities sometimes hereinafter are
referred to individually as a "BORROWER" and collectively as "BORROWERS");
MTLM, acting in its capacity as funds administrator for itself and the other
Borrowers (in such capacity, the "MTLM FUNDS ADMINISTRATOR"); BT COMMERCIAL
CORPORATION, a Delaware corporation (in its individual capacity, hereinafter
referred to as "BTCC"), acting in its capacity as agent (in such capacity,
hereinafter referred to as the "AGENT"), under the "CREDIT AGREEMENT" (as
hereinafter defined); and BTCC in its individual capacity as a "LENDER" (as
defined in the Credit Agreement). Capitalized terms used herein but not
otherwise defined herein shall have the respective meanings assigned to such
terms in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrowers, the MTLM Funds Administrator, the Agent and the
Lender have entered into that certain Credit Agreement dated as of March 31,
1998 (the "CREDIT AGREEMENT"), pursuant to which the Lender has agreed to make
certain loans and other financial accommodations to or for the account of the
Borrowers;
WHEREAS, the Borrowers, the Agent and the Lender have agreed to amend the
Credit Agreement, on the terms and subject to the conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the respective parties hereto hereby agree as follows:
1. AMENDMENT TO CREDIT AGREEMENT. Effective as of the date hereof, upon
satisfaction of the conditions precedent set forth in SECTION 2 below, and in
reliance upon the representations and warranties of the respective Borrowers
and the MTLM Funds Administrator set forth herein, the Credit Agreement is
hereby amended as follows:
1.1 SECTION 1.1 CASH EQUIVALENTS of the Credit Agreement is hereby by
deleting the reference to the amount of "$200,000,000" appearing in the ninth
line thereof and substituting the amount of "$250,000,000" therefor.
<PAGE> 2
1.2 SECTION 1.1 FEE LETTER of the Credit Agreement is hereby amended by
adding the words ", as amended, restated, supplemented or otherwise modified
from time to time" after the words "BTCC and MTLM" appearing in the second line
thereof.
1.3 SECTION 1.1 LINE OF CREDIT of the Credit Agreement is hereby amended
by deleting the reference to the amount of "$200,000,000" appearing in the
fourth line thereof and substituting the amount of "$250,000,000" therefor.
1.5 ANNEX I to the Credit Agreement is hereby amended by deleting the
reference to the amount of "$200,000,000" appearing opposite the term
Commitment Amount and substituting the amount of "$250,000,000" therefor.
2. CONDITIONS PRECEDENT. This Amendment shall become effective as of the
date hereof, upon satisfaction of each of the following conditions:
(a) Agent shall have received six (6) copies of this Amendment, duly
executed by Lender, each of the Borrowers and the MTLM Funds
Administrator;
(b) Agent shall have received six (6) copies of the Supplement to
the Fee Letter of even date herewith, duly executed by MTLM, together
with payment of the Supplemental Commitment Fee as defined therein; and
(c) Agent shall have received a Substituted and Amended Revolving
Note in the principal amount of $250,000,000 of even date herewith, duly
executed by each of the Borrowers.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 Each of the Borrowers and the MTLM Funds Administrator hereby
represents and warrants to the Agent and each of the Lenders that, after giving
effect to this Amendment:
(a) All representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects on and as of the date of this Amendment, in each case
as if then made, other than representations and warranties that expressly
relate solely to an earlier date (in which case such representations and
warranties remain true and accurate on and as of such earlier date);
(b) No Default or Event of Default has occurred which is continuing;
(c) this Amendment, and the Credit Agreement, as amended hereby,
constitute legal, valid and binding obligations of the Borrowers and the
MTLM Funds Administrator, respectively, and are enforceable against each
of the
-2-
<PAGE> 3
Borrowers and the MTLM Funds Administrator in accordance with their
respective terms; and
(d) the execution and delivery by the Borrowers and the MTLM Funds
Administrator of this Amendment does not require the consent or approval
of any Person, except such consents and approvals as have been obtained.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
4.1 Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import, and each reference in each of the other Credit Documents to the
"Credit Agreement" shall in each case mean and be a reference to the Credit
Agreement as amended hereby.
4.2 Except as expressly set forth herein, (I) the execution and delivery
of this Amendment shall in no way affect any of the respective rights, powers
or remedies of the Agent or any of the Lenders with respect to any Event of
Default nor constitute a waiver of any provision of the Credit Agreement or any
of the other Credit Documents and (II) all of the respective terms and
provisions of the Credit Agreement, the other Credit Documents and all other
documents, instruments, amendments and agreements executed and/or delivered by
any of the Borrowers and/or the MTLM Funds Administrator pursuant thereto or in
connection therewith shall remain in full force and effect and are hereby
ratified and confirmed in all respects. The execution and delivery of this
Amendment by the Agent and each of the Lenders shall in no way obligate the
Agent or any of the Lenders, at any time hereafter, to consent to any other
amendment or modification of any term or provision of the Credit Agreement or
any of the other Credit Documents, whether of a similar or different nature.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL
LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
6. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. Any such counterpart
which may be delivered by facsimile transmission shall be deemed the equivalent
of an originally signed counterpart and shall be fully admissible in any
enforcement proceedings regarding this Agreement.
-3-
<PAGE> 4
[SIGNATURE PAGE FOLLOWS]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the date first set forth above.
BT COMMERCIAL CORPORATION, in its individual
capacity as a Lender and in its capacity as Agent
By: /s/ Frank Fazio
------------------------------
Frank Fazio
Vice President
METAL MANAGEMENT, INC., a Delaware
corporation, in its individual capacity as
a Borrower and in its capacity as MTLM Funds
Administrator
By: /s/ David A. Carpenter
------------------------------
David A. Carpenter
Vice President
<PAGE> 6
AEROSPACE METALS, INC.
AMERICAN SCRAP PROCESSING, INC.
BRIQUETTING CORPORATION OF AMERICA
C SHREDDING CORP.
CALIFORNIA METALS RECYCLING, INC.
CIM TRUCKING, INC.
COMETCO CORP.
COZZI BUILDING CORPORATION
COZZI IRON & METAL, INC.
EMCO TRADING, INC.
FERREX TRADING CORPORATION
FIRMA, INC.
FIRMA PLASTIC CO., INC.
HOUSTON COMPRESSED STEEL CORP.
HOUTEX METALS COMPANY, INC.
THE ISAAC CORPORATION
P. JOSEPH IRON & METAL, INC.
KANKAKEE SCRAP CORPORATION
MAC LEOD METALS CO.
METAL MANAGEMENT ARIZONA, INC.
METAL MANAGEMENT REALTY, INC.
PAULDING RECYCLING,INC.
PROLER SOUTHWEST INC.
PROLER STEELWORKS L.L.C.
SALT RIVER RECYCLING, L.L.C.
SCRAP PROCESSING, INC.
SUPERIOR FORGE, INC.
TROJAN TRADING CO.
USA SOUTHWESTERN CARRIERS, INC.
138 SCRAP ACQUISITION CORP.
R & P HOLDINGS, INC.
R & P REAL ESTATE, INC.
CHARLES BLUESTONE COMPANY
METAL MANAGEMENT GULF COAST, INC.
By: /s/ David A. Carpenter
---------------------------------
David A. Carpenter
Vice President
RESERVE IRON & METAL LIMITED PARTNERSHIP
By:
P. JOSEPH IRON & METAL, INC., its
general partner
By: /s/ David A. Carpenter
----------------------------------
David A. Carpenter
Vice President
<PAGE> 7
ANNEX 1
TO
AMENDMENT NO. 2
DATED AS OF JUNE 19, 1998
ADDITIONAL BORROWERS
1. AEROSPACE METALS, INC.
2. AMERICAN SCRAP PROCESSING, INC.
3. BRIQUETTING CORPORATION OF AMERICA
4. C SHREDDING CORP.
5. CALIFORNIA METALS RECYCLING, INC.
6. CIM TRUCKING, INC.
7. COMETCO CORP.
8. COZZI BUILDING CORPORATION
9. COZZI IRON & METAL, INC.
10. EMCO TRADING, INC.
11. FERREX TRADING CORPORATION
12. FIRMA, INC.
13. FIRMA PLASTIC CO., INC.
14. HOUSTON COMPRESSED STEEL CORP.
15. HOUTEX METALS COMPANY, INC.
16. THE ISAAC CORPORATION
17. P. JOSEPH IRON & METAL, INC.
18. KANKAKEE SCRAP CORPORATION
19. MAC LEOD METALS CO.
20. METAL MANAGEMENT ARIZONA, INC.
21. METAL MANAGEMENT REALTY, INC.
22. PAULDING RECYCLING,INC.
23. PROLER SOUTHWEST INC.
24. PROLER STEELWORKS L.L.C.
25. SALT RIVER RECYCLING, L.L.C.
26. SCRAP PROCESSING, INC.
27. SUPERIOR FORGE, INC.
28. TROJAN TRADING CO.
29. USA SOUTHWESTERN CARRIERS, INC.
30. RESERVE IRON & METAL LIMITED PARTNERSHIP
31. 138 SCRAP ACQUISITION CORP.
32. R & P HOLDINGS, INC.
33. R & P REAL ESTATE, INC.
34. CHARLES BLUESTONE COMPANY
35. METAL MANAGEMENT GULF COAST, INC.
<PAGE> 1
EXHIBIT 11.1
METAL MANAGEMENT
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Earnings:
Net income (loss) from continuing operations
applicable to common stock $ 261 $ (16) $ (2,010) $ (35,713)
Gain on sale of discontinued operations 0 0 502 200
Net income (loss) from discontinued operations (2,698) 22 345 0
------------- ------------ ------------- -------------
Net income (loss) applicable to common stock $ (2,437) $ 6 $ (1,163) $ (35,513)
============= ============ ============= =============
Basic earnings per share:
Weighted average common shares outstanding 5,125 5,299 9,106 19,727
============= ============ ============= =============
Per share amounts:
Net income (loss) from continuing operations
applicable to common stock $ 0.05 $ 0.00 $ (0.22) $ (1.81)
Gain on sale of discontinued operations 0.00 0.00 0.05 0.01
Net income from discontinued operations (0.53) 0.00 0.04 0.00
------------- ------------ ------------- -------------
Net income (loss) applicable to common stock $ (0.48) $ 0.00 $ (0.13) $ (1.80)
============= ============ ============= =============
Diluted earnings per share:
Weighted average common shares outstanding 5,125 5,299 9,106 19,727
Common stock equivalents (1) 0 0 0 0
------------- ------------ ------------- -------------
Total 5,125 5,299 9,106 19,727
============= ============ ============= =============
Per share amounts:
Net income (loss) from continuing operations
Applicable to common stock $ 0.05 $ 0.00 $ (0.22) $ (1.81)
Gain on sale of discontinued operations 0.00 0.00 0.05 0.01
Net income from discontinued operations (0.53) 0.00 0.04 0.00
------------- ------------ ------------- -------------
Net income (loss) applicable to common stock $ (0.48) $ 0.00 $ (0.13) $ (1.80)
============= ============ ============= =============
</TABLE>
(1) For the five months ended March 31, 1996 and the years ended March 31, 1997
and 1998, common stock equivalents were not added to the weighted average
shares outstanding as the result would have been anti-dilutive.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Aerospace Metals, Inc., a Delaware corporation
American Scrap Processing, Inc., an Illinois corporation
Briquetting Corporation of America, an Ohio corporation
California Metals Recycling, Inc., a California corporation
Charles Bluestone Company, a Pennsylvania corporation
CIM Trucking, Inc., an Illinois corporation
Cometco Corp., an Illinois corporation
Cozzi Building Corporation, an Illinois corporation
Cozzi Iron & Metal, Inc., an Illinois corporation
C Shredding Corp., an Illinois corporation
EMCO Trading, Inc., an Arizona corporation
Ferrex Trading Corporation, a Delaware corporation
Firma, Inc., a California corporation
Firma Plastic Co., Inc., a California corporation
Houston Compressed Steel Corp., a Texas corporation
HouTex Metals Company, Inc., a Texas corporation
The Isaac Corporation, an Ohio corporation
Kankakee Scrap Corporation, an Illinois corporation
Mac Leod Metals Co., a California corporation
Metal Management Arizona, Inc., an Arizona corporation
Metal Management Gulf Coast, Inc., a Delaware corporation
Metal Management Realty, Inc., an Arizona corporation
138 Scrap, Inc., an Illinois corporation
Paulding Recycling, Inc., an Ohio corporation
P. Joseph Iron & Metal, Inc., an Ohio corporation
Proler Southwest Inc., a Texas corporation
Proler Steelworks L.L.C., a Delaware limited liability company
R&P Holdings, Inc., a Delaware corporation
R&P Real Estate, Inc., a Pennsylvania corporation
Reserve Iron & Metal Limited Partnership, a Delaware limited partnership
Salt River Recycling, L.L.C., an Arizona limited liability company
Scrap Processing, Inc., an Illinois corporation
Superior Forge, Inc., a Delaware corporation
Trojan Trading Co., a California corporation
USA Southwestern Carrier, Inc., an Arizona corporation
<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 Statements on Form S-3 (No. 333-45913 and No. 333-42423) of
Metal Management, Inc., of our report dated May 28, 1998, appearing in this
Form 10-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
June 19, 1998
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