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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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-14836
METAL MANAGEMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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 16, 1999 as reported on the NASDAQ SmallCap Market, was
approximately $66.1 million. Shares of Common Stock held by each officer and
director and 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. The
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of June 16, 1999, the Registrant had 53,191,185 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set
forth herein, is incorporated by reference from the Registrant's definitive
proxy statement relating to the annual meeting of stockholders to be held in
1999, which definitive proxy statement shall be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year to which
this Report relates.
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TABLE OF CONTENTS
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PART I
Item 1: Business.................................................... 2
Item 2: Properties.................................................. 19
Item 3: Legal Proceedings........................................... 21
Item 4: Submission of Matters to a Vote of Security Holders......... 22
PART II
Item 5: Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 23
Item 6: Selected Consolidated Financial Data........................ 25
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 26
Item 7A: Quantitative and Qualitative Disclosures About Market
Risk........................................................ 37
Item 8: Financial Statements and Supplementary Data................. 37
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 37
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 38
Item 11: Executive Compensation...................................... 38
Item 12: Security Ownership of Certain Beneficial Owners and
Management.................................................. 38
Item 13: Certain Relationships and Related Transactions.............. 38
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 39
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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," the "Company," "we," "us" or other similar terms)
regarding (i) our future profitability and that of our subsidiaries, (ii) the
benefits to be derived from the execution of our industry consolidation strategy
and (iii) other future developments in our affairs or the industry in which we
conduct 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 I, Item 1, of this report.
ITEM 1. BUSINESS
GENERAL
We are one of the largest and fastest-growing full-service metals recyclers
in the United States, with approximately 50 recycling facilities in 15 states.
We also hold a 28.5 percent interest in Southern Recycling, L.L.C. ("Southern
Recycling"), the largest scrap metal recycler in the Gulf Coast region. We are a
leading consolidator in the metals recycling industry. We have achieved our
leading position in the metals recycling industry primarily by implementing a
national strategy of completing and integrating regional acquisitions. We
believe that our consolidation strategy will enhance the competitive position
and profitability of the operations we acquire because of improved managerial
and financial resources and increased economies of scale.
We are 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. We collect industrial scrap and obsolete scrap,
process it into reusable forms and supply the recycled metals to our customers,
including mini-mills, integrated steel mills, foundries and metals brokers. We
believe that we provide one of the most comprehensive offerings of both ferrous
and non-ferrous scrap metals in the industry. Our ferrous products primarily
include shredded, sheared, hot briquetted, cold briquetted and bundled scrap and
other processed scrap, such as turnings, cast and broken furnace iron. We also
process non-ferrous metals, including aluminum, copper, stainless steel, brass,
titanium and high temperature alloys, using similar techniques and through
application of our proprietary technologies. For the year ended March 31, 1999,
we sold approximately 5.0 million tons of ferrous scrap and approximately 627.2
million pounds of non-ferrous scrap.
Our predecessor was incorporated on September 24, 1981 as a California
corporation under the name General Parametrics Corporation, and was
reincorporated as a Delaware corporation in June 1986 under the same name. Prior
to April 1996, we manufactured and marketed color thermal and dye sublimation
printers and related consumables, including ribbons, transparencies and paper.
We sold this business in two separate transactions in July and December of 1996
for $1.3 million in cash and future royalty streams which are not anticipated to
result in material payments to us. On April 12, 1996, we changed our name to
"Metal Management, Inc."
Our common stock, par value $.01 per share ("Common Stock"), is traded on
the NASDAQ SmallCap Market under the symbol "MTLM." Our principal executive
offices are located at 500 North Dearborn Street, Suite 405, Chicago, Illinois
60610, and our 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 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.
We believe 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. Within this industry framework, a
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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 furnace, or 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 is 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. We expect this trend to continue in
the next few years as several new EAF facilities start production. We believe
that as a large, reliable supplier of scrap metals, we are well positioned to
benefit from 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. 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. We do not believe that
these alternatives to ferrous scrap will replace ferrous scrap in EAF
operations, but will merely be used as a 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 linked 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 significant 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 facilities, have generally resulted in
sustained demand and strong prices for processed non-ferrous scrap during
periods of high demand for finished non-ferrous metal products.
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Raw non-ferrous scrap is typically generated and supplied by: (i)
manufacturers and other sources that process 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
our acquisition strategy, we have 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 we believe we can better serve our customers. As a
result, we have become one of the leading metals recyclers in the Chicago,
Phoenix, Memphis, Newark, Cleveland, Houston, Pittsburgh and Hartford
metropolitan markets. In addition, in February 1999 we obtained a 28.5% member
interest in Southern Recycling, the largest scrap metals recycling company in
the New Orleans metropolitan area with additional facilities along the Gulf
Coast.
Strong Operational Management. We believe that the scrap metals recycling
business is, and will continue to be, locally and regionally based. As a result,
we have adopted a philosophy of decentralized operational management, which we
believe promotes the continued successful management of our acquired companies.
In considering our core regional acquisitions, we have targeted regional leaders
in the scrap metals industry with proven operational management capabilities.
Following these acquisitions, we have generally retained the services of the
acquired companies' senior management teams through the use of multi-year
employment agreements. We have also used stock options and warrants to provide
incentives for these managers to contribute to our growth and profitability.
Benefits of Consolidation. We believe that the operations of the companies
we have acquired have benefited, and will continue to benefit, from joining the
Metal Management group of companies. We believe 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, we believe that our regional "hub and spoke"
acquisition strategy has benefited, and will continue to benefit, the operations
of the companies we have acquired by making available to these companies, often
for the first time, access to greater financial resources, complementary
regional management, purchasing strength and increased distribution channels.
Favorable Distribution Channels. We believe that many of our facilities
are situated in locations that afford us competitive advantages in distribution
efficiency, both in terms of cost and reliability. We believe that water
transportation is the most cost-effective manner to ship scrap metals over long
distances. A significant portion of our revenues are generated by operations
that have direct or convenient access to water or rail transportation. This
water or rail access significantly expands the markets for our products,
particularly the markets for ferrous scrap. Two of our East Coast operations
have access to Ocean-going vessel loading facilities which allow these
operations to access the scrap metal export markets.
Broad Product Offering. We offer many products in both the ferrous and
non-ferrous metals industry sectors. Our ferrous products include shredded,
sheared and hot briquetted, cold briquetted and bundled scrap and broken furnace
iron. Our non-ferrous products include aluminum, copper, stainless steel and
high temperature alloys. We believe we currently offer one of the most
comprehensive lines of products available within our markets. Because we offer a
broad range of products, our customers are able to purchase much of their scrap
metal needs from one supplier. This reduces the administrative and logistical
burden and related costs associated with supporting multiple supplier
relationships. In addition, our size and processing capabilities allow us to
offer pre-packaged blends of scrap metals that our customers can immediately
melt without having to purchase and blend various metals to meet a particular
chemistry requirement. We also
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continually seek to develop and introduce new products. For example, we have
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. By working with our major customers to
provide a reliable and broad product mix and applying the knowledge gained to
the rest of our business, we believe that we can better develop mutually
beneficial partnerships with all of our customers.
BUSINESS STRATEGY
Continue Regional-Based Acquisitions. We intend to continue to grow by
implementing our national strategy of completing and integrating regional
acquisitions. Our 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. We believe 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 our acquisition strategy. By aggressively pursuing this
consolidation strategy within the highly fragmented and growing metals recycling
industry, we believe that we can enhance the competitive position and
profitability of the operations that we acquire through improved managerial and
financial resources and increased economies of scale. We also believe that the
geographic diversity resulting from the implementation of our acquisition
strategy will reduce our vulnerability to the dynamics of any particular local
or regional market. Furthermore, we believe that multi-regional and national
steel manufacturers and other customers for our 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. We believe
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. We believe, however, that competing in such a manner
focuses on short-term gain at the expense of long-term profitability. Our
strategy is to establish long-term customer relationships by using our numerous
processing facilities to provide our customers with a consistent supply of
high-quality processed scrap, thereby building "partnership-type" relationships
that we believe will be longer-lasting, more stable and profit enhancing.
Maximize Inventory Turnover. To improve the efficiency and profitability
of our processing operations, our business strategy is to maximize the turnover
of our scrap metals inventory, as opposed to collecting scrap and holding it in
speculation of higher prices. We believe that this strategy of reducing cycle
time serves to reduce exposure to price fluctuations in the markets for scrap
metals. We also believe that this strategy benefits 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 our
acquisition strategy is to identify companies with strong, stable and
well-respected management. We recognize that business practices and strategies
in the scrap metals industry differ, sometimes significantly, among metropolitan
and regional markets. As a result, we manage our recycling operations on a
decentralized basis. To secure the continuity of strong local management, we
generally seek to execute multi-year employment agreements with the senior
management of the "hub" acquisitions for each particular metropolitan or
regional market. In addition, we often pay a significant portion of the purchase
price for our acquisitions in shares of our restricted Common Stock and also
make use of warrants and options to acquire shares of our Common Stock. This
results in our management having significant incentive to maximize our
subsidiaries' operating performance.
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Set forth below is a table identifying the operations we have acquired or
in which we have obtained an equity interest since April 1996:
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LOCATION OF DATE OF
PRINCIPAL PROCESSING ACQUISITION OR
NAME FACILITIES INVESTMENT
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EMCO Recycling Corp. ("EMCO Phoenix, Arizona April 1996
Recycling")(1)
California Metals Recycling, Inc., Los Angeles County, California January 1997
Firma, Inc., Firma Plastic Co.,
Inc., MacLeod Metals Co. and
Trojan Trading Co. (collectively,
the "MacLeod Companies")
HouTex Metals Company, Inc. Houston, Texas January 1997
("HouTex")
Reserve Iron & Metal Limited Cleveland, Ohio May 1997
Partnership ("Reserve Iron & Chicago, Illinois
Metal")(2) Atalla, Alabama
Briquetting Corporation of America, Bryan, Ohio June 1997
Ferrex Trading Corporation, The Cleveland, Ohio
Isaac Corporation and Paulding Dayton, Ohio
Recycling, Inc. (collectively, the Defiance, Ohio
"Isaac Group")(3)
Proler Southwest Inc. and Proler Houston, Texas August 1997
Steelworks L.L.C. (collectively, Jackson, Mississippi
"Proler Southwest")
Cozzi Iron & Metal, Inc. ("Cozzi Chicago, Illinois December 1997
Iron & Metal") East Chicago, Indiana
Pittsburgh, Pennsylvania
Kankakee Scrap Corporation Kankakee, Illinois December 1997
Houston Compressed Steel Corp. Houston, Texas January 1998
Aerospace Metals, Inc. ("Aerospace") Hartford, Connecticut January 1998
Salt River Recycling, L.L.C. ("Salt Phoenix, Arizona January 1998
River")(4)
Accurate Iron & Metal Co.(5) Franklin Park, Illinois February 1998
Superior Forge, Inc. ("Superior Huntington Beach, California March 1998
Forge")(6)
Ellis Metals, Inc. ("Ellis Metals") Tucson, Arizona March 1998
Midwest Industrial Metals Corp. Chicago, Illinois April 1998
("Midwest Industrial")(5)
138 Scrap, Inc. and Katrick, Inc. Riverdale, Illinois May 1998
R&P Holdings, Inc., Charles Sharon, Pennsylvania May 1998
Bluestone Company and R&P Real Elizabeth, Pennsylvania
Estate, Inc. (collectively,
"Bluestone")(7)(8)
Goldin Industries, Inc., Goldin Gulfport, Mississippi June 1998
Industries Louisiana, Inc. and Mobile, Alabama
Goldin of Alabama, Inc. Harvey, Louisiana
(collectively, the "Goldin
Companies")(9)
Newell Recycling of Denver, Inc. and Denver, Colorado June 1998
Newell Recycling of Utah, L.L.C. Colorado Springs, Colorado
(collectively, "Newell Salt Lake City, Utah
Recycling")(10)
Naporano Iron & Metal Co. and Nimco Newark, New Jersey July 1998
Shredding Co. (collectively,
"Naporano")
Michael Schiavone & Sons, Inc. and North Haven, Connecticut July 1998
related entities (collectively, Torrington, Connecticut
"Schiavone")
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LOCATION OF DATE OF
PRINCIPAL PROCESSING ACQUISITION OR
NAME FACILITIES INVESTMENT
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M. Kimerling & Sons, Inc. Birmingham, Alabama July 1988
("Kimerling")
Nicroloy Company ("Nicroloy") Heidelberg, Pennsylvania July 1998
Midwest Metallics L.P.(5) Chicago, Illinois July 1998
PerlCo, L.L.C. ("PerlCo")(11) Memphis, Tennessee November 1998
Southern Recycling, L.L.C.(12) New Orleans, Louisiana February 1999
Gulfport, Mississippi
Mobile, Alabama
Little Rock, Arkansas
Pensocola, Florida
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(1) On March 12, 1998, EMCO Recycling changed its legal name to Metal Management
Arizona, Inc. ("Metal Management Arizona"). The operations originally
conducted on the former EMCO Recycling facilities have since been
consolidated with the operations of Salt River.
(2) The Attalla, Alabama recycling facility was operated through a joint venture
in which our subsidiary, Reserve Iron & Metal holds a 50% interest. This
joint venture is currently being liquidated.
(3) On October 30, 1998, Briquetting Corporation of America and Paulding
Recycling, Inc. were merged with and into The Isaac Corporation.
(4) At the time of the acquisition of Cozzi Iron & Metal, Cozzi Iron & Metal
held a 50% joint venture interest in Salt River. We subsequently acquired
the 50% joint venture interest Cozzi Iron & Metal did not hold.
(5) We purchased substantially all of the assets of Accurate Iron & Metal and
certain of the assets of Midwest Industrial and Midwest Metallics L.P., all
of which have been integrated into our Cozzi Iron & Metal operations.
(6) On March 12, 1999, we sold Superior Forge to a newly formed corporation
controlled by Gerard M. Jacobs, our former Chief Executive Officer.
(7) The Sharon, Pennsylvania recycling facility is operated through a joint
venture in which our subsidiary, Bluestone, holds a 50% interest. This joint
venture is in the process of being liquidated.
(8) On March 1, 1999, Charles Bluestone Company and R&P Real Estate, Inc. were
merged with and into Nicroloy Acquisition Corp., a subsidiary that was
formed to complete the purchase of the assets of Nicroloy, whereupon
Nicroloy Acquisition Corp. changed its name to Metal Management Pittsburgh,
Inc. ("Metal Management Pittsburgh").
(9) A new subsidiary, Metal Management Gulf Coast, Inc. ("Metal Management Gulf
Coast"), was formed with which we purchased substantially all of the scrap
metal assets of the Goldin Companies. We decided to abandon and shut down
these operations contemporaneously with our acquisition of a 28.5% interest
in Southern Recycling, L.L.C. which has operations in the Gulf Coast region.
(10) A new subsidiary, Newell Recycling West, Inc. ("Newell Recycling West"),
was formed and merged with Newell Recycling of Denver, Inc. (with Newell
Recycling West surviving the merger). Concurrently therewith, Newell
Recycling West purchased substantially all of the scrap metal assets of
Newell Recycling of Utah, L.L.C.
(11) At the time of its acquisition, Cozzi Iron & Metal held a 50% joint venture
interest in PerlCo. In November 1998, we acquired FPX, Inc., the holder of
the remaining 50% joint venture interest in PerlCo.
(12) We obtained a 28.5% membership interest in Southern Recycling. In
connection with obtaining this interest, we were granted an option to
purchase the remaining interest in Southern Recycling on the basis of a
predetermined formula during the three-year period following the
acquisition.
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RECYCLING OPERATIONS
Our recycling operations 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. We purchase ferrous scrap from two primary
sources: (i) manufacturers who generate 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,
we purchase, at auction, furnace iron from integrated steel mills and obsolete
steel and iron from government and large industrial accounts. Finally, we
purchase materials from small dealers, peddlers and auto wreckers who deliver
directly to our processing facilities. Prices are determined primarily by market
demand and the composition, quality, size, and weight of the materials.
Ferrous Scrap Processing. We prepare ferrous scrap metal for resale
through a variety of methods including sorting, shredding, shearing or cutting,
baling, briquetting or breaking. We produce a number of differently sized and
shaped products depending upon customer specifications and market demand.
Sorting. After purchasing ferrous scrap metal, we inspect the
material to determine how it should be processed to maximize profitability.
In some instances, scrap may be sorted and sold without further processing.
We separate 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 our shredding operation. These items are
fed into a shredder that quickly breaks the scrap down into fist-size
pieces of ferrous metal. The shredding process uses magnets and other
technologies to separate ferrous, non-ferrous and non-metallic materials.
The ferrous material is sold to our 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 specific lengths or
sizes, the scrap is then sold to those customers who can accommodate larger
materials, such as mini-mills.
Baling. We process 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. We use cranes, front-end loaders and conveyors to
feed the metal into hydraulic presses which compress the materials into
uniform blocks at high pressure.
Briquetting. We process borings and turnings made of steel and iron
into briquettes using both hot and cold briquetting methods, and
subsequently sell these briquettes to steel mills or foundries. We possess
the technology to control the metallurgical content of briquettes to meet
customer specifications. The majority of our cold briquetting capacity is
located at the Isaac Group's facility in Defiance, Ohio.
Breaking of Furnace Iron. We process 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 forged steel balls dropped
from cranes. The fragments are then sorted and screened according to size
and iron content.
Ferrous Scrap Sales. We sell 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 our customers purchase processed
ferrous scrap according to a monthly plan which establishes the quantity
purchased for the month. The price we charge for ferrous scrap depends upon
market demand, as well as quality and grade of the scrap. We believe
profitability may be enhanced by offering a broad product line to our customers.
We believe
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that our consolidation strategy will allow us to be a premier supplier of scrap,
since we 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. We purchase non-ferrous scrap from three
primary sources: (i) manufacturers and other non-ferrous scrap sources who
generate or sell waste 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 our facilities material which they
collect from a variety of sources. We collect non-ferrous scrap from sources
other than those that deliver directly to our processing facilities by placing
retrieval bins near these sources. The bins are subsequently transported to our
processing facilities.
We also generate non-ferrous scrap as a by-product of our ferrous scrap
processing operations. Non-ferrous scrap is recovered from our 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 magnetic forces.
A number of factors can influence the continued availability of non-ferrous
scrap such as the level of manufacturing activity and the quality of our
supplier relationships. Consistent with industry practice, we have certain
long-standing supply relationships (which generally are not the subject of
written agreements) that our management believes will improve as a result of
implementing our consolidation strategy.
Non-Ferrous Scrap Processing. We prepare non-ferrous scrap metals,
principally copper and aluminum, for resale by sorting, shearing, cutting,
chopping or baling.
Sorting. Our 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. Our ability to identify
metallurgical composition is critical to maintaining high margins and
profitability. Due to the high value of many non-ferrous metals, we can
afford to utilize more labor-intensive sorting techniques than are employed
in our ferrous operations. We sort non-ferrous scrap for further processing
according to type, grade, size and chemical composition. Throughout the
sorting process, we determine whether the material requires further
processing before being sold.
Copper. Copper scrap may be processed in several ways. We process
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, we process scrap copper by baling and other repacking
methods to meet customer specifications.
Aluminum. We process 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. We process other non-ferrous metals
using similar cutting, baling and repacking techniques as used to process
aluminum. Other significant non-ferrous metals we process are stainless
steel, titanium, brass and high-temperature alloys.
Non-Ferrous Scrap Sales. We sell 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. 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.
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SEASONALITY AND OTHER CONDITIONS
We believes that our operations can be adversely affected by protracted
periods of inclement weather, which could reduce the volume of material
processed at our facilities. In addition, periodic maintenance shutdowns or
labor disruptions by our larger customers may have a temporary adverse impact on
our operations.
EMPLOYEES
As of March 31, 1999, we employed 1,876 persons, 798 of whom were covered
by collective bargaining agreements. Our management believes that we have good
relations with our employees.
ENVIRONMENTAL AND REGULATORY MATTERS
We are subject to comprehensive local, state, federal and international
statutory and regulatory requirements relating to, among others:
- the acceptance, storage, treatment, handling and disposal of waste;
- the discharge of materials into air;
- waste water and storm water regulation;
- remediation of soil and groundwater contamination;
- natural resource damages; and
- employee health and safety.
Furthermore, the nature of our business and previous operations by others
at facilities currently or formerly owned or operated by us expose us to risks
of claims under environmental laws and regulations. We believe that we and our
subsidiaries are in material compliance with currently applicable environmental
and other applicable laws and regulations. We can give you no assurance,
however, that we and our subsidiaries will avoid material fines, penalties and
expenses associated with additional compliance issues in the future. We and our
subsidiaries may be required from time to time to engage in certain remedial
activities with regard to sites owned or operated by us or our subsidiaries.
Furthermore, we and our subsidiaries may be required to perform or pay for
certain remedial activities in regard to certain sites owned by third parties.
We are not able to predict the ultimate costs of resolving environmental
matters, but these costs are not expected to have a material effect on our
financial condition or results of operations based on information currently
available to us. However, we can give you no assurance that we will avoid
potential damages, liabilities, expenditures, fines, and penalties that will
have a material adverse effect on our financial condition or results of
operations. In addition, environmental requirements may become more stringent or
new requirements may be enacted which could result in material expenditures or
penalties.
Environmental legislation and regulations have changed rapidly in recent
years, and it is likely that we 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, we cannot predict
future capital expenditures for environmental control facilities with accuracy.
However, we expect that environmental control standards will become increasingly
stringent and that the expenditures necessary to comply with them could increase
substantially.
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Local, state, federal, foreign and international authorities 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;
- impose higher taxes or fees on certain shipments of waste; or
- classify or reclassify certain categories of non-hazardous wastes as
hazardous.
Certain governmental authorities have promulgated "flow control" or other
regulations, which attempt to require that all waste (or certain types of waste)
generated within a particular jurisdiction go to certain disposal sites. None of
these are yet in effect in the primary jurisdictions where we operate. However,
the City of Chicago recently enacted an ordinance regulating recycling
activities which, among other things, requires various permits and materials
handling plans designed to prevent releases into the environment, which will
require additional expenditures by us.
We are required to obtain, and must comply with, various permits and
licenses to conduct our operations. Violations of any permit or license, if not
remedied, could result in our incurring substantial fines, suspension of
operations or closure of a site. Further, our operations are conducted primarily
outdoors and as such, depending on the nature of the ground cover, involve the
risk of releases of regulated materials to the soil and, possibly, to ground
water. There can be no assurance that material expenditures will not be required
to prevent or address these conditions.
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. 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 law 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. 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.
We believe that, with heightened legal, political and citizen awareness and
concerns, all companies in the scrap metals recycling industry may face, in the
normal course of operating their businesses, 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 and establishing
institutional controls.
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 regulated materials into the environment, we expect a material
portion of our capital expenditures to relate, directly or indirectly, to
environmental-related equipment and facilities. Moreover, it is possible that
future developments, such as increasingly strict requirements of environmental
laws and regulations, and enforcement
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policies will require even more significant capital investments in this regard.
Expenditures for environmentally related capital improvements were not material
for the year ended March 31, 1999. However, there can be no assurance that this
will be the case in the future.
See "Investment Considerations -- Potential Environmental Liability" below
for a more detailed description of the environmental issues relevant to our
operations.
RESEARCH AND DEVELOPMENT
Our expenditures on research and development have not been material for any
of the years ended March 31, 1999, 1998 and 1997, and we are not currently
involved in any significant research and development projects.
CAPITAL EXPENDITURES
The scrap metals recycling business is capital intensive. In the fiscal
year ended March 31, 1999, we invested approximately $19 million to fund capital
expenditure requirements and also invested $10.8 million to buy-out operating
leases in order to purchase certain leased equipment used in our operations.
SIGNIFICANT CUSTOMERS
For the year ended March 31, 1999, our 10 largest customers represented
approximately 34.2% of our consolidated net sales. These customers comprised
approximately 34.0% of our accounts receivable balances at March 31, 1999. No
single customer accounted for more than 10% of our consolidated net sales. The
loss of any one of our significant customers could have a material adverse
effect on our results of operations and financial condition.
COMPETITION
The markets for scrap metals are highly competitive, both in the purchase
of raw scrap and the sale of processed scrap. With regard to the purchase of raw
scrap, we compete 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, we compete 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.
We believe that our ability to handle substantial volumes, broad product line,
geographic diversity and ability to provide value-added services provide us with
a competitive advantage.
We face 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 we do. 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.
In addition, in pursuing our acquisition strategy, we face significant
competition from other consolidators in the scrap metals recycling industry. We
believe that Ferrous Processing, Inc., Philip Services Corporation, Omni Source
Corporation, David J. Joseph Corporation, Schnitzer Steel Industries Inc. and
others are each pursuing, to varying degrees, consolidation of the recycling
industry. Some of these competitors may have greater resources than we do.
BACKLOG
The processing time for scrap metals is generally sufficiently short so as
to permit us to fill orders for most of our products in a short time period.
Accordingly, we do not consider backlog to be material to our business.
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PATENTS AND TRADEMARKS
Although we and our subsidiaries own certain patents and trademarks, we do
not believe that our business is dependent on its intellectual property rights.
INVESTMENT CONSIDERATIONS
In the normal course of our business, we, in an effort to help keep
stockholders and the public informed about our 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 us, projections involving anticipated revenues, earnings, profitability
or other aspects of operating results or other future developments in our
affairs or the industry in which we conduct business. The words "expect,"
"believe," "anticipate," "project," "estimate" and similar expressions are
intended to identify forward-looking statements. We caution 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 our operations are subject to a
number of uncertainties, risks, and other influences, many of which are outside
our control, and any one of which, or a combination of which, could materially
affect our financial condition or results of operations, the trading price of
our Common Stock, and whether the forward-looking statements we make ultimately
prove to be accurate.
The following discussion outlines certain factors that could affect our
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
we make or which are made on our behalf.
Ability to Service Indebtedness.
During the year ended March 31, 1999, we experienced losses of
approximately $50 million and were challenged to maintain adequate working
capital and to comply with the agreements governing our indebtedness. Since
September 30, 1998, we have entered into three amendments to our Senior Credit
Facility (hereinafter defined) to avoid the occurrence of events of default
under that facility. If our results of operations do not improve during the
current fiscal year, we could be unable to make interest payments on our
indebtedness or may have difficulty complying with financial debt covenants. In
addition, there can be no assurance that further amendments or waivers of
defaults under our Senior Credit Facility would be available in the future if we
were to default on our indebtedness. In that event, we may be required to
restructure our operations and financial obligations. Based on our projections
for the current fiscal year, we believe that we will be able to meet maturing
debt obligations as they become due and comply with our financial and other debt
covenants.
Our recent results of operations for the year ended March 31, 1999 were
negatively impacted by a dramatic and precipitous collapse in the domestic steel
industry and, in turn, the metals recycling industry. This resulted in a
significant decline in the price and demand for scrap metals. Although there has
been some improvement in the market conditions in the scrap metals industry
since January 1999, resulting in both improved demand and pricing for scrap
metals, we cannot assure you that this trend will continue to be sustained.
Leverage.
We are highly leveraged. As of March 31, 1999, we had $335.5 million of
debt outstanding. During the fiscal year ended March 31, 1999, we had a
deficiency in our earnings to cover fixed charges in the amount of $64.1
million. Subject to certain restrictions, exceptions and financial tests set
forth in the Indenture governing our Senior Subordinated Notes (hereinafter
defined), the Indenture governing our Senior Secured Notes (hereinafter defined)
and in our Senior Credit Facility, we may incur additional indebtedness in the
future.
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The degree to which we are leveraged could have important negative consequences
to the holders of our securities, including, the following:
- we will have to use a substantial portion of our cash flow from
operations to pay debt service rather than for operations;
- our ability to obtain additional future financing for acquisitions,
capital expenditures, working capital or general corporate purposes could
be limited;
- we will have increased vulnerability to adverse general economic and
metals recycling industry conditions; and
- we may be vulnerable to higher interest rates because borrowings under
some of our credit arrangements are at variable rates of interest.
We can give you no assurance that our business will generate sufficient
cash flow from operations or that future working capital borrowings will be
available in an amount sufficient to enable us to service our indebtedness, or
make necessary capital expenditures. For a description of the instruments
governing our indebtedness, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations", included in Part II, Item 7 of
this Report.
Our indebtedness contains covenants that restrict our ability to engage in
certain transactions.
Our Senior Credit Facility, the Indenture governing our Senior Subordinated
Notes and the Indenture governing our Senior Secured Notes contain covenants
that, among other things, restrict our and most of our subsidiaries' ability to:
- incur additional indebtedness;
- pay dividends;
- prepay subordinated indebtedness;
- dispose of some types of assets;
- make capital expenditures;
- create liens and make some types of investments or acquisitions; and
- engage in some fundamental corporate transactions.
In addition, under our Senior Credit Facility, we are required to satisfy
specified financial covenants, including an interest coverage ratio and ratio of
capital expenditures to consolidated revenues. Our ability to comply with these
provisions may be affected by general economic conditions, industry conditions,
and other events beyond our control. Our breach of any of these covenants could
result in a default under our Senior Credit Facility. In the event of a default,
depending on the actions taken by the lenders under our Senior Credit Facility,
the lenders could elect to declare all amounts borrowed under our Senior Credit
Facility, together with accrued interest, to be due and payable. In addition, a
default under the Indenture governing our Senior Secured Notes or the Indenture
governing our Senior Subordinated Notes would constitute a default under our
Senior Credit Facility and any instruments governing our other indebtedness.
Since September 30, 1998, due to the decline in our results of operations, we
have entered into three amendments to our Senior Credit Facility to avoid the
occurrence of events of default under that facility. We cannot assure you that
further amendments or waivers of default under our Senior Credit Facility would
be available in the future if an event of default were to arise.
Both the Indenture governing our Senior Subordinated Notes and the
Indenture governing our Senior Secured Notes contain restrictions on our ability
to incur additional indebtedness, subject to certain exceptions, unless we meet
a fixed charge coverage ratio of 2.0 to 1.0 for the immediately preceding four
calendar quarters. Because of our recent financial performance, we currently
would not satisfy the fixed-charge coverage ratio test, and, accordingly, are
unable and will remain unable in the foreseeable future to incur
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significant amounts of additional indebtedness. As a result, if we experience a
liquidity shortfall, our ability to incur additional indebtedness to cover the
shortfall will be severely limited.
Our inability to control or manage growth effectively or to successfully
integrate new businesses into our operations would have a material adverse
effect on our results of operations and financial condition.
We intend to continue to actively pursue mergers and acquisitions. We
cannot assure you that we will be successful in acquiring other entities or that
we will be able to effectively manage those acquired entities. Our ability to
achieve our expansion objectives and to manage our growth effectively depends on
a variety of factors, including:
- our ability to identify appropriate acquisition targets and to negotiate
acceptable terms for their acquisition;
- the integration of new businesses into our operations;
- the achievement of cost savings; and
- the availability of capital.
Depending on the nature and size of these transactions, if any, we may
experience working capital and liquidity shortages. We cannot assure you that
additional financing will be available on terms and conditions acceptable to us,
if at all.
Due to the limited experience of management in effecting a consolidation
strategy on the scale we intend to pursue, we cannot assure you that we will be
able to successfully effect our consolidation strategy, even if we are able to
acquire other entities on acceptable terms and conditions. In addition, none of
our existing subsidiaries has significant experience operating as a subsidiary
of a public holding company subject to formal accounting and reporting
requirements. We will be required to continue to devote significant management
time and capital to enhance information systems and to improve and monitor
internal controls. We will also have to recruit managers with appropriate skills
to ensure the timeliness and accuracy of financial reports. The success of our
consolidation strategy depends in part on our ability to oversee diverse
operations and to successfully integrate processing, marketing and other
resources.
Past financial performance should not be considered a reliable indicator of
future performance.
The Company has only recently entered the scrap metals recycling industry
as of April 1996. Accordingly, past financial performance should not be
considered a reliable indicator of future performance, and historical trends
should not be used to anticipate results or trends in future periods.
The metals recycling industry is highly cyclical.
The operating results of the scrap metals recycling industry in general,
and our operations specifically, are highly cyclical in nature. They tend to
reflect and be amplified by general economic conditions, both domestically and
internationally. 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. This leads to significant
fluctuations in demand and pricing for our products. Future economic downturns
in the national and international economy would likely materially and adversely
affect our results of operations and financial condition. Our ability to
withstand significant economic downturns in the future will depend in part on
our level of capital and liquidity.
Our business can also be adversely affected by increases in steel imports
into the United States which generally have an adverse impact on domestic steel
production and a corresponding adverse impact on the demand for scrap metals.
For example, beginning in July 1998, the domestic steel industry and, in turn,
the metals recycling industry suffered a dramatic and precipitous collapse,
resulting in a significant decline in the price and demand for scrap metals. The
decline in the steel and scrap metal sectors was the result, in large
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part, of the increase in steel imports flowing into the United States,
principally from Japanese, Brazilian, Russian and Southeast Asian steel
producers during the last six months of 1998. Our results of operations were
adversely impacted during the year ended March 31, 1999 by these factors.
Prices of commodities we own may be volatile.
Although we have an objective to turn over our inventory of raw or
processed scrap metals as rapidly as possible, we are exposed to commodity price
risk during the period that we have title to products that are held in inventory
for processing and/or resale. Prices of commodities can be volatile due to
numerous factors beyond our control, including general economic conditions;
labor costs; competition; availability and relative pricing of scrap metal
substitutes; import duties; tariffs and currency exchange rates. In an
increasing price environment, competitive conditions may limit our ability to
pass on price increases to our customers. In a decreasing price environment, we
may not have the ability to fully recoup the cost of raw scrap we process and
sell to our customers. The lack of long-term purchase agreements with our
significant customers may exacerbate this risk.
Compliance with OSHA.
Our 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"). Five accidental employee deaths and a
number of serious accidental injuries, have occurred at our subsidiaries during
the past four years. We have been fined in regard to some of these incidents. We
cannot assure you that we will be able to avoid material liabilities for any
employee death, or injury that may occur in the future or that these types of
incidents may not have a material adverse effect on our financial condition.
We may not be able to negotiate future labor contracts on favorable terms.
Many of our active employees are represented by various labor unions,
including the Teamsters Union, the United Steel Workers Union and the United
Auto Workers. As our agreements with those unions expire, we cannot assure you
that we will be able to negotiate extensions or replacements on terms favorable
to us, or at all, or that we will be able to avoid strikes, lockouts or other
labor actions from time to time. We cannot assure you that new labor agreements
will be reached with our unions as those labor contracts expire. Any labor
action resulting from the failure to reach an agreement with one of our unions
may have a material adverse effect on us or our results of operations.
The loss of any member of our senior management team or a significant number of
our managers could have a material adverse effect on our operations.
Our operations to date have depended in large part on the skills and
efforts of our senior management team, including T. Benjamin Jennings, our
Chairman and Chief Executive Officer, and Albert A. Cozzi, our President and
Chief Operating Officer. In addition, we rely substantially on the experience of
the management of our subsidiaries with regard to day-to-day operations. While
we have employment agreements with Messrs. Jennings and Cozzi and certain
members of our management team at the subsidiary level, we cannot assure you
that we will be able to retain the services of any of those individuals. The
loss of any member of our senior management team or a significant number of
managers could have a material adverse effect on our operations.
The profitability of our scrap recycling operations depends, in part, on the
availability of an adequate source of supply.
We acquire our 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 us. If a substantial number of scrap
suppliers cease selling scrap metals to us, our results of operations or
financial condition would be materially and adversely affected.
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The concentration of our customers and our exposure to credit risk could have a
material adverse effect on our results of operations or financial condition.
Our ten largest customers represented approximately 34.2% of consolidated
net sales for the year ended March 31, 1999. Accounts receivable balances from
these customers represented approximately 34.0% of consolidated accounts
receivable at March 31, 1999. The loss of any one of these significant customers
could adversely affect our results of operations or financial condition.
In connection with the sale of our products, we generally do not require
collateral as security for customer receivables. Some of our subsidiaries have
significant balances owing from customers that operate in cyclical industries
and under leveraged conditions that may impair the collectibility of those
receivables. Failure to collect a significant portion of amounts due on those
receivables could have a material adverse effect on our results of operations or
financial condition.
A significant increase in the use of scrap metals alternatives by current
consumers of processed scrap metals could have a material adverse effect.
During periods of high demand for scrap metals a tightness can develop in
the supply and demand balance for ferrous scrap. The relative scarcity of
ferrous scrap, particularly the "cleaner" grades, and its high price during such
periods have created opportunities for producers of alternatives to scrap
metals. Although these alternatives have not been a major factor in the industry
to date, we cannot assure you that the use of alternatives to scrap metals will
not proliferate if the prices for scrap metals rise or if the levels of
available unprepared ferrous scrap decrease.
Potential Environmental Liability.
General. We are 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 our operations. Furthermore,
we may be required to pay for all or a portion of the costs to clean up or
remediate sites we never owned or operated if we are found to have arranged for
transportation, treatment or disposal of regulated substances on or to these
sites. We are also subject to potential liability for environmental damage that
our 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 these assets or
operations. Any substantial liability for environmental damage could materially
adversely affect our operating results and financial condition.
Incompleteness of Site Investigations. As part of our pre-transaction "due
diligence" investigations, we typically hire an environmental consulting firm to
conduct pre-transaction screen reviews, or Phase I and/or Phase II site
assessments of the sites owned or leased by particular acquisition or merger
candidates. However, these pre-transaction reviews and site assessments have not
covered all of the sites owned or leased by the companies which are acquired by
us. Moreover, those pre-transaction reviews and 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, we do not include soil sampling or core borings as
a standard part of these pre-transaction reviews and 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 us failing to identify a seriously
contaminated site prior to an acquisition or merger.
Likelihood of Contamination at Some Sites. Pre-transaction reviews and
site assessments of our current sites conducted by independent environmental
consulting firms have revealed that some soil, surface water and/or groundwater
contamination, including various metals, arsenic, petrochemical byproducts,
waste oils, polychlorinated biphenyls, volatile organic compounds and baghouse
dust, is likely at certain of these sites, and have recommended that we conduct
additional investigations and remediation. Based on our review of these reports,
we believe that it is likely that contamination at varying levels exists at our
sites, and some of our sites will require additional investigation, monitoring
and remediation.
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The ultimate extent of this contamination cannot be stated with any
certainty at this point, and we can give you no assurance that the cost of
remediation will be immaterial. The existence of this contamination could result
in federal, state, local or private enforcement or cost recovery actions against
us, possibly resulting in disruption of our operations, the need for proactive
remedial measures, and substantial fines, penalties, damages, costs and expenses
being imposed against us.
We expect to require future cash outlays as we incur the actual costs
relating to the remediation of environmental liabilities. The incurrence of the
costs may have a material adverse effect on our results of operations and
financial condition. In this regard, we have established an overall reserve of
$2.2 million at March 31, 1999 for environmental liabilities that have been
identified and quantified.
Recommendations of Environmental Consultants. Our environmental
consultants have recommended that we take a variety of preventative and/or
remedial actions, 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;
- the completion of certain actions in regard to storm water pollution
prevention plans;
- the 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 we fail to follow these recommendations, we may 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 a
material adverse effect on our results of operations and financial condition.
In connection with the acquisition of the assets of Aerospace, we have
identified certain on-site contamination which will require remediation in
accordance with a remediation plan prepared by an independent engineering firm.
The costs of this 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 we paid for these assets. Significant progress has been made to
date in implementing the remediation plan which we expect will be completed by
July 1999. However, until the remediation is actually completed, and the
completion certified by the environmental consultant engaged to perform the
remediation, we cannot assure you that we will not be required to make
significant expenditures to complete the remediation.
Uncertain Costs of Environmental Compliance and Remediation. Many factors
affect the level of expenditures we will be required to make in the future to
comply with environmental requirements, including:
- new local, state and federal laws and regulations;
- the developing nature of administrative standards promulgated under the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("Superfund"), and other environmental laws, and
changing interpretations of such laws;
- uncertainty regarding adequate control levels, testing and sampling
procedures, new pollution control technology and cost benefit analyses
based on market conditions;
- the incompleteness of information regarding the condition of certain
sites;
- the lack of standards and information for use in the apportionment of
remedial responsibilities;
- the numerous choices and costs associated with diverse technologies that
may be used in remedial actions at such sites;
- the possible ability to recover indemnification or contribution from
third parties; and
- the time periods over which eventual remediation may occur.
18
<PAGE> 20
Lack of Environmental Impairment Insurance. In general, our subsidiaries
do not carry environmental impairment liability insurance. In general, our
subsidiaries operate under general liability insurance policies, which do not
cover environmental damage. If one or more of our 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, our results of operations and financial
condition could be materially adversely affected.
Risks Associated With Certain By-Products. Our scrap metals recycling
operations produce significant amounts of by-products. Heightened environmental
risk is associated with some of these by-products. For example, certain of our
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, referred to as shredder
fluff, which remains after the segregation of ferrous and saleable non-ferrous
metals. Federal environmental regulations require testing or evaluation of
shredder fluff to avoid classification as a hazardous waste. We endeavor to have
hazardous contaminants from the feed material removed prior to shredding. In
general, our subsidiaries treat shredder fluff as a special non-hazardous waste.
If the shredder fluff is tested and determined to be hazardous, then it is
disposed of as a hazardous waste. If we are required to treat shredder fluff as
a hazardous waste, we may incur additional material expenditures for disposal or
treatment.
Potential Superfund Liability. Several of our subsidiaries have received
notices from the United States Environmental Protection Agency ("EPA") that each
of these companies and numerous other parties are considered potentially
responsible parties 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 various third party
sites. 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 these 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 our
analysis of the situation, we currently do not expect the potential liability of
our subsidiaries in these matters to have a material adverse effect on our
financial condition or results of operation.
Underground Storage Tanks. Underground storage tanks exist at several of
our sites. At least one of these tanks may not yet comply with current
regulatory requirements. We do not believe that this lack of compliance will
result in a material liability. In the event a release of regulated product has
occurred, we may incur significant costs to investigate and remediate the
release.
Compliance History. We have, in the past, been found not to be in
compliance with certain environmental laws and regulations, and have incurred
fines associated with such violations which have not been material in amount and
may in the future incur additional fines associated with such violations. We
have also paid a portion of the costs of certain remediation actions at certain
sites. We cannot assure you that we will avoid material fines, penalties,
damages and expenses resulting from additional compliance issues and liabilities
in the future.
ITEM 2. PROPERTIES
Our facilities generally are comprised of:
- processing areas;
- administrative offices;
- warehouses for the storage of repair parts and certain types of raw and
processed scrap;
- covered and open storage areas for raw and processed scrap;
- a machine or repair shop for the maintenance and repair of the facility's
vehicles and equipment;
- scales for weighing scrap; and
- loading and unloading facilities.
19
<PAGE> 21
Most of our facilities have specialized equipment for processing various
types and 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 our principal
properties:
<TABLE>
<CAPTION>
APPROXIMATE LEASED/
LOCATION OPERATIONS SQUARE FEET OWNED
- -------- ---------- ----------- -------
<S> <C> <C> <C>
Metal Management, Inc.
500 N. Dearborn St., Chicago, IL................ Corporate Office 11,200 Leased
Aerospace
500 Flatbush Ave., Hartford, CT................. Office/Processing 1,481,040 Leased
Cozzi Iron & Metal
2232 S. Blue Island Ave., Chicago, IL........... Office 10,095 Owned
2305 S. Paulina St., Chicago, IL................ Maintenance/Shredder 392,040 Owned
2500 S. Paulina St., Chicago, IL................ Office/Warehouse/Shear 168,255 Owned
2425 S. Wood St., Chicago, IL................... Office/Warehouse/Baler 103,226 Owned
2451 S. Wood St., Chicago, IL................... Office/Maintenance 178,596 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/Warehouse/Dismantling 9,000 Leased
320 Railroad St., Joliet, IL.................... Feeder Yard 43,760 Leased
HouTex
15-21 Japhet, Houston, TX....................... Office/Warehouse/Barge 1,960,200 Leased
Terminal/Processing
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
Kimerling
2020 Vanderbilt Rd., Birmingham, AL............. Office/Shear/Granulator 1,150,073 Owned
MacLeod Companies
833 W. 182nd St., Gardena, CA................... Warehouse/Processing 4,700 Leased
1022 W. Lomita Blvd., Harbor City, CA........... Warehouse 19,223 Leased
9309 Rayo Ave., Southgate, CA................... Office/Warehouse/Processing 304,920 Owned
Metal Management Arizona
3700 W. Lower Buckeye Rd., Phoenix, AZ.......... Baler 1,089,000 Owned
3640 S. 35th Ave., Phoenix, AZ.................. Office/Shear/Shredder/Baler 1,121,670 Leased
3501 NW Grand Ave., Phoenix, AZ................. Feeder Yard 10,890 Leased
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
APPROXIMATE LEASED/
LOCATION OPERATIONS SQUARE FEET OWNED
- -------- ---------- ----------- -------
<S> <C> <C> <C>
4457 Gila Ridge Rd., Yuma, AZ................... Feeder Yard 217,800 Leased
5851 E. 22nd St., Tucson, AZ.................... Feeder Yard 10,890 Leased
1800 N. Stone, Tucson, AZ....................... Office/Warehouse 152,460 Owned
1900 Rio Solado Parkway, Tempe, AZ.............. Feeder Yard 108,900 Owned
Metal Management Gulf Coast
4390 Peters Rd, Harvey, LA...................... Office/Shear/Baler 696,960 Leased
Metal Management Pittsburgh
2045 Lincoln Blvd., Elizabeth, PA............... Office/Processing 423,054 Owned
2600 Chartiers Ave., Heidelberg, PA............. Processing 50,253 Owned
Naporano Iron & Metal
Foot of Hawkins St., Newark, NJ................. Office/Baler/Shear 382,846 Owned
Port of Newark, Newark, NJ...................... Barge & Ship 839,414 Leased
Terminal/Stevedoring
252-254 Doremus Ave., Newark, NJ................ Shredder/Processing 384,000 Owned
Newell Recycling West
5601 York St., Denver, CO....................... Office/Shredder 392,040 Owned
2690 East Las Vegas St., Colorado Springs, CO... Feeder Yard 522,720 Owned
3260 W. 500 South St., Salt Lake City, UT....... Office/Shredder 435,600 Owned
PerlCo
540 Weakly St., Memphis, TN..................... Office/Maintenance 178,596 Owned
526 Weakly St., Memphis, TN..................... Warehouse/Baler/Shear/Shredder 859,874 Owned
Proler Southwest
90 Hirsch Rd., Houston, TX...................... Office/Warehouse/Processing 378,972 Owned
120-121 Apache Dr., Jackson, MS................. Office/Processing 562,795 Owned
Reserve Iron & Metal
4431 W. 130th St., Cleveland, OH................ Office/Iron Breaking/Aluminum 2,178,000 Leased
12701 S. Doty Ave., Chicago, IL................. Shear/Iron Breaking 784,080 Leased
Schiavone
234 Universal Drive, North Haven, CT............ Office/Shredder/Baler/Shear 1,089,000 Owned
1116 S. Main St., Torrington, CT................ Office/Warehouse/Processing 261,360 Owned
</TABLE>
We believe that our facilities are suitable for their present and intended
purposes and have adequate capacity for our current levels of operation.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various litigation matters involving
ordinary and routine claims incidental to our business. A significant portion of
these matters result from environmental compliance issues applicable to the
operations of our subsidiaries. There are presently no legal proceedings pending
against us which, in the opinion of our management, is likely to have a material
adverse effect on our business, financial position or results of operations.
On July 24, 1998, the City of Chicago brought suit against Cozzi Iron &
Metal alleging that each of its seven scrap metal processing facilities within
the City was operating in violation of various municipal ordinance provisions
and causing a public nuisance threatening the health and safety of residents
(City of Chicago v. Cozzi Iron & Metal Inc., 98 CH 9801. Circuit Court, Cook
County, Chancery Division). The City alleges, among other things, that Cozzi
Iron & Metal's operations have resulted in soil contamination, unlawful
discharges into city sewers and adjoining waterways, unlawful storage of various
materials and atmospheric pollution, including odors and dust. The City is
seeking an order directing Cozzi Iron & Metal to correct these alleged
conditions as well as fines. Cozzi Iron & Metal is currently negotiating with
the City to reach an appropriate resolution of this matter. Cozzi Iron & Metal
has proposed a comprehensive site management plan for its main yard as a model
for all sites, including various site improvements, grading, storm water control
and used oil and liquids collection and containment. Cozzi Iron & Metal cannot
determine the
21
<PAGE> 23
total cost that may result from this lawsuit which will depend, in part, upon
the nature and extent of any soil or other contamination identified and specific
response measures required. While we do not believe such costs are likely to
have a material adverse effect on our business or financial condition, there can
be no assurance that this will be the case.
In February 1999, a superseding indictment was issued by a federal grand
jury against Newell Recycling of Denver, Inc., (now Newell Recycling West)
alleging that Newell Recycling West knowingly endangered employees by illegally
storing an ignitable hazardous waste, namely, discarded gasoline, and also
illegally disposing of discarded gasoline in violation of The Resource
Conservation and Recovery Act of 1976, as amended. Two former employees and one
current employee of Newell Recycling West were charged with illegal storage and
disposal of discarded gasoline. The allegations relate to a fire at Newell
Recycling West's facility in Denver, Colorado on October 30, 1995, before Newell
Recycling West was purchased by us, in which three employees were burned when
entering a pit below an automobile shredder. The indictment also alleges that
liquid waste from the pit was pumped and disposed of on the ground at the
facility. Based on the current indictment, the maximum potential statutory fine
for the alleged acts by Newell Recycling West is $1,350,000. The prior owner of
Newell Recycling West is contractually obligated to indemnify the Company for
any liabilities resulting from this matter.
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 1999.
22
<PAGE> 24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock, traded under the symbol "MTLM," has traded on
the NASDAQ SmallCap Market since May 28, 1999. Previously, the Company's Common
Stock traded on the NASDAQ National Market. 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. They reflect inter-dealer prices,
without retail mark-up, mark-down or commission.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1999 (YEAR ENDED 3/31/99)
Fourth Quarter............................................. $ 4.50 $ 1.22
Third Quarter.............................................. 4.38 1.38
Second Quarter............................................. 10.75 2.13
First Quarter.............................................. 15.44 9.88
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
</TABLE>
The number of registered stockholders of record of the Company's Common
Stock, based on the transfer agent records of the Company at March 31, 1999, was
approximately 600. On March 31, 1999, the closing price per share of the
Company's Common Stock as reported on the NASDAQ National Market was $1.59.
The Company has not paid any cash dividends since August 31, 1995. The
Company presently has no intention of paying dividends in the foreseeable future
and intends to utilize its cash for its business operations. The Company's debt
covenants restrict the Company's ability to pay cash dividends.
UNREGISTERED SALES OF SECURITIES
On April 28, 1998, the Company issued 45,454 shares of Common Stock to
Katrick, Inc. as partial consideration for the acquisition of assets of 138
Scrap and Katrick, Inc. The shares were recorded as purchase consideration at
their fair value of $0.5 million. The Company also issued a warrant to purchase
an aggregate of 50,000 shares of Common Stock at $12.88 per share in
consideration for services rendered or to be rendered.
On May 29, 1998, the Company issued 1,034,826 shares of Common Stock to the
former shareholders of Bluestone in exchange for all the outstanding stock of
Bluestone. The Company's merger with Bluestone is accounted for as a
pooling-of-interests.
On June 4, 1998, the Company sold 18,294 shares of Common Stock to certain
individuals for an aggregate consideration of approximately $0.2 million.
On June 23, 1998, the Company issued 857,180 shares of Common Stock and a
warrant to purchase 150,000 shares of Common Stock at $10.50 per share to the
former shareholder of Newell Recycling in partial consideration for all the
outstanding stock of Newell Recycling. The Common Stock and the warrant issued
were recorded as purchase consideration at their fair value of approximately
$8.7 million.
On July 1, 1998, the Company issued 1,938,879 shares of Common Stock to the
former shareholders of Naporano as partial consideration for all the outstanding
common stock of Naporano. The shares were recorded as purchase consideration at
their fair value of $18.5 million.
23
<PAGE> 25
On July 1, 1998, the Company issued 435,558 shares of Common Stock to the
former shareholders of Schiavone as partial consideration for certain assets of
Schiavone. The shares were recorded as purchase consideration at their fair
value of $4.3 million.
On July 7, 1998, the Company issued 650,000 shares of Common Stock to the
former shareholders of Kimerling as partial consideration for certain assets of
Kimerling. The shares were recorded as purchase consideration at their fair
value of $5.4 million. The Company also issued warrants to purchase an aggregate
of 100,000 shares of Common Stock at $13.00 per share in consideration for
services rendered or to be rendered.
On July 8, 1998, the Company issued 203,692 shares of Common Stock to the
former shareholder of Nicroloy as partial consideration for certain assets of
Nicroloy. The shares were recorded as purchase consideration at their fair value
of $1.9 million.
On July 15, 1998, the Company issued 362,088 shares of Common Stock to
Midwest Metallics, L.P. as partial consideration for certain assets of Midwest
Metallics, L.P. The shares were recorded as purchase consideration at their fair
value of $3.1 million.
On November 2, 1998, the Company issued 6,000 shares of Series C Preferred
Stock to FPX, Inc. and Southern Tin Compress Corporation in exchange for the
common stock of FPX, Inc. and certain assets of Southern Tin Compress
Corporation. The Series C Preferred Stock is convertible into shares of Common
Stock at a price equal to $9.00 per share of Common Stock during the five year
period following the date of issuance, and thereafter at the market value of the
Common Stock. The Series C Preferred Stock was recorded as purchase
consideration at its fair value of $5.1 million.
On January 22, 1999, the Company completed a private sale of 192,000 shares
of the Company's Common Stock at a purchase price of $2.00 per share to certain
officers and directors of the Company. The Company received proceeds of
approximately $0.4 million in that transaction. There were no fees or
commissions paid in the transaction.
24
<PAGE> 26
ITEM 6. SELECTED CONSOLIDATED FINANCIAL 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 "Item 7 -- 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 historical data has been restated to reflect the merger with
Bluestone as a pooling-of-interests. 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 4 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>
FIVE MONTHS
FISCAL YEARS ENDED FISCAL YEARS
ENDED OCTOBER 31, MARCH 31, ENDED MARCH 31,
----------------- ----------- --------------------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $64.8 $112.8 $ 36.3 $141.8 $570.0 $805.3
Gross profit....................... 3.5 7.8 1.4 11.4 52.1 65.2
General and administrative
expenses......................... 2.0 6.3 2.3 10.4 28.2 56.4
Depreciation and amortization...... 0.1 0.1 0.1 2.5 10.1 25.6
Non-cash and non-recurring
expenses(1)...................... 0.0 0.0 0.0 0.0 43.5 16.2
Operating income (loss) from
continuing operations............ 1.4 1.4 (1.0) (1.5) (29.7) (33.0)
Interest expense................... 0.4 1.2 0.5 2.3 10.0 31.3
Income (loss) from continuing
operations....................... 1.9 1.1 (0.9) (2.1) (34.4) (47.0)
Income (loss) from discontinued
operations....................... (0.4) (2.7) 0.0 0.8 0.2 0.1
Extraordinary charge(2)............ 0.0 0.0 0.0 0.0 0.0 0.9
Preferred stock dividends(3)....... 0.0 0.0 0.0 0.0 7.1 1.8
Net income (loss) applicable to
Common Stock..................... 1.5 (1.6) (0.9) (1.3) (41.3) (49.7)
Income (loss) from continuing
operations applicable to Common
Stock:
Basic............................ $0.31 $ 0.18 $(0.15) $(0.21) $(2.00) $(1.22)
Diluted.......................... $0.31 $ 0.18 $(0.15) $(0.21) $(2.00) $(1.22)
Cash dividends per common
share......................... $0.20 $ 0.15 $ 0.00 $ 0.00 $ 0.00 $ 0.00
BALANCE SHEET DATA:
Working capital (deficit).......... $10.7 $ 11.1 $ 11.1 $ (9.7) $101.6 $ 85.9
Total assets....................... 30.6 39.1 31.7 94.7 497.2 667.7
Total debt (including current
maturities)...................... 8.1 17.6 11.6 48.1 151.5 335.5
Convertible preferred stock........ 0.0 0.0 0.0 0.0 33.0 20.0
Common stockholders' equity........ 15.8 12.6 12.4 27.2 215.4 219.2
</TABLE>
- ---------------
(1) Non-cash and non-recurring expenses of $43.5 million for Fiscal 1998
consisted of non-cash warrant compensation expense of $30.6 million and
facility abandonment, shut-down and integration charges of $12.9 million.
Non-cash and non-recurring expenses of $16.2 million for Fiscal 1999
consisted of non-cash warrant compensation income of $6.8 million, merger
related costs of $3.2 million, loss on the Superior Forge disposition of
$6.8 million and facility abandonment and integration charges of $13.0
million.
(2) Extraordinary charge in Fiscal 1999 relates to prepayment penalties, fees,
and other costs incurred to refinance debt, net of related income tax
benefit.
(3) Fiscal 1998 amount includes a $5.6 million non-cash charge for the
beneficial conversion feature of the preferred stock.
25
<PAGE> 27
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. See "Investment Considerations" included in Part I,
Item 1 of this Report for a discussion of the factors that could have a
significant impact on the Company's financial conditions or results of
operations.
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 effected 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 26 acquisitions (including our investment in Southern Recycling) and
now operates approximately 50 recycling facilities in 15 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 approximately 50 recycling
facilities in 15 states. In addition, Metal Management holds a 28.5% member
interest in Southern Recycling, the largest scrap metal recycler in the Gulf
Coast region. The Company is a leading consolidator in the metals recycling
industry. The Company has achieved its leading position in the metals recycling
industry primarily by implementing a 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 it acquires because of improved managerial and financial resources
and increased economies of scale.
The Company 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 other processed scrap,
such as turnings, cast 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, 1999, the
Company sold approximately 5.0 million tons of ferrous scrap and approximately
627.2 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
reincorporated 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
26
<PAGE> 28
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."
On May 28, 1998, the Company merged with Bluestone through a tax-free,
stock-for-stock exchange. The merger was accounted for as a
pooling-of-interests. All information set forth below includes the historical
information of the Company and Bluestone on a pooled basis for all periods
presented.
The Company's consolidated net sales 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 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-cash and non-recurring expenses include costs recognized relating to
issuances of warrants, one-time merger related costs, loss on sale of
businesses, facility abandonment, shut-down and integration costs, including
long-lived asset impairment charges, severance and other facility closure costs.
Other income and expense consists principally of interest expense, 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 attributable
to investments made by the Company in four joint ventures. The joint ventures
are accounted for under the equity method of accounting.
RESULTS OF OPERATIONS
The Company's results of operations for the fiscal year ended March 31,
1999 were negatively impacted by the adverse market conditions prevalent in the
steel and scrap metals sectors during the year. These market conditions were
characterized by a significant decline in the price and demand for scrap metals.
This decline resulted in large part from the increase in steel imports flowing
into the United States, principally from Japanese, Brazilian, Russian and
Southeast Asian steel producers during the last six months of 1998. By way of
example, for the twelve months ended December 31, 1998, steel imports into the
United States increased by approximately 33% compared with the same period of
1997, according to the American Iron & Steel Institute.
The oversupply of domestic steel resulting from the high levels of steel
imports resulted in a sharp curtailment of steel production during the second
half of calendar 1998 and a corresponding decline in demand for scrap metals. At
the same time, the export market for scrap metals was severely disrupted as a
result of the international financial crisis, principally experienced by the
Asian economies during this period. The negative impact on the scrap metals
industry of these adverse market conditions can be seen in the dramatic decline
in the market price of scrap metals during the period. The price of No. 1 Heavy
Melting Steel, the prime grade of scrap used to manufacture steel, for example,
declined from $140 per gross ton in January 1998 to approximately $73 per gross
ton in November 1998, with the most precipitous decline coming after July 1998,
when the price of No. 1 Heavy Melting Steel was $120 per gross ton.
During this period of adverse market conditions, the Company's sales were
significantly lower than expected and the Company was unable to implement its
strategy of maximizing inventory turns, resulting in significant losses.
During this period, the Company initiated a number of cost cutting
measures, including a significant reduction in the Company's work force, and
accelerated the integration of its businesses in an effort to reduce annual
operating expenses by at least $30 million. No assurance, however, can be made
that these cost cutting objectives will be achieved or that the objective will
be achieved without adversely affecting its operations.
In the fiscal quarter ended March 31, 1999, the Company experienced
improvements in its results of operations as a result of improved demand and
pricing in the scrap metals industry. The Company's
27
<PAGE> 29
management believes that the improved demand and pricing fundamentals
demonstrated in the fiscal fourth quarter represent the beginning of a return to
more normalized market conditions in the scrap metals industry. The Company
believes that as a result of the cost cutting initiatives that it has undertaken
during the adverse market conditions prevalent in its fiscal year ended March
31, 1999, it is well positioned to benefit from improving market conditions.
Year Ended March 31, 1999 Compared to Year Ended March 31, 1998
Consolidated net sales for the years ended March 31, 1999 ("Fiscal 1999")
and March 31, 1998 ("Fiscal 1998") in broad product categories were as follows
(in millions):
<TABLE>
<CAPTION>
3/31/99 3/31/98
-------------------------- --------------------------
NET NET
WEIGHT SALES % WEIGHT SALES %
------ ----- - ------ ----- -
<S> <C> <C> <C> <C> <C> <C>
COMMODITY (WEIGHT IN THOUSANDS)
Ferrous metals (tons).................. 3,795 $407.3 50.6 2,127 $266.4 46.7
Non-ferrous metals (lbs)............... 535,883 246.1 30.6 331,414 166.5 29.3
Brokerage -- ferrous (tons)............ 1,157 114.1 14.2 952 113.0 19.8
Brokerage-nonferrous (lbs)............. 91,360 23.6 2.9 68,754 21.9 3.8
Other.................................. -- 14.2 1.7 -- 2.2 0.4
------ ----- ------ -----
$805.3 100.0 $570.0 100.0
====== ===== ====== =====
</TABLE>
Consolidated net sales for the year ended March 31, 1999 were $805.3
million compared with consolidated net sales of $570.0 million for the year
ended March 31, 1998. Since April 1, 1998, the Company has acquired 11
companies, including Naporano and Schiavone, which are primarily ferrous
processors, and Kimerling which is primarily a non-ferrous processor. The
Company's consolidated net sales increased by $235.3 million or 41% to $805.3
million during Fiscal 1999, principally due to acquisitions consummated during
the year. Consolidated net sales for the fiscal year ended March 31, 1999,
however, were significantly below the Company's expectations, principally as a
result of the effect of the adverse market conditions described above on the
Company. The Company's consolidated net sales in the quarter ended June 30,
1998, for example, were $215.0 million compared with sales of $178.8 million in
the quarter ended December 31, 1998 and $194.3 million in the quarter ended
March 31, 1999. The decline in sales from quarter to quarter is notable because
the Company completed five acquisitions in the month of July 1998.
Ferrous sales of processed materials represented 50.6% of consolidated net
sales for the year ended March 31, 1999 compared to 46.7% of consolidated net
sales for the year ended March 31, 1998. The increase in ferrous sales as a
percentage of total sales is primarily due to the inclusion of the sales of
Naporano and Schiavone from their respective dates of acquisition and a full
year of sales of Cozzi Iron & Metal which was acquired by the Company in
December 1997. Each of these subsidiaries derive their sales principally from
ferrous metals.
Non-ferrous sales of processed materials represented 30.6% of consolidated
net sales for the year ended March 31, 1999 compared to 29.3% of consolidated
net sales for the year ended March 31, 1998. The sale of non-ferrous metals
increased during the year ended March 31, 1999 over the prior year period as a
result of the inclusion of a full year of sales of Aerospace which was acquired
in January 1998, the sales of Superior Forge, which was acquired in March 1998
through the date of its disposition in March 1999 and the sales of Kimerling
from its date of acquisition in July 1998. The sales of each of these companies
are predominately non-ferrous.
Brokerage ferrous sales represented 14.2% of consolidated net sales for the
year ended March 31, 1999 compared to 19.8% of consolidated net sales for the
year ended March 31, 1998. Brokered ferrous sales increased in the year ended
March 31, 1999 due to the inclusion of a full year of sales from the Isaac Group
in Fiscal 1999 as compared to only 6 months of sales following the acquisition
of the Isaac Group in Fiscal 1998.
28
<PAGE> 30
Brokerage non-ferrous sales represented 2.9% of consolidated net sales for
the year ended March 31, 1999 compared to 3.8% of consolidated net sales for the
year ended March 31, 1998.
Other sales reflect, among other categories, stevedoring sales generated by
Naporano, which was acquired in Fiscal 1999.
Consolidated gross profit was $65.2 million (8.1% of consolidated net
sales) for the year ended March 31, 1999 compared with consolidated gross profit
of $52.1 million (9.1% of consolidated net sales) for the year ended March 31,
1998. The $13.1 million increase in the dollar amount of the consolidated gross
profit resulted principally from increased sales volumes in Fiscal 1999 over the
prior period as a result of the acquisitions completed during the year ended
March 31, 1999. The decrease in consolidated gross profit margin for the year
ended March 31, 1999 resulted primarily from adverse market conditions which
resulted in lower than anticipated sales volumes and metal sales margins,
principally in the second and third fiscal quarters. During the year ended March
31, 1999, the Company recorded approximately $17 million of inventory
write-downs due primarily to lower of cost or market inventory adjustments.
These write-downs are included in cost of sales.
Consolidated general and administrative expenses were $56.3 million (7.0%
of consolidated net sales) for the year ended March 31, 1999 compared with $28.2
million (4.9% of consolidated net sales) for the year ended March 31, 1998. The
increase in general and administrative expenses over the prior year period is
due to the inclusion of general and administrative expenses of those operations
acquired by the Company since April 1998. The increase in consolidated general
and administrative expenses as a percentage of consolidated net sales reflects
the decrease in the Company's consolidated net sales due to adverse market
conditions.
Depreciation and amortization expense was $25.6 million (3.2% of
consolidated net sales) for the year ended March 31, 1999 compared with $10.1
million (1.8% of consolidated net sales) for the year ended March 31, 1998. The
increase, both in dollar and as a percentage of consolidated net sales, is
attributed to the inclusion of goodwill amortization and depreciation of fixed
assets of those operations acquired by the Company since April 1998. The
increase as a percentage of consolidated net sales reflects the decrease in the
Company's consolidated net sales due to adverse market conditions.
During the year ended March 31, 1999, the Company recorded non-cash and
non-recurring expenses of $16.2 million compared with $43.5 million for the year
ended March 31, 1998. The non-cash and non-recurring expenses of $16.2 million
consisted of the following (in millions):
<TABLE>
<S> <C>
Non-cash warrant compensation expense (income).............. $(6.8)
Merger related costs........................................ 3.2
Loss on Superior Forge disposition.......................... 6.8
Facility abandonment and integration:
Impairment of long-lived assets........................... 11.2
Severance, facility closure charges, and other............ 1.8
-----
$16.2
=====
</TABLE>
See Note 3 to the consolidated financial statements included in Part IV,
Item 14(a)(1) of this Report.
Interest expense was $31.3 million (3.9% of consolidated net sales) for the
year ended March 31, 1999 compared to $10.0 million (1.8% of consolidated net
sales) for the year ended March 31, 1998. The increase is primarily due to the
issuance of the Senior Subordinated Notes and additional borrowings made by the
Company under the Senior Credit Facility during Fiscal 1999 to fund acquisitions
and operations.
Net loss from continuing operations, after preferred stock dividends, was
$48.8 million ($1.22 per share) for the year ended March 31, 1999. The net loss
for Fiscal 1999 resulted primarily from (i) the lower than anticipated sales
volumes, lower realized scrap prices, and reduced metal margins experienced by
the Company during the year as a result of the adverse market conditions which
were prevalent during the second and third quarters of Fiscal 1999, and (ii)
from the recognition of $16.2 million of non-cash and non-recurring expenses.
29
<PAGE> 31
Income tax benefit for the year ended March 31, 1999 was $17.0 million,
which yields an effective tax rate of 26.6%. The effective tax rate differs from
the statutory rate primarily due to the impact of state taxes and the permanent
differences represented by non-deductible goodwill amortization and goodwill
impairment write-offs, other non-deductible expenses, and the reversal of $1.9
million of tax benefits previously established for warrant compensation expense
resulting from the decline in the quoted market value of the Company's Common
Stock.
During the year ended March 31, 1999, the Company recognized an
extraordinary charge of $0.9 million, net of taxes, related to the early
retirement of debt and other costs principally incurred in connection with the
closing of the Senior Credit Facility (see Note 6 to the consolidated financial
statements included in Part IV, Item 14(a)(1) of this Report).
Year Ended March 31, 1998 Compared to Year Ended March 31, 1997
Consolidated net sales for the years ended March 31, 1998 and March 31,
1997 ("Fiscal 1997") in broad product categories were as follows (in millions):
<TABLE>
<CAPTION>
3/31/98 3/31/97
-------------------------- --------------------------
NET NET
WEIGHT SALES % WEIGHT SALES %
------ ----- - ------ ----- -
<S> <C> <C> <C> <C> <C> <C>
COMMODITY (WEIGHT IN THOUSANDS)
Ferrous metals (tons).................. 2,127 $266.4 46.7 152 $ 20.8 14.6
Non-ferrous metals (lbs)............... 331,414 166.5 29.3 200,618 105.6 74.5
Brokerage -- ferrous (tons)............ 952 113.0 19.8 0 0.0 0.0
Brokerage -- non-ferrous (lbs)......... 68,754 21.9 3.8 51,675 14.4 10.2
Other.................................. -- 2.2 0.4 -- 1.0 0.7
------ ----- ------ -----
$570.0 100.0 $141.8 100.0
====== ===== ====== =====
</TABLE>
Consolidated net sales for the year ended March 31, 1998 were $570.0
million compared with consolidated net sales of $141.8 million for the year
ended March 31, 1997. The significant increase in consolidated net sales was
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 of processed materials represented 46.7% of consolidated net
sales for the year ended March 31, 1998 compared to 14.6% 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 consolidated net sales, was 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 of processed materials represented 29.3% of consolidated
net sales for the year ended March 31, 1998 compared to 74.5% of consolidated
net sales for the year ended March 31, 1997. The decrease in percentage of
non-ferrous sales was due to 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 was due to the
inclusion of non-ferrous sales of the MacLeod Companies and Aerospace, which are
primarily engaged in the sale of non-ferrous metals.
Brokerage ferrous sales represented 19.8% of consolidated net sales for the
year ended March 31, 1998. The Company did not have any brokerage ferrous sales
for the year ended March 31, 1997. Brokerage ferrous sales are mainly generated
by Reserve Iron & Metal, the Isaac Group and Cozzi Iron & Metal, each of which
was acquired during the year ended March 31, 1998.
Brokerage non-ferrous sales represented 3.8% of consolidated net sales for
the year ended March 31, 1998 compared to 10.2% of consolidated net sales for
the year ended March 31, 1997. The increase in pounds and dollars of brokerage
non-ferrous sales is due to the acquisitions of the Isaac Group and Aerospace,
each of which was acquired during the year ended March 31, 1998.
30
<PAGE> 32
Consolidated gross profit was $52.1 million (9.1% of consolidated net
sales) for the year ended March 31, 1998 compared with consolidated gross profit
of $11.4 million (8.0% 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 $28.2 million (4.9%
of consolidated net sales) for the year ended March 31, 1998 compared with $10.4
million (7.3% 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 also increased due to additions in
corporate staff and 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 $10.1 million (1.8% of
consolidated net sales) for the year ended March 31, 1998 compared with $2.5
million (1.8% of consolidated net sales) for the year ended March 31, 1997. The
increase was 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-cash and non-recurring pre-tax charges, totaling $43.5 million (7.6% of
consolidated net sales) (in millions):
<TABLE>
<S> <C>
Non-cash warrant compensation expense....................... $30.6
Facility abandonment, shut-down, and integration:
Impairment of long-lived assets........................... 11.3
Severance, facility closure charges, and other............ 1.6
-----
$43.5
=====
</TABLE>
See further discussion in Note 3 to the consolidated financial statements
included in Part IV, Item 14(a)(1) of this Report.
Interest expense was $10.0 million (1.8% of consolidated net sales) for the
year ended March 31, 1998 compared to $2.3 million (1.6% of consolidated net
sales) for the year ended March 31, 1997. This increase was due to the issuance
of notes to sellers and the incurrence and/or assumption of debt associated with
the acquisitions completed since the year ended March 31, 1997.
Loss from continuing operations, after preferred stock dividends and
accretion, was $41.5 million ($2.00 per share) for the year ended March 31, 1998
compared to a net loss of $2.1 million ($0.21 per share) for the year ended
March 31, 1997. The increase in the loss was primarily attributable to the
non-cash and non-recurring expenses recorded by the Company in the year ended
March 31, 1998. Loss from continuing operations excluding the non-cash and
non-recurring expenses and the one-time non-cash dividend charge was $0.2
million ($0.01 per share) for the year ended March 31, 1998.
Income from discontinued operations was $0.2 million ($0.01 per share) for
the year ended March 31, 1998 compared to $0.8 million ($0.09 per share) for the
year ended March 31, 1997. Income during Fiscal 1998 mainly reflects the royalty
income recognized by the Company from the sale of its discontinued operations,
net of certain expenses paid. Results for Fiscal 1997 reflect three months of
operations of the discontinued businesses as well as the gain on sale of the
discontinued operations.
Income tax benefit for the year ended March 31, 1998 was $4.6 million (0.8%
of consolidated net sales), which yields an effective tax rate of 11.7%. 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-cash and non-recurring expenses.
31
<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
The Company has required significant amounts of capital to fund its
operations, capital expenditures and acquisition program. The Company has funded
these cash needs principally through cash generated from operating activities,
borrowings under the Senior Credit Facility, and the issuance of equity
securities, the Senior Subordinated Notes, and most recently, the Senior Secured
Notes. During Fiscal 1999, as a result of adverse market conditions and the
impact of such adverse conditions on the Company's liquidity, the Company also
sold certain non-core assets, principally its Superior Forge West Coast aluminum
forging operations.
The Company's management anticipates that the Company will continue to have
significant cash needs to fund its operations, capital expenditures and
acquisition program. While the Company believes that its cash generated from
operations and undrawn borrowing availability under the Senior Credit Facility
provide it with sufficient liquidity to fund its operations, capital expenditure
and debt service requirements, limitations in the documentation governing the
Senior Credit Facility, the Senior Subordinated Notes and the Senior Secured
Notes will limit the Company's ability to incur additional debt to fund
significant acquisition or expansion opportunities unless and until the
Company's results of operations show significant improvement for four
consecutive quarters.
The Company continues to evaluate the prospects of raising capital through
the issuance of equity and the sale of certain non-core businesses. However,
because of the recent decline in the trading price of the Company's Common
Stock, the sale of equity on terms that are acceptable to the Company will
likely be difficult to achieve in the near term. As a result, no assurance can
be made that the Company's efforts to sell equity will be successful. In
addition, the recent adverse market conditions experienced by most participants
in the scrap metals industry has limited the number of potential purchasers for
those operations that the Company has considered selling, as well as the price
that such potential buyers would be willing to pay for those operations.
Accordingly, the Company faces significant challenges in effecting asset sales
or equity issuances on terms acceptable to it under present market conditions.
Cash Flows from Continuing Operations
The Company generated $40.5 million of cash from continuing operations
during the fiscal year ended March 31, 1999. The Company generated cash flows
from continuing operations primarily from the collection of accounts receivable.
Cash Flows from Investing Activities
During the fiscal year ended March 31, 1999, the Company used $203.0
million for investment activities, net of $14.2 million generated from the sale
of Superior Forge. Of this amount, $185.0 million was used to fund acquisitions
completed by the Company during the year and related acquisition costs. In
addition, during the year ended March 31, 1999, the Company used $19.0 million
to fund the purchase of property and equipment and $10.8 million to buy out
certain operating leases. During Fiscal 1999, the Company also advanced $3
million to Southern Recycling pursuant to a three-year promissory note bearing
interest at 10% per annum.
Cash Flows from Financing Activities
During the fiscal year ended March 31, 1999, the Company generated $160.3
million from financing activities, net of the repayment of certain indebtedness.
During this period, the Company entered into the Senior Credit Facility and used
borrowings thereunder to refinance substantially all of the secured indebtedness
of the Company. The Company also issued $180 million of Senior Subordinated
Notes, the net proceeds to the Company of which were $174.6 million. Fees
incurred by the Company in Fiscal 1999 in connection with debt issuances
amounted to $11.6 million.
32
<PAGE> 34
Subsequent Financial Transaction
On May 7, 1999, the Company issued $30.0 million principal amount of
12 3/4% Senior Secured Notes due on June 15, 2004 (the "Senior Secured Notes")
in a private offering pursuant to Rule 144A under the Securities Act of 1933.
Interest on the Senior Secured Notes is payable semi-annually. The Senior
Secured Notes were issued at 90% of their principal amount and are redeemable by
the Company, in whole or in part, at 100% of their principal amount at any time
after June 15, 2000. A second priority lien on substantially all of the
Company's property, plant and equipment has been pledged as collateral against
the Senior Secured Notes. The Company received net proceeds of approximately
$25.6 million, after the 10% original issue discount and transaction fees and
expenses, which were used to reduce amounts outstanding under the Senior Credit
Facility. This transaction significantly increased the Company's undrawn
availability under the Senior Credit Facility, thereby increasing the Company's
liquidity and financial flexibility.
FINANCIAL CONDITION
Cash Requirements for Maturing Debt Obligations and Interest Payments
On November 15, 1999, the Company is required to make a semi-annual
interest payment of $9.0 million on the Senior Subordinated Notes. The Company's
amended Senior Credit Facility allows the Company to make interest payments on
the Senior Subordinated Notes, but requires the Company to maintain average
unused availability equal to the sum of (x) the interest payment and (y) $12.0
million for a period of thirty days prior to the payment date. On December 15,
1999, the Company is required to make a semi-annual interest payment of $1.9
million on the Senior Secured Notes. The Company believes, based on its current
financial condition and liquidity and its current projections of cash flows,
that it will be able to meet all interest payment and maturing debt obligations
coming due in the current fiscal year.
Working Capital Availability and Requirements
Accounts receivable balances of the Company decreased from $122.4 million
at March 31, 1998 to $103.8 million at March 31, 1999, notwithstanding that the
Company completed a significant number of acquisitions during Fiscal 1999.
Although the Company did improve its accounts receivable collection efforts
during the year which accounts for some of the decrease, the principal reason
for the decline in the Company's accounts receivable balance was the decline in
the Company's sales volumes and realized sales prices resulting from the adverse
market conditions in the scrap metals industry which were prevalent beginning in
July 1998.
Accounts payable balances of the Company also decreased from $66.6 million
at March 31, 1998 to $62.2 million at March 31, 1999. The decrease in accounts
payable resulted principally from efforts undertaken by the Company to reduce
the level of its inventories in the fourth quarter of Fiscal 1999.
Inventory levels can vary significantly among the Company's operations and
with changes in market conditions. Inventories consisted of the following
categories at March 31, (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Ferrous metals.............................................. $37,679 $35,934
Non-ferrous metals.......................................... 19,791 25,222
Other....................................................... 2,973 786
------- -------
$60,443 $61,942
======= =======
</TABLE>
The adverse market conditions most prevalent in the second and third
quarter of fiscal 1999 have slowed the Company's inventory turns. During these
two quarters, the Company recorded significant inventory adjustments principally
as a result of adverse market conditions. The Company is attempting to reduce
inventories to lower financing costs and to reduce its exposure to changing
market prices for scrap metals.
33
<PAGE> 35
COMPANY INDEBTEDNESS
The Company's principal indebtedness is represented by borrowings under the
Senior Credit Facility, the Senior Subordinated Notes and the Senior Secured
Notes.
Senior Credit Facility
The Credit Agreement, dated March 31, 1998, among the Company, BT
Commercial Corporation, as agent and the lenders thereunder (as amended, the
"Senior Credit Facility") provides for a revolving credit and letter of credit
facility of $250.0 million, subject to borrowing base limitations. The Company's
obligations under the Senior Credit Facility are secured by substantially all of
the Company's assets and properties, including pledges of the capital stock of
the Company's 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 (subject to a cap of
$100.0 million) and a fixed asset sublimit ($56.0 million as of March 31, 1999)
that amortizes on a quarterly basis.
The Senior Credit Facility provides the Company with the option of
borrowing at an interest rate equal to either the Bankers Trust Company's prime
rate plus a margin or the London Interbank Offered Rate ("LIBOR") plus a margin.
Through December 31, 1998, the interest rate margins were set at 0.5% for
Bankers Trust Company's prime rate and 1.75% for LIBOR. Under a December 31,
1998 amendment, the interest rate margins were increased to 1.5% for Bankers
Trust Company's prime rate and 2.5% for LIBOR borrowings. The margins applicable
to both prime and LIBOR rate loans, however, decrease to the extent that the
Company is able to satisfy interest coverage tests in subsequent fiscal periods
or has excess availability of at least $40.0 million for a period of 30
consecutive days.
The Senior Credit Facility also contains certain financial covenants,
including a minimum interest coverage ratio, imposes certain limitation on the
Company's ability to make capital expenditures and incur additional
indebtedness, and restricts payments of dividends and equity redemptions. As of
March 31, 1999, the Company was in compliance with the covenants.
The interest coverage tests require the Company to maintain an interest
coverage ratio of not less than 1.0 to 1.0 (EBITDA (as defined in the Senior
Credit Facility) to interest expense) (i) for the three months ended June 30,
1999, (ii) for the six months ended September 30, 1999, (iii) for the nine
months ended December 31, 1999, (iv) for the twelve months ended March 31, 2000
and (v) for the end of each fiscal quarter thereafter, for the twelve-month
period then ended. During Fiscal 1999, the Company was required to, in three
consecutive quarters, seek accommodations from its lenders under the Senior
Credit Facility to avoid a failure of compliance with the interest coverage
ratio test in effect during each such period. Based on its current projections,
the Company expects to be in compliance with all covenants under the Senior
Credit Facility during the fiscal year ending March 31, 2000.
At March 31, 1999, the Company had outstanding borrowings under its Senior
Credit Facility of approximately $144.4 million. Borrowings outstanding on the
Senior Credit Facility bore interest at a weighted average interest rate of
7.64%. Amounts outstanding under the Senior Credit Facility ranged from $0.0 to
$167.4 million during the fiscal year ended March 31, 1999. As of June 8, 1999,
the Company had undrawn availability of approximately $44.0 million under the
Senior Credit Facility.
The Senior Credit Facility also restricts the Company's ability to make
interest payments on the Senior Subordinated Notes with respect to the interest
payment due on November 15, 1999 and on each subsequent interest payment date
thereafter unless the Company maintains average undrawn availability of $12.0
million plus the amount of the interest payment for the 30-day period ending on
the interest payment date.
10% Senior Subordinated Notes due 2008
On May 13, 1998, the Company issued $180.0 million of 10% Senior
Subordinated Notes due on May 15, 2008 (the "Senior Subordinated Notes") in a
private placement pursuant to exemptions under the Securities Act of 1933.
Interest on the Senior Subordinated Notes is payable semi-annually during May
and November of each year. The Company received net proceeds of $174.6 million
in the offering of the Senior Subordinated
34
<PAGE> 36
Notes. The Senior Subordinated Notes are the Company's general unsecured
obligations and are subordinated in right of payment to all of the Company's
senior debt, including the Company's indebtedness under the Senior Credit
Facility and the Senior Secured Notes. The Company's payment obligations are
jointly and severally guaranteed by all of the Company's current and certain
future subsidiaries.
Except as described below, the Senior Subordinated Notes are not redeemable
at the Company's option prior to May 15, 2003. After May 15, 2003, the Senior
Subordinated Notes are redeemable by the Company at the redemption prices
(expressed as a percentage of the principal amount and rounded to the nearest
whole percentage) 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>
Also, prior to May 15, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Senior Subordinated Notes at a redemption
price of 110% of the principal amount of the Senior Subordinated Notes, plus
accrued and unpaid interest, from the proceeds of one or more sales of Common
Stock. The Senior Subordinated Notes are also redeemable at the option of the
holders of such notes 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. Subject to certain exceptions, the
Senior Subordinated Notes are redeemable at the option of the holders of such
notes at a repurchase price of 100% of the principal amount thereof, plus
accrued and unpaid interest, in the event of certain asset sales made by the
Company.
The Indenture governing the Senior Subordinated Notes contains certain
covenants that limit, among other things, the Company's ability to: (i) incur
additional indebtedness (including by way of guarantee), subject to certain
exceptions, unless the Company meets a fixed charge coverage ratio of 2.0 to 1.0
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 prior to the maturity of the Senior Subordinated Notes;
(iii) pay dividends or distributions, or make certain types of investments or
other restricted payments, unless the Company meets certain specified
conditions; (iv) enter into certain transactions with affiliates; (v) dispose of
certain assets; (vi) incur liens securing indebtedness that is pari passu or
subordinated to the Senior Subordinated Notes; or (viii) engage in certain
mergers and consolidations.
12 3/4% Senior Secured Notes due 2004
On May 7, 1999, the Company issued $30.0 million aggregate principal amount
of its Senior Secured Notes (the "Senior Secured Notes") in a private placement
pursuant to Rule 144A under the Securities Act of 1933. The Senior Secured Notes
were issued at 90% of their stated principal amount at maturity. The Senior
Secured Notes mature on June 15, 2004 and bear interest at the rate of 12 3/4%
per annum. Interest on the Senior Secured Notes is payable semi-annually during
June and December of each year. The Company received net proceeds of $25.6
million in the offering of the Senior Secured Notes. The Senior Secured Notes
are senior obligations of the Company and will rank equally in right of payment
with all of the Company's unsubordinated debt, including the Company's
indebtedness under the Senior Credit Facility, and senior in right of payment to
all of the Company's subordinated debt, including the Senior Subordinated Notes.
The Company's payment obligations are jointly and severally guaranteed by
all of the Company's current and future subsidiaries. The Senior Secured Notes
are also secured by a second priority lien on substantially all of the Company's
personal property, plant (to the extent it constitutes fixtures) and equipment
that secure the Senior Credit Facility. The liens that secure the Senior Secured
Notes are subordinated to the liens that secure the indebtedness under the
Senior Credit Facility.
35
<PAGE> 37
The Senior Secured Notes are not redeemable at the Company's option prior
to June 15, 2000. Thereafter, the Company may redeem some or all of the Senior
Secured Notes (in multiples of $10.0 million) at a redemption price of 100% of
the principal amount thereof, plus accrued and unpaid interest. The Senior
Secured Notes are redeemable at the option of the holders of such notes at a
repurchase price of 101% of the principal amount thereof, plus accrued and
unpaid interest, in the event of a change of control with respect to the
Company. Subject to certain exceptions, the Senior Secured Notes are redeemable
at the option of the holders of such notes at a repurchase price of 100% of the
principal amount thereof, plus accrued and unpaid interest, in the event of
certain asset sales made by the Company.
The Indenture governing the Senior Secured Notes contains substantially the
same operating restrictions as those contained in the Indenture governing the
Senior Subordinated Notes. These include limits on, among other things, the
Company's ability to: (i) incur additional indebtedness; (ii) pay dividends or
distributions on the Company's capital stock or repurchase its capital stock;
(iii) issue stock of subsidiaries; (iv) make certain investments; (v) create
liens on the Company's assets; (vi) enter into transactions with affiliates;
(vii) merge or consolidate with another company; and (viii) transfer and sell
assets or enter into sale and leaseback transactions.
YEAR 2000.
A year 2000 problem arises because some existing computer programs
recognize only the last two digits rather than four digits to define the
applicable year. Use of non-year 2000 compliant programs can result in system
failures, miscalculations or errors causing disruptions of operations or other
business failures, including, a potential inability to process invoices or
transactions or engage in other normal business activities. As it relates to the
Company's internal systems, the Company believes that, as a result of its
efforts to resolve potential year 2000 problems, actual year 2000 problems
affecting the Company should not be material. No assurance can be made, however,
that this will be the case. In addition, the impact of year 2000 problems
experienced by the Company's vendors, customers and service providers cannot
accurately be assessed at this time. To the extent these third parties are not
year 2000 compliant, it could have a material adverse effect on the Company's
operations. The Company is unable at this time to state its "worst case" year
2000 scenario. The Company is currently developing a contingency plan in the
event of noncompliance, which should be completed by the end of the second
fiscal quarter of the current fiscal year.
The Company has experienced tremendous growth as a result of having
completed 26 acquisitions since April 1996. Essentially all of the companies and
businesses the Company has acquired operated on separate computer hardware,
software, systems and processes ("Information Systems") before being acquired.
In order to address the potential year 2000 problem, among other
computer-related challenges facing the Company, in Fiscal 1998, the Company
created an MIS Steering Committee. The MIS Steering Committee has developed a
plan for year 2000 compliance which includes four major phases -- assessment,
remediation, testing and implementation.
The Company has completed all of its assessment of the impact of the year
2000 problem on its Information Systems. Based on this assessment, the Company
does not expect the cost of making its Information Systems year 2000 compliant
to have a material adverse impact on its financial position or results of
operations in future periods. The Company has completed all of its remediation
phase for all of its significant Information Systems and estimates that it will
complete software upgrades and/or replacements by the end of the second quarter
of the current fiscal year. To date, the Company has completed approximately 93%
of its testing phase and has implemented approximately 73% of the required
remediation for its Information Systems. The testing and implementation phases
are targeted to be substantially complete by the end of the second quarter of
the current fiscal year.
The Company has substantially completed its assessment phase of the impact
of year 2000 problems on its non-information technology systems such as
telephones, processing equipment or other equipment containing embedded
technology such as microcontrollers ("Non-IT Systems"). As part of the
assessment, the Company has created an equipment inventory database of its
Non-IT Systems to help with the assessment. The Company believes that it will
substantially complete its remediation, testing and implementation phases for
Non-IT Systems by the end of the second quarter of the current fiscal year. The
Company does
36
<PAGE> 38
not expect the cost of making its Non-IT Systems year 2000 compliant to have a
material adverse impact on its financial position or results of operations in
future periods.
The Company is in the process of identifying third parties, such as
suppliers, service providers and customers, with which it has a significant
relationship that, in the event of a year 2000 failure, could have a material
adverse impact on its financial position or results of operations. Once this
list is developed, the Company expects to send each of these third parties a
survey requesting information on its year 2000 readiness. Based on the responses
to these surveys, the Company will gauge the readiness of its suppliers, service
providers and customers for year 2000 and determine any appropriate action that
the Company will need to take to address identified concerns.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to financial risk resulting from fluctuations in
interest rates and commodity prices. The Company seeks to minimize these risks
through regular operating and financing activities and, where appropriate,
through use of derivative financial instruments. During the year ended March 31,
1999, the Company's use of derivative financial instruments was limited and
related solely to hedges of certain non-ferrous inventory positions.
COMMODITY PRICE RISK
The Company is exposed to risks associated with fluctuations in the market
price for both ferrous and non-ferrous metals which are at times volatile. See
the discussion under the heading "Investment Considerations -- The metals
recycling industry is highly cyclical," included in Part I, Item 1 of this
Report. The Company attempts to mitigate this risk by turning its inventories as
rapidly as possible instead of holding inventories in speculation of higher
commodity prices. The Company has also sought to mitigate this risk by entering
into longer term contracts with its customers, with only limited success to
date. However, as was demonstrated in the second half of calendar 1998, the
Company may not always be successful in controlling the risks, particularly in
periods of low demand for scrap metals. During the year ended March 31, 1999,
the Company was required to write down the value of its inventories by
approximately $17 million principally as a result of lower cost or market
inventory adjustments.
The Company employs various strategies to mitigate the risk of fluctuations
in the price of non-ferrous metals. None of the instruments employed by the
Company to hedge these risks are entered into for trading purposes or
speculation, but instead are effected as hedges of underlying physical
transactions and commitments.
INTEREST RATE RISK
The Company is exposed to risks associated with changes in interest rates
on its floating rate indebtedness. At March 31, 1999, 44%, or $149.1 million, of
the Company's long-term debt was subject to variable interest rates. The Company
does not have any interest rate swaps or hedges in place which would mitigate
its exposure to fluctuations in the interest rate on this indebtedness.
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.
37
<PAGE> 39
PART III
The information called for by Part III of Form 10-K (consisting of Item
10 -- Directors and Executive Officers of the Registrant, Item 11 -- Executive
Compensation, Item 12 -- Security Ownership of Certain Beneficial Owners and
Management and Item 13 -- Certain Relationships and Transactions), is
incorporated by reference from the Company's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
the end of the fiscal year to which this Report relates.
38
<PAGE> 40
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(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 years ended
March 31, 1999, 1998 and 1997............................. F-2
Consolidated Balance Sheets at March 31, 1999 and 1998...... F-3
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 1998 and 1997............................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1999, 1998 and 1997................. F-5
Notes to Consolidated Financial Statements.................. F-6
(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and qualifying accounts -- for the
years ended March 31, 1999, 1998 and 1997................. F-27
</TABLE>
Schedules not listed above have been omitted because they are not required
or they are inapplicable.
(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 1999:
- The Company filed a report on Form 8-K on January 11, 1999, dated January
11, 1999, disclosing that it had received notification from the NASDAQ
Stock Market that the Company's Common Stock would be delisted from the
NASDAQ National Market, effective January 15, 1999, due to the Company's
failure to maintain compliance with NASDAQ's alternative listing
Maintenance Standards.
- The Company filed a report on Form 8-K on January 29, 1999, dated January
28, 1999, disclosing that the Company and its bank group amended the
Company's $250 million Senior Credit Facility to, among other things,
modify the Company's minimum interest coverage tests.
- The Company filed a report on Form 8-K on February 9, 1999, dated
February 9, 1999, disclosing that the Company received notification from
the NASDAQ Stock Market that the Company's request for an oral hearing to
appeal NASDAQ's decision to delist the Company's Common Stock from the
NASDAQ National Market had been granted.
39
<PAGE> 41
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 25, 1999.
METAL MANAGEMENT, INC.
By: /s/ T. BENJAMIN JENNINGS
------------------------------------
T. Benjamin Jennings
Director, Chairman of the Board and
Chief Executive 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 25, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ T. BENJAMIN JENNINGS Director, Chairman of the Board and Chief
- ----------------------------------------------------- Executive Officer (Principal Executive
T. Benjamin Jennings Officer)
/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/ FRANK J. COZZI Director and Vice President
- -----------------------------------------------------
Frank J. Cozzi
/s/ GREGORY P. COZZI Director
- -----------------------------------------------------
Gregory P. Cozzi
/s/ GERARD M. JACOBS Director
- -----------------------------------------------------
Gerard M. Jacobs
/s/ EUGENE C. MCCAFFERY Director
- -----------------------------------------------------
Eugene C. McCaffery
/s/ KENNETH A. MERLAU Director
- -----------------------------------------------------
Kenneth A. Merlau
/s/ JOSEPH F. NAPORANO Director and Vice-Chairman of the Board
- -----------------------------------------------------
Joseph F. Naporano
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ TIMOTHY T. ORLOWSKI Director
- -----------------------------------------------------
Timothy T. Orlowski
/s/ WILLIAM T. PROLER Director
- -----------------------------------------------------
William T. Proler
/s/ ROBERT C. LARRY Executive Vice President, Finance and Chief
- ----------------------------------------------------- Financial Officer (Principal Financial
Robert C. Larry Officer and Principal Accounting Officer)
</TABLE>
41
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Metal Management, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 39 present fairly, in all material
respects, the financial position of Metal Management, Inc. and its subsidiaries
at March 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1999, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule listed in the index appearing under
Item 14(a)(2) on page 39 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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.
PRICEWATERHOUSECOOPERS LLP
June 25, 1999
F-1
<PAGE> 44
METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET SALES $805,274 $570,035 $141,830
Cost of sales 740,061 517,894 130,423
-------- -------- --------
Gross profit 65,213 52,141 11,407
OPERATING EXPENSES:
General and administrative 56,348 28,191 10,387
Depreciation and amortization 25,634 10,105 2,525
Non-cash and non-recurring expenses (Notes 2 & 3) 16,196 43,548 0
-------- -------- --------
Total operating expenses 98,178 81,844 12,912
-------- -------- --------
Operating loss from continuing operations (32,965) (29,703) (1,505)
OTHER INCOME (EXPENSE):
Income (loss) from joint ventures (1,921) 370 436
Interest expense (31,332) (9,995) (2,304)
Interest and other income, net 2,148 366 363
-------- -------- --------
Loss from continuing operations before income taxes and
extraordinary charge (64,070) (38,962) (3,010)
Benefit for income taxes (17,036) (4,555) (903)
-------- -------- --------
Loss from continuing operations before extraordinary charge (47,034) (34,407) (2,107)
DISCONTINUED OPERATIONS (NOTE 4):
Gain on sale of discontinued operations, net of income
taxes 117 200 502
Income from discontinued operations, net of income taxes 0 0 345
-------- -------- --------
Loss before extraordinary charge (46,917) (34,207) (1,260)
Extraordinary charge for early retirement of debt, net of
income taxes (Note 6) 938 0 0
-------- -------- --------
NET LOSS (47,855) (34,207) (1,260)
Non-cash beneficial conversion feature of convertible
preferred stock 0 (5,592) 0
Preferred stock dividends and accretion (1,815) (1,508) 0
-------- -------- --------
NET LOSS APPLICABLE TO COMMON STOCK $(49,670) $(41,307) $ (1,260)
======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE:
Loss from continuing operations $ (1.22) $ (2.00) $ (0.21)
Gain on sale of discontinued operations 0.00 0.01 0.05
Income from discontinued operations 0.00 0.00 0.04
Extraordinary charge (0.02) 0.00 0.00
-------- -------- --------
Net loss applicable to Common Stock $ (1.24) $ (1.99) $ (0.12)
======== ======== ========
Weighted average shares outstanding 40,139 20,762 10,141
DILUTED EARNINGS (LOSS) PER SHARE:
Loss from continuing operations $ (1.22) $ (2.00) $ (0.21)
Gain on sale of discontinued operations 0.00 0.01 0.05
Income from discontinued operations 0.00 0.00 0.04
Extraordinary charge (0.02) 0.00 0.00
-------- -------- --------
Net loss applicable to Common Stock $ (1.24) $ (1.99) $ (0.12)
======== ======== ========
Weighted average diluted shares outstanding 40,139 20,762 10,141
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 45
METAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,482 $ 4,464
Accounts receivable, net 103,760 122,404
Inventories 60,443 61,942
Prepaid expenses and other assets 11,405 5,961
Deferred taxes 3,303 2,608
-------- --------
Total current assets 181,393 197,379
Property and equipment, net 171,240 109,886
Goodwill, net 290,362 176,474
Deferred financing costs and other intangibles, net 13,228 4,837
Deferred taxes 3,261 0
Investments in joint ventures 4,525 7,496
Other assets 3,727 1,162
-------- --------
TOTAL ASSETS $667,736 $497,234
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,308 $ 11,877
Accounts payable 62,230 66,597
Accrued interest 8,638 1,106
Other accrued liabilities 19,323 16,160
-------- --------
Total current liabilities 95,499 95,740
Long-term debt, less current portion 330,154 139,589
Deferred taxes 0 11,177
Other liabilities 2,879 2,339
-------- --------
TOTAL LIABILITIES 428,532 248,845
Commitments and contingencies (Note 9)
Stockholders' equity:
Convertible Preferred Stock, $.01 par value, $1,000 stated
value; 4,000,000 shares authorized:
Series A, 6%; 26,072 and 25,759 shares issued; 4,020 and
15,094 shares outstanding at March 31, 1999 and 1998,
respectively 4,020 13,981
Series B, 4.5%; 20,522 and 20,000 shares issued; 10,877
and 20,000 shares outstanding at March 31, 1999 and
1998, respectively 10,877 19,027
Series C, 6.9%; 6,000 shares issued and outstanding at
March 31, 1999 5,100 0
Common Stock, $.01 par value -- 140,000,000 shares
authorized; 48,890,898 and 34,080,830 issued and
outstanding at March 31, 1999 and 1998, respectively 489 341
Warrants, exercisable into 8,442,947 and 8,224,540 shares of
Common Stock at March 31, 1999 and 1998, respectively 40,745 47,000
Additional paid-in-capital 259,878 200,275
Accumulated deficit (81,905) (32,235)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 239,204 248,389
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $667,736 $497,234
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 46
METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS:
Net loss from continuing operations $ (47,034) $(34,407) $(2,107)
Adjustments to reconcile net loss from continuing
operations to cash flows from continuing operations:
Depreciation and amortization 25,634 10,105 2,525
Long-lived asset impairments 17,161 11,305 0
Deferred income taxes (16,584) (5,495) (1,012)
Non-cash and non-recurring expense (income) (6,776) 30,588 0
Amortization of debt issuance costs 2,156 773 0
(Income) loss from joint ventures 1,921 (370) (436)
Penalties paid on early retirement of debt (973) 0 0
Other 1,590 187 284
Changes in assets and liabilities, net of acquisitions and
dispositions:
Accounts and notes receivable 48,562 (1,843) (3,982)
Inventories 22,275 17,226 886
Accounts payable (12,511) (21,498) 790
Other 5,066 (4,577) 1,309
----------- -------- -------
Cash flows from continuing operations 40,487 1,994 (1,743)
CASH FLOWS USED BY INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (185,030) (43,905) (2,545)
Dispositions, net of cash sold 14,242 0 0
Marketable securities matured 2 10 2,794
Purchases of property and equipment, net (19,022) (7,569) (3,281)
Costs of operating lease buyouts (10,817) 0 0
Other (2,360) 675 67
----------- -------- -------
Net cash used by investing activities (202,985) (50,789) (2,965)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net borrowings (repayments) on short-term lines of
credit 0 15,200 (1,052)
Issuances of long-term debt 1,438,430 21,343 7,985
Repayments of long-term debt (1,266,331) (74,546) (2,699)
Fees paid to issue long-term debt (11,649) 0 0
Issuances of Common Stock, net 1,132 42,196 317
Issuances (redemptions) of convertible preferred stock,
net (1,057) 42,846 0
Cash dividends paid on convertible preferred stock (227) 0 0
----------- -------- -------
Net cash provided by financing activities 160,298 47,039 4,551
----------- -------- -------
CASH FLOWS FROM DISCONTINUED OPERATIONS, NET OF
DIVESTITURE PROCEEDS 218 452 2,751
----------- -------- -------
Net increase (decrease) in cash and cash equivalents (1,982) (1,304) 2,594
Cash and cash equivalents at beginning of period 4,464 5,768 3,174
----------- -------- -------
Cash and cash equivalents at end of period $ 2,482 $ 4,464 $ 5,768
=========== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 19,987 $ 9,719 $ 1,925
Income taxes paid (refunded) $ 471 $ 2,715 $(1,124)
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 47
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 SERIES C SHARES AMOUNT WARRANTS CAPITAL (DEFICIT)
-------- -------- -------- ------ ------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1996 $ 0 $ 0 $ 0 6,369,479 $ 63 $ 0 $ 3,340 $ 10,332
Equity issued for acquisitions 0 0 0 4,700,000 47 1,049 12,759 0
Exercise of stock options 0 0 0 103,850 2 0 281 0
Other 0 0 0 16,237 0 302 265 0
Net loss 0 0 0 0 0 0 0 (1,260)
-------- ------- ------ ---------- ---- ------- -------- --------
BALANCE AT MARCH 31, 1997 0 0 0 11,189,566 112 1,351 16,645 9,072
Issuance of preferred stock, net 23,819 19,027 0 0 0 0 0 0
Conversion of preferred stock (10,211) 0 0 1,032,874 10 0 10,971 0
Issuance of Common Stock and
warrants in private offerings,
net 0 0 0 3,495,588 35 4,450 34,940 0
Equity issued for acquisitions 0 0 0 16,980,579 170 14,378 121,252 0
Common Stock issued upon
conversion of debt 0 0 0 524,569 5 0 3,634 0
Exercise of stock options and
warrants 0 0 0 857,654 9 (3,767) 7,180 0
Preferred stock dividends 316 0 0 0 0 0 0 (1,451)
Non-cash dividend on beneficial
conversion feature of preferred
stock 0 0 0 0 0 0 5,592 (5,592)
Warrants issued to employees and
consultants 0 0 0 0 0 30,588 0 0
Other 57 0 0 0 0 0 61 (57)
Net loss 0 0 0 0 0 0 0 (34,207)
-------- ------- ------ ---------- ---- ------- -------- --------
BALANCE AT MARCH 31, 1998 13,981 19,027 0 34,080,830 341 47,000 200,275 (32,235)
Conversion of preferred stock (11,387) (9,645) 0 10,140,257 101 0 20,775 0
Equity issued for acquisitions 0 0 5,100 4,272,776 43 699 39,572 0
Preferred stock dividends 313 522 0 0 0 0 0 (1,815)
Warrants issued to employees 0 0 0 0 0 (6,776) 0 0
Exercise of stock options and
warrants 0 0 0 186,741 2 (306) 987 0
Other 1,113 973 0 210,294 2 128 (1,731) 0
Net loss 0 0 0 0 0 0 0 (47,855)
-------- ------- ------ ---------- ---- ------- -------- --------
BALANCE AT MARCH 31, 1999 $ 4,020 $10,877 $5,100 48,890,898 $489 $40,745 $259,878 $(81,905)
======== ======= ====== ========== ==== ======= ======== ========
<CAPTION>
TOTAL
-----
<S> <C>
BALANCE AT MARCH 31, 1996 $ 13,735
Equity issued for acquisitions 13,855
Exercise of stock options 283
Other 567
Net loss (1,260)
--------
BALANCE AT MARCH 31, 1997 27,180
Issuance of preferred stock, net 42,846
Conversion of preferred stock 770
Issuance of Common Stock and
warrants in private offerings,
net 39,425
Equity issued for acquisitions 135,800
Common Stock issued upon
conversion of debt 3,639
Exercise of stock options and
warrants 3,422
Preferred stock dividends (1,135)
Non-cash dividend on beneficial
conversion feature of preferred
stock 0
Warrants issued to employees and
consultants 30,588
Other 61
Net loss (34,207)
--------
BALANCE AT MARCH 31, 1998 248,389
Conversion of preferred stock (156)
Equity issued for acquisitions 45,414
Preferred stock dividends (980)
Warrants issued to employees (6,776)
Exercise of stock options and
warrants 683
Other 485
Net loss (47,855)
--------
BALANCE AT MARCH 31, 1999 $239,204
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 48
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Metal Management, Inc., (herein referred to as the "Company" or "MTLM"),
formerly General Parametrics Corporation, 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 recycling facilities located in 15 states. The
Company's ferrous products primarily include shredded, sheared, hot briquetted,
cold briquetted, bundled scrap, turnings 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 4 -- Discontinued Operations).
BASIS OF PRESENTATION
The consolidated financial statements have been prepared to reflect the
merger, accounted for as a pooling of interests, with R&P Holdings, Inc. on May
28, 1998 (see Note 2 -- Acquisitions and Divestitures). These 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.
The Company and its subsidiaries have investments in less than
majority-owned companies (principally corporate joint ventures) which engage in
ferrous and non-ferrous scrap metals recycling. These investments are accounted
for using the equity method.
REVENUE RECOGNITION
The Company recognizes revenue from processed product sales at the time of
shipment. Revenue relating to brokered sales are recognized upon receipt of the
materials by the customer.
SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
in Fiscal 1999. SFAS No. 131 establishes annual and interim reporting standards
for reporting information about an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
The Company's operations, consisting of its scrap metal recycling businesses,
comprise one operating segment.
FUTURES CONTRACTS
The Company utilizes futures and forward contracts to hedge its position in
certain non-ferrous metals. Any gain or loss, if realized, is recorded as a
component of cost of goods sold. The Company does not use futures and forward
contracts for trading purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments including cash and cash
equivalents, accounts and notes receivable, accounts payable, accrued
liabilities and current portion of debt approximate the related fair values
because of the relatively short maturity of these instruments.
F-6
<PAGE> 49
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying values and estimated fair values of derivative financial
instruments and long-term debt were as follows at March 31, (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Derivative financial instruments $ 678 $ 310 $ 140 $ 143
Long-term debt $330,154 $277,054 $139,589 $139,589
</TABLE>
The fair values of derivative financial instruments were determined from
market quotes. The fair values of long-term debt were determined from either
market quotes or from instruments with similar terms and maturities.
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid investments
with original maturities of three months or less. Cash equivalents are carried
at cost which approximates fair value.
ACCOUNTS RECEIVABLE
Accounts receivable represents amounts due from customers on product and
broker sales. Reserves for uncollectible accounts and for tonnage variances were
approximately $2.0 million and $1.6 million at March 31, 1999 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 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 10 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. Property and equipment consisted
of the following categories and amounts at March 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land and improvements $ 28,575 $ 18,915
Buildings and improvements 25,676 16,143
Operating machinery and equipment 120,464 73,167
Automobiles and trucks 18,936 10,569
Furniture, fixtures and office equipment 3,805 2,306
Construction in progress 1,527 1,749
-------- --------
198,983 122,849
Less -- accumulated depreciation (27,743) (12,963)
-------- --------
$171,240 $109,886
======== ========
</TABLE>
Depreciation expense for property and equipment was $18.2 million, $7.4
million and $2.0 million for the years ended March 31, 1999, 1998 and 1997,
respectively.
F-7
<PAGE> 50
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL AND OTHER INTANGIBLES
The Company assesses the recoverability of its goodwill and other
intangible assets on an annual basis or whenever 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.
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. Accumulated goodwill amortization at March 31, 1999
and 1998 was $9.0 million and $2.3 million, respectively. Goodwill amortization
expense was $7.0 million, $2.4 million and $0.4 million for the years ended
March 31, 1999, 1998 and 1997, respectively.
Deferred financing costs represent costs incurred in connection with the
placement of long-term debt and are capitalized and amortized to interest
expense over the term of the long-term debt. Other intangible assets are
amortized on a straight-line basis over the lesser of their legal or estimated
useful lives, ranging from 8 to 10 years. Deferred financing costs and other
intangibles amortization expense for the years ended March 31, 1999, 1998 and
1997 was $2.6 million, $0.9 million and $0.3 million, respectively. Deferred
financing costs and other intangibles consisted of the following at March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred financing costs $12,466 $ 890
Non-compete agreements 3,733 3,236
Other intangibles 111 1,779
------- -------
16,310 5,905
Less -- accumulated amortization (3,082) (1,068)
------- -------
$13,228 $ 4,837
======= =======
</TABLE>
INVESTMENTS IN JOINT VENTURES
Investments in joint ventures are accounted for under the equity method and
represents the Company's investments in and advances made to four less than
majority owned entities which process and sell ferrous and non-ferrous metals.
Investments in joint ventures include a $3.0 million advance made to Southern
Recycling L.L.C. Joint venture operations were not material to the consolidated
financial position or results of operations.
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 steel mills
located in the United States. Generally, the Company does not require collateral
or other security to support customer receivables. Historically, the Company's
wholly-owned subsidiaries have not experienced material losses from the
noncollection of accounts receivables. Sales to customers outside of the United
States are generally settled by payment in U.S. dollars and secured by letters
of credit.
For the year ended March 31, 1999, the 10 largest customers of the Company
represented approximately 34.2% of consolidated net sales. These customers
comprised approximately 34.0% of accounts receivable at March 31, 1999. No
single customer accounted for more than 10% of consolidated net sales.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes,
as set forth in 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.
F-8
<PAGE> 51
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted earnings per share (EPS) are calculated in accordance
with SFAS No. 128, "Earnings Per Share." Basic EPS is computed by dividing
reported net income (loss) applicable to Common Stock by the weighted average
shares outstanding. Diluted EPS 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 EPS from continuing operations per share computations (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1999 1998 1997
- --------------------- ---- ---- ----
<S> <C> <C> <C>
LOSS (NUMERATOR):
Loss from continuing operations before extraordinary charge $(47,034) $(34,407) $(2,107)
Non-cash beneficial conversion feature of convertible
preferred stock 0 (5,592) 0
Dividends and accretion on convertible preferred stock (1,815) (1,508) 0
-------- -------- -------
Loss from continuing operations before extraordinary charge
applicable to Common Stock $(48,849) $(41,507) $(2,107)
======== ======== =======
SHARES (DENOMINATOR):
Weighted average number of shares outstanding during the
period 40,139 20,762 10,141
Incremental common shares attributable to dilutive stock
options and warrants 0 0 0
-------- -------- -------
Diluted number of shares outstanding during the period 40,139 20,762 10,141
======== ======== =======
Basic loss per common share $ (1.22) $ (2.00) $ (0.21)
======== ======== =======
Diluted loss per common share $ (1.22) $ (2.00) $ (0.21)
======== ======== =======
</TABLE>
Due to the loss from continuing operations before extraordinary charge
applicable to Common Stock for all the periods presented, 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 approximately 933,000, 3,388,000, and 236,000 for the years ended
March 31, 1999, 1998 and 1997, respectively. 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.
RECENT ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued by the FASB in June 1998 and is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The adoption of SFAS No. 133 is not expected to significantly
impact the consolidated financial statements.
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.
F-9
<PAGE> 52
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
NOTE 2 -- ACQUISITIONS AND DIVESTURES
MERGERS ACCOUNTED AS POOLING OF INTERESTS
On May 28, 1998, a subsidiary of the Company merged with R&P Holdings,
Inc., the parent of Charles Bluestone Company and R&P Real Estate, Inc.
(hereinafter, "Bluestone") through a tax-free stock-for-stock exchange. In
connection with the merger, the Company issued 1,034,826 shares of common stock,
par value $.01 per share ("Common Stock") in exchange for all the outstanding
common stock of Bluestone. The merger is accounted for as a
pooling-of-interests. The financial statements include the historical financial
information of Bluestone for all periods presented. Certain reclassifications
were made to Bluestone's financial statements to conform to the Company's
presentation.
The following table presents net sales and net loss applicable to Common
Stock for the periods presented for the Company and Bluestone up to the date of
the merger. The only conforming accounting adjustment reflected is to change
Bluestone's inventory valuation methodology from a LIFO basis to an average cost
basis (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999 1998 1997
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Net sales
The Company $794,741 $479,707 $ 65,196
Bluestone 10,533 90,328 76,634
-------- -------- --------
Combined $805,274 $570,035 $141,830
======== ======== ========
Net loss applicable to Common Stock
The Company $(48,523) $(41,357) $ (2,010)
Bluestone (326) 340 516
Conforming accounting adjustments, net of tax 0 (490) (613)
-------- -------- --------
Loss from continuing operations before extraordinary
charge applicable to Common Stock (48,849) (41,507) (2,107)
Extraordinary charge on early retirement of debt (938) 0 0
Income from discontinued operations 117 200 847
-------- -------- --------
Combined net loss applicable to Common Stock $(49,670) $(41,307) $ (1,260)
======== ======== ========
Basic and Diluted loss per share applicable to Common
Stock:
The Company -- historical $ (1.23) $ (2.09) $ (0.13)
======== ======== ========
Combined $ (1.24) $ (1.99) $ (0.12)
======== ======== ========
</TABLE>
ACQUISITIONS ACCOUNTED AS PURCHASE TRANSACTIONS DURING FISCAL 1999
-- In April 1998, the Company, through its Cozzi subsidiary, acquired certain
assets of Midwest Industrial Metals Corp., located in Chicago, Illinois.
-- In May 1998, the Company, through an indirect wholly-owned subsidiary,
acquired substantially all of the assets of 138 Scrap, Inc. and Katrick,
Inc., located in Riverdale, Illinois.
F-10
<PAGE> 53
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
-- In June 1998, the Company, through its Metal Management Gulf Coast, Inc.
subsidiary, acquired certain assets related to the scrap metal businesses
of Goldin Industries, Inc., Goldin of Alabama, Inc., and Goldin of
Louisiana, Inc. (collectively "Goldin"). The assets acquired from Goldin
were located in Gulfport, Mississippi, Mobile, Alabama and Harvey,
Louisiana. In the fourth quarter of Fiscal 1999, the Company approved the
decision to abandon and shut down the Goldin operations.
-- In June 1998, a wholly owned subsidiary of the Company merged with and
into Newell Recycling of Denver, Inc., which subsequently changed its name
to Newell Recycling West, Inc. ("Newell"). Newell operates facilities in
Denver and Colorado Springs, Colorado. In June 1998, Newell acquired
substantially all of the assets of Newell Recycling of Utah, L.L.C.
("Newell-Utah"), in a related transaction. At the time of its acquisition,
Newell-Utah was developing a shredder operation in Salt Lake City, Utah.
-- In July 1998, the Company acquired the common stock of Naporano Iron &
Metal Co. and Nimco Shredding Co. (collectively "Naporano"), each of which
is located in Newark, New Jersey.
-- In July 1998, the Company acquired substantially all of the assets of
Michael Schiavone & Sons, Inc. and related entities, located in North
Haven and Torrington, Connecticut.
-- In July 1998, the Company acquired substantially all of the assets of M.
Kimerling & Sons, Inc., located in Birmingham, Alabama.
-- In July 1998, the Company acquired substantially all of the assets of
Nicroloy Company, located in Heidelberg, Pennsylvania.
-- In July 1998, the Company, through its Cozzi subsidiary, acquired certain
assets of Midwest Metallics, L.P., located in Chicago, Illinois.
-- In November 1998, a wholly owned subsidiary of the Company merged with
FPX, Inc. The sole asset of FPX, Inc. is a 50% joint venture interest in
PerlCo, L.L.C. ("PerlCo"). The Company's Cozzi subsidiary owns the other
50% of PerlCo. PerlCo is a scrap metal recycling operation located in
Memphis, Tennessee.
The purchase consideration for the acquisitions completed during Fiscal
1999 was as follows (in thousands):
<TABLE>
<CAPTION>
NAPORANO OTHERS TOTAL
-------- ------ -----
<S> <C> <C> <C>
Shares of restricted Common Stock issued 1,939 2,334 4,273
Shares of Series C convertible preferred stock
issued 0 6 6
Warrants issued to purchase Common Stock 0 150 150
Cash paid, including transaction costs $ 86,561 $102,203 $188,764
Value of Common Stock issued 18,497 21,118 39,615
Value of Series C Convertible Preferred Stock
issued 0 5,100 5,100
Value of warrants issued 0 699 699
Promissory notes issued 0 1,250 1,250
-------- -------- --------
Total purchase consideration $105,058 $130,370 $235,428
======== ======== ========
</TABLE>
ACQUISITIONS ACCOUNTED AS PURCHASE TRANSACTIONS 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 in Attalla, Alabama.
-- In June 1997, the Company acquired four companies under common ownership
comprising The Isaac Group ("Isaac"), headquartered in Maumee, Ohio. At
the time of acquisition, Isaac was comprised of Ferrex Trading
Corporation, the Isaac Corporation, Paulding Recycling, Inc. and
Briquetting Corporation of America, Inc. Paulding Recycling, Inc. and
Briquetting Corporation of America, Inc. were subsequently merged with and
into the Isaac Corporation.
-- In August 1997, the Company acquired Proler Southwest, Inc. and Proler
Steelworks, L.L.C. (collectively "Proler"). Proler operates facilities in
Houston, Texas and Jackson, Mississippi.
F-11
<PAGE> 54
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
-- 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. 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.
-- In March 1998, the Company, through its Metal Management Arizona, Inc.
subsidiary, acquired certain assets of Ellis Metals, Inc., ("Ellis
Metals") headquartered in Tucson, Arizona. In the fourth quarter of Fiscal
1999, the Company approved the decision to abandon and shut down the
operations of Ellis Metals.
-- In March 1998, the Company acquired Superior Forge, Inc., ("Superior
Forge") headquartered in Huntington Beach, California. The Company
subsequently sold Superior Forge on March 12, 1999.
The purchase consideration for the acquisitions completed during Fiscal
1998 was as follows (in thousands):
<TABLE>
<CAPTION>
RESERVE ISAAC PROLER COZZI AEROSPACE OTHERS 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 0 462 375 1,500 0 120 2,457
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 0 4,862 1,574 7,505 0 368 14,309
Promissory notes issued 1,542 36,547 10,500 0 0 1,991 50,580
------ ------- ------- ------- ------- ------- --------
Total purchase
consideration $8,131 $62,994 $30,964 $81,176 $20,120 $28,285 $231,670
====== ======= ======= ======= ======= ======= ========
</TABLE>
The purchase consideration was allocated as follows at March 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Fair value of tangible assets acquired $133,376 $262,426
Goodwill 132,370 165,064
Identifiable intangibles 0 1,834
Liabilities assumed (30,812) (198,329)
Convertible preferred stock issued (5,100) 0
Stock and warrants issued (40,314) (135,730)
Promissory notes and other consideration issued (1,250) (50,580)
-------- --------
Cash paid 188,270 44,685
Less: cash acquired (3,240) (780)
-------- --------
Net cash paid for acquisitions $185,030 $ 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
F-12
<PAGE> 55
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price was allocated based on estimates of the fair value of assets acquired and
liabilities assumed. These estimates are revised during the allocation period as
necessary when information regarding contingencies becomes available to define
and quantify assets acquired and liabilities assumed. The allocation period
varies by acquisition but does not usually exceed one year. The finalization of
purchase accounting for all acquisitions for which the allocation period had
closed did not result in any significant adjustments to the estimated
allocation. 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 for those acquisitions for which the allocation period remains
open.
The following unaudited pro forma statement of operations information
presents a summary of consolidated results of operations of the Company,
Reserve, Isaac, Proler, Cozzi, Aerospace and Naporano (collectively, the "Pro
Forma Acquisitions") as if these acquisitions had occurred on April 1, 1997. The
unaudited pro forma statement of operations information has 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
acquired, additional amortization expense as a result of goodwill and interest
expense related to cash portions of purchase consideration and assumed debt. The
pro forma statement of operations information includes non-recurring expenses of
$19.0 million and $43.5 million for the years ended March 31, 1999 and 1998,
respectively. The pro forma statement of operations information for the year
ended March 31, 1998 also includes a charge for a $5.6 million non-cash dividend
on the beneficial conversion feature of convertible preferred stock. The pro
forma results do not purport to be indicative of the financial results which
actually would have occurred had the Pro Forma Acquisitions been in effect on
April 1, 1997 (in thousands, except share data).
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------
1999 1998
---- ----
<S> <C> <C>
STATEMENT OF OPERATIONS
Net sales $845,430 $1,020,030
Net loss from continuing operations applicable to Common
Stock $(51,674) $ (44,410)
Basic and diluted net loss per share from continuing
operations $ (1.06) $ (1.19)
</TABLE>
DIVESTITURES
On March 12, 1999, the Company completed the sale of its Superior Forge
subsidiary to a newly formed company formed by a group of investors led by
Gerard M. Jacobs, the Company's former chief executive officer and a director of
the Company. The Company received proceeds of $16.7 million, consisting of $14.2
million in cash and a $2.5 million promissory note due in 2003 bearing interest
at 10% per annum. The promissory note is payable in five equal installments of
$500,000 beginning on March 12, 2001 and every six months thereafter. In
addition, the sale provides for the payment of an additional $1.0 million to the
Company if certain financial targets are met by Superior Forge. The sale
resulted in a loss of $6.8 million, which is included in non-cash and
non-recurring expenses.
F-13
<PAGE> 56
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- NON-CASH AND NON-RECURRING EXPENSES
During the year ended March 31, 1999, the Company recognized non-cash and
non-recurring expenses of $16.2 million consisting of the following (in
thousands):
<TABLE>
<S> <C>
Non-cash warrant compensation expense (income) $(6,776)
Merger related costs 3,213
Loss on Superior Forge disposition (Note 2) 6,792
Facility abandonment, shut-down and integration:
Impairment of long-lived assets 11,191
Severance, facility closure charges and other 1,776
-------
$16,196
=======
</TABLE>
NON-CASH WARRANT COMPENSATION EXPENSE (INCOME)
On May 1, 1997, the Company issued warrants to purchase 1,400,000 shares of
Common Stock to the former general partners of Reserve (the "Reserve Warrants").
The Reserve Warrants have initial exercise prices of $3.50 or $4.00 per share,
subject to a $0.50 per share increase in the event that the Company's stock
price exceeds $10.00 per share on the date of exercise. The Reserve Warrants
have terms that range from 30 to 60 months. The Reserve Warrants vest over 6
month, 12 month, 18 month and 24 month intervals for each group of 350,000
warrants, respectively, beginning on May 1, 1997. Upon termination of
employment, any unvested warrants are forfeited by the recipients. The decrease
in the Company's stock price during Fiscal 1999 resulted in the reversal of $6.8
million of previously recognized non-cash warrant compensation expense. Since
the Reserve Warrants are considered variable instruments under APB No. 25, the
Company will record non-cash warrant compensation expense or income throughout
the term of the Reserve Warrants depending on the fair market value of its
Common Stock. At March 31, 1999, warrants to purchase 910,000 shares of Common
Stock remained outstanding under the Reserve Warrants.
MERGER RELATED COSTS
In connection with the Company's merger with Bluestone, the Company
recognized merger expenses consisting primarily of fees and expenses for
accountants, attorneys, and investment bankers totaling $0.9 million. The merger
expenses also included a charge of approximately $0.8 million related to the
buy-out of existing contracts at Bluestone.
In September 1998, the Company elected, due to adverse scrap metals market
conditions, to terminate all then pending negotiations and related due diligence
processes with potential acquisition candidates. Terminated merger expenses
totalling $1.5 million, represent costs incurred in connection with acquisitions
that the Company had been pursuing but subsequently terminated.
FACILITY ABANDONMENT, SHUT-DOWN AND INTEGRATION
In the fourth quarter of Fiscal 1999, the Company executed a plan commenced
during Fiscal 1999 to evaluate the long term economic viability of certain of
its investments and to accelerate the integration of various operations in
recognition of the significant adverse market conditions during Fiscal 1999, its
liquidity needs, and ongoing integration and consolidation efforts. In
connection with the plan, the Company performed an evaluation, in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of," that indicated negative or marginal future
cash flows (undiscounted and without interest charges) from its under-performing
recycling operations which would be less than the aggregate carrying amount of
the Company's investment in these assets, resulting in the need to record
impairment provisions for equipment and goodwill. The plan resulted in decisions
made in the fourth quarter to abandon under-performing recycling operations
including Ellis Metals, Inc. and Metal Management Gulf Coast, Inc. and to
conclude the integration of certain operations in the Houston area.
F-14
<PAGE> 57
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The plan provided that certain recycling facilities would be abandoned and
the operations integrated, where economically justified, into other Company
facilities. In those instances where equipment would be transferred to other
Company facilities, such equipment was transferred at its carrying value.
Equipment to be disposed of or otherwise scrapped was written down to its net
realizable value resulting in a non-cash charge of $6.6 million. It is expected
that substantially all disposition of equipment will be completed within two
quarters. Goodwill impairment associated with abandoned facilities aggregated
$4.6 million.
In connection with the facility abandonments and other termination
arrangements, the Company incurred $0.6 million of severance and $1.2 million
for lease cancellation, facility clean-up and other exit costs. Substantially
all of these costs will be paid by the end of the second quarter of Fiscal 2000.
The final clean-up and shutdown of all abandoned facilities is expected to be
completed by September 30, 1999.
During the year ended March 31, 1998, the Company recognized non-cash and
non-recurring expenses of $43.5 million consisting of the following (in
thousands):
<TABLE>
<S> <C>
Non-cash warrant compensation expense $30,588
Facility abandonment and integration:
Impairment of long-lived assets 11,305
Severance, facility closure charges and other 1,655
-------
$43,548
=======
</TABLE>
The Company recorded non-cash warrant compensation expenses aggregating to
$30.6 million relating to (i) the Reserve Warrants ($9.8 million) and (ii)
warrants issued on December 1, 1997 (the "December Warrants") to certain
officers, employees and directors ($20.8 million). The December Warrants were
fully vested warrants to purchase 1,855,000 shares of Common Stock at exercise
prices ranging from $4.00 per share to $12.00 per share. The December Warrants
are accounted for under APB No. 25 as fixed instruments and accordingly were
valued using the "intrinsic method." The Reserve Warrants are accounted for
under APB No. 25 as variable instruments.
Upon completion of the Cozzi acquisition in December 1997, the Company
adopted a formal plan to abandon its EMCO Recycling, Inc. ("EMCO") operations
which had become redundant as a result of the Cozzi acquisition, and to transfer
certain of EMCO's assets to Salt River Recycling, which the Company operates
under the name of Metal Management Arizona. In connection with the plan to
abandon and shut down EMCO, the Company recorded a non-cash charge of
approximately $11.3 million, comprised of $9.3 million for the impairment of
EMCO goodwill and $2.0 million for the write-down to net realizable value (less
selling costs) of the EMCO fixed assets to be sold or otherwise abandoned. The
Company also incurred $1.6 million of costs related to severance paid to the
former president of EMCO and other exit related costs. The final shutdown and
abandonment of EMCO was completed during Fiscal 1999.
NOTE 4 -- DISCONTINUED OPERATIONS
During the year ended March 31, 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 $2.3 million
for the year March 31, 1997. 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 was approximately ($307,000) for the year ended March 31, 1997.
Income tax provision (benefit) for the gain on sale of assets of discontinued
operations was approximately $81,000, $133,000 and ($15,000) for the years ended
March 31, 1999, 1998 and 1997, respectively.
F-15
<PAGE> 58
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 at March 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Ferrous metals $37,679 $35,934
Non-ferrous metals 19,791 25,222
Other 2,973 786
------- -------
$60,443 $61,942
======= =======
</TABLE>
NOTE 6 -- DEBT
LONG-TERM DEBT
Long-term debt consisted of the following at March 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Senior Credit Facility, average interest rate of 7.64% $144,410 $ 0
Notes payable to related parties, due 1999 to 2001, average
interest rate of 8.17% in 1999 and 7.80% in 1998, with
letters of credit or stock pledge agreements pledged as
collateral 3,688 42,592
10% Senior Subordinated Notes due 2008 180,000 0
Term loans, average interest rate of 8.45% in 1998 with
equipment or personal guarantees pledged as collateral 0 40,221
Operating lines of credit, average interest rate of 9.50% in
1998 reclassified to long-term debt 0 58,494
Real property mortgage loans, due 1999 to 2009, average
interest rate of 8.20% in 1999 and 8.23% in 1998 1,221 2,102
Other debt, due 1999 to 2008, average interest rate of 7.13%
in 1999 and 7.85% in 1998, with equipment generally
pledged as collateral 6,143 8,057
-------- --------
335,462 151,466
Less current portion (5,308) (11,877)
-------- --------
$330,154 $139,589
======== ========
</TABLE>
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
FISCAL YEAR ENDING, MARCH 31
2000 $ 5,308
2001 146,726
2002 922
2003 431
2004 and thereafter 182,075
--------
$335,462
========
</TABLE>
On March 31, 1998, the Company and its subsidiaries entered into a three
year credit facility (the "Senior Credit Facility"), as amended, which provides
for a revolving credit and letter of credit facility of $250.0 million, subject
to borrowing base limitations. A security interest on substantially all of the
assets and properties of the Company and its subsidiaries, including pledges of
the capital stock of the Company's subsidiaries, are pledged as collateral
against the obligations of the Company and its subsidiaries under the
F-16
<PAGE> 59
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior Credit Facility. The Senior Credit Facility provides the Company with the
option of borrowing based either on the Bankers Trust Company's prime rate plus
a margin (1.5% at March 31, 1999) or at the London Interbank Offered Rate
("LIBOR") plus a margin (2.5% at March 31, 1999). Pursuant to the Senior Credit
Facility, the Company pays a fee of .375% on the undrawn portion of the
facility. The Senior Credit Facility is available for working capital and
general corporate purposes, including acquisitions.
Pursuant to the Senior Credit Facility, the Company is required to satisfy
a certain minimum interest coverage test. The minimum interest coverage tests
(i) for the three month period ended June 30, 1999, (ii) for the six month
period ended September 30, 1999, (iii) for the nine month period ended December
31, 1999, (iv) for the twelve month period ended March 31, 2000 and (v) for the
end of each subsequent fiscal quarter thereafter for the twelve month period
then ending require that the Company satisfy an interest coverage ratio of not
less than 1.0 to 1.0. In addition, the Senior Credit Facility places contractual
restrictions on the Company's ability to make interest payments on its Senior
Subordinated Notes (defined below) unless during the thirty day period ending on
the date on which the interest payment is to be made, there exists average
undrawn availability under the Senior Credit Facility of not less than $12.0
million plus the amount of interest which is then due and payable on the Senior
Subordinated Notes.
On May 13, 1998, the Company issued $180.0 million, 10.0% Senior
Subordinated Notes due on May 15, 2008 (the "Senior Subordinated Notes") and
received net proceeds of $174.6 million. Interest on the Senior Subordinated
Notes is payable semi-annually. The Senior Subordinated 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 and the Senior Secured Notes. The Company's payment
obligations are jointly and severally guaranteed by the Company's current and
certain future subsidiaries. The Senior Subordinated Notes are redeemable at the
Company's option at specified redemption prices and redemption events. The net
proceeds were used to repay then outstanding amounts under the Senior Credit
Facility, reduce notes payable to related parties and for general corporate
purposes, including acquisitions. The Senior Subordinated Notes are traded on
the PORTAL system.
The Senior Credit Facility, the Indenture governing the Senior Subordinated
Notes and the Indenture for the Senior Secured Notes (as defined below) contain
covenants that, among other things, restrict the Company and most of its
subsidiaries' ability to:
- incur additional indebtedness;
- pay dividends;
- prepay subordinated indebtedness;
- dispose of some types of assets;
- make capital expenditures;
- create liens and make some types of investments or acquisitions; and
- engage in some fundamental corporate transactions.
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 Company's ability to
comply with these provisions may be affected by general economic conditions,
industry conditions, and other events or circumstances beyond its control. A
breach of any of these covenants could result in a default under the Senior
Credit Facility. In the event of a default, depending on the actions taken by
the lenders under the Senior Credit Facility, the lenders could elect to declare
all amounts borrowed under the Senior Credit Facility, together with accrued
interest, to be due and payable. In addition, a default under the Indenture for
the Senior Secured Notes or the Indenture for the Senior Subordinated Notes
would constitute a default under the Senior Credit Facility and any instruments
governing our other indebtedness. Since September 30, 1998, the Company has been
required to enter into three amendments to the Senior Credit Facility to avoid
the occurrence of events of default under existing indebtedness.
F-17
<PAGE> 60
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Both the Indenture for the Senior Subordinated Notes and the Indenture for
the Senior Secured Notes contain restrictions on the Company's ability to incur,
subject to certain exceptions, additional indebtedness, unless the Company meets
a fixed charge coverage ratio of 2.0 to 1.0 for the immediately preceding four
calendar quarters. Because of recent financial performance, the Company
currently would not satisfy the fixed-charge coverage ratio test, and,
accordingly, is unable and will remain unable in the foreseeable future to incur
significant amounts of additional indebtedness. As a result, if the Company
experiences a liquidity shortfall, the ability to incur additional indebtedness
to cover the shortfall will be severely limited.
NOTES PAYABLE TO RELATED PARTIES
In connection with certain of the Company's acquisitions, notes payable
were issued to or assumed from certain of the selling shareholders as purchase
consideration. At March 31, 1999 and 1998, $2.4 million and $21.7 million,
respectively, of notes payable were outstanding to the former shareholders of
Isaac, including $0.3 million and $3.5 million, respectively, payable to George
A. Isaac III, a director and officer of the Company. At March 31, 1998, $2.4
million of notes payable was outstanding to the former shareholders of Proler,
including $1.0 million payable to William T. Proler, a director of the Company.
During Fiscal 1998, certain notes, aggregating $3.6 million, which were
issued in connection with the acquisitions of HouTex, MacLeod and Reserve were
converted, pursuant to their terms, into 524,569 shares of Common Stock of the
Company.
EXTRAORDINARY CHARGE ON EARLY RETIREMENT OF DEBT
During Fiscal 1999, the Company borrowed under the Senior Credit Facility
to (i) refinance existing secured debt (including notes payable to related
parties), (ii) buyout certain operating leases and (iii) pay prepayment
penalties associated with the early retirement of debt. In connection with the
refinancing of debt, the Company recognized extraordinary charges consisting of
the following (in thousands):
<TABLE>
<S> <C>
Cash prepayment penalties $ 973
Value of warrants to purchase 106,797 shares of Common Stock
issued as a prepayment fee 128
Write-off of related unamortized financing costs 487
------
Extraordinary charge before income tax benefit 1,588
Income tax benefit 650
------
Net extraordinary charge $ 938
======
</TABLE>
The warrants were issued as a prepayment fee to certain former shareholders
of Isaac, including warrants to purchase 18,888 shares of Common Stock issued to
George A. Isaac III, a director and officer of the Company. The warrants are
exercisable at $6.50 per share over a 3 year period. The value of the warrants
was determined using the Black-Scholes model.
SUBSEQUENT DEBT TRANSACTIONS
On May 7, 1999, the Company issued $30.0 million principal amount of
12 3/4% Senior Secured Notes due on June 15, 2004 (the "Senior Secured Notes"),
in a Rule 144A private offering. Interest on the Senior Secured Notes is payable
semi-annually. The Company is required to register the Senior Secured Notes
within 180 days of sale. If the Registration Statement covering the Senior
Secured Notes is not declared to be effective as required by the Senior Secured
Notes, the Company may be required to pay damages. The Senior Secured Notes were
issued at 90% of their principal amount and are redeemable by the Company, in
whole or in part, at 100% of their principal amount at any time after June 15,
2000. A second priority lien on substantially all of the Company's property,
plant and equipment has been pledged as collateral against the Notes. The
Company received net proceeds of approximately $25.6 million, after the 10%
original issue discount and transaction fees and expenses. Net proceeds were
used to reduce amounts outstanding under the Senior Credit Facility.
F-18
<PAGE> 61
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES
The provision (benefit) for federal and state income taxes from continuing
operations is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998 1997
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ (1,149) $ 199 $ (33)
Deferred (14,173) (4,294) (895)
-------- ------- -----
(15,322) (4,095) (928)
-------- ------- -----
State:
Current 697 741 142
Deferred (2,411) (1,201) (117)
-------- ------- -----
(1,714) (460) 25
-------- ------- -----
Total tax benefit $(17,036) $(4,555) $(903)
======== ======= =====
</TABLE>
The components of deferred tax assets and liabilities at March 31, related
to the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforward $ 17,839 $ 0
Facility closure & severance 843 0
Workman's compensation 902 793
Accrued liabilities 956 342
Accounts receivable reserves 659 315
Deferred compensation 602 759
Employee benefit accruals 410 403
Stock based compensation 0 5,234
Other 0 176
-------- --------
22,211 8,022
-------- --------
DEFERRED TAX LIABILITIES:
Depreciation (14,070) (15,237)
Inventory (854) (0)
Non-compete agreements (688) (795)
Cash to accrual adjustment (0) (389)
Other (35) (170)
-------- --------
(15,647) (16,591)
-------- --------
NET DEFERRED TAX ASSET (LIABILITY) $ 6,564 $ (8,569)
======== ========
</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. Management believes it is more likely than not that the Company's
deferred tax assets will be realized through tax loss carry backs and future
taxable earnings. In concluding on the level of deferred tax asset valuation
allowance to record, the Company considered a number of factors including the
current and expected market conditions, the cyclicality of the recycling
industry, integration and rationalization opportunities identified, the adequacy
of its current liquidity and financial
F-19
<PAGE> 62
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
resources and the remaining life of the net operating loss carryforward. The net
operating loss carryforward expires in 2019 for federal tax purposes.
The reconciliation of the federal income tax rate to the Company's
effective tax rate from continuing operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998 1997
- ------------------- ---- ---- ----
<S> <C> <C> <C>
Normal statutory rate (35.0)% (35.0)% (35.0)%
State income taxes, net of federal benefit (4.0) (1.1) (4.3)
Non-deductible goodwill 2.5 2.3 4.8
Non-deductible goodwill, impairment and
business disposition write-offs 6.2 8.4 0.0
Non-deductible stock based compensation 3.0 12.8 0.0
Other 0.7 0.9 4.5
----- ----- -----
Effective tax rate (26.6)% (11.7)% (30.0)%
===== ===== =====
</TABLE>
NOTE 8 -- EMPLOYEE BENEFIT PLANS
On December 31, 1998, the Company consolidated its various 401(k) and
profit sharing plans into the Metal Management, Inc. 401(k) Plan. The plan
allows employees to defer, within prescribed limits, up to 15% of their income
on a pre-tax basis through contributions to the plan. The Company may match a
portion of the pre-tax contributions through discretionary contributions. The
Company also may make a discretionary profit sharing contribution to the plan.
No matching contributions were made by the Company into the Metal Management,
Inc. 401(k) Plan for the year ended March 31, 1999.
Prior to the Metal Management, Inc. 401(k) Plan, the Company and its
wholly-owned subsidiaries sponsored qualified 401(k) plans and profit sharing
plans covering certain eligible employees. Certain of the qualified 401(k) plans
allowed the Company's wholly-owned subsidiaries to match a percentage of the
contributions of participating employees as specified in the respective plans
and also enabled discretionary contributions based on the plan provisions. For
the years ended March 31, 1999, 1998 and 1997, the Company recorded charges for
matching contributions of approximately $0.8 million, $0.4 million and $0.1
million, respectively.
The Company's Bluestone, Isaac and Aerospace subsidiaries have defined
benefit pension plans covering certain employees and groups of employees. Net
pension cost under these plans for the years ended March 31, 1999, 1998, and
1997 aggregated $355, $162 and $41 thousand, respectively. Actuarially computed
obligations under these plans are not significant and are substantially offset
by the fair value of associated plan assets.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain facilities and equipment under operating leases
expiring at various dates. Lease rental expense was approximately $5.9 million,
$3.1 million and $0.6 million for the years ended March 31, 1999, 1998 and 1997,
respectively. Future minimum lease payments under non-cancellable operating
leases are as follows (in thousands):
<TABLE>
<S> <C>
FISCAL YEAR ENDING, MARCH 31
2000 $ 5,742
2001 4,767
2002 4,024
2003 3,726
2004 and thereafter 17,087
</TABLE>
F-20
<PAGE> 63
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENVIRONMENTAL MATTERS
The Company is subject to comprehensive local, state and international
regulatory and statutory requirements relating to the acceptance, storage,
handling and disposal of solid waste and waste water, air emissions, soil
contamination and employee health, among others. The Company believes that it
and its subsidiaries are in material compliance with currently applicable
environmental and other applicable laws and regulations. However, environmental
legislation may in the future be enacted and create liability for past actions
and the Company or its subsidiaries may be fined or held liable for damages.
Several of the Company's subsidiaries have received notices from the United
States Environmental Protection Agency ("EPA") that each of these companies and
numerous other parties are considered potentially responsible parties 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 various third party sites. 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 these 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 the Company's analysis
of its environmental exposure, the Company currently does not expect the
potential liability of its subsidiaries in these matters to have a material
adverse effect on the Company's financial condition or results of operation.
At March 31, 1999 and 1998, the Company had reserves of $2.2 million and
$1.3 million, respectively, for environmental related contingencies.
LEGAL PROCEEDINGS
From time to time, the Company is involved in various litigation matters
involving ordinary and routine claims incidental to its business. A significant
portion of these matters result from environmental compliance issues applicable
to the operations of the Company's subsidiaries. There are presently no legal
proceedings pending against the Company which, in the opinion of the Company's
management, is likely to have a material adverse effect on its business,
financial position or results of operations.
PURCHASE OF REAL PROPERTY
On January 7, 1997, the Company entered into a 10 year lease agreement with
15/21 Japhet Realty Ltd. ("Japhet"), which provides for the Company's use of
property in Houston, Texas. Japhet is owned by former HouTex shareholders. The
lease agreement allows Japhet to sell the property to the Company for $4.0
million between the 54th month and the 89th month of the lease term. The Company
also has an option to buy the property for $4.0 million during the same period.
NOTE 10 -- STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation allows for
the issuance of up to 4,000,000 shares of preferred stock. During Fiscal 1998,
the Company issued 25,000 shares of Series A Convertible Preferred Stock, par
value $.01 per share, stated value $1,000 per share (the "Series A Preferred
Stock"), and 20,000 shares of Series B Convertible Preferred Stock, par value
$.01 per share, stated value $1,000 per share (the "Series B Preferred Stock").
In connection with the acquisition of FPX, Inc., the Company issued 6,000 shares
of Series C Convertible Preferred Stock, par value $.01 per share, stated value
$1,000 per share (the "Series C Preferred Stock"). The fair value of the Series
C Preferred Stock was estimated at $5.1 million.
Dividends on the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock accrue, whether or not declared by the Board of
Directors, at an annual rate of 6.0%, 4.5% and 6.9%, respectively, of the stated
value of each outstanding share of Series A Preferred Stock, Series B Preferred
F-21
<PAGE> 64
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock and Series C Preferred Stock. Dividends are payable in cash, or at the
Company's option, in additional shares of preferred stock or Common 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. The holders of Series B Preferred Stock
are able to convert the shares into Common Stock at a price equal to the lower
of: (i) 120% of the closing bid price for the Common Stock on the date of
purchase of the Series B Preferred Stock; (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, subject in the case of the Series A Preferred Stock to the
amendment of the Company's Certificate of Incorporation to reflect such
conversion price. The holders of the Series C Preferred Stock are able to
convert the shares into Common Stock at price equal to $9.00 per share of Common
Stock, until November 2003, and thereafter, at the market price of the Common
Stock.
The following presents a summary of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock issued and converted during year
ended March 31, 1999:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
-------- -------- --------
<S> <C> <C> <C>
Shares outstanding at March 31, 1998 15,094 20,000 0
Shares converted into Common Stock (11,387) (9,645) 0
Shares issued for acquisitions 0 0 6,000
Shares issued for dividends 313 522 0
------- ------ -----
Shares outstanding at March 31, 1999 4,020 10,877 6,000
======= ====== =====
</TABLE>
COMMON STOCK
Effective May 28, 1999, the Company's Common Stock was delisted from the
NASDAQ National Market and transferred to the NASDAQ SmallCap Market. The
decision to transfer the Company's Common Stock listing was a result of the
Company's inability to comply with certain aspects of the listing requirements
of the NASDAQ National Market.
During January 1999, the Company completed a private sale of 192,000 shares
of the Company's Common Stock, at a purchase price of $2.00 per share to certain
officers and directors of the Company. The issuance of these shares is subject
to the approval of the Company's stockholders at the next annual or special
meeting of the stockholders of the Company. The Company received proceeds of
approximately $0.4 million in that transaction. There were no fees or
commissions paid in the transaction.
On November 2, 1998, the Company's stockholders approved an amendment to
the Company's Certificate of Incorporation to, among other things, increase the
number of authorized shares of Common Stock from 80,000,000 to 140,000,000.
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 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.
During April and May 1997, the Company completed a private sale of
2,025,000 shares of the Company's Common Stock 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.
F-22
<PAGE> 65
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- STOCK BASED COMPENSATION
STOCK OPTION PLANS
On November 2, 1998, the Company's stockholders approved an amendment to
the Company's 1995 Stock Option Plan (the "1995 Plan") to reserve an additional
2,600,000 shares of Common Stock for an aggregate 5,200,000 shares of Common
Stock which can be issued to employees and consultants under the 1995 Plan. 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 to be
granted and the times at and conditions under which each option is or becomes
exercisable. Options under the 1995 Plan are generally granted at an exercise
price equal to or greater than the market price of the Company's Common Stock on
the date of grant. These options generally vest between 3 to 5 years and have
terms ranging from 5 to 10 years. Options granted under the 1995 Plan must be
exercised no later than ten years from the date of grant.
On November 2, 1998, the Company's stockholders approved the 1998 Director
Compensation Plan (the "Director Plan") under which up to 250,000 shares of
Common Stock are available for grant to non-employee directors. The Director
Plan replaced the 1996 Director Option Plan, which provided for the issuance of
200,000 shares of Common Stock. Under the Director Plan, as of the first day of
the Company's Fiscal year or the first day on which an individual becomes an
outside director, each non-employee director is granted an option to purchase
shares having a value of $30,000 as determined using the Black-Scholes valuation
method. Options granted under the Director Plan are fully vested and exercisable
at the time of grant and may be exercised no later than ten years after the
grant date. The 1996 Director Option Plan has been terminated as to future
awards.
Summarized information for the Company's stock option plans are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999 1998 1997
-------------------- --------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 1,821,150 $12.05 757,500 $ 4.02 873,600 $3.72
Granted 2,698,445 $ 5.35 1,218,650 $16.01 110,000 $4.53
Exercised (12,500) $ 4.65 (155,000) $ 3.95 (103,850) $2.69
Expired/forfeited (1,641,150) $14.41 0 $ 0.00 (122,250) $3.46
---------- --------- --------
Ending balance 2,865,945 $ 4.44 1,821,150 $12.05 757,500 $4.02
========== ========= ========
Exercisable at end of period 701,500 $ 5.65 649,333 $ 5.28 672,500 $3.95
========== ========= ========
Options available for grant 2,354,805 812,100 630,750
========== ========= ========
</TABLE>
On December 1, 1998, a total of 1,513,900 outstanding stock options with a
weighted average exercise price of $14.42, per share, were terminated in
exchange for the grant of 1,135,425 stock options with an exercise price of
$3.87, per share, representing 125% of the closing price of the Company's Common
Stock on December 1, 1998. The options granted in the exchange are exercisable
over a period of 5 years and vest ratably over a period of 3 years. The offer to
exchange was made to substantially all option holders, but did not include the
Company's chairman and chief development officer, chief executive officer and
president. The exchange offer was designed to restore the incentive value of
Company stock options and to encourage the retention of key personnel,
particularly in light of the market conditions in the scrap metal industry
during the 1998 calendar year, and its effect on the Company's stock price.
F-23
<PAGE> 66
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS 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>
$2.04 to $3.52 657,770 4.93 $ 3.35 45,000 $ 2.67
$3.53 to $3.87 1,484,675 4.67 $ 3.87 0 $ 0.00
$3.88 to $5.00 555,000 6.00 $ 4.10 555,000 $ 4.10
$5.01 to $21.13 168,500 5.05 $14.95 101,500 $15.46
--------- -------
2,865,945 701,500
========= =======
</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 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999 1998 1997
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 8,224,540 $8.89 2,015,038 $ 4.65 20,000 $3.50
Granted 740,547 $7.76 7,016,925 $ 9.69 1,995,038 $4.66
Exercised (207,100) $4.93 (702,654) $ 4.14 0 $0.00
Expired/forfeited (315,040) $9.20 (104,769) $12.72 0 $0.00
--------- --------- ---------
Ending balance 8,442,947 $8.85 8,224,540 $ 8.89 2,015,038 $4.65
========= ========= =========
</TABLE>
On December 1, 1998, a total of 245,000 outstanding warrants with a
weighted average exercise price of $10.76, per share, were terminated in
exchange for the grant of 183,750 warrants with an exercise price of $3.87, per
share, representing 125% of the closing price of the Company's Common Stock on
December 1, 1998. The warrants granted in the exchange are exercisable over a
period of 5 years and vest ratably over a period of 3 years. The offer to
exchange was made to certain warrant holders. The exchange offer was designed to
restore the incentive value of the warrants and to encourage the retention of
key personnel, particularly in light of the market conditions in the scrap metal
industry during the 1998 calendar year, and its effect on the Company's stock
price.
The Company recognized approximately $6.8 million of warrant compensation
income and $30.6 million of warrant compensation expense associated with the
issuance of warrants for the years ended March 31, 1999 and 1998, respectively
(see Note 3 -- Non-cash and non-recurring expenses).
F-24
<PAGE> 67
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about warrants outstanding at
March 31, 1999:
<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>
$3.50 to $4.00 1,908,748 2.54 $ 3.87 1,327,498 $ 3.92
$4.01 to $5.91 2,117,741 3.17 $ 5.50 2,117,741 $ 5.50
$5.92 to $12.00 2,771,457 3.30 $ 9.81 2,371,457 $10.43
$12.01 to $26.00 1,645,001 3.76 $17.35 1,645,001 $17.35
--------- ---------
8,442,947 7,461,697
========= =========
</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 Opinion No. 25 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>
YEAR ENDED MARCH 31, 1999 1998 1997
- -------------------- ---- ---- ----
<S> <C> <C> <C>
NET LOSS APPLICABLE TO COMMON STOCK:
As reported $(49,670) $(41,307) $(1,260)
Pro forma $(59,869) $(45,147) $(1,493)
BASIC AND DILUTED EPS APPLICABLE TO COMMON STOCK:
As reported $ (1.24) $ (1.99) $ (0.12)
Pro forma $ (1.49) $ (2.17) $ (0.14)
ASSUMPTIONS:
- ------------------------------------------------------------
Expected life (years) 3 3 3
Expected volatility 76.2% 63.7% 60.0%
Dividend yield -- -- --
Risk-free interest rate 5.07% 5.65% 6.52%
</TABLE>
The weighted average fair value of options and compensation based warrants
granted was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- -------------------
---------------------------------------------------------------------
YEAR ENDED MARCH 31, SHARES FAIR VALUE SHARES FAIR VALUE SHARES FAIR VALUE
- -------------------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Exercise price > Market price 2,726,195 $1.74 338,750 $4.37 95,000 $1.59
Exercise price = Market price 456,000 $5.39 1,173,323 $7.24 15,000 $2.07
Exercise price < Market price n/a n/a 3,258,500 $8.04 n/a n/a
</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
F-25
<PAGE> 68
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Black-Scholes model may not necessarily provide a reliable single measure of the
fair value of employee stock options and warrants.
NOTE 12 -- 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
--------------------------------------------
YEAR ENDED MARCH 31, 1999 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
- ------------------------- ------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales $214,951 $217,256 $178,752 $194,315
Gross profit(a) 19,749 9,887 11,145 24,432
Non-cash and non-recurring expense (income)(b) (786) (2,575) 6,452 13,105
Loss from continuing operations(c) (913) (14,656) (19,009) (14,271)
Extraordinary charge 862 0 76 0
Income from discontinued operations 47 27 21 22
Net loss applicable to Common Stock(c) (1,728) (14,629) (19,064) (14,249)
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations $ (0.03) $ (0.38) $ (0.46) $ (0.31)
Discontinued operations 0.00 0.00 0.00 0.00
Extraordinary charge (0.02) 0.00 0.00 0.00
Net income (loss) (0.05) (0.38) (0.46) (0.31)
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations $ (0.03) $ (0.38) $ (0.46) $ (0.31)
Discontinued operations 0.00 0.00 0.00 0.00
Extraordinary charge (0.02) 0.00 0.00 0.00
Net income (loss) (0.05) (0.38) (0.46) (0.31)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------
YEAR ENDED MARCH 31, 1998 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
- ------------------------- ------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 82,105 $127,254 $145,837 $214,839
Gross profit 7,374 11,264 12,532 20,971
Non-cash and non-recurring expense (income)(d) 2,597 11,758 29,942 (749)
Income (loss) from continuing operations(c) (1,218) (7,041) (34,064) 816
Income (loss) from discontinued operations 101 107 (42) 34
Net income (loss) applicable to Common Stock(c) (1,117) (6,934) (34,106) 850
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations $ (0.09) $ (0.43) $ (1.57) $ 0.03
Discontinued operations 0.00 0.01 (0.00) 0.00
Net income (loss) (0.09) (0.42) (1.57) 0.03
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations $ (0.09) $ (0.43) $ (1.57) $ 0.02
Discontinued operations 0.00 0.01 (0.00) 0.00
Net income (loss) (0.09) (0.42) (1.57) 0.02
</TABLE>
- --------------------------------------------------------------------------------
(a) Reflects the impact of lower of cost or market inventory adjustments
recorded in the aggregate amount of approximately $17 million during the
quarters ended September 30, 1998 and December 31, 1998.
(b) Non-cash and non-recurring expenses for Fiscal 1999 consisted of non-cash
warrant compensation income of $6.8 million, merger related costs of $3.2
million, loss on the Superior Forge disposition of $6.8 million and
facility abandonment and integration charges of $13.0 million.
(c) Amounts include preferred stock dividends, accretion of preferred stock
discount to redemption value and non-cash beneficial conversion feature of
convertible preferred stock.
(d) Non-cash and non-recurring expenses for Fiscal 1998 consisted of non-cash
warrant compensation expense of $30.6 million and facility abandonment and
integration charges of $12.9 million.
F-26
<PAGE> 69
METAL MANAGEMENT, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(A)
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>
1999 Allowance for doubtful accounts $1,629 $ 982 $ 467 $(1,058) $2,020
Tax valuation allowance $ 0 $ 250 $ 0 $ 0 $ 250
1998 Allowance for doubtful accounts $ 101 $ 641 $1,013 $ (126) $1,629
1997 Allowance for doubtful accounts $ 474 $ 223 $ 0 $ (596) $ 101
Tax valuation allowance $ 505 $(505) $ 0 $ 0 $ 0
</TABLE>
- ---------------
(a) Includes increases to allowance for doubtful accounts due to acquisitions.
F-27
<PAGE> 70
METAL MANAGEMENT, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<C> <S>
2.1 Stock Purchase Agreement, dated as of May 24, 1998, by and
among the Company, Joseph F. Naporano and Andrew J.
Naporano, Jr. (incorporated by reference to Exhibit 2.1 of
the Company's Current Report on Form 8-K dated July 1,
1998).
3.1 Amended and Restated Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State
of Delaware on November 2, 1998 (incorporated by reference
to Exhibit 3.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).
3.2 Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock of the Company, as
filed with the Secretary of State of the State of Delaware
on November 2, 1998 (incorporated by reference to Exhibit
3.2 of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
3.3 Restated By-Laws of the Company, as amended through March
31, 1999.
4.1 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 Current Report on Form 8-K dated May 13, 1998).
4.2 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 (incorporated by reference to
Exhibit 4.12 of the Company's Annual Report on Form 10-K for
the year ended March 31, 1998).
4.3 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
(incorporated by reference to Exhibit 4.13 of the Company's
Annual Report on Form 10-K for the year ended March 31,
1998).
4.4 Third Supplemental Indenture, dated as of June 24, 1998,
executed by Newell Recycling West, Inc., amending Indenture,
dated as of May 13, 1998, among the Company, the Guarantors
and LaSalle National Bank, as Trustee (incorporated by
reference to Exhibit 4.14 of the Company's Registration
Statement on Form S-4 filed July 10, 1998).
4.5 Fourth Supplemental Indenture, dated as of July 1, 1998,
executed by Naporano Iron & Metal Co. and NIMCO Shredding
Co., amending Indenture, dated as of May 13, 1998, among the
Company, the Guarantors and LaSalle National Bank, as
Trustee (incorporated by reference to Exhibit 4.15 of the
Company's Registration Statement on Form S-4 filed July 10,
1998).
4.6 Fifth Supplemental Indenture, dated as of July 1, 1998,
executed by Michael Schiavone & Sons, Inc. and Torrington
Scrap Company, amending Indenture, dated as of May 13, 1998,
among the Company, the Guarantors and LaSalle National Bank,
as Trustee (incorporated by reference to Exhibit 4.16 of the
Company's Registration Statement on Form S-4 filed July 10,
1998).
4.7 Sixth Supplemental Indenture, dated as of July 7, 1998,
executed by Kimerling Acquisition Corp., amending Indenture,
dated as of May 13, 1998, among the Company, the Guarantors
and LaSalle National Bank, as Trustee (incorporated by
reference to Exhibit 4.17 of the Company's Amendment No. 1
to Registration Statement on Form S-4 filed October 6,
1998).
4.8 Seventh Supplemental Indenture, dated as of July 9, 1998,
executed by Nicroloy Acquisition Corp., amending Indenture,
dated as of May 13, 1998, among the Company, the Guarantors
and LaSalle National Bank, as Trustee (incorporated by
reference to Exhibit 4.18 of the Company's Amendment No. 1
to Registration Statement on Form S-4 filed October 6,
1998).
4.9 Eighth Supplemental Indenture, dated as of November 3, 1998,
executed by FPX, Inc., amending Indenture, dated as of May
13, 1998, among the Company, the Guarantors and LaSalle
National Bank, as Trustee (incorporated by reference to
Exhibit 4.3 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
4.10 Ninth Supplemental Indenture, dated as of November 3, 1998,
executed by PerlCo, L.L.C., amending Indenture, dated as of
May 13, 1998, among the Company, the Guarantors and LaSalle
National Bank, as Trustee (incorporated by reference to
Exhibit 4.4 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<C> <S>
4.11 Indenture, dated as of May 7, 1999, among the Company, the
Guarantors (as defined therein) and Harris Trust and Savings
Bank, as Trustee (incorporated by reference to Exhibit 4.1
of the Company's Current Report on Form 8-K dated May 7,
1999).
4.12 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).
10.1 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 Current Report on Form 8-K dated March 31,
1998).
10.2 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 (incorporated by
reference to Exhibit 10.28 of the Company's Annual Report on
Form 10-K for the year ended March 31, 1998).
10.3 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 (incorporated by
reference to Exhibit 10.29 of the Company's Annual Report on
Form 10-K for the year ended March 31, 1998).
10.4 Amendment No. 3A to Credit Agreement, dated as of September
30, 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 Current Report on
Form 8-K dated October 5, 1998).
10.5 Amendment No. 4 to Credit Agreement, dated as of December
31, 1998, by and among the Company and its subsidiaries
named therein, BT Commercial Corporation and the other
financial institutions signatories thereto as lenders
(incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K dated January 28, 1999).
10.6 Amendment No. 5 to Credit Agreement, dated as of April 14,
1999, by and among the Company and its subsidiaries named
therein, BT Commercial Corporation and the other financial
institutions signatories thereto as lenders.
10.7 Amendment No. 6 to Credit Agreement, dated as of April 29,
1999, by and among the Company and its subsidiaries named
therein, BT Commercial Corporation and the other financial
institutions signatories thereto as lenders (incorporated by
reference to Exhibit 10.1 of the Company's Current Report on
Form 8-K dated May 7, 1999).
10.8 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 Current Report on
Form 8-K dated May 13, 1998).
10.9 Purchase Agreement, dated May 5, 1999, among the Company,
its subsidiaries named therein and BT Alex. Brown
Incorporated (incorporated by reference to Exhibit 10.2 of
the Company's Current Report on Form 8-K dated May 7, 1999).
10.10 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 Current Report on Form 8-K dated May 13,
1998).
10.11 Exchange and Registration Rights Agreement, dated as of May
7, 1999, among the Company, the Guarantors and BT Alex.
Brown Incorporated (incorporated by reference to Exhibit 4.2
of the Company's Current Report on Form 8-K dated May 7,
1999).
10.12 Registration Rights Agreement, dated as of November 2, 1998,
by and among the Company and the holders listed therein.
10.13 Employment Agreement, dated August 26, 1996. between the
Company and Robert C. Larry (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996).
10.14 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 Current Report on Form 8-K
dated June 23, 1997).
10.15 Employment Agreement, dated August 27, 1997, between the
Company and William T. Proler (incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K
dated August 28, 1997).
10.16 Employment Agreement, dated December 1, 1997, between the
Company and T. Benjamin Jennings (incorporated by reference
to Exhibit 10.6 of the Company's Current Report on Form 8-K
dated December 1, 1997).
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<C> <S>
10.17 Employment Agreement, dated December 1, 1997, between the
Company and Albert A. Cozzi (incorporated by reference to
Exhibit 10.12 of the Company's Current Report on Form 8-K
dated December 1, 1997).
10.18 Employment Agreement, dated December 1, 1997, between the
Company and Frank J. Cozzi (incorporated by reference to
Exhibit 10.15 of the Company's Current Report on Form 8-K
dated December 1, 1997).
10.19 Employment Agreement, dated December 1, 1997, between
Gregory P. Cozzi and Cozzi Iron & Metal, Inc. (incorporated
by reference to Exhibit 10.18 of the Company's Current
Report on Form 8-K dated December 1, 1997).
10.20 Employment Agreement, dated July 1, 1998, between Naporano
Iron & Metal Co., NIMCO Shredding Co. and Joseph F. Naporano
(incorporated by reference to Exhibit 10.6 of the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
10.21 Employment Agreement, dated November 30, 1998, between Larry
Snyder, the Company and Cozzi Iron & Metal, Inc.
10.22 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 Current Report on Form 8-K
dated December 1, 1997).
10.23 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 Current Report on Form 8-K dated December 1,
1997).
10.24 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 Current Report on
Form 8-K dated December 1, 1997).
10.25 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 (incorporated by reference to
Exhibit 10.3 of the Company's Annual Report on Form 10-K for
the year ended March 31, 1998).
10.26 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 Current Report
on Form 8-K dated December 1, 1997).
10.27 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 Current Report
on Form 8-K dated December 1, 1997).
10.28 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 Current Report
on Form 8-K dated December 1, 1997).
10.29 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 Current Report
on Form 8-K dated December 1, 1997).
10.30 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 Current Report
on Form 8-K dated December 1, 1997).
10.31 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 Current Report
on Form 8-K dated December 1, 1997).
10.32 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 Current Report
on Form 8-K dated December 1, 1997).
10.33 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 Current Report
on Form 8-K dated December 1, 1997).
10.34 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 Current Report
on Form 8-K dated December 1, 1997).
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<C> <S>
10.35 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 Current Report
on Form 8-K dated December 1, 1997).
10.36 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
Current Report on Form 8-K dated December 18, 1997).
10.37 Secured Promissory Note, dated July 22, 1998, executed by T.
Benjamin Jennings in favor of the Company (incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998).
10.38 Pledge Agreement, dated as of July 22, 1998, between the
Company and T. Benjamin Jennings (incorporated by reference
to Exhibit 10.3 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998).
10.39 Amended and Restated Stockholders' Agreement, dated as of
February 12, 1999, by and 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 10.3 of the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1998).
10.40 Metal Management, Inc. 1995 Stock Plan (incorporated by
reference to Exhibit 4.9 of the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998).
10.41 Metal Management, Inc. 1996 Director Option Plan
(incorporated by reference to Exhibit 4.3 of the Company's
Annual Report on Form 10-K for the year ended March 31,
1997).
10.42 Metal Management, Inc. 1998 Director Compensation Plan
(incorporated by reference to Exhibit 4.10 of the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
10.43 Metal Management, Inc. 1998 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.11 of the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3.3
REFLECTING AMENDMENTS
ADOPTED THROUGH MARCH 31, 1999
RESTATED BY-LAWS
OF
METAL MANAGEMENT, INC.
<PAGE> 2
REFLECTING AMENDMENTS
ADOPTED THROUGH MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I CORPORATE OFFICES.....................................................3
1.1 REGISTERED OFFICE.....................................................3
1.2 OTHER OFFICES.........................................................3
ARTICLE II MEETINGS OF STOCKHOLDERS..............................................3
2.1 PLACE OF MEETINGS.....................................................3
2.2 ANNUAL MEETING........................................................3
2.3 SPECIAL MEETING.......................................................4
2.4 NOTICE OF STOCKHOLDERS' MEETINGS......................................4
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..........................4
2.6 QUORUM................................................................5
2.7 ADJOURNED MEETING; NOTICE.............................................5
2.8 VOTING................................................................5
2.9 WAIVER OF NOTICE......................................................6
2.10 INTENTIONALLY OMITTED.................................................6
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING............................6
2.12 PROXIES...............................................................7
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.................................7
2.14 ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS FOR DIRECTORS
AND OTHER PROPOSALS ..................................................7
ARTICLE III DIRECTORS.............................................................9
3.1 POWERS................................................................9
3.2 NUMBER OF DIRECTORS...................................................9
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS...............9
3.4 RESIGNATION AND VACANCIES.............................................9
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.............................10
3.6 FIRST MEETINGS.......................................................10
3.7 REGULAR MEETINGS.....................................................11
3.8 SPECIAL MEETINGS; NOTICE.............................................11
3.9 QUORUM...............................................................11
3.10 WAIVER OF NOTICE.....................................................12
3.11 ADJOURNED MEETING; NOTICE............................................12
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ...................12
3.13 FEES AND COMPENSATION OF DIRECTORS...................................12
</TABLE>
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REFLECTING AMENDMENTS
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<TABLE>
<S> <C> <C>
3.14 APPROVAL OF LOANS TO OFFICERS .......................................13
3.15 REMOVAL OF DIRECTORS.................................................13
ARTICLE IV COMMITTEES...........................................................13
4.1 COMMITTEES OF DIRECTORS..............................................13
4.2 COMMITTEE MINUTES....................................................14
4.3 MEETINGS AND ACTION OF COMMITTEES....................................14
4.4 EXECUTIVE COMMITTEE..................................................15
ARTICLE V OFFICERS.............................................................15
5.1 OFFICERS.............................................................15
5.2 ELECTION OF OFFICERS.................................................15
5.3 SUBORDINATE APPOINTED OFFICERS.......................................15
5.4 REMOVAL AND RESIGNATION OF OFFICERS..................................16
5.5 VACANCIES IN OFFICES.................................................16
5.6 CHAIRMAN OF THE BOARD; CHIEF EXECUTIVE OFFICER.......................16
5.7 PRESIDENT............................................................17
5.8 VICE PRESIDENTS......................................................17
5.9 SECRETARY............................................................17
5.10 CHIEF FINANCIAL OFFICER..............................................18
5.11 AUTHORITY AND DUTIES OF OFFICERS.....................................18
ARTICLE VI INDEMNITY............................................................18
6.1 THIRD PARTY ACTIONS..................................................18
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION........................19
6.3 SUCCESSFUL DEFENSE...................................................19
6.4 DETERMINATION OF CONDUCT.............................................20
6.5 PAYMENT OF EXPENSES IN ADVANCE.......................................20
6.6 INDEMNITY NOT EXCLUSIVE..............................................20
6.7 INSURANCE INDEMNIFICATION............................................20
6.8 THE CORPORATION......................................................21
6.9 EMPLOYEE BENEFIT PLANS...............................................21
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES..........21
ARTICLE VII RECORDS AND REPORTS..................................................22
7.1 MAINTENANCE AND INSPECTION OF RECORDS................................22
7.2 INSPECTION BY DIRECTORS..............................................22
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.....................................23
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ......................23
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VIII GENERAL MATTERS .....................................................23
8.1 CHECKS...............................................................23
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS ....................23
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES...............................24
8.4 SPECIAL DESIGNATION ON CERTIFICATES..................................24
8.5 LOST CERTIFICATES....................................................25
8.6 CONSTRUCTION; DEFINITIONS............................................25
8.7 DIVIDENDS............................................................25
8.8 FISCAL YEAR..........................................................26
8.9 SEAL.................................................................26
8.10 TRANSFER OF STOCK....................................................26
8.11 STOCK TRANSFER AGREEMENTS............................................26
8.12 REGISTERED STOCKHOLDERS..............................................26
ARTICLE IX AMENDMENTS...........................................................27
ARTICLE X CUSTODIAN............................................................27
10.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES..........................27
10.2 DUTIES OF CUSTODIAN..................................................27
</TABLE>
<PAGE> 5
REFLECTING AMENDMENTS
ADOPTED THROUGH MARCH 31, 1999
RESTATED BY-LAWS
OF
METAL MANAGEMENT, INC.
ARTICLE I
CORPORATE OFFICES
I.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.
I.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
II.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.
II.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.
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II.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
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.
II.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.
II.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.
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II.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 represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.
II.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.
II.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 certificate of incorporation, each
stockholder shall be entitled to one vote for each share of capital stock held
by such stockholder. In voting for the election of Directors of the corporation,
stockholders shall be entitled to cumulate votes.
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REFLECTING AMENDMENTS
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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).
II.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 to be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
II.10 INTENTIONALLY OMITTED
II.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
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 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 director 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 date next preceding the day on
which the meeting is held.
(ii) [Intentionally Omitted.]
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(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.
A determination of stockholders of record entitled 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.
II.12 PROXIES
Each stockholder entitled to vote at 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.
II.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.
II.14 ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS FOR DIRECTORS AND
OTHER PROPOSALS
6
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REFLECTING AMENDMENTS
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No stockholder may propose to nominate persons for election to the
Board of Directors at an annual meeting of the stockholders of the corporation
or to bring other business before an annual meeting of the stockholders of the
corporation, unless such stockholder gives timely notice thereof to the
Secretary of the corporation. To be timely, a stockholder's notice must be
addressed to the Secretary of the corporation and received at the principal
executive offices of the corporation not more than one hundred twenty (120)
days and not less than ninety (90) days prior to the first anniversary date of
the immediately preceding annual meeting; provided, however, that in the event
the annual meeting is called for a date which is not within sixty (60) days
before or after such anniversary date, notice by the stockholder, to be timely,
must be received no later than the close of business on the fifteenth (15th) day
following the day on which notice of the date of the annual meeting was mailed
or public disclosure of the date of the annual meeting was made, whichever
occurs first.
Such stockholder's notice shall set forth: (a) as to each person whom
the stockholder proposes to nominate at the annual meeting for election to the
Board of Directors, (i) the name, age, business address and residential address
of such person, (ii) the principal occupation or employment of such person,
(iii) the class and number of shares of the corporation which are beneficially
owned by such person, (iv) a description of all arrangements or understandings
between such stockholder and such person, (v) all 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, and any other rules of
the Securities and Exchange Commission, (vi) such other information as may be
reasonably required by the corporation the eligibility of such person to serve
as a director of the corporation, and (vii) any such person's written consent to
serve as a director if so elected; (b) as to any other business that such
stockholder proposes to bring before the annual meeting, (i) a description of
the business desired to be brought before the meeting in sufficient detail for
such business to be summarized in the agenda for the meeting, (ii) the reasons
for conducting such business at the meeting, and (iii) any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, whose behalf the nomination or proposal is made,
(i) the name and address of such stockholder, as it appears on the corporation's
books, and of any such beneficial owner. Notwithstanding compliance with the
foregoing requirements, no person proposed to be nominated to the Board of
Directors by a stockholder pursuant to this procedure shall
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become a nominee for election to the Board of Directors and no other business
shall be considered at the annual meeting unless the stockholder who has
provided the notice, or his proxy, nominates such person or introduces such
business at the meeting, as the case may be. The presiding officer of the annual
meeting shall, if the facts warrant, refuse to acknowledge a nomination or the
consideration of business which was not made in compliance with the foregoing
requirements."
ARTICLE III
DIRECTORS
III.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.
III.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of no less than four (4) and no
greater than twelve (12) persons. The exact number of directors shall be
established from time to time by a resolution passed by two-thirds of the whole
Board of Directors.
III.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.
III.4 RESIGNATION AND VACANCIES
8
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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.
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.
(iii) Vacancies and newly created directorships resulting from
an increase in the authorized number of directors due to the amendment of
Section 3.2 of these By-Laws by a vote of the Board of Directors pursuant to
Article VII of the Certificate of Incorporation may be filled by a majority of
the directors then in office.
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.
III.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and
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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.
III.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
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.
III.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.
III.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
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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.
III.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.
III.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 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.
III.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
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announcement at the meeting, until a quorum is present.
III.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.
III.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.
III.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.
III.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.
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.
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ARTICLE IV
COMMITTEES
IV.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.
IV.2 COMMITTEE MINUTES
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Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
IV.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.
IV.4 EXECUTIVE COMMITTEE
An Executive Committee of the Board of Directors may 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 (which actions may include, as
contemplated by Section 141(c)(1) of the Delaware General Corporation Law, the
authorization of the issuance of stock and the adoption of a certificate of
ownership and merger pursuant to Section 253 of such law).
ARTICLE V
OFFICERS
V.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a treasurer. The corporation may also have, at the discretion of the board of
directors, a chairman of the board, a chief executive officer, a chief financial
officer, one or more vice presidents,
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one or more assistant secretaries, one or more assistant treasurers, and any
such other officers 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.
V.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.
V.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
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.
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V.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer 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 an 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.
V.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation may be filled
by the board of directors.
V.6 CHAIRMAN OF THE BOARD; CHIEF EXECUTIVE OFFICER
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 chief executive
officer of the corporation, if such an officer be elected, 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.
V.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 office
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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.
V.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.
V.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 how 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.
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V.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, 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.
V.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
VI.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
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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.
VI.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 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.
VI.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.
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VI.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.
VI.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.
VI.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 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.
VI.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
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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.
VI.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.
VI.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.
VI.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
VII.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, 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, 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.
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VII.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.
VII.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.
VII.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
VIII.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.
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VIII.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.
VIII.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 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 in
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 uncertified 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
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declare a dividend upon partly paid shares of the same class, bout only upon the
basis of the percentage of the consideration actually paid thereon.
VIII.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.
VIII.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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VIII.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.
VIII.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.
VIII.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolutions of the
board of directors and may be changed by the board of directors.
VIII.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.
VIII.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate or 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
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certificate to the person entitled thereto, cancel the old certificate, and
record the transaction in its books.
VIII.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.
VIII.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
27
<PAGE> 31
REFLECTING AMENDMENTS
ADOPTED THROUGH MARCH 31, 1999
X.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.
X.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.
28
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 5
TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 5 TO CREDIT AGREEMENT ("AMENDMENT") is dated as of
April 14, 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 "FUNDS ADMINISTRATOR"); BT COMMERCIAL
CORPORATION, a Delaware corporation (in its individual capacity, hereinafter
referred to as "BTCC") and the other financial institutions signatories hereto
as lenders (BTCC and each of such other financial institutions hereinafter are
referred to individually as a "LENDER" and collectively as "LENDERS"); and BTCC,
acting in its capacity as agent (in such capacity, hereinafter referred to as
the "AGENT") for itself and the other Lenders. 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 Funds Administrator, the Agent and the
Lenders have entered into that certain Credit Agreement dated as of March 31,
1998, as amended (the "CREDIT AGREEMENT"), pursuant to which the Lenders have
agreed to make certain loans and other financial accommodations to or for the
account of the Borrowers;
WHEREAS, the respective Borrowers have requested that the Agent and the
Lenders further amend the Credit Agreement; and
WHEREAS, the Agent and the Lenders have agreed to further 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:
<PAGE> 2
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 Funds Administrator set forth herein, the Credit Agreement is hereby
amended as follows:
1.1 The Credit Agreement is hereby amended by deleting therefrom
SECTION 8.2 in its entirety and substituting therefor the following language:
8.2 CAPITAL EXPENDITURES.
The Borrowers shall not permit Capital Expenditures for the
Consolidated Entity to exceed (A) $21,000,000 for the fiscal year
ending March 31, 1999 and (B) for the fiscal year ending March 31, 2000
and each fiscal year thereafter, Consolidated Revenues for such fiscal
year MULTIPLIED BY 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
(including operating lease buyouts) made during the month of April,
1998, with the proceeds of Indebtedness evidenced by the Credit
Documents or 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 8.7 of the Credit Agreement is hereby amended by deleting
therefrom SUBCLAUSE (V)(2) in its entirety and substituting therefor the
following language:
(2) commencing with the payment due and payable November 15,
1999 and for each interest payment thereafter, during the thirty (30)
day period ending on the date on which such interest payment is made,
there shall have been, on average, unused availability under the
Borrowing Base of no less than the sum of (X) the amount of such
interest payment and (Y) $12,000,000; and
-2-
<PAGE> 3
1.3 The Credit Agreement is hereby amended by inserting the following
language after SECTION 8.12:
8.13 BORROWING BASE AVAILABILITY.
The Borrowers shall not permit availability under the
Borrowing Base, on average for the Business Days during the period commencing
May 25, 1999 through June 7, 1999, to be less than $12,000,000.
2. CONDITIONS PRECEDENT. This Amendment shall become effective as of
the date hereof, upon satisfaction of each of the following conditions:
(A) the Agent shall have received six (6) copies of this
Amendment, duly executed by the Majority Lenders, each of the Borrowers
and the Funds Administrator; and
(B) the Agent shall have received in immediately available
funds for the ratable account of the Lenders a fee in the amount of
$250,000.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 Each of the Borrowers and the 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 Funds Administrator,
respectively, and are enforceable against each of the
-3-
<PAGE> 4
Borrowers and the Funds Administrator in accordance with their
respective terms; and
(D) The execution and delivery by the Borrowers and
the 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 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.
-4-
<PAGE> 5
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGES FOLLOW]
-5-
<PAGE> 6
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: Principal
----------------------------
HELLER FINANCIAL, INC.
By: /s/ Albert J. Forzano
----------------------------
Name: Albert J. Forzano
----------------------------
Title: Vice President
----------------------------
SANWA BUSINESS CREDIT CORPORATION
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
FLEET CAPITAL CORPORATION
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
LASALLE NATIONAL BANK
By: /s/ Karen J. Orlich
----------------------------
Name: Karen J. Orlich
----------------------------
Title: Assistant Vice President
----------------------------
CONGRESS FINANCIAL CORP. (CENTRAL)
By: /s/ Brett Mook
----------------------------
Name: Brett Mook
----------------------------
Title: Vice President
----------------------------
FINOVA CAPITAL CORPORATION
By: /s/ Brian Rujawitz
----------------------------
Name: Brian Rujawitz
----------------------------
Title: Assistant Vice President
----------------------------
<PAGE> 7
NATIONAL CITY COMMERCIAL FINANCE,
INC.
By: /s/ Stanley J. Gregorin, Jr.
---------------------------------------------
Name: Stanley J. Gregorin, Jr.
---------------------------------------------
Title: Vice President
---------------------------------------------
PNC BUSINESS CREDIT
By:
---------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
IBJ SCHRODER BUSINESS CREDIT
CORPORATION
By: /s/ Ning C. Louie
---------------------------------------------
Name: Ning C. Louie
---------------------------------------------
Title: Vice President
---------------------------------------------
NATIONAL BANK OF CANADA
By: /s/ Jonathan Millard/Leroy A. Irvin
---------------------------------------------
Name: Jonathan Millard/Leroy A. Irvin
---------------------------------------------
Title: Vice President/Vice President & Manager
---------------------------------------------
BANKBOSTON, N.A.
By: /s/ Marwan Isbaih
---------------------------------------------
Name: Marwan Isbaih
---------------------------------------------
Title: Vice President
---------------------------------------------
METAL MANAGEMENT, INC., a Delaware
corporation, in its individual capacity
as a Borrower and in its capacity as
Funds Administrator
By: /s/ David A. Carpenter
---------------------------------------------
Name: David A. Carpenter
---------------------------------------------
Title: Vice President, General Counsel and Secretary
---------------------------------------------
<PAGE> 8
AEROSPACE METALS, INC.
AMERICAN SCRAP PROCESSING, INC.
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.
PROLER SOUTHWEST INC.
PROLER STEELWORKS L.L.C.
SALT RIVER RECYCLING, L.L.C.
SCRAP PROCESSING, INC.
TROJAN TRADING CO.
USA SOUTHWESTERN CARRIER, INC.
138 SCRAP ACQUISITION CORP.
R & P HOLDINGS, INC.
METAL MANAGEMENT GULF COAST, INC.
NEWELL RECYCLING WEST, INC.
NAPORANO IRON & METAL CO.
NIMCO SHREDDING CO.
MICHAEL SCHIAVONE & SONS, INC.
TORRINGTON SCRAP COMPANY
KIMERLING ACQUISITION CORP.
METAL MANAGEMENT PITTSBURGH, INC.
FPX, INC.
PERLCO, L.L.C.
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> 9
ANNEX 1
TO
AMENDMENT NO. 5
DATED AS OF APRIL 14, 1999
OTHER BORROWERS
1. AEROSPACE METALS, INC.
2. AMERICAN SCRAP PROCESSING, INC.
3. C SHREDDING CORP.
4. CALIFORNIA METALS RECYCLING, INC.
5. CIM TRUCKING, INC.
6. COMETCO CORP.
7. COZZI BUILDING CORPORATION
8. COZZI IRON & METAL, INC.
9 EMCO TRADING, INC.
10. FERREX TRADING CORPORATION
11. FIRMA, INC.
12. FIRMA PLASTIC CO., INC.
13. HOUSTON COMPRESSED STEEL CORP.
14. HOUTEX METALS COMPANY, INC.
15. THE ISAAC CORPORATION
16. P. JOSEPH IRON & METAL, INC.
17. KANKAKEE SCRAP CORPORATION
18. MAC LEOD METALS CO.
19. METAL MANAGEMENT ARIZONA, INC.
20. METAL MANAGEMENT REALTY, INC.
21. PROLER SOUTHWEST INC.
22. PROLER STEELWORKS L.L.C.
23. SALT RIVER RECYCLING, L.L.C.
24. SCRAP PROCESSING, INC.
25. TROJAN TRADING CO.
26. USA SOUTHWESTERN CARRIER, INC.
27. RESERVE IRON & METAL LIMITED PARTNERSHIP
28. 138 SCRAP ACQUISITION CORP.
29. R & P HOLDINGS, INC.
30. METAL MANAGEMENT GULF COAST, INC.
31. NEWELL RECYCLING WEST, INC.
32. NAPORANO IRON & METAL CO.
33. NIMCO SHREDDING CO.
34. MICHAEL SCHIAVONE & SONS, INC.
35. TORRINGTON SCRAP COMPANY
36. KIMERLING ACQUISITION CORP.
37. METAL MANAGEMENT PITTSBURGH, INC.
38. FPX, INC.
39. PERLCO, L.L.C.
<PAGE> 1
EXHIBIT 10.12
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made and
entered into as of the 2nd day of November, 1998, by and among Metal Management,
Inc., a Delaware corporation (the "COMPANY"), and the holders listed on the
signature pages hereto (each a "SELLER" and collectively, the "SELLERS").
RECITALS:
A. Pursuant to an Agreement and Plan of Merger dated as of November 2,
1998 (the "FPX MERGER AGREEMENT"), by and among the Company, FPX, Inc., a
Tennessee corporation, Alan J. Perlman, Barry L. Panitz, Monte R. Panitz, Frank
Perlman and FPX Mergeco, Inc., a Tennessee corporation, and pursuant to an Asset
Purchase Agreement dated as of November 2, 1998 (the "STCC PURCHASE AGREEMENT")
by and among the Company, Southern Tin Compress Corporation, a Tennessee
corporation and certain of the Sellers, Sellers received from the Company shares
of the Company's Series C Preferred Stock, par value $.01 per share (the
"PREFERRED STOCK"). The Preferred Stock is convertible into shares of the
Company's common stock, par value $.01 per share (the "COMMON STOCK"), pursuant
to the Certificate of Designations, Preferences and Rights establishing the
Preferred Stock (the "CERTIFICATE OF DESIGNATION"). All terms which are
capitalized and used without definition herein shall have the meanings ascribed
to such terms in the FPX Merger Agreement and the STCC Purchase Agreement.
B. As a condition precedent to the closing of the transactions
contemplated by the FPX Merger Agreement and STCC Purchase Agreement, the
Company agreed to grant to the Sellers certain registration rights with respect
to the shares of Common Stock issuable by the Company upon conversion of the
Preferred Stock.
C. Monte R. Panitz, Barry L. Panitz and Perlman Consulting L.L.C. are
each receiving Warrants from the Company, pursuant to which they have a right to
receive shares of Common Stock, and the Company has agreed to grant each of such
warrant holders certain registration rights with respect to a portion of such
shares of Common Stock.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
1. For purposes of this Agreement, the following terms shall have the
meanings set forth below:
(a) "DIVIDEND PAYMENT SHARES" means the shares of Common Stock, if
any, issued by the Company as dividends in respect of the Preferred Stock in
accordance with the Certificate of Designation;
(b) "ELIGIBLE HOLDER" means each of the Sellers (or its assigns) to
the extent it (or its assigns) then holds any Registrable Securities;
<PAGE> 2
(c) "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
statements in compliance with the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and pursuant to Rule 415 under the Securities Act ("RULE
415") or any successor rule providing for the offering of securities on a
continuous basis ("REGISTRATION STATEMENT"), and the declaration or ordering of
effectiveness of the Registration Statement by the Securities and Exchange
Commission (the "COMMISSION");
(d) "REGISTRABLE SECURITIES" shall mean (i) the shares of Common
Stock issued or issuable either upon conversion of the Preferred Stock or
otherwise in accordance with the Certificate of Designation, (ii) the Dividend
Payment Shares, (iii) the Warrant Shares and (iv) any shares of capital stock of
the Company issued or issuable from time to time (with any adjustments) in
replacement of, in exchange for or otherwise in respect of such shares
referenced in (i), (ii) and (iii);
(e) "WARRANT SHARES" refer collectively to (i) with respect to
Perlman Consulting, L.L.C., all of the shares of Common Stock which may be
acquired pursuant to the exercise of its Warrant dated the date hereof in the
amount of 172,880 shares of Common Stock, (ii) with respect to Monte R. Panitz,
all of the shares of Common Stock which may be acquired pursuant to the exercise
of his Warrant dated the date hereof in the amount of 51,060 shares of Common
Stock, and (iii) with respect to Barry L. Panitz, all of the shares of Common
Stock which may be acquired pursuant to the exercise of his Warrant dated the
date hereof in the amount of 51,060 shares of Common Stock;
2. Mandatory Registration.
(a) On or before November 2, 1999 (the "FILING DEADLINE"), the
Company shall prepare and file a Registration Statement on Form S-3 (or, if Form
S-3 is not available, on such form of Registration Statement as is then
available to effect a registration of the Registrable Securities as a "shelf"
registration statement under rule 415) covering the resale of (i) the number of
shares of Common Stock which would be issuable if the Preferred Shares were
converted into shares of Common Stock at a conversion price of $9.00, and (ii)
the Warrant Shares. The Registration Statement shall also state, to the extent
permitted by Rule 416 under the Securities Act, that it also covers the Dividend
Payment Shares.
(b) Upon a registration pursuant to the provisions of this Section
2, the Company shall use reasonable commercial efforts to cause the Registrable
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Eligible Holder may
reasonably request; provided, however, that the Company shall not be required to
qualify to do business in any state by reason of this Section 2 in which it is
not otherwise required to qualify to do business.
(c) The Company shall use reasonable commercial efforts to keep
effective any registration or qualification contemplated by this Section 2 and
shall from time to time amend or supplement each applicable registration
statement, preliminary prospectus, final prospectus,
2
<PAGE> 3
application, document and communication for such period of time as shall be
required to permit the Eligible Holder to complete the offer and sale of the
Registrable Securities covered thereby. The Company shall in no event be
required to keep any such registration or qualification in effect for a period
in excess of the earlier to occur of (i) nine (9) months from the date on which
the Eligible Holders are first free to sell all Registrable Securities under
Rule 144 of the Securities Act, and (ii) three (3) years from the date of filing
the registration statement; provided, however, that, if the Company is required
to keep any such registration or qualification in effect with respect to
securities other than the Registrable Securities beyond such period, the Company
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.
(d) In the event of a registration pursuant to the provisions of
this Section 2, the Company 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 to facilitate the disposition of the Registrable Securities included in
such registration.
(e) The Company 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 reasonable commercial efforts to keep current in
filing all reports, statements and other materials required to be filed with the
Commission to permit holders of the Registrable Securities to sell such
securities under Rule 144.
(f) The Company shall notify each Eligible Holder promptly when
such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
provided, however, that the Company shall be under no obligation to notify the
Eligible Holders of the filing of any annual, quarterly or periodic report filed
by the Company pursuant to the Securities Exchange Act of 1934, as amended. The
Company shall notify the Eligible Holder promptly of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and use its best efforts to promptly update and/or correct such prospectus;
provided, however, that the Company shall not be required to update and/or
correct such prospectus if, and so long as, the Board of Directors of the
Company determines in good faith that to do so at such time would be detrimental
to the business or prospects of the Company. Any such period (beginning upon
notification of the Eligible Holder) in which the prospectus remains not updated
or corrected is herein referred to as a "STANDSTILL PERIOD."
(g) The Company shall notify the Eligible Holder of the issuance by
the Commission of any stop or other order suspending the effectiveness of the
registration statement. If at any time the Company shall receive any such order,
the Company shall use its best efforts to
3
<PAGE> 4
obtain the withdrawal or lifting of such order at the earliest possible time;
provided, however, that the Company shall not be required to obtain the
withdrawal or lifting of such order if, and so long as, the Board of Directors
of the Company determines in good faith that to do so at such time would be
detrimental to the business or prospects of the Company.
(h) The Filing Deadline shall be extended by the number of days
during any period in which the Company has been advised by its outside counsel
that the registration statement will not be accepted for filing by the
Commission as a result of the Company then having on file a registration
statement which has not yet gone effective or a proxy statement that is then
being reviewed by the Commission.
(i) In connection with the registration of Registrable Securities
pursuant to a registration statement, each Eligible Holder shall: (i) furnish to
the Company such information regarding itself and the intended method of
disposition of Registrable Securities as the Company shall reasonably request in
order to effect the registration thereof; and (ii) upon receipt of any notice
from the Company of the initiation of a Standstill Period, immediately
discontinue disposition of Registrable Securities pursuant to the registration
statement until receiving written notice from the Company that the Standstill
Period has terminated.
(j) The Company shall use reasonable commercial efforts to have the
Registrable Securities included for quotation on the Nasdaq National Market.
3. Indemnification.
(a) Subject to the conditions set forth below, the Company 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 Securities 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 3, but
not be limited to, reasonable attorneys' fees and any and all reasonable
expenses whatsoever incurred in investigating, preparing, or defending against
any pending litigation, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), 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 3 collectively called an "APPLICATION") executed
by or on behalf of the Company or based upon written information furnished by or
on behalf of the Company 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 the Company with respect to such Eligible Holder by or
on behalf of such person expressly for inclusion in any registration statement,
preliminary prospectus,
4
<PAGE> 5
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 the Company contained in
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 the Company
is required to indemnify an indemnified party pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the Company
in writing of the institution of such action and the Company shall promptly
assume the defense of such action, including the employment of counsel, 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. Anything in this Section 3 to
the contrary notwithstanding, the Company shall not be liable for any settlement
of any such claim or action effected without its written consent, which shall
not be unreasonably withheld. The Company agrees promptly to notify Eligible
Holder of the commencement of any litigation or proceedings against the Company
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 the
Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Registrable Securities held by
such Eligible Holder, each other person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, and its or their respective counsel, to the same extent as the foregoing
indemnity from the Company to such Eligible Holder in Section 3(a), 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 information furnished to the Company 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 the
Company 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 an Eligible
Holder is required to indemnify the Company pursuant to this Section 3(b), such
Eligible Holder shall have the rights and duties given to the Company, and the
Company and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of Section 3(a).
4. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, the Sellers, 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.
5
<PAGE> 6
(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 accordance with the provision of the FPX
Merger Agreement and the STCC Purchase Agreement.
(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 Securities 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 such 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 the Company pursuant to
this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
<TABLE>
<S> <C>
METAL MANAGEMENT, INC. /s/ Michael Wexler
----------------------------------------
MICHAEL WEXLER
By: /s/ David A. Carpenter
-----------------------------------
David A. Carpenter, Vice President /s/ Alice Wexler
----------------------------------------
ALICE WEXLER
SOUTHERN TIN COMPRESS
CORPORATION, a Tennessee corporation /s/ Jonathan Wexler
----------------------------------------
JONATHAN WEXLER
By: /s/ Alan J. Perlman
-----------------------------------
Alan J. Perlman, President /s/ Izzy Panitz
----------------------------------------
IZZY PANITZ
/s/ Alan J. Perlman
- ---------------------------------------- /s/ Mary Lynn Perl
ALAN J. PERLMAN ----------------------------------------
MARY LYNN PERL
/s/ Frank Perlman
- ---------------------------------------- /s/ Rochelle Perlman
FRANK PERLMAN ----------------------------------------
ROCHELLE PERLMAN, as Trustee of I.
Frank Perlman GRAT dated 11/26/97
/s/ Monte R. Panitz
- ----------------------------------------
MONTE R. PANITZ /s/ Saul Perlman
----------------------------------------
SAUL PERLMAN
/s/ Barry L. Panitz
- ----------------------------------------
BARRY L. PANITZ PERLMAN CONSULTING, L.L.C.
By: /s/ Alan J. Perlman
-----------------------------------
Alan J. Perlman
</TABLE>
7
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the 30th
day of November, 1998, by and between LARRY SNYDER (the "Executive") and METAL
MANAGEMENT, INC., a Delaware corporation, and COZZI IRON & METAL, INC.
(collectively, the "Company").
WHEREAS, the Company desires to continue to employ the Executive and
the Executive desires to continue such employment;
NOW, THEREFORE, in consideration of the promises, mutual covenants and
agreements contained herein, the Company and the Executive do hereby agree as
follows:
1. EMPLOYMENT AND DUTIES. On the terms and subject to the conditions
set forth in this Agreement, the Company agrees to continue to employ the
Executive as the Vice President, Non-Ferrous of the Company and the Vice
President of Cozzi Iron & Metal, Inc. to perform such duties and
responsibilities as are consistent with such positions.
2. PERFORMANCE. The Executive accepts the employment described in
Section 1 above, and agrees to faithfully and diligently perform the duties and
responsibilities described therein. The Executive shall devote time and
attention to matters of the Company such that the Executive's services to the
Company constitute his primary business activity. The Company acknowledges that
the Executive may (a) engage in charitable and community affairs (including
serving on the board of directors or similar management body of any charitable
or community organization), (b) serve on the board of directors of or act as a
consultant to other companies which are not engaged in a business that directly
or indirectly competes with the Company Business (as defined in Section 16
below), and (c) make personal investments.
3. TERM. The term of employment under this Agreement shall commence
on the date of this Agreement (the "Commencement Date") and shall continue for a
period of five (5) years thereafter (the "Employment Period"); provided,
however, that as of the third anniversary thereof, the Employment Period shall
automatically be extended for an additional one year period (such that the total
remaining term of the Employment Period is then three (3) years) unless, at
least sixty (60) days before third anniversary of the Commencement Date, either
the Executive or the Company, as the case may be, notifies the other of its
desire not to further extend the Employment Period; and provided, further, that
as of each anniversary of the Commencement Date after the third anniversary
thereof, the Employment Period shall automatically be extended for an additional
one year period (such that the total remaining term of the Employment Period is
then three (3) years) unless, at least sixty (60) days before such anniversary
of the Commencement Date, either the Executive or the Company, as the case may
be, notifies the other of its desire not to further extend the Employment
Period. Notwithstanding the foregoing, the Executive's employment shall
terminate upon the earliest to occur of the events described in Section 13
hereunder. For purposes of this Agreement, "Balance of the Term" shall mean the
period beginning on the date of the Executive's termination of
<PAGE> 2
employment and ending on the date that the Employment Period would have ended
pursuant to this Section 3 due to lapse of time (assuming no further extensions
of the Employment Period beyond those already approved as of the date of
termination), without regard to Section 13.
4. SALARY. For all the services to be rendered by the Executive
hereunder, the Company agrees to pay, during the Employment Period, a base
salary ("Salary") at an initial rate of Three Hundred Thousand Dollars
($300,000.00) per Contract Year, payable in the manner and frequency in which
the Company's payroll is customarily handled. For purposes of this Agreement,
"Contract Year" shall mean a one-year period commencing on the Commencement Date
or on any anniversary of the Commencement Date. The Company may increase the
Executive's Salary at any time, or from time to time, during the Employment
Period; provided, however, that the Company may not at any time reduce the
Salary from its then-current level.
5. CASH BONUS COMPENSATION. The Executive shall be entitled to an
annual bonus ("Annual Cash Bonus") as determined in the discretion of the
Executive Committee (the "Executive Committee") of the Board of Directors of the
Company (the "Board").
6. VACATION. In accordance with the policies and rules governing the
vacation of other senior executives of the Company, the Executive shall be
entitled to take vacations with pay, during each year of service under this
Agreement, to be taken during the year at such time or times as may be approved
by the Company. Such vacation shall be at least five (5) weeks. Unless otherwise
established for other senior executives of the Company, unused vacation days
shall not be accumulated from one year to the next.
7. SICK LEAVE. In accordance with the policies and rules governing
the sick leave of other senior executives of the Company, the Executive shall be
allowed paid sick leave during each year of service under this Agreement. Unless
otherwise established for other senior executives of the Company, unused sick
leave shall not be accumulated from one year to the next.
8. DISABILITY BENEFIT. If at any time during the Employment Period
the Executive is unable to perform fully his duties hereunder for a period of
six (6) consecutive months by reason of illness, accident, or other physical or
mental disability (as confirmed by competent medical evidence) and such
condition may reasonably be expected to be permanent ("Total Disability"), the
Executive shall be entitled to receive (a) any accrued but unpaid Salary,
prorated Annual Cash Bonus (based on the number of days elapsed in the
applicable fiscal year), prorated vacation, and any other amounts accrued but
unpaid as of the date of termination, and (b) any and all disability benefits
then generally available to other senior executives of the Company. In the event
that there is no established policy regarding disability benefits afforded to
other senior executives of the Company or if such benefits are less than seventy
percent (70%) of the Executive's then current Salary and Annual Cash Bonus for
the Balance of the Term, then the Executive shall be entitled to receive
periodic payments of seventy percent (70%) of his then-current Salary and the
Annual Cash Bonus paid to the Executive pursuant to Section 5 of this Agreement
for the preceding calendar year for the Balance of the Term. If any dispute
regarding
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<PAGE> 3
the existence of the Executive's Total Disability arises, each party shall
appoint a physician and such physicians shall jointly appoint a third physician,
the decision of any two (2) of such physicians regarding the existence of Total
Disability shall be binding upon the parties. Notwithstanding the foregoing
provision, the amounts payable to the Executive pursuant to this Section 8 shall
be reduced by any amounts received by the Executive with respect to any such
incapacity pursuant to any insurance policy, plan, or other employee benefit
provided to the Executive by the Company.
9. DEATH BENEFIT. In the event of the death of the Executive during
the Employment Period, the Company shall pay (a) any accrued but unpaid Salary,
pro rated Annual Cash Bonus (determined in accordance with Section 5), prorated
vacation and any other amounts accrued but unpaid as of the date of termination,
and (b) any and all death benefits then generally available to other senior
executives of the Company. In the event that there is then no established policy
regarding death benefits generally afforded to senior executives of the Company
or if such benefits are less than a lump-sum payment equal to the Executive's
then-current Salary and the Annual Cash Bonus paid to the Executive for the
calendar year immediately preceding his death, then the Company will pay as a
survivor's benefit a lump-sum amount equal to the Executive's then- current
Salary and the Annual Bonus paid to the Executive for the calendar year
immediately preceding his death. The benefits payable under this Section 9 shall
be paid to the person or persons designated by the Executive on the form
provided by the Company or, in the absence of such a designation, as follows:
(i) to the Executive's spouse if she survives him; (ii) if the Executive's
spouse fails to survive the Executive, then in equal shares to the Executive's
children who survive him; or (iii) if neither Executive's spouse nor any child
survives the Executive, then all to the Executive's estate.
10. INSURANCE. During the Employment Period, the Company shall apply
for, procure and pay for (or, at the election of the Executive, shall reimburse
the Executive for such sums expended by the Executive in applying for, procuring
or paying for) a policy of group term life insurance with a face value of One
Million Eight Hundred Thousand Dollars ($1,800,000), in the Executive's name and
for the Executive's benefit, with the Executive's designee as the beneficiary,
which policy shall be owned by the Executive. The Executive shall submit to any
medical or other examination and execute and deliver any application or other
instrument in writing reasonably necessary to effectuate such insurance.
11. OTHER COMPENSATION, BENEFITS AND PERQUISITES. The Executive's
Salary shall be as described in Section 4 above; his Annual Cash Bonus shall be
as described in Section 5 above; his vacation shall be as described in Section 6
above; and his sick leave, disability benefit, death benefit and insurance shall
be as described in Sections 7, 8, 9 and 10 above, respectively. In addition to
the aforesaid types of compensation, benefits and perquisites, the Executive
shall be entitled to participate in all other types of compensation, benefits
and perquisites which are generally made available to other senior executives of
the Company such as, but not limited to: cash bonuses in addition to the Annual
Cash Bonus; stock option plans; 401(k) plans; welfare plans; business travel
policies; car allowance; medical insurance; dental insurance; dues, fees and
costs (including travel) associated with membership and participation
-3-
<PAGE> 4
in professional, educational and other clubs and organizations, and attendance
at professional, educational and other programs, presentations, workshops,
seminars and conventions, the levels of participation in which shall be
determined from time to time by the Executive Committee. Without limiting the
generality of the foregoing, it is expressly agreed that: the Executive's car
allowance from the Company shall never be less than Seven Hundred and Fifty
Dollars ($750) per month, provided that any portion of such car allowance that
is not being used to pay for the Executive's car shall be paid by the Company to
the Executive as additional compensation in regard to such month, the Company
shall reimburse the Executive for the cost of car insurance and shall supply and
pay all of the costs, fees and charges in regard to a Company phone at the
Executive's home office (if any) and a cellular phone.
12. BUSINESS EXPENSE REIMBURSEMENT. The Company shall reimburse the
Executive for the reasonable, ordinary, and necessary business expenses incurred
by him in connection with the performance of his duties hereunder, including,
but not limited to, ordinary and necessary travel, entertainment and phone
expenses. The Executive shall provide the Company with an accounting of his
expenses, which accounting shall clearly reflect which expenses are reimbursable
by the Company. The Executive shall provide the Company with such other
supporting documentation and other substantiation of reimbursable expenses as
will conform to Internal Revenue Service regulations or other requirements. All
such reimbursements shall be payable by the Company to the Executive within a
reasonable time after receipt by the Company of appropriate documentation
thereof; provided, however, the Company shall have no obligation to reimburse
any expenses for which appropriate and customary back-up documentation is not
provided within ninety (90) days following accrual of the obligation in
question.
13. TERMINATION.
(a) UNILATERAL TERMINATION. The Executive's employment hereunder
may be terminated during the Employment Period by the Company by written notice
of termination given to the Executive at least ninety (90) days in advance of
the termination date stated in such notice.
(b) TERMINATION FOR JUST CAUSE. The Company shall have the option
to terminate the Executive's employment during the Employment Period, effective
upon written notice of such termination to the Executive, for Just Cause as
determined by the Executive Committee. For purposes of this Agreement, the term
"Just Cause" shall mean the occurrence of any one or more of the following
events:
(i) The willful and continued failure by the Executive to
substantially perform his duties with the Company (other than any
such failure resulting from termination by the Company pursuant to
Section 13(a), Total Disability or death) after a demand for
substantial performance is delivered to the Executive that
specifically identifies the manner in which the Company believes
that the Executive has not substantially performed his duties, and
the Executive fails to
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<PAGE> 5
resume substantial performance of his duties on a continuous basis
within fourteen (14) days of receiving such demand; provided that
if it is not reasonably possible for the Executive to resume such
substantial performance within such fourteen (14) days, then such
fourteen (14) day time period shall be extended to that minimum
period of time during which it is reasonably possible for the
Executive to resume such substantial performance;
(ii) The willful engaging by the Executive in conduct which
is demonstrably and materially injurious to the Company,
monetarily or otherwise and the Executive's failure to cease
engaging in such conduct within fourteen (14) days after a demand
for such cessation is delivered to the Executive by the Company
that specifically identifies such conduct; or
(iii) the Executive knowingly participates or engages in any
act of fraud, embezzlement, or theft (regardless of whether such
act results in a criminal conviction) or the Executive is
convicted of a felony or misdemeanor which materially impairs the
Executive's ability to perform his duties with the Company.
For purposes of this Section 13(b), an act, or failure to act, on the
Executive's part, shall not be deemed "willful" unless done, or omitted to be
done, by the Executive not in good faith and without a reasonable belief that
his action or omission was in the best interest of the Company.
(c) TERMINATION UPON DEATH. The Executive's employment shall
automatically terminate upon the death of the Executive, without further action
by the Company.
(d) TERMINATION UPON DISABILITY. The Executive's employment shall
terminate thirty (30) days after the Company notifies the Executive of a
determination of Total Disability (as defined above) of the Executive, provided
the Executive does not dispute such determination as provided in Section 8
hereof, in which case the date of termination for Total Disability shall be the
date the Executive is determined to have a Total Disability pursuant to Section
8 hereof.
(e) TERMINATION FOR GOOD REASON. The Executive shall have the
right to resign for Good Reason (as defined below) and any such resignation
shall be deemed a termination by the Company of the Executive's employment
pursuant to Section 13(a). For purposes of this Agreement, "Good Reason" shall
mean (i) any material breach by the Company of its obligations hereunder which
is not cured within fourteen (14) days of written notice from the Executive to
the Company describing such breach, (ii) any transfer of the Executive's
principal work location to a location outside a radius of 25 miles from the
downtown business district of Chicago, Illinois, (iii) the termination by the
Executive of his employment with the Company for any reason or no reason at all
at any time during the one-year period immediately following the date of a
Change in Control (as defined below), or (iv) the termination by the Executive
of his employment with the Company for any reason or no reason at all at any
time
-5-
<PAGE> 6
during the one-year period immediately following the date the Executive receives
notice of non-renewal of the Employment Period from the Company pursuant to
Section 3 herein. For purposes of this Agreement, a "Change in Control" of the
Company shall mean:
(i) A change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company
is then subject to such reporting requirement, that was not
approved by the Board, provided that, without limitation, a Change
in Control shall be deemed to have occurred if the following
events occur without the affirmative vote of the Executive
Committee:
(1) any "person" (as defined in sections 13(d) and 14(d)
of the Exchange Act), other than Albert A. Cozzi, Frank J.
Cozzi, Gregory P. Cozzi, Gerard M. Jacobs and T. Benjamin
Jennings and their respective heirs, trusts, estates, personal
representatives, legatees and assigns, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing thirty percent (30%) or more of the
combined voting power of the Company's then outstanding
securities computed on a fully diluted basis (assuming the
conversion of all outstanding convertible securities of the
Company and the exercise of all options and warrants which, at
the time of determination, are vested and are exercisable at a
price less than the then market price of the Company's Common
Stock);
(2) during any period of two (2) consecutive years (not
including any period prior to the Commencement Date), there
shall cease to be a majority of the Board comprised as
follows: individuals who at the beginning of the Employment
Period constitute the Board and any new director(s) whose
election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the Employment
Period or whose election or nomination for election was
previously so approved; or
(3) the shareholders of the Company (I) approve a merger
or consolidation of the Company or a subsidiary of the Company
with any other corporation, other than a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least eighty percent (80%) of the combined voting power of the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(II) approve a plan of
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<PAGE> 7
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all
the Company's assets.
14. SURRENDER OF PROPERTIES. Upon the Executive's termination of
employment with the Company, regardless of the reason therefor, the Executive
shall promptly surrender to the Company all property provided him by the Company
for use in relation to his employment and, in addition, the Executive shall
surrender to the Company any and all sales materials, lists of customers and
prospective customers, price lists, files, records, models, or other materials
and information of or pertaining to the Company or its customers or prospective
customers or the products, business, and operations of the Company.
15. SEVERANCE PAY.
(a) Notwithstanding any other provision of this Agreement, if the
Executive's employment is (or is deemed) terminated by the Company pursuant to
Section 13(a):
(i) the Company shall pay the Executive any accrued but
unpaid Salary, prorated Annual Cash Bonus, prorated vacation, and
any other amounts accrued but unpaid as of the date of
termination;
(ii) the Company shall pay the Executive a lump-sum
severance payment equal to the greater of (1) the Executive's
then-current Salary and Annual Cash Bonus (determined as though
the Annual Cash Bonus would be paid for each year in the Balance
of the Term) for the Balance of the Term (but in no event less
than three years if the Employment Agreement is terminated prior
to the third anniversary of the Commencement Date), or (2) the
product of 3.00 multiplied by the Executive's highest total annual
cash compensation (as reported by the Company on Internal Revenue
Service Form W-2) earned by the Executive in any one of the three
(3) calendar years immediately preceding the calendar year in
which the termination occurs; and
(iii) the Company shall continue all medical, dental and life
insurance benefits at no cost to the Executive for twelve (12)
months, commencing on the date of the Executive's termination of
employment (and the provision by the Company of any such group
health benefits shall not be considered continuation coverage
pursuant to section 4980B of the Code, and such continuation
converge shall commence on the date that benefits provided
hereunder cease).
Other than as provided herein, if the Executive's employment is terminated by
the Company pursuant to Section 13(b) hereof, the Company shall pay to the
Executive any accrued but unpaid Salary, prorated Annual Cash Bonus, prorated
vacation, and any other amounts accrued but unpaid as of the date of
termination. Any benefit payable pursuant to this Section 15 shall be
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<PAGE> 8
paid to the Executive in a lump-sum within thirty (30) days after the
Executive's termination of employment.
(b) In the event that the Executive becomes entitled to any
severance payments as provided herein, if it is determined that any such
payments will be subject to the tax or any other similar state or local excise
taxes (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax
that may hereafter be imposed), the Company shall "gross-up" such severance
payments so that the amount received by the Executive after payment of such
Excise Tax shall be equal to the amount to which the Executive was entitled
prior to application of such Excise Tax.
16. RESTRICTIVE COVENANTS. In addition to any other obligation of the
Executive under any other agreement with the Company, in order to assure that
the Company will realize the benefits of this Agreement and in consideration of
the employment set forth in this Agreement, the Executive agrees that he shall
not during the Employment Period and for a period of thirty six (36) months from
the Executive's termination of employment:
(a) directly or indirectly, alone or as a partner, joint venturer,
member, officer, director, employee, consultant, agent, independent contractor,
stockholder or in any other capacity of any company or business, engage in any
business activity in any state in which the Company owns a scrap metal yard or
scrap metal processing facility on the date of the Executive's termination of
employment which is directly or indirectly in competition with the Company
Business (as defined below); provided, however, that, the beneficial ownership
of less than 5% of the shares of stock of any corporation having a class of
equity securities actively traded on a national securities exchange or
over-the-counter market shall not be deemed, in and of itself, to violate the
prohibitions of this Section 16;
(b) directly or indirectly (i) induce any person which is a
customer of the Company or any subsidiary or affiliate of the Company on the
date of the Executive's termination of employment to patronize any business
directly or indirectly in competition with the Company Business; (ii) canvass,
solicit or accept from any person that is a customer of the Company or any
subsidiary or affiliate of the Company on the date of the Executive's
termination of employment, any such competitive business, or (iii) request or
advise any person that is a customer of the Company Business on the date of the
Executive's termination of employment to withdraw, curtail, or cancel any such
customer's business with the Company or any affiliate or subsidiary of the
Company; or
(c) directly or indirectly employ, or knowingly permit any company
or business directly or indirectly controlled by him, to employ, any person who
was employed by the Company or any subsidiary or affiliate of the Company on the
date of the Executive's termination of employment or within six months prior to
the date of the Executive's termination of employment, or in any manner seek to
induce any such person to leave his or her employment.
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<PAGE> 9
For purposes of this Agreement, "Company Business" shall mean scrap iron or
scrap metal recycling and/or processing conducted by the Company or its
subsidiaries or affiliates and any other business that the Company or its
subsidiaries or affiliates may be engaged in at the time of the Executive's
termination of employment.
(d) The Executive agrees and acknowledges that the restrictions
contained in this Section 16 are reasonable in scope and duration and are
necessary to protect the Company after the Commencement Date. If any provision
of this Section 16 as applied to any party or to any circumstances is adjudged
by a court to be invalid or unenforceable, the same will in no way affect any
other circumstance or the validity or enforceability of this Agreement. If any
such provision, or any part thereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that
the court making such determination shall have the power to reduce the duration
and/or area of such provision, and/or to delete specific words or phrases, and
in its reduced form, such provision shall then be enforceable and shall be
enforced. The parties agree and acknowledge that the breach of this Section 16
will cause irreparable damage to the Company and upon breach of any provision of
this Section 16, the Company shall be entitled to injunctive relief, specific
performance or other equitable relief; provided, however, that this shall in no
way limit any other remedies which the Company may have (including, without
limitation, the right to seek monetary damages).
17. CONFIDENTIALITY OF INFORMATION: DUTY OF NON-DISCLOSURE. The
Executive acknowledges and agrees that his employment by the Company under this
Agreement necessarily involves his understanding of and access to certain trade
secrets and confidential information pertaining to the business of the Company.
Accordingly, the Executive agrees that after the date of this Agreement at all
times, whether during the Employment Period or after the Executive's termination
of employment, he will not, directly or indirectly, without the prior written
consent of the Company or except as may be required by the lawful order of a
court or agency of competent jurisdiction disclose to or use for the benefit of
any person, corporation or other entity, or for himself any and all files, trade
secrets or other confidential information concerning the internal affairs of the
Company or its subsidiaries or affiliates, including, but not limited to,
information pertaining to its clients, services, products, earnings, finances,
operations, methods or other activities; provided, however, that the foregoing
shall not apply to information which is of public record or is generally known,
disclosed or available to the general public or the industry generally. Further,
the Executive agrees that he shall not, directly or indirectly, remove or
retain, without the express prior written consent of the Company, and upon the
Executive's termination of employment for any reason shall return to the
Company, any figures, calculations, letters, papers, records, computer disks,
computer print-outs, customer lists, price lists, other lists, contracts,
business plans, forms, manuals, other documents, instruments, drawings, designs,
programs, brochures, sales literature, or any copies or reproductions thereof,
or any information or instruments derived therefrom, or any other similar
information of any type or description, however such information might be
obtained or recorded, arising out of or in any way relating to the business of
the Company or obtained as a result of his employment by the Company. The
Executive acknowledges that all of the foregoing are proprietary information,
and are the exclusive property of the Company.
-9-
<PAGE> 10
18. ENFORCEMENT.
(a) Upon presentation of a claim or claims (collectively,
"Claims") arising out of or relating to this Agreement, or the breach hereof, by
an aggrieved party, the other party shall have thirty (30) days in which to make
such inquiries of the aggrieved party and conduct such investigations as it
believes reasonably necessary to determine the validity of the Claims. At the
end of such period of investigation, the complained of party shall either pay
the amount of the Claims or the arbitration proceeding described immediately
below shall be invoked.
(b) In the event that the Claims are not settled by the procedure
set forth immediately above, the Claims shall be submitted to arbitration
conducted in accordance with the Commercial Arbitration Rules ("Rules") of the
American Arbitration Association ("AAA") except as amplified or otherwise varied
hereby.
(c) The parties shall submit the dispute to the Chicago regional
office of the AAA and the situs of the arbitration shall be Cook County,
Illinois.
(d) The arbitration shall be conducted by a single arbitrator. The
parties shall appoint the single arbitrator to arbitrate the dispute within ten
(10) business days of the submission of the dispute. In the absence of agreement
as to the identity of the single arbitrator to arbitrate the dispute within such
time, the AAA is authorized to appoint an arbitrator in accordance with the
Rules, except that the arbitrator shall have as his principal place of business
the Chicago metropolitan area.
(e) The single arbitrator selected by the AAA shall be an
attorney, accountant or other professional licensed to practice by the State of
Illinois.
(f) Notwithstanding anything in the Rules to the contrary, the
arbitration award shall be made in accordance with the following procedure. Each
party shall, at the commencement of the arbitration hearing, submit an initial
statement of the amount each party proposes be selected by the arbitrator as the
arbitration award ("Settlement Amount"). During the course of the arbitration,
each party may vary its proposed Settlement Amount. At the end of the
arbitration hearing, each party shall submit to the arbitrator its final
Settlement Amount ("Final Settlement Amount"), and the arbitrator shall be
required to select either one or the other Final Settlement Amounts as the
arbitration award without discretion to select any other amount as the award.
The arbitration award shall be paid within ten (10) business days after the
award has been made, together with interest from the date of award has been
made, together with interest from the date of award at the rate of six percent
(6%). Judgment upon the award may be entered in any federal or state court
having jurisdiction over the parties and shall be final and binding.
19. COSTS OF ENFORCEMENT. The Company shall reimburse the Executive
for reasonable attorneys' fees and costs incurred by the Executive in connection
with any claim by
-10-
<PAGE> 11
the Executive brought hereunder (including but not limited to all reasonable
attorneys' fees and costs incurred by the Executive in contesting or disputing
any termination of the Executive's employment, or in seeking obtain or enforce
any right or benefit provided by this Agreement, or in connection with any tax
audit or proceeding to the extent attributable to any payment or benefit
provided hereunder), so long as such claim is brought in good faith.
20. NO DUTY TO MITIGATE OR OFFSET. The Executive shall not be required
to mitigate or offset the amount of any payments that the Executive may receive
from the Company as a result of the Executive's termination of employment. The
amounts payable hereunder by the Company as a result of the Executive's
termination of employment shall be considered liquidated damages and shall not
be reduced by any amounts that the Executive earns through other employment or
otherwise, except that the Company's obligation to continue medical, dental and
life insurance benefits pursuant to Section 15 herein shall be reduced by the
amount of any such benefits provided to the Executive by any other employer.
21. INDEMNIFICATION. The Company hereby agrees to indemnify the
Executive against all liabilities, costs, charges and expenses whatsoever
incurred or sustained by the Executive in connection with any threatened,
pending or completed action, suit or proceeding to which the Executive may be
made a party or may be threatened to be made a party by reason of the
Executive's being or having been a director, officer, employee, or agent of the
Company or serving or having served at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise to the fullest extent permitted by applicable law. The
Company shall advance all costs, charges and expenses, including legal fees,
incurred by the Executive in connection with the Executive's defense of any
claim for which the foregoing indemnity may apply. If it is subsequently
determined that the Executive was not entitled to such indemnification, the
Executive will reimburse the Company any amounts advanced pursuant to the
foregoing sentence.
22. DIRECTORS AND OFFICERS INSURANCE. The Executive shall be entitled
to the protection of any insurance policies the Company or any of its affiliates
from time to time maintains for the benefit of its senior executive officers and
directors (or substantially similar policies) respecting liabilities, costs,
charges, and expenses of any type whatsoever incurred or sustained by the
Executive in connection with any action, suit or proceeding to which the
Executive may be made a party or may be threatened to be made a party by reason
of the Executive's being or having been a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
23. GENERAL PROVISIONS.
(a) GOODWILL. The Company has invested substantial time and money
in the development of products, services, territories, advertising and marketing
thereof, soliciting clients and creating goodwill. By accepting employment with
the Company, the Executive
-11-
<PAGE> 12
acknowledges that the customers are the customers of the Company, and that any
goodwill created by the Executive belongs to and shall inure to the benefit of
the Company.
(b) NOTICE. Any notice or demand required or permitted hereunder
shall be made in writing (i) either by actual delivery of the notice or demand
into the hands of the party thereunder entitled, or (ii) by the mailing of the
notice or demand in the United States mail, certified or registered mail, return
receipt requested, all postage prepaid and addressed to the party to whom the
notice or demand is to be given at the party's respective address set forth
below, or such other address as the parties may from time to time designate by
written notice as herein provided.
As addressed to the Company:
Metal Management, Inc.
500 North Dearborn Avenue
Suite 405
Chicago, Illinois 60610
Attention: Chief Operating Officer
As addressed to the Executive:
Mr. Larry Snyder
638 Dauphine Court
Northbrook, Illinois 60062
The notice or demand shall be deemed to be received in case (1) on the date of
its actual receipt by its actual receipt by the party entitled thereto and in
case (2) on the date of its mailing.
(c) AMENDMENT AND WAIVER. No amendment or modification of this
Agreement shall be valid or binding upon the Company unless made in writing and
signed by an officer of the Company duly authorized by the Board or upon the
Executive unless made in writing and signed by him. The waiver by either party
hereto of the breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by such party.
(d) ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between the parties with respect to the Executive's duties and
compensation as an executive of the Company and shall supersede any and all
prior agreements or understandings between the parties hereto; there are no
representations, warranties, agreements or commitments between the parties
hereto with respect to his employment except as set forth herein.
(e) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of Illinois.
-12-
<PAGE> 13
(f) SEVERABILITY. If any provision of this Agreement shall, for
any reason, be held unenforceable by a court of competent jurisdiction, such
provision shall be severed from this Agreement unless, as a result of such
severance, the Agreement fails to reflect the basic intent of the parties. If
the Agreement continues to reflect the basic intent of the parties, then the
invalidity of such specific provision shall not affect the enforceability of any
other provision herein, and the remaining provisions shall remain in full force
and effect.
(g) ASSIGNMENT. The Executive may not under any circumstances
delegate any of his rights and obligations hereunder without first obtaining the
prior written consent of the Company. The Company shall cause this Agreement and
all of the Company's rights and obligations hereunder, including without
limitation the obligations of the Company in the event of a termination (or
deemed termination) by the Company of the Executive's employment pursuant to
Section 13(a), to be assigned and expressly assumed by any successor to all or
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation or otherwise, including upon a
Change in Control (as defined in Section 13(e)); provided, however, that any
such assignment shall not relieve the Company of its obligations hereunder to
the extent that an assignee does not fulfill such obligations.
(h) HEIRS. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amount would still be payable to him hereunder if
he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee or other designees or, if there is no such designee, to the
Executive's estate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
METAL MANAGEMENT, INC.
/s/ Albert A. Cozzi
-------------------------------------
Albert A. Cozzi
President and Chief Operating Officer
COZZI IRON & METAL, INC.
By /s/ David A. Carpenter
----------------------------------
Its Vice President
----------------------------------
EXECUTIVE:
/s/ Larry Snyder
-------------------------------------
Larry Snyder
-13-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Aerospace Metals, Inc., a Delaware corporation
American Scrap Processing, Inc., an Illinois corporation
California Metals Recycling, Inc., a California 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
FPX, Inc., a Tennessee 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
Kimerling Acquisition Corp., a Delaware 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 Pittsburgh, Inc., a Delaware corporation
Metal Management Realty, Inc., an Arizona corporation
Michael Schiavone & Sons, Inc., a Delaware corporation
Naporano Iron & Metal Co., a New Jersey corporation
Newell Recycling West, Inc., a Colorado corporation
NIMCO Shredding Co., a New Jersey corporation
138 Scrap, Inc., an Illinois corporation
PerlCo, L.L.C., a Tennessee limited liability company
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
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
Torrington Scrap Company, 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 Registration Statements on
Form S-3 (No. 333-58635, No. 333-43423 and No. 338-45913) of Metal Management,
Inc., of our report dated June 25, 1999, relating to the financial statements
and financial statement schedule, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
June 25, 1999
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