<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number: 33-67532
SHEFFIELD STEEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-2191557
(State or other (I.R.S. Employer
jurisdiction of incorporation) identification No.)
220 North Jefferson Street
Sand Springs, OK 74063
(Address of principal executive offices)
(918) 245-1335
(Registrant's telephone number, including area code)
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
--- ---
At the date of this filing, there were 3,569,625 shares of the
Registrant's $.01 par value Common Stock outstanding. The aggregate market value
of voting stock held by nonaffiliates is unknown as the Registrant's stock is
not traded on an established public trading market.
<PAGE>
SHEFFIELD STEEL CORPORATION
FORM 10-Q
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
April 30, 1997 and October 31, 1997 3
Consolidated Condensed Statements of Operations -
Three months and six months ended
October 31, 1996 and October 31, 1997 4
Consolidated Condensed Statements of Cash Flows -
Six months ended October 31, 1996 and
October 31, 1997 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
2
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
October 31,
April 30, 1997
Assets 1997 Unaudited
------ ---- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15 741
Accounts receivable, less allowance for doubtful accounts of $658
and $808 at April 30, 1997 and October 31, 1997, respectively 20,856 19,383
Inventories 37,112 34,716
Other current assets 4,141 2,935
-------- --------
Total current assets 62,124 57,775
Property, plant and equipment, net 65,885 65,006
Intangible assets, net 3,314 4,450
Other assets 3,434 3,523
Deferred income tax asset, net 1,817 2,034
-------- --------
Total assets $136,574 132,788
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 936 1,717
Accounts payable 16,475 15,113
Accrued interest payable 4,500 4,500
Accrued liabilities 5,650 6,978
-------- --------
Total current liabilities 27,561 28,308
Long-term debt, excluding current portion, less unamortized discount
of $1,696 and $1,563 at April 30, 1997 and October 31, 1997, respectively 95,614 89,474
Accrued post-retirement benefit costs 9,095 9,971
Other liabilities 2,148 1,336
-------- --------
Total liabilities 134,418 129,089
-------- --------
Stockholders' equity:
Common stock 34 34
Additional paid-in capital 2,536 2,536
Retained earnings 528 2,095
-------- --------
Total stockholders' equity 3,098 4,665
Less loans to stockholders 942 966
-------- --------
2,156 3,699
-------- --------
Total liabilities and stockholders' equity $136,574 132,788
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
--------------------------- --------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 44,722 46,464 89,925 94,181
Cost of sales 36,791 37,073 74,338 75,382
----------- ----------- ----------- -----------
Gross profit 7,931 9,391 15,587 18,799
Selling, general and administrative expense 3,268 3,334 6,495 6,631
Depreciation and amortization expense 1,731 1,749 3,427 3,460
Postretirement benefit expense other than pensions 776 685 1,477 1,373
----------- ----------- ----------- -----------
Operating income 2,156 3,623 4,188 7,335
Interest expense 2,941 2,811 5,854 5,768
----------- ----------- ----------- -----------
Net income (loss) $ (785) 812 (1,666) 1,567
=========== =========== =========== ===========
Net income (loss) per common and
common equivalent share $ (.23) .21 (.49) .41
=========== =========== =========== ===========
Common and common equivalent shares outstanding 3,375,000 3,840,767 3,375,000 3,840,767
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
---------------------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,666) 1,567
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 3,499 3,593
Loss on retirement of assets - 81
Accrual of postretirement benefits other than pensions,
net of cash paid 1,002 876
Changes in assets and liabilities, net of effects
from acquisition of business 377 4,378
------ -------
Net cash provided by operations 3,212 10,495
------ -------
Cash flows from investing activities:
Capital expenditures (1,762) (1,849)
Acquisition of business, net of cash acquired - (2,317)
------ -------
Net cash used in investing activities (1,762) (4,166)
------ -------
Cash flows from financing activities:
Net decrease in long-term debt (1,054) (5,603)
Payments in respect of stock appreciation rights (424) -
------ -------
Net cash used in financing activities (1,478) (5,603)
------ -------
Net (decrease) increase in cash (28) 726
Cash and cash equivalents at beginning of period 46 15
------ -------
Cash and cash equivalents at end of period $ 18 741
====== =======
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash paid during the period for interest $ 5,782 5,635
====== =======
Noncash items related to stock repurchase:
Decrease in paid-in capital $ 1,055 -
====== =======
Increase in other liabilities $ 662 -
====== =======
Decrease in loans to stockholders $ 393 -
====== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
October 31, 1996 and 1995
(In thousands, except share data)
(Unaudited)
1) Basis of Presentation and Summary of Accounting Policies
The consolidated financial statements of Sheffield Steel Corporation (the
Company) include the accounts of its divisions, Sheffield Steel-Sand Springs
(Sand Springs), Sheffield Steel-Kansas City (Kansas City), and Sheffield
Steel-Joliet (Joliet) and its wholly owned subsidiaries, Sheffield Steel
Corporation-Oklahoma City (Oklahoma City), Waddell's Rebar Fabricators, Inc.
(Waddell) since October 28, 1997, and Sand Springs Railway Company (the
Railway). HMK Enterprises, Inc. (HMK) owns approximately 96% of the currently
issued and outstanding common stock. All material intercompany transactions and
balances have been eliminated in consolidation. The Company's primary business
is the production of concrete reinforcing bar, fence posts, and a range of hot
rolled bar products including rounds, flats, and squares. The Company's products
are sold throughout the continental United States.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the financial
statements contained in the Company's Form 10-K, for the year ended April 30,
1997. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the quarter and six months ended October 31,
1997 are not necessarily indicative of the results that may be expected for the
year ending April 30, 1998.
2) Net Income (Loss) Per Share of Common Stock
Net income (loss) per share of common stock is computed by dividing net income
(loss) applicable to common stock by the weighted average number of common
shares and dilutive common stock equivalents outstanding each period. All
options and warrants were excluded from per-share computations for the three
month and six month periods ended October 31, 1996 since their effect on loss
per common share was anti-dilutive.
3) Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
October 31,
April 30, 1997
1997 (Unaudited)
---- -----------
<S> <C> <C>
Raw materials and storeroom supplies $ 10,924 12,792
Work in process 10,978 8,178
Finished goods 15,210 13,746
------ ------
$ 37,112 34,716
====== ======
</TABLE>
6
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
4) Long-term Debt
Effective November 26, 1997, the Company offered $110,000,000 of 11 1/2% First
Mortgage Notes to institutional investors pursuant to Rule 144A of the
Securities Act of 1933, as amended. The proceeds from the offering will
primarily be used to redeem the Company's $75 million outstanding principal
amount of First Mortgage Notes due 2001, to pay dividends to stockholders and to
pay down outstanding indebtedness under the Company's revolving credit
facilities. As a result of the offering, the Company anticipates it will
recognize an extraordinary loss of approximately $8.1 million in the third
fiscal quarter related to extinguishment of debt.
On October 1, 1997, the Company entered into an agreement with an equipment
financing company whereby the Company may request advances totaling $4.0 million
through July 31, 1998, based on satisfactory documentation of the collateral to
be financed. In accordance with the agreement, the Company must maintain a
letter of credit in an amount equal to 25% of each advance which will be reduced
subject to the Company meeting certain ratio and earnings requirements. At
October 31, 1997, there were no outstanding advances related to this agreement.
6) Acquisition
On October 28, 1997, the Company acquired all of the outstanding capital stock
of Waddell's Rebar Fabricators. The purchase price of the stock was $3,040
subject to certain post-closing adjustments and potential performance related
payments. The Company incurred approximately $2,000 in debt related to this
acquisition. The acquisition notes mature quarterly over a four year period and
bear interest at NationsBank prime rate minus 1/2 of one percent.
The acquisition was accounted for using the purchase method of accounting. The
fair value of tangible assets acquired and liabilities assumed was $3,861 and
$812, respectively. In addition, the Company recorded $1,362 as excess of cost
over net assets acquired (goodwill) which is being amortized over 40 years on a
straight-line basis.
7
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The following discussion should be read in conjunction with the
Consolidated Condensed Financial Statements of the Company and the notes
thereto elsewhere in this Form 10-Q.
This Quarterly Report on Form 10-Q may contain forward-looking
statements as that term is defined in the Private Securities Litigation
Reform Act of 1995. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties which
could cause results to differ materially from those described in the
forward-looking statements. There can be no assurance that actual results or
business conditions will not differ materially from those anticipated or
suggested in such forward-looking statements as a result of various factors,
including, but not limited to, the following: the size and timing of
significant orders, as well as deferral of orders, over which the Company has
no control; the variation in the Company's sales cycles from customer to
customer; increased competition posed by other mini-mill producers; changes
in pricing policies by the Company and its competitors; the Company's success
in expanding its sales programs and its ability to gain increased market
acceptance for its existing product lines; the ability to scale up and
successfully produce its products; the potential for significant quarterly
variations in the mix of sales among the Company's products; the gain or loss
of significant customers; shortages in the availability of raw materials from
the Company's suppliers; fluctuations in energy costs; the costs of
environmental compliance and the impact of government regulations; the
Company's relationship with its work force; the restrictive covenants and
tests contained in the Company's debt instruments, which could limit the
Company's operating and financial flexibility; and general economic
conditions.
On October 28, 1997, the Company acquired all of the outstanding
capital stock of Waddell's Rebar Fabricators, Inc. (Waddell). The acquisition
price consisted of $1,040,000 in cash, subject to post-closing adjustments
and performance related contingency payments, and secured, subordinated
promissory notes in an aggregate principal amount of $2 million. The notes
mature quarterly over a four year period and bear interest at the NationsBank
prime rate minus 1/2 of one percent. The notes are secured by the capital
stock of Waddell. Waddell is a rebar fabricator located in Independence,
Missouri which specializes in smaller volume, higher value added construction
contracts. Management believes that Waddell will complement the Kansas City
Facility's operations.
Recent Developments
On November 26, 1997, the Company priced an aggregate of $110,000,000
of First Mortgage Notes (the "First Mortgage Notes") in a private offering
(the "Offering") to institutional investors. The Offering will be made under
Rule 144A of the Securities Act of 1933, as amended. The net proceeds of the
Offering will be applied as follows: (i) $79.5 million to redeem, at a
redemption price of 106%, the 12% First Mortgage Notes due 2001 (the "2001
Notes"); (ii) $16 million to repay amounts under the Company's credit
facilities which currently bear interest at a rate of prime plus 0.50% (or
9.0% as of November 1, 1997); (iii) $10 million to pay dividends to the
Company's shareholders; and (iv) the remainder, if any, for general corporate
purposes, including ongoing capital expenditures.
8
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Results of Operations
Three Months Ended October 31, 1997 As Compared To Three Months Ended October
31, 1996
Sales. Sales for the Company for the three month period ended October
31, 1997 were approximately $46.5 million as compared to sales of
approximately $44.7 million for the three month period ended October 31,
1996, an increase of approximately $1.7 million or 3.9%. Shipping levels
decreased 3.3% to 121,859 tons from 126,005 tons and the average price per
ton shipped increased to $381 from $355. The decrease in tons shipped and the
increase in average selling price is primarily due to a change in product
mix. The Company is implementing its business strategy to produce and sell
higher value added finished products instead of producing and selling billets
to third parties.
Hot Rolled Bar Products. Shipments for the three month period ended
October 31, 1997 were 48,774 tons compared to 42,258 tons for the three month
period ended October 31, 1996, an increase of 6,516 tons or 15.4%. The
increase reflects continued improvements in operations at the Sand Springs
Facility and implementation of the Company's business strategy to improve
finished goods product mix. Sales of hot rolled bar products from the Joliet
Facility also increased due to improved market conditions. The average price
per ton of hot rolled bar products for the three month period ended October
31, 1997 increased to $459 from $441, reflecting an increase in sales prices
at both the Sand Springs Facility and the Joliet Facility.
Rebar. Rebar shipments for the three month period ended October 31,
1997 were 55,571 tons compared to 48,808 tons for the three month period
ended October 31, 1996, an increase of 6,763 or 13.9%. This increase was
primarily a result of the continued improvements in operations at the Sand
Springs Facility and general market strength in the construction industry.
The average price per ton of rebar was unchanged at $296 for the three month
periods ended October 31, 1997 and 1996.
Fabricated Products. Shipments of fabricated products for the three
month period ended October 31, 1997 were 13,086 tons compared to 14,576 tons
for the three month period ended October 31, 1996, a decrease of 1,490 tons
or 10.2%. The decrease in shipments was primarily due to production
difficulties at the Sand Springs fence post shop which have since been
resolved. The average price per ton for the three month period ended October
31, 1997 increased to $454 from $451. The increase in average price per ton
was primarily due to product mix with prices improving in the rebar
fabricating market and prices decreasing in the fence post line of business.
Billets. Shipments of billets to third parties for the three month
period ended October 31, 1997 were 4,428 tons compared to 20,363 tons for the
three month period ended October 31, 1996, a decrease of 15,935 tons or
78.3%. This decrease was due to the Company's implementation of its business
strategy to utilize billets internally to produce higher value added finished
products instead of selling the billets to third parties. In addition, the
Company further curtailed billet sales to third parties during this quarter
in order to perform certain maintenance procedures in the melt shop without
jeopardizing mill production.
Cost of Sales. The cost of sales for the three months ended October
31, 1997 were approximately $37.1 million as compared to approximately $36.8
million for the three months ended October 31, 1996. On an average per ton
basis, cost of sales increased to $304 per ton for the three months ended
October 31, 1997 from $292 per ton for the three months ended October 31,
9
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
1996. In the three months ended October 31, 1997, billet shipments decreased
and rebar and hot rolled bar product shipments increased resulting in an
increase in average cost per ton.
Gross Profit. Gross profit for the Company for the three months ended
October 31, 1997 was approximately $9.4 million as compared to gross profit
of approximately $7.9 million for the three months ended October 31, 1997, an
increase of approximately $1.5 million or 18.4%. Gross profit for the Company
as a percentage of sales for the three months ended October 31, 1997 was
20.2% as compared to 17.7% for the three months ended October 31, 1996. The
increase is a result of higher average selling prices due primarily to a more
favorable product mix.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the Company for the three months ended October 31,
1997 remained approximately the same as compared to the three months ended
October 31, 1996.
Depreciation and Amortization. Depreciation and amortization remained
approximately the same for the three months ended October 31, 1997, as
compared to the three months ended October 31, 1996.
Post-retirement Benefit Expense. Post-retirement benefit expense
remained approximately the same for the three month period ended October 31,
1997, as compared to the three months ended October 31, 1996.
Operating Income. Operating income for the Company for the three
months ended October 31, 1997 was approximately $3.6 million as compared to
approximately $2.2 million for the three months ended October 31, 1996, an
increase of approximately $1.5 million or 68.0%. Operating income for the
Company as a percentage of sales for the three months ended October 31, 1997
was 7.8% as compared to 4.8% for the three months ended October 31, 1996.
This increase was primarily due to the increased gross profit as discussed
above.
Interest Expense. Interest expense for the Company for the three
months ended October 31, 1997 was approximately $2.8 million as compared to
approximately $2.9 million for the three months ended October 31, 1996. This
decrease was due to a slightly lower average interest rate as compared to the
same period in the prior year.
Six Months Ended October 31, 1997 As Compared To Six Months Ended October 31,
1996
Sales. Sales for the Company for the six month period ended October
31, 1997 were approximately $94.2 million as compared to sales of
approximately $89.9 million for the six month period ended October 31, 1996,
an increase of approximately $4.3 million or 4.7%. Shipping levels decreased
1.4% to 254,656 ton from 258,395 tons and the average price per ton shipped
increased to $370 from $348. The decrease in tons shipped and the increase in
average selling price is primarily due to a change in product mix. The
Company is implementing its business strategy to produce and sell higher
value added finished products instead selling billets to third parties.
Hot Rolled Bar Products. Shipments for the six month period ended
October 31, 1997 were 93,828 tons compared to 80,736 tons for the six month
period ended October 31, 1996, an increase of 13,092 tons or 16.2%. Shipments
from the Sand Springs Facility for the six month period ended October 31,
1997 increased 35.6% over the same period in the previous year due to
continued
10
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
improvements in operations at the Sand springs Facility and implementation of
the Company's business strategy to improve finished goods product mix.
Shipments of hot rolled bar products from the Joliet Facility also increased
reflecting strong market conditions. The average price per ton of hot rolled
bar products for the six month period ended October 31, 1997 increased to
$449 per ton compared to $441 per ton for the six month period ended October
31, 1996, reflecting improved selling prices at both the Sand Springs
Facility and the Joliet Facility.
Rebar. Rebar shipments for the six month period ended October 31,
1997 were 112,122 tons compared to 102,364 tons for the six month period
ended October 31, 1996, an increase of 9,758 tons or 9.5%. This increase was
primarily a result of the continued improvements in operations at the Sand
Springs Facility and general market strength in the construction industry.
The average price per ton of rebar for the six month period ended October 31,
1997 increased to $296 from $291. The increase in average price per ton is
attributable to improved market conditions.
Fabricated Products. Shipments of fabricated products for the six
month period ended October 31, 1997 were 27,911 tons compared to 28,175 tons
for the six month period ended October 31, 1996, a decrease of 264 tons or
.9%. The average price per ton for fabricated products for the six months
ended October 31, 1997 decreased to $456 from $458. The decrease in shipments
and average selling prices is attributable to production difficulties at the
Sand Springs fence post shop which have since been resolved.
Billets. Shipments of billets to third parties for the six month
period ended October 31, 1997 were 20,795 tons compared to 47,120 tons for
the six month period ended October 31, 1996, a decrease of 26,325 or 55.9%.
This decrease was due to the Company's implementation of its business
strategy to utilize more billets internally to produce higher value added
finished products instead of selling the billets to third parties. The
average price per ton for billets for the six month period ended October 31,
1997 increased to $227 from $215. The increase in average price per ton is
attributable to improved product mix.
Cost of Sales. The cost of sales for the six month period ended
October 31, 1997 were approximately $75.4 million as compared to
approximately $74.3 million for the six month period ended October 31, 1996.
On an average per ton basis, cost of sales increased to $296 per ton for the
six months ended October 31, 1997 from $288 per ton for the six months ended
October 31, 1996. In the six month period ended October 31, 1997, billet
shipments decreased and rebar and hot rolled bar product increased resulting
in the increase in average cost per ton.
Gross Profit. Gross profit for the Company for the six month period
ended October 31, 1997 was approximately $18.8 million as compared to
approximately $15.6 million for the six month period ended October 31, 1996,
an increase of approximately $3.3 million or 21.0%. Gross profit for the
Company as a percentage of sales for the six month period ended October 31,
1997 was 20.0% as compared to 17.3% for the six month period ended October
31, 1996. The increase is a result of higher average selling prices due
primarily to a more favorable product mix.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the Company for the six month period ended October
31, 1997 was approximately $6.6 million as compared to approximately $6.5
million for the six months ended October 31, 1996. The slight increase was
primarily due to additional selling expenses.
11
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Depreciation and Amortization. Depreciation and amortization remained
approximately the same for the six month period ended October 31, 1997, as
compared to the six month period ended October 31, 1996.
Post-retirement Benefit Expense. Post-retirement benefit expense
remained approximately the same for the six month period ended October 31,
1997 as compared to the six month period ended October 31, 1996.
Operating Income. Operating income for the Company for the six month
period ended October 31, 1997 was approximately $7.3 million as compared to
approximately $4.2 million for six month period ended October 31, 1996, an
increase of approximately $3.1 million or 75.1%. Operating income for the
Company as a percentage of sales for the six months ended October 31, 1997
was 7.8% as compared to 4.7% for the six months ended October 31, 1996.
This increase was primarily due to the increased gross profit as discussed
above.
Interest Expense. Interest expense remained approximately the same
for the six month period ended October 31, 1997 compared to the six month
period ended October 31, 1996.
Liquidity and Capital Resources
As of October 31, 1997, the Company's long-term indebtedness was
approximately $91.2 million, after giving effect to an unamortized discount
attributable to detachable stock warrants of approximately $1.6 million. The
Company had approximately $21 million of borrowing availability at October
31, 1997 under its revolving credit agreements and approximately $4 million
available under the equipment financing agreement.
Cash flow provided by operations was approximately $10.5 million for
the six month period ended October 31, 1997, as compared with cash flow
provided by operations of approximately $3.2 million for the six month period
ended October 31, 1996. The increase in cash provided by operations was
primarily due to reducing accounts receivable and inventories as well as
improved operating results. Cash used in investing activities in the three
months ended October 31, 1997 was approximately $4.2 million, consisting of
required replacement of plant equipment and the purchase of Waddell. For the
six month period ended October 31, 1997, cash used for financing activities
consisted primarily of payments on the revolving credit facility.
The Company's cash flow from operations and borrowings under the
Revolving Credit Facility, the Railway Credit Facility, and equipment
financing agreements are expected to be sufficient to fund the budget for
capital improvements, and meet near-term working capital requirements.
On a longer term basis, the Company has significant future debt
service obligations. The Company's ability to satisfy these obligations is
dependent on its ability to generate adequate cash flow from operations. The
Company expects that its cash flow from operations and available borrowings
under its revolving credit facilities and equipment financing agreements will
be sufficient to fund the repayment of the long term debt and other investing
activities. The Company's future operating results are dependent on its
overall operating performance and are subject to general business, financial
and other factors affecting the Company and the domestic steel
12
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
industry, as well as prevailing economic conditions, certain of which are
beyond the control of the Company.
Capital Expenditures
Capital expenditures for the six month period ended October 31, 1997
were approximately $1.8 million. Primarily all of the expenditures consisted
of normal capital projects required or deemed economically feasible,
throughout the Company. The Company's cash flow from operations and
borrowings under its revolving credit facilities and equipment financing
agreements are expected to be sufficient to meet any near-term working
capital requirements the Company may have and to fund anticipated capital
improvements. The Company expects to incur capital expenditures of
approximately $8.5 million if fiscal 1998, which includes the shear line
project in the Sand Springs rolling mill.
13
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any significant pending legal
proceedings other than litigation incidental to its business which the
Company believes will not materially affect its financial position, results
of operations or liquidity. Such claims against the Company are ordinarily
covered by insurance. There can be no assurance, however, that insurance will
be available in the future at reasonable rates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLERS
At the Annual Meeting of Stockholders held on August 27, 1997, for
which proxies for the meeting were solicited pursuant to Regulation 14A of
the Securities Exchange Act of 1934, the stockholders of the Company
unanimously elected Steven E. Karol, Robert W. Ackerman, Dale S. Okonow,
Howard H. Stevenson, John D. Lefler and Jane M. Karol to serve as members of
the Board of Directors for a period of one year.
At the Annual Meeting of Stockholders, the stockholders also
unanimously approved the reappointment of KPMG Peat Marwick LLP as
independent auditors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
See exhibit index.
B. Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter ended October 31,
1997.
14
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized.
SHEFFIELD STEEL CORPORATION
Date: Dec. 12, 1997 /s/ Robert W. Ackerman
----------------- -----------------------------------
Robert W. Ackerman, President
and Chief Executive Officer
Date: Dec. 12, 1997 /s/ Stephen R. Johnson
----------------- -----------------------------------
Stephen R. Johnson, Vice President
and Chief Financial Officer
15
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10.37 Security Agreement between Sheffield Steel Corporation and Heller
Financial, Inc. dated October 3, 1997. 17
Stock Purchase Agreement between Sheffield Steel Corporation,
Waddell's Rebar Fabricators, Inc. and the Stockholders of Waddell's
10.38 Rebar Fabricators, Inc. dated October 27, 1997. 31
</TABLE>
<PAGE>
SECURITY AGREEMENT
-----------------
THIS SECURITY AGREEMENT ("Agreement") is made this 3rd day of October, 1997, by
---------
and between Sheffield Steel Corporation, a Delaware corporation ("Debtor"),
------
whose business address is 220 North Jefferson Street, Sand Springs, Oklahoma
74063 and Heller Financial, Inc., a Delaware corporation ("Secured Party"),
-------------
whose address is Commercial Equipment Finance Division, 500 West Monroe Street,
Chicago, Illinois 60661.
WITNESSETH:
1. Secure Payment. To secure payment of indebtedness in the principal sum of up
--------------
to Four Million and 00/ 100 Dollars ($4,000,000.00), as evidenced by a note or
notes executed and delivered by Debtor to Secured Party (the "Notes") and any
-----
obligations arising under this Agreement, and also to secure any other
indebtedness or liability of Debtor to Secured Party, direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising
and no matter how acquired by Secured Party, including all future advances or
loans which may be made at the option of Secured Party (all the foregoing
hereinafter called the "Indebtedness"), Debtor hereby grants and conveys to
------------
Secured Party a first priority continuing lien and security interest in the
personal property described on any schedule(s) now or hereafter attached to or
made a part hereof by reference hereto (the "Schedules"), all products and
---------
proceeds (including insurance proceeds) thereof, if any, and all substitutions,
replacements, attachments, additions, and accessions thereto (all of the
foregoing hereinafter called the "Collateral.") The Schedules may be
----------
supplemented from time to time to evidence the Collateral subject to this
Agreement.
Debtor shall request in writing each advance of principal under the Notes, which
request shall be satisfactory to Secured Party in form and substance. Each
advance shall be on and subject to the terms and conditions set forth in this
Agreement and shall otherwise be at Secured Party's sole discretion. Each Note
shall be in an amount not less than $100,000.00. No principal advance under any
Notes shall be made after July 31, 1998, and each advance shall reduce, dollar
for dollar, the amount that may be advanced under the Notes in the aggregate.
Amounts advanced and repaid may not be reborrowed.
2. Representations, Warranties and Covenants. Except as otherwise provided, each
-----------------------------------------
representation and warranty made by Debtor in this Agreement shall be true,
correct and complete as of the date of this Agreement and as of the date of each
advance of funds under a Note. Debtor hereby represents, warrants and covenants
as follows:
(a) Perform Obligations. Debtor shall pay as and when due all Indebtedness
-------------------
secured by this Agreement and perform all of the obligations contained in this
Agreement according to its terms. Debtor shall use the loan proceeds for
business uses and not for personal, family, household, or agricultural uses.
(b) Perfection. This Agreement and all necessary Uniform Commercial Code
----------
filings together create a valid, perfected and first priority continuing lien
and security interest in the
1
<PAGE>
Collateral, securing the payment and performance of the Indebtedness, and all
filings and other actions necessary or desirable to create, perfect and protect
such security interest have been or will be duly taken.
(c) Collateral Free and Clear. Except as may be set forth on a Schedule,
-------------------------
the Collateral is and shall remain free and clear of all liens, claims, charges,
encumbrances and other security interests of any kind (other than the security
interest granted hereby). Debtor shall defend the title to the Collateral
against all persons and against all claims and demands whatsoever.
(d) Possession and Operating Order of the Collateral. Debtor shall retain
------------------------------------------------
possession of the Collateral at all times and shall not sell, exchange, assign,
loan, deliver, lease, mortgage, or otherwise dispose of the Collateral or any
part thereof without the prior written consent of Secured Party. Debtor shall at
all times keep the Collateral at the location[s] specified on the Schedules
(except for removals thereof in the usual course of business for temporary
periods). At Debtor's sole cost and expense, Debtor shall keep the Collateral in
good repair and condition and shall not misuse, abuse, waste or otherwise allow
it to deteriorate, except for normal wear and tear. Secured Party may verify any
Collateral in any reasonable manner which Secured Party may consider
appropriate, and Debtor shall furnish all reasonable assistance and information
and perform any acts which Secured Party may reasonably request in connection
therewith.
(e) Insurance. Debtor shall insure the Collateral against loss by fire
---------
(including extended coverage), theft and other hazards, for its full insurable
value including replacement costs, with a deductible not to exceed One Hundred
Thousand and 00/100 Dollars ($100,000.00) per occurrence and without
co-insurance. In addition, Debtor shall obtain liability insurance covering
liability for bodily injury, including death and property damage, in an amount
of at least Five Million and 00/100 Dollars ($5,000,000.00) per occurrence or
such greater amount as may comply with general industry standards, or in such
other amounts as Secured Party may otherwise require. All policies of insurance
required hereunder shall be in such form, amounts, and with such companies as
Secured Party may approve; shall provide for at least thirty (30) days prior
written notice to Secured Party prior to any modification or cancellation
thereof; shall name Secured Party as loss payee or additional insured, as
applicable, and shall be payable to Debtor and Secured Party as their interests
may appear; shall waive any claim for premium against Secured Party; and shall
provide that no breach of warranty or representation or act or omission of
Debtor shall terminate, limit or affect the insurers' liability to Secured
Party. Certificates of insurance or policies evidencing the insurance required
hereunder along with satisfactory proof of the payment of the premiums therefor
shall be delivered to Secured Party. Debtor shall give immediate written notice
to Secured Party and to insurers of loss or damage to the Collateral and shall
promptly file proofs of loss with insurers. Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact, coupled with an interest, for the
purpose of obtaining, adjusting and canceling any such insurance and endorsing
settlement drafts. Debtor hereby assigns to Secured Party, as additional
security for the Indebtedness, all sums which may become payable under such
insurance.
In the event Debtor fails to provide Secured Party with evidence of the
insurance coverage required by this Agreement, Secured Party may purchase
insurance at Debtor's expense to protect Secured Party's interests in the
Collateral. This insurance may, but need
2
<PAGE>
not, protect Debtor's interests. The coverage purchased by Secured Party may not
pay any claim made by Debtor or any claim that is made against Debtor in
connection with the Collateral. Debtor may later cancel any insurance purchased
by Secured Party, but only after providing Secured Party with evidence that
Debtor has obtained insurance as required by this Agreement. If Secured Party
purchases insurance for the Collateral, Debtor will be responsible for the costs
of that insurance, including interest and other charges imposed by Secured Party
in connection with the placement of the insurance, until the effective date of
the cancellation or expiration of the insurance. The costs of the insurance may
be added to the Indebtedness. The costs of the insurance may be more than the
cost of insurance Debtor is able to obtain on its own.
(f) If Collateral Attaches to Real Estate. If the Collateral or any part
-------------------------------------
thereof has been attached to or is to be attached to real estate, an accurate
description of the real estate and the name and address of the record owner is
set forth on the Schedules. Debtor shall, on demand of Secured Party, furnish
Secured Party with a disclaimer or waiver of any interest in any such Collateral
satisfactory to Secured Party and signed by all persons having an interest in
the real estate. Notwithstanding the foregoing, the Collateral shall remain
personal property and shall not be affixed to realty without the prior written
consent of Secured Party.
(g) Financial Statements. Debtor shall furnish to Secured Party, as soon as
--------------------
practicable, and in any event within sixty (60) days after the end of each
fiscal quarter of Debtor and each guarantor of all or any part of the
Indebtedness (each, a "Guarantor"), respectively, Debtor's and each Guarantor's
---------
unaudited financial statements including in each instance, balance sheets,
income statements, and statements of cash flow, on a consolidated and
consolidating basis, as appropriate, and separate profit and loss statements as
of and for the quarterly period then ended and for the respective person's
fiscal year to date, prepared in accordance with generally accepted accounting
principles, consistently applied ("GAAP"). Debtor shall also furnish to Secured
----
Party, as soon as practicable, and in any event within ninety (90) days after
the end of each fiscal year of Debtor and each Guarantor, respectively, Debtor's
and each Guarantor's annual audited financial statements, including balance
sheets, income statements and statements of cash flow for the fiscal year then
ended, on a consolidated and consolidating basis, as appropriate, which have
been prepared by its independent accountants in accordance with GAAP. Such
audited financial statements shall be accompanied by the independent
accountant's opinion, which opinion shall be in form generally recognized as
"unqualified".
(h) Authorization. Debtor is now, and will at all times remain, duly
-------------
licensed, qualified to do business and in good standing in every jurisdiction
where failure to be so licensed or qualified and in good standing would have a
material adverse effect on its business, properties or assets. The execution and
delivery of this Agreement, the Notes the commitment executed by the parties, if
any, (to the extent not inconsistent herewith) and any other documents and
instruments executed contemporaneously with or delivered pursuant to this
Agreement and the Notes, all as amended from time to time (collectively the
"Loan Documents"), have been duly authorized by Debtor and constitute the legal,
---- ---------
valid, and binding obligations of Debtor, enforceable against Debtor in
accordance with their respective terms. Debtor shall preserve and maintain its
existence and shall not wind up its affairs or otherwise dissolve. Debtor shall
not, without thirty (30) days prior written notice to Secured Party, (1) change
its name or so change its structure such that any financing statement or other
record notice becomes
3
<PAGE>
misleading or (2) change its principal place of business or chief executive or
accounting offices from the address stated herein.
(i) Litigation. Except as disclosed by Debtor on a Schedule, there are no
----------
judgments outstanding against or affecting Debtor, its officers, directors or
affiliates or any part of the Collateral and there are no actions, charges,
claims, demands, suits, proceedings, or investigations pending or threatened
against Debtor or otherwise affecting any part of the Collateral ("Litigation").
----------
Debtor shall furnish to Secured Party all information regarding any material
Litigation as Secured Party shall reasonably request and in any event shall
promptly notify Secured Party in writing of any Litigation against it which if
decided against it would materially and adversely affect the finances or
operations of Debtor. For the purposes of this subsection 2(i), Five Hundred
Thousand and 00/100 Dollars ($500,000.00) shall be deemed material.
(j) No Conflicts. Debtor is not in violation of any material term or
------------
provision of its by-laws, or of any material agreement or instrument, decree,
order, or any statute, rule, or governmental regulation applicable to it. The
execution, delivery, and performance of the Loan Documents do not and will not
violate, constitute a default under, or otherwise conflict with any such term or
provision or result in the creation of any security interest, lien, charge, or
encumbrance upon any of the properties or assets of Debtor, except for the
security interest created hereunder.
(k) Compliance with Laws. Debtor shall use and maintain the Collateral in
--------------------
accordance with all applicable laws, regulations, ordinances, and codes and
shall otherwise comply in all material respects with all applicable laws, rules,
and regulations and duly observe all valid requirements of all governmental
authorities, and all statutes, rules and regulations relating to its business as
now in effect and which may be imposed in the future.
(l) Taxes. Debtor has timely filed all tax returns (federal, state, local,
-----
and foreign) required to be filed by it and has paid or established reserves for
all taxes, assessments, fees, and other governmental charges in respect of its
properties, assets, income and franchises. Debtor shall promptly file, pay and
discharge all taxes, assessments, license fees (related to the Collateral) and
other governmental charges prior to the date on which penalties are attached
thereto, establish adequate reserves for the payments of such taxes,
assessments, and other governmental charges and make all required withholding
and other tax deposits, and, upon request, provide Secured Party with receipts
or other proof that any or all of such taxes, assessments, license fees or
governmental charges have been paid in a timely fashion; provided, however, that
nothing contained herein shall require the payment of any tax, assessment, or
other governmental charge so long as its validity is being diligently contested
in good faith and by appropriate proceedings diligently conducted and Debtor has
established cash reserves therefor in accordance with GAAP. Should any stamp,
excise, or other tax, including mortgage, conveyance, deed, intangible, or
recording taxes become payable in connection with or respect of any of the Loan
Documents, Debtor shall pay the same (including interest and penalties, if any)
and shall hold Secured Party harmless with respect thereto.
(m) Environmental Laws/Compliance. Except as disclosed by Debtor on a
-----------------------------
Schedule, Debtor (1) has not received any claim, summons, complaint, order, or
other notice that it is
4
<PAGE>
not in compliance with, or that any public authority is investigating its
compliance with, any federal, state, and local laws, rules, regulations, orders,
and decrees relating to pollution, hazardous substances, waste, disposal or the
protection of human health or safety, plant life or animal life, natural
resources or the environment, all as amended from time to time (collectively,
"Environmental Laws"), (2) has no knowledge of any material violation of any
Environmental Laws on or about its assets or property, and (3) is not under any
current clean up or other remediation program or order. Debtor has obtained all
environmental, health and safety permits necessary for the operation of Debtor's
business. Debtor is and shall remain in compliance, in all respects, with the
terms and conditions of all permits and with all applicable Environmental Laws.
Debtor shall provide Secured Party, promptly following receipt, copies of any
correspondence, notice, complaint, order, or other document that it receives
asserting or alleging a circumstance or condition which requires or may require
a cleanup, removal, remedial action or other response by or on the part of
Debtor under any Environmental Laws, or which seeks damages or civil, criminal
or punitive penalties from Debtor for an alleged violation of any Environmental
Laws. Debtor will promptly notify Secured Party of any release, spill or
material change in the nature or extent of any hazardous substances or
contaminants used, transported or stored by Debtor or any subsidiary of Debtor,
and allow no material change in the use thereof or of Debtor's operations that
would increase in any material amount the risk of violation of any Environmental
Laws without the express prior written approval of Secured Party.
(n) Regulations. No proceeds of the loans or any other financial
-----------
accommodation hereunder will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, as that term is defined in
Regulations G, T, U, X of the Board of Governors of the Federal Reserve System.
(o) Books and Records. Debtor shall maintain, at all times, true and
-----------------
complete books and records in accordance with GAAP and consistent with those
applied in the preparation of Debtor's financial statements. At all reasonable
times, upon reasonable notice, and during normal business hours, Debtor shall
permit Secured Party or its agents to audit, examine and make extracts from or
copies of any of its books, ledgers, reports, correspondence, and other records
relating to the Collateral.
(p) Setoff. Without limiting any other right of Secured Party, whenever
------
Secured Party has the right to declare any Indebtedness to be immediately due
and payable (whether or not it has so declared), Secured Party is hereby
authorized at any time and from time to time to the fullest extent permitted by
law, but shall not be obligated to, set off and apply against any and all
Indebtedness, any and all monies then or thereafter owed to Debtor by Secured
Party, whether or not the obligation to pay such monies owed by Secured Party is
then due. An election by Secured Party to exercise its right of setoff shall be
effective immediately upon such election even though any charge therefor is made
or entered on Secured Party's records subsequent thereto.
(q) Standard of Care; Notice of Claims. Debtor acknowledges and agrees that
----------------------------------
Secured Party shall not be liable for any acts or omissions nor for any error of
judgment or mistake of fact or law other than as a sole and direct result of
Secured Party's gross negligence or willful misconduct. Debtor shall give
Secured Party written notice of any action or inaction by Secured Party or any
agent or attorney of Secured Party that may give rise to a claim against
5
<PAGE>
Secured Party or any agent or attorney of Secured Party or that may be a defense
to payment of the Indebtedness or performance hereunder for any reason,
including commission of a tort (subject, in any event, to the first sentence of
this paragraph) or violation of any contractual duty or duty implied by law.
Debtor agrees that unless such notice is fully given as promptly as possible
(and in any event within thirty (30) days) after Debtor has knowledge, or with
the exercise of reasonable diligence should have had knowledge, of any such
action or inaction, Debtor shall not assert, and Debtor shall be deemed to have
waived, any claim or defense arising therefrom.
(r) Indemnity. Debtor shall indemnify, defend and hold Secured Party, its
---------
parent, affiliates, officers, directors, agents, employees, consultants, persons
engaged by Secured Party to evaluate or monitor the Collateral, auditors and
attorneys harmless from and against any loss, cost, expense (including
reasonable attorneys' fees and costs and any consultants' or other experts' fees
and expenses), damage, penalty, fine, claim, lien, suit, judgment or liability
of every kind and nature arising directly or indirectly out of (i) any Loan
Document, (ii) the ownership, possession, lease, operation, use, condition,
sale, return, or other disposition of the Collateral, except to the extent the
loss, expense, damage or liability arises solely and directly from Secured
Party's gross negligence or willful misconduct, (iii) any Environmental Laws,
and (iv) the enforcement by Secured Party of its rights or remedies hereunder.
Any payments required to be made hereunder shall be due and payable on demand.
(s) Payments Set Aside. If any payment is made to Secured Party or Secured
------------------
Party enforces its security interest or exercises its right of set off, and such
payment or part, or any proceeds of such enforcement or set off are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Indebtedness or part thereof originally intended to
be satisfied, and all liens, security interests, rights and remedies therefor,
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or set off had not occurred.
(t) Expenses and Attorneys' Fees. Debtor shall be liable for all charges,
----------------------------
costs, expenses and attorneys' fees incurred by Secured Party (including
allocated costs of internal counsel): (i) in perfecting, defending, protecting
or terminating its security interest in the Collateral, or any part thereof;
(ii) in the negotiation, execution, delivery, administration, amendment or
enforcement of the Loan Documents or the collection of any amounts due under any
Note or other Loan Document; (iii) in any lawsuit or other legal proceeding in
any way connected with any of the Loan Documents, including any contract or tort
or other actions, any arbitration or other alternative dispute resolution
proceeding, all appeals and judgment enforcement actions and any bankruptcy
proceeding (including any relief from stay and/or adequate protection motions,
cash collateral disputes, assumption/rejection motions and disputes or
objections to any proposed disclosure statement or reorganization plan).
(u) Complete Information. No representation or warranty made by Debtor in
--------------------
any Loan Document and no other document or statement now or hereafter furnished
to Secured Party by or on behalf of Debtor contains or will contain any
misstatement of a material fact or omit to state any material fact which would
make the statements contained therein misleading. Except as expressly set forth
in the Schedules, there is no fact known to Debtor that has or
6
<PAGE>
could have a materially adverse affect on the business, operation, condition
(financial or otherwise), performance, properties or prospects of Debtor or
Debtor's ability to timely pay all of the Indebtedness and perform all of its
other obligations contained in or secured by this Agreement.
(v) Collateral Documentation. Debtor shall deliver to Secured Party prior
------------------------
to any advance, satisfactory documentation regarding the Collateral to be
financed, including such invoices, canceled checks evidencing payments, or other
documentation as may be reasonably requested by Secured Party. Additionally,
Debtor shall satisfy Secured Party that Debtor's (i) business and financial
information is as has been represented and there has been no material change in
Debtor's business, financial condition, or operations and (ii) Fixed Charge
Coverage Ratio equals or exceeds 1.1 to 1.0 on a trailing four quarter basis. In
this Agreement, (i) "Fixed Charge Coverage Ratio" shall be calculated on a
consolidated basis in accordance with GAAP and means Debtor's Adjusted EBITDA
divided by Fixed Charges, (ii) "Adjusted EBITDA" means earnings before interest,
taxes, depreciation, non-cash post-retirement expenses and amortization less
Maintenance Capex, (iii) "Maintenance Capex" means capital expenditures of
$625,000 per quarter, and (iv) "Fixed Charges" means the sum of Debtor's current
maturities of long-term debt plus interest expense plus taxes.
(w) Letter of Credit. As a condition to any advance hereunder and as
----------------
further security for the Indebtedness, Debtor shall cause a financial
institution acceptable to Secured Party to issue, for the benefit of Secured
Party, an irrevocable letter of credit (the "Letter of Credit") in form and
substance satisfactory to Secured Party and in an amount equal to twenty-five
percent (25%) of each advance. The Letter of Credit will provide that, upon the
occurrence of any Event of Default, Secured Party may draw under the Letter of
Credit. Amounts drawn under the Letter of Credit may be applied by Secured Party
against the outstanding Indebtedness. The Letter of Credit amount shall be
reduced by 50% at such time as Debtor's Fixed Charge Coverage Ratio (as defined
in Section 2(v) hereof) measured on a trailing four quarter basis (beginning
with the quarter ended April 30, 1997) equals or exceeds 1.30 to 1.0, provided
that such 50% reduction shall not occur prior to April 30, 1998. The Letter of
Credit will be canceled at such time, after December 31, 1998, as Debtor's Fixed
Charge Coverage Ratio measured on a trailing four quarter basis (beginning with
the quarter ended April 30, 1997) equals or exceeds 1.50 to 1.0. Notwithstanding
the preceding sentence, the Letter of Credit will not be canceled unless, in
addition to the requirements of the preceding sentence, Debtor shall have
reported positive net income in at least four of the six immediately preceding
fiscal quarters, beginning with the quarter ended April 30, 1997. If the amount
of the Letter of Credit exceeds the amount of the Indebtedness at any time, then
Secured Party will allow the Letter of Credit to be amended so as to reduce the
required amount of the Letter of Credit to the amount of the Indebtedness then
outstanding.
(x) Restricted Payments. If any Event of Default exists (or would exist
-------------------
as a result of any payment described in this subsection (x)), Debtor will not
and will not permit any of its subsidiaries directly or indirectly to declare,
order, pay, make or set apart any sum for (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Debtor or any of its subsidiaries now or hereafter outstanding, except (A) a
dividend payable solely in shares of that class of stock to the holders of that
class; or (B) subsidiaries of Debtor may make payments with respect to their
stock provided that such stock is 100% owned by Debtor; (ii) any redemption,
conversion, exchange, retirement, sinking fund or
7
<PAGE>
similar payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of stock of Debtor or any of its subsidiaries now or
hereafter outstanding; and (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Borrower or any of its subsidiaries now or
hereafter outstanding; provided Debtor's wholly-owned subsidiaries may make
payments and distributions to Debtor.
3. Prepayment. Upon forty-five (45) days prior written notice to Secured Party,
----------
Debtor may prepay in whole, but not in part, the then entire unpaid principal
balance of any Note, together with all accrued and unpaid interest thereon to
the date of such prepayment, provided that in addition to such prepayment,
Debtor shall pay any and all other sums then due under any of the Loan
Documents, including any Note.
4. Events of Default. If any one of the following events (each of which is
-----------------
herein called an "Event of Default") shall occur: (a) Debtor fails to pay any
----------------
part of the Indebtedness within ten (10) calendar days of its due date, or (b)
any warranty or representation of Debtor in any Loan Document is materially
untrue, misleading or inaccurate, (c) Debtor or any Guarantor breaches or
defaults in the performance of any other agreement or covenant under any Loan
Document other than those contained in subsections 2(b) and 2(e) hereof and such
breaches or defaults are not cured within thirty (30) days after Debtor knew or
should have known of the occurrence (provided that the thirty (30) day cure
period shall not apply to the extent any breach or default is not curable in
Secured Party's opinion), or (d) Debtor or any Guarantor breaches or defaults in
the performance of any covenant contained in subsections 2(b) and 2(e) hereof,
or (e) Debtor or any Guarantor breaches or defaults in the payment or
performance of any debt or other obligation owed by it to Secured Party or any
affiliate of Secured Party, and Secured Party has (without being obligated to do
so) declared such event, an Event of Default hereunder, or (f) Debtor breaches
or defaults in the payment or performance of any debt or other obligation,
whether now or hereafter existing, with an outstanding principal balance in
excess of One Million and 00/100 Dollars ($1,000,000.00), and the same is
subsequently accelerated, or (g) there shall be a change in the beneficial
ownership and control, directly or indirectly, of the majority of the
outstanding voting securities or other interests entitled (without regard to the
occurrence of any contingency) to elect or appoint members of the board of
directors or other managing body of Debtor or any Guarantor (a "change of
---------
control"), or there is any merger, consolidation, dissolution, liquidation,
- -------
winding up or sale or other transfer of all or substantially all of the assets
of Debtor or any Guarantor pursuant to which there is a change of control or
cessation of Debtor or the Guarantor or the business of either, or (h) any money
judgment is entered or filed against Debtor or any Guarantor in excess of One
Million and 00/100 Dollars ($1,000,000.00), or (i) Debtor or any Guarantor shall
file a voluntary petition in bankruptcy, shall apply for or permit the
appointment by consent or acquiescence of a receiver, conservator,
administrator, custodian or trustee for itself or all or a substantial part of
its property, shall make an assignment for the benefit of creditors or shall be
unable, fail or admit in writing its inability to pay its debts generally as
such debts become due, or (j) there shall have been filed against Debtor or any
Guarantor an involuntary petition in bankruptcy or Debtor or any Guarantor shall
suffer or permit the involuntary appointment of a receiver, conservator,
administrator, custodian or trustee for all or a substantial part of its
property or the issuance of a warrant of attachment, diligence, execution or
similar process against all or any substantial part of its property; unless, in
each case, such petition, appointment or process
8
<PAGE>
is fully bonded against, vacated or dismissed within forty-five (45) days from
its effective date, but no later than ten (10) days prior to any proposed
disposition of any assets pursuant to any such proceeding, or (k) if there is a
material adverse change in the business or financial condition or prospects of
Debtor, or any Guarantor, in an amount exceeding One Million Dollars
($1,000,000.00) as determined by Secured Party, then, and in any such event,
Secured Party shall have the right to exercise any one or more of the remedies
hereinafter provided.
5. Remedies. Upon the occurrence of an Event of Default, in addition to all
--------
rights and remedies of a secured party under the Uniform Commercial Code,
Secured Party may, at its option, at any time (a) declare the Indebtedness to be
immediately due and payable; (b) without demand or legal process, enter the
premises where the Collateral may be found and take possession of and remove the
Collateral, all without charge to or liability on the part of Secured Party; or
(c) require Debtor to assemble the Collateral, render it unusable, and crate,
pack, ship, and deliver the Collateral to Secured Party in such manner and at
such place as Secured Party may require, all at Debtor's sole cost and expense.
DEBTOR HEREBY EXPRESSLY WAIVES ITS RIGHTS, IF ANY, TO (1) PRIOR NOTICE OF
REPOSSESSION AND (2) A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SUCH
REPOSSESSION. Secured Party may, at its option, ship, store and repair the
Collateral so removed and sell any or all of the Collateral at a public or
private sale or sales. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Secured Party will give Debtor reasonable notice of the time and place
of any public sale thereof or of the time after which any private sale or any
other intended disposition thereof is to be made, it being understood and agreed
that Secured Party may be a buyer at any such sale and Debtor may not, either
directly or indirectly, be a buyer at any such sale. The requirements, if any,
for reasonable notice will be met if such notice is mailed postage prepaid to
Debtor at its address shown above, at least five (5) days before the time of
sale or disposition. After any such sale or disposition, Debtor shall be liable
for any deficiency of the Indebtedness remaining unpaid, with interest thereon
at the rate set forth in the related Notes.
6. Cumulative Remedies/Marshaling. All remedies of Secured Party hereunder are
------------------------------
cumulative, are in addition to any other remedies provided for by law or in
equity, or under any other provision of any of the Loan Documents, or under the
provisions of any other document, instrument or other writing executed by Debtor
or any third party in favor of Secured Party, all of which may, to the extent
permitted by law, be exercised concurrently or separately, and the exercise of
any one remedy shall not be deemed an election of such remedy or to preclude the
exercise of any other remedy. No failure on the part of Secured Party to
exercise, and no delay in exercising any right or remedy, shall operate as a
waiver thereof or in any way modify or be deemed to modify the terms of this
Agreement or any other Loan Document or the Indebtedness, nor shall any single
or partial exercise by Secured Party of any right or remedy preclude any other
or further exercise of the same or any other right or remedy. Secured Party
shall not be under any obligation to marshal any assets in favor of Debtor, any
Guarantor or any other person or against or in payment of any or all of the
Indebtedness.
7. Assignment. Secured Party may transfer or assign all or any part of the
----------
Indebtedness and the Loan Documents without releasing Debtor or the Collateral,
and upon such transfer or assignment the assignee or holder shall be entitled to
all the rights, powers, privileges and
9
<PAGE>
remedies of Secured Party to the extent assigned or transferred. The obligations
of Debtor shall not be subject, as against any such assignee or transferee, to
any defense, set-off, or counter-claim available to Debtor against Secured Party
and any such defense, set-off, or counter-claim may be asserted only against
Secured Party.
8. Time is of the Essence. Time and manner of performance by Debtor of its
----------------------
duties and obligations under the Loan Documents is of the essence. If Debtor
shall fail to comply with any provision of any of the Loan Documents, Secured
Party shall have the right, but shall not be obligated, to take action to
address such non-compliance, in whole or in part, and all moneys spent and
expenses and obligations incurred or assumed by Secured Party shall be paid by
Debtor upon demand and shall be added to the Indebtedness. Any such action by
Secured Party shall not constitute a waiver of Debtor's default.
9. Enforcement. This Agreement shall be governed by and construed in
-----------
accordance with the internal laws and decisions of the State of Illinois,
without regard to principles of conflicts of law. At Secured Party's election
and without limiting Secured Party's right to commence an action in any other
jurisdiction, Debtor hereby submits to the exclusive jurisdiction and venue of
any court (federal, state or local) having situs within the State of Illinois,
expressly waives personal service of process and consents to service by
certified mail, postage prepaid, directed to the last known address of Debtor,
which service shall be deemed completed within ten (10) days after the date of
mailing thereof.
10. Further Assurance; Notice. Debtor shall, at its expense, execute and
-------------------------
deliver such documents and do such further acts as Secured Party may from time
to time reasonably require to assure and confirm the rights created or intended
to be created hereunder, to carry out the intention or facilitate the
performance of the terms of the Loan Documents or to assure the validity,
perfection, priority or enforceability of any security interest created
hereunder. Debtor agrees to execute any instrument or instruments necessary or
expedient for filing, recording, perfecting, notifying, foreclosing, and/or
liquidating of Secured Party's interest in the Collateral upon request of, and
as determined by, Secured Party, and Debtor hereby specifically authorizes
Secured Party to prepare and file Uniform Commercial Code financing statements
and other documents and to execute same for and on behalf of Debtor as Debtor's
attorney-in-fact, irrevocably and coupled with an interest, for such purposes.
All notices required or otherwise given by either party shall be in writing and
shall be delivered by hand, by registered or certified first class United States
mail, return receipt requested, or by overnight courier to the other party at
its address stated herein or at such other address as the other party may from
time to time designate by written notice. All notices shall be deemed given when
received, when delivery is refused or when returned for failure to be called
for. Each provision of this Agreement shall remain in full force and effect
until all of the Indebtedness is fully, finally and indefeasibly satisfied and,
notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Debtor and Secured Party set forth in Sections 2(p), 2(r),
2(s), 2(t), 9 and 12 shall survive the full, final and indefeasible satisfaction
of the Indebtedness.
11. Joint and Several Obligation. If this Agreement is executed by more than
----------------------------
one person as Debtor, each such Debtor hereby acknowledges it is jointly and
severally liable for and
10
<PAGE>
unconditionally guarantees the prompt and full payment and performance of all
obligations of each other Debtor hereunder and under the other Loan Documents.
12. Waiver of Jury Trial. Debtor and Secured Party hereby waive their
--------------------
respective rights to a jury trial of any claim or cause of action based upon or
arising in connection with any of the Loan Documents. Debtor and Secured Party
acknowledge that this waiver is a material inducement to enter into a business
relationship, that each has already relied on the waiver in entering into the
Loan Documents, and that each will continue to rely on the waiver in their
related future dealings. Debtor and Secured Party further warrant and represent
that each has reviewed this waiver with its legal counsel and that each
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel.
13. Complete Agreement. The Loan Documents embody the entire agreement among
------------------
the parties hereto superseding all prior commitments, agreements,
representations, and understandings, whether written or oral relating to the
subject matter hereof, and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. The Loan Documents may not be altered, modified or terminated in
any manner except by a writing duly signed by the parties thereto. Debtor and
Secured Party intend the Loan Documents to be valid and binding and no
provisions hereof and thereof which may be deemed unenforceable shall in any way
invalidate any other provisions of the Loan Documents, all of which shall remain
in full force and effect. The Loan Documents shall be binding upon the
respective successors, legal representatives, and assigns of the parties. The
Schedules are incorporated herein by this reference and made a part hereof.
IN WITNESS WHEREOF, Secured Party and Debtor have each signed this Agreement as
of the day and year first above written.
HELLER FINANCIAL, INC., SHEFFIELD STEEL
a Delaware corporation CORPORATION,
a Delaware corporation
By: David G. Roeder By: Stephen R. Johnson
---------------------------- ------------------------------
Name: David G. Roeder Name: Stephen R. Johnson
-------------------------- ----------------------------
Title: Vice President Title: Vice President and
------------------------- ---------------------------
Chief Financial Officer
---------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and among
SHEFFIELD STEEL CORPORATION,
WADDELL'S REBAR FABRICATORS, INC.,
AND
THE STOCKHOLDERS OF WADDELL'S REBAR FABRICATORS, INC.
October 27, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS..............................................................4
- ----------------------
SECTION 1.01 CERTAIN DEFINED TERMS..............................................4
SECTION 1.02 SINGULAR/PLURAL....................................................8
SECTION 1.03 ACCOUNTING TERMS...................................................8
ARTICLE II PURCHASE AND SALE OF THE SHARES........................................9
- --------------------------------------------
SECTION 2.01 PURCHASE AND SALE OF THE SHARES....................................9
SECTION 2.02 PURCHASE PRICE FOR THE SHARES......................................9
SECTION 2.03 CONTINGENT INCENTIVE PURCHASE PRICE CONSIDERATION.................11
SECTION 2.04 COLLATERAL FOR NOTES..............................................13
--------------------
SECTION 2.05 FURTHER ASSURANCES................................................13
SECTION 2.06 CLOSING...........................................................13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................18
- -----------------------------------------------------------
SECTION 3.01 ORGANIZATION AND QUALIFICATION....................................18
SECTION 3.02 CORPORATE POWER AND AUTHORITY.....................................18
SECTION 3.03 CAPITALIZATION....................................................18
SECTION 3.04 VALIDITY, ETC.....................................................19
SECTION 3.05 FINANCIAL STATEMENTS..............................................20
SECTION 3.06 ABSENCE OF UNDISCLOSED LIABILITIES................................20
SECTION 3.07 ABSENCE OF ADVERSE CHANGE; CONDUCT OF BUSINESS....................21
SECTION 3.08 INVENTORIES.......................................................22
SECTION 3.09 RECEIVABLES.......................................................23
SECTION 3.10 TAXES.............................................................23
-----
SECTION 3.11 LITIGATION........................................................24
SECTION 3.12 CERTAIN PRACTICES.................................................25
SECTION 3.13 COMPLIANCE WITH LAW...............................................25
SECTION 3.14 LICENSES AND PERMITS..............................................25
SECTION 3.15 LABOR AND EMPLOYEE RELATIONS......................................26
SECTION 3.16 CERTAIN EMPLOYEES.................................................26
SECTION 3.17 EMPLOYEE BENEFITS.................................................26
SECTION 3.18 TANGIBLE OWNED PROPERTIES.........................................27
SECTION 3.19 OWNED PREMISES....................................................27
SECTION 3.20 LEASED PREMISES...................................................29
SECTION 3.21 ENVIRONMENTAL MATTERS.............................................29
SECTION 3.22 INSURANCE.........................................................31
SECTION 3.23 OUTSTANDING COMMITMENTS...........................................32
SECTION 3.24 INTANGIBLES AND INTELLECTUAL PROPERTY.............................32
SECTION 3.25 PROPRIETARY INFORMATION OF THIRD PARTIES..........................33
SECTION 3.26 BANK ACCOUNTS.....................................................33
SECTION 3.27 SIGNIFICANT CUSTOMERS AND SUPPLIERS...............................33
SECTION 3.28 GOVERNMENTAL APPROVALS............................................34
SECTION 3.29 TRANSACTIONS WITH AFFILIATES......................................34
SECTION 3.30 NO NEGOTIATIONS...................................................34
SECTION 3.31 PRESERVATION OF BUSINESS..........................................35
SECTION 3.32 CONFIDENTIALITY...................................................35
SECTION 3.33 DISCLOSURE........................................................35
ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.............36
- ----------------------------------------------------------------------
SECTION 4.01 AUTHORIZATION.....................................................36
SECTION 4.02 TITLE.............................................................36
SECTION 4.03 NO BROKER.........................................................37
SECTION 4.04 LITIGATION........................................................37
SECTION 4.05 CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES.........37
SECTION 4.06 OBLIGATIONS OF AFFILIATES.........................................38
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.07 ENCUMBRANCE OF SHARES.............................................38
SECTION 4.08 REGULATORY AND OTHER AUTHORIZATIONS; CONSENTS.....................38
SECTION 4.09 RISK OF LOSS......................................................39
SECTION 4.10 REMOVAL OF TRUSTEES...............................................39
SECTION 4.11 DISCLOSURE........................................................39
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER................................39
- ---------------------------------------------------
SECTION 5.01 ORGANIZATION......................................................39
SECTION 5.02 BUYER POWER AND AUTHORITY.........................................39
SECTION 5.03 VALIDITY, ETC.....................................................40
SECTION 5.04 NO VIOLATION OF LAWS OR CONTRACTS.................................40
SECTION 5.05 LITIGATION........................................................40
ARTICLE VI ADDITIONAL AGREEMENTS.................................................41
- ----------------------------------
SECTION 6.01 CONDUCT OF THE BUSINESS...........................................41
SECTION 6.02 ACCESS TO COMPANY PRIOR TO CLOSING................................42
SECTION 6.03 COMPLIANCE WITH LAWS..............................................43
SECTION 6.04 KEEPING OF BOOKS AND RECORDS......................................43
SECTION 6.05 NOTICE OF CHANGES.................................................43
SECTION 6.07 CONFIDENTIALITY...................................................45
SECTION 6.08 EXCLUSIVITY.......................................................45
ARTICLE VII INDEMNIFICATION......................................................46
- -----------------------------
SECTION 7.01 INDEMNIFICATION BY BUYER..........................................46
SECTION 7.02 INDEMNIFICATION BY STOCKHOLDERS...................................46
SECTION 7.03 INDEMNIFICATION THRESHOLDS........................................47
SECTION 7.04 CLAIMS FOR INDEMNIFICATION........................................48
SECTION 7.05 SURVIVAL..........................................................49
SECTION 7.06 RIGHT TO OFFSET...................................................49
ARTICLE VIII TERMINATION.........................................................50
- --------------------------
SECTION 8.01 TERMINATION.......................................................50
SECTION 8.02 EFFECT OF TERMINATION.............................................51
SECTION 8.03 TERMINATION FEE...................................................51
ARTICLE IX CONDITIONS TO CLOSING.................................................52
- ----------------------------------
SECTION 9.01 BUYER'S CONDITIONS TO CLOSING.....................................52
SECTION 9.02 SELLER'S CONDITIONS TO CLOSING....................................54
ARTICLE X MISCELLANEOUS..........................................................55
- -------------------------
SECTION 10.01 NOTICES..........................................................55
SECTION 10.02 ENTIRE AGREEMENT.................................................57
SECTION 10.03 MODIFICATIONS AND AMENDMENTS.....................................57
SECTION 10.04 WAIVERS AND CONSENTS.............................................58
SECTION 10.05 ASSIGNMENT.......................................................58
SECTION 10.06 PARTIES IN INTEREST..............................................58
SECTION 10.07 GOVERNING LAW....................................................59
SECTION 10.08 JURISDICTION AND SERVICE OF PROCESS..............................59
SECTION 10.09 SEVERABILITY.....................................................59
SECTION 10.10 INTERPRETATION...................................................60
SECTION 10.11 HEADINGS AND CAPTIONS............................................60
SECTION 10.12 ENFORCEMENT......................................................60
SECTION 10.13 RELIANCE.........................................................60
SECTION 10.14 EXPENSES.........................................................61
SECTION 10.15 NO BROKER OR FINDER..............................................61
SECTION 10.16 PUBLICITY........................................................61
SECTION 10.17 COUNTERPARTS.....................................................62
</TABLE>
ii
<PAGE>
INDEX TO EXHIBITS
EXHIBIT A - Form of Subordinated Secured Promissory Note
EXHIBIT B - Pledge Agreement
EXHIBIT C - Employment Agreement with Tommy Waddell
EXHIBIT D - Employment Agreement with Dale Swanson
EXHIBIT E - Employment Agreement with David Ries
EXHIBIT F - Opinion of McQuain, Block, DeHardt & Rosenbloom, P.C.
EXHIBIT G - Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
iii
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
This Stock Purchase Agreement (this "Agreement") is entered into this 27th
day of October, 1997, by and among Sheffield Steel Corporation, a Delaware
corporation (the "Buyer"), Waddell's Rebar Fabricators, Inc., a Missouri
corporation (the "Company"), and Tommy Waddell, Dale Swanson and David Ries, as
stockholders of the Company (the "Stockholders"). The Buyer, the Company and the
Stockholders are sometimes referred to herein as a "Party" and are collectively
referred to as the "Parties".
WHEREAS, the Company is engaged primarily in the business of rebar
fabrication for use by various industries (the "Business");
WHEREAS, the Stockholders own all of the issued and outstanding capital
stock (or securities or rights convertible into capital stock) of the Company
(the "Shares"); and
WHEREAS, the Stockholders desire to sell or otherwise transfer to the Buyer
and the Buyer desires to purchase from the Stockholders all of the Shares, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties intending
to be legally bound agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
SECTION 1.01 Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings:
"Acquisition Transaction" has meaning the described in Section 6.08.
-----------------------
"Adjustment Schedule" has the meaning described in Section 2.02(c).
-------------------
<PAGE>
"Audited Statements" has the meaning described in Section 3.05.
------------------
"Base Operating Income Statement" has the meaning described in Section
-------------------------------
2.03.
"Basket Amount" has the meaning described in Section 7.03.
-------------
"Buyer's Charter" means the Buyer's Certificate of Incorporation.
---------------
"Cash Payment" has the meaning described in Section 2.02(a)(i).
------------
"Claims" means any and all claims, charges, liens, contracts, rights,
------
options, security interests, mortgages, encumbrances and restrictions
whatsoever.
"Closing" and "Closing Date" have the meanings described in Section 2.05.
------- ------------
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
-----
as amended.
"Company's Charter" means the Company's Articles of Incorporation, as
-----------------
amended.
"Contracts" has the meaning described in Section 3.23.
---------
"Damages" has the meaning described in Section 7.01.
-------
"Employment Agreements" has the meaning described in Section 2.06(a).
---------------------
"Encumbrances" has the meaning described in Section 4.02.
------------
"Environmental Permits" means all registrations, permits, licenses, and
---------------------
approvals issued by or on behalf of any federal, state or local government body
or agency, used in or otherwise necessary in the conduct of the Business.
2
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Excess Base Operating Income Amount" has the meaning described in Section
-----------------------------------
2.03.
"GAAP" means United States generally accepted accounting principles and
----
practices as in effect on or prior to the date hereof applied consistently
throughout the periods involved.
"Governmental Authority" means any public body, governmental,
----------------------
administrative or regulatory authority, agency, instrumentality or commission,
including courts of competent jurisdiction and other tribunals, whether federal,
state, local or foreign.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended, and the rules and regulations promulgated thereunder.
"Indemnified Party" and "Indemnifying Party" have the meanings described in
----------------- ------------------
Section 7.04.
"Intellectual Property" has the meaning described in Section 3.24.
---------------------
"Inventories" means all inventory, merchandise, goods, raw materials,
-----------
works-in-process, finished goods, packaging and supplies related to the
Business, maintained, held or stored by or for the Company and any prepaid
deposits for any of the same.
"Key Employee" has the meaning described in Section 3.07(c).
------------
"Leased Parcels" has the meaning described in Section 3.20.
--------------
"Material Adverse Change" means a material adverse change in the business,
-----------------------
affairs operations, properties, assets, results of operations or condition
(financial or otherwise) of the Company or the Business taken as a whole.
3
<PAGE>
"Material Adverse Effect" means any circumstance, change in or effect on
-----------------------
the Company or the Business that, individually or in the aggregate with any
other circumstances, changes in or effects on the Company or the Business (i) is
materially adverse to the business, affairs, operations, properties, assets,
results of operations or condition (financial or otherwise) of the Company or
the Business or (ii) affects the ability of the Buyer to control the Shares or
to operate and conduct the Business in substantially the same manner as
conducted by the Company prior to the Closing Date.
"Net Worth Adjustment" has the meaning described in Section 2.02(b).
--------------------
"Notes" has the meaning described in Section 2.02(a)(ii).
-----
"Owned Real Properties" has the meaning described in Section 3.19.
---------------------
"Party" has the meaning described in the preamble to this Agreement.
-----
"Permits" means all licenses, permits, pending applications, consents,
-------
approvals and authorizations of or from any public or governmental agency, used
in or otherwise necessary in the conduct of the Business.
"Purchase Price" has the meaning described in Section 2.02(a).
--------------
"Ries Employment Agreement" has the meaning described in Section 2.05(a).
-------------------------
"Scheduled Closing Date" has the meaning described in Section 2.06.
----------------------
"Shares" has the meaning described in the second Whereas clause to this
------
Agreement.
"Sheffield-Kansas" has the meaning described in Section 2.03.
----------------
"Swanson Employment Agreement" has the meaning described in Section
----------------------------
2.06(a).
4
<PAGE>
"Substances" means any pollutant, hazardous substance, hazardous material,
----------
hazardous waste or toxic waste, as defined in any presently enacted Federal,
state or local statute or any regulation that has been promulgated pursuant
thereto.
"Tangible Personal Property" has the meaning described in Section 3.18.
--------------------------
"Tax" and "Taxes" means all taxes, charges, fees, levies, tariffs, duties
--- -----
or other similar assessments, including, (i) income, gross receipts, gains,
surtax, severance, payroll, production, ad valorem or value added, surtax
premium, excise, real property, personal property, windfall profit, sales, use,
transfer, duty, licensing, withholding, employment, payroll, estimated and
franchise taxes imposed by the United States of America, any state, local, or
foreign government, or any subdivision, agency, or other similar Person of the
United States or any such government, and (ii) any interest, fines, penalties,
assessments, or additions to tax resulting from, attributable to or incurred in
connection with any Tax or any contest, dispute or refund thereto; whether or
not imposed on a consolidated combined or unitary basis or as a result of
transferee, joint or several liability.
"Tax Return" means any report, return, statement or other information
----------
required to be supplied to a taxing authority in connection with Taxes.
"Unaudited Statements" has the meaning described in Section 3.05.
--------------------
"Waddell Employment Agreement" has the meaning described in Section
----------------------------
2.06(a).
SECTION 1.02 Singular/Plural. Unless the context otherwise requires,
---------------
words defined herein in the singular include the plural and words defined in the
plural include the singular.
SECTION 1.03 Accounting Terms. Any accounting terms used in this
----------------
Agreement and not specifically defined shall have the meanings customarily given
them in GAAP.
5
<PAGE>
ARTICLE II
----------
PURCHASE AND SALE OF THE SHARES
-------------------------------
SECTION 2.01 Purchase and Sale of the Shares. Upon the terms and subject
-------------------------------
to the conditions of this Agreement, at the Closing (as such term is defined in
Section 2.06 herein), the Stockholders shall sell to the Buyer, and the Buyer
shall purchase from the Stockholders, all of the issued and outstanding Shares
of the Company which shall be owned by the Stockholders beneficially and of
record on the Closing Date (as such term is defined in Section 2.06 herein). On
the Closing Date, the Stockholders will convey to the Buyer good and marketable
title to the Shares free and clear of all Encumbrances (as such term is defined
in Section 4.02 herein) with no restriction on the voting rights and other
incidents of record and beneficial ownership pertaining thereto.
SECTION 2.02 Purchase Price for the Shares.
-----------------------------
(a) In consideration for the sale of the Shares, on the Closing Date the
Buyer will:
(i) pay by bank or certified check or by wire transfer
pursuant to instructions previously provided to the Buyer by the
Stockholders in immediately available funds the sum of One Million
Forty Thousand Dollars ($1,040,000) (subject to adjustment as
provided below) (the "Cash Payment"); and
(ii) execute and deliver to the Stockholders subordinated,
secured promissory notes in favor of the Stockholders in the
aggregate principal amount of Two Million Dollars ($2,000,000) (the
"Notes"), bearing interest at the Prime Rate as announced by
NationsBank of Georgia, N.A. from time to time as its Prime Rate
minus one-half of one percent (.50%), subject to the terms set forth
and in the form attached hereto as Exhibit A.
---------
The obligations of the Buyer set forth in (i) - (ii) above are hereinafter
collectively referred to as the "Purchase Price". The Purchase Price shall be
allocated among the
6
<PAGE>
Stockholders in accordance with Schedule 2.02(a), based upon their respective
----------------
ownership of the Shares as of the Closing Date.
(b) The Purchase Price shall be adjusted (the "Net Worth Adjustment")
based on the difference between the (i) the Net Worth (as defined below) as of
July 31, 1997 (as set forth on Schedule 2.02(b)) and (ii) the Net Worth as of
----------------
the Closing Date, increased by $60,000 to account for payments made in
connection with the redemption of the outstanding preferred stock of the Company
in September 1997. If the Net Worth Adjustment is negative, then the cash
portion of the Purchase Price shall be reduced on a dollar-for-dollar basis by
the full amount of the Net Worth Adjustment. If the Net Worth Adjustment is
positive, then within five (5) business days of such determination the Buyer
shall pay to the Stockholders, pursuant to instructions previously provided to
the Buyer by the Stockholders, an amount equal to such positive amount.
(c) As promptly as possible, but in any event within sixty (60) days
after the Closing Date, the Company will deliver to the Buyer a schedule setting
forth the calculation of the Net Worth Adjustment (the "Adjustment Schedule"),
together with the written report of Herfordt, Shelton, Mertens & Couch, P.C.,
the Company's independent certified public accountants, stating that, in their
opinion, such schedule fairly states the Net Worth Adjustment in accordance with
the provisions of this Agreement. The Buyer and KPMG Peat Marwick LLP, its
independent certified public accountants, shall have the right to observe and
comment upon the preparation of such schedule, which shall take place at the
Buyer's expense on the Closing Date. Within sixty (60) days after delivery of
the Adjustment Schedule, the Buyer may notify the Company in writing that such
schedule does not, in the opinion of KPMG Peat Marwick LLP, fairly state the Net
Worth Adjustment in accordance with the provisions of this Agreement, setting
forth in full the
7
<PAGE>
respects in which it fails to do so and the reasons for reaching that
conclusion. In the event that the Parties are unable to resolve any dispute so
raised within sixty (60) days after delivery of the Adjustment Schedule, they
shall appoint a "big six" accounting firm acceptable to both of them, whose
expenses will be shared equally by the Company and the Buyer. The third firm
shall as promptly as possible determine whether the Adjustment Schedule fairly
states, in accordance with the provisions of this Agreement, the values of the
items as to which the Buyer has taken issue and, if the third firm concludes
that it does not do so with respect to any of such items, the value which in
such firm's opinion does so. The determination of such Net Worth Adjustment by
such third firm shall be conclusive and binding on the parties hereto.
(d) Within five (5) days after delivery of the report by such third
firm or the settlement of any dispute, or within thirty-five (35) days following
delivery of the Adjustment Schedule if no dispute exists, payment shall be made
of the amount necessary to reflect the Net Worth Adjustment.
(e) For purposes of calculating the Net Worth Adjustment, the term "Net
Worth" shall mean, as of any date, the stockholders' equity as of such date,
calculated in accordance with GAAP, on a basis consistent with the preparation
of Schedule 2.02(b).
SECTION 2.03 Contingent Incentive Purchase Price Consideration. Set
-------------------------------------------------
forth on Schedule 2.03 are the pro forma operating income statements of the
------------- ---------
Buyer with respect solely to its rebar fabrication operation in Kansas City,
Missouri ("Sheffield - Kansas") and the Company on a combined basis for the
fiscal year ended April 30, 1997, which have been adjusted as of the Closing
Date based upon certain salary arrangements, as further described in Schedule
--------
2.03 (collectively, the "Base Operating Income Statement"). In the event that
- ----
the adjusted operating income of the Company and
8
<PAGE>
Sheffield-Kansas determined on a combined basis and on a basis consistent with
the Base Operating Income Statement for each of the calendar 12 month periods
ended October 31, 1998, October 31, 1999 and October 31, 2000 exceeds the
adjusted base operating income of Sheffield-Kansas and the Company, as reflected
on the Base Operating Income Statement (such difference, the "Excess Base
Operating Income Amount"), the Stockholders shall be eligible to receive on a
pro rata basis the following additional contingent incentive purchase price
- --- ----
consideration, for each such fiscal period: (i) in the event such Excess Base
Operating Income Amount is less than or equal to the principal amount of
$100,000, the Stockholders shall be entitled to receive ten percent (10%) of
such Excess Base Operating Income Amount up to $100,000, plus (ii) in the event
----
such Excess Base Operating Income Amount is greater than the principal amount of
$100,000 but less than the principal amount of $250,000, the Stockholders shall
be entitled to receive twenty percent (20%) of such Excess Base Operating Income
Amount between $100,000 and $250,000, plus (iii) in the event such Excess Base
----
Operating Income Amount is greater than the principal amount of $250,000 but
less than the principal amount of $350,000, the Stockholders shall be entitled
to receive twenty-five percent (25%) of such Excess Base Operating Income Amount
between $250,000 and $350,000, plus (iv) in the event such Excess Base Operating
----
Income Amount is greater than the principal amount of $350,000, the Stockholders
shall be entitled to receive thirty percent (30%) of such Excess Base Operating
Income Amount in excess of $350,000. Notwithstanding the foregoing, in no event
shall the Stockholders' rights to receive such Excess Operating Income Amount be
cumulative from year to year.
(a) Computation of the Excess Base Operating Income Amount shall be
made by Buyer and provided to the Stockholders in writing within sixty (60) days
of each respective October 31 date. The Stockholders and Buyer shall have the
right to observe and comment on the computation. In the event the parties
disagree on the computations, the parties shall appoint a "big six" accounting
firm acceptable to both, whose costs will be shared equally by the Stockholders
and Buyer. The third firm shall as promptly as possible determine whether the
Excess Base Operating Income Amount fairly states, in accordance with the
provisions of this Agreement, the values of the items being contested by the
Buyer and, if the third firm concludes that it does not fairly state the value
of any such items, the value which in such firm's opinion does represent a fair
statement of its
9
<PAGE>
value. The determination of such Excess Base Operating Income Amount by such
third firm shall be conclusive and binding on the parties hereto.
(b) Within five (5) days after delivery of the report by such third firm
or the settlement of any dispute, or within thirty-five (35) days following
delivery of the Computation Schedule if no dispute exists, payment shall be made
of the amount necessary to reflect the Excess Base Operating Income Amount. If
the computation of the Excess Base Operating Income Amount results in a negative
number the Stockholders shall not be required to make any payment with respect
thereto to Buyer.
SECTION 2.04 Collateral for Notes. Buyer shall grant to Stockholders a
--------------------
pledge of all the capital stock of the Company, as collateral for the portion of
the Purchase Price represented by the Notes, in the form of Exhibit B attached
---------
hereto (the "Pledge Agreement").
SECTION 2.05 Further Assurances. At any time and from time to time after
------------------
the date hereof each of the Parties hereto, at the request of any other Party
hereto and without further consideration, will execute and deliver such other
instruments of sale, transfer, conveyance, assignment, confirmation and other
instruments as may be reasonably requested in order to more effectively
transfer, convey and assign to the Buyer and to confirm the Buyer's title to the
Shares and to effectuate the transactions contemplated herein.
SECTION 2.06 Closing. The closing of the transactions contemplated
-------
hereby (the "Closing") shall take place at or before 2:00 p.m. Kansas City,
Missouri time on the "Closing Date", at the offices of McQuain, Block, DeHardt &
Rosenbloom, P.C., 4505 Madison Avenue, Kansas City, Missouri, or at such other
place as may be mutually agreeable. The Closing Date shall be the earlier of the
following: (a) October 31, 1997 (the "Scheduled Closing Date") or (b) such other
date as the Parties may agree to in writing. At the Closing, the following
actions shall be taken:
(a) The Company and/or the Stockholders shall deliver to the Buyer or
cause to be delivered to the Buyer the following:
10
<PAGE>
(i) The Employment Agreement with Tommy Waddell, in the form
attached hereto as Exhibit C (the "Waddell Employment Agreement");
---------
(ii) The Employment Agreement with Dale Swanson, in the form
attached hereto as Exhibit D (the "Swanson Employment Agreement");
---------
(iii) The Employment Agreement with David Ries, in the form attached
hereto as Exhibit E (the "Ries Employment Agreement"; collectively, the
---------
"Employment Agreements");
(iv) An opinion of McQuain, Block, DeHardt & Rosenbloom, P.C.,
counsel to the Company and the Stockholders, in the form attached hereto as
Exhibit F;
- ---------
(v) All of the consents, approvals or authorizations of
Governmental Authorities and other third parties necessary in connection with
the consummation of the transactions contemplated hereby;
(vi) The following corporate documents:
(1) A certificate of the Secretary of the Company certifying
as to (i) the resolutions of the Company authorizing and
approving the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, (ii)
the incumbency of the Company's officers, and (iii) the
Company's by-laws;
(2) A copy of the Company's Charter certified by the
Secretary of State of the State of Missouri;
(3) A certificate of an officer of the Company certifying (i)
that the representations and warranties of the Company
contained in Articles III and IV hereof were true and
correct when made and continue to be true and correct as
of the Closing Date (or, if a representation and warranty
is
11
<PAGE>
made as of a date other than the date hereof, the
representation and warranty remains true and correct as
of such date); and (ii) that the Company performed or
complied with all agreements and covenants contained in
this Agreement and required to be performed by the
Company and Stockholders;
(4) A certificate of the Stockholders certifying (i) that the
representations and warranties of the Stockholders
contained in Articles III and IV hereof were true and
correct when made and continue to be true and correct as
of the Closing Date (or, if a representation and warranty
is made as of a date other than the date hereof, the
representation and warranty remains true and correct as
of such date); and (ii) that the Stockholders performed
or complied with all agreements and covenants contained
in this Agreement and required to be performed by the
Stockholders;
(5) A certificate as to the Company's good standing certified
by the Secretary of State of the State of Missouri;
(6) A certificate from the Department of Revenue of the State
of Missouri certifying as to the tax good standing of the
Company; and
(7) The resignation of such officers and directors as the
Buyer shall have requested.
(8) All such keys, locks, safe combinations and other similar
items as Buyer requires to obtain full occupation and
control of the Company and its Business.
12
<PAGE>
(9) Stock certificates evidencing the Shares owned by the
Stockholders duly endorsed in blank, or accompanied by
stock powers duly executed in blank, in form
satisfactory to the Buyer;
(10) A receipt executed by each of the Stockholders for his
share of the Purchase Price;
(b) The Buyer shall deliver or cause to be delivered to the Company or
the Stockholders, as the case may be:
(i) The Cash Payment;
(ii) The Promissory Notes;
(iii) Employment Agreements;
(iv) An opinion of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., special counsel to the Buyer, in the form attached hereto
as Exhibit G;
(v) The following corporate documents:
(1) A certificate of the Secretary of the Buyer certifying
as to (i) the resolutions of the Buyer authorizing and
approving the execution, delivery and performance of
this Agreement and the transactions contemplated
hereby, (ii) the incumbency of the Buyer's officers,
and (iii) the Buyer's By-Laws;
(2) A copy of the Buyer's Charter, certified by the
Secretary of State of the State of Delaware;
(3) A certificate of an officer of the Buyer certifying (i)
that the representations and warranties of the Buyer
contained in Article V hereof were true and correct
when made on the
13
<PAGE>
date hereof and continue to be true and correct as of
the Closing Date (or, if a representation and warranty
is made as of a date other than the date hereof, the
representation and warranty remains true and correct as
of such date); and (ii) that the Buyer has performed or
complied with all agreements and covenants contained in
this Agreement and required to be performed by the
Buyer; and
(4) A certificate as to the Buyer's good standing certified
by the Secretary of State of the State of Delaware.
14
<PAGE>
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
--------------------------------
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company and the
Stockholders jointly and severally hereby represent and warrant to the Buyer as
follows:
SECTION 3.01 Organization and Qualification. The Company is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Missouri and is not required to be licensed or qualified to
transact business as a foreign corporation in any other jurisdiction. The
Stockholders own all of the outstanding shares of capital stock of the Company
and there are no outstanding options, conversion rights, commitments or demands
of any character relating to the capital stock. The Company does not own any
subsidiaries.
SECTION 3.02 Corporate Power and Authority. The Company has the
-----------------------------
corporate power and authority to own and hold its properties and to carry on its
business. The Company has the corporate power and authority to execute, deliver
and perform this Agreement and the other documents and instruments contemplated
hereby. The execution, delivery and performance of this Agreement and the
documents contemplated hereby and the consummation of the transactions
contemplated hereby and thereby have been duly authorized and approved by the
Company. This Agreement, and each of the other agreements, documents and
instruments to be executed and delivered by the Company and Stockholders have
been duly executed and delivered by, and constitute the legal, valid and binding
obligation of, the Company and Stockholders enforceable against the Company and
Stockholders, as the case may be, in accordance with their terms.
SECTION 3.03 Capitalization. The authorized capital stock of the
--------------
Company and the issued and outstanding shares of capital stock of the Company is
as set forth on Schedule 3.03(a) hereto. All of the outstanding shares are
----------------
validly issued, fully paid and nonassessable. There are no options, warrants,
convertible securities or other rights, agreements, arrangements or commitments
relating to the capital stock of the Company or obligating the Company or any of
the Stockholders of the Company to sell any shares
15
<PAGE>
or capital stock of, or any other interest in, the Company or the Company to
issue any such shares. There are no outstanding contractual obligations of the
Company to redeem, repurchase or otherwise acquire any shares of capital stock
or to provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other individual, partnership, firm,
corporation, association, trust, unincorporated organization or other entity, as
well as any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Securities Exchange Act of 1934, as amended. Except as set forth
on Schedule 3.03(b), there are no voting trusts, stockholder agreements, proxies
----------------
or other agreements or understandings relating to the Shares to which the
Company or any of its Stockholders is a party. Upon consummation of the
transactions contemplated by this Agreement and registration of the Shares in
the name of the Buyer in the stock records of the Company, the Buyer, assuming
it shall have purchased such shares of capital stock for value in good faith and
without notice of any adverse claim, will own all the issued and outstanding
capital stock of the Company free and clear of all Encumbrances.
SECTION 3.04 Validity, Etc. Neither the execution and delivery of this
-------------
Agreement and the other documents and instruments contemplated hereby by the
Company and Stockholders, the consummation of the transactions contemplated
hereby or thereby, nor the performance of this Agreement and such other
agreements in compliance with the terms and conditions hereof and thereof will
(i) violate, conflict with or result in any breach of the Company's Charter or
By-Laws, each as amended, or any judgment, decree, order, statute or regulation
applicable to the Company, (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except as may be required under the HSR Act, (iii) violate, conflict
with or result in a breach, default or termination or give rise to any right of
termination, cancellation or acceleration of the maturity of any payment date of
any of the obligations of the Company or increase or otherwise affect the
obligations of the Company under any law, rule, regulation or any judgment,
decree, order, governmental permit, license or order or any of the terms,
conditions or provisions of any mortgage, indenture, note, license, agreement or
other instrument or obligation related to the Company or to the Company's
ability to consummate the transactions contemplated hereby or thereby, except
for such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained in writing and
16
<PAGE>
provided to the Buyer, (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or (v) result in the
creation of any Claim upon the Shares.
SECTION 3.05 Financial Statements. The Company has previously furnished
--------------------
to the Buyer, and attached hereto as Schedule 3.05 are, the financial statements
-------------
of the Company for the fiscal years ended April 30, 1997, April 30, 1996 and
April 30, 1995 which were prepared by the Company's independent accountants (the
"Prepared Statements"), as well as the interim monthly financial statements for
the months ended May 31, 1997, June 30, 1997 and July 31, 1997, which have not
been reviewed by the Company's independent accountants, (together with the
Prepared Statements, the "Financial Statements"). Except as described in
Schedule 3.05, the Financial Statements have been prepared in accordance with
- -------------
GAAP and were prepared from the books and records of the Company, which books
and records are complete and correct in all material respects and accurately
reflect all transactions of the Business. The Financial Statements fairly
present the financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods ended on the dates
thereof. The Financial Statements reflect reserves appropriate and adequate for
all known material liabilities and reasonably anticipated losses as required by
GAAP. Since the date of the Prepared Statements, (a) there has been no change in
the assets, liabilities or financial condition of the assets of the Company from
that reflected in the Prepared Statements except for changes in the ordinary
course of business consistent with past practice and which have not resulted in
a Material Adverse Effect and (b) none of the business, prospects, financial
condition, operations, property or affairs of the Company has been materially
adversely affected by any occurrence or development, individually or in the
aggregate, whether or not insured against.
SECTION 3.06 Absence of Undisclosed Liabilities. Except as and to the
----------------------------------
extent of the amounts specifically reflected or reserved against in the Prepared
Statements, the Company does not have any liabilities or obligations of any
nature whatsoever, due or to become due, accrued, absolute, contingent or
otherwise, except for liabilities and obligations incurred in the ordinary
course of business and consistent with past practice. The Company does not know
of, and has no reason to know of, any basis for the assertion against the
Company of any liability or obligation not fully reflected or reserved against
17
<PAGE>
in the Prepared Statements or incurred in the ordinary course of business and
consistent with past practice since the date thereof.
SECTION 3.07 Absence of Adverse Change; Conduct of Business. Since
----------------------------------------------
April 30, 1997, the Company has carried on the Business only in the ordinary
course and there has been no Material Adverse Change in the Business and there
is no condition or development or contingency of any kind existing or in
prospect which, so far as reasonably can be foreseen by the Company, may result
in any such Material Adverse Change. Without limiting the foregoing, except as
disclosed on Schedule 3.07, since April 30, 1997, there has not been, occurred
-------------
or arisen:
(a) Any damage, destruction or loss to any of the assets of the Company
(whether tangible or intangible and whether or not covered by insurance) that,
individually or in the aggregate, would have a Material Adverse Effect;
(b) Any change in the Business or operations of the Business or in the
manner of conducting the Business or sale or other disposition of any right,
title or interest in or to any assets or properties used in the Business or any
revenues derived therefrom other than in the ordinary course of business;
(c) Any general increase in any compensation or benefits payable to any
class or group of employees of the Company other than normal merit increases or
any increase in the compensation payable or to become payable to any employee
whose total compensation after such increase would exceed $50,000 per annum
(each, a "Key Employee") or any bonus, service, pension, award, percentage
compensation or other benefit paid, granted or accrued to or for the benefit of
any Key Employee;
(d) Any Material Adverse Change in the net worth, financial condition,
assets, liabilities, business, operations or prospects of the Company;
(e) Any loan, advance, agreement, arrangement or transaction between
the Company and any officers, employees or stockholders of the Company or its or
their affiliates, or any business or entity in which the Company, its
affiliates, officers or employees of either has any direct or indirect interest,
except for compensation at rates
18
<PAGE>
not exceeding the rates of compensation in effect as of April 30, 1997, and
advances made to employees of the Company for ordinary and customary business
expenses in reasonable amounts in the ordinary course of business consistent
with past practice.
(f) Any sale, assignment or transfer of any of the assets used by the
Company except in the ordinary course of business consistent with past practice,
or cancellation of any debt or claim owing to or owed by the Company;
(g) Any loans or guaranteed any obligations of any person or entity,
including any employees, officers or Stockholders of the Company or its
affiliates, if any;
(h) The creation or sufferance to exist of any Claims on properties or
assets (whether tangible or intangible) of the Company;
(i) Any institution, settlement or agreement to settle any litigation,
action or proceeding before any person, entity or Governmental Authority;
(j) The making of any distributions or payment of any dividends
(whether in cash or other property) to the Stockholders with respect to the
Shares, except in connection with the redemption of the outstanding preferred
stock of the Company in September 1997;
(l) Any material transaction except in the ordinary course of business;
(m) Any amendment or modification of any material contract, agreement,
franchise, permit, or license; or
(n) Any commitment (contingent or otherwise) to do any of the
foregoing.
SECTION 3.08 Inventories. All of the Company's Inventory reflected in
-----------
the Financial Statements or thereafter acquired (and not subsequently sold in
the ordinary course of business) consist of items of a quality and quantity
usable or saleable in the ordinary course of the Company's business as first
quality goods at prices at least equal to the amounts reflected in the Financial
Statements or, with respect to after-acquired
19
<PAGE>
Inventory, at least equal to the cost thereof plus markups consistent with past
practice. Each item of such Inventory is valued in the Financial Statements at
the lower of cost or market in accordance with GAAP. The current level of
Inventories are at normal and adequate levels for the continuation of the
Business in the ordinary course and consistent with the Company's past
practices. All work-in-progress can be completed for sale in the ordinary course
of business in accordance with the usual standards and practices of the Company.
The Financial Statements reflect adequate reserves for excess and obsolete
inventories consistent with GAAP and consistent with the Company's past
practices.
SECTION 3.09 Receivables. Except as set forth on Schedule 3.09, all
----------- -------------
receivables (whether notes, accounts or otherwise) of the Company (a) have
arisen only from bona fide transactions in the ordinary course of business, (b)
represent valid obligations, (c) shall be fully collected in the aggregate face
amounts thereof except to the extent of the normal allowance for doubtful
accounts with respect to accounts receivable computed in a manner consistent
with GAAP and consistent with the Company's past practices, (d) are owned by the
Company and (e) will be transferred to Buyer free of all Claims. No discount or
allowance from any receivable has been made or agreed to and none represents
billings prior to actual sale of goods or provision of services. The Financial
Statements reflect adequate reserves and allowances for bad debts and doubtful
accounts consistent with GAAP and consistent with the Company's past practices.
SECTION 3.10 Taxes. All Tax Returns required to be filed by or on
-----
behalf of the Company have been timely filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed, all amounts shown as owing thereon have been paid, and all such filed
Tax Returns are accurate and complete in all material respects. All Taxes which
have become due or payable or required to be collected by the Company (including
all required estimated Tax payments and all Taxes required to be withheld) on or
before the date hereof and all interest and penalties thereon, whether disputed
or not, and whether or not shown on any Tax Return have been paid in full. The
Company has withheld and paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party. The Company is not
liable for the payment of any Taxes and the Buyer shall have no liability for
any taxes related to the ownership or operation of the Shares or the Preferred
Shares or the
20
<PAGE>
Company's Business prior to the date hereof. The Company has delivered to the
Buyer true and complete copies of its federal and state income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by Company for its three prior fiscal periods. The Company has not taken or
failed to take any action which could create any Tax lien on any of the shares
of its capital stock. No Tax liabilities, disallowances, or assessments have
been assessed or proposed which remain unpaid and, to the best knowledge of the
Company, no fact or state of facts exists or has existed which would constitute
the grounds for the assessment of any tax liability other than so reflected and
provided for. No examinations of the Tax Returns of the Company are currently in
progress or, to the best knowledge of the Company, are threatened. The Company
has not given any waiver of extension of any period of limitation governing the
time of assessment or collection of any tax for any year which is still open for
assessment or remains in effect. There are no security interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax. The Company has not executed or entered into any
closing agreement under Code section 7121 (or any similar provision of state,
local or foreign law) nor has agreed to make any adjustment to its income or
deductions pursuant to Code section 481(a) (or similar provision of state, local
or foreign law), in either case that could affect its Tax liability after the
Closing Date in any material respect. The Company has not filed a consent under
Code section 341(f) concerning collapsible corporations. The Company has not
been a member of an affiliated group filing a consolidated federal income Tax
Return, and has no liability for the Taxes of any person under Treasury Reg.
(S)1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
SECTION 3.11 Litigation. Except as set forth on Schedule 3.11, there is
---------- -------------
no (a) action, suit, claim, proceeding or investigation pending or, to the best
of the Company's knowledge, threatened against or affecting the Company (whether
or not the Company is a party or prospective party thereto), at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (b) arbitration or similar proceeding relating to the Company or (c)
governmental inquiry pending or threatened against or involving the Company, and
there is no basis for any of the foregoing. There are no outstanding orders,
writs, judgments, injunctions or decrees of any court, governmental agency or
arbitration tribunal against, involving or affecting the Company, and there are
21
<PAGE>
no facts or circumstances which may result in institution of any action, suit,
claim or legal, administrative or arbitration proceeding or investigation
against, involving or affecting the Company or the transactions contemplated
hereby. The Company is not in default with respect to any order, writ,
injunction or decree known to or served upon it from any court or of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign. There is no action or
suit by the Company pending or threatened against others.
SECTION 3.12 Certain Practices. Neither the Company, nor any of the
-----------------
officers or employees of the Company has, directly or indirectly, given or
agreed to give any significant rebate, gift or similar benefit to any supplier,
customer, governmental employee or other person who was, is or may be in a
position to help or hinder the Company (or assist in connection with any actual
or proposed transaction) which (i) could subject the Company or the Buyer to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, or (ii) if not continued in the future, could have a Material
Adverse Effect on the Company or the Business.
SECTION 3.13 Compliance with Law. The Company is not subject to any
-------------------
judgment, order, writ, injunction or decree that has a Material Adverse Effect.
The Company has complied with and is not in default under, all laws, ordinances,
legal requirements, rules, regulations and orders applicable to it, its
operations, properties, assets, products and services. There is no existing law,
rule, regulation or order, and the Company is not aware of any proposed law,
rule, regulation or order, whether Federal or state, which would prohibit or
materially restrict Buyer from, or otherwise materially adversely affect the
Buyer in, conducting the business in any jurisdiction in which such business is
now conducted.
SECTION 3.14 Licenses and Permits. Schedule 3.14 contains a complete
-------------------- -------------
and accurate list and description of all Permits. No other Permits are required
in connection with the operation of the Business. The Company has complied with
all conditions and requirements imposed by the Permits and the Company has not
received any notice of, and has no reason to believe, that any appropriate
authority intends to cancel or terminate any of the Permits or that valid
grounds for such cancellation or termination exist. The Company owns or has the
right to use the Permits in accordance with the terms thereof
22
<PAGE>
without any conflict or alleged conflict or infringement with the rights of
others and subject to no Claim, and each Permit is valid and in full force and
effect, and will not be terminated or adversely affected by the transactions
contemplated hereby.
SECTION 3.15 Labor and Employee Relations. Except as set forth in
----------------------------
Schedule 3.15, the Company is not a party to or bound by any collective
- -------------
bargaining agreement with any labor organization, group or association covering
any of its employees, and the Company has no knowledge of any attempt to
organize any of its employees by any person, unit or group seeking to act as
their bargaining agent. There are no pending or, to the best knowledge of the
Company, threatened charges (by employees, their representatives or governmental
authorities) of unfair labor practices or of employment discrimination or of any
other wrongful action with respect to any aspect of employment of any person
employed or formerly employed by the Company. There is no investigation of the
Company's employment policies or practices by any governmental agency or
authority pending or, to the best knowledge of the Company, threatened.
SECTION 3.16 Certain Employees. Set forth in Schedule 3.16 is a list of
----------------- -------------
the names of all employees and consultants of the Company, together with the
title or job classification of each such person and the current salary rates for
such employees and consultants together with (i) the salaries, bonuses,
additional compensation or other like benefits paid to such employees and
consultants for the fiscal year ended April 30, 1997 and for the period from May
1, 1997 to the date hereof, and (ii) the amount of such benefits being accrued
for such employees and consultants for the current fiscal year. Except as set
forth in Schedule 3.16, none of such persons has an employment agreement or
-------------
understanding, whether oral or written, with the Company which is not terminable
on notice by the Company without cost or other liability to the Company. Except
as set forth in Schedule 3.16, no person listed on Schedule 3.16 has indicated
------------- -------------
that he or she intends to terminate his or her employment with the Company or
seek a material change in his or her duties or status.
SECTION 3.17 Employee Benefits. Set forth on Schedule 3.17 is a list of
----------------- -------------
all pension, profit sharing, retirement, deferred compensation, stock purchase,
stock option, incentive, bonus, vacation, severance, disability,
hospitalization, medical insurance, life
23
<PAGE>
insurance, fringe benefit, welfare and other employee benefit plans, programs or
arrangements ("Plans") to which employees of the Company may be entitled.
Each "Employee Welfare Benefit Plan" (as defined in Section 3(1) of
ERISA) covering any present or former employee of the Company subject to the
requirements of COBRA has complied with all requirements for continuation
coverage under group health benefit plans under COBRA and there are no claims
against the Company for a failure or alleged failure to comply with the COBRA
continuation requirements.
Each employee plan which is subject to ERISA conforms to, and its
operation and administration are in compliance with, all applicable requirements
of ERISA. There are no actions, suits or claims pending (other than routine
claims for benefits) or threatened against any employee plan or against the
assets of any employee plan.
SECTION 3.18 Tangible Owned Properties. Schedule 3.18 contains a true
------------------------- -------------
and complete list of all tangible personal property and leasehold improvements
owned by or leased to the Company (the "Tangible Personal Property"). Except as
shown on Schedule 3.18, the Company has good and marketable title free and clear
-------------
of all Claims to the Tangible Personal Property listed as owned by the Company.
With respect to Tangible Personal Property leased by the Company as lessee, all
leases, conditional sale contracts, franchises or licenses pursuant to which the
Company may hold or use (or permit others to hold or use) such Tangible Personal
Property are valid and in full force and effect, and there is not under any of
such instruments any existing default or event of default or event which with
notice or lapse of time or both would constitute such a default. The Company's
possession and use of such property has not been disturbed and no claim has been
asserted against the Company adverse to its rights in such leasehold interests.
All Tangible Personal Property is adequate and usable for the purposes for which
it is currently used and has been properly maintained and repaired and each item
of Tangible Personal Property, whether owned or leased, is in good operating
condition and repair and has been properly maintained.
SECTION 3.19 Owned Premises. Schedule 3.19 lists and describes all real
-------------- -------------
estate owned by the Company and all buildings and other structures located on
such real estate (the "Owned Real Properties"). The Company has good and
marketable title in fee
24
<PAGE>
simple to all Owned Real Properties and holds sufficient rights in and to all
easements or other rights necessary for perpetual access thereto, and owns
outright all buildings and other structures, improvements and fixtures thereon,
in each case free and clear of all Claims or other interests or rights of third
parties, except those which do not and will not have a Material Adverse Effect
on the Owned Real Properties as used in the business of Company. There are no
encroachments from any of the Owned Real Properties onto adjoining real property
and there are no encroachments from any adjoining real property onto any of the
Owned Real Properties, except those which do not and will not have a Material
Adverse Effect on the Owned Real Properties as used in the business of Company.
Each structure located on the Owned Real Properties is structurally sound and
adequately maintained and is in good condition and repair consistent with the
uses to which it is presently being put. All structures, improvements and
fixtures on the Owned Real Properties and the current uses of the Owned Real
Properties conform to any and all federal, state and local laws, reclamation
laws, zoning, land use, subdivision, wetlands, building, health and safety and
other ordinances, laws, rules and regulations, except for those the
nonconformance with which do not or would not have a Material Adverse Effect on
the Owned Real Properties as used in the business of Company. No notice from any
governmental body or other person has been served upon, or received by, Company
claiming any violation of any such ordinance, law, rule or regulation, or
requiring any substantial work, repairs, reclamation, construction, alterations
or installation on or in connection with such Owned Real Properties which has
not been complied with or that any right of access or other right enjoyed by
Company is being modified or terminated. There are no violations of any
covenant, restriction or other agreement or understanding, oral or written,
affecting or relating to title or use of the Owned Real Properties and no such
covenant, restriction, agreement or understanding could cause a forfeiture or
reversion of title or abridge the use thereof. There are no pending or
threatened condemnation or similar proceedings or assessments affecting any of
the Owned Real Properties, lawsuits by adjoining landowners or others, nor, to
the knowledge of the Company, is any such lawsuit contemplated by any person,
nor is any condemnation or assessment contemplated by any Governmental
Authority. None of the Owned Real Properties has been designated with any state
or local authority as for use solely as "agricultural land", "open space",
"conservation land" or similar designation. There are no violations of any
material covenant, restriction or other agreement or understanding, oral or
written, affecting or relating to title or use of the Owned Real
25
<PAGE>
Properties and no such covenant, restriction, agreement or understanding could
reasonably be expected to cause a forfeiture or reversion of title.
SECTION 3.20 Leased Premises. Schedule 3.20 sets forth a true and
--------------- -------------
complete list and description of each parcel of real property leased by the
Company and used in the Business (the "Leased Parcels"). Each lease covering a
Leased Parcel (i) is in full force and effect (there existing no default under
any such lease which, with the lapse of time or notice or otherwise, would
entitle the lessor to terminate the same), (ii) conveys the leased real estate
purported to be conveyed thereunder, (iii) is enforceable by the Company and
will be enforceable by the Buyer in accordance with its terms and (iv)
constitutes the entire agreement between the parties thereto with respect to the
subject matter thereof. The Company has the right to use the Leased Parcels in
accordance with the terms of such leases free and clear of all Claims or other
interests or rights of third parties. Each structure located on each Leased
Parcel is structurally sound, adequately maintained and is in good condition and
repair consistent with the uses to which it is presently being put or intended
to be put. All structures, improvements and fixtures on the Leased Parcels and
the current uses of the Leased Parcels conform to any and all applicable
federal, state and local laws, building, health and safety and other ordinances,
laws, rules and regulations. There is no violation of any material covenant,
restriction or other agreement or understanding, oral or written, affecting or
relating to title or use of any Leased Parcel. There are no pending or
threatened condemnation or similar proceedings or assessments affecting any of
the Leased Parcels, nor to the Company's best knowledge any such condemnation or
assessment contemplated by any Governmental Authority. All of the Company's
assets, including, without limitation, all of the Company's inventory and
Tangible Personal Property is located at the Leased Parcels and/or the Owned
Real Properties only.
SECTION 3.21 Environmental Matters. Except as set forth on Schedule
--------------------- --------
3.21:
----
(a) Compliance. The Company and all premises occupied and used by
----------
Company are in compliance with all applicable laws, rules, regulations, orders,
ordinances, judgments and decrees of all Governmental Authorities. No event,
condition, circumstance, activity, practice, action or plan of Company has
occurred or exists or, to the knowledge of the Company is likely to occur or
exist, in each case which may
26
<PAGE>
interfere with or prevent continued compliance, or which may give rise to any
common law or legal liability, or otherwise form the basis of any claim, action,
suit, proceeding, hearing, or investigation, based on or related to the
disposal, storage, handling, manufacture, processing, distribution, use,
treatment, or transport, or the emission, discharge, release or threatened
release into the environment, of any Substances. No part of the premises
occupied or used by the Company has been listed or proposed for listing on the
National Priorities List of the United States Environmental Protection Agency or
any other such similar federal, state or local list.
(b) Environmental Substance Liability. No event has occurred or
---------------------------------
condition exists or operating practice is being employed that could give rise to
liability on the part of the Company, either at the present time or in the
future, for any losses, liabilities, damages (whether consequential or
otherwise), settlements, penalties, interest, expenses and costs of responses
(including any such liability on account of the right of any governmental or
private entity or person, and including closure expenses, costs of assessment,
containment, removal or response (other than monitoring transportation or
disposal of materials required to be transported or disposed of in the ordinary
course of business consistent with past practice) arising under any presently
effective or pending rule or federal, state, or local statute, or any regulation
that has been promulgated pursuant thereto, or common law, as a result of or in
connection with, or alleged to be as a result of or in connection with, the
following:
(i) The handling, storage, use, transportation or disposal of
any Substances in or near or from facilities or plants used by the
Company or its predecessors;
(ii) The handling, storage, use, transportation or disposal of
any Substances by the Company or its predecessors which Substances were
a product, by-product or otherwise resulted from the operations
conducted by or on behalf of the Company or its predecessors;
(iii) Any intentional or unintentional emission, discharge or
release of any Substances in or near or from facilities or plants of
the Company into or upon the air, surface water, ground water or land
or any disposal, handling,
27
<PAGE>
manufacturing, processing, distribution, use, treatment, or transport
of such Substances in or near or from facilities or plants by or on
behalf of the Company or its predecessors; or
(iv) The presence of any toxic or hazardous building materials
(including but not limited to asbestos or similar substances) in any
facilities or plants of the Company, including but not limited to the
inclusion of such materials in the exterior and interior walls, floors,
ceilings, tile, insulation or any other portion of building structures.
(c) Environmental Permits. The Company has obtained and holds
---------------------
Environmental Permits that are required in connection with the construction or
operation of the facilities or plants of the Company, discharge or emission of
Substances from such facilities or plants or the generation, treatment, storage,
transportation, or disposal of any such Substances. Such Environmental Permits,
which are listed and described in Schedule 3.21, are currently effective and
-------------
sufficient for the ownership and operation of the facilities and plants and the
operations of the Company as currently conducted and, to the knowledge of the
Company, as intended to be conducted. The Company is in compliance in all
material respects with all terms and conditions of the required permits,
licenses and authorizations, and are also in compliance in all material respects
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables contained in those laws or
provisions or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder and
applicable to the Company.
SECTION 3.22 Insurance. The Company is adequately insured with
---------
responsible insurers in respect of its properties, assets and businesses against
risks normally insured against by companies in similar lines of business under
similar circumstances. Schedule 3.22 correctly describes (by type, carrier,
-------------
policy number, limits, premium, and expiration date) the insurance coverage
carried by the Company, which insurance remains in full force and effect with
respect to all events occurring on and prior to the date hereof. The Company (i)
has not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion, (ii) has not received notice of cancellation
or non-renewal of any such policy or binder, (iii) is not aware of any
threatened or proposed
28
<PAGE>
cancellation or non-renewal of any such policy or binder, (iv) has not received
notice of any insurance premiums which will be materially increased in the
future, and (v) is not aware of any insurance premiums which will be materially
increased in the future. There are no outstanding claims under any such policy
which have gone unpaid for more than 45 days, or as to which the insurer has
disclaimed liability.
SECTION 3.23 Outstanding Commitments. Schedule 3.23 sets forth a
----------------------- -------------
description of all existing contracts, agreements, commitments, licenses,
purchase orders and franchises (collectively, "Contracts") relating to the
Company. The Company has delivered or made available to the Buyer true, correct
and complete copies of all of the Contracts specified on Schedule 3.23 which are
-------------
in writing, and Schedule 3.23 contains an accurate and complete description of
-------------
all Contracts which are not in writing. The Company has paid in full all amounts
due as of the date hereof under each Contract identified in Schedule 3.23 and
-------------
the Company and each other party thereto have performed all the obligations
required to be performed by them to date, have received no notice of default and
are not in default (with due notice or lapse of time or both) under any
Contract. The Company has no knowledge of any breach and has no reason to
anticipate a breach by the other party to any Contract to which the Company is a
party. None of such Contracts has been terminated and the Company is not aware
of any intention or right of any party to default another party to any such
Contract. There exists no actual or, to the best knowledge of the Company,
threatened termination, cancellation or limitation of the business relationship
of the Company with any party to any such Contract.
SECTION 3.24 Intangibles and Intellectual Property. Schedule 3.24 sets
------------------------------------- -------------
forth a list of all patents, patent rights, copyrights, trademarks, trade names,
service marks, trade secrets, technology or the like, and all applications for
any of the foregoing, (collectively "Intellectual Property") owned, controlled
or used by the Company in connection with the Business. There are no claims or
demand of any person nor any proceedings pending or, to the best of the
Company's knowledge, threatened (and there is no basis for any of the foregoing)
with respect to the Intellectual Property and the Company is not aware of any
person or entity infringing upon such Intellectual Property. The Company has the
unencumbered right to use, free and clear of any Claims, its intangible assets.
The Company's customer lists have not been sold, leased, licensed or otherwise
disclosed
29
<PAGE>
either in whole or in part to any person or entity and no person or entity has
any right to use or interest in the customer list or any information therein.
SECTION 3.25 Proprietary Information of Third Parties. No third party
----------------------------------------
has claimed or, to the best knowledge of the Company, has reason to claim that
any person employed by or affiliated with Company has (a) violated or may be
violating any of the terms or conditions of such person's employment,
non-competition or non-disclosure agreement with such third party, (b) disclosed
or may be disclosing or utilized or may be utilizing any trade secret or
proprietary information or documentation of such third party, or (c) interfered
or may be interfering in the employment relationship between such third party
and any of its present or former employees. No third party has requested
information from the Company which suggests that such a claim might be
contemplated. To the best knowledge of the Company, no person employed by or
affiliated with the Company has employed or proposes to employ any trade secret
or any information or documentation proprietary to any former employer and no
person employed by or affiliated with Company has violated any confidential
relationship which such person may have had with any third party, in connection
with the development, manufacture or sale of any product or proposed product or
the development or sale of any service or proposed service of the Company, and
the Company has no reason to believe there will be any such employment or
violation. Neither the execution or delivery of this Agreement, the carrying on
of the business of Company as officers, employees or agents by any officer,
director, employee or consultant of the Company, nor the conduct or proposed
conduct of the business of the Company, will conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated.
SECTION 3.26 Bank Accounts. Schedule 3.26 lists the name and address of
------------- -------------
each bank or other financial institution in which the Company maintains an
account (whether checking, savings or otherwise), lockbox or safe deposit box or
into which the Company otherwise deposits or maintains its funds, the account
numbers thereof and the names of the authorized signatories or other persons
having access thereto.
SECTION 3.27 Significant Customers and Suppliers. Set forth on Schedule
----------------------------------- --------
3.27 is a list of the ten largest customers and the ten largest suppliers of the
- ----
Company for the
30
<PAGE>
most recent twelve-month period, together with the amount of sales or purchases
attributable to such customers and suppliers expressed in dollars and as a
percentage of total sales or purchases, as the case may be. Except as set forth
on Schedule 3.27, no customer or supplier which was significant to the Company
-------------
during the past three years, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases of merchandise or services from, or
its provision of merchandise or services to, the Company. Copies of the
Company's standard forms of purchase or supply contracts and sales contracts are
set forth in Schedule 3.27. The Company and the Stockholders have no reason to
-------------
believe that the transactions contemplated hereby will adversely affect the
existing relationship with any of the Company's customers or suppliers.
SECTION 3.28 Governmental Approvals. No registration or filing with, or
----------------------
consent or approval of or other action by, any Governmental Authority is or will
be necessary for the valid execution, delivery and performance by the Company of
this Agreement, except as may be required under the HSR Act.
SECTION 3.29 Transactions With Affiliates. Except as set forth on
----------------------------
Schedule 3.29, no director, officer or employee of the Company, or member of the
- -------------
family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such person,
has a substantial interest or is an officer, director, trustee, partner or
holder of any equity interest, is a party to any transaction with the Company,
including any contract, agreement or other arrangement providing for the
employment of, furnishing of services by, rental of real or personal property
from or otherwise requiring payments or involving other obligations to any such
person or firm.
SECTION 3.30 No Negotiations. Until the termination of this Agreement
---------------
in accordance with its terms, neither the Company nor the Stockholders shall
solicit, initiate or encourage inquiries or proposals, or conduct any
negotiations, concerning any acquisition or purchase of all or any substantial
portion of the Business, assets or capital stock of the Company. The Company and
the Stockholders shall immediately advise the Buyer of his, its or their receipt
of any such inquiry or proposal.
31
<PAGE>
SECTION 3.31 Preservation of Business. Until the Closing, the Company
------------------------
will, and the Stockholders will cause the Company to, use its best efforts to
preserve its business organization intact, and to preserve its goodwill. Without
limiting the generality of the foregoing, the Company will, and the Stockholders
will cause the Company to, timely perform all obligations required of the
Company or the Stockholders under the contracts and permits listed on the
Schedules to this Agreement.
SECTION 3.32 Confidentiality. From and after the execution of this
---------------
Agreement until the termination thereof in accordance with its terms, and after
the Closing in the event the transactions contemplated hereby are consummated,
the Company and each of the Stockholders agree not to divulge, communicate or
disclose, except as may be required by law or for the performance of this
Agreement, or use to the detriment of the Buyer or the Company or for the
benefit of any other person or persons, or misuse in any way, any confidential
information of the Buyer, the Company and the Business (whether such
confidential information relates to the operation of the Business before or
after the date hereof), including any trade or business secrets with respect to
the Business and any technical or business materials that are confidential or
proprietary, including without limitation information (whether in written, oral
or machine-readable form) concerning: general business operations; methods of
doing business; customer and supplier relations; advertising and promotion
plans; financial information including costs, profits and sales; pricing and
marketing strategies; names of suppliers, personnel and customers (including
customer lists); software programs, however embodied; and information obtained
by or given to the Stockholders about or belonging to third parties
(collectively, the "Confidential Information"). The term "Confidential
Information" does not include information that is at the time of disclosure or
later becomes generally known to the public or within the industry or segment of
the industry to which such information relates without violation by the
Stockholders of any obligations hereunder and not through any action by any
affiliates, employees, advisors, or agents of a Stockholder which if committed
by the Stockholders would have constituted a violation by the Stockholders of
any obligation hereunder.
SECTION 3.33 Disclosure. All documents and schedules delivered or to be
----------
delivered by or on behalf of the Company in connection with this Agreement and
the
32
<PAGE>
transactions contemplated hereby are true, complete and correct. Neither this
Agreement, nor any Schedule or Exhibit to this Agreement contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
made, not misleading.
ARTICLE IV
----------
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
-------------------------------------------------------------
Each Stockholder severally, and not jointly and severally, hereby
represents and warrants to the Buyer with respect to his Shares that:
SECTION 4.01 Authorization. This Agreement and all other agreements
-------------
delivered in connection with the transactions contemplated hereto have been duly
and validly executed and delivered by such Stockholder, and constitute the
legal, valid and binding obligation of such Stockholder, enforceable against
such Stockholder in accordance with their respective terms. The execution,
delivery and performance of this Agreement and all other agreements delivered in
connection with the transactions contemplated hereby and the consummation of the
transactions contemplated hereunder or thereunder by such Stockholder will not
conflict with, or result in any violation or default or loss of a benefit under,
or permit the acceleration of any obligation under any provision of any charter
bylaws, or partnership or trust agreement applicable to such Stockholders, or
under any mortgage, indenture, lease, agreement, instrument, judgment, decree,
order, statute, rule or regulation, binding upon such Stockholder.
SECTION 4.02 Title. The Shares listed as owned by each Stockholder on
-----
Schedule 4.02 hereto represent all the Shares owned by each such Stockholder.
- -------------
Each Stockholder has, and, as of the Closing Date, will have, good title to the
Shares, free and clear of any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction in the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership
33
<PAGE>
("Encumbrances"). Upon payment of the Purchase Price for the Shares, the Buyer
will acquire good and marketable title to the Shares.
SECTION 4.03 No Broker. Such Stockholder has not employed any broker,
---------
agent or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finders' fees that remain unpaid in connection
with the transactions contemplated by this Agreement or otherwise. Such
Stockholder agrees to indemnify and save the Buyer harmless from any claim or
demand for commission or other compensation by any broker, finder, financial
consultant or similar agent claiming to have been employed by or on behalf of
such Stockholder and to bear the cost of legal expenses incurred in defending
against any such claim.
SECTION 4.04 Litigation. Such Stockholder will promptly notify the
----------
Buyer of any lawsuits, claims, proceedings or investigations which are
threatened or commenced against or by the Company, such Stockholder (to the
extent it relates to such Stockholder's Shares or such Stockholder's ability to
consummate the transactions contemplated by this Agreement) or their affiliates,
or against any employee, consultant or director of the Company.
SECTION 4.05 Continued Effectiveness of Representations and Warranties.
---------------------------------------------------------
From the date hereof up to and including the Closing Date, (i) such Stockholder
will cause the Company to conduct its business in a manner such that the
representations and warranties contained herein shall continue to be true and
correct on and as of the Closing Date as if made on and as of the Closing Date,
except for changes and the consequences of events arising in the ordinary and
usual course of business consistent with past practice after the date hereof and
none of which would have a material adverse effect on the properties, assets,
operations or condition (financial or otherwise) or prospects of the Company or
its business; and (ii) such Stockholder will advise the Buyer promptly in
writing of any condition or circumstance occurring from the date hereof up to
and including the Closing Date which could cause any representations or
warranties of such Stockholder to become untrue in any material respect.
34
<PAGE>
SECTION 4.06 Obligations of Affiliates. Except as specifically set
-------------------------
forth in this Agreement, on or before the Closing Date, such Stockholder will
and will cause its affiliates to, (i) cause all debts, claims and other
obligations owed or required to be performed by any Stockholder or any of its
affiliates to any of the Company, to be paid or discharged in full and (ii)
terminate any ongoing agreements between it on the one hand and its affiliates
on the other, all without any expense to the Company (or any reduction in the
gross assets reflected on the Financial Statements or acquired since the date
thereof) and so that following the Closing Date the Company shall not have any
obligations of any kind or nature to the Stockholders or their affiliates except
for those specified in this Agreement or in Schedule 4.06 hereto.
-------------
SECTION 4.07 Encumbrance of Shares. Each of the Stockholders covenants
---------------------
and agrees that from the date of this Agreement to the Closing Date, the Shares
owned by such Stockholder (including Shares acquired upon exercise of options
prior to the Closing Date) shall continue to be owned beneficially and of record
by such Stockholder (subject to purchase of Shares by the Buyer on the Closing
Date), free and clear of all Encumbrances.
SECTION 4.08 Regulatory and Other Authorizations; Consents. The
---------------------------------------------
Stockholders shall, or shall cause the Company to, give promptly such notices to
third parties and use their best efforts to obtain such third party consents as
are necessary in connection with the transactions contemplated by this
Agreement. In connection with the foregoing, the Buyer and the Stockholders
shall cooperate and use all reasonable efforts to assist each other in giving
such notices and obtaining such consents; provided, however, that the Buyer
shall not have any obligation to give any guarantee or other consideration of
any nature in connection with any such notice or consent or to consent to any
change in the terms of any agreement or arrangement which the Buyer, in its
reasonable discretion, may deem adverse to the interests of the Buyer, the
Company or the Business.
35
<PAGE>
SECTION 4.09 Risk of Loss. Prior to the Closing Date, the risk of loss
------------
or damage to or destruction of any or all of the Business shall remain with the
Stockholders.
SECTION 4.10 Removal of Trustees. On or promptly after the Closing
-------------------
Date, the parties hereto shall cause the Stockholders to be replaced as trustees
of any Plans (as such term is defined in Section 3.17 herein).
SECTION 4.11 Disclosure. All documents and schedules delivered or to be
----------
delivered by or on behalf of the Stockholders in connection with this Agreement
and the transactions contemplated hereby are true, complete and correct in all
material respects. None of the Stockholders is aware of any facts pertaining to
the Company or the Business which are reasonably likely to have a material
adverse effect and which have not been disclosed in this Agreement, the
disclosure schedules or the Financial Statements. Neither this Agreement nor any
Schedule to this Agreement contains any untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which made, not misleading.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
The Buyer represents and warrants to the Company and the Stockholders
as follows:
SECTION 5.01 Organization. The Buyer is duly incorporated, validly
------------
existing and in good standing under the laws of the State of Delaware and is
duly qualified to transact business as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material adverse
impact on the Buyer's ability to purchase the Shares.
SECTION 5.02 Buyer Power and Authority. The Buyer has the corporate
-------------------------
power and authority to execute, deliver and perform this Agreement and the other
documents
36
<PAGE>
and instruments contemplated hereby. The execution, delivery and performance of
this Agreement and the documents contemplated hereby and the consummation of the
transactions contemplated hereby and thereby have been duly authorized and
approved by the Buyer. This Agreement, and each of the other agreements,
documents and instruments to be executed and delivered by the Buyer have been
duly executed and delivered by, and constitute the valid and binding obligation
of the Buyer enforceable against the Buyer in accordance with their terms.
SECTION 5.03 Validity, Etc. Neither the execution and delivery of this
-------------
Agreement and the other documents and instruments contemplated hereby, the
consummation of the transactions contemplated hereby or thereby, nor the
performance of this Agreement and such other agreements in compliance with the
terms and conditions hereof and thereof will (i) conflict with or result in any
breach of the Buyer's Charter or By-Laws or any judgment, decree, order, statute
or regulation applicable to the Buyer, (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except as may be required under the HSR Act, (iii)
result in a breach of or default (or give rise to any right of termination,
cancellation or acceleration) under any law, rule or regulation or any judgment,
decree, order, governmental permit, license or order or any of the terms,
conditions or provisions of any mortgage, indenture, note, license, agreement or
other instrument to which the Buyer is a party, or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer.
SECTION 5.04 No Violation of Laws or Contracts. Neither the execution
---------------------------------
and performance of this Agreement or the other agreements executed by the Buyer
in accordance with the terms hereof, nor the consummation of the transactions
contemplated hereby and thereby, will violate any provisions of law, any order
of any court or other agency or government, or any ordinance, indenture or
agreement to which the Buyer is a party which would materially impair the
Buyer's ability to consummate the transactions contemplated hereby.
SECTION 5.05 Litigation. There is no (a) action, suit, claim,
----------
proceeding or investigation pending or, to the best of the Buyer's knowledge,
threatened against or affecting the Buyer (whether or not the Buyer is a party
or prospective party thereto), at
37
<PAGE>
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (b) arbitration proceeding relating to the Company or (c)
governmental inquiry pending or threatened against or involving the Buyer, which
in each case would materially impair the Buyer's ability to consummate the
transactions contemplated hereby.
ARTICLE VI
----------
ADDITIONAL AGREEMENTS
---------------------
SECTION 6.01 Conduct of the Business. The Company shall conduct its
-----------------------
business pending the Closing Date only in the ordinary and usual course of
business consistent with past practice. Without limiting the generality of the
foregoing, the Company shall conduct its business in a manner such that on the
Closing Date, the Company shall have no liabilities except those set forth on
the Financial Statements and those incurred in the ordinary course of business
consistent with past practice since the date of the Financial Statements and
prior to the Closing Date and reflected accurately in its books and records.
Without limiting the generality of the foregoing, the Company shall not, and the
Stockholder shall cause the Company not to, without the prior written consent of
Buyer: (i) materially alter any existing sales or collection practice, term or
condition; (ii) materially defer the payment of any ordinary expense; (iii) make
any capital expenditure in excess of $25,000 (other than those for which Company
has, prior to the date hereof, made a binding commitment and as to which the
Company has given written notice to Buyer); (iv) enter into any new employment
agreements with any officers, directors or employees or grant any increases in
the compensation or benefits to, or agree to make any loan to or pay any bonus,
severance or termination payment or other special compensation to, officers,
directors and employees other than increases in the ordinary course of business
consistent with past practice; (iv) hire any additional Key Employees; (v) enter
into or commit to enter into any contract (other than in the ordinary course of
business consistent with past practice) or terminate, amend, modify, or
relinquish any Contract; (vi) issue, sell or pledge, or authorize or propose the
issuance, sale or pledge of additional shares of capital stock of any class
(including the Shares), or securities convertible into any such shares, or any
rights, warrants or options to acquire any such shares or other convertible
securities, or
38
<PAGE>
grant or accelerate any right to convert or exchange any securities of the
Company for shares of capital stock of the Company; (vii) redeem, purchase or
otherwise acquire, any of its outstanding securities (including the Shares);
(viii) declare, set aside, make or pay any dividend or distribution (whether in
cash, stock or property) on or in respect of any share of capital stock of the
Company; (ix) make any acquisition of assets or securities, any disposition of
assets or securities or any change in its capitalization; (x) incur any long-
term debt for borrowed money or any short-term debt for borrowed money other
than in the ordinary course of business consistent with past practice and not in
excess of $50,000.00 or (xi) propose or adopt any amendments to the Charter or
By-Laws of the Company. Until the Closing Date, the Company will use its best
efforts to preserve its business organization intact, and to preserve its
goodwill. Without limiting the generality of the foregoing, the Company will
timely perform all obligations required of the Company under the Contracts and
Permits listed in the Schedules hereto.
SECTION 6.02 Access to Company Prior to Closing. Until the Closing
----------------------------------
Date, the Company shall give the Buyer, its attorneys, accountants and other
authorized representatives complete access, upon reasonable notice and at
reasonable times, to the Company's offices, properties, customers, suppliers,
employees, products, technology, business and financial records, contracts,
business plans, budgets and projections, agreements, commitments and other
documents and information concerning the Company and persons employed by or
doing business with the Company. In order that the Buyer may have full
opportunity to make such examination and investigation as it may desire of the
business and affairs of the Company, the Company will furnish the Buyer and its
representatives during such period with all such information as such
representatives may reasonably request and cause the respective officers,
employees, consultants, agents, accountants and attorneys of the Company and to
cooperate fully with the representatives of the Buyer in connection with such
review and examination and to make full disclosure to the Buyer of all material
facts affecting the Company's financial condition, business operations,
properties and prospects (to the extent such prospects are reasonably
foreseeable and are particular to the Company) provided, however, that the Buyer
will, through the Closing Date, hold the documents and information concerning
the Company confidential, and thereafter in the event that the transactions
contemplated hereby are not consummated.
39
<PAGE>
SECTION 6.03 Compliance with Laws. The Company shall conduct its business
--------------------
in compliance with all applicable laws, rules, regulations and orders.
SECTION 6.04 Keeping of Books and Records. Until the Closing Date, the
----------------------------
Company shall keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP, reflecting all financial
transactions and in which all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with the Business.
SECTION 6.05 Notice of Changes. Until the Closing Date, the Company shall
-----------------
promptly notify the Buyer of any material change in the business of the Company
as soon as it becomes apparent to the Company that any such change has occurred
or may occur. The Company shall promptly notify the Buyer of any lawsuits,
claims, proceedings or investigations which are threatened or commenced against
or by the Company, or against any employee, consultant or director of the
Company.
SECTION 6.06 Tax Returns. The following provisions shall govern the
-----------
allocation of responsibility as between Buyer and Stockholders for certain Tax
matters following the Closing Date.
(a) Tax Periods Ending on or Before the Closing Date. Buyer shall prepare
------------------------------------------------
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending on or prior to the Closing Date which are filed
after the Closing Date. Buyer shall permit the Stockholders to review and
comment on each such Tax Return prior to filing. Each of the Stockholders agrees
to jointly and severally be responsible for, and shall pay or cause to be paid,
and shall indemnify, defend and hold harmless the Buyer from and against the
entirety of any Damages the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any liability of the Company, and
Stockholders shall reimburse Buyer for Taxes of the Company within fifteen (15)
days after payment by Buyer or the Company, for any and all Taxes of the Company
with respect to any Tax year or portion thereof ending on or before the Closing
Date (or for any Tax year beginning before and ending after the Closing Date) to
the extent allocable
40
<PAGE>
(determined in a manner consistent with section 6.06(b)) to the portion of such
period beginning before and ending on the Closing Date, to the extent such Taxes
are not reflected in the reserve for Tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the face of the Financial Statements (rather than in any notes
thereto), as such reserve is adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company in
filing its Tax Returns.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
--------------------------------------------------------------
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Company for Tax periods which begin before the Closing Date
and end after the Closing Date. For purposes of this Section, in the case of any
Taxes that are imposed on a periodic basis and are payable for a Taxable period
that includes (but does not end on) the Closing Date, the portion of such Tax
which relates to the portion of such Taxable period ending on the Closing Date
shall (x) in the case of any Taxes other than Taxes based upon or related to
income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the number of
days in the Taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire Taxable period, and (y) in the case of
any Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
Taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the Company.
(c) Adjustment For Any Tax Accruals Prior to Closing. Buyer shall
------------------------------------------------
provide to each of the Stockholders one copy of (i) any refund or application
for any credit applicable to tax amounts accrued by the Company prior to Closing
and attributable to the carryback or carryforward of any net operating loss of
the Company, or (ii) any documentation evidencing a deficiency in tax amounts
accrued by the Company prior to Closing. Any such refund or credit derived by,
or deficiency realized by, Buyer from a tax return filed after the Closing shall
constitute a Net Worth Adjustment which shall be accounted for as provided in
Section 2.02 hereof.
41
<PAGE>
(d) Certain Taxes. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by the
Stockholders when due, and the Stockholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Buyer will, and will cause its affiliates to, join
in the execution of any such Tax Returns and other documentation.
SECTION 6.07 Confidentiality. The Company and Stockholders agree not to
---------------
divulge, communicate or disclose, except as may be required by law or for the
performance of this Agreement, or use to the detriment of the Buyer or for the
benefit of any other person or persons, or misuse in any way, any confidential
information of the Buyer and the Business (whether such confidential information
relates to the operation of the Business before or after the date hereof),
including any trade or business secrets with respect to the Business and any
technical or business materials that are confidential or proprietary, including
without limitation information (whether in written, oral or machine-readable
form) concerning: general business operations; methods of doing business;
customer and supplier relations; advertising and promotion plans; financial
information including costs, profits and sales; pricing and marketing
strategies; names of suppliers, personnel and customers (including customer
lists); software programs, however embodied; and information obtained by or
given to the disclosing party about or belonging to third parties.
SECTION 6.08 Exclusivity. The Company and Stockholders shall not, and
-----------
the Company and Stockholders shall use their best efforts to cause their
affiliates and each of their officers, directors, employees, representatives and
agents not to, directly or indirectly, (a) encourage, solicit, initiate, engage
or participate in discussions or negotiations with any person or entity (other
than the Buyer) concerning any merger, consolidation, sale of material assets,
tender offer, recapitalization, accumulation of shares of capital stock of the
Company, proxy solicitation or other business combination involving the Company,
or any division of the Company or any subsidiary (an "Acquisition Transaction")
or (b) provide any non-public information concerning the business, properties or
assets of the Company or any subsidiary to any person or entity
42
<PAGE>
(other than the Buyer). The Company and Stockholders shall immediately notify
the Buyer of, and shall disclose to the Buyer all details of, any inquiries,
discussions or negotiations of the nature described in the first sentence of
this Section 6.08.
ARTICLE VII
-----------
INDEMNIFICATION
---------------
SECTION 7.01 Indemnification by Buyer. Subject to Section 7.03, the
------------------------
Buyer hereby agrees to indemnify, defend and hold harmless the Company and its
affiliates and the respective officers, directors, employees and stockholders of
the foregoing, and their successors and assigns from, against and with respect
to any claim, liability, obligation, Taxes, loss, damage, assessment, judgment,
cost and expense (including, without limitation, reasonable attorneys' and
accountants' fees and costs and expenses reasonably incurred in investigating,
preparing, defending against or prosecuting any litigation or claim, action,
suit, proceeding or demand) of any kind or character (hereinafter collectively
referred to as "Damages") arising out of or in any manner incident, relating or
attributable to:
(a) any inaccuracy in any representation or breach of warranty of the
Buyer contained in this Agreement or in any certificate, instrument of transfer
or other document or agreement executed by the Buyer in connection with this
Agreement or otherwise made or given in connection with this Agreement;
(b) any failure by the Buyer to perform or observe, or to have
performed or observed, in full, any covenant, agreement or condition to be
performed or observed by it under this Agreement or under any certificates or
other documents or agreements executed by the Buyer in connection with this
Agreement; and
(c) reliance by the Stockholders on any public information filed by the
Buyer with the Securities and Exchange Commission, as the same may have been
updated or amended from time to time.
SECTION 7.02 Indemnification by Stockholders. Subject to Section 7.03,
-------------------------------
each Stockholder agrees to jointly and severally indemnify, defend and hold
harmless the
43
<PAGE>
Buyer and its affiliates and the respective officers, directors, employees and
stockholders of the foregoing, and their successors and assigns from, against
and with respect to any and all Damages arising out of or in any manner
incident, relating or attributable to:
(a) any inaccuracy in any representation or breach of warranty of the
Company and/or Stockholders contained in this Agreement or in any certificate,
instrument of transfer or other document or agreement executed by the Company
and/or Stockholders or any of in connection with this Agreement or otherwise
made or given in connection with this Agreement;
(b) any failure by the Company and/or Stockholders to perform or
observe, or to have performed or observed, in full, any covenant, agreement or
condition to be performed or observed by any of them under this Agreement or
under any certificates or other documents or agreements executed by the Company
and/or Stockholders in connection with this Agreement;
(c) reliance by the Buyer on any books or records of the Company or
reliance by the Buyer on any information furnished to the Buyer pursuant to this
Agreement by or on behalf of the Company and/or Stockholders;
(d) ownership of the Shares prior to the Closing Date or conduct of the
Business prior to the Closing Date; and
(e) Taxes, in accordance with Section 3.10 and Section 6.06 hereof.
SECTION 7.03 Indemnification Thresholds. No claim which any Party
--------------------------
asserts is an indemnifiable claim pursuant to this Article VII shall be made by
such Party against any Indemnifying Party (as defined below) with respect to any
item of Damage unless such item, together with the aggregate of all prior
Damages of such Party, shall exceed Fifteen Thousand Dollars ($15,000.00) (the
"Basket Amount"), in which case such Party shall only be entitled to make a
claim for indemnification hereunder to the extent of any such excess over the
Basket Amount. In addition, the Stockholders' total indemnification obligations
with respect to matters that are environmental in nature shall in no event
exceed the maximum liability permitted by statute, law, rule or regulation, up
to an
44
<PAGE>
amount equal to the aggregate consideration received by the Stockholders
hereunder. Notwithstanding the foregoing, the provisions of this Section 7.03
shall not apply to any claim for Damages which are based upon fraud by the
Buyer, the Company and/or the Stockholders or any Tax liability of the Company
and/or the Stockholders.
SECTION 7.04 Claims for Indemnification. In the event of the occurrence
--------------------------
of any event which any party asserts is an indemnifiable event pursuant to this
Article VII, the party claiming indemnification (the "Indemnified Party") shall
provide prompt notice to the party required to provide indemnification (the
"Indemnifying Party"), specifying in detail the facts and circumstances with
respect to such claim and the basis for which indemnification is available
hereunder. If such event involves the claim of any third party, the Indemnifying
Party shall have the right to control the defense or settlement of such claim;
provided, however, that (a) the Indemnified Party shall be entitled to
participate in the defense of such claim at its own expense, (b) the
Indemnifying Party shall obtain the prior written approval of the Indemnified
Party (which approval shall not be unreasonably withheld or delayed) before
entering into any settlement of such claim if, pursuant to or as a result of
such settlement, injunctive or other non-monetary relief would be imposed
against the Indemnified Party, (c) the Indemnifying Party shall not be entitled
to control (but shall be entitled to participate at its own expense in the
defense of), and the Indemnified Party shall be entitled to have sole control
over, and shall assume all expense with respect to the defense or settlement of
any claim to the extent such claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful, could materially
interfere with the business, operations, assets, condition (financial or
otherwise) or prospects of the Indemnified Party, provided that the Indemnified
Party shall provide written notice to the Indemnifying Party of its election to
assume control over the defense of such claim pursuant to this Section 7.04, and
(d) if the Indemnifying Party is entitled but fails to assume control over the
defense of a claim as provided in this Section 7.04, provided that the Damages
associated with such claim are covered by the indemnity provisions of Section
7.01 or 7.02, the Indemnified Party shall have the right to defend such claim,
provided, further, that the Indemnified Party shall obtain the prior written
approval of the Indemnifying Party (which approval shall not be unreasonably
withheld or delayed) before entering into any settlement of such claim if,
pursuant to or as a result of such settlement, injunctive or other non-monetary
relief would be imposed against the Indemnifying Party.
45
<PAGE>
In the event that the Indemnifying Party shall be obligated to
indemnify the Indemnified Party pursuant to this Article VII, the Indemnifying
Party shall, upon payment of such indemnity in full, be subrogated to all rights
of the Indemnified Party with respect to the claim to which such indemnification
relates.
SECTION 7.05 Survival. All representations and warranties in this
--------
Agreement, or in any instrument or document furnished in connection with this
Agreement or the transactions contemplated hereby, shall survive the closing of
the transactions contemplated hereby and continue for a period of three (3)
years. (The foregoing sentence is not intended to affect the stated maturity
date of the Notes.) All such representations and warranties shall expire on the
third anniversary of the Closing Date, except that:
(a) claims, if any, asserted in writing prior to such third anniversary
identified as a claim for indemnification pursuant to this Article VII shall
survive until finally resolved and satisfied in full; and
(b) claims, if any, which are environmental in nature, which are based
upon fraud, which relate to title to the Shares or which assert tax liability
shall survive for the full period of the applicable statute of limitations, but
in no event longer than six (6) years following the Closing Date and, if
asserted in writing prior to the end of such period and identified as a claim
for indemnification pursuant to this Article VII shall survive until finally
resolved and satisfied in full.
SECTION 7.06 Right to Offset. In addition to, and not in limitation of,
---------------
the Buyer's right to receive payment of any indemnification obligations of the
Stockholders and as set forth in Section 7.02, the Stockholders agree that, in
the event the Stockholders are obligated pursuant to the provisions of this
Article VII to make any indemnification payments to the Buyer, the Buyer may
deduct the amount of such indemnification payments from any amounts due from the
Buyer to the Stockholders (or their designee) pursuant to the Notes.
46
<PAGE>
ARTICLE VIII
------------
TERMINATION
-----------
SECTION 8.01 Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) By written consent duly authorized by Buyer, Company and
Stockholders;
(b) By Buyer, the Company or Stockholders if:
(i) Any court of competent jurisdiction or other
governmental body shall have issued an order, decree or ruling, or
taken any other action restraining, enjoining or otherwise prohibiting
the transactions contemplated hereby, provided that this Agreement
shall not be terminated pursuant to this paragraph unless the Party
terminating this Agreement has utilized its reasonable best efforts to
oppose the issuance of such order, decree or ruling or the taking of
such action;
(ii) The Closing Date has not occurred on or prior to the
Scheduled Closing Date, for any reason other than the breach of any
provision of this Agreement by the Party terminating this Agreement; or
(iii) The other Party breaches any of its representations,
warranties or covenants attached hereto; or
(c) By Buyer if:
(i) Any of the conditions set forth in Section 9.01 hereof
has not been satisfied on or prior to the Scheduled Closing Date or
shall have become incapable of fulfillment and shall not have been
waived by Buyer, for any reason other than a breach by Buyer of any of
its representations, warranties or agreements hereunder; or
47
<PAGE>
(ii) In Buyer's good faith and reasonable judgment there is
any inaccuracy in any representation or breach of any warranty
contained therein, or any failure by the Company or Stockholders to
perform any commitment, covenant or condition contained in this
Agreement, or there exists any error, misstatement or omission with
regard to any of the Exhibits, Schedules or other documents referred to
herein, or Buyer in its sole judgment is not satisfied with the results
of its investigation or the contents of any of the Exhibits, Schedules,
information or other documents, or with the results of its examination
of the business and condition (financial or otherwise) of Company; or
(d) By the Company or Stockholders if any of the conditions set forth
in Section 9.02 hereof has not been satisfied on or prior to the Scheduled
Closing Date or shall have become incapable of fulfillment and shall not have
been waived by the Company or Stockholders, for any reason other than a breach
by the Company or Stockholders of any of its or their representations,
warranties or agreements hereunder.
Upon the occurrence of any of the events specified in this Section 8.01
(other than Subsection (a) hereof), written notice of such event shall forthwith
be given to the other Parties to this Agreement, whereupon this Agreement shall
immediately terminate.
SECTION 8.02 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 8.01, this Agreement, except
for the provisions of Articles VII, VIII and X shall forthwith become void and
be of no effect, without any liability on the part of any Party or its
directors, officers or stockholders. Nothing in this Section 8.02 shall relieve
any Party to this Agreement of liability for breach of this Agreement.
SECTION 8.03 Termination Fee. Notwithstanding Section 8.02, in the
---------------
event the termination of this Agreement occurs as a result of a breach by the
Company or Stockholders, on the one hand, or the Buyer, on the other hand, of
Section 6.08 of this
48
<PAGE>
Agreement, the Company or Stockholders, on the one hand, or the Buyer, on the
other hand, as the case may be, shall, immediately upon such termination, pay to
the other party, in cash, a termination fee in the amount of Twenty-Five
Thousand Dollars ($25,000). Any termination of this Agreement by the Company or
Stockholders shall be considered a result of a breach of Section 6.08 of this
Agreement if the Company or Stockholders enter into an Acquisition Transaction
within twelve (12) months of the date of this Agreement.
ARTICLE IX
----------
CONDITIONS TO CLOSING
---------------------
SECTION 9.01 Buyer's Conditions to Closing. The obligation of the Buyer
-----------------------------
to consummate this Agreement and the other transactions contemplated hereby is
subject to the satisfaction, on or before the Closing Date, of the following
conditions each of which may be waived by the Buyer in its sole discretion:
(a) Closing Documents. The Company and the Stockholders shall have
-----------------
delivered the resolutions, certificates, documents and instruments required by
this Agreement and identified in Section 2.06(a).
(b) Consents. All requisite governmental approvals and consents of
--------
third parties identified on Schedule 9.01 or otherwise identified by the Buyer
-------------
as required to be received to prevent any material license, permit or agreement
relating to the business of Company from terminating prior to its scheduled
termination, or any indebtedness of Company from becoming due or being subject
to becoming due as a result of the consummation of the transactions contemplated
hereby, shall have been obtained.
(c) Representations and Warranties True. All of the representations and
-----------------------------------
warranties of the Company and Stockholders contained in this Agreement, in the
Schedules or other documents attached hereto or referred to herein or delivered
pursuant hereto or in connection with the transactions contemplated hereby shall
be true, correct and complete in all material respects on and as of the date
hereof and on and as of the Closing Date, as if made on and as of the Closing
Date.
49
<PAGE>
(d) Performance. The Company and Stockholders shall have performed and
-----------
complied with all covenants and agreements contained herein required to be
performed or complied with by them prior to or at the Closing Date.
(e) No Adverse Change. No Material Adverse Change in the Company or the
-----------------
Business shall have occurred or be threatened.
(f) No Actions, Suits or Proceedings. As of the Closing Date, no
--------------------------------
action, suit, investigation or proceeding brought by any person, corporation,
governmental agency or other entity shall be pending or, to the knowledge of the
Parties to this Agreement, threatened, before any court or governmental body (i)
to restrain, prohibit, restrict or delay, or to obtain damages or a discovery
order in respect of this Agreement or the consummation of the transactions
contemplated hereby, or (ii) which has had or may have a materially adverse
effect on the condition, financial or otherwise, or prospects (to the extent
such prospects are reasonably foreseeable and are particular to the Company) of
the Company. No order, decree or judgment of any court or governmental body
shall have been issued restraining, prohibiting, restricting or delaying, the
consummation of the transactions contemplated by this Agreement. No insolvency
proceeding of any character including without limitation, bankruptcy,
receivership, reorganization, dissolution or arrangement with creditors,
voluntary or involuntary, affecting the Company shall be pending, and neither
the Company nor the Stockholders shall have taken any action in contemplation
of, or which would constitute the basis for, the institution of any such
proceedings.
(g) HSR Act. Any waiting period applicable to the HSR Act filings shall
-------
have expired or terminated.
(h) Investigation Satisfactory. The Buyer shall be satisfied in all
--------------------------
respects with the results of its investigation of the properties, prospects and
affairs of the Company.
50
<PAGE>
(i) Subordination Agreement. The Stockholders shall, if so requested by
-----------------------
the Buyer, have entered into a Subordination and Intercreditor Agreement on
terms and conditions satisfactory to Buyer's lenders.
(j) Closing Date. The Closing Date shall have occurred on or before the
------------
Scheduled Closing Date or such later date as may be agreed on by the Parties.
(k) Approval of Buyer and Its Counsel. All actions, proceedings,
---------------------------------
consents, instruments and documents required to be delivered by, or at the
behest or direction of, the Company and the Stockholders hereunder or incident
to its performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to Buyer and its counsel.
SECTION 9.02 Company and Stockholders' Conditions to Closing. The
-----------------------------------------------
obligation of the Company and the Stockholders to consummate this Agreement and
the other transactions contemplated hereby is subject to the satisfaction, on or
before the Closing Date, of the following conditions, each of which may be
waived by the Company and the Stockholders in their sole discretion:
(a) Closing Documents. The Buyer shall have delivered the resolutions,
-----------------
certificates, documents and instruments required by this Agreement and
identified in Section 2.06(b).
(b) Representations and Warranties True. The representations and
-----------------------------------
warranties of the Buyer contained in this Agreement or other documents attached
hereto or referred to herein or delivered pursuant hereto or in connection with
the transactions contemplated hereby shall be true, correct and complete in all
material respects on and as of the date hereof and on and as of the Closing
Date, as if made on and as of the Closing Date.
(c) Performance. The Buyer shall have performed and complied with all
-----------
covenants and agreements contained herein required to be performed or complied
with by it prior to or at the Closing Date.
51
<PAGE>
(d) No Actions, Suits or Proceedings. As of the Closing Date, no action,
--------------------------------
suit, investigation or proceeding brought by any person, corporation,
governmental agency or other entity shall be pending or, to the knowledge of the
Parties to this Agreement, threatened, before any court or governmental body to
restrain, prohibit, restrict or delay, or to obtain damages or a discovery order
in respect of this Agreement or the consummation of the transactions
contemplated hereby. No order, decree or judgment of any court or governmental
body shall have been issued restraining, prohibiting, restricting or delaying,
the consummation of the transactions contemplated by this Agreement. No
insolvency proceeding of any character including without limitation, bankruptcy,
receivership, reorganization, dissolution or arrangement with creditors,
voluntary or involuntary, affecting the Buyer shall be pending, and the Buyer
shall not have taken any action in contemplation of, or which would constitute
the basis for, the institution of any such proceedings.
(e) HSR Act. Any waiting period applicable to the HSR Act filings shall
-------
have expired or terminated.
(f) Approval of the Company, Stockholders and their Counsel. All actions,
-------------------------------------------------------
proceedings, consents, instruments and documents required to be delivered by, or
at the behest or direction of, the Buyer hereunder or incident to its
performance hereunder, and all other related matters, shall be reasonably
satisfactory as to form and substance to the Company, Stockholders and their
counsel.
ARTICLE X
---------
MISCELLANEOUS
-------------
SECTION 10.01 Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing, shall be addressed to the
receiving Party's address set forth below or to such other address as a Party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telex or facsimile transmission, (iii) sent by recognized overnight
courier, or (iv) sent by registered or certified mail, return receipt requested,
postage prepaid.
If to the Buyer: Sheffield Steel Corporation
--------------- 220 North Jefferson
52
<PAGE>
Sand Springs, OK 74063
Attn: Robert W. Ackerman, President and
Chief Executive Officer
Fax: (918) 241-6595
with a copy to: Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Lewis J. Geffen, Esq.
Fax: (617) 542-2241
If to the Company: Waddell's Rebar Fabricators, Inc.
----------------- 3117 Weatherford Road
Independence, MO 64055
Attn: Thomas Waddell
Fax:
with a copy to: McQuain, Block, DeHart & Rosenbloom, P.C.
4505 Madison Avenue
Kansas City, MO 64055
Attn: Robert McQuain, Esq.
Fax: (816)751-0520
If to the Stockholders: Mr. Thomas Waddell
---------------------- 1924 Lake Terrace
Indianapolis, MO 64055
Mr. Dale Swanson
7314 North Olive Street
Gladstone, MO 64118
Mr. David Ries
P-1
Lake Lotowana, MO 64086
With a copy to: McQuain, Block, DeHart & Rosenbloom, P.C.
4505 Madison Avenue
Kansas City, MO 64055
Attn: Robert McQuain, Esq.
Fax: (816)751-0520
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving Party at the address of such Party set forth above,
(ii) if made by telex, or facsimile transmission, at the time that receipt
thereof has been acknowledged by electronic confirmation or otherwise, (iii) if
sent by overnight courier, on the next business day following the day such
notice is delivered to the courier service, or (iv) if sent by
53
<PAGE>
registered or certified mail, on the fifth business day following the day such
mailing is made.
SECTION 10.02 Entire Agreement. This Agreement together with the
----------------
Exhibits and Schedules hereto and the other documents executed in connection
herewith (together, the "Documents") embodies the entire agreement and
understanding between the Parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in the Documents shall
affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
SECTION 10.03 Modifications and Amendments. The terms and provisions of
----------------------------
this Agreement may be modified or amended only by written agreement executed by
the Buyer, the Company and the Stockholders.
54
<PAGE>
SECTION 10.04 Waivers and Consents. No failure or delay by a Party
--------------------
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing between the Parties hereto, shall operate as a waiver of any
such right, power or remedy of the Party. No single or partial exercise of any
right, power or remedy under this Agreement by a Party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such Party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a Party hereto shall not constitute a waiver of the right of such
Party to pursue other available remedies. No notice to or demand on a Party not
expressly required under this Agreement shall entitle the Party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand. The terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document
executed by the Party entitled to the benefits of such terms or provisions. No
such waiver or consent shall be deemed to be or shall constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
SECTION 10.05 Assignment. Neither this Agreement, nor any right
----------
hereunder, may be assigned by any of the Parties hereto without the prior
written consent of the other Parties, except that the Buyer may assign all or
part of its rights and obligations under this Agreement to one or more direct or
indirect subsidiaries or affiliates (in which event, representations and
warranties relating to the Buyer and the opinion of counsel to be delivered by
the Buyer shall be appropriately modified, and such assignee shall become a
Party hereto).
SECTION 10.06 Parties in Interest. This Agreement shall be binding upon
-------------------
and inure solely to the benefit of each Party hereto and their permitted
assigns, and nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
55
<PAGE>
Nothing in this Agreement shall be construed to create any rights or obligations
except among the Parties hereto, and no person or entity shall be regarded as a
third-party beneficiary of this Agreement.
SECTION 10.07 Governing Law. This Agreement and the rights and
-------------
obligations of the Parties hereunder shall be construed in accordance with and
governed by the internal laws of The State of Delaware, without giving effect to
the conflict of law principles thereof.
SECTION 10.08 Jurisdiction and Service of Process. Any legal action or
-----------------------------------
proceeding with respect to this Agreement shall be brought in the courts of The
State of Missouri or of the United States of America for the Western District of
Missouri. By execution and delivery of this Agreement, each of the Parties
hereto accepts for itself or himself and in respect of its or his property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Parties hereby irrevocably waive any objection or defense that they may now or
hereafter have to the assertion of personal jurisdiction by any such court in
any such action or to the laying of the venue of any such action in any such
court, and hereby waive, to the extent not prohibited by law, and agree not to
assert, by way of motion, as a defense, or otherwise, in any such proceeding,
any claim that it or he is not subject to the jurisdiction of the above-named
courts for such proceedings. Each of the Parties hereto irrevocably consents to
the service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered mail, postage prepaid,
to the Party at its or his address set forth in Section 10.01 hereof and
irrevocably waive any objection or defense that it or he may now or hereafter
have to the sufficiency of any such service of process in any such action.
Nothing in this Section 10.08 shall affect the rights of the Parties to commence
any such action in any other forum or to serve process in any such action in any
other manner permitted by law.
SECTION 10.09 Severability. In the event that any court of competent
------------
jurisdiction shall finally determine that any provision, or any portion thereof,
contained in this Agreement shall be void or unenforceable in any respect, then
such provision shall be deemed limited to the extent that such court determines
it enforceable, and as so limited shall remain in full force and effect. In the
event that such court shall determine any such
56
<PAGE>
provision, or portion thereof, wholly unenforceable, the remaining provisions of
this Agreement shall nevertheless remain in full force and effect.
SECTION 10.10 Interpretation. The Parties hereto acknowledge and agree
--------------
that: (i) each Party and its counsel reviewed and negotiated the terms and
provisions of the Documents (except with respect to the Schedules attached
hereto, which are the sole responsibility of the Company and the Stockholders)
and have contributed to their revision; (ii) the rule of construction to the
effect that any ambiguities are resolved against the drafting Party shall not be
employed in the interpretation of this Agreement; and (iii) the terms and
provisions of this Agreement shall be construed fairly as to all Parties hereto
and not in favor of or against any Party, regardless of which Party was
generally responsible for the preparation of this Agreement.
SECTION 10.11 Headings and Captions. The headings and captions of the
---------------------
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.
SECTION 10.12 Enforcement. Each of the Parties hereto acknowledges and
-----------
agrees that the rights acquired by each Party hereunder are unique and that
irreparable damage would occur in the event that any of the provisions of this
Agreement to be performed by the other Party were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, in addition
to any other remedy to which the Parties hereto are entitled at law or in
equity, each Party hereto shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement by the other Party and to enforce
specifically the terms and provisions hereof in any federal or state court to
which the Parties have agreed hereunder to submit to jurisdiction.
SECTION 10.13 Reliance. The Parties hereto agree that, notwithstanding
--------
any right of any Party to this Agreement to investigate the affairs of any other
Party to this Agreement, the Party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
Party expressly contained in this Agreement and on the accuracy of any schedule
or other document attached hereto or referred to herein or delivered by such
other Party or pursuant to this Agreement.
57
<PAGE>
SECTION 10.14 Expenses. Each of the Parties hereto shall pay its own
--------
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such Party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby, are consummated.
SECTION 10.15 No Broker or Finder. Each of the Parties hereto represents
-------------------
and warrants to the other Parties that no broker, finder or other financial
consultant has acted on its or his behalf in connection with this Agreement or
the transactions contemplated hereby in such a way as to create any liability on
the other. Each of the Parties hereto agrees to indemnify and save the other
harmless from any claim or demand for commission or other compensation by any
broker, finder, financial consultant or similar agent claiming to have been
employed by or on behalf of such Party and to bear the cost of legal expenses
incurred in defending against any such claim.
SECTION 10.16 Publicity. No Party shall issue any press release or
---------
otherwise make any public statement with respect to the execution of, or the
transactions contemplated by, this Agreement without the prior written consent
of the other Party, provided, however, that any Party may make any public
-------- -------
disclosure it believes in good faith is required by law, rule or regulation of
any governmental unit or agency or any stock exchange on which the securities of
such Party may be listed (in which case the disclosing Party shall advise the
other Parties and provide them with a copy of the proposed disclosure and a
reasonable opportunity to comment thereon prior to making the disclosure).
58
<PAGE>
SECTION 10.17 Counterparts. This Agreement may be executed in one or
------------
more counterparts, and by different Parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
59
<PAGE>
IN WITNESS WHEREOF, the Buyer, the Company and the Stockholders have
executed this Agreement under seal as of the day and year first above written.
SHEFFIELD STEEL CORPORATION
By: /s/ Robert W. Ackerman
------------------------------
Name: Robert W. Ackerman
Title: President and Chief
Executive Officer
WADDELL'S REBAR FABRICATORS, INC.
By: /s/ Tommy Waddell
------------------------------
Name: Tommy Waddell
Title: President
By: /s/ Tommy Waddell
------------------------------
Tommy Waddell, Stockholder
By: /s/ Dale Swanson
------------------------------
Dale Swanson, Stockholder
By: /s/ David Ries
------------------------------
David Ries, Stockholder
60
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SHEFFIELD
STEEL AND SUBSIDIARIES AS OF AND FOR THE SECOND QUARTER ENDED OCTOBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 741
<SECURITIES> 0
<RECEIVABLES> 20,191
<ALLOWANCES> 808
<INVENTORY> 34,716
<CURRENT-ASSETS> 57,775
<PP&E> 65,006
<DEPRECIATION> 0
<TOTAL-ASSETS> 132,788
<CURRENT-LIABILITIES> 28,308
<BONDS> 89,474
0
0
<COMMON> 34
<OTHER-SE> 4,631
<TOTAL-LIABILITY-AND-EQUITY> 132,788
<SALES> 94,181
<TOTAL-REVENUES> 94,181
<CGS> 75,382
<TOTAL-COSTS> 75,382
<OTHER-EXPENSES> 3,460
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 5,768
<INCOME-PRETAX> 1,567
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,567
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
