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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23320
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OLYMPIC STEEL, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1245650
- ------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5096 RICHMOND ROAD, BEDFORD HEIGHTS, OHIO 44146
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 292-3800
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
CLASS OUTSTANDING AS OF AUGUST 1, 1997
------------------------------------- --------------------------------
Common stock, without par value 10,692,000
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OLYMPIC STEEL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
<S> <C>
Consolidated Balance Sheets - June 30, 1997 and 3
December 31, 1996
Consolidated Statements of Income - for the three and six
months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows - for the six months
ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS 10-15
-----------------------------------
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 16
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
OLYMPIC STEEL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH $ 1,000 $ 2,018
ACCOUNTS RECEIVABLE 17,309 9,483
INVENTORIES 144,700 138,238
PREPAID EXPENSES AND OTHER 2,657 2,516
----------- -----------
TOTAL CURRENT ASSETS 165,666 152,255
----------- -----------
PROPERTY AND EQUIPMENT 112,896 93,954
ACCUMULATED DEPRECIATION (17,388) (14,954)
----------- -----------
NET PROPERTY AND EQUIPMENT 95,508 79,000
----------- -----------
GOODWILL 13,454 9,875
INVESTMENTS IN JOINT VENTURES 6,187 --
----------- -----------
TOTAL ASSETS $ 280,815 $ 241,130
=========== ===========
LIABILITIES
CURRENT PORTION OF LONG-TERM DEBT $ 3,721 $ 1,869
ACCOUNTS PAYABLE 33,063 25,267
ACCRUED PAYROLL 3,450 4,610
OTHER ACCRUED LIABILITIES 4,836 4,521
----------- -----------
TOTAL CURRENT LIABILITIES 45,070 36,267
----------- -----------
REVOLVING CREDIT AGREEMENT 63,467 46,457
INDUSTRIAL REVENUE BONDS 11,100 8,405
TERM LOANS 13,344 7,851
----------- -----------
TOTAL LONG-TERM DEBT 87,911 62,713
----------- -----------
DEFERRED INCOME TAXES 5,373 4,823
----------- -----------
TOTAL LIABILITIES 138,354 103,803
----------- -----------
SHAREHOLDERS' EQUITY
PREFERRED STOCK -- --
COMMON STOCK 106,319 106,319
RETAINED EARNINGS 36,142 31,008
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 142,461 137,327
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 280,815 $ 241,130
=========== ===========
The accompanying notes are an integral part of these balance sheets.
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND TONNAGE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
TONS SOLD
DIRECT 291,097 268,318 564,434 525,529
TOLL 47,665 40,543 90,152 77,763
-------- -------- -------- --------
338,762 308,861 654,586 603,292
-------- -------- -------- --------
NET SALES $157,595 $146,697 $307,068 $289,286
COST OF SALES 125,203 113,882 244,033 225,545
-------- -------- -------- --------
GROSS MARGIN 32,392 32,815 63,035 63,741
OPERATING EXPENSES
WAREHOUSE AND PROCESSING 8,588 6,937 16,854 14,341
ADMINISTRATIVE AND GENERAL 6,671 6,286 13,274 12,377
DISTRIBUTION 4,783 4,505 9,268 8,748
SELLING 3,614 3,571 6,949 7,037
OCCUPANCY 1,043 944 2,182 1,953
DEPRECIATION AND AMORTIZATION 1,466 1,027 2,755 2,021
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 26,165 23,270 51,282 46,477
-------- -------- -------- --------
OPERATING INCOME 6,227 9,545 11,753 17,264
INCOME FROM JOINT VENTURES 62 -- 163 --
-------- -------- -------- --------
6,289 9,545 11,916 17,264
INTEREST EXPENSE 981 1,447 1,898 2,923
RECEIVABLE SECURITIZATION EXPENSE 1,004 879 1,803 1,695
-------- -------- -------- --------
INCOME BEFORE TAXES 4,304 7,219 8,215 12,646
INCOME TAXES 1,615 2,888 3,081 5,059
-------- -------- -------- --------
NET INCOME $ 2,689 $ 4,331 $ 5,134 $ 7,587
======== ======== ======== ========
NET INCOME PER SHARE $ 0.25 $ 0.50 $ 0.48 $ 0.88
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 10,692 8,600 10,692 8,600
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS)
<S> <C> <C>
1997 1996
-------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 5,134 $ 7,587
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH FROM (USED FOR) OPERATING ACTIVITIES-
DEPRECIATION AND AMORTIZATION 2,755 2,021
INCOME FROM JOINT VENTURES (163) --
LONG-TERM DEFERRED INCOME TAXES 550 --
-------- --------
8,276 9,608
CHANGES IN WORKING CAPITAL:
ACCOUNTS RECEIVABLE (7,020) (8,726)
INVENTORIES (6,462) (3,628)
PREPAID EXPENSES AND OTHER 66 (494)
ACCOUNTS PAYABLE 7,632 11,741
ACCRUED PAYROLL AND OTHER ACCRUED LIABILITIES (978) 405
-------- --------
(6,762) (702)
-------- --------
NET CASH FROM OPERATING ACTIVITIES 1,514 8,906
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITION OF SOUTHEASTERN (NET OF WORKING CAPITAL OF $422) (13,734) --
INVESTMENTS IN JOINT VENTURES (6,091) --
IOWA FACILITY EQUIPMENT DEPOSITS (2,367) --
LAFAYETTE PLANT EXPANSION (1,417) (430)
TUBE MILL EQUIPMENT DEPOSITS (1,630) --
TEMPER MILL FACILITY AND EQUIPMENT (68) (893)
OTHER CAPITAL EXPENDITURES, NET (1,175) (3,323)
-------- --------
NET CASH USED FOR INVESTING ACTIVITIES (26,482) (4,646)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
REVOLVING CREDIT AGREEMENT 17,010 333
BORROWINGS (REPAYMENTS) OF LONG-TERM DEBT 6,940 (2,959)
-------- --------
NET CASH FROM (USED FOR) FINANCING ACTIVITIES 23,950 (2,626)
-------- --------
CASH:
NET INCREASE (DECREASE) (1,018) 1,634
BEGINNING BALANCE 2,018 1,884
-------- --------
ENDING BALANCE $ 1,000 $ 3,518
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
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<PAGE> 6
OLYMPIC STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
The accompanying consolidated financial statements have been prepared from the
financial records of Olympic Steel, Inc. (Olympic or the Company) and its
wholly-owned subsidiaries, without audit and reflect all adjustments which are,
in the opinion of management, necessary to fairly present the results of the
interim periods covered by this report. All significant intercompany
transactions and balances have been eliminated in consolidation. Certain amounts
in the 1996 consolidated financial statements have been reclassified to conform
with the 1997 presentation.
(1) EARNINGS PER SHARE:
Earnings per share have been calculated based on the weighted average shares
outstanding during each of the periods presented. Shares outstanding increased
from 8.6 million to 10.7 million in August 1996 as of result of the Company's
follow-on stock offering of 2.1 million shares. Primary and fully diluted
earnings per share are the same as the effect of dilutive outstanding stock
options is immaterial.
(2) INVESTMENTS IN JOINT VENTURES:
In January 1997, the Company completed the formation of Olympic Continental
Resources LLC (OCR), a joint venture with Atlas Iron Processors, Inc. (Atlas)
and Uwe T. Schmidt, OCR's Chief Executive Officer. OCR buys, sells and trades
ferrous and non-ferrous metals and alternate iron products to steel mills and
scrap processors. The venture acquired the business activities previously
conducted by Thyssen Continental Resources LLC, a profitable joint venture
between Thyssen Inc. and Atlas. The Company made a $4 million cash investment
for its 45% ownership share in OCR and guarantees up to $10 million of
outstanding debt under OCR's $35 million revolving bank credit facility.
Olympic's investment in OCR is accounted for under the equity method.
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<PAGE> 7
In April 1997, the Company and the U.S. Steel Group of USX Corporation (USS)
formed Olympic Laser Processing, LLC (OLP), a joint venture to process laser
welded sheet steel blanks for the automotive industry. OLP is owned 50% by each
of the companies. OLP is constructing a new facility to be initially equipped
with two laser welding lines. Production is expected to begin in 1998. The
Company and USS each contributed $2 million in cash to OLP during the first half
of 1997 and each guarantees up to $10 million of outstanding debt under OLP's
$20 million bank loan agreement. The investment in OLP is accounted for under
the equity method.
(3) ACQUISITION:
Effective June 1, 1997, the Company completed the acquisition of substantially
all of the assets and assumed certain liabilities of Southeastern Metal
Processing, Inc. and Southeastern Transshipping Realty (SMP). SMP operated as a
metals toll processor and is located near Atlanta, Georgia.
The preliminary purchase price, which is subject to post-closing adjustments and
includes assumed liabilities, totaled $17.3 million. The adjusted cash portion
of the purchase price, including fees and expenses and the repayment of $2.5
million of SMP's bank debt, totaled $13.7 million. The acquisition has been
accounted for as a purchase and, accordingly, assets and liabilities are
reflected at estimated fair values. The preliminary purchase price allocation
resulted in goodwill of $3.7 million which is being amortized over 40 years.
(4) LONG-TERM DEBT:
The Company amended its revolving bank credit agreement on May 30, 1997 and July
14, 1997. The amendments added a fourth bank to the bank group, increased the
unsecured revolving credit availability from $60 million to $68 million, added a
secured $17 million term loan component to finance the construction and
equipping of a new temper mill facility in Iowa (the Iowa Term Loan), and
extended the agreement expiration date to June 30, 2000. The Iowa Term Loan
allows draws to be made through December 30, 1998 and requires annual principal
repayments of 10% of the amount borrowed to commence May 30, 1999. As of June
30, 1997, there were no Iowa Term Loan borrowings outstanding.
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<PAGE> 8
On May 28, 1997, the Company entered into a $10 million loan agreement with a
domestic bank to finance a portion of the Southeastern acquisition. The loan
agreement includes a 10 year $3.5 million term loan component, and a seven year
$6.5 million term loan component. On July 14, 1997, a portion of the term loan
proceeds was used to refinance $3.1 million of Industrial Revenue Bonds (the
IRB's) assumed in the Southeastern acquisition. The accompanying consolidated
balance sheet classification of the IRB's reflects the repayment terms of the
new term loan. The term loans are secured by Southeastern's real estate and
equipment and are repayable in quarterly installments commencing September 1,
1997. Pricing was initially established at LIBOR plus 1.25% and was subsequently
reduced to LIBOR plus 1% effective June 30, 1997.
Interest rates under the Company's various credit agreements are generally based
on prime or LIBOR plus a premium determined quarterly, which varies with the
Company's operating performance and financial leverage. Borrowing rates in 1997
were prime plus 0% and LIBOR plus .75% through May 31, 1997. Commencing June 1,
1997, the LIBOR premium increased to 1.0%. The majority of the Company's
borrowings are based on the LIBOR option. The overall effective interest rate
for all debt for the three and six month periods ended June 30, 1997, amounted
to 6.7% and 6.8%, respectively, and 7.4% for the comparable periods in 1996.
Included in the revolving credit balances on the accompanying consolidated
balance sheets are $15.1 million and $5.5 million of checks issued that have not
cleared the bank as of June 30, 1997 and December 31, 1996, respectively.
(5) ACCOUNTS RECEIVABLE SECURITIZATION AGREEMENT:
In July 1997, the Company amended its accounts receivable securitization
agreement to increase the maximum amount of receivables available for sale from
$65 million to $70 million. The term of the agreement was also extended to July
31, 2000.
(6) STOCK OPTIONS:
During the second quarter of 1997, additional non-qualified options to purchase
8,000 shares of Common Stock were issued to the Company's outside directors at
an option price of $14.63, the market value of a share of Common Stock at the
grant date. Including the new grants, options to purchase 152,500 shares were
outstanding at June 30, 1997, of which 74,500 were exercisable.
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<PAGE> 9
(7) SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the six months ended June 30, 1997 and 1996 totaled $1.9
million and $3.2 million, respectively. Income taxes paid during the six months
ended June 30, 1997 and 1996 totaled $3.2 million and $6.1 million,
respectively.
(8) IMPACT OF NEW ACCOUNTING STANDARDS:
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings per
Share," and SFAS No. 129, "Disclosure of Information about Capital Structure."
Both of these statements are effective for financial statements for periods
ending after December 15, 1997. Management does not anticipate that the
implementation of SFAS No. 128 will have any effect on the Company's historical
earnings per share data.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's results of operations are affected by numerous external
factors, such as general economic and political conditions, competition, and
steel pricing and availability.
Olympic sells a broad range of products, many of which have different
gross margins. Moreover, products that have more value-added processing
generally have a greater gross margin. Accordingly, the Company's overall gross
margin is affected by product mix and the amount of processing performed, as
well as volatility in selling prices and material purchase costs. The Company
also performs toll processing of customer-owned steel, substantially all of
which is performed by its Lafayette Steel and Southeastern operations. Toll
processing generally results in lower selling prices and gross margin dollars
per ton but higher gross margin percentages than the Company's historical direct
sales.
During the first half of 1997, the Company invested in two joint
ventures, Olympic Continental Resources (OCR), which buys, sells and trades
ferrous and non-ferrous metals and alternate iron products to steel mills and
scrap processors, and Olympic Laser Processing (OLP), a company formed to
process laser welded sheet steel blanks for the automotive industry. The Company
guarantees up to $10 million of outstanding debt under each of OCR's $35 million
revolving bank credit facility and OLP's $20 million bank loan. The Company's
45% interest in OCR and 50% interest in OLP are accounted for under the equity
method.
The Company's 1997 results include the June results of the Company's
Southeastern operation (Southeastern), the net assets of which were acquired
effective June 1, 1997. Southeastern has historically operated as a metals toll
processor, and is located near Atlanta, Georgia.
Financing costs include interest expense on debt and costs associated
with the Company's accounts receivable securitization program (the Financing
Costs). Interest rates paid by the Company under its credit agreement are
generally based on prime or LIBOR plus a premium (the Premium) determined
quarterly, which varies based on the Company's operating performance and
financial leverage. Receivable securitization costs are based on commercial
paper rates calculated on the amount of receivables sold.
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<PAGE> 11
In August 1996, the Company completed a follow-on stock offering of 2.1
million shares of common stock (the Offering). The net proceeds from the
Offering, which totaled $49.1 million, were used to repay outstanding bank debt.
The Company sells certain products internationally, primarily in Mexico
and Puerto Rico. All international sales and payments are made in United States
dollars. These sales historically involve the Company's direct representation of
steel producers and may be covered by letters of credit or trade receivable
insurance. Typically, international sales are more transactional in nature with
lower gross margins than domestic sales. Domestic steel producers generally
supply domestic customers before meeting foreign demand, particularly during
periods of supply constraints. As a result, domestic and international sales
tend to be countercyclical.
Because the Company conducts its operations generally on the basis of
short-term orders, backlog is not a meaningful indicator of future performance.
RESULTS OF OPERATIONS
Tons sold increased 9.7% to 339 thousand in the second quarter of 1997
from 309 thousand in the second quarter of 1996, and 8.5% in the first half of
1997 to 655 thousand from 603 thousand in the first half of 1996. Tons sold in
the second quarter of 1997 include 291 thousand from direct sales and 48
thousand from toll processing, compared with 268 thousand direct tons and 41
thousand tolling tons in the comparable period of last year. Tons sold in the
first half of 1997 include 565 thousand from direct sales and 90 thousand from
toll processing, compared with 526 thousand direct tons and 78 thousand tolling
tons in the comparable period of last year. Substantially all of increase in
second quarter tolling tons is attributable to Southeastern.
Net sales increased 7.4% to $147.6 million for the second quarter of
1997 from $146.7 million for the second quarter of 1996. For the first half, net
sales increased 6.1% to $307.1 million from $289.3 million in the 1996 period.
Average selling prices declined 2.1% and 2.2% between years for the three and
six month periods, respectively, with the largest decline related to stainless
steel products. International sales represented 3.6% and 4.2% of consolidated
net sales for the three and six month periods ended June 30, 1997, compared to
5.7% and 5.3%, respectively, for the 1996 periods.
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<PAGE> 12
As a percentage of net sales, gross margin decreased to 20.6% for the
second quarter of 1997 from 22.4% for 1996. For the six month period, gross
margin decreased to 20.5% in 1997 from 22.0% in 1996. The decrease reflects the
impact of market pressures that have not allowed price increases for steel to be
fully passed on to customers.
As a percentage of net sales, operating expenses increased to 16.6% for
the second quarter of 1997 from 15.9% for 1996, and to 16.7% for the first six
months of 1997 from 16.1% in 1996. The increases as a percentage of net sales
are due partially to the impact of lower average selling prices in the current
year. On a per ton basis, operating expenses increased to $77.24 from $75.34 for
the second quarter and to $78.34 from $77.04 for the first half. Incremental
costs in 1997 relate to the additions of warehouse employees at the Cleveland
temper mill and Minneapolis coil facilities; expansion of plate processing
capabilities in the second half of 1996; completion of the Lafayette plant
expansion in the first quarter of 1997; and continued investment in management
information systems.
Income from joint ventures totaled $62 thousand in the second quarter
and $163 thousand in the first half of 1997.
Financing Costs decreased to $2.0 million for the second quarter of
1997 from $2.3 million in 1996, and to $3.7 million for the first half of 1997
from $4.6 million in 1996. The decrease is attributable to lower average
borrowings outstanding primarily as a result of the Offering, and a decrease in
the Company's effective bank borrowing rate to 6.7% and 6.8% for the second
quarter and first half of 1997, compared to 7.4% for both periods of 1996.
Effective borrowing rates were favorably impacted in the current period by lower
Premiums as a result of the Company's 1996 financial performance and the
Offering. The Company's Premium will remain at 1% over LIBOR for the three
months commencing September 1.
Pretax income for the second quarter of 1997 decreased 40.4% to $4.3
million from $7.2 million for 1996. For the first six months of 1997, pretax
income decreased 35.0% to $8.2 million from $12.6 million for 1996. Income taxes
approximated 37.5% of pretax income in the 1997 periods compared to 40% in the
1996 periods. The decrease in income taxes as a percentage of pretax income is
attributable to the implementation of tax planning strategies in the second half
of 1996. Net income for the second quarter of 1997 decreased 37.9% to $2.7
million, or $.25 per share, from $4.3 million, or $.50 per share for 1996. Net
income for the first six months of 1997 decreased 32.3% to $5.1 million, or $.48
per share, from $7.6 million, or $.88 per share in the 1996 period. As a result
of the Offering, weighted average shares increased from 8.6 million in the first
half of 1996 to 10.7 million in the first half of 1997.
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<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund its growth,
including strategic acquisitions and joint ventures, the purchase and upgrading
of processing equipment and services, the construction and upgrading of related
facilities and additional working capital. The Company uses cash generated from
operations, long-term debt obligations, proceeds from the Company's accounts
receivable securitization program, equity offerings, and leasing transactions to
fund these requirements. Historically, the Company has used revolving credit
borrowings under its bank credit facility to finance its working capital
requirements.
Net cash from operating activities primarily represents net income plus
non-cash charges for depreciation, amortization and income from joint ventures,
and changes in working capital. During the first half of 1997, $1.5 million of
net cash was provided from operating activities, consisting of $8.3 million of
cash generated from net income and non-cash charges offset by $6.8 million of
cash used for working capital purposes.
Working capital at June 30, 1997 increased by $4.6 million or 4.0%
since December 31, 1996. The increase is primarily attributable to a $7.0
million increase in accounts receivable, a $6.5 million increase in inventory
and $422 thousand of net working capital acquired from Southeastern, partially
offset by a $7.6 million increase in accounts payable. The accounts receivable
increase is the result of strong June 1997 sales compared to sales in December,
which historically represent the lowest sales period of each year for the
Company.
As of June 30, 1997, $61 million of eligible receivables were sold
under the Company's accounts receivable securitization program, compared to $55
million at December 31, 1996. The amount of trade receivables sold by the
Company typically changes monthly depending upon the level of defined eligible
receivables available for sale at each month end. In July 1997, the Company
amended the receivable securitization agreement to increase the maximum amount
of receivables available for sale from $65 million to $70 million. The term of
the agreement was also extended to July 31, 2000.
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<PAGE> 14
During the first half of 1997, net cash used for investing activities
totaled $26.5 million, consisting of $13.7 for the June 1 acquisition of
Southeastern, $6.1 million in capital contributions to the two joint ventures,
and $6.7 million in capital expenditures, including completion of a 71,000
square foot expansion of Lafayette Steel's existing facility, deposits made for
a new $3.5 million tube mill in Cleveland expected to become operational in
early 1998, and equipment deposits made for a new facility to be located in
Bettendorf, Iowa. The Company plans to invest more than $22 million for the
construction and equipping of a 170,000 square foot Iowa facility which will
house a second temper mill and cut-to-length line, a slitter, and multiple
pieces of plate burning equipment. The plate processing equipment and slitter
are expected to be operational by the end of the first half of 1998, while the
temper mill and cut-to-length line is expected to be operational by the end of
1998. The Company also made purchase commitments in excess of $3 million to
purchase a new cut-to-length line for its Lafayette operation, a used
cut-to-length line for the Minneapolis coil processing facility and a new plasma
burner for the Minneapolis plate processing facility. Each of these pieces of
equipment is anticipated to become operational within the next 12 months.
Cash flows used from financing activities primarily consists of net
borrowings under the Company's revolving credit agreement and proceeds from a
new $10 million secured bank term loan used to finance a portion of the
Southeastern acquisition, offset by scheduled payments under other existing
long-term agreements.
The Company amended its revolving bank credit agreement on May 30, 1997
and July 14, 1997. The amendments added a fourth bank to the bank group,
increased the unsecured revolving credit availability from $60 million to $68
million, added a secured $17 million term loan component to finance the
construction and equipping of the new Iowa facility, and extended the agreement
expiration date to June 30, 2000.
Approximately $8.5 million in unused availability existed under the
Company's revolving credit and accounts receivable securitization facilities at
June 30, 1997. The Company believes that funds available under its revolving
credit facility, other credit and financing agreements and funds generated from
operations will be sufficient to provide the Company with the liquidity
necessary to fund its anticipated working capital requirements and capital
expenditure requirements over the next 12 months. Capital requirements are
subject to change as business conditions warrant and opportunities arise. In
connection with its internal and external expansion strategies, the Company may
from time to time seek additional funds to finance other new facilities,
acquisitions and significant improvements to processing equipment to respond to
customers' demands.
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<PAGE> 15
FORWARD-LOOKING INFORMATION
This document contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "expect," "believe," "anticipate," "plan" and similar
expressions are intended to identify forward-looking statements, which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks, uncertainties
and assumptions including, but not limited to, general business and economic
conditions; competitive factors such as the availability and pricing of steel
and fluctuations in demand, specifically in the automotive market; work
stoppages by automotive manufacturers; potential equipment malfunction;
equipment installation and facility construction delays, particularly for the
Iowa temper mill project; and the successes of its joint ventures and the
successful integration of Southeastern into the Company's operations. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
expected, believed, anticipated or planned. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to republish revised
forward-looking statements to reflect the occurrence of unanticipated events or
circumstances after the date hereof.
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<PAGE> 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's annual meeting of shareholders was held on April 24,
1997.
(b) At the annual meeting, the Company's shareholders elected Michael
D. Siegal, David A. Wolfort, Thomas M. Forman and Janice M. Margheret
as Directors for a two-year term which expires at the annual meeting of
shareholders in 1999. The term of office of Bruce S. Adelstein, R.
Louis Schneeberger, and Martin H. Elrad, as Directors, continued after
the 1997 meeting; such term expires at the annual shareholders meeting
in 1998.
(c) At the annual meeting, the Company's shareholders ratified the
appointment of Arthur Andersen, LLP as auditors of the Company for
1997. The holders of 9,266,236 shares of Common Stock voted to ratify
the appointment, the holders of 2,155 shares voted against the
ratification, and the holders of 6,883 shares abstained.
The following tabulation represents voting for the Directors:
<TABLE>
<CAPTION>
For Withheld Authority
--------------------- --------------------
<S> <C> <C>
Michael D. Siegal 9,264,012 11,391
David A. Wolfort 9,264,012 11,391
Thomas M. Forman 9,264,212 11,191
Janice M. Margheret 9,264,212 11,191
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
Exhibit 4.6 - Second Amendment to Credit Agreement, dated as of May 30,
1997
Exhibit 4.7 - Third Amendment to Credit Agreement, dated July 14, 1997
Exhibit 4.8 - Second Amendment to Receivables Purchase Agreement, dated
July 14, 1997
Exhibit 10.10 - Asset Purchase Agreement by and among Olympic Steel,
Inc. and Southeastern Metal Processing, Inc. and Southeastern
Transshipping Realty and Jerry O. Kirkland, Gene L. James, Orvin Flint,
and Michael Miniea, dated May 30, 1997
Exhibit 27 - Financial Data Schedule
16 of 17
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
OLYMPIC STEEL, INC.
(Registrant)
Date: August 4, 1997 By: /s/ R. Louis Schneeberger
-------------------------
R. LOUIS SCHNEEBERGER
Chief Financial Officer
By: /s/ Richard T. Marabito
-------------------------
RICHARD T. MARABITO
Treasurer and Corporate Controller
(Principal Accounting Officer)
17 of 17
<PAGE> 1
Exhibit 4.6
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of May 30,
1997, (this "Second Amendment"), is by and among OLYMPIC STEEL, INC., an Ohio
corporation ("Borrower"), and NATIONAL CITY BANK ("NCB") and the other Banks
signatory hereto or that become parties to the Credit Agreement hereafter
identified by amendment or supplement thereto ("Banks") and NATIONAL CITY BANK,
as agent for the Banks (in that capacity, "NCB-Agent").
RECITALS
--------
A. Borrower, the Banks and NCB-Agent have entered into a
Credit Agreement, dated as of October 4, 1996 (the "Agreement"), pursuant to
which Borrower may obtain, among other things, (i) loans ratably from the Banks
that are on a revolving credit basis and (ii) subject LCs issued by NCB in which
the Banks agree to ratably share the obligations in respect thereof, in each
case until the expiration date.
B. Borrower, the Banks and NCB-Agent have entered into the
First Amendment to Credit Agreement, dated as of January 24, 1997 (the "First
Agreement"), in order to increase the amount of the commitments by the Banks for
subject revolving credit loans and additional subject LCs by Ten Million Dollars
($10,000,000) and to permit Borrower to make certain joint venture investments
and guarantees of indebtedness of the joint venture entities.
C. Borrower, the Banks and NCB-Agent desire to again amend the
Agreement by this Second Amendment to Credit Agreement (the "Second Amendment")
in order to increase the amount of the commitments by the Banks for subject
revolving credit loans and additional subject LCs by Eight Million Dollars
($8,000,000), to add a commitment by Banks for new Series A term loans in the
amount of Seventeen Million Dollars ($17,000,000), to permit certain borrowing
from other lenders, to permit the Borrower to allow certain of its property to
become encumbered by liens in favor of other lenders and to extend the
expiration date to June 30, 2000.
AGREEMENT
---------
Accordingly, the parties have agreed and do hereby agree as
follows:
1. Clause (a)(i) of section 1B SUMMARY OF THE AGREEMENT shall be
deleted in its entirety and the following shall be inserted in place thereof:
(i) subject loans ratably from the Banks that are either
on a revolving credit basis or a term loan basis and
2. Subsection 2A.01 SUBJECT REVOLVING LOANS AND LETTERS OF CREDIT
AMOUNTS of the Agreement shall be deleted in its entirety and the following
shall be substituted in place thereof:
2A.01 SUBJECT REVOLVING CREDIT LOANS AND LETTERS OF CREDIT
AMOUNTS -- The aggregate amount of the commitments by the Banks for
subject revolving credit loans and additional subject LCs shall be
Sixty-Eight Million Dollars ($68,000,000). The aggregate amount of the
subject commitments for additional subject LCs shall not exceed Five
Million Dollars ($5,000,000). The aggregate amount of the subject
commitments for the subject revolving credit loans and additional
subject
<PAGE> 2
LCs may be reduced from time to time pursuant to subsection 2A.03 and
the subject commitments may be terminated pursuant to Section 5B. The
aggregate amount of the subject commitments by the Banks for existing
subject LCs as of May 30, 1997 is Nine Million, Eight Hundred Forty
Thousand, Eight Hundred Thirty-Six Dollars ($9,840,836) but that amount
may be reduced from time to time pursuant to subsection 2A.03 and the
subject commitments may be terminated pursuant to Section 5B. The
amount of each Bank's subject commitment to make subject revolving
credit loans to Borrower and to participate in respect of additional
subject LCs and existing subject LCs (subject to such reduction or
termination), and the proportion (expressed as a percentage) that it
bears to all of the subject commitments, is set forth opposite the
Bank's name on SCHEDULE 2A.01 hereto dated May 30, 1997.
3. The Agreement is amended by adding the following a new subsection
2A.01.1 SERIES A TERM LOANS immediately following subsection 2A.01 thereof:
2A.01.1 SERIES A TERM LOANS-- (a) The aggregate amount of the
series A subject term loans shall be an amount up to, but not
exceeding, Seventeen Million Dollars ($17,000,000). The series A
subject term loans shall be made and disbursed not more frequently than
once each calendar month and the aggregate amount thereof shall not
exceed eighty percent (80%) of costs reasonably incurred and paid by
Borrower for construction of a temper mill facility in Bettendorf, Iowa
(the "Iowa Mill Project"). With each request for a series A subject
term loan advance, Borrower shall submit to NCB-Agent evidence of such
costs so incurred and paid and such other information as NCB-Agent may
request with respect to the Iowa Mill Project including, without
limitation, the estimated cost of completing the same. The subject
commitments for any amount of the series A subject term loans not
disbursed on or before December 30, 1998 shall automatically and
immediately expire on December 31, 1998 without any notice to Borrower.
(b) Beginning May 30, 1999, the outstanding principal amount
of the series A subject term loans shall be reduced annually prior to
the expiration date by an amount equal to ten percent (10%) of the
aggregate amount thereof outstanding and disbursed prior to December
31, 1998 (for example, if the aggregate amount of the series A subject
term loans disbursed is $17,000,000, then the amount of each principal
reduction prior to the expiration date shall be $1,700,000). A
principal payment of the series A subject term loans shall be made on
each May 30 commencing on May 30, 1999 with a final payment of the
entire outstanding amount of the series A subject term loans being due
and payable on the expiration date.
(c) The amount of each Bank's subject commitment to make
series A subject term loans (which is subject to termination pursuant
to Section 5B), and the proportion (expressed as a percentage) that it
bears to all of the subject commitments relating thereto is set forth
opposite the Bank's name below.
<TABLE>
<CAPTION>
==========================================================================================================================
Bank Series A Subject Term Loan Percentage
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National City Bank $6,800,000 40%
- --------------------------------------------------------------------------------------------------------------------------
Mellon Bank, N.A. $5,100,000 30%
- --------------------------------------------------------------------------------------------------------------------------
Comerica Bank $5,100,000 30%
- --------------------------------------------------------------------------------------------------------------------------
Total $17,000,000 100%
==========================================================================================================================
</TABLE>
-2-
<PAGE> 3
(d) Anything contained in this subsection 2A.01.1 to the
contrary notwithstanding, no term loan shall be made or disbursed by
any of the Banks prior to compliance by Borrower with the conditions
set forth in section 2B of this Agreement.
4. Subsection 2A.02 TERM of the Credit Agreement shall be deleted in
its entirety and the following shall be substituted in place thereof:
2A.02 TERM -- The portion of the subject commitment created by
the Agreement prior to amendment, the First Amendment and the Second
Amendment has or shall become effective as of the date of the initial
Agreement, the date of the First Amendment and the date of the Second
Amendment, respectively, and the subject commitment in the aggregate
shall remain in effect until June 30, 2000 (the "expiration date")
EXCEPT that (i) a later expiration date may be established from time to
time pursuant to subsection 2A.05, (ii) the subject commitments shall
end in any event upon any earlier reduction thereof to zero pursuant to
subsection 2A.03 or any earlier termination pursuant to Section 5B,
(iii) the commitment relating to any existing LC shall remain in effect
until the stated expiration date thereof, even if such date is later
than the expiration date; and (iv) the commitments for the series A
subject term loans not disbursed on or prior to December 30, 1998 will
expire automatically and immediately on December 31, 1998. The series A
term loans shall be disbursed pursuant to subsection 2A.01.1(a).
5. Subsection 2A.03 OPTIONAL REDUCTIONS of the Agreement shall be
deleted in its entirety and the following shall be substituted in place thereof:
2A.03 OPTIONAL REDUCTIONS -- Borrower shall have the right, at
all times and without the payment of a premium, to permanently reduce
the subject commitments for either the (i) subject revolving credit
loans and/or (ii) the subject term loans, in whole or in part, by
giving NCB-Agent notice in the form of EXHIBIT 2A.03 attached hereto
(to be given not later than 12:00 noon of the Banking day next
preceding the effective date of the reduction and either to be given in
writing or to be promptly confirmed in writing) of the aggregate amount
by which the subject commitments are to be reduced and the effective
date thereof.
(a) No such reduction shall reduce any Bank's subject
commitment to a lesser amount than the difference of:
(1) that Bank's subject commitment as in
effect at that time less
(2) the aggregate unpaid principal balance
of that Bank's subject loans then
outstanding and its ratable share of any
outstanding subject LCs.
(b) Each such reduction of the subject commitments
shall aggregate Five Hundred Thousand Dollars ($500,000) or
any multiple thereof.
(c) Each reduction shall be allocated ratably among
the subject commitments.
(d) Concurrently with each reduction Borrower shall
make a principal payment on each Bank's subject loans then
outstanding in a principal amount equal to the excess, if any,
of the then aggregate unpaid principal balance of that Bank's
subject loans over that Bank's subject commitment as so
reduced. Subsection 2B.11 and Section 6C shall apply to each
such prepayment.
-3-
<PAGE> 4
6. Subsection 2A.04 COMMITMENT FEE of the Agreement shall be deleted in
its entirety and the following shall be substituted in place thereof:
2A.04 COMMITMENT FEE -- Each Bank shall, so long as its
subject commitment remains in effect, earn a commitment fee
(a) based on the average daily difference between the
amount of that Bank's subject commitment for revolving credit
loans, term loans and additional subject LCs from time to time
in effect and the then aggregate unpaid principal balance of
the subject revolving credit loans and term loans then owing
to that Bank and the outstanding amount of additional subject
LCs,
(b) computed at the rate of one-fourth of one percent
(1/4%) per annum and
(c) payable in arrears by Borrower to NCB-Agent for
the account of the Banks quarterannually as of the last
business day of March, June, September and December and at the
end of the subject commitment.
7. The introductory paragraph of section 2B SUBJECT LOANS, subsection
2B.01 SUBJECT NOTES and subsection 2B.02 LOAN MIX of the Agreement shall be
deleted in their entirety and the following shall be substituted in place
thereof:
2B. SUBJECT LOANS -- Each Bank (for itself only and not for
the others) agrees, subject to the conditions of this Agreement, that
so long as that Bank's subject commitment remains in effect, it will
grant Borrower the subject loans up to the amounts specified to be
loaned by it in subsections 2A.01 and 2A.01.1 pursuant to this
Agreement as Borrower may from time to time request; PROVIDED, however,
that each Bank's obligations to make the subject term loans shall arise
only when (and not before) Borrower has complied or caused compliance
with each of the following conditions:
(a) Borrower shall have executed and delivered the
environmental indemnity agreement to be executed and delivered
pursuant to subsection 2EE.03.
(b) Borrower shall have caused to be delivered to
NCB-Agent such a policy of title insurance or a commitment
therefor or endorsements thereto with respect to the land and
buildings of Borrower to be subject to a mortgage securing the
subject term loans and in such amount as the Banks may
reasonably require.
(c) Borrower shall have executed and delivered the
security documents to be executed and delivered pursuant to
subsection 2EE.02 and such documents, including all of the
mortgages required by such subsection, shall have been filed
for record.
(d) Borrower's counsel shall have rendered to each
Bank a written opinion in respect of the matters referred to
in subsections 4B.01, 4B.02, 4B.03 and 4B.04 as the same
relate to the portions of this Second Amendment and the
Agreement as so amended that relate to the subject term loans
and the documents to be or previously delivered to NCB-Agent
or the Banks pursuant to this Second Amendment, in form and
substance satisfactory to each Bank.
(e) Borrower shall have obtained a phase I
environmental report with respect to the land that is to be
part of the Iowa Mill Project from a qualified
-4-
<PAGE> 5
environmental expert acceptable to the Banks and shall have
delivered such report to NCB-Agent.
2B.01 SUBJECT NOTES -- Each Bank's subject revolving credit
loan and participation in respect of additional subject LCs and
existing subject LCs shall be evidenced by subject notes executed and
delivered by Borrower, payable to the order of that Bank aggregating in
the principal amount equal to the dollar amount of that Bank's
aggregate subject commitment therefor set forth in Section 2A.01. Each
subject note shall be in the form and substance of EXHIBIT 2B.01 with
the blanks appropriately filled. Each of the subject term loans by each
Bank shall be evidenced by a separate subject note executed and
delivered by Borrower, payable to the order of the Bank in principal
amount equal to the dollar amount of the Bank's subject commitment
therefor; each such note shall be in form and substance of EXHIBIT
2B.01T with the blanks appropriately filled.
(a) Whenever Borrower obtains a series of subject
loans pursuant to this Agreement, each Bank shall
make an appropriate entry into a loan account
maintained in that Bank's books and records. Each
entry shall be prima facie evidence of the data so
entered; but such entries shall not be a condition to
Borrower's obligation to pay.
(b) No holder of any subject note shall transfer a
subject note, or seek a judgment or file a proof of
claim based on a subject note without in each case
first endorsing the subject note to reflect the true
amount owing thereon.
2B.02 LOAN MIX -- The subject loans at any one time
outstanding shall consist of prime rate loans or LIBOR loans or any
combination thereof as Borrower may from time to time duly elect;
PROVIDED, that the subject term loans shall at all times consist of
only prime rate loans or only LIBOR loans.
8. The first sentence of subsection 2B.07(a) is amended by adding the
words "and term loans" immediately following the words "revolving credit loans".
9. The Agreement is amended by adding the following new section 2EE
immediately following section 2E thereof:
2EE. SECURITY FOR SUBJECT TERM LOANS -- The subject term loans shall be
secured in accordance with the following:
2EE.01 SUBJECT TERM LOANS -- Payment of the subject term loans
shall be secured by a first priority lien and security interest in all
of Borrower's land, buildings and equipment located in Bettendorf,
Iowa.
2EE.02 SECURITY DOCUMENTS -- Borrower agrees to execute and
deliver to NCB-Agent such mortgages, security agreements, UCC financing
statements and other documents to effect the provisions of Section 2EE
as NCB-Agent, or a majority of the Banks, may from time to time
reasonably request including, without limitation, such as are
identified on EXHIBIT 2EE.02. Borrower agrees to pay the reasonable and
necessary out of pocket expenses of NCB-Agent incurred with the filing
and perfection of the security interests and liens to be granted
pursuant to this Section 2EE.
2EE.03 ENVIRONMENTAL INDEMNITY -- Borrower agrees to execute
and deliver to NCB-Agent an agreement protecting the Banks and
NCB-Agent from liability
-5-
<PAGE> 6
for environmental claims relating to the property subject to mortgages
that are to secure the subject term loans. Such agreement shall be in
form and substance reasonably satisfactory to the Banks and NCB-Agent.
10. The Agreement is amended by adding the following section 2FF
immediately following section 2F thereof:
2FF. GUARANTY OF SUBSIDIARIES OF SUBJECT TERM LOANS.
2FF.01 OSLI AND OSMI GUARANTY OF PAYMENT OF SUBJECT TERM LOANS
-- Borrower shall cause its wholly-owned subsidiaries, OSLI and OSMI,
to unconditionally guarantee payment of the subject term loans pursuant
to a guaranty of payment, through a supplement to the subject guaranty
in the form attached hereto as EXHIBIT 2FF.01S, executed and delivered
to the Banks by OSLI and OSMI and pursuant to such additional
supplements to the subject guarantee as NCB-Agent may require with
respect to increases in the subject commitments for the subject
revolving credit and term loans.
11. Subsection 3D.02 BORROWINGS of the Agreement shall be deleted in
its entirety and the following shall be substituted in place thereof:
3D.02 BORROWINGS -- Borrower will not, nor permit OSLI or OSMI
to create, assume or have outstanding at any time any indebtedness for
borrowed money (or become a guarantor in respect to any indebtedness
for borrowed money) the incurrence of which would create a default
under this Agreement, including, without limitation, a default under
section 3B.01 or 3B.02.
12. Subprovision (c) of subsection 3D.03 LIENS of the Credit Agreement
is amended by deleting the word "or" at the end of item (ix) thereof,
substituting ", or" for the period at the end of item (x) thereof and adding the
following new item (xi) immediately following item (x) thereof:
(xi) any mortgage, security interest or other lien that is
confined to real property or equipment that is not
already encumbered by a lien in favor of the Banks
and the value of which in the aggregate, excluding
any such property or equipment that secures any
indebtedness in respect of leases. does not at any
time exceed twenty-five percent (25%) of the net
worth of Borrower less the amount of Borrower's
intangible assets, on a consolidated basis.
13. Subsection 3D.04 FIXED ASSETS of the Agreement shall be deleted in
its entirety and the following shall be substituted in place thereof:
3D.04 FIXED ASSETS -- Borrower will not, nor permit OSLI or
OSMI to, invest (net after trade-ins, if any) in any fiscal year in
fixed assets and leasehold improvements during any fiscal year
(commencing with the year 1997) more than fifteen million dollars
($15,000,000) but excluding for this purpose any investment (including
any investment of the proceeds of the subject term loans) in fixed
assets related to the Iowa Mill Project or the purchase of fixed assets
from Southeastern Metal Processing, Inc. or Southeastern Transshipping
Realty.
-6-
<PAGE> 7
14. Subsection 7B.07 ACTIONS REQUIRING CONSENT OF A MAJORITY OF THE
BANKS of the Agreement shall be deleted in its entirety and the following shall
be substituted in lieu thereof:
7B.07 ACTIONS REQUIRING CONSENT OF A MAJORITY OF THE BANKS --
The approval of a majority of the Banks is required to amend or waive
any of the provisions of Sections 3A, 3B, 3C and 3D of this Agreement,
except subsection 3D.03(c)(xi).
15. Subsection 7B.08 ACTIONS REQUIRING CONSENT OF ALL BANKS of the
Credit Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
7B.08 ACTIONS REQUIRING CONSENT OF ALL BANKS --
Notwithstanding any other provisions of this Agreement, all of the
Banks must approve any waiver or amendment to this Agreement which
would (i) extend the expiration date; (ii) extend the date on which any
subject indebtedness is due; (iii) reduce any interest rate,
commission, commitment fee or other amount payable by Borrower
hereunder; (iv) increase any Bank's subject commitment; (v) change the
percentage of the Banks whose approval is required to take any action
hereunder; (vi) change any of the provisions of subsections 2D.02 and
5A.04; (vii) release any collateral securing the subject loans; (viii)
release or modify the subject guaranty; or (ix) change any of the
provisions of subsection 3D.03(c)(xi).
16. Section 9 DEFINITIONS of the Agreement is amended by adding the
following new definitions thereto:
EQUIPMENT means, collectively, all goods, merchandise,
machinery and equipment and other personal property used or
purchased for use primarily in Borrower's business (excluding
inventory) wherever located;
RELATED WRITING means any note, mortgage, guaranty, security
agreement, other lien instrument, financial statement, audit
report, notice, legal opinion, credit request, officer's
certificate or other writing of any kind which is executed by
Borrower or OSLI or OSMI, or certified or signed by one or
more of its officers, auditors or counsel, and is delivered to
the Banks and NCB-Agent or any thereof pursuant to this
Agreement or any related writing and includes, without
limitation, the subject notes and the other writings referred
to in Sections 2A, 2B, 2C, 2D, 2E, 3A and 4A;
SERIES A SUBJECT TERM LOANS means the term loans obtained
pursuant to subsection 2A.01.1 of this Agreement;
SUBJECT GUARANTY means the guaranty of payment executed and
delivered by OSLI or OSMI pursuant to subsection 2F.01, as
supplemented from time to time.
SUBJECT NOTE means a note executed and delivered hereunder by
Borrower and being in the form and substance of Exhibit 2B.01
or 2B.OIT with the blanks appropriately filled;
-7-
<PAGE> 8
SUBJECT TERM LOAN means a subject loan obtained by Borrower
that is not a subject revolving credit loan.
17. Exhibits 2A.03, 2A.05 and 2B.01 to the Agreement shall be deleted
in their entirety and replaced by the attached new Exhibits 2A.03, 2A.05 and
2B.01, respectively, and the attached new Exhibits 2B.01T, 2EE.02 and 2FF.01 S
are hereby added to the Agreement.
18. Prior to or at the execution and delivery of this Second Amendment,
Borrower shall have complied or caused compliance with each of the following:
(a) Borrower shall have executed and delivered to each Bank a
subject revolving credit loan note in principal amount equal to the dollar
amount of such Bank's aggregate subject commitment therefor in Subsection 2A.01
in the form comparable to EXHIBIT 2B.01 of the Agreement with the blanks
appropriated completed.
(b) Borrower shall have executed and delivered series A
subject term loan notes to each Bank in accordance with subsection 2B.01.
(c) OSLI and OSMI shall each have executed and delivered to
NCB-Agent a supplement to its subject guaranty in the form attached as EXHIBIT
2FF.01S.
(d) Borrower's secretary shall have certified to each Bank
resolutions duly adopted by Borrower's board of directors in respect of this
Second Amendment and the matters contemplated hereby and authorizing execution,
delivery and performance of this Second Amendment and the subject notes and the
security and other documents to be delivered by Borrower pursuant to this Second
Amendment.
(e) The secretary of OSLI and OSMI shall have certified to
each Bank resolutions duly adopted by OSLI's and OSMI's boards of directors
authorizing the execution, delivery and performance of the supplements to the
subject guaranties to be delivered pursuant to this Second Amendment.
19. Following completion of the Iowa Mill Project, Borrower shall
promptly obtain an appraisal of the land, buildings and equipment that are part
of the Iowa Mill Project from an appraiser or appraisers acceptable to Bank and
shall deliver such appraisal to NCB-Agent.
20. From and after the effective date of this Second Amendment,
references in the Agreement and the subject notes (as each of the foregoing has
been amended by the First Amendment and this Second Amendment or pursuant to
such amendments) to (i) the Agreement shall be deemed to be references to the
Agreement as amended by the First Amendment and this Second Amendment (unless
otherwise expressly indicated) and (ii) the subject notes shall be deemed to
include the supplemental revolving credit and series A subject term loan notes
executed and delivered pursuant hereto.
21. Borrower restates and reaffirms all of its representations and
warranties set forth in Section 4B of the Agreement as of the date hereof.
22. This Second Amendment and the modifications set forth herein shall
be and become effective as of the date hereof.
23. This Second Amendment may be executed in one or more counterparts,
each counterpart to be executed by Borrower, by NCB-Agent and by one or more or
all of the Banks. Each such executed counterpart shall be deemed to be an
executed original for all purposes but
-8-
<PAGE> 9
all such counterparts taken together shall constitute one agreement, which
agreement constitutes the entire agreement among the parties hereto with respect
to the subject matter hereof.
24. This Second Amendment may be executed by representatives of the
Banks using facsimile signatures and facsimilied signature pages shall in all
respects be binding on all parties hereto and thereto as if such signature pages
were originally delivered. Original signature pages for all facsimilied
signature pages shall be delivered to the parties hereto not later than June 6,
1997.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as
of the date first above written.
NATIONAL CITY BANK, AGENT OLYMPIC STEEL, INC.
By: /s/ Donald B. Hayes, Jr. By: /s/ Richard T. Marabito
---------------------------- -----------------------------
Donald B. Hayes, Jr. Richard T. Marabito
Vice President Treasurer
NATIONAL CITY BANK
By: /s/ Donald B. Hayes, Jr.
---------------------------
Donald B. Hayes, Jr.
Vice President
COMERICA BANK
By: /s/ Brian T. Dragon
---------------------------
Brian T. Dragon
Account Officer
MELLON BANK, N.A.
By: /s/ Richard K. James
---------------------------
Richard K. James
Vice President
-9-
<PAGE> 1
Exhibit 4.7
THIRD AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of July 14,
1997, (this "Third Amendment"), is by and among OLYMPIC STEEL, INC., an Ohio
corporation ("Borrower"), and NATIONAL CITY BANK ("NCB") and the group of other
banks signatory hereto or that become parties to the Credit Agreement hereafter
identified by amendment or supplement thereto (NCB and the banks comprising such
group at any specific time, hereinafter referred to as the "Banks") and NATIONAL
CITY BANK, as agent for the Banks (in that capacity, "NCB-Agent").
RECITALS
--------
A. Borrower, the Banks and NCB-Agent entered into a Credit
Agreement, dated as of October 4, 1996 (the "Agreement"), pursuant to which
Borrower may obtain, among other things, (i) loans ratably from the Banks that
are on a revolving credit basis and (ii) subject LCs issued by NCB in which the
Banks agree to ratably share the obligations in respect thereof, in each case
until the expiration date.
B. Borrower, the Banks and NCB-Agent entered into the First
Amendment to Credit Agreement, dated as of January 24, 1997 (the "First
Agreement"), in order to increase the amount of the commitments by the Banks for
subject revolving credit loans and additional subject LCs by Ten Million Dollars
($10,000,000) and to permit Borrower to make certain joint venture investments
and guarantees of indebtedness of the joint venture entities.
C. Borrower, the Banks and NCB-Agent entered into the Second
Amendment to Credit Agreement, dated as of May 30, 1997 (the "Second
Amendment"), in order to increase the amount of the commitments by the Banks for
subject revolving credit loans and additional subject LCs by Eight Million
Dollars ($8,000,000), to add a commitment by Banks for new Series A term loans
in the amount of Seventeen Million Dollars ($17,000,000), to permit certain
borrowing from other lenders, to permit the Borrower to allow certain of its
property to become encumbered by liens in favor of other lenders and to extend
the expiration date to June 30, 2000.
D. Borrower, the Banks and NCB-Agent desire to again amend the
Agreement by this Third Amendment to Credit Agreement (the "Third Amendment"),
in order to add PNC Bank, National Associations ("PNC"), as a party hereto,
change the ratable share of the obligations of some of the Banks hereunder and
make appropriate changes to recognize the fact that some or all of the proceeds
of the subject term loans will be used by a newly formed subsidiary of Borrower,
Olympic Steel Iowa, Inc. ("OSII"), for the purpose of acquiring land in
Bettendorf, Iowa and constructing a temper mill facility thereon.
AGREEMENT
---------
Accordingly, the parties have agreed and do hereby agree as
follows:
1. The following new Section 1C shall be added to the Agreement
immediately following Section 1B thereof:
1C. ADDITION OF BANK -- As of date of the Third Amendment to
this Agreement, PNC is a party hereto and is included within the
definition "Banks". Since the Banks have previously made subject loans
to Borrower under the Agreement, PNC
<PAGE> 2
shall, as of the date hereof, make a payment to each Bank whose ratable
share of the aggregate subject commitments of the Banks hereunder is
decreased as result of the Third Amendment (the "Decreased Banks") in
an amount equal to the difference between the amount of such Decreased
Bank's outstanding subject loans immediately preceding the effective
date of the Third Amendment and the amount of outstanding subject loans
such Decreased Bank would have had at such time if such Decreased
Bank's ratable share of the subject commitments as of October 4, 1996
had been the share set forth in the Third Amendment. In addition, PNC
and the Decreased Banks will make adjustments between them to reflect
any necessary proration of any interest, commitment fees or other items
to be paid to PNC after the date of the Third Amendment or previously
paid to the Decreased Banks that, in either case, relate to periods of
time that straddle the effective date of the Third Amendment.
2. Subsection 2A.01 SUBJECT REVOLVING LOANS AND LETTERS OF CREDIT
AMOUNTS of the Agreement shall be deleted in its entirety and the following
shall be substituted in place thereof:
2A.01 SUBJECT REVOLVING CREDIT LOANS AND LETTERS OF CREDIT
AMOUNTS -- The aggregate amount of the commitments by the Banks for
subject revolving credit loans and additional subject LCs shall be
Sixty-Eight Million Dollars ($68,000,000). The aggregate amount of the
subject commitments for additional subject LCs shall not exceed Five
Million Dollars ($5,000,000). The aggregate amount of the subject
commitments for the subject revolving credit loans and additional
subject LCs may be reduced from time to time pursuant to subsection
2A.03 and the subject commitments may be terminated pursuant to Section
5B. The aggregate amount of the subject commitments by the Banks for
existing subject LCs as of July 14, 1997 is Nine Million, Seven Hundred
Thirty-One Thousand, Three Hundred Forty-Four Dollars ($9,731,344) but
that amount may be reduced from time to time pursuant to subsection
2A.03 and the subject commitments may be terminated pursuant to Section
5B. The amount of each Bank's subject commitment to make subject
revolving credit loans to Borrower and to participate in respect of
additional subject LCs and existing subject LCs (subject to such
reduction or termination), and the proportion (expressed as a
percentage) that it bears to all of the subject commitments, is set
forth opposite the Bank's name on SCHEDULE 2A.01 hereto dated July 14,
1997.
3. Subsection 2A.01.1 SERIES A TERM LOANS of the Agreement shall be
deleted in its entirety and the following shall be substituted in place thereof:
2A.01.1 SERIES A TERM LOANS-- (a) The aggregate amount of the
series A subject term loans shall be an amount up to, but not
exceeding, Seventeen Million Dollars ($17,000,000). The series A
subject term loans shall be made and disbursed not more frequently than
once each calendar month and the aggregate amount thereof shall not
exceed eighty percent (80%) of costs reasonably incurred and paid by
Borrower or OSII for construction of a temper mill facility in
Bettendorf, Iowa (the "Iowa Mill Project"). With each request for a
series A subject term loan advance, Borrower or OSII shall submit to
NCB-Agent evidence of such costs so incurred and paid and such other
information as NCB-Agent may request with respect to the Iowa Mill
Project including, without limitation, the estimated cost of completing
the same. The subject commitments for any amount of the series A
subject term loans not disbursed on or before December 30, 1998 shall
automatically and immediately expire on December 31, 1998 without any
notice to Borrower.
(b) Beginning May 30, 1999, the outstanding principal amount
of the series A subject term loans shall be reduced annually prior to
the expiration date by an amount
-2-
<PAGE> 3
equal to ten percent (10%) of the aggregate amount thereof outstanding
and disbursed prior to December 31, 1998 (for example, if the aggregate
amount of the series A subject term loans disbursed is $17,000,000,
then the amount of each principal reduction prior to the expiration
date shall be $1,700,000). A principal payment of the series A subject
term loans shall be made on each May 30 commencing on May 30, 1999 with
a final payment of the entire outstanding amount of the series A
subject term loans being due and payable on the expiration date.
(c) The amount of each Bank's subject commitment to make
series A subject term loans (which is subject to termination pursuant
to Section 5B), and the proportion (expressed as a percentage) that it
bears to all of the subject commitments relating thereto is set forth
opposite the Bank's name below.
<TABLE>
<CAPTION>
==========================================================================================================================
Bank Series A Subject Term Loan Percentage
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National City Bank $6,800,000 40%
- --------------------------------------------------------------------------------------------------------------------------
Comerica Bank $4,250,000 25%
- --------------------------------------------------------------------------------------------------------------------------
Mellon Bank, N.A. $3,400,000 20%
- --------------------------------------------------------------------------------------------------------------------------
PNC Bank, National Association $2,550,000 15%
- --------------------------------------------------------------------------------------------------------------------------
Total $17,000,000 100%
==========================================================================================================================
</TABLE>
(d) Anything contained in this subsection 2A.01.1 to the
contrary notwithstanding, no term loan shall be made or disbursed by
any of the Banks prior to compliance by Borrower with the conditions
set forth in section 2B of this Agreement.
4. The introductory paragraph of section 2B SUBJECT LOANS and
subsection 2B.01 SUBJECT NOTES of the Agreement shall be deleted in their
entirety and the following shall be substituted in place thereof:
2B. SUBJECT LOANS -- Each Bank (for itself only and not for
the others) agrees, subject to the conditions of this Agreement, that
so long as that Bank's subject commitment remains in effect, it will
grant Borrower the subject loans up to the amounts specified to be
loaned by it in subsections 2A.01 and 2A.01.1 pursuant to this
Agreement as Borrower may from time to time request; PROVIDED, however,
that each Bank's obligations to make the subject term loans shall arise
only when (and not before) Borrower has complied or caused compliance
with each of the following conditions:
(a) Borrower shall have executed and delivered the
environmental indemnity agreement to be executed and delivered
pursuant to subsection 2EE.03.
(b) Borrower shall have caused to be delivered to
NCB-Agent a policy of title insurance or a commitment therefor
or endorsements thereto with respect to the land and buildings
of OSII to be subject to a mortgage securing the fulfillment
of OSII's obligations under its subject guaranty and in such
amount as the Banks may reasonably require.
(c) OSII shall have executed and delivered the
security documents to be executed and delivered pursuant to
subsection 2EE.02 and such documents, including all of the
mortgages required by such subsection, shall have been filed
for record.
-3-
<PAGE> 4
(d) Counsel for Borrower OSLI, OSMI and OSII shall
have rendered to each Bank a written opinion in respect of the
matters referred to in subsections 4B.01, 4B.02, 4B.03 and
4B.04 as the same relate to the subject term loans and the
documents to be or previously delivered to NCB-Agent or the
Banks in connection therewith, in form and substance
satisfactory to each Bank.
(e) Borrower shall have obtained a phase I
environmental report with respect to the land that is to be
part of the Iowa Mill Project from a qualified environmental
expert acceptable to the Banks and shall have delivered such
report to NCB-Agent.
2B.01 SUBJECT NOTES -- Each Bank's subject revolving credit
loan and participation in respect of additional subject LCs and
existing subject LCs shall be evidenced by subject notes executed and
delivered by Borrower, payable to the order of that Bank aggregating in
the principal amount equal to the dollar amount of that Bank's
aggregate subject commitment therefor set forth in Section 2A.01. Each
subject note shall be in the form and substance of EXHIBIT 2B.01 with
the blanks appropriately filled. Each of the subject term loans by each
Bank shall be evidenced by a separate subject note executed and
delivered by Borrower, payable to the order of the Bank in principal
amount equal to the dollar amount of the Bank's subject commitment
therefor; each such note shall be in form and substance of EXHIBIT
2B.01T with the blanks appropriately filled. The subject notes
delivered in accordance herewith shall replace all prior subject notes
delivered to Banks under the Credit Agreement.
(a) Whenever Borrower obtains a series of subject
loans pursuant to this Agreement, each Bank shall
make an appropriate entry into a loan account
maintained in that Bank's books and records. Each
entry shall be prima facie evidence of the data so
entered; but such entries shall not be a condition to
Borrower's obligation to pay.
(b) No holder of any subject note shall transfer a
subject note, or seek a judgment or file a proof of
claim based on a subject note without in each case
first endorsing the subject note to reflect the true
amount owing thereon.
5. Section 2EE SECURITY FOR SUBJECT TERM LOANS of the Agreement shall
be deleted in its entirety and the following shall be substituted in lieu
thereof:
2EE. SECURITY FOR OSII GUARANTY OBLIGATIONS -- The fulfillment of
OSII's obligations under its Guaranty Agreement shall be secured in accordance
with the following:
2EE.01 OSII OBLIGATION TO GUARANTY SUBJECT TERM LOANS -- The
fulfillment of OSII's obligations under its Guaranty Agreement in
connection with the subject term loans shall be secured by a first
priority lien and security interest in all of OSII's land, buildings
and equipment located in Bettendorf, Iowa.
2EE.02 SECURITY DOCUMENTS -- Borrower agrees to cause OSII to
execute and deliver to NCB-Agent such mortgages, security agreements,
UCC financing statements and other documents to effect the provisions
of Section 2EE as NCB-Agent, or a majority of the Banks, may from time
to time reasonably request including, without limitation, such as are
identified on EXHIBIT 2EE.02. Borrower agrees to pay the reasonable and
necessary out of pocket expenses of NCB-Agent incurred with the filing
and perfection of the security interests and liens to be granted
pursuant to this Section 2EE.
-4-
<PAGE> 5
2EE.03 ENVIRONMENTAL INDEMNITY -- Borrower agrees to execute
and deliver to NCB-Agent an agreement protecting the Banks and
NCB-Agent from liability for environmental claims relating to the
property subject to the mortgage that is to secure the guaranty of the
subject term loans. Such agreement shall be in form and substance
reasonably satisfactory to the Banks and NCB-Agent.
6. Section 2FF.01 OSLI AND OSMI GUARANTY OF PAYMENT OF SUBJECT TERM
LOANS OF THE AGREEMENT shall be deleted in its entirety and the following
sentence shall be added to the Agreement at the end of section 2F.01 thereof:
Borrower shall cause each of its wholly-owned subsidiaries,
OSLI and OSMI, to unconditionally guarantee payment of the subject term
loans pursuant to a guaranty of payment, through a supplement to its
subject guaranty in the form attached hereto as EXHIBIT 2F.01S,
executed and delivered to the Banks by OSLI and OSMI, and pursuant to
such additional supplements to its subject guarantee as NCB-Agent may
require with respect to increases in the subject commitments for the
subject revolving credit and term loans.
7. The following subsection 2F.02 shall be added to the Agreement
immediately following subsection 2F.01 thereof:
2F.02 OSII GUARANTY OF PAYMENT -- Borrower shall cause its
wholly owned subsidiary, OSII, to unconditionally guarantee payment of
the subject revolving loans, the Series A subject term loans and the
subject LCs pursuant to a guaranty of payment, in the form attached
hereto as EXHIBIT 2F.02, executed and delivered to the Banks by OSII (a
"subject guaranty"). Borrower acknowledges that some or all of the
proceeds of the Series A subject term loans will be used by Borrower
for purposes of making a loan to, or an equity investment in, OSII to
facilitate its acquisition of land in Bettendorf, Iowa for the Iowa
Mill Project and/or its construction of a temper mill thereon and its
acquisition of equipment for such mill.
8. Wherever the words "OSLI and OSMI", "OSLI or OSMI" or "OSLI and/or
OSMI" appear in sections 3A through 3D, Section 4B (except for the last sentence
of subsection 4B.03) and Section 5A of the Agreement, they will be replaced by
the words "OSLI, OSMI and OSII", "OSLI, OSMI or OSII" and "OSLI, OSMI and/or
OSII" respectively, the word "OSLI" in the introduction in subsection 3D.05 will
be replaced by the words "OSLI, OSMI or OSII", the words "or OSLI" at the end of
subsection 4B.04 will be replaced by the words ,"OSLI, OSMI or OSII" and the
words "OSLI's and OSMI's" in subsection 5B.01(c) will be replaced by the words
"OSLI's, OSMI's and OSII's".
9. The last sentence of subsection 4B.03 CORPORATE AUTHORITY of the
Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
Upon the execution and delivery thereof by OSLI, OSMI and
OSII, the subject guaranties, as supplemented in the case of OSLI and
OSMI, and the security agreement to be executed and delivered by OSII
pursuant to subsection 2EE.02, will each become a valid and binding
obligation of the party thereto subject, however, to any applicable
insolvency or Bankruptcy law and general principles of equity.
10. The following sentence shall be added to the Agreement at the end
of Subsection 4B.06 thereof:
Upon acquisition of the land to be used for the Iowa Mill
Project, construction of the temper mill facility thereon and
acquisition of the equipment for such mill, OSII
-5-
<PAGE> 6
will have good and marketable title to such assets, free and clear of
any mortgage, security interest or other lien of any kind except those
in favor of Banks that are imposed in accordance with the Third
Amendment.
11. Section 9 DEFINITIONS of the Agreement is amended by adding the
following new definitions thereto:
DECREASED BANKS is defined in Section 1C.
EQUIPMENT means, collectively, all goods, merchandise,
machinery and equipment and other personal property used or
purchased for use primarily in the business of Borrower, OSLI,
OSMI or OSII (excluding inventory) wherever located;
OSII means Olympic Steel Iowa, Inc., an Iowa corporation that
is a wholly owned subsidiary of OSMI;
PNC means PNC Bank, National Association;
RELATED WRITING means any note, mortgage, guaranty, security
agreement, other lien instrument, financial statement, audit
report, notice, legal opinion, credit request, officer's
certificate or other writing of any kind which is executed by
Borrower or OSLI, OSMI or OSII, or certified or signed by one
or more of its officers, auditors or counsel, and is delivered
to the Banks and NCB-Agent or any thereof pursuant to this
Agreement or any related writing and includes, without
limitation, the subject notes and the other writings referred
to in Sections 2A, 2B, 2C, 2D, 2E, 2EE, 2F, 3A and 4A;
SERIES A SUBJECT TERM LOANS means the term loans obtained
pursuant to subsection 2A.01.1 of this Agreement;
SUBJECT GUARANTY means the guaranty of payment executed and
delivered by OSLI, OSMI or OSII pursuant to this Agreement, as
supplemented from time to time;
SUBJECT NOTE means a note executed and delivered hereunder by
Borrower and being in the form and substance of Exhibit 2B.01
or 2B.01T with the blanks appropriately filled;
12. Exhibits 2A.05, 2B.01, 2B.01T, 2EE.02 and 2FF.01S to the Agreement
shall be deleted in their entirety and replaced by the attached new Exhibits
2A.05, 2B.01, 2B.01T, 2EE.02 and 2F.01S, respectively, and the attached new
Exhibit 2F.02, shall be added to the Agreement immediately following Exhibit
2F.01S.
13. Prior to or at the execution and delivery of this Third Amendment,
Borrower shall have complied or caused compliance with each of the following:
(a) Borrower shall have executed and delivered to each Bank a
subject revolving credit loan note in principal amount equal to the dollar
amount of such Bank's aggregate subject commitment therefor in subsection 2A.01
in the form comparable to EXHIBIT 2B.01 of the Agreement with the blanks
appropriated completed. The notes so delivered will take the place of all prior
revolving credit loan notes held by the Banks hereunder.
(b) Borrower shall have executed and delivered series A
subject term loan notes to each Bank in accordance with subsection 2B.01 in the
form comparable to EXHIBIT
-6-
<PAGE> 7
2B.01T of the Agreement with the blanks appropriately completed. The notes so
delivered will take the place of all prior Series A subject term loan notes held
by the Banks hereunder.
(c) OSLI and OSMI shall each have executed and delivered to
NCB-Agent a supplement to its subject guaranty in the form attached as EXHIBIT
2F.01S and OSII shall have executed and delivered to NCB-Agent a subject
guaranty in the form attached as Exhibit 2F.02.
(d) Borrower's secretary shall have certified to each Bank
resolutions duly adopted by Borrower's board of directors in respect of this
Third Amendment and the matters contemplated hereby and authorizing execution,
delivery and performance of this Third Amendment and the subject notes and the
security and other documents to be delivered by Borrower pursuant to this Third
Amendment.
(e) The secretary of OSLI and OSMI shall have certified to
each Bank resolutions duly adopted by OSLI's and OSMI's boards of directors
authorizing the execution, delivery and performance of the supplements to the
subject guaranties to be delivered pursuant to this Third Amendment and the
secretary of OSII shall have certified to each Bank resolutions duly adopted by
OSII's board of directors authorizing the execution, delivery and performance of
the subject guaranty and the security documents to be executed and delivered
pursuant to this Third Amendment.
14. Following completion of the Iowa Mill Project, Borrower shall
promptly obtain an appraisal of the land, buildings and equipment that are part
of the Iowa Mill Project from an appraiser or appraisers acceptable to Banks and
shall deliver such appraisal to NCB-Agent.
15. From and after the effective date of this Third Amendment,
references in the Agreement and the subject notes (as each of the foregoing has
been amended by the First Amendment, the Second Amendment and this Third
Amendment or pursuant to such amendments) to (i) the Agreement shall be deemed
to be references to the Agreement as amended by all such amendments (unless
otherwise expressly indicated) and (ii) the subject notes shall be deemed to
include the supplemental revolving credit and series A subject term loan notes
executed and delivered pursuant hereto.
16. Borrower restates and reaffirms all of its representations and
warranties set forth in Section 4B of the Agreement as of the date hereof.
17. This Third Amendment and the modifications set forth herein shall
be and become effective as of the date hereof.
18. This Third Amendment may be executed in one or more counterparts,
each counterpart to be executed by Borrower, by NCB-Agent and by one or more or
all of the Banks. Each such executed counterpart shall be deemed to be an
executed original for all purposes but all such counterparts taken together
shall constitute one agreement, which agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof.
19. This Third Amendment may be executed by representatives of the
Banks using facsimile signatures and facsimilied signature pages shall in all
respects be binding on all parties hereto and thereto as if such signature pages
were originally delivered. Original signature pages for all facsimilied
signature pages shall be delivered to the parties hereto not later than July 21,
1997.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Third Amendment as
of the date first above written.
NATIONAL CITY BANK, AGENT OLYMPIC STEEL, INC.
By: /s/ Donald B. Hayes, Jr. By: /s/ Richard T. Marabito
---------------------------- ------------------------------
Donald B. Hayes, Jr. Richard T. Marabito
Vice President Treasurer
NATIONAL CITY BANK
By: /s/ Donald B. Hayes, Jr.
----------------------------
Donald B. Hayes, Jr.
Vice President
COMERICA BANK
By: /s/ Brian T. Dragon
----------------------------
Brian T. Dragon
Account Officer
MELLON BANK, N.A.
By: /s/ Michael C. Haines
----------------------------
Michael C. Haines
Banking Officer
PNC BANK, NATIONAL ASSOCIATION
By:
----------------------------
-8-
<PAGE> 1
Exhibit 4.8
SECOND AMENDMENT
TO
RECEIVABLES PURCHASE AGREEMENT
This Second Amendment to Receivables Purchase Agreement, dated as of
July 14, 1997 (this "AMENDMENT"), is among OLYMPIC STEEL RECEIVABLES L.L.C., a
Delaware limited liability company, as seller (the "SELLER"), OLYMPIC STEEL
RECEIVABLES, INC., a Delaware corporation, as managing member (the "MANAGING
MEMBER"), OLYMPIC STEEL, INC., an Ohio Corporation ("OLYMPIC") as initial
servicer (the "MASTER SERVICER"), CLIPPER RECEIVABLES CORPORATION, a Delaware
corporation ("PURCHASER"), STATE STREET CAPITAL CORPORATION, a Massachusetts
corporation ("STATE STREET CAPITAL") as administrator (the "ADMINISTRATOR") for
the Purchaser, and NATIONAL CITY BANK, a national bank ("NCB") as a referral
agent for Purchaser (the "RELATIONSHIP BANK"). Unless the context otherwise
requires, all capitalized terms not defined herein shall have the meaning
ascribed to such terms in Appendix A to the Receivables Purchase Agreement.
R E C I T A L S
1. Each of the parties hereto is party to that certain Receivables
Purchase Agreement, dated as of December 19, 1995 (as the same may from time to
time be amended or otherwise modified, the "RECEIVABLES PURCHASE AGREEMENT")
executed and delivered in connection with a securitization transaction to which
the Seller, Managing Member, Olympic, Purchaser, State Street Capital and NCB,
are parties.
2. Each of the parties to the Receivables Purchase Agreement desire to
amend certain provisions therein to (i) increase the Purchase Limit from
$65,000,000 to $70,000,000, (ii) extend the scheduled Termination Date from
December 19, 1998 to July 31, 2000 and (iii) amend certain financial covenants
therein to conform to those covenants in certain credit facilities provided to
Olympic.
NOW THEREFORE, the parties agree that the Receivables Purchase
Agreement shall be amended on the terms herein provided:
SECTION 1 AMENDMENTS. The following amendments to the Receivables
Purchase Agreement shall be effective upon satisfaction of the conditions in
SECTION 3 of this Amendment.
SECTION 1.1 AMENDMENT TO SECTION 1.01. The reference to
$65,000,000 in Section 1.01(a)(1) is hereby replaced with
"$70,000,000."
SECTION 1.2 AMENDMENTS TO APPENDIX A: DEFINITIONS.
TERMINATION DATE. In Appendix A to the Receivables Purchase
Agreement, clause (c) of the definition of "Termination
Date" is hereby amended by replacing the reference to
December 19, 1998 with July 31, 2000.
<PAGE> 2
SECTION 1.3 AMENDMENTS TO FINANCIAL COVENANTS.
Section 7.05 is hereby amended and replaced in its entirety with the
following:
"SECTION 7.05. FINANCIAL COVENANTS. From the date hereof
until the Final Payout Date, Olympic will:
(a) NET WORTH. On a consolidated basis, Olympic will not
suffer or permit the sum of its Net Worth at any time to be
less than the then required minimum amount in effect at the
time in question. The required minimum amount shall be one
hundred and twenty-two million dollars ($122,000,000) from
December 31, 1996 until December 31, 1997 and shall be
permanently increased on December 31, 1997 and on each
December 31 thereafter by an amount equal to seventy-five
percent (75%) of Olympic's consolidated net income, if any,
for the fiscal year then ending. In the event Olympic
sustains a net loss for any fiscal year, such increase shall
be zero.
(b) LEVERAGE. On a consolidated statement basis, Olympic
will not suffer or permit its Liabilities-to-Worth Ratio at
any time to exceed two and one-half to one (2.5 to 1).
(c) PRETAX INTEREST COVERAGE. On a consolidated statement
basis, Olympic will not, as at the end of any fiscal quarter
during any fiscal year of Olympic (commencing with the
present year), suffer or permit its EBIT-to-Interest Ratio
to be less than two and one-half to one (2.5 to 1)."
SECTION 2 REPRESENTATIONS AND WARRANTIES. Olympic, Managing Member and
Seller hereby represent to Purchaser, State Street Capital and NCB that:
(a) The execution and delivery by them of this Amendment and the
performance of their obligations under the Receivables Purchase
Agreement as amended by this Amendment (as amended, the "AMENDED
AGREEMENT"), are within their corporate powers, have been duly
authorized by all necessary corporate action, have received all
necessary governmental and other consents and approvals (if any shall
be required) and do not and will not contravene or conflict with, or
create a lien under, (i) any provision of law, (ii) their constituent
documents, (iii) any court or administrative decree applicable to
them, or (iv) any contractual restriction binding upon them or their
property.
(b) The representations and warranties of Article VI of the
Receivables Purchase Agreement are true and correct as of the date of
their execution and delivery of this Amendment and after giving effect
hereto.
(c) This Amendment has been duly executed and delivered by them, and
the Amended Agreement is their legal, valid and binding obligation,
enforceable against them in accordance with its terms.
-2-
<PAGE> 3
(d) After giving effect to this Amendment, no Liquidation Event or
Unmatured Liquidation Event shall have occurred and be continuing.
SECTION 3 CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective as
of August 5, 1997 when the following conditions shall have been satisfied (the
"Condition Satisfaction Date"):
SECTION 3.1 DELIVERY OF COUNTERPARTS. The Administrator shall have
received (by facsimile or otherwise) counterparts of this Amendment or
the signature pages hereto, executed by each of Seller, Managing
Member, Olympic, Purchaser, State Street Capital and NCB.
SECTION 3.2 OTHER CONDITIONS. (a) The Administrator shall have
received the favorable opinion of Kahn, Kleinman, Yanowitz & Arnson &
Co., L.P.A. in a form reasonably acceptable to each of the
Administrator, NCB, State Street Capital and its respective counsel.
(b) Olympic shall have made arrangements satisfactory to
the Administrator for the payment of any agreed upon
fees and expenses related to this Amendment.
SECTION 4 MISCELLANEOUS PROVISIONS.
SECTION 4.1 REAFFIRMATION. As hereby amended, the Receivables Purchase
Agreement is hereby ratified and reaffirmed by Seller, Managing
Member, Olympic, Purchaser, State Street Capital and NCB and Olympic
hereby ratifies and confirms its guaranty as set forth in Section 12.1
of the Purchase and Sale Agreement after giving effect to this
Amendment.
SECTION 4.2 CAPTIONS. The various captions in this Amendment are
included for convenience only and shall not affect the meaning or
interpretation of any provision of this Amendment.
SECTION 4.3 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK.
SECTION 4.4 EXECUTION IN COUNTERPARTS. This Amendment may be executed
in any number of counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall
constitute one and the same Amendment.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
OLYMPIC STEEL RECEIVABLES L.L.C.,
as Seller
By: Olympic Steel Receivables, Inc.,
its managing member
By: /s/ Richard T. Marabito
---------------------------
Name: Richard T. Marabito
-------------------------
Title: Vice President
------------------------
OLYMPIC STEEL RECEIVABLES, Inc.,
as the managing member of the Seller
By: /s/ Richard T. Marabito
---------------------------
Name: Richard T. Marabito
---------------------------
Title: Vice President
------------------------
OLYMPIC STEEL, INC., as Initial
Master Servicer
By: /s/ Richard T. Marabito
---------------------------
Name: Richard T. Marabito
---------------------------
Title: Treasuer
------------------------
CLIPPER RECEIVABLES CORPORATION,
as Purchaser
By: /s/ Tiffany Percival
---------------------------
Name: Tiffany Percival
---------------------------
Title: Secretary
------------------------
S-1
<PAGE> 5
STATE STREET CAPITAL CORPORATION,
as Administrator
By: /s/ Paulina Girsen
---------------------------
Name: Paulina Girsen
---------------------------
Title: Associate
------------------------
NATIONAL CITY BANK,
as Relationship Bank
By: /s/ Donald B. Hayes
---------------------------
Name: Donald B. Hayes
---------------------------
Title: Vice President
------------------------
S-2
<PAGE> 6
ACKNOWLEDGED AND AGREED:
NATIONAL CITY BANK, as a
Liquidity Bank
By: /s/ Donald B. Hayes
--------------------------------
Name: Donald B. Hayes
------------------------------
Title: Vice President
-----------------------------
MELLON BANK, N.A., as a
Liquidity Bank
By: /s/ Michael C. Haines
--------------------------------
Name: Michael C. Haines
------------------------------
Title: Banking Officer
-----------------------------
PNC BANK, NATIONAL ASSOCIATION, as
a Liquidity Bank
By: /s/ Mark Rutherford
--------------------------------
Name: Mark Rutherford
------------------------------
Title: Vice President
-----------------------------
COMERICA BANK, as a Liquidity Bank
By: /s/ Brian Dragon
--------------------------------
Name: Brian Dragon
------------------------------
Title: Vice President
-----------------------------
STATE STREET BANK & TRUST COMPANY, as
Credit Bank
By: /s/ Paulina Girsen
--------------------------------
Name: Paulina Girsen
------------------------------
Title: Associate
-----------------------------
By: /s/ Hasham Malik
--------------------------------
Name: Hasham Malik
------------------------------
Title: Assistant Vice President
-----------------------------
S-3
<PAGE> 1
Exhibit 10.10
ASSET PURCHASE AGREEMENT
------------------------
By and Among
OLYMPIC STEEL, INC.,
an Ohio corporation
("Buyer")
and
SOUTHEASTERN METAL PROCESSING, INC.,
a Georgia corporation
and
SOUTHEASTERN TRANS-SHIPPING REALTY,
a Georgia partnership
(collectively, "Seller")
and
JERRY O. KIRKLAND,
GENE L. JAMES,
ORVIN FLINT,
and
MICHAEL MINIEA
("Shareholders")
May 30, 1997
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
Page
ARTICLE I
<S> <C>
DEFINITIONS..............................................................................................2
ARTICLE II
SALE AND PURCHASE OF BUSINESS AND ASSETS.................................................................6
2.1 Business and Assets.............................................................................6
2.2 Assumption of Liabilities.......................................................................8
2.3 Purchase Price and Manner of Payment...........................................................11
2.4 Closing Date Statement; Purchase Price Adjustment..............................................13
2.5 Review of Audited Closing Statement by Seller..................................................13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER................................................................14
3.1 Ownership of Assets............................................................................14
3.2 Organization, Qualification, and Authority of Seller...........................................14
3.3 No Equity Interests............................................................................16
3.4 Title to Properties; Liens, Conditions of Properties...........................................16
A. Real Property.........................................................................16
B. Personal Property.....................................................................16
C. Leases................................................................................17
D. Liens.................................................................................17
3.5 Financial Statements...........................................................................17
3.6 Changes........................................................................................18
3.7 Absence of Undisclosed Liabilities.............................................................19
3.8 Accounts Receivable............................................................................20
3.9 Inventories....................................................................................20
3.10 Accounts or Trade Payable......................................................................20
3.11 Intellectual Property..........................................................................21
3.12 Customers and Sales............................................................................21
3.13 Contracts and Commitments......................................................................22
A. Sales Orders, Subcontracts, Bids and Proposals........................................22
B. Purchase Orders and Other Trade Obligations...........................................22
C. Personal Property Leases (as Lessee or Lessor) and Other
Contracts.............................................................................22
D. Copies, Consents and Binding Effect..........................................23
E. Updating. ..................................................................23
</TABLE>
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<TABLE>
<S> <C>
F. Contracts Assumed by Buyer............................................................23
3.14 Litigation; Judgments and Consent Decrees......................................................24
3.15 Employee Relations.............................................................................24
3.16 Employee Benefits..............................................................................25
3.17 Compliance With Law/Governmental Authorizations................................................25
3.18 Environmental Matters..........................................................................26
A. In General. .........................................................................26
B. No Claims.............................................................................26
C. Absence of Events or Conditions.......................................................27
D. No Capital Expenditures Required For Compliance.......................................27
E. Certain Definitions...................................................................27
3.19 Payment of Taxes...............................................................................28
3.20 Transactions with Management...................................................................29
3.21 Insurance......................................................................................30
3.22 Agents and Employees...........................................................................30
3.23 No Default Under the Assumed Liabilities.......................................................30
3.24 Finder's Fee...................................................................................30
3.25 Full Disclosure of Representations.............................................................30
ARTICLE IV
COVENANTS OF SELLER.....................................................................................31
4.1 Conduct of Business............................................................................31
4.2 Assignment of Leases and Contracts.............................................................33
4.3 Breach of Representations, Warranties and Covenants............................................33
4.4 Consummation of Agreement......................................................................33
4.5 Cooperation....................................................................................34
4.6 Regulatory Filings.............................................................................34
4.7 Injunctions....................................................................................34
4.8 Taxes..........................................................................................34
4.9 Termination of Employment by Seller............................................................34
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................35
5.1 Organization of Buyer..........................................................................35
5.2 Authority of Buyer.............................................................................35
5.3 Finder's Fee...................................................................................36
5.4 Litigation.....................................................................................36
ARTICLE VI
COVENANTS OF BUYER......................................................................................36
</TABLE>
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<TABLE>
<S> <C>
6.1 Breach of Representations, Warranties and Covenants............................................36
6.2 Consummation of Agreement......................................................................36
6.3 Cooperation....................................................................................37
6.4 Regulatory Filings.............................................................................37
6.5 Injunctions....................................................................................37
6.6 Access to Records and Files....................................................................37
6.7 Offer of Employment............................................................................37
6.8 Olympic Medical Insurance Coverage ............................................................38
6.9 Redemption of Bonds............................................................................38
ARTICLE VII ACCOUNTS RECEIVABLE..................................................................................38
ARTICLE VIII CONDITIONS TO OBLIGATIONS OF BUYER..................................................................39
8.1 Representations; Warranties; Covenants.........................................................39
8.2 Opinion of Seller's and Shareholders' Counsel..................................................39
8.3 Delivery of Schedules and Exhibits.............................................................39
8.4 Damage or Destruction..........................................................................39
8.5 No Material Adverse Change.....................................................................39
8.6 Consents.......................................................................................40
8.7 Injunctions....................................................................................40
8.8 Transfer of Real Property......................................................................40
8.9 Appraisal and Environmental Audit..............................................................40
8.10 Shareholder Non-Competition Agreement..........................................................40
ARTICLE IX CONDITIONS TO OBLIGATIONS OF SELLER AND SHAREHOLDERS..................................................41
9.1 Representations, Warranties, Covenants.........................................................41
9.2 Opinion of Buyer's Counsel.....................................................................41
9.3 Delivery of Documents..........................................................................41
9.4 Injunctions....................................................................................41
9.5 Transfer of Real Property......................................................................41
ARTICLE X INDEMNIFICATION........................................................................................42
10.1 Indemnification by Seller......................................................................42
10.2 Indemnification By Buyer.......................................................................44
10.3 Third Party Claim Against Buyer or Seller......................................................45
ARTICLE XI
TERMINATION.............................................................................................45
</TABLE>
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<TABLE>
<S> <C>
11.1 Generally......................................................................................45
11.2 Right to Proceed...............................................................................46
ARTICLE XII
CLOSING OF TRANSACTION..................................................................................46
12.1 Closing........................................................................................46
12.2 Closing Certificate............................................................................46
12.3 Closing Documents..............................................................................46
A. Documents to be provided by Seller....................................................46
B. Documents to be provided by Buyer.....................................................48
12.4 Risk of Loss...................................................................................49
ARTICLE XIII
MISCELLANEOUS...........................................................................................49
13.1 Binding Effect.................................................................................49
13.2 Recitals; Exhibits and Schedules...............................................................49
13.3 Governing Law..................................................................................49
13.4 Notices........................................................................................49
13.5 Further Assurances.............................................................................51
13.6 Entire Agreement...............................................................................51
13.7 Waivers........................................................................................51
13.8 Headings.......................................................................................51
13.9 Severability...................................................................................51
13.10 Counterparts...................................................................................51
13.11 Public Announcement............................................................................52
13.12 Time of the Essence............................................................................52
13.13 Arbitration....................................................................................52
</TABLE>
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<PAGE> 6
EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Audited Closing Statement
Exhibit C Audited Purchase Price Reconciliation
Exhibit D December 1996 Interim Financial Statements
Exhibit E Real Property Purchase Agreement
Exhibit F General Assignment and Bill of Sale
Exhibit G Purchase Price Allocation
Exhibit H Non-Competition Agreement
Exhibit I Shareholder Guarantee
Exhibit J Closing Certificate
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<PAGE> 7
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT (the "Agreement") made and entered May 30, 1997, by and
among OLYMPIC STEEL, INC., an Ohio corporation ("Buyer"), SOUTHEASTERN METAL
PROCESSING, INC., a Georgia corporation ("Southeastern"), SOUTHEASTERN
TRANS-SHIPPING REALTY, a Georgia partnership (the "Partnership") (Southeastern
and the Partnership are sometimes hereinafter collectively and individually
referred to as "Seller"), JERRY O. KIRKLAND ("Kirkland"), GENE L. JAMES
("James"), ORVIN FLINT ("Flint"), and MICHAEL MINIEA ("Miniea") [Kirkland,
James, Flint and Miniea are sometimes hereinafter collectively referred to as
the "Shareholders" and individually as a "Shareholder"] is to evidence the
following agreements and understandings:
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Southeastern operates a toll processing steel service center
(the "Business") in Winder, Georgia on the Real Property (hereinafter defined)
and utilizes certain real estate, improvements, and equipment that is owned by
the Partnership;
WHEREAS, Seller desires to sell, and Buyer desires to purchase,
substantially all of Seller's assets, business, and properties whether real,
personal or mixed and wherever located, and Buyer is willing to assume only
those specified liabilities of Seller delineated herein, upon the terms and
conditions hereinafter set forth;
WHEREAS, the Real Property will be purchased from the Partnership
pursuant to the terms of a Real Property Purchase Agreement;
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of Southeastern and all of the interests in the Partnership and, as such,
directly and materially benefit from the consummation of the transactions
described in this Agreement;
<PAGE> 8
WHEREAS, to induce Buyer to purchase the Assets, Southeastern and each
of the Shareholders will enter into Non-Competition Agreements and Guarantees.
NOW THEREFORE, in exchange for the mutual promises contained herein and
for other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
"Affiliate" when used with respect to Seller or the Shareholders
includes, but is not limited to: (1) the spouse or child of any Shareholder; (2)
any corporation, partnership, trust, or other entity (whether or not
incorporated), directly or indirectly, through one or more intermediaries, that
is controlled by, or under common control with, Seller or any Shareholder; (3)
any officer, director, or employee of Seller, or his spouse or child; (4) any
person who is a member in any relationship or similar form of unincorporated
business association with any person or entity referred to above; and (5) any
entity required to be aggregated with any entity referred to above under Code
Sections 414(b), (c) and (m).
"Assumed Liabilities" shall have the meaning ascribed in Section 2.2
hereto.
"Audited Closing Statement" means the closing balance sheet of Seller,
solely with respect to the Assets and Assumed Liabilities, as of the Closing
Date, prepared in accordance with this Agreement in the form of EXHIBIT "B" and
as audited by Arthur Andersen LLP or another independent certified public
accountant mutually satisfactory to the parties.
"Audited Net Book Value" means each Seller's historical cost of the
Assets owned by such Seller, less depreciation and amortization, determined, in
the case of Southeastern, in accordance with GAAP (hereinafter defined),
consistently applied and, in the case of the Partnership in the manner utilized
by the Partnership in filing its tax returns and in a manner consistently
applied, less the value of the Assumed Liabilities, each as shown on the Audited
Closing Statement.
"Audited Purchase Price Reconciliation" means the purchase price
reconciliation in the form of EXHIBIT "C", as audited by Arthur Andersen LLP.
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"Buyer's Product Liability Obligations" means any claims for product
liability (whether for bodily injury or death or property loss or damage or
otherwise) arising from any occurrence on and after the Effective Date.
"Closing Date" or "Effective Date" means the date upon which the
closing of the transaction contemplated hereby ("Closing") will be deemed to
occur, which shall be June 1, 1997 or such other date as the parties may agree.
"Closing Statement" means the Estimated and Final Closing Statements,
collectively, prepared in accordance with this Agreement, in the form of EXHIBIT
"B".
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985.
"Code" means the Internal Revenue Code of 1986, as amended to date.
"Confidential Information" means confidential processes, testing
procedures, devices, formulae, computer software, computer programs and data
bases, drawings, blueprints, sketches, records, development data and reports,
engineering data and reports, plant designs, quality control specifications,
cost analyses, flow charts, process sheets, "know how", memoranda, customer
lists, supplier lists, or other confidential information relating to technical
matters, and confidential information relating to sales, financial structure,
pricing and marketing data, personnel data, and other information of like
nature, including, without limitation, such items which qualify as "trade
secrets" under the Uniform Trade Secrets Act, as adopted in the State of
Georgia.
"Contracts" shall mean all contracts listed on EXHIBIT "3.13A THROUGH
3.13C" and all contracts of Seller that, due to their size or term, are not
required in Section 3.13 to be listed on EXHIBIT "3.13A through 3.13C".
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means The Fifth Third Bank of Northeastern Ohio, Inc.,
or another financial institution mutually satisfactory to the parties pursuant
to the escrow agreement to be entered into among the Escrow Agent, Buyer and
Seller on the Closing Date (the "Escrow Agreement"), the form of which is to be
attached hereto upon the execution of this Agreement as EXHIBIT "A".
"Estimated Closing Statement" means the estimated closing balance sheet
of Seller (modified to reflect only the Assets and Assumed Liabilities) as of a
date not more than five (5) days prior to
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<PAGE> 10
the Closing Date, as prepared by Seller in accordance with this Agreement to be
delivered to Buyer on the Closing Date, in the form attached hereto as EXHIBIT
"B".
"Estimated Net Book Value" means each Seller's historical cost of the
Assets owned by such Seller less depreciation and amortization determined in
accordance with GAAP, consistently applied by such Seller, less the value of the
Assumed Liabilities, each as shown on the Estimated Closing Statement.
"Estimated Purchase Price Reconciliation" means the purchase price
reconciliation prepared by Seller in accordance with this Agreement and
delivered to Buyer on the second business day preceding the Closing Date, in the
form attached hereto as EXHIBIT "C".
"GAAP" means generally accepted accounting principles.
"Injunction" means any injunction, decree or similar order which
prohibits the consummation of the transaction contemplated by this Agreement.
"Intellectual Property" means: all Trade Secrets, patents, patent
applications, trade names, trademarks, and service marks (whether registered or
unregistered) and all copyrights (registered or unregistered), and all similar
items licensed or owned by Seller and used in connection with the Business.
"Interim Financial Statements" means the unaudited balance sheets of
Southeastern as of December 31, 1996, and as of March 31, 1997, respectively,
and the unaudited accompanying statements of cash flow and income for the three
(3) months then ended as prepared by Southeastern and attached as EXHIBIT "D".
"IRB Loan" means, collectively, the indebtedness of Seller evidenced by
Industrial Revenue Bonds in the original aggregate amount of $3,700,000 issued
as of October 1, 1994 by Winder-Barrow Industrial Building Authority which has a
current outstanding principal balance of approximately $3,100,000, and is
secured by an irrevocable standby letter of credit issued by Wachovia Bank of
Georgia, N.A. ("Bank").
"Knowledge" means, as applied to Seller, the actual knowledge of any
Shareholder and Elwood Reeves, Plant Manager, and as applied to Buyer, the
actual knowledge of the executive officers of Buyer.
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"1996 Financial Statements" means the audited balance sheet of
Southeastern as of September 30, 1996 and the related statement of income and
retained earnings and statement of cash flows for the year ended September 30,
1996 as audited by Agee Fisher & Co., certified public accountants, together
with the unaudited balance sheet of the Partnership as of December 31, 1996 and
the related statements of income and cash flow for the year ended December 31,
1996.
"Non-Competition Agreement" means, collectively, agreements to be
executed by Seller and Kirkland, James, Flint and Miniea, respectively, each of
whom is a Shareholder of Seller.
"Permitted Encumbrances" means: (i) liens arising under the IRB Loan;
(ii) liens for taxes and assessments not yet due and payable as of the Closing
Date; (iii) workers or unemployment liens arising in the ordinary course of
business securing amounts which are not yet due and payable as of the Closing
Date; (iv) mechanic's, materialmen's, vendor's and similar statutory liens
arising in the ordinary course of business for amounts which are not yet due and
payable as of the Closing Date; and (v) the Permitted Exceptions, if any,
described in Section 5 of the Real Property Purchase Agreement.
"Plan" or "Plans" means each pension, profit-sharing, cafeteria,
medical reimbursement, 401(k), retirement, deferred compensation, stock option,
incentive, vacation, hospitalization, medical, disability or life insurance,
severance, termination, bonus or other employee benefit plan, contract,
arrangement, or understanding of Seller or any person, corporation, partnership,
or other entity required to be aggregated with, or treated as the same employer
as, Seller under ERISA or the Code (an "ERISA Affiliate"), whether or not
covered by ERISA or qualified within the meaning of Section 401(a) of the Code,
and whether single-employer or multi-employer. The Plans shall include, but are
not limited to the Southeastern Metal Processing, Inc. Profit Sharing Plan.
"Purchase Price Reconciliation" means the Estimated and Final Purchase
Price Reconciliation, collectively, prepared in accordance with this Agreement,
and in the form of EXHIBIT "C".
"Real Property" means all of the land and buildings owned by the
Partnership, including, but not limited to, the property located at 509 Bankhead
Highway, Winder, Georgia, at which Southeastern operates the Business and as
more fully described in the Real Property Purchase Agreement, but specifically
excluding the Spartanburg Property.
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<PAGE> 12
"Real Property Purchase Agreement" means the Real Property Purchase
Agreement the form of which is attached hereto as EXHIBIT "E" pursuant to which
Buyer shall purchase the Real Property from the Partnership.
"Seller's Product Liability Obligations" means any claims for product
liability (whether for bodily injury or death or property loss or damage or
otherwise) arising from any occurrence before the Effective Date.
"Seller's Warranty Claims" means all warranty or other contract claims
by Seller whether implied, express or otherwise, or refunds against third party
manufacturers, vendors, carriers or utilities.
"Spartanburg Property" means the property located at 90 Viaduct Road,
Spartanburg, South Carolina and which is the subject of an Agreement dated
February 11, 1997 by and between Seller and Industrial Metal Products, Inc.
(the "Spartanburg Agreement").
"Term Loan" means, collectively, the indebtedness of Seller evidenced
by a Consolidation, Restatement and Modification of Real Estate Note issued by
the Partnership in favor of Bank dated January 10, 1996 in the original
principal amount of $2,640,094.09, which has a current outstanding balance of
$2,484,304.03 (inclusive of interest through May 30, 1997) are secured by
certain Assets and the personal guaranties of the Shareholders.
"WARN" means the Worker Adjustment Retraining Notification Act of 1988.
ARTICLE II
SALE AND PURCHASE OF BUSINESS AND ASSETS
----------------------------------------
2.1 BUSINESS AND ASSETS.
--------------------
A. Subject to the terms and conditions of this Agreement, Seller agrees
to sell, convey, transfer, assign, and deliver to Buyer, and Buyer agrees to
purchase from Seller, free and clear of all mortgages, security interests,
liens, charges and other encumbrances, all of the Business, rights, properties
and assets (other than the Excluded Assets identified in Section 2.1C below), of
every kind, character, and description, whether tangible, intangible, real,
personal, or mixed and wherever located, including, without limitation, all of
the right, title and interest of Seller in and to the assets described below
(collectively, the "Assets"):
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<PAGE> 13
(i) All assets and other rights listed as assets of Seller on the 1996
Financial Statements; all assets acquired by Seller in the ordinary course of
business on or after October 1, 1996 through the Closing Date and all other
property and rights listed as assets of Seller in the Exhibits and Schedules to
this Agreement, except: (a) inventory disposed of by Seller and plant and office
supplies consumed by Seller, each in the ordinary course of business, or (b)
those assets otherwise specifically excluded by this Agreement;
(ii) All of the fixed assets of Seller wherever located, including, but
not limited to, all processing equipment, cranes and office equipment;
(iii) All prepaid expenses, customer deposits and advances, and all
rebates, refunds or rights to discounts not yet earned or received by Seller
excluding prepaid assets relating to health and pension assets as set forth
below;
(iv) All accounts receivable of Seller collected within ninety (90)
days following the Closing Date (the "90-Day Period");
(v) Those funds deposited by Seller into a sinking fund deposit account
maintained with First-Citizens Bank & Trust Company, as Trustee, in connection
with the IRB Loan (approximately $75,000 as of the date of this Agreement)
(collectively, the "Sinking Fund Deposit");
(vi) Inventory including, but not limited to, raw materials and
supplies, scrap steel, side cut steel, and lumber;
(vii) All right and interest of Seller in and to the Real Property,
excluding the Spartanburg Property;
(viii) All Seller's Warranty Claims;
(ix) All Intellectual Property;
(x) All books, accounts, and records of Seller with respect to the
current fiscal year and each of the past five (5) fiscal years, including,
without limitation, all files, correspondence, credit and sales records,
warranty records, import and export records, employment records and any
confidential information reduced to writing and all other records (except
Seller's minute books, seal, stock records, income tax returns and those records
the disclosure of which is expressly prohibited by law);
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<PAGE> 14
(xii) The goodwill and going concern value of Seller and all of
Seller's right, title and interest, if any, to the names "Southeastern Metal"
and "Southeastern Metal Processing" as all or part of a trade, fictitious, or
corporate name; and
(xiii) All other rights, properties, assets and goodwill, if any, of
Seller related to the Business, real or personal, tangible or intangible, of
every kind whatsoever and wherever situated.
B. The Assets constituting personal property, including mixed or
fixtures, and whether located on or attached to the Real Property shall be
conveyed to Buyer by execution and delivery of a General Assignment and Bill of
Sale in the form attached hereto as EXHIBIT "F".
C. Notwithstanding anything herein to the contrary, Seller is not
selling and Buyer is not purchasing the following assets (the "Excluded Assets")
of Seller: (i) cash, bank accounts, deposits (other than the Sinking Fund
Deposit) and securities, and cash equivalents; (ii) receivables from any of the
Shareholders or any Affiliate thereof; (iii) rights, claims and causes of action
regarding Contracts not assumed by Buyer; (iv) receivables of Seller that remain
uncollected as of the ninetieth (90th) day following the Closing Date; (v)
prepaid expenses which do not provide a benefit to Buyer as identified on
EXHIBIT "E" attached hereto; (vi) S corporation tax deposits; (vii) insurance
policies and rights with respect thereto; (viii) all rights and assets related
to the Plans; (ix) all rights and interest in and to the Spartanburg Property;
and (x) all rights under this Agreement and the transactions relative thereto.
2.2 ASSUMPTION OF LIABILITIES.
-------------------------
A. Buyer and Seller agree that, except as provided in Section 2.2B
hereof, Buyer is not purchasing, assuming, or accepting any debts, liabilities
or obligations whatsoever of Seller, contingent or non-contingent, liquidated or
unliquidated, asserted or unasserted (the "Excluded Liabilities"), all of which
remain the debts, liabilities, and obligations of Seller.
B. At the Closing, Buyer will assume only the following obligations of
Seller (the "Assumed Liabilities"):
(i) Obligations under purchase orders, commitments or contracts
identified on EXHIBIT "3.13B", as updated through the Effective Date pursuant to
Section 3.13E;
(ii) All sales orders, commitments or contracts with customers
identified on EXHIBIT "3.13A", as updated through the Effective Date pursuant to
Section 3.13E;
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<PAGE> 15
(iii) All of Seller's other Contracts listed on EXHIBIT "3.13C", which
Buyer has reviewed, approved, and elected to assume (in Buyer's sole and
absolute discretion) excluding those agreements, if any, listed on the Schedule
of Unassumed Contracts attached hereto as EXHIBIT "3.13F";
(iv) All trade payables identified and recorded on the Audited Closing
Statement;
(v) The IRB Loan, to the extent identified and recorded on the Audited
Closing Statement but expressly excluding any penalty or premium arising out of:
(a) the assumption by Buyer of the IRB Loan, or (b) the prepayment of the IRB
Loan, in whole or in part, on the Closing Date;
(vi) The Term Loan, to the extent identified and recorded on the
Audited Closing Statement but expressly excluding any penalty or premium arising
out of the assumption by Buyer of the Term Loan, or (b) the prepayment of the
Term Loan, in whole or in part, on the Closing Date;
(vii) Accrued real estate taxes and personal property taxes payable
each of which shall be recorded on the Audited Closing Statement; and
(viii) Accrued vacation pay but solely to the extent identified and
recorded on the Audited Closing Statement (the "Vacation Accrual").
Buyer agrees to use its reasonable efforts and to cooperate with Seller
to obtain following the Closing, in connection with the assumption of the IRB
Loan and the Term Loan, a release of Seller and Shareholders from their
respective guaranties, in forms and substance reasonably satisfactory to Seller
and the Shareholders.
C. The assumption of Assumed Liabilities by Buyer hereunder shall not
enlarge any rights of third parties under contracts or arrangements with Seller.
Nothing herein shall prevent Buyer from contesting in good faith with any third
party any of the Assumed Liabilities; PROVIDED, HOWEVER, that Buyer's right to
contest any of the Assumed Liabilities shall not diminish or otherwise affect
Seller's right to indemnification under Section 10.2 arising out of Buyer's
failure to pay any of the Assumed Liabilities.
D. Except as expressly provided in Section 2.2B, Buyer is not assuming
any of the following obligations of Seller, all of which remain the debts,
liabilities, and obligations of Seller:
(i) LITIGATION OR CLAIMS. Any litigation or claims arising out of
Seller's operations prior to the Effective Date;
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<PAGE> 16
(ii) TAX LIABILITIES. Any tax liability (including interest and
penalties) arising out of or accrued with respect to Seller's operations prior
to the Effective Date or with respect to the sale of the Assets pursuant to this
Agreement (including, but not limited to, real property transfer taxes);
(iii) LIABILITY AS EMPLOYER. Any liability for or obligation to provide
salary, accrued holiday pay, vacation pay (other than the Vacation Accrual
specifically assumed by Buyer pursuant to Section 2.2B.(viii)), sick pay, profit
sharing or bonuses, severance pay, retirement benefits, health insurance,
worker's compensation or other benefits arising out of or accrued with respect
to the employment of any person by Seller prior to the Effective Date;
(iv) PRE-CLOSING LIABILITIES UNDER CONTRACTS. Other than those
liabilities and obligations quantified and recorded on the Audited Closing
Statement, any liability or obligation of Seller or its Affiliates arising or
accrued prior to the Effective Date under any Contract;
(v) OPERATIONS. Any liability or obligation arising from or accrued
with respect to ownership, possession or use of the Assets or the operation of
the Business prior to the Effective Date;
(vi) UNASSUMED CONTRACTS. Any liability or obligation of Seller under
any Contract not expressly assumed by Buyer;
(vii) LIABILITIES TO SHAREHOLDERS OR AFFILIATES. Any liability or
obligation (whether monetary or non-monetary) to any Shareholder or any
Affiliate of a Shareholder, whether arising under any written or oral agreement,
understanding, or contract or otherwise;
(viii) PLAN LIABILITIES. Any liability for, or obligation to provide,
benefits, contributions or other funding, or withdrawal premiums or payments
under any Plan;
(ix) SPARTANBURG AGREEMENT. All liabilities and obligations of Seller
under the Spartanburg Agreement; and
(x) LIABILITIES NOT INCLUDED IN AUDITED CLOSING STATEMENT. Any
liability not included in the Audited Closing Statement.
E. BULK SALES WAIVER. The parties hereto understand and agree that the
transfer which in the subject matter of this Agreement is subject to the
provisions of Section 11-6 of the Official Code of Georgia Annotated, Uniform
Commercial Code (Bulk Transfers) ["Bulk Sales Law"] and
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<PAGE> 17
that Buyer is not assuming any debts of Seller in connection with this
Agreement, except for the Assumed Liabilities specified in Section 2.2B.
Buyer hereby waives compliance by Seller with the Bulk Sales Law;
PROVIDED, HOWEVER, that such waiver does not, as between Buyer and Seller,
relieve Seller of any of the Unassumed Liabilities or relieve Buyer of any of
the Assumed Liabilities.
2.3 PURCHASE PRICE AND MANNER OF PAYMENT.
------------------------------------
A. On the Closing Date, upon the satisfaction of the terms and
conditions contained herein, Seller shall sell, assign and convey the Assets to
Buyer, and Buyer shall purchase the Assets.
B. The purchase price (the "Purchase Price") for the Assets shall be an
amount equal to the aggregate of: (i) Eleven Million Five Hundred Thousand
Dollars ($11,500,000); (ii) the total Assumed Liabilities reflected on the
Audited Closing Statement; and (iii) the excess (deficit) of Audited Net Book
Value over (under) Two Million Five Hundred Thousand Dollars ($2,500,000).
C. The Purchase Price shall be adjusted as follows:
(1) If the Audited Net Book Value is less than Two Million Five Hundred
Thousand Dollars ($2,500,000) then the cash portion of the Purchase Price shall
be reduced by the difference between the Audited Net Book Value and Two Million
Five Hundred Thousand Dollars ($2,500,000).
(2) If the Audited Net Book Value is greater than Two Million Five
Hundred Thousand Dollars ($2,500,000) then the cash portion of the Purchase
Price shall be increased by the difference between the Audited Net Book Value
and Two Million Five Hundred Thousand Dollars ($2,500,000).
D. The Purchase Price will be paid by Buyer as follows:
(1) On the Closing Date, Buyer will deliver to Seller cash, in
immediately available federal funds by wire transfer, equal to the Estimated
Purchase Price (the "Estimated Purchase Price") as shown on the Estimated
Purchase Price Reconciliation LESS Seven Hundred Seventy-Five Thousand Dollars
($775,000); PROVIDED, HOWEVER, that any cash necessary to release the security
interests, liens or other encumbrances on the Assets (other than the security
interests and liens respecting Assumed Liabilities), with the written consent of
Seller (which will not be unreasonably withheld or delayed) shall be paid
directly to the applicable secured creditors of Seller.
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(2) On the Closing Date, Buyer will wire transfer, in immediately
available federal funds, Five Hundred Seventy Five Thousand Dollars ($575,000)
(the "Escrow Amount"), to the Escrow Agent, to be held (the "Escrow") by such
Escrow Agent in accordance with the terms of the Escrow Agreement attached
hereto as EXHIBIT "A". All disbursements from the Escrow shall be made in
accordance with the terms of the Escrow Agreement.
(3) After the Audited Closing Statement has been prepared, if the sum
of the final Purchase Price plus Two Hundred Thousand ($200,000) is equal to or
greater than the Estimated Purchase Price, then Buyer shall immediately pay
Seller by wire transfer, in immediately available federal funds, the difference,
less the Escrow Amount. If the final Purchase Price less the Escrow Amount, is
more than Two Hundred Thousand Dollars ($200,000) less than the Estimated
Purchase Price, then Seller shall immediately pay Buyer the difference and Buyer
shall be entitled to retain the Two Hundred Thousand Dollars ($200,000) holdback
amount.
E. The parties hereto covenant and agree that the Purchase Price shall
be allocated as provided on EXHIBIT "G". All parties to this Agreement covenant
and agree with each other that for purposes of all local, state, federal or
other income tax returns filed by them, they will reflect the foregoing
allocation, and further agree that each shall utilize such allocation when
filing an Asset Acquisition Statement, Form 8594, with the Internal Revenue
Service.
F. It is the intention of the parties that the computation of the
Purchase Price Reconciliation is merely a method to determine the final Purchase
Price in accordance with Section 2.3 hereof, and is not intended to, nor shall
it be deemed to, affect Buyer's or Seller's obligations hereunder.
G. Real estate taxes, installments of special assessments, if any, and
personal property taxes, if any, with respect to the Real Property and personal
property to be conveyed to Buyer pursuant hereto shall be prorated through the
Effective Date and shall be included as accrued liabilities in the Estimated
Closing Statement as appropriate; PROVIDED, HOWEVER, such taxes shall be
adjusted between the parties hereto from time to time after the determination of
the Audited Closing Statement when such amounts become fixed, if the amounts
accrued on the Estimated Closing Statement differ from such fixed amounts.
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2.4 CLOSING DATE STATEMENT; PURCHASE PRICE ADJUSTMENT.
-------------------------------------------------
A. As soon as practicable following the Closing Date (and in no event
later than 60 days after the Closing Date), Buyer shall prepare or cause to be
prepared the Audited Closing Statement showing the Assets and the Assumed
Liabilities as of the Closing Date. The Audited Closing Statement shall be based
upon the books and records of Seller and prepared in accordance with GAAP (other
than with respect to the recordation of the Partnership's depreciation and
amortization expenses) applied on a basis consistent with the 1996 Financial
Statements, except that: (i) accounts receivable shall be determined in
accordance with Section 2.4B, and (ii) the Audited Net Book Value of any Assets
owned by the Partnership shall be reflected on the Audited Closing Statement
using the same accounting methods and calculated on the same basis as were used
by the Partnership in preparing the 1996 Partnership Financial Statements
(defined in Section 3.5) and shall not be revalued using any different method.
The parties further agree that: (i) the "cut to length" processing equipment
line owned by Seller and presently located at 251 Wheeler Street, Sharon,
Pennsylvania, shall be valued for purposes of this Agreement at the amount set
forth in the 1996 Financial Statements; (ii) the Vacation Accrual shall be
valued for purposes of this Agreement at "zero" liability, consistent with
Southeastern's past practices; and (iii) all scrap steel, side cut steel and
lumber shall be valued for purposes of this Agreement at "zero", consistent with
Seller's past practices.
B. Seller's accounts receivable for purposes of the Audited Closing
Statement shall be based on the actual funds collected in the ninety (90) day
period commencing with the Closing Date (the "90-Day Period"). Buyer shall use
its reasonable efforts to collect all Accounts Receivable. When Buyer delivers a
preliminary Audited Closing Statement to Seller, such statement will reflect
Accounts Receivable as the sum of trade receivables collected through such date
and an estimate of sums to be collected through the 90-Day Period. The Final
Audited Closing Statement will reflect the actual sum of funds collected.
2.5 REVIEW OF AUDITED CLOSING STATEMENT BY SELLER. Following receipt of
the Audited Closing Statement, Seller will be afforded a period of sixty (60)
days to review the Audited Closing Statement. At or before the end of that
period, but not prior to Buyer's delivery to Seller of its statement of
receivables collected through the 90-Day Period, which statement is due by the
ninety-
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fifth (95th) day following the Closing, Seller will either: (i) accept the
Audited Closing Statement in its entirety, as adjusted to reflect receivables
collected, or (ii) deliver to Buyer written notice and a detailed written
explanation of those items in the Audited Closing Statement that Seller
disputes. Items not affected by any such dispute will be deemed to be as set
forth on the Audited Closing Statement and the Audited Closing Statement shall
be final as to such undisputed items. Within a further period of fourteen (14)
days from the end of the review period, the parties will attempt to resolve in
good faith any disputed items. Failing such resolution, the unresolved disputed
items will be referred to a nationally-recognized firm of certified public
accountants mutually acceptable to the parties. The parties shall share equally
the cost of the certified public accountants determining the disputed items
unless the independent certified public accountants shall direct otherwise based
on the relative merits of the positions of the parties. Each party shall pay for
its own certified public accountants. The resolution of the disputed items, as
determined by the certified public accountants, shall be binding on the parties
hereto and non-appealable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
In order to induce Buyer to purchase the Assets hereunder, Seller
hereby makes the following representations and warranties, each of which shall
be true and correct on the execution hereof except as otherwise specified
herein, and will be true and correct on the Closing Date.
3.1 OWNERSHIP OF ASSETS. Seller is or on the Closing Date will be, the
owner of the Assets, and Seller shall transfer the Assets to Buyer, free and
clear of any mortgages, pledges, equities, liens, charges, encumbrances,
covenants, conditions, or other restrictions, except for the Permitted
Encumbrances. All Assets located on the Real Property are owned by Seller or are
leased by Seller pursuant to the valid and subsisting leases described in
EXHIBIT "3.4C".
3.2 ORGANIZATION, QUALIFICATION, AND AUTHORITY OF SELLER.
A. Southeastern is a corporation duly organized, validly existing and
in good standing under the laws of the State of Georgia. Southeastern is not
required to be qualified to do business as a foreign corporation in any
jurisdiction. The Partnership is a partnership duly organized and validly
existing under the laws of the State of Georgia. The Partnership is not required
to be
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qualified to do business as a foreign partnership in any jurisdiction. Each
Seller has full power and authority to own or lease its properties and to
conduct its businesses in the manner and the places where such properties are
owned or leased and such business is conducted. Seller possesses all permits and
licenses from state, local, or Federal agencies or subdivisions necessary to
operate the Business, all of which are in full force and effect and a list of
which is attached hereto upon execution as EXHIBIT "3.2", all of which are
transferable and shall be transferred to Buyer hereunder except as disclosed on
EXHIBIT "3.2".
B. As of the Closing Date, the execution and delivery of this
Agreement, and the performance of the obligations by Seller under this
Agreement: (i) will not violate, contravene, be in conflict with, result in a
breach of or constitute (with or without notice or lapse of time or both) a
default under: (a) any provision of law; (b) any order, rule or regulation of
any court, arbitrator or other agency of government to which Seller is a party;
(c) any provision of the Articles of Incorporation or Bylaws of Southeastern or
the Partnership Agreement of the Partnership; and (d) any material lease,
indenture, agreement or other instrument to which Seller or its properties or
assets is or may be bound; and (ii) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon the
Assets except as may arise under the Bulk Sales Law.
C. Seller has the right, power, legal capacity, and authority to enter
into and perform its obligations under this Agreement, and except as listed on
the "List of Consents Required" attached hereto as EXHIBIT "3.2C", no consent,
approval or authorization of, or registration, declaration, or filing with any
governmental authority (federal, state, or local, domestic or foreign), lending
institution or other third party is required in connection with the execution
and delivery by Seller of this Agreement or its performance of, or compliance
with, the terms, provisions, and conditions hereof.
D. All necessary corporate actions of the Board of Directors and
Shareholders of Southeastern have been taken to authorize Southeastern to
execute and deliver this Agreement and the other documents contemplated hereby.
All of the partners of the Partnership have authorized the Partnership to
execute and deliver this Agreement, the Real Property Purchase Agreement, and
the other documents contemplated hereby and thereby. This Agreement and each
related document
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<PAGE> 22
constitute the valid and binding obligations of Seller, each enforceable in
accordance with its respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights or by general principles of equity.
E. The Shareholders own all of the issued and outstanding capital stock
of Seller. The Shareholders also own all of the issued and outstanding interests
in the Partnership.
3.3 NO EQUITY INTERESTS. Seller does not own or hold (directly or
indirectly) any equity or debt interest in any corporations, joint ventures,
partnerships, business associations, trusts, or other firms or entities, other
than as a creditor in the ordinary course of business.
3.4 TITLE TO PROPERTIES; LIENS, CONDITIONS OF PROPERTIES.
A. REAL PROPERTY. The representations and warranties of Seller
contained in the Real Property Purchase Agreement are true and correct and are
incorporated herein by reference. Seller does not own or lease real property
except for the Real Property and Seller is not a party to any agreement (other
than the Spartanburg Agreement) to acquire real property or any interest
therein.
B. PERSONAL PROPERTY. Attached hereto as EXHIBIT "3.4B" is the Schedule
of Personal Property (which Exhibit shall be furnished separately to Buyer upon
the execution hereof, initialed by the parties hereto and deemed delivered
hereunder) that lists all items of machinery, equipment, tooling, dies, cranes
and all other tangible personal property (excluding inventory) owned by, in the
possession of, or used by Seller on the date of execution which have an original
cost to Seller in excess of $1,500 for any single item. Each item of processing
equipment included among the Assets is and on the Closing Date will be in good
condition and repair, ordinary wear and tear excepted, with no known defects,
and fully usable in the ordinary course of business except as specifically
described in EXHIBIT "3.4". All other tangible Assets are, and on the Closing
Date will be, in the aggregate, in reasonable operating condition, ordinary wear
and tear excepted, with no known defects. As of the Closing Date and except for
such personal property subject to the leases listed on the Schedule of Leases,
Seller will have good title to all of its personal property free and clear of
all liens and encumbrances whatsoever, except for Permitted Encumbrances. Except
for the cut-to-length line in storage in Sharon, Pennsylvania, all personal
property owned or leased by Seller and used or usable in the Business is located
on the Real Property.
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<PAGE> 23
C. LEASES. All the leases under which Seller leases personal property
are described in the schedule of leases ("Schedule of Leases") attached hereto
as EXHIBIT "3.4C". Except as set forth in EXHIBIT "3.4C", all of Seller's leases
of personal property that Buyer is assuming pursuant to this Agreement are
valid, subsisting and assignable and no monetary default or material
non-monetary default (or event with which the passage of time will constitute a
default) exists thereunder. The sublease between Southeastern and the
Partnership relating to certain of Seller's equipment shall be canceled on the
Closing Date.
D. LIENS. Attached hereto as EXHIBIT "3.4D" is the schedule of liens
("Schedule of Liens") which lists all liens, conditional sales agreements,
security interests, pledges, charges, or mortgages to which Seller is a party
(as debtor or secured party), or by which the Assets are owned. All of such
liens to which Seller is a party as debtor will be satisfied or released on or
before the Closing Date, except for the Permitted Encumbrances. Except as
disclosed on such Exhibit, none of the Assets is subject to any mortgage,
pledge, lien, conditional sales agreement, security agreement, encumbrance, or
other charge. Seller is not in monetary default or material non-monetary default
(nor is there an event with which the passage of time will constitute a default)
under any such contract, agreement, document or instrument giving rise to or
evidencing a Permitted Encumbrance.
3.5 FINANCIAL STATEMENTS.
A. Attached hereto as EXHIBIT "3.5" are the 1996 Financial Statements.
The foregoing financial statements present fairly in all material respects: (i)
the financial position of Southeastern as of September 30, 1996 and September
30, 1995 and the results of Southeastern's operations and its cash flows for the
periods from October 1, 1994 through September 30, 1995 and from October 1, 1995
through September 30, 1996, in conformity with GAAP consistently applied, and
(ii) the financial position of the Partnership as of December 31, 1996 and
December 31, 1995 and the results of operations and cash flow for each of the
years in the two (2) year period ended December 31, 1996, in conformity with
GAAP consistently applied (the "1996 Partnership Financial Statements").
B. Attached to EXHIBIT "3.5" is all correspondence from accounting
firms received since October 1, 1994 with respect to the recommendations for
improvements in accounting procedures, practices and internal controls of
Seller.
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<PAGE> 24
C. Attached hereto as EXHIBIT "3.5C" are the Interim Financial
Statements of Southeastern. The foregoing financial statements present fairly in
all material respects the financial position of Southeastern as of December 31,
1996 and as of March 31, 1997, respectively, and the results of Southeastern's
operations and its cash flows for the three (3) month periods ended December 31,
1996 in conformity with and on a consistent basis with the 1996 Financial
Statements, except for the absence of notes and normal year-end adjustments.
Since March 31, 1997, there have been no asset dispositions or obligations
incurred other than in the ordinary course of business.
D. To be attached hereto as EXHIBIT "3.5D" on the Closing Date is the
Estimated Closing Statement of Seller. The Estimated Closing Statement will be
prepared in accordance with the form attached hereto as EXHIBIT "B" and with
this Agreement and will present Seller's best estimate of the financial position
of Seller at the Closing Date as relates only to the Assets and the Assumed
Liabilities.
E. To be attached hereto as EXHIBIT "3.5E" on the Closing Date is the
Estimated Purchase Price Reconciliation. The Estimated Purchase Price
Reconciliation will be prepared in accordance with the form attached hereto as
EXHIBIT "C" and with this Agreement. The Estimated Purchase Price Reconciliation
will be Seller's best estimate of the Purchase Price Reconciliation and will be
based upon the Estimated Closing Statement.
3.6 CHANGES.
-------
A. Since March 31, 1997, there has been no material adverse change in
the financial condition, operating results, assets, operations, employee
relations, supplier relations, customer relations or business prospects of
Seller other than economic or industry trends affecting the economy or industry
as a whole.
B. Since March 31, 1997, Seller has not:
(i) borrowed any amount or incurred or become subject to any material
liabilities, except current liabilities incurred in the ordinary course of
business, borrowings under established credit facilities, and liabilities under
contracts entered into in the ordinary course of business or specifically
disclosed and permitted under this Agreement;
(ii) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any portion of the Assets, except for Permitted Encumbrances;
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(iii) sold, assigned or transferred any of the Assets, except in the
ordinary course of business, or canceled without fair consideration any material
debts or claims owing to or held by Seller;
(iv) sold, assigned, transferred, abandoned or permitted to lapse any
patents, trademark registrations, trade name registrations, copyright
registrations, material Confidential Information or other material intangible
assets, or disclosed any material Trade Secrets or other material proprietary
confidential information, to any person other than Buyer;
(v) made or granted any bonus or any wage or salary increase to any
employee or group of employees except in the ordinary course of business;
(vi) made or granted any increase in any Plan (except in accordance
with past custom and practice), or amended or terminated any existing Plan or
adopted any new Plan;
(vii) made any capital expenditures or commitments therefor that
aggregate in excess of Twenty-Five Thousand Dollars ($25,000), except as set
forth on EXHIBIT "3.6B";
(viii) made any loans or advances to, or guarantees for the benefit of,
any persons, except for advances made to employees for expenses in the ordinary
course of business;
(ix) entered into any labor agreement or commitment;
(x) suffered the loss or termination of services of any managerial
employee of Southeastern or other key employee of Southeastern;
(xi) intentionally waived any rights of material value, not in the
ordinary course of business or consistent with past practice;
(xii) suffered any material damage, destruction or casualty loss to the
Assets, whether or not covered by insurance;
(xiii) agreed, whether in writing or otherwise to do any of the
foregoing; or
(xiv) entered into any material transaction other than in the
ordinary course of business or conducted the Business other than in the ordinary
course.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. To Seller's knowledge, Seller
has no liabilities of any nature (including, without limitation, liabilities as
guarantor or otherwise with respect to obligations of others, or liabilities for
taxes due or then accrued or to become due) except as will be
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expressly disclosed on the Final Closing Statement or in this Agreement or the
Exhibits attached hereto.
3.8 ACCOUNTS RECEIVABLE. All of Seller's account receivables have
arisen from valid sales in the ordinary course of business and are valid and
enforceable claims against the respective account debtors. To Seller's
knowledge, none of Seller's accounts receivable are subject to any set-off,
defense, counterclaim, or credits for returns, discounts (other than normal cash
discounts in the ordinary course of business and which are not, individually or
in the aggregate, excessive), volume rebates, or any other credit offered by or
through Seller. The parties acknowledge and understand that the foregoing
representation and warranty is not intended to be, and shall not be construed
as, a guaranty of collectibility, nor shall it give rise to any additional
claims against Seller in the event certain of Seller's accounts receivable are
not collected following the Closing; Buyer's and Seller's rights and obligations
with respect to the uncollectibility of such receivables shall be governed
exclusively by the provisions of Sections 2.1A(iv) and 2.2C(iv) of this
Agreement.
Attached as EXHIBIT "3.8" will be the closing schedule of receivables
("Closing Schedule of Receivables"). The Closing Schedule of Receivables will
reflect a full and complete list of all customer receivables of Seller as of the
Closing Date, reflecting as to each receivable the debtor's name and address,
the amount owed thereunder, and the age of such receivable.
3.9 INVENTORIES. All inventory on the Real Property or elsewhere
belonging to Seller's customers are properly recorded on the books and records
of Seller and, to Seller's knowledge, such recorded amounts agree with the
amounts claimed by the customers on their books and records. Seller knows of no
claims by any customer for missing inventory or damage to inventory held by
Seller for a customer's account.
3.10 ACCOUNTS OR TRADE PAYABLE. All of Seller's payable accounts have
arisen from valid purchases in the ordinary course of business and are valid and
enforceable claims against Seller. Seller has paid and will continue to pay to
the Closing Date its payables in accordance with its usual and customary terms
and practices. Attached hereto as EXHIBIT "3.10 " will be the Closing Schedule
of Accounts Payable. The Closing Schedule of Accounts Payable will be reflected
on the Audited Closing Statement and will reflect a full and complete list of
all accounts payable of Seller as of the
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Closing Date, reflecting as to each account the creditor's name, the amount owed
thereunder, and the age or date of such payable.
3.11 INTELLECTUAL PROPERTY.
---------------------
To Seller's knowledge, Seller possesses the exclusive right to use the
trade name Southeastern Metal Processing in Georgia in connection with the
Business. Seller has no knowledge of others using the name "Southeastern Metal
Processing", or any similar name in the Business in other jurisdictions. Except
for "Southeastern Metal Processing", Seller owns, uses or holds no trade names,
trademarks, service marks, or copyrights. Seller has not received any
notification, and has no knowledge, that it has infringed, nor is now
infringing, on any trade name, trademark, service mark, or copyright belonging
to any other person, firm, or corporation. Seller owns, or holds adequate
licenses or other rights to use all trademarks, service marks, trade names, and
copyrights necessary for the business of Seller as now conducted. Seller does
not own, use, or hold any patents, inventions, industrial models, designs or
applications for patents (foreign and domestic). To the best of its knowledge,
Seller is not infringing and has not infringed on any patent or other right
belonging to any person, firm, or corporation nor has Seller received notice of
any infringement. Except for computer software under license, all of the
Intellectual Property used by Seller in connection with the Business is owned by
Seller and will be assigned to Buyer pursuant to this Agreement. No Shareholder
or any Affiliate has any interest, beneficial, equitable or otherwise in the
Intellectual Property.
Seller is the owner of or has the right to use and will transfer the
right to use all Trade Secrets required for the processing, distribution and
marketing of the Products and services, free and clear of any claims, liens,
encumbrances, restrictions, rights, or legal or equitable claims of others. To
Seller's knowledge, Seller is not using, or in any way making use of, without
authorization or legal right to use the same, any confidential information,
trade secrets or customer lists of any third party, including without
limitation, any former employer of any present or past employee of Seller. There
are no suits pending or to the best of Seller's knowledge threatened with
respect to any Trade Secrets.
3.12 CUSTOMERS AND SALES. The complete customer list of Seller is
attached hereto as EXHIBIT "3.12" initialed by the parties hereto, and deemed
delivered hereunder. Seller has not
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received any deposits, payments on account or similar payment with respect to
any of its contracts, and no such deposits, payments on account or similar
payments are due or owing to Seller. Except as disclosed on EXHIBIT "3.12"
attached hereto, Seller has not been notified, and is not otherwise aware, that
any of its customers to whom the Seller has sold products or services in the
aggregate amount of One Hundred Thousand Dollars ($100,000) during the twelve
(12) months preceding the Closing, has ceased or intends to cease, purchasing
from Seller or has materially adversely altered or intends to materially
adversely alter the amount of business that it is presently doing with Seller.
3.13 CONTRACTS AND COMMITMENTS.
A. SALES ORDERS, SUBCONTRACTS, BIDS AND PROPOSALS.
(i) Set forth on EXHIBIT "3.13A" attached hereto is a true and complete
list and description of each individual outstanding sales order, sales contract,
subcontract, bid or sales proposal of Seller as of the date of this Agreement,
including the customer and the shipping date. Each sales, order, sales contract,
subcontract, bid or sales proposal identified on EXHIBIT "3.13A" has been
accepted, delivered or incurred in the ordinary course of business.
(ii) Except as set forth on EXHIBIT "3.13A", Seller is not under any
liability or obligation with respect to the return of inventory or merchandise
in the possession of customers.
B. PURCHASE ORDERS AND OTHER TRADE OBLIGATIONS.
-------------------------------------------
Set forth on EXHIBIT "13.3B" attached hereto is a true and complete list of each
individual outstanding purchase order and purchase commitment of Seller as of
the date of this Agreement. Each purchase order and purchase commitment of
Seller identified on EXHIBIT "3.13B" has been incurred in the ordinary course of
business. No purchase contracts or commitments of Seller continue for a period
of more than six (6) months or, in Seller's reasonable opinion, are in excess of
the normal, ordinary and usual requirements of business (as conducted by Seller)
or at any excessive price.
C. PERSONAL PROPERTY LEASES (AS LESSEE OR LESSOR) AND OTHER
--------------------------------------------------------
CONTRACTS.
---------
EXHIBIT "13.3C " contains a true and complete list of all personal
property leases, warehouse agreements, licensing agreements, sales
representative agreements, and any other contracts and commitments (other than
purchase orders and sales orders, loan agreements, labor and employment
agreements or employee benefit plans or agreements) with respect to the Business
as of the date of
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this Agreement that are not cancelable on thirty (30) days or less notice
without any further obligation thereunder or which involve a total liability on
the part of Seller thereunder exceeding Ten Thousand Dollars ($10,000) per
contract or lease.
D. COPIES, CONSENTS AND BINDING EFFECT.
-----------------------------------
True and correct copies, or written summaries, if oral, of all the
leases, contracts, commitments, agreements, understandings or other obligations,
written and oral, relating to Seller, the Business or the Assets and listed on
EXHIBITS "3.13A - 3.13C" have been delivered to Buyer. Seller is not in monetary
default or material non-monetary default (whether with the giving of notice, the
passage of time or both) under any of the contracts, leases, agreements, or
other commitments or obligations listed on such Exhibits. Each such contract,
lease, agreement or other commitment is a legal, valid and binding obligation of
Seller and, to Seller's knowledge, of the other parties thereto, enforceable
against Seller in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights or as limited by general principles
of equity. The execution of this Agreement and the consummation of the
transactions contemplated hereby will not give rise to a right of termination by
any party thereto except as set forth in EXHIBIT 3.13D. EXHIBIT 3.13D sets forth
the parties to the agreements on EXHIBITS 3.13A through 3.13C whose consents are
necessary to the assignments of such agreements to Buyer. Except as set forth on
EXHIBIT 3.13D, Seller has no knowledge of any default by it under any of the
contracts or other agreements listed on EXHIBITS 3.13A-C.
E. UPDATING. Seller shall update and revise EXHIBITS "3.13A - 3.13C "
up to and including the Effective Date.
F. CONTRACTS ASSUMED BY BUYER.
--------------------------
Except as expressly set forth on EXHIBIT "3.13F" , the Schedule of
Unassumed Contracts, Buyer will assume pursuant to Section 2.2 all of the
contracts, leases and commitments shown on EXHIBITS "3.13A - 3.13C" and all
similar type agreements that are not required to be scheduled due to the fact
that they are cancelable on thirty (30) days or less notice without further
obligation thereunder or which involve a total liability of Seller of less than
Ten Thousand Dollars ($10,000) per contract.
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3.14 LITIGATION; JUDGMENTS AND CONSENT DECREES. Except as disclosed on
EXHIBIT "3.14" attached hereto, no litigation is pending or, to the best of
Seller's knowledge, threatened against Seller and no litigation is pending or
threatened by Seller. EXHIBIT "3.14" also sets forth all product liability
claims, workers' compensation, unemployment compensation, and all age, race,
religion or other discrimination claims, whether such claims were dismissed,
settled, or otherwise resolved, against Seller since January 1, 1994. The
responses of all law firms to the annual audit request sent by management of
Seller since January 1, 1994 are attached to EXHIBIT "3.14". Seller is not
subject to any judgment, ruling, injunction, order or agreement with any court,
arbitrator or regulatory authority restricting or adversely affecting the
conduct of the Business or Seller's ownership of the Assets.
3.15 EMPLOYEE RELATIONS.
------------------
Except as disclosed in EXHIBIT "3.15" there has not been, since January
1, 1994, nor to Seller's knowledge is there currently threatened, any
grievances, arbitrations, unfair labor charges or practices filed against Seller
with the National Labor Relations Board or any comparable federal, state or
local board, agency or commission, or any claims, including but not limited to
any claims brought before the Equal Employment Opportunity Commission or under
any act, local, state, federal civil rights laws or any other law, rule or
regulation relating to employment. Since January 1, 1994, to Seller's knowledge,
Seller has complied with all laws relating to the employment of labor,
including, but not limited to, any provisions thereof relating to equal
employment opportunities, civil rights, working conditions, wages, hours, COBRA,
WARN, and the payment of social security and similar taxes, and is not liable
for any arrearage of wages or any taxes or penalties for failure to comply with
any of the foregoing. Seller is not a party to any collective bargaining
agreement with respect to the Business. No unions or other collective bargaining
units have been, or are required to be, certified or recognized by Seller as
representing its employees, and no union organized efforts exist with respect to
any employees of Seller.
Seller represents and warrants that Seller has taken all actions
necessary, including but not limited to any notice required to be given to its
employees, local, state or federal government agencies, to comply with COBRA and
any similar local or state laws applicable to the transactions contemplated by
this Agreement. Copies of all such notices have been delivered to Buyer.
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Notwithstanding the foregoing, due to Buyer's commitment contained in Section
6.7 hereof, Seller is not obligated to comply with WARN or any similar state law
due to the transactions contemplated by this Agreement.
3.16 EMPLOYEE BENEFITS.
-----------------
Set forth on EXHIBIT "3.16" is a list of each Plan. Except as set forth
on Exhibit "3.16", the Company does not maintain or contribute to any "employee
benefit plan" (as defined in ERISA) or any other profit sharing, incentive
bonus, deferred compensation, welfare, pension, retirement, severance, holiday,
vacation, tuition reimbursement, health benefit or other similar plan, program,
agreement, arrangement or practice. To Seller's knowledge, Seller has no
liability with respect to any Plan except as provided for in its financial
statements. Seller and each Plan identified on Exhibit "3.16" are in compliance
in all material respects with ERISA, the Internal Revenue Code of 1986, as
amended (the "Code"), and the rules and regulations promulgated thereunder.
Without limiting the generality of the foregoing, there have been no prohibited
transactions (as defined in ERISA) or breaches of the duties imposed by ERISA
upon fiduciaries of the Plans such that Seller could incur any material
liability in respect thereof, and all filings with governmental authorities and
all notices to participants in such plans required by ERISA, the Code and the
rules and regulations promulgated thereunder to be made or given have been
timely made or given in all material respects. There are no suits or claims
pending or, to Seller's knowledge, threatened against Seller or any Plan, and to
Seller knowledge, there is no basis for any such suit or claim. Except with
respect to vested or accrued benefits of participants under the Plans, Seller
has reserved all rights necessary to amend or terminate, on a prospective basis,
each of the Plans without the consent of any other person. Seller will deliver
or make available to Buyer, upon request, true, complete and correct copies of
all Plans, trust agreements, Plan amendments, Plan descriptions and other Plan
documents with respect to the Plans.
To Seller's knowledge, all group health plans of Seller and any ERISA
Affiliate have been operated in material compliance with the group health plan
continuation coverage requirements of Section 162(i) (as in effect immediately
prior to the Technical and Miscellaneous Revenue Act of 1988) and 4980B of the
Code to the extent such requirements are applicable.
3.17 COMPLIANCE WITH LAW/GOVERNMENTAL AUTHORIZATIONS.
-----------------------------------------------
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A. Seller has complied, and has conducted its business in accordance
with all applicable statutes, laws, regulations, rules and other requirements of
all federal, state and local governmental authorities having jurisdiction over
Seller applicable to the Assets or the Business other than statutes, laws,
regulations and other requirements relating to tax, employment, employee benefit
and environmental matters (which are the subject of specific representations and
warranties hereunder), except where the failure to so comply has not had and
will not have a material adverse effect on the Business as presently conducted
by Seller.
B. The "total assets" of Seller, as such phrase is defined and
interpreted under the Hart-Scott-Rodino Antitrust Improvements of 1976, as
amended, and the Rules and regulations promulgated thereunder (collectively, the
"HSR Act") are less than Ten Million Dollars ($10,000,000) and Seller is the
"ultimate parent entity" of the "acquired person", as each such term is defined
and interpreted under the HSR Act. Consequently, the jurisdictional requirement
for applicability of the HSR Act, as set forth in Section 7A(a)(2)(B) of the HSR
Act, is not satisfied. Seller acknowledges and understands that Buyer is relying
on the accuracy of the foregoing representation and warranty and based upon the
foregoing representation and warranty, Buyer is not filing a Premerger
Notification Form with the Federal Trade Commission and the United States
Department of Justice pursuant to the HSR Act.
3.18 ENVIRONMENTAL MATTERS.
---------------------
A. IN GENERAL. Seller is in full compliance with all applicable
Environmental Laws (as defined below), which compliance includes, but is not
limited to, the possession by Seller of all permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof, except where the failure to so comply has not
had and will not have a material adverse effect on the Business. Seller has
received no communication (written or oral), whether from a governmental
authority, citizens' group, employee or otherwise, that alleges that Seller is
not in such full compliance, and there are no circumstances that may prevent or
interfere with such full compliance in the future. All governmental
authorizations currently held by Seller pursuant to the Environmental Laws are
identified on EXHIBIT "3.18".
B. NO CLAIMS. There is no Environmental Claim (as defined below)
pending or, to Sellers' knowledge, threatened against Seller or, to the
knowledge of Seller, against any person or
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entity whose liability for any Environmental Claim Seller has or may have
retained or assumed either contractually or by operation of law. To Seller's
knowledge, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge, generation, treatment, storage, management, disposal or
arrangement for disposal of any Materials of Environmental Concern (as defined
below), that would reasonably be expected to form the basis of any Environmental
Claim against Seller or any Affiliate or, to Seller knowledge, against any
person or entity whose liability for any such Environmental Claim Seller has or
may have retained or assumed either contractually or by operation of law.
C. ABSENCE OF EVENTS OR CONDITIONS. Without in any way limiting the
generality of the foregoing, to Seller's knowledge: (i) Seller does not treat,
store, dispose or arrange for the storage, treatment or disposal of Materials of
Environmental Concern, whether on or under the Real Property or at an off-site
location, except in compliance with Environmental Laws, (ii) there are no
underground storage tanks, and the capacity and contents of such tanks, located
now or in the past on property owned, leased or controlled by Seller, (iii)
there is no asbestos contained in or forming part of any building, building
component, structure or office space owned, leased or controlled by Seller, (iv)
no polychlorinated biphenyls (PCBs) are or have been used, stored, treated or
disposed of at any property owned, leased or controlled by Seller, (v) neither
Seller, any predecessor owner of the Real Property or other party has filed any
notice under any federal law or under any law of the State of Georgia reporting
a spill or release of Materials of Environmental Concern into the environment
at, on, into or from the Real Estate; (vi) no lien asserting any claim or
liability in favor of any governmental entity for (A) any liability under
federal or state environmental laws or regulations, or (B) damages arising from
or costs incurred by such governmental entity in response to a release of
Materials of Environmental Concern into the environment is presently pending
against or attached to the Real Property.
D. NO CAPITAL EXPENDITURES REQUIRED FOR COMPLIANCE. To Seller's
knowledge, no capital or other expenditures are required to bring the Assets or
Seller into compliance with any currently applicable Environmental Laws.
E. CERTAIN DEFINITIONS. For purposes of this Section , the following
definitions apply:
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"Environmental Claim" means any claim, action, cause of action,
investigation, demand or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential liability
for or requirement to incur investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries,
or penalties) arising out of, based on or resulting from (i) the presence, or
release or threatened release into the environmental, of any Materials of
Environmental Concern at any location, whether or not owned or operated by
Seller or (ii) circumstances forming the basis of any violation, or alleged
violation, of or any claim pursuant to any Environmental Law.
"Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution, protection of human health or safety, or
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including, without limitation,
The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) 42 U.S.C. Sections 9601 ET SEQ. The Resource Conservation and Recovery
Act (RCRA), 42 U.S.C. Sections 6901 ET SEQ., The Federal Water Pollution Control
Act (FWPCA), 33 U.S.C. Sections 1251 ET SEQ., The Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1802 ET SEQ., The Toxic Substances
Control Act, 15 U.S.C. Sections 2601 ET SEQ., The Clean Air Act, 42 U.S.C.
Sections 7401 ET SEQ., regulations promulgated thereunder, state, county,
municipal or local counterparts of the foregoing federal laws and regulations,
and any other applicable federal, state, county, municipal, local or other laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products,
including, without limitation, any hazardous substances, wastes or materials as
defined by any Environmental Laws or any substances regulated by any
Environmental Law.
3.19 PAYMENT OF TAXES.
----------------
Seller has filed and will continue to file all applicable Federal,
state, regional and/or local income, excise or franchise tax and informational
returns, real estate and personal property tax
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returns, sales and use tax returns, F.I.C.A. returns, Workers Compensation
returns and other tax and informational returns required to be filed by it and
has paid all taxes owing by Seller, including both the employee and employer
portion of the F.I.C.A. taxes, income, excise, and franchise taxes, and workers
compensation premiums, except taxes which have not yet accrued or otherwise
become due and payable and except as may, in the future, be contested in good
faith proceedings. Neither the Internal Revenue Service nor any other taxing
authority is now asserting or to the best of Seller's knowledge, threatening to
assert against Seller any deficiency, claim or assessment for additional taxes
or interest thereon or penalties in connection therewith.
Seller has not executed or filed with the Internal Revenue Service or
any other taxing authority (whether domestic or foreign) any agreement extending
the period for assessment or collection of income taxes, nor is Seller a party
to any pending action or proceeding, nor to the best of Seller's knowledge is
any action or proceeding threatened, by any governmental authority for
assessment or collection of taxes. Except as set forth in EXHIBIT "3.19", no
claims for assessment or collection of taxes (other than taxes based upon or
measured by the income of Seller) has been asserted against Seller in respect of
the Assets or the Business within the past three (3) years, and Seller does not
know of any proposed tax assessment against Seller.
Seller and its Shareholders have made a valid S election pursuant to
Section 1362 of the Code and such election has not been revoked or otherwise
terminated. The Internal Revenue Service has not challenged and is not
challenging the S election.
3.20 TRANSACTIONS WITH MANAGEMENT. Except as set forth on EXHIBIT
"3.20", there are and there will be no contracts, leases, loans, commitments,
transactions, arrangements or other understandings, oral or written, between
Seller, its Shareholders and any Affiliate (excluding any employee of Seller who
is not an officer or director of Seller or a Shareholder, his spouse or child).
Except as set forth on EXHIBIT "3.20", Seller has no accounts with or loans to,
or from, its Shareholders or any Affiliate. Except as set forth on EXHIBIT
"3.20", neither Seller, its Shareholders nor any Affiliate (except for ownership
interests in publicly traded companies whose shares are traded on a national
stock exchange or over-the-counter markets and excluding any employee of Seller
who is not an officer or director of Seller or a Shareholder, his spouse or
child) has any direct or indirect interest in any competitor, supplier, or
customer of Seller or in any party from, or to,
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whom Seller leases any real or personal property or in any other person with
whom Seller is doing business.
3.21 INSURANCE. Attached hereto as EXHIBIT "3.21", is the Schedule of
Insurance, which lists all insurance policies and arrangements of Seller,
including the name of the insurer, the insured, the beneficiary, the policy
number, the amount of the coverage, and the dates of commencement and
termination. Seller has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance since January 1, 1994.
Seller, since January 1, 1994, has maintained insurance for product
liability in a principal amount not less than One Million Dollars ($1,000,000)
per occurrence and in the aggregate of Five Million Dollars ($5,000,000) through
the Closing Date. Seller has maintained and now maintains (and paid all premiums
thereon when due) product liability insurance on an "occurrence basis."
3.22 AGENTS AND EMPLOYEES. To be attached hereto as EXHIBIT "3.22" at
the Closing is a complete list of the names and addresses of all sales
representatives, employees, agents, independent consultants (excluding attorneys
and accountants), and contractors of Seller stating the rates of compensation
payable to each of them. Except as otherwise noted on EXHIBIT "3.22", no
employee of Seller is subject to any confidentiality, non-disclosure or
non-compete agreement with Seller or to the best of Seller's knowledge, any
other company.
3.23 NO DEFAULT UNDER THE ASSUMED LIABILITIES. No event has occurred
within the last twelve (12) months, or which with the passage of time will
occur, which constitutes a default or an event of default under any of the
Assumed Liabilities. Seller has fulfilled and will continue to fulfill all of
its obligations, and has made and will continue to make all payments due
thereunder to the date of Closing, and is in full compliance with all of
Seller's obligations thereunder.
3.24 FINDER'S FEE. Neither Seller nor its Shareholders has incurred or
become liable for any broker's commission or finder's fee relating to, or in
connection with, the transactions contemplated by this Agreement or taken any
action whatsoever to cause Buyer to incur or become liable for any such
commission or fee.
3.25 FULL DISCLOSURE OF REPRESENTATIONS. To Seller's knowledge, no
representation, covenant, or warranty by Seller and no statement, Schedule or
Exhibit furnished to Buyer pursuant
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hereto, omits or will omit to state a material fact necessary to make any
representations, covenants, and/or warranties of Seller under this Agreement not
misleading.
ARTICLE IV
COVENANTS OF SELLER
-------------------
In order to induce Buyer to enter into this Agreement and perform its
obligations hereunder, Seller hereby makes the covenants and agreements set
forth in this ARTICLE IV.
4.1 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing, Seller will do the following unless Buyer shall otherwise consent in
writing:
A. Conduct the Business only in the ordinary course and refrain from
changing or introducing any method of management or operations or entering into
any material transaction except in the ordinary course of business and
consistent with prior practices;
B. Without limiting the generality of the preceding Section 4.1A,
refrain from the following:
(i) making any purchase, sale, transfer, assignment, or disposition of
any asset or property or waiving any right of material value, other than in the
ordinary course of business;
(ii) mortgaging, pledging, subjecting to a lien or otherwise
encumbering any of its properties or the Assets except Permitted Encumbrances;
(iii) incurring any contingent liability as a guarantor or otherwise
with respect to the obligations of others;
(iv) incurring any other contingent or fixed obligations or liabilities
except those that are usual and normal in the ordinary course of business;
(v) making sales on other than Seller's current terms and conditions
with respect to such customer (including price and terms of payment) and in the
ordinary course of business;
(vi) borrowing any amount or incurring or becoming subject to any
material liabilities, except normal borrowings under its existing credit
facilities, other current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary course of
business;
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(vii) discharging or satisfying any material lien or encumbrance or
paying any material liability, other than current liabilities paid in the
ordinary course of business;
(viii) canceling without fair consideration any material debts or
claims owing to or held by it;
(ix) granting any bonus or any wage or salary increase to any employee,
officer or shareholder or group of employees other than pursuant to any
contractual obligation specifically disclosed in this Agreement or any Exhibit
to this Agreement.
(x) granting any increase in any employee benefit plan or arrangement
(except in accordance with past custom and practice), or amending or terminating
any existing employee benefit plan or arrangement or adopting any new employee
benefit plan or arrangement (except as required by law);
(xi) making any capital expenditures or commitments therefor that
aggregate in excess of Twenty-Five Thousand Dollars ($25,000);
(xii) making any loans or advances to, or guarantees for the benefit
of, any persons, except for advances made to employees for expenses in the
ordinary course of business; or
(xiv) entering into any new labor agreement or commitment.
C. Use its best efforts to keep intact its business organization, to
retain its present officers and employees (other than such officers and
employees, if any, who have been advised by Buyer or Seller that Buyer as of the
Closing Date will not be extending an offer of employment thereto) and to
preserve the goodwill of all suppliers, customers, and others having business
relations with it;
D. Have in effect and maintain at all times all insurance of the kind,
in the amount, and with the insurers set forth in the Schedule of Insurance
heretofore delivered to Buyer;
E. Permit Buyer and its authorized representatives to have at
reasonable times upon reasonable notice to Seller full access to all of Seller's
properties, assets, records, contracts, and documents, and furnish to Buyer or
its authorized representative such financial and other information as Buyer may
from time to time reasonably request including but not limited to, monthly
interim financial statements within ten (10) days following the end of the
month; PROVIDED, HOWEVER, that
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Buyer shall not initiate any contact with Seller's customers for the purpose of
evaluating the Business without in each case first obtaining the consent of
Seller.
F. Not merge with or consolidate with any other corporation or acquire
all or substantially all of the business or other assets of any other person,
firm, associate, or corporation;
G. Not take any action, or omit to take any action, which, to Seller's
knowledge, would cause a breach of or default under any of Seller's material
contracts, leases, or commitments; and
H. Notify Buyer promptly of any material adverse event or material
change in the Business or affairs of Seller.
4.2 ASSIGNMENT OF LEASES AND CONTRACTS. Prior to Closing, Buyer shall
notify Seller of those leases and contracts that Buyer elects to assume which
assumed contracts shall include but not be limited to those listed in on EXHIBIT
"3.13A through C". Seller and Buyer shall take all steps reasonably requested by
the other in order to facilitate and expedite the assignment to Buyer at the
closing of all leases, contracts, and agreements which Buyer elects to assume.
Such steps shall include efforts to obtain the other parties' consent to such
assignment if required by the appropriate instrument or document. Buyer agrees
to pay all reasonable costs and expenses (including bond counsel fees but
expressly excluding IRB prepayment fees, if any) which directly relate to the
assumption by Buyer of the IRB Loan and the Lease between the Partnership and
the Winder-Barrow Industrial Building Authority; all other costs and expenses
incurred pursuant to this Section 4.2 shall be borne by Seller.
4.3 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Between the
date hereof and the Closing, promptly upon the occurrence of, or promptly upon
Seller becoming aware of the impending or threatened occurrence of, any event
which would cause or constitute a breach, or would have caused or constituted a
breach had such event occurred or been known to Seller prior to the date hereof,
of any of the representations, warranties or covenants of Seller contained in
this Agreement, Seller shall give detailed written notice thereof to Buyer and
shall use its best efforts to prevent or promptly remedy the same.
4.4 CONSUMMATION OF AGREEMENT. Seller shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
and fulfilled under this Agreement.
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4.5 COOPERATION. Seller shall use its best efforts to cause the Closing
to occur on May 30, 1997 and shall not undertake any course of action
inconsistent with such intended result.
4.6 REGULATORY FILINGS. Seller shall promptly take all actions
necessary to make each filing it is required to make with any governmental
agency or authority as a condition to or consequence of the consummation of this
Agreement, and shall use its best efforts to assist Buyer in making such
required filings.
4.7 INJUNCTIONS. If any United States court having jurisdiction over
Seller issues or otherwise promulgates any Injunction, Seller shall use its best
efforts to have such Injunction dissolved or otherwise eliminated as promptly as
possible; PROVIDED, HOWEVER, that the foregoing provision shall not require
Seller to take any action other than to pursue the litigation diligently and in
good faith.
4.8 TAXES. Seller covenants and agrees that it will prepare and file
all tax returns required to be filed by it including without limitation payroll,
workers compensation, state and federal unemployment tax returns and pay all
amounts due thereunder.
4.9 TERMINATION OF EMPLOYMENT BY SELLER. Seller shall terminate the
employment of all of the employees of the Business immediately prior to the
effective time of the transaction contemplated by this Agreement on the Closing
Date, so that at the effective time, Seller shall employ no one in the Business.
Seller shall submit to Buyer for approval (which shall not be unreasonably
withheld or delayed) any form of letter or memorandum notifying employees of the
Business that their employment with Seller is being terminated. Seller shall
bear all resulting liabilities, if any, caused by or arising from such
termination, including, but not limited to:
(i) severance pay;
(ii) accrued wages or vacation pay;
(iii) sick leave;
(iv) unemployment compensation;
(v) claims for back pay and/or reinstatement;
(vi) claims for contributions or benefits under the provisions of any
Plan;
(vii) claims asserting the right to participate in any medical
insurance program under COBRA or comparable state law;
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(viii) any funding or withdrawal liability relating to any Plan; and
(ix) any and all claims arising out of employment on or prior to the
Closing Date.
Seller hereby agrees that it will not notify, promise, represent,
advise or otherwise communicate to any employee that Buyer is obligated to hire
or will hire any or all such employees or otherwise make any offer of employment
on behalf of Buyer, without Buyer's prior written consent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer, in order to induce Seller to sell the Assets to Buyer hereunder,
hereby makes the following representations and warranties, each of which shall
be true and correct on the execution hereof except as otherwise specified herein
and will be true and correct on the Closing Date.
5.1 ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Ohio with
full corporate power to own or lease its properties and to conduct its business.
Buyer, as of the Closing Date, will be qualified to do business as a foreign
corporation in Georgia.
5.2 AUTHORITY OF BUYER.
------------------
A. All necessary action, corporate or otherwise, has been taken by
Buyer to authorize the execution, delivery, and performance of this Agreement
and the other documents contemplated hereby.
B. The execution and delivery of this Agreement, and the performance of
the obligations by Buyer under this Agreement will not violate, contravene, be
in conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under: (i) any provision of law; (ii) any
order, rule or regulation of any court, arbitrator or other agency of
government; (iii) any provision of the Articles of Incorporation or Code of
Regulations of Buyer; or (iv) any lease, indenture, agreement or other
instrument to which Buyer or its properties or assets is or may be bound.
C. Buyer has the right, power, legal capacity, and authority to enter
into and to and perform its obligations under this Agreement, and no consent,
approval or authorization of, or
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registration, declaration, or filing with any governmental authority (federal,
state or local, domestic or foreign), collective bargaining unit, lending
institution or other third party is required in connection with the execution
and delivery by Buyer of this Agreement or its performance of, or compliance
with, the terms, provisions and conditions hereof.
D. This Agreement constitutes the valid and binding obligation of Buyer
enforceable in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights or by general principles of equity.
5.3 FINDER'S FEE. Buyer has not incurred nor become liable for any
broker's commission or finder's fee relating to, or in connection with, the
transactions contemplated by this Agreement or taken any action whatsoever to
cause Seller to incur or become liable for any such commission or fee.
5.4 LITIGATION. No litigation is pending or, to the best of Buyer's
knowledge, threatened against Buyer which could prevent it from entering into,
or performing its obligations under, this Agreement.
ARTICLE VI
COVENANTS OF BUYER
------------------
Buyer, in order to induce Seller to enter into this Agreement and to
perform the obligations hereunder, hereby makes the covenants and agreements set
forth in this ARTICLE VI.
6.1 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Between the
date hereof and the Closing, promptly upon the occurrence of, or promptly upon
Buyer becoming aware of the impending or threatened occurrence of, any event
which would cause or constitute a breach, or would have caused or constituted a
breach had such event occurred or been known to Buyer prior to the date hereof,
of any of the representations, warranties or covenants of Buyer contained in
this Agreement, Buyer shall give detailed written notice thereof to Seller and
shall use its best efforts to prevent or promptly remedy the same.
6.2 CONSUMMATION OF AGREEMENT. Buyer shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
and fulfilled under this Agreement.
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6.3 COOPERATION. Buyer shall use its best efforts to cause the Closing
to occur on May 30, 1997, and shall not undertake any course of action
inconsistent with such intended result.
6.4 REGULATORY FILINGS. Buyer shall promptly take all actions necessary
to make each filing it is required to make with any governmental agency or
authority as a condition to or consequence of the consummation of this
Agreement, including without limitation the filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, if applicable, and shall
use its best efforts to assist Seller in making such required filings.
6.5 INJUNCTIONS. If any United States court having jurisdiction over
Buyer issues or otherwise promulgates any Injunction, Buyer shall use its best
efforts to have such Injunction dissolved or otherwise eliminated as promptly as
possible, PROVIDED, HOWEVER, that the foregoing provision shall not require
Buyer to dispose of any of its assets or business or to agree to any restriction
on its ownership, acquisition or disposition of assets or the conduct of its
business or take any action other than to pursue the litigation diligently and
in good faith.
6.6 ACCESS TO RECORDS AND FILES. For a period of six (6) years after
the Closing Date, Buyer shall preserve and grant to Seller reasonable access to,
and the right to make copies and extracts of, such books, accounts, records, and
other similar information (including the information referred to in Section
2.1(x) hereof) transferred to Buyer pursuant to the terms of this Agreement, for
any reasonable purposes of Seller. Notwithstanding the foregoing, at any time
which is at least three (3) years following the Closing Date, Buyer shall have
the right to destroy any of such books, accounts, records, and other similar
information that do not pertain to tax or accounting matters provided that Buyer
gives Seller at least forty-five (45) days advance written notice of Buyer's
intent to destroy. During such forty-five (45) day period, Seller shall have the
right to copy at its sole expense or to take possession of all or any part of
the books, accounts, records, or other similar information to be destroyed.
6.7 OFFER OF EMPLOYMENT. Buyer represents and covenants that it will
offer employment to substantially all of the former employees of Seller engaged
in the Business so as to avoid a "mass layoff" or "plant closing" as defined in
WARN, and consequently, any requirement by Seller to comply with the notice
provisions of WARN. Buyer represents and covenants it will not at any time
within sixty-five (65) days (or such longer period provided by applicable law)
after the Closing Date engage in a "mass layoff" or "plant closing" as these
terms are defined in WARN or any similar
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conduct in violation of applicable state law. Further, Buyer agrees to credit
service by each employee of Seller for purposes of determining any future
benefits which may be owing to any of Seller's employees who accept Buyer's
offer for employment and who are eligible to participate in Buyer's vacation
plan, severance plan, or any other employee benefit plan sponsored by Buyer.
Nothing contained in this Section 6.7 or elsewhere in this Agreement is intended
to prevent Buyer from operating the Business consistent with past practice in
connection with temporary layoff of employees.
6.8 OLYMPIC MEDICAL INSURANCE COVERAGE. As of the Closing Date, active
employees of Seller: (i) who are currently participating in Seller's group
health insurance plan, and (ii) who become employees of Buyer as of the Closing
Date, shall become eligible for participation, subject to any limitations for
preexisting condition, in a group health plan (as defined for purposes of
Section 4980B of the Code) established and maintained by Buyer for the general
benefit of its employees and their dependents, so that Seller shall not be
required to provide continued health coverage under Part 6 of Title I of ERISA
4980B of the Code to any employee of Seller, or any qualified beneficiary (as
defined for purposes of Section 4980B of the Code) with respect to any employee
of Seller, who becomes covered under such plan. Buyer is not assuming pursuant
to this Agreement any obligation of Seller to provide health insurance
continuation coverage to employees of Seller that are not hired by Buyer.
6.9 REDEMPTION OF BONDS. Since, as a result of the Transaction,
interest on the Winder-Barrow Industrial Building Authority Tax-Exempt
Adjustable Mode Industrial Development Revenue Bonds (Southeastern Metal
Processing, Inc. Project) Series 1994, originally issued in the aggregate
principal amount of $3,700,000 (the "Bonds") issued in connection with the IRB
Loan may be deemed to have become taxable as a result of the exceeding the $10
million limitation imposed by Section 144 of the Code, Buyer agrees to cause
the Bonds to be redeemed as soon as practicable, as determined by Bond counsel,
but in any event by no later than July 14, 1997. Alternatively, if feasible, in
the opinion of Bond counsel, Buyer will have the Bonds reissued as, or
refinanced by, taxable bonds, at Buyer's risk and expense.
ARTICLE VII
ACCOUNTS RECEIVABLE
-------------------
Seller agrees that Buyer, after the Closing Date through the 90-Day
Period, shall have the right and authority to collect the receivables and to
endorse, without recourse and without warranties of any kind, the name of Seller
on any checks or other negotiable instruments or evidences of indebtedness
received by Buyer on account of such receivables. Through the 90-Day Period, all
amounts collected by Buyer from payments by a customer that do not designate to
which receivable such payment is to be applied shall be applied to the oldest
outstanding receivable from such customer. Through the 90-Day Period, all
amounts paid by customers against a specific invoice shall be credited against
such invoice. Following the 90-Day Period, Buyer shall remit to Seller any
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amount collected by Buyer in respect of accounts receivable not purchased by
Buyer as part of the Assets, net of any chargebacks, credits or other deductions
claimed by the account debtor against such Excluded Asset.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER
----------------------------------
Buyer's obligations to consummate this Agreement and the transaction
contemplated hereby are subject to the fulfillment, prior to or at the Closing,
of the following conditions precedent:
8.1 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the
representations, warranties and covenants of Seller contained herein shall be
true and correct in all material respects as though made on and as of the date
hereof and the Closing Date. Seller shall, on or before the Closing, have
performed all of its obligations hereunder which by the terms hereof are to be
performed on or before the Closing. Seller shall have delivered to Buyer an
officer's certificate of Seller dated as of the Closing Date to the foregoing
effect.
8.2 OPINION OF SELLER'S AND SHAREHOLDERS' COUNSEL. At the Closing,
Buyer shall have received from Powell, Goldstein, Frazer & Murphy LLP, counsel
for Seller and Shareholders, an opinion dated as of the date of the Closing, in
the form attached hereto prior to Closing as EXHIBIT "8.2".
8.3 DELIVERY OF SCHEDULES AND EXHIBITS. Seller shall have delivered to
Buyer all of the Exhibits and Schedules required to be delivered by Seller on or
before the Closing Date, in form and substance reasonably satisfactory to Buyer.
8.4 DAMAGE OR DESTRUCTION. There shall not have been any material
adverse damage to or destruction of the Assets (whether or not covered by
insurance).
8.5 NO MATERIAL ADVERSE CHANGE. Since the date of execution, there have
not been:
(i) any material adverse change in the financial condition of
Seller;
(ii) any labor dispute with respect to employees of Seller who
render services to Seller, other than routine grievance matters that
are not in the aggregate, material, except such disputes as arise from
this Agreement and the performance of Seller's obligations hereunder;
and
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(iii) any other event or condition that materially and
adversely affects the Assets or the conduct of Seller's Business.
Seller shall deliver to Buyer at Closing, an officer's certificate to the
foregoing effect.
8.6 CONSENTS. Seller shall have received all consents necessary to
transfer the Assets to Buyer hereunder and to permit Buyer to assume the
obligations Buyer is assuming pursuant to the Assignment and Assumption of
Contracts, including, in particular, the consents of the Issuer of the IRB and
the Bank and a bond counsel's opinion on the assignment of the IRB.
8.7 INJUNCTIONS. There shall not be in effect any Injunctions.
8.8 TRANSFER OF REAL PROPERTY. The Closing contemplated hereunder and
the Closing contemplated under the Real Property Purchase Agreement shall occur
simultaneously and each of the conditions precedent described in Section 21 of
the Real Property Purchase Agreement shall have been satisfied. Such conditions
include, without limitation, delivery by Seller of: (i) an "as built" survey
with respect to the Real Property, including buildings, improvements and
appurtenances included in the Assets, and (ii) an ALTA 1970-B title policy
issued by Chicago Title Insurance Company or another insurance company
reasonably satisfactory to Buyer.
8.9 APPRAISAL AND ENVIRONMENTAL AUDIT. Buyer, at its expense, shall
have received and approved in its sole and absolute discretion an appraisal of
the Assets and the environmental audit conducted with respect to the Real
Property. In the event any "Level I" Site Assessment Report conducted with
respect to the Real Property recommends that additional ("Level II")
environmental testing be conducted with respect to the Real Property, and the
results of such "Level II" environmental audit shall be satisfactory to Buyer,
in its sole and absolute discretion.
8.10 SHAREHOLDER NON-COMPETITION AGREEMENTS. Buyer shall have obtained
the Non- Competition Agreements, substantially in the form of EXHIBIT "H"
attached hereto from each of the Shareholders.
8.11 GUARANTEES. Each of the Shareholders shall execute personal
guarantees, substantially in the form of EXHIBIT "I" hereto, with respect to the
representations, warranties and covenants of Seller.
8.12 CANCELLATION OF SUBLEASE. The sublease between the Partnership, as
lessor, and Southeastern, as lessee, shall be terminated. There shall also be
terminated all other contractual
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obligations between Southeastern and the Partnership, or either such party, and
an Affiliate relating to the Assets or the Business.
8.13 OFF-SITE "CUT-TO-LENGTH" PROCESSING EQUIPMENT. Buyer shall have
examined the cut-to-length processing equipment presently stored at 251 Wheeler
Street, Sharon, Pennsylvania and shall have received a letter from the owner of
said facility, in form and substance reasonably satisfactory to Buyer,
confirming Seller's ownership of such equipment.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF SELLER AND SHAREHOLDERS
----------------------------------------------------
Seller's and Shareholders' obligations to consummate this Agreement and
the transactions contemplated hereby are subject to the fulfillment, prior to or
at the Closing, of the following conditions precedent:
9.1 REPRESENTATIONS, WARRANTIES, COVENANTS. Each of the
representations, warranties and covenants of Buyer contained in ARTICLE V, and
the covenants contained in ARTICLE VI, shall be true and correct in all material
respects as though made on and as of the Closing Date. Buyer shall, on or before
the Closing, have performed all of its obligations hereunder which by the terms
hereof are to be performed on or before the Closing. Buyer shall have delivered
to Seller an officer's certificate of Buyer dated as of the Closing Date to the
foregoing effect.
9.2 OPINION OF BUYER'S COUNSEL. At the Closing, Seller shall have
received from Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., counsel for Buyer,
an opinion dated as of the Date of Closing, in the form attached hereto as
EXHIBIT "9.2".
9.3 DELIVERY OF DOCUMENTS. All documents to be delivered by Buyer
pursuant to this Agreement shall have been executed and delivered to Seller in
form and substance satisfactory to Seller in its sole and absolute discretion.
9.4 INJUNCTIONS. There shall not be in effect any Injunctions.
9.5 TRANSFER OF REAL PROPERTY. The Closing contemplated hereunder and
the Closing contemplated under the Real Property Purchase Agreement shall occur
simultaneously.
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ARTICLE X
INDEMNIFICATION
---------------
10.1 INDEMNIFICATION BY SELLER.
-------------------------
A. Subject to the limitations contained in Section 10.1B and 10.1C,
Seller hereby agrees to indemnify, defend and hold harmless Buyer and its
directors, officers, employees, agents and assigns at all times from and after
the date of this Agreement and the Closing Date, against, and in respect of any
and all damage, loss, deficiency, cost and/or expense, including attorneys or
accountants fees arising from or relating to:
(i) any misrepresentation, omission, breach of warranty, representation
or covenant, or non-fulfillment of any obligation on the part of Seller under
this Agreement, any certificate, Schedule or Exhibit, or other instrument
furnished to Buyer in connection with this Agreement;
(ii) except for the obligations assumed by Buyer under Section 2.2 the
activities, operations, debts, liabilities, chooses in action or claims of any
nature, absolute or contingent (including, but not limited to obligations for
taxes and interest and penalties thereon) of Seller;
(iii) Seller's failure to comply with the provisions of the Bulk Sales
Act of any state in the United States (except to the extent that such losses,
costs, expenses and damages result solely from Buyer's failure to pay Seller's
trade payables being assumed by Buyer as part of the Assumed Liabilities);
(iv) any claims, violations or alleged violations by Seller of any
laws, statutes, codes, ordinances, rules, or regulations whether foreign, state,
federal, or local, including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, OSHA, COBRA and WARN;
(v) the filing (or failure to file) or payment (or non-payment) of any
taxes by Seller, pursuant to any federal, state, local, or foreign income tax,
excise or franchise tax, ad valorem, sales and use tax, payroll tax, and/or
F.I.C.A. taxes or any deficiencies in any taxes payable by or on behalf of
Seller or its Shareholders;
(vi) any and all claims, grievances or arbitrations and/or judgments
for unfair labor practices for acts committed by Seller before the Closing Date
whether filed prior to, on, or after the
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Closing Date with the National Labor Relations Board or any comparable federal,
state, or local board, agency, or commission, or any state or federal court;
(vii) any liabilities of Seller not expressly assumed by Buyer
hereunder;
(viii) the infringement or alleged infringement by Seller of any
patent, Trade Secret, trademark, trade name, service mark, copyright right, or
proprietary interest of others;
(ix) any and all suits, actions, liabilities, losses, obligations,
penalties or claims arising under or resulting from any Plan, whether or not
imposed or arising prior to the Closing Date, including, without limitation, any
suit, action, liability, loss, obligation, penalty or claim arising out of the
allegation or imposition of successor employer status upon Buyer;
(x) Seller's Product Liability Obligation;
(xi) any and all actions, suits, proceedings, demands, assessments,
penalties, fines, judgments, costs and legal and other expenses incident to any
of the foregoing.
B. Seller's indemnity obligations under this Section 10.1 and the
Shareholders' Guarantees shall be Buyer's only and exclusive remedies for any
breach of a representation, warranty or covenant under this Agreement or any of
the Exhibits or Schedules to this Agreement or the Real Estate Purchase
Agreement. However, nothing herein shall limit Buyer's equitable rights with
respect to any fraud by Seller or the Shareholders arising out of the
transaction contemplated by this Agreement.
(i) The indemnity obligation of Seller contained in this Section 10.1
shall expire twelve (12) months after the Closing Date except for indemnity
obligations arising out of a breach by Seller of any representation and warranty
contained in Sections 3.1, 3.2 (other than 3.2B(i)(d) and 3.2C), 3.4D, 3.18 and
3.19 (the "Excluded Claims"), which shall extend for a period of three (3) years
following the Closing Date. The foregoing limitations shall not apply with
respect to those pending claims for indemnification for which written notice was
given by Buyer to Seller within the applicable time period.
(ii) Seller will have no liability under Section 10.1 with respect to
any individual claim, or series of related claims of less than One Thousand
Dollars ($1,000). In no event will Seller's liability for indemnification under
this Section 10.1 exceed the amount deposited under the Escrow Agreement, except
that this limitation shall not apply to the Excluded Claims or to claims arising
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out of Seller's failure to pay when due any liabilities of Seller which are not
Assumed Liabilities hereunder.
10.2 INDEMNIFICATION BY BUYER.
------------------------
A. Buyer agrees to indemnify, defend, and hold harmless Seller and its
directors, officers, shareholders, employees, agents, and assigns at all times
from and after the date of this Agreement against, and in respect of, any and
all damage, loss, deficiency, cost, and/or expense, including attorneys' or
accountants' fees arising from or relating to:
(i) a breach of any representation, warranty, covenant or agreement on
the part of Buyer under this Agreement or under any document executed and
delivered by Buyer in connection herewith;
(ii) Buyer's Product Liability Obligation;
(iii) the failure of Buyer to pay or perform any of the Assumed
Liabilities;
(iv) any claims, violations or alleged violations by Buyer of any laws,
statutes, codes, ordinances, rules, or regulations whether foreign, state,
federal, or local, including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, OSHA, COBRA, ERISA and WARN
which arise from any conduct or act of Buyer occurring on or after the Closing
Date; and
(v) any and all actions, suits, proceedings, demands, assessments,
penalties, fines, judgments, costs and legal and other expenses incident to any
of the foregoing.
B. Buyer's indemnity obligation under this Section 10.2 shall be
Seller's only and exclusive remedies for any breach or representation warranty
or covenant by Buyer under this Agreement or any of the Exhibits or Schedules of
this Agreement, or the Real Estate Purchase Agreement. However, nothing herein
shall limit Seller's equitable rights with respect to any fraud by Buyer arising
out of the transaction contemplated by this Agreement.
C. The indemnity obligations in this Section shall expire three (3)
years after the Closing Date except for those pending claims for indemnification
for which written notice was given by Seller to Buyer within three (3) years
after the Closing Date.
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10.3 THIRD PARTY CLAIM AGAINST BUYER OR SELLER. If any claim is made by
a third party against Buyer or Seller which would result in a right to
indemnification hereunder ("Indemnified Party"), then the Indemnified Party
shall give prompt written notice to the other party ("Indemnifying Party")
stating in reasonable detail the nature of the claim and attaching a copy of the
claim. Within ten (10) business days after receipt of such notice, the
Indemnifying Party shall notify the Indemnified Party whether or not it intends
to undertake the defense of the claim. If the Indemnifying Party undertakes the
defense of the claim, the Indemnifying Party shall select counsel reasonably
satisfactory to the Indemnified Party and after such selection, any additional
attorneys' fees incurred by the Indemnified Party shall not be subject to
indemnification hereunder; PROVIDED, HOWEVER, that the Indemnified Party may
participate, at its own expense, in the defense of the claim. If the
Indemnifying Party fails to undertake the defense of the claim within said ten
(10) day period, the Indemnified Party shall undertake the defense thereof, in
which case all costs and expenses relating to the defense including but not
limited to reasonable attorneys' fees incurred by the Indemnified Party shall be
the obligation of the Indemnifying Party subject to indemnification by the
Indemnifying Party hereunder.
ARTICLE XI
TERMINATION
-----------
11.1 GENERALLY. This Agreement may be terminated on or before the
Closing Date:
(i) by the mutual written consent of Seller and Buyer;
(ii) by Buyer, if there has been a material violation or breach by
Seller of any of Seller's agreements, representations or warranties contained in
this Agreement which has not been waived in writing;
(iii) by Seller, if there has been a material violation or breach by
Buyer of any of Buyer's agreements, representations or warranties contained in
this Agreement which has not been waived in writing; or
(iv) by either party in the event the Closing has not occurred by
August 31, 1997.
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11.2 RIGHT TO PROCEED. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in ARTICLE VII hereof have
not been satisfied, Buyer shall have the right to waive one or more conditions
precedent and proceed with the transactions contemplated hereby without waiving
any of its other rights hereunder, and if any of the conditions specified in
ARTICLE VIII hereof have not been satisfied, Seller shall have the right to
waive one or more conditions precedent and proceed with the transactions
contemplated hereby without waiving any of its other rights hereunder; PROVIDED,
HOWEVER, that if a party shall so elect to proceed, such party shall not
thereafter attempt to hold the other party responsible for damages, liabilities,
losses, or expenses resulting from the condition or conditions waived and such
other party shall not be responsible for such damage, liabilities, losses or
expenses.
ARTICLE XII
CLOSING OF TRANSACTION
----------------------
12.1 CLOSING. The Closing shall take place at the offices of Powell,
Goldstein, Frazer & Murphy LLP, Sixteenth Floor, One Ninety One Peachtree Tower,
Atlanta, Georgia 30303 at 10:00 a.m. local time on May 30, 1997.
12.2 CLOSING CERTIFICATE. Upon Closing, the parties shall execute a
certificate in the form attached hereto as EXHIBIT "J" confirming the time of
Closing (the "Closing Certificate") and such Closing shall be deemed effective
as of 12:01 a.m. Eastern Daylight Time on the Closing Date.
12.3 CLOSING DOCUMENTS.
A. DOCUMENTS TO BE PROVIDED BY SELLER. At the Closing, Seller shall
deliver to Buyer the following, authorizing the execution and delivery of this
Agreement and all other documents being entered into by Southeastern, the
Partnership or the Shareholders related to, or arising from, this Agreement:
(1) General Assignment and Bill of Sale;
(2) All books and records of Seller (except the minute books, seal,
stock records and income tax returns), pertaining to the Assets, including but
not limited to original documents of all contracts or leases being assumed by
Buyer hereunder;
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(3) A certificate of the Secretary of Southeastern containing: (i) a
certified copy of the Articles of Incorporation of Southeastern; (ii) a copy of
the Bylaws of Southeastern and (iii) resolutions of the directors and
Shareholders authorizing the execution and delivery of this Agreement and the
other documents being entered into by Southeastern;
(4) Certificate of Good Standing of Southeastern from the Secretary of
State of the State of Georgia dated not more than fifteen (15) days before the
Closing Date;
(5) Certified copy of Certificate of Partnership of the Partnership
from the Barrow County (Georgia) Recorder dated not more than fifteen (15) days
before the Closing Date;
(6) Estimated Closing Statement; and
(7) Updated Schedule of Contracts;
(8) Closing Schedule of Accounts Payable (to be provided within thirty
(30) days following the Closing Date);
(9) Schedule of Agents and Employees;
(10) Opinion of Seller's Counsel;
(11) Executed Real Property Purchase Agreement, all applicable deeds,
and all other documents and instruments to be delivered to Buyer pursuant to the
Real Property Purchase Agreement;
(12) Consent to Assignment and Assumption from Bank and First-Citizens
Bank & Trust Company, as Trustee under the IRB Loan documents, all lessors and
others from whom consent is required;
(13) Copies of Partnership Authorization executed by the partners of
the Partnership authorizing the execution and delivery of this Agreement, the
Real Property Purchase Agreement and all other documents being entered into by
the Partnership related to, or arising from, this Agreement;
(14) Valid, recordable releases of and UCC termination statements with
respect to all UCC liens, charges, or encumbrances against the Assets, excluding
those liens related to the IRB Loan;
(15) Payoff and Release from Bank with respect to the Term Loan;
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(16) Certificate from Seller representing that: (i) all conditions
precedent to the Closing have been satisfied; (ii) the representations and
warranties of Seller are true in all material respects; and (iii) no material
adverse event has occurred between the execution of the Agreement and the
Closing Date;
(17) Amended Articles of Incorporation for Seller, changing Seller's
corporate name to delete the words "Southeastern Metal Processing" therefrom,
together with a check to the Georgia Secretary of State and such other documents
as shall permit Buyer to file (on Seller's behalf) such Amended Articles of
Incorporation;
(18) Executed Non-Competition Agreement from each Shareholder;
(19) Executed Guaranty from the Shareholders;
(20) Executed Escrow Agreement;
(21) Executed Consent to Use of Name;
(22) Such other documents which Buyer reasonably deems necessary to
effectuate the transactions contemplated by this Agreement.
B. DOCUMENTS TO BE PROVIDED BY BUYER. At the Closing, Buyer shall
deliver to Seller the following:
(1) Certified checks or wire transfer of immediately available federal
funds for the cash amount due under the Estimated Purchase Price Reconciliation;
(2) Certified Resolutions of the Board of Directors of Buyer
authorizing the execution and delivery of the Agreement;
(3) Opinion of Buyer's Counsel;
(4) Assignment and Assumption of Contracts;
(5) Purchase Price Allocation;
(6) Certificate from Buyer representing that: (i) all conditions
precedent to the Closing have been satisfied; and (ii) the representations and
warranties of Buyer are true;;
(7) Executed Escrow Agreement;
(8) Such other documents which Seller reasonably deems necessary to
effectuate the transactions contemplated by this Agreement.
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12.4 RISK OF LOSS. Risk of Loss with respect to the Assets shall pass
to Buyer effective as of 12:01 a.m. local time on the Closing Date.
ARTICLE XIII
MISCELLANEOUS
-------------
13.1 BINDING EFFECT. This Agreement shall be binding upon, and the
benefit thereof shall inure to the parties hereto and their respective
successors and assigns, including the Shareholders after any liquidation of
Seller; provided, however, that this Agreement may not be assigned by either
party without the prior written consent of the other, except in connection with
the sale of substantially all the assets of Buyer (which in either case shall
not relieve Buyer of liability) or except to the Shareholders in any liquidation
of Seller (which shall not relieve Seller of liability). Notwithstanding
anything in the preceding sentence or elsewhere in this Agreement to the
contrary, Buyer may assign all or a portion of its rights hereunder and delegate
all or a portion of its obligations hereunder to a wholly-owned subsidiary or
other entity wholly or substantially owned or controlled by Buyer; PROVIDED,
HOWEVER, that notwithstanding any such assignment, Buyer shall remain directly
and primarily liable for each of its obligations under this Agreement as if no
such assignment had been made.
13.2 RECITALS; EXHIBITS AND SCHEDULES. The recitals contained at the
beginning of this Agreement, and all Schedules and Exhibits attached hereto
shall be deemed an integral part of this Agreement and shall be incorporated
herein by reference. The Exhibits and Schedules hereto shall be delivered
separately upon execution hereof or on the Closing Date, as applicable, and
initialed by the parties hereto and shall be deemed delivered under this
Agreement.
13.3 GOVERNING LAW. This Agreement is made and entered into, and shall
be governed by, and construed in accordance with, the laws of the State of Ohio.
13.4 NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be either: (1) personally delivered; (2)
mailed by certified mail, return receipt requested; or (3) overnight courier
addressed as follows:
To Buyer: Michael D. Siegal, President
Olympic Steel, Inc.
5096 Richmond Road
Bedford Heights, Ohio 44146
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With copy to: Marc H. Morgenstern, Esq.
Kahn, Kleinman, Yanowitz &
Arnson Co., L.P.A.
The Tower at Erieview, Suite 2600
Cleveland, Ohio 44114
To Seller: Jerry O. Kirkland, President
Southeastern Trans-shipping, Inc.
1660 Peachcrest
Lawrenceville, Georgia 30243
With copy to: Thomas R. McNeill, Esq.
Powell, Goldstein, Frazer & Murphy LLP
Sixteenth Floor
One Ninety One Peachtree Tower
Atlanta, Georgia 30303
To Kirkland: Jerry O. Kirkland
1660 Peachcrest
Lawrenceville, Georgia 30243
To James: Gene I. James
5716 Oak Landing
Atlanta, Georgia 30327
To Flint: Orvin Flint
5692 Mallard Crossing
Gainesville, Flordia 30501
To Miniea: Michael Miniea
251 Wheeler Street
Sharon, Pennsylvania 16146
With copy to: Jeffrey Tanen, Esq.
Goldstein & Tanen
Suite 3250
1 Biscayne Tower
Miami, Florida 33131
or to such other address as either party notifies the other by
certified mail. Notice shall be deemed given when personally delivered or when
deposited in the United States mail or with the overnight courier.
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13.5 FURTHER ASSURANCES. Buyer, Seller and Shareholders each agree that
they will, at any time and from time to time, do, execute, acknowledge and
deliver all such further acts, deeds, assignments, transfers, conveyances,
powers of attorneys and assurances as may be reasonably required for the better
assigning, transferring, granting, conveying, or assuring to Buyer, or its
successors or assigns, any or all of the Assets.
13.6 ENTIRE AGREEMENT. Except for: (i) other agreements or instruments
executed by the parties hereto in connection herewith, (ii) the obligations of
Buyer set forth in a Confidentiality Agreement dated March 21, 1997, and this
Agreement, together with its Exhibits, constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations, and discussions
whether oral or written.
13.7 WAIVERS. No waiver of any of the provisions of this Agreement
shall constitute a waiver of any other provisions (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
13.8 HEADINGS. Section, paragraph and subparagraph headings are not to
be considered part of this Agreement; they are included solely for convenience
and are not intended to be full or accurate descriptions of the contents hereof.
13.9 SEVERABILITY. All clauses of this Agreement are distinct and
severable and if any clause shall be held to be invalid or illegal, that shall
not effect the validity or legality of the remainder of the Agreement.
13.10 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original for all purposes,
but all of which shall constitute one and the same instrument.
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13.11 PUBLIC ANNOUNCEMENT. Except as otherwise may be required by
applicable law, all public notices and all other publicity concerning the
negotiation and consummation of the transaction contemplated by the parties
hereto shall be released or communicated jointly through the Closing Date.
13.12 TIME OF THE ESSENCE. Time is of the essence in the performance of
the terms and conditions of this Agreement.
13.13 ARBITRATION. Any dispute arising between the parties hereto shall
be resolved by arbitration in Atlanta, Georgia (or such other location as
otherwise agreed) in accordance with the Rules of the American Arbitration
Association, and the award of the arbitrator(s) shall be final and binding upon
the parties. In the event a demand for arbitration is filed pursuant hereto, the
parties shall have the same rights to discovery under the Georgia Rules of Civil
Procedure as if the dispute had been filed as an original action in a Georgia
Court of original jurisdiction, and any Court located in Atlanta, Georgia or
elsewhere shall have jurisdiction and shall be authorized to enforce said rights
as if the entire dispute were pending before said Court. All parties consent,
agree and submit to non-exclusive Georgia personal jurisdiction. Each of the
parties waives any defense of inconvenient forum to the maintenance of an action
in the above-referenced courts in Georgia.
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<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
SOUTHEASTERN METAL OLYMPIC STEEL, INC.
PROCESSING, INC.
By: /s/ Jerry O. Kirkland By: /s/ R. Louis Schneeberger
-------------------------------- ----------------------------
Jerry O. Kirkland, President R. Louis Schneeberger,
Chief Financial Officer
SOUTHEASTERN TRANS-SHIPPING
REALTY
By: /s/ Jerry O. Kirkland
---------------------------------
Jerry O. Kirkland, Partner
And by: /s/ Gene L. James
-----------------------------
Gene L. James, Partner
And by: /s/ Orvin Flint
-----------------------------
Orvin Flint, Partner
And by: /s/ Michael Miniea
-----------------------------
Michael Miniea, Partner
/s/ Jerry O. Kirkland
- ------------------------------------
JERRY O. KIRKLAND, individually
/s/ Gene L. James
- ------------------------------------
GENE L. JAMES, individually
/s/ Orvin Flint
- ------------------------------------
ORVIN FLINT, individually
/s/ Michael Miniea
- ------------------------------------
MICHAEL MINIEA, individually
-53-
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 17,309
<ALLOWANCES> 0
<INVENTORY> 144,700
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0
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<EPS-PRIMARY> .25
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