<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year ended January 3, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 333-29141
MMI PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 74-1622891
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
515 West Greens Road, Suite 710
Houston, Texas 77067
(Address of Principal Executive Offices)
(281) 876-0080
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
There were 252,000 shares of the Registrant's Class A Common Stock
outstanding as of the close of business on March 27, 1997,
all of which are held by Merchants Metals Holding Company.
DOCUMENTS INCORPORATED BY REFERENCE - NONE
<PAGE> 2
PART I
ITEM 1. BUSINESS
BACKGROUND
MMI Products, Inc. (the "Company"), a Delaware corporation and a wholly-
owned subsidiary of Merchants Metals Holding Company ("Holding"), was organized
in 1953. The Company was acquired by Citicorp Venture Capital Ltd. and members
of the Company's management in 1986. The Company's products consisted solely
of the fence product line until 1989 when the Company acquired the wire mesh
and concrete accessories lines.
RECENT ACQUISITIONS
Since 1989, the Company has completed ten acquisitions, including six
since the beginning of fiscal year 1995, which have substantially increased the
Company's net sales and cash flow. Five of these acquisitions (including
eleven facilities) related to fence products, two of these acquisitions
(including four facilities) related to wire mesh and three of these
acquisitions (including two facilities) related to concrete accessories.
On March 31, 1995, the Company acquired eight distribution centers for the
fence product line from Semmerling Fence and Supply, Inc. and Pioneer Fence &
Pipe Supply, Inc. (the "Semmerling/Pioneer Acquisition"). The
Semmerling/Pioneer Acquisition strengthened the Company's market position by
adding additional distribution centers and expanding its fence product line
with the addition of a new line of vinyl coated pipe and tubing.
On July 31, 1995, the Company acquired three operating plants and certain
equipment from Atlantic Steel (the "Atlantic Steel Acquisition"). The Atlantic
Steel Acquisition broadened the Company's wire mesh distribution network,
increased the Company's wire mesh production capacity and expanded its wire
mesh product line through the addition of galvanized strand wire, which is sold
to a diversified group of manufacturers and processors of wire products.
In October 1996, the Company further broadened its distribution network
and increased its production capacity for certain wire mesh and concrete
accessories products through two acquisitions. On October 14, 1996, the
Company acquired a concrete accessories manufacturing and distribution facility
in Chicago, Illinois from Gateway Construction Company (the "Gateway
Acquisition"). The Gateway Acquisition increased the Company's production
capacity for steel reinforcing bar supports and strengthened the Company's
presence in the concrete accessories market in the Midwestern United States.
In addition, on October 31, 1996, the Company acquired a wire mesh production
facility in North Miami Beach, Florida from DSM Corporation (the "Florida Wire
Acquisition"). The Florida Wire Acquisition enhanced the Company's ability to
capitalize on demand for wire mesh created by the relatively high level of
construction activity in Florida and other areas of the Southeastern United
States.
On February 18, 1998, the Company acquired certain net assets of The Burke
Group L.L.C. ("Burke"). Burke is a manufacturer of hardware devices and
processor of chemicals used in the concrete construction industry, with
facilities in Converse, Texas and Long Beach, California. The acquisition
<PAGE> 3
expands the offerings of the Company's concrete accessories product line. The
total purchase price was approximately $20.8 million, of which $19.4 million
was funded by the Company's revolving credit facility. The estimated $1.4
million remainder will also be funded by the Company's revolving credit
facility at the final settlement date.
On March 2, 1998, the Company purchased substantially all of the assets of
Wholesale Fencing Supply, Inc. and affiliated entities ("Wholesale") for
approximately $2.1 million. Wholesale is a manufacturer of ornamental iron
fencing and a distributor of fence products in Tacoma, Washington, and two
Oregon locations.
GENERAL
The Company sells its products along three principal product lines: fence,
wire mesh, and concrete accessories. The Company has established leading
market positions for each of these product lines by combining efficient
manufacturing, high quality products, broad product offerings, and extensive
distribution capabilities. In addition, the Company benefits from raw material
purchasing efficiencies because the manufactured products in each of its three
principal product lines are produced primarily from the same raw material,
steel rod.
The Company's fence product line includes chain link fence fabric,
fittings and other related products which are manufactured and distributed by
the Company, as well as wood, vinyl, aluminum, and ornamental iron fence
products which are manufactured by third parties and distributed by the
Company. The Company's wire mesh product line includes various classes of wire
mesh, which serve as structural reinforcing grids for concrete construction,
including concrete pipe, roads, bridges, runways, and sewage and drainage
projects. The Company's concrete accessories product line consists of over
2,000 specialized accessories used in concrete construction, including products
used to position and install steel reinforcing bar and wire mesh reinforcing
grid.
The Company has developed an extensive and well positioned distribution
network, consisting of 58 Company-operated distribution centers, located in 29
states. The Company's distribution network services over 3,900 customers,
including construction contractors, fence wholesalers, industrial
manufacturers, highway construction contractors, and fabricators of concrete
reinforcing bar. In addition to serving customers nationwide, the Company's
distribution centers and production facilities are well positioned to serve
areas of high population and construction growth. The Company currently has
manufacturing or distribution facilities in each of the ten states with the
largest projected increases in population from 1995 through 2025.
The Company has developed a reputation in its markets as a service-
oriented, cost-efficient manufacturer of high quality products. The Company
manufactures its products at 15 principal facilities, which are strategically
located throughout the United States. The Company achieves cost efficiencies
by combining state-of-the-art and traditional production methods to suit
specific product applications, hiring and training skilled employees, reducing
materials usage and implementing standard process controls and other
productivity improvements. In addition, while the Company's manufacturing
facilities are geared primarily toward high-volume, standardized production to
promote efficiencies, many of the Company's manufacturing facilities are
capable of producing customized products in response to specific customer
requirements or applications that are unique to particular geographic regions
of the United States.
<PAGE> 4
Demand for the Company's products is subject to trends in the residential,
commercial, and infrastructure construction industries. The Company is
increasing its focus on products used in the commercial and infrastructure
construction industries, which historically have been less seasonal and less
cyclical than the residential construction industry. Although the Company
estimates that approximately 50% of its fence sales in past years were
attributable to each of the commercial and residential construction industries,
the Company has implemented strategies designed to further increase the
percentage of its fence sales to the commercial construction industry.
Specifically, the Company is emphasizing its "authorized dealer program"
pursuant to which leading fence contractors throughout the country have agreed
to purchase at least half of their fence requirements from the Company. As a
result, the number of dealers participating in the Company's program has
increased from approximately 150 in fiscal year 1994 to approximately 330 in
fiscal year 1997. In addition, the Company's wire mesh and concrete
accessories product lines, which have been increasing as a percentage of the
Company's total net sales, are marketed primarily to the commercial and
infrastructure construction industries, rather than the residential
construction industry. The Company estimates that its wire mesh sales in
fiscal year 1997 to the infrastructure, commercial, and residential
construction industries to be approximately 50%, 22%, and 28%, respectively.
The Company estimates that substantially all of its concrete accessories sales
in fiscal year 1997 were attributable to the commercial and infrastructure
construction industries (with sales to the commercial and infrastructure
construction industries representing approximately 70% and 30%, respectively).
In addition, the Company anticipates that demand for the products in its wire
mesh and concrete accessories product lines is likely to increase as the level
of infrastructure development activity increases. The Company expects spending
for infrastructure projects to continue to increase over the next decade, as
major elements of the nation's infrastructure require replacement or
substantial improvement.
PRODUCTS
Fence. The Company manufactures fence products at six principal
manufacturing facilities. Such products include chain link fence fabric, a
full line of aluminum die cast and galvanized pressed steel fittings, PVC color
coated wire and vinyl coated colored pipe, tubing and fittings.
The Company also distributes a variety of fence products that it purchases
from third parties. Such products include pipe, tubing, wood, vinyl, aluminum,
and ornamental iron fence products, gates, hardware, and other related
products. In addition, the Company assembles wooden fence panels at several of
its facilities from wood materials purchased by the Company for use in the
installation of residential wood fences.
The Company's fence products are used in a variety of applications. The
Company's chain link fence products primarily serve as security fencing at
residential, commercial and governmental facilities, including manufacturing
and other industrial facilities, warehouses, schools, airports, correctional
institutions, military facilities, recreational facilities, swimming pools and
dog kennels. The Company's PVC color coated wire, together with vinyl coated
colored pipe, tubing and fittings, are used primarily for tennis courts and
other residential applications. The Company's other fence products are used
primarily in the construction of wood, vinyl, aluminum or ornamental iron fence
systems, and in the construction of all sizes and styles of fence gates for the
residential and commercial markets.
<PAGE> 5
In fiscal year 1997, approximately 36% of the Company's sales of fence
products represented products manufactured by the Company. The remaining fence
products were purchased as finished goods from third parties for distribution
by the Company. The Company purchases most of its finished fence products from
domestic manufacturers. The Company believes that its full line of fence
products provides a competitive advantage by enabling it to provide "one-stop
shopping" to its customers, thereby promoting customer loyalty.
Wire Mesh. The Company manufactures three principal classes of wire mesh,
consisting of commodity building mesh (Class B-2), pipe mesh (Class C), and
structural mesh (Class D). The Company's wire mesh is produced from wire that
ranges in size from 1/8-inch diameter to 3/4-inch diameter, in both smooth and
deformed patterns. In addition, the Company acquired production capacity for a
line of galvanized strand wire pursuant to the Atlantic Steel Acquisition in
1996.
Class B-2 mesh is a commodity building mesh used in housing and light
commercial construction, including driveways, slab foundations and concrete
walls. Class C mesh is used to construct reinforced concrete pipe for, among
other things, drainage and sewage systems and water treatment facilities. The
Company has been producing pipe mesh for over 40 years. Class D mesh is a
structural wire mesh that is designed as an alternative to steel reinforcing
bar for certain types of concrete construction, including roads, bridges and
other heavy construction projects. The Company markets its structural mesh as
a cost-effective alternative to steel reinforcing bars. Although structural
mesh has a higher initial cost to the customer than does steel reinforcing bar,
the Company believes that the overall construction cost to the customer is
generally lower if structural mesh is utilized. Galvanized strand wire is used
by manufacturers and processors of all types of wire products, including
shelving, household and automotive products.
Concrete Accessories. The Company's concrete accessories include
supports for steel reinforcing bars and wire mesh, form ties and related
products, basket assemblies (including welded and loose dowel basket
assemblies) and anchors and inserts (including imbedded attachments and lifting
devices, composite structural wire members and prestress strand hold down
anchors). Although the Company manufactures most of its concrete accessories
products, certain products, such as plastic supports for steel reinforcing bar
and certain types of form ties, are purchased from third parties for
distribution by the Company. The Company continually introduces new products
to its concrete accessories product line in its efforts to provide a full line
of concrete accessories to its customers.
The Company's concrete accessories are used in a variety of applications.
The Company's supports for steel reinforcing bars and wire mesh are used to
position and install steel reinforcing bars and wire mesh in the construction
of roads, bridges and other heavy construction projects. The Company's welded
and loose dowel basket assemblies are used to reinforce joints between concrete
pieces in the paving of roads, highways, and runways. The Company's anchors
and inserts are used to fasten and lift precast panels and floor panels in the
construction of, among other things, commercial buildings.
<PAGE> 6
In fiscal year 1997, the Company estimates that approximately 80% of the
Company's sales of concrete accessories represented products manufactured by
the Company. The remaining 20% of concrete accessories were purchased as
finished goods for resale by the Company through its 15 regional distribution
facilities. The Company generally purchases its finished concrete accessories
from domestic manufacturers.
PRODUCTION PROCESS
The Company manufactures its products at 15 principal facilities, which
are strategically located throughout the United States. Of the Company's
principal manufacturing facilities, six produce chain link fence fabric and
related products, six produce wire mesh and three produce concrete accessories.
The Company employs a combination of state-of-the-art and traditional
production methods to achieve cost efficiencies in its manufacturing processes.
In addition, while the Company's manufacturing facilities are geared primarily
toward high-volume, standardized production to promote efficiencies, many of
the Company's manufacturing facilities are capable of producing customized
products in response to specific customer requirements or applications that are
unique to particular geographic regions of the United States. Consequently,
each plant is configured to serve as both a high-volume producer of standard
products and a job lot producer of specialty products.
Fence. The Company's chain link fence manufacturing process is virtually
the same at each of its fence manufacturing facilities. The dominant
manufacturing process, which is known as "GAW" or "galvanized after weaving",
involves three steps. The first step, wire drawing, transforms steel rod into
steel wire, primarily ranging in thickness from 6.0 gauge (.0192 inches) to
12.5 gauge (.095 inches). In the second step, the wire is woven into chain
link fabric by automated fabric weaving machines pre-set to a specific width
(which ranges from three to 20 feet) of chain link fence fabric and to a
specific "diamond" size ranging from 3/8 inch to 2 3/8 inches. The third step
consists of the galvanizing process, which involves coating the surface of the
steel wire with zinc to provide, among other things, corrosion protection.
The Company also produces other types of coated wire fabric, including
polyvinyl chloride or "PVC" coated, aluminum coated, and galvanized before
weaving ("GBW"). In addition, the Company manufactures a full line of aluminum
die cast and galvanized pressed steel fittings and applies vinyl coatings to
the pipe, tubing, and fittings used with vinyl coated chain link fabric.
Wire Mesh. The Company manufactures wire mesh with wire that ranges in
size from 1/8-inch diameter to 3/4-inch diameter, in both smooth and deformed
patterns. The Company's wire mesh is manufactured from low-carbon steel rod,
which is cleaned by removing "mill scale" by passing the rod through a series
of pulleys that mechanically descales the rod. The rod is then pulled through
a die that reduces the area of the rod approximately 30 percent. This "cold
working" process produces wire that is clean, uniform in diameter and nearly
100 percent stronger than the original rod. The wire is then processed into
the finished product using automatic welding machines. This method of welding,
known as electrical resistance welding, produces a very strong welded joint
without weakening the steel as much as electrode welding.
<PAGE> 7
Certain aspects of the production process vary depending on the class of
mesh being produced. Commodity building mesh generally is produced in roll and
sheet form and is made with small diameter wire. Pipe mesh generally is
custom-made to customer specifications. Additional steps in the process of
producing structural wire mesh often include bending the mesh to precise
shapes, cutting the exact sizes and preparing the surface to allow for the
application of special coatings.
Concrete Accessories. The Company's manufacturing process for concrete
accessories consists primarily of drawing steel rod into wire and then feeding
coils of wire into automatic forming and resistance welding machines which
produce the finished product. Additional manufacturing processes include
various punch press operations, threading, machining, painting and plastic and
epoxy coating of products. In addition to steel rod, which is the primary raw
material for concrete accessories, the Company uses other raw materials such as
round bar stock, slit steel coils, reinforcing steel bars and paints, plastisol
and epoxy powder used for various coatings.
RAW MATERIALS
The manufactured products in each of the company's principal product lines
are produced primarily from steel rod. Because each of the company's principal
product lines require large quantities of the same raw material, the Company
purchases steel rod in significantly larger quantities than would be the case
if the Company's product lines were part of separate stand-alone enterprises.
Because of such large volume purchases, the Company believes that it typically
purchases steel rod at a cost below industry standard. Since steel rod cost
comprises a substantial portion of the Company's cost of goods sold
(approximately 33% in fiscal year 1997), the Company believes such cost savings
provide a significant competitive advantage.
In recent years, more than 50% of the steel rod purchased by the Company
has been produced overseas. The Company, however, also purchases a substantial
amount of domestically produced steel rod. Most of the Company's purchases of
foreign steel rod are made through Mannesmann Pipe and Steel Corporation, which
arranges the importation of rod from various overseas sources. The Company's
major suppliers of steel rod in the United States include Ameristeel, North
Star Steel, Keystone Steel, and Raritan.
The Company negotiates quantities and pricing on a quarterly basis for
both domestic and foreign steel rod purchases. Because all agreements for the
purchase of steel rod, whether foreign or domestic, are denominated in United
States dollars, the Company is not exposed to significant risks of fluctuations
in foreign currency exchange rates with respect to such agreements.
SALES AND MARKETING; PRINCIPAL CUSTOMERS
The Company distributes its products to customers in the residential,
commercial and infrastructure construction industries through its 58 Company-
operated distribution centers, its authorized dealers or shipments of truckload
quantities from the plant. The Company has over 3,900 customers, none of whom
individually accounted for more than 10% of the Company's revenues in fiscal
year 1997. The Company employs approximately 76 salespeople who have primary
responsibility for contacting, taking orders from, and maintaining the
<PAGE> 8
Company's relationship with its customers. In addition, members of senior
management have frequent contact with many of the Company's customers to ensure
that it is meeting the customers' needs. Each distribution center also has
dedicated customer service representatives who assist customers on a daily
basis with any questions or concerns regarding the Company's products or
customer orders.
Fence. The Company sells fence products principally to fence wholesalers
and residential and commercial contractors. Although the Company also sells
some fence products through home centers, such sales are not a primary focus of
the Company's sales efforts.
The Company's dedicated sales force for its fence product line consists of
approximately 53 employees whose sales territories cover the 48 contiguous
states. Sales generally are made through the Company's 42 regional fence
distribution centers (six of which are located at the Company's fence
manufacturing facilities), which are located in 29 states. Because fence
customer orders typically require rapid turn-around time, the Company's
distribution centers are strategically located near customers' facilities. The
Company also distributes its fence products through a network of approximately
330 authorized dealers located throughout the country.
Wire Mesh. The Company sells wire mesh products principally to
construction products distributors, industrial manufacturers (such as pre-
casters of concrete products), lumber yards, and manufacturers and processors
of all types of wire products, including shelving, household and automotive
products.
The Company's specialized sales force for the wire mesh product line
consists of approximately 10 employees whose sales territories cover the 48
contiguous states. Members of the wire mesh sales force generally have
engineering backgrounds which permit them to consult with customers regarding
product specifications. Because orders for wire mesh products typically do not
require the quick turn-around time that is required for fence product and
concrete accessories, the Company's wire mesh products are shipped directly
from one of the Company's six wire mesh manufacturing facilities to the
customer, generally in truckload quantities. The Company produces most of its
wire mesh in response to particular customer orders. The Company's light wire
mesh used for residential construction, however, generally is produced in
standard patterns in anticipation of customer orders.
Concrete Accessories. The Company sells its concrete accessories
principally to large reinforcing bar fabricators, commercial building supply
dealers and construction contractors.
The Company has a dedicated sales force for its concrete accessories
product line consisting of approximately 13 employees whose sales territories
cover the 48 contiguous states. The Company's concrete accessories are
distributed primarily through 16 regional distribution centers (three of which
are located at the Company's concrete accessories manufacturing facilities).
Because orders for concrete accessories typically require rapid turn-around
time, these distribution centers are strategically located near customers'
facilities.
<PAGE> 9
COMPETITION
Fence. The Company's major national competitor for fence products is
Master-Halco, Inc., which has a more extensive local distribution network than
does the Company. The Company believes, however, that the Company's more
extensive fence manufacturing capabilities provide an advantage to some major
accounts. The Company also competes with two strong regional competitors for
fence products, one of which operates primarily on the East Coast, with
particular emphasis on Florida, and one of which operates only manufacturing
facilities (with no internal distribution network) primarily east of the Rocky
Mountains. The Company's remaining competitors for fence products are smaller
regional manufacturers and wholesalers.
Although the ability to sell fence products at a competitive price is an
important competitive factor, the Company believes that other factors, such as
perceived quality of product and service and ability to deliver products to
customers quickly, are also important to its fence customers. The Company
believes that its reputation for quality and service and its ability to deliver
product quickly due to the locations of its 42 fence distribution centers,
enable the Company to obtain a slight premium in its sales price for fence
products, as compared to its principal competitors.
Wire Mesh. The Company's major competitor for wire mesh is Insteel Wire
Products, Inc. The Company faces strong regional competitors in Midwestern,
Southeastern, and Mid-Atlantic states. The Company also faces competition from
smaller regional manufacturers and wholesalers of wire mesh products.
The Company believes that its ability to produce a greater variety of
products in a wider geographical area provides an advantage to major accounts.
The Company believes that its willingness and ability to provide custom-made
products that fit its customers' individual needs provide the Company with a
competitive advantage. In addition, the Company believes that its raw material
costs (which the Company believes are lower than many of its competitors)
enhance the Company's ability to compete effectively with respect to product
price in the wire mesh market.
Concrete Accessories. The concrete accessories product line faces
competition from several significant competitors. Dayton-Superior Corporation
is the leading full line national participant in the concrete accessories
market, with a market share greater than that of the Company. The Company also
faces strong full line competition from a regional competitor and from two
other significant competitors, who offer a more limited number of products.
The Company believes that price, product selection and ability to deliver
product quickly are the principal competitive factors in the concrete
accessories market. The Company believes that its raw material costs (which
the Company believes are lower than many of its competitors) enhance the
Company's ability to compete effectively with respect to product price in the
concrete accessories market. The Company also believes that its extensive
concrete accessories product line enables it to compete effectively. In
addition, the Company also believes that its ability to deliver its concrete
accessories products quickly as a result of the locations of its regional
distribution facilities is a competitive advantage for the Company.
<PAGE> 10
REGULATION
Environmental Regulation. The Company is subject to extensive and
changing federal, state and local Environmental Laws including laws and
regulations that relate to air and water quality, impose limitations on the
discharge of pollutants into the environment, and establish standards for the
treatment, storage, and disposal of toxic and hazardous wastes. Stringent
fines and penalties may be imposed for non-compliance with these Environmental
Laws. In addition, Environmental Laws could impose liability for costs
associated with investigating and remediating contamination at the Company's
facilities or at third-party facilities at which the Company has arranged for
the disposal treatment of hazardous materials.
Although no assurances can be given, the Company believes that the Company
and its operations are in compliance in all material respects with all
Environmental Laws and the Company is not aware of any non-compliance or
obligation to investigate or remediate contamination that could reasonably be
expected to result in material liability. This being said, Environmental Laws
continue to be amended and revised to impose stricter obligations. The Company
cannot predict the effect such future requirements, if enacted, would have on
the Company although the Company believes that such regulations would be
enacted over time and would affect the industry as a whole.
Health and Safety Matters. The Company's facilities and operations are
governed by laws and regulations, including the federal Occupational Safety and
Health Act, relating to worker health and workplace safety. The Company
believes that appropriate precautions are taken to protect employees and others
from workplace injuries and harmful exposure to materials handled and managed
at its facilities. While it is not anticipated that the Company will be
required in the near future to expend material amounts by reason of such health
and safety laws and regulations, the Company is unable to predict the ultimate
cost of compliance with these changing regulations.
EMPLOYEES
As of January 3, 1998, the Company had approximately 1,800 full time
employees. The Company is a party to seven collective bargaining agreements
with five unions, of which a total of approximately 275 employees are members.
Such collective bargaining agreements cover employees of the Baltimore,
Maryland, Tampa, Florida, Whittier, California, Hackensack, New Jersey,
Chicago, Illinois, and Oregon, Ohio facilities. The Company considers its
relations with its employees to be good.
With the Burke and Wholesale acquisitions in early 1998, the Company
increased the number of employees by approximately 180, of which 12 are members
of a collective bargaining unit.
<PAGE> 11
ITEM 2. PROPERTIES
Information regarding the Company's manufacturing and distribution
facilities as of January 3, 1998 is as follows:
<TABLE>
<CAPTION>
Size
Location Use Leased/Owned (Sq. FT.)(1)
-------- --- ------------ ------------
<S> <S> <S> <C>
Corporate Headquarter
- ---------------------
Houston, TX Administrative Leased 10,689
Fence Product Line
- ------------------
Whittier, CA Distribution/Manufacturing Owned 28,910
Tacoma, WA Distribution Leased 7,440
Riverside, CA Distribution Leased 19,700
Murray, UT (2) Distribution Leased 11,282
Houston, TX Distribution/Manufacturing Owned 140,190
Dallas, TX Distribution Leased 10,000
Denver, CO Distribution Leased 9,600
Jacksonville, FL (2) Distribution Leased 9,000
New Orleans, LA Distribution Leased 15,860
Statesville, NC Distribution/Manufacturing Owned 73,829
Forest Park, GA Distribution Leased 3,675
Hyattsville, MD Distribution Leased 10,560
Charlotte, NC (2) Distribution Leased 17,666
Nashville, TN Distribution Leased 6,500
Birmingham, AL Distribution Leased 7,300
Richmond, VA Distribution Leased 2,000
Columbia, SC Distribution Leased 11,200
Lawrenceville, GA Distribution Leased 3,500
Raleigh, NC Distribution Leased 6,834
Pennsauken, NJ Distribution Leased 3,834
New Paris, IN Distribution/Manufacturing Owned (3) 72,000
Berkeley, MO Distribution Leased 7,500
Indianapolis, IN Distribution Leased 36,608
Westfield, MA Distribution Owned 50,000
Kansas City, MO Distribution Leased 35,000
Columbus, OH Distribution Leased 10,430
Louisville, KY Distribution Leased 16,000
Davie, FL (2) Distribution Leased 18,543
Strongsville, OH Distribution Leased 10,943
Brighton, MI Distribution/Manufacturing Leased 65,890
Wheeling, IL Distribution Leased 35,713
Markham, IL Distribution Leased 12,524
Milwaukee, WI Distribution Leased 4,200
Brooklyn Park, MN Distribution Leased 15,000
Johnston, IA Distribution Leased 4,900
Tonawanda, NY Distribution Leased 26,000
Pittsburgh, PA Distribution Leased 5,500
Harrison, AR Distribution/Manufacturing Owned 72,881
<PAGE> 12
Size
Location Use Leased/Owned (Sq. FT.)(1)
-------- --- ------------ ------------
Fence Product Line - (Continued)
- --------------------------------
Tampa, FL (2) Distribution Owned 70,142
Boise, ID Distribution Leased 7,500
Memphis, TN Distribution Leased 7,000
Ft. Worth, TX Distribution Leased 4,000
Wire Mesh Product Line
- ----------------------
Houston, TX Manufacturing Owned (3) 130,992
Jacksonville, FL Manufacturing Owned 145,846
Baltimore, MD Manufacturing Owned 235,000
Oregon, OH Manufacturing Leased 90,000
Tampa, FL Manufacturing Owned (3) 21,450
North Miami Beach, FL Manufacturing Leased 43,500
Concrete Accessories Product Line
- ---------------------------------
Houston, TX Distribution Leased 14,560
New Orleans, LA Distribution Leased 10,000
Hackensack, NJ Distribution Leased 15,000
Newington, VA Distribution Leased 21,645
Decatur, GA Distribution Leased 4,000
Anaheim, CA Distribution Leased 19,000
Ft. Worth, TX Distribution/Manufacturing Owned 161,520
Davie, FL (4) Distribution Leased 18,543
Phoenix, AZ Distribution Leased 8,871
Hazelton, PA Distribution/Manufacturing Leased 76,800
Chicago, IL Distribution Leased 69,425
Tampa, FL (4) Distribution/Manufacturing Owned 70,142
Jacksonville, FL (4) Distribution Leased 9,000
Charlotte, NC (4) Distribution Leased 17,666
Murray, UT (4) Distribution Leased 11,282
Puerto Rico Distribution Leased 11,000
The following locations were added during February and March 1998 resulting from acquisitions:
Tacoma, WA (Fence) Distribution/Manufacturing Leased 31,400
Medford, OR (Fence) Distribution Leased 2,040
Eugene, OR (Fence) Distribution Leased 2,480
Converse, TX (Concrete Accessories) Distribution/Manufacturing Leased 72,200
Long Beach, CA (Concrete Accessories) Distribution/Manufacturing Leased/Owned(5) 132,000
</TABLE>
(1) Does not include square footage of outside storage and other outdoor areas.
(2) This property also contains a distribution center and/or manufacturing
facility for concrete accessories.
(3) A portion of the property is also leased.
(4) This property also contains a distribution center for fence products.
(5) Land is leased, improvements are owned.
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits incidental to its
business. The Company does not believe that these claims and lawsuits in the
aggregate will have a material adverse affect on the Company's business,
financial condition and results of operations.
In November 1996, a former stockholder of Holding exercised its appraisal
rights and filed a lawsuit against Holding with respect to the value of the
common and preferred stock redeemed in connection with a recapitalization
transaction (the "Recapitalization") which occurred on December 13, 1996. See
"Item 13 - Certain Relationships and Related Transactions - The
Recapitalization." In January 1997, Holding paid the stockholder $2.2 million
with respect to the value of the preferred stock, the original value offered in
the Recapitalization. The Company has recorded a liability to Holding for $3.7
million, which is equal to the amount the stockholder would have received for
its common stock if it had not exercised its appraisal rights. Although
management believes the value that the Recapitalization provided to be paid to
holders of Holding common stock was fair to such holders, there can be no
assurance that the court will agree. The payment of the $3.7 million, plus or
minus any difference resulting from the settlement of the value of the common
stock plus any interest owed to the former stockholder, will be funded by the
Company's revolving credit facility and recorded as an adjustment to the
contribution of capital from Holding. The payment will therefore have no
effect on the operating results of the Company. A trial date has been set in
August 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data
derived from the Company's financial statements and should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Financial Statements and Notes thereto,
included elsewhere herein.
<TABLE>
<CAPTION>
(In thousands)
Fiscal Years
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 346,905 $ 283,402 $ 233,284 $ 197,617 $ 166,731
Gross profit 50,906 44,963 37,161 34,144 25,117
Nonrecurring expenses (1) - 3,106 - - 1,031
Net income 7,737 6,337 6,346 7,512 816
Balance Sheet Data
(at period end):
Working capital $ 50,308 $ 33,511 $ 36,563 $ 29,222 $ 24,982
Total assets 152,818 135,263 103,856 86,498 77,058
Total long-term debt and
capital leases, including
current maturities 123,867 55,278 49,485 44,454 51,935
Stockholder's equity (20,873) 28,534 15,606 9,260 2,056
Cash Flow Data:
Net cash provided by (used in)
operating activities $ 2,396 $ 15,491 $ 12,745 $ 11,516 $ (145)
Net cash used in investing
activities (4,976) (24,314) (14,741) (2,452) (1,049)
Net cash provided by (used in)
financing activities 5,855 6,894 3,681 (8,891) 665
EBITDA (2) $ 31,423 $ 25,547 $ 21,613 $ 19,997 $ 11,531
Cash dividends (3) 57,105 - - 308 -
</TABLE>
(1) In fiscal year 1996, the Company recorded nonrecurring expense resulting
from the modification of stock options granted in previous years as part
of the Recapitalization of the Company and Holding. See Note 2 to the
audited financial statements included elsewhere herein. In fiscal year
1993, the Company recorded nonrecurring expense of $1.0 million relating
to the write-down of certain intangible assets.
(2) EBITDA is defined as the sum of income before interest expense, income
taxes, depreciation and amortization, and certain nonrecurring expenses
(see note (1) above). EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service and incur
debt. EBITDA should not be considered in isolation from or as a
substitute for net income or cash flow measures prepared in accordance
with generally accepted accounting principles or as a measure of a
company's profitability or liquidity.
<PAGE> 15
(3) Cash dividends of $308,000 in fiscal year 1994 represent amounts required
to redeem the equity interests in Holding held by former stockholders
which had received equity interests in Holding upon the sale to the
Company of certain assets acquired for the fence product line. In fiscal
year 1997, $57.1 million was distributed to Holding for the redemption by
Holding of certain of its equity interests.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is an analysis of the financial condition and results of
operations of the Company. This analysis should be read in conjunction with
the Company's Financial Statements and Notes thereto, appearing elsewhere
herein.
GENERAL
The Company is a leading manufacturer and distributor of products used in
the residential, commercial and infrastructure construction industries. The
Company sells its products along three principal product lines: fence, wire
mesh, and concrete accessories.
PRODUCT LINES
The Company's fence product line includes chain link fence fabric,
fittings, and other related products which are manufactured and distributed
by the Company, as well as wood, vinyl, aluminum and ornamental iron fence
products which are manufactured by third parties and distributed by the
Company.
The Company's wire mesh product line consists of various classes of wire
mesh, which serves as a structural reinforcing grid for concrete construction,
including concrete pipe, roads, bridges, runways and sewage and drainage
projects. As a result of the Atlantic Steel Acquisition in 1996, the Company
also produces galvanized strand wire.
The Company's concrete accessories product line consists of over 2,000
specialized accessories used in concrete construction, including products
used to position and install steel reinforcing bar and wire mesh reinforcing
grid.
The following table sets forth net sales by product line for the periods
indicated:
<TABLE>
<CAPTION>
(Dollars in Millions)
Fiscal Years
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Fence $ 177.6 51.2% $ 165.0 58.2% $ 145.0 62.1%
Wire mesh 126.9 36.6% 82.9 29.3% 58.0 24.9%
Concrete accessories 42.4 12.2% 35.5 12.5% 30.3 13.0%
---------------- ---------------- ----------------
Net sales $ 346.9 100.0% $ 283.4 100.0% $ 233.3 100.0%
</TABLE>
<PAGE> 16
CYCLICALITY
The Company's products are used in the residential, commercial and
infrastructure construction industries. These industries are both cyclical and
seasonal, and changes in demand for construction services have a material
impact on the Company's sales and profitability. Although the Company believes
that a cyclical downturn is inevitable, the Company has implemented strategies
which it believes will mitigate the impact of any such downturn on its future
operating results and liquidity. First, the Company has increased its focus on
products used in the commercial and infrastructure construction industries,
which historically have been less cyclical than the residential construction
industry. Second, the Company has positioned its wire mesh and concrete
accessories product lines to benefit from anticipated increases in
infrastructure spending. Third, the Company has expanded its distribution
network to serve diverse areas of high population growth, as well as to limit
the effects of any regional economic downturns.
The following table sets forth certain operating results as a percentage
of net sales for the periods indicated:
<TABLE>
<CAPTION>
(Percentage of Net Sales)
Fiscal Years
----------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 85.3% 84.1% 84.1%
------ ------ ------
Gross profit 14.7% 15.9% 15.9%
Selling, general, and administrative expenses (SG&A) 7.2% 8.2% 8.2%
Nonrecurring expenses - stock options - 1.1% -
Other expenses, net - 0.3% 0.1%
------ ------ ------
Income before interest expense and income taxes 7.5% 6.3% 7.6%
Interest expense 3.8% 2.6% 3.2%
------ ------ ------
Income before income taxes 3.7% 3.7% 4.4%
Provision for income taxes 1.5% 1.5% 1.7%
------ ------ ------
Net income 2.2% 2.2% 2.7%
====== ====== ======
EBITDA margin (1) 9.1% 9.0% 9.3%
====== ====== ======
</TABLE>
(1) EBITDA is a widely accepted financial indicator of a company's ability
to service and incur debt. EBITDA should not be considered in isolation
from or as a substitute for net income or cash flow measures prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity. EBITDA margin is defined as
(i) the sum of income before interest expense, income taxes, depreciation
and amortization, and nonrecurring expenses, divided by (ii) net sales.
<PAGE> 17
COMPARISON OF FISCAL YEARS ENDED JANUARY 3, 1998 AND DECEMBER 28, 1996
Net Sales. Net sales increased 22.4%, from $283.4 million in fiscal year
1996 to $346.9 million in fiscal year 1997. The wire mesh product line, which
contributed $44.0 million of the total net sales increase, benefited in fiscal
year 1997 from the full twelve month impact of the Atlantic Steel Acquisition.
The fence product line, which contributed $12.6 million of the total net sales
increase benefited from the opening of a new fence distribution center in
Pennsauken, New Jersey in January 1997 and the acquisition of a fence
distribution business in Boise, Idaho in September 1997. The Company's
continued emphasis on the distribution of fence products other than
manufactured chain link fabric (i.e., wood, ornamental steel and aluminum,
vinyl) also contributed to the increase in sales. The concrete accessories
product line, which contributed $6.9 million of the increase in net sales,
benefited from the full twelve month impact of the Gateway Acquisition in
October 1996 and continued increases in sales of bar supports and paving
products.
Gross Profit. Gross profit margin decreased 1.2%, from 15.9% in fiscal
year 1996 to 14.7% in fiscal year 1997. Factors contributing to the decrease
in gross profit margin included: (i) increased sales of lower margin mesh
products as a result of the 1996 Atlantic Steel Acquisition, (ii) growth in
sales of lower margin paving products within the concrete accessories product
line, (iii) costs resulting from the start-up of a new concrete accessories
manufacturing facility, and (iv) increased raw material costs, mainly steel rod
and zinc.
SG&A. SG&A expenses increased $1.7 million, from $23.1 million in fiscal
year 1996 to $24.8 million in fiscal year 1997. As a percentage of net sales,
SG&A expenses decreased from 8.2% in fiscal year 1996 to 7.2% in fiscal year
1997. The increase in SG&A expenses was principally attributed to the growth
of the business via the acquisitions and new location openings discussed in
"Net Sales" above. The decrease in SG&A expenses as a percentage of net sales
was due to the lower relative selling expense required for the made-to-order
wire mesh product line (the primary area of sales increase) versus fence and
concrete accessories product lines which require an extensive distribution
network, and cost efficiencies achieved from integrating acquired businesses
into the Company's operations.
Other Expenses, Net. Other expenses, net decreased $0.6 million from $0.7
million in fiscal year 1996 to $0.1 million in fiscal year 1997. Approximately
$0.2 million of the decrease was due to net loss of $0.2 million on disposals
of fixed assets in fiscal year 1996 compared to a net gain on disposal of
$22,000 in fiscal year 1997. Charges in 1996 which did not reoccur in 1997 of
approximately $0.3 million related to a product liability contingency, closure
of a concrete accessories manufacturing facility, and tornado damage at a wire
mesh facility.
Interest Expense. Interest expense increased from $7.4 million in fiscal
year 1996 to $13.0 million in fiscal year 1997. The increase in interest
expense was primarily due to the issuance of $120 million 11.25% Senior
Subordinated Notes in April 1997. If the proceeds from the issuance of the
$120 million Senior Subordinated Notes had been available at the beginning of
fiscal year 1997, pro forma interest expense for the fiscal year 1997 would
have been $15.4 million, an increase of $2.4 million over the $13.0 million
actually incurred. Pro forma interest expense is based on the 11.25% rate on
the $120 million Senior Subordinated Notes plus the amortization of deferred
financing costs over the life of the debt.
<PAGE> 18
Net Income. Net income increased 22.1%, from $6.3 million in fiscal year
1996 to $7.7 million in fiscal year 1997. The increase in net income was
primarily a result of the factors discussed above and the $3.1 million
nonrecurring expense in fiscal year 1996 discussed below. If proceeds from the
issuance of the $120 million Senior Subordinated Notes had been available at
the beginning of fiscal year 1997, net income for the fiscal year would have
been approximately $6.3 million, due to increased interest expense.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
Net Sales. The Company's net sales increased to $283.4 million in fiscal
year 1996, an increase of $50.1 million, or 21.5%, over fiscal year 1995. The
wire mesh product line, which contributed $24.9 million of the increase,
benefited from the Atlantic Steel Acquisition, which added $25.3 million of net
sales in fiscal year 1996, and new business. Partially offsetting these
increases was the mid-year loss of a customer due to price competition. The
fence product line, which contributed $20.0 million of the total net sales
increase, benefited in fiscal year 1996 from the full twelve month impact of
the Semmerling/Pioneer Acquisition. The fence product line also benefited from
the opening of a new fence distribution center in Raleigh, North Carolina and
Olympics-related construction activity in the Atlanta, Georgia area. The
concrete accessories product line, which contributed $5.2 million of the
increase in net sales, benefited primarily from continued increases in sales of
paving products and the opening of three new distribution centers.
Gross Profit. The Company's gross profit increased to $45.0 million in
fiscal year 1996, an increase of $7.8 million, or 21.0%, over fiscal year 1995.
Gross profit margin was 15.9% in both years. The increase in gross profit was
primarily related to higher sales volume. The Atlantic Steel Acquisition
contributed $2.9 million of the gross profit increase for the five months of
operations included in fiscal year 1996. The fence product line contributed
$2.7 million of the gross profit increase, $1.7 million of which was from
Midwestern distribution centers benefiting from a full twelve months impact of
the Semmerling/Pioneer Acquisition.
SG&A. The Company's SG&A expense increased to $23.1 million in fiscal
year 1996, an increase of $3.9 million, or 20.6%, from fiscal year 1995. SG&A
expense as a percentage of net sales did not change in fiscal year 1996 versus
fiscal year 1995. Acquisitions and openings of new distribution centers across
all product lines contributed to the increase as well as higher provisions for
uncollectible accounts receivable and incentive compensation expense as
compared to fiscal year 1995.
Nonrecurring Expenses - Stock Options. During fiscal year 1996, the
Company incurred certain nonrecurring expenses relating to Holding stock
options granted in previous years to employees and a supplier of the Company.
The aggregate effect of these expenses was $3.1 million (see Note 2 to the
financial statements included elsewhere herein).
Other Expenses, Net. Other expenses, net, increased $0.6 million in
fiscal year 1996 to $0.7 million as compared to fiscal year 1995.
Approximately $0.3 million of the increase was due to net gains of $0.1 million
on disposals of fixed assets in fiscal year 1995 compared to net losses on
disposals of $0.2 million in fiscal year 1996. Charges relating to closure of
a concrete accessories manufacturing facility during fiscal year 1996 and
tornado damage at a wire mesh facility, contributed $0.2 million to the
increase.
<PAGE> 19
Interest Expense. Interest expense was $7.4 million in both fiscal year
1996 and fiscal year 1995. In fiscal year 1996, the Company's interest expense
decreased due to the repayment of deferred interest on subordinated debt
obligations (the deferral of interest payments had previously resulted in
higher rates) and lower rates on the Company's revolving loan portion of its
credit facility. These reductions were offset by the Company's higher level of
debt which increased primarily to finance acquisitions.
Provision for Income Taxes. The Company's effective tax rate in fiscal
year 1996 of 40% was one percentage point higher than the rate for fiscal year
1995 as a result of the Company being subject to a higher statutory federal
income tax rate and the expansion of operations in states with higher effective
income tax rates.
Net Income. Net income was $6.3 million in both fiscal year 1996 and
fiscal year 1995. Higher income was offset primarily by the $3.1 million of
nonrecurring expenses ($1.9 million net of tax) relating to Holding stock
options.
LIQUIDITY AND CAPITAL RESOURCES
On April 16, 1997, the Company issued $120 million of senior subordinated
notes due 2007 (the "Senior Subordinated Notes"). The net proceeds of $116.0
million, after fees and expenses, were used (i) to distribute $57.1 million to
Holding for the redemption by Holding of certain of its equity interests, (ii)
to repay the entire $10 million principal amount, plus accrued interest, on a
senior subordinated secured note payable, (iii) to repay the Company's
remaining indebtedness under a term loan facility of $11.4 million and (iv) to
reduce the Company's indebtedness under the revolving credit facility. As a
result of the issuance of $120 million of senior subordinated notes, the
Company's interest expense increased from $7.4 million in fiscal year 1996 to
$13.0 million in fiscal year 1997. If the proceeds from the issuance of the
Senior Subordinated Notes had been available at the beginning of fiscal year
1997, pro forma interest expense for fiscal year 1997 would have been $15.4
million, an increase of $2.4 million over the $13.0 million actually incurred.
Pro forma interest expense is based on the 11.25% rate on the Senior
Subordinated Notes plus the amortization of deferred financing costs over the
life of the debt less interest expense on debt that would have been retired.
Cash Flows. Operating activities provided net cash of approximately $2.4
million in fiscal year 1997. Net income adjusted for non-cash items such as
depreciation, amortization, and other non-cash charges provided $16.2 million,
of which $11.6 million was utilized to support increases in operating assets,
primarily accounts receivable and inventory, and $2.2 million was paid to
Holding for it to conclude its redemption of preferred stock in connection with
the Recapitalization. Investing activities utilized approximately $5.0 million
of cash, principally consisting of capital expenditures and an acquisition of a
fence distribution business. Financing activities provided approximately $5.9
million of cash, primarily from the issuance of senior subordinated notes and
the use of their net proceeds, as discussed above.
For the fiscal year 1996, operating activities provided net cash of
approximately $15.5 million. Net income adjusted for non-cash items such as
depreciation, amortization, and other non-cash charges provided $13.9 million.
Net increases in operating liabilities provided an additional $8.0 million, of
which $6.4 million was utilized to pay deferred interest to affiliates.
Investing activities utilized approximately $24.3 million of cash, principally
<PAGE> 20
consisting of the Atlantic Steel Acquisition and capital expenditures.
Financing activities provided cash of approximately $6.9 million, which
consisted of a net increase in long-term borrowings of approximately $3.4
million and a capital contribution from Holding of approximately $3.5 million.
For the fiscal year 1995, operating activities provided net cash of
approximately $12.7 million. Net income adjusted for non-cash items such as
depreciation, amortization, and other non-cash charges provided $11.8 million.
Net increases in operating liabilities provided an additional $1.5 million, of
which $0.6 million was utilized to pay deferred interest to affiliates.
Investing activities utilized approximately $14.7 million of cash, principally
consisted of the Semmerling and Pioneer Acquisitions and capital expenditures.
Increased long-term borrowings provided financing cash of approximately $3.7
million.
Although EBITDA should not be considered in isolation from or as a
substitute for cash flow measures prepared in accordance with generally
accepted accounting principles or as a measure of a company's liquidity, it is
a widely accepted financial indicator of a company's ability to incur and
service debt. EBITDA is defined as the sum of income before interest expense,
income taxes, depreciation and amortization, and non-recurring expenses. For
fiscal years 1997 and 1996, EBITDA was $31.4 million and $25.5 million,
respectively. The increase in EBITDA is primarily due to higher income before
interest expense and income taxes due to the changes in net sales, gross
profit, and selling, general and administrative expenses discussed above. For
fiscal year 1996, EBITDA increased $3.9 million, to $25.5 million from $21.6
million for fiscal year 1995. Of the $3.9 million increase in 1996, the
Atlantic Steel Acquisition contributed EBITDA of $2.5 million.
The Company's capital expenditures budget for fiscal year 1998 is $5.7
million. In addition, during February and March 1998, the Company completed or
signed letters of intent to purchase a concrete accessories business, a fence
business, and land and building for a replacement wire mesh manufacturing
facility for approximately $26.3 million.
The Company expects that cash flows from operations and the borrowing
availability under its bank revolving credit facility will provide sufficient
liquidity to meet its normal operating requirements, capital expenditure plans,
existing debt service, and business acquisition strategy over the near term.
The Company has pursued and intends to continue to pursue a strategy of
business acquisitions that will broaden its distribution network, complement or
extend its existing product lines or increase its production capacity. The
borrowing availability under its bank revolving credit facility is also
expected to be available to finance such acquisitions. It is possible that,
depending upon the Company's future operating cash flows and the size of
potential acquisitions, the Company will seek additional sources of financing
subject to limitations set forth in its subordinate notes indenture.
EFFECT OF INFLATION
The impact of inflation on the Company's operations has not been
significant in recent years. There can be no assurance, however, that a high
rate of inflation in the future will not have an adverse effect on the
Company's operating results.
<PAGE> 21
SEASONALITY
The Company's products are used in the residential, commercial and
infrastructure construction industries. These industries are both cyclical and
seasonal, and changes in demand for construction services have a material
impact on the Company's sales and profitability. The highest level of sales
and profitability occur during the times of the year when climatic conditions
are most conducive to construction activity. Accordingly, sales will typically
be higher in the Company's second and third quarters and will be lower in the
first and fourth quarters.
IMPACT OF YEAR 2000
The result of computer programs being written using two digits rather than
four to define the applicable year is known as the "Year 2000" issue. Any of
the Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and beyond. The Company is currently in
the process of replacing its general ledger system with software which will be
year 2000 compliant. The project is scheduled to be completed during the first
half of 1998 with an estimated cost of $300,000. Other systems modifications
are scheduled to be completed by early 1999. The Company does not expect these
projects to have significant effects on operations. The Company also does not
expect any significant disruption on operations in the event that any of its
suppliers or customers fail to achieve Year 2000 compliance. However, if the
software changes and modifications of existing software are not made, or are
not completed timely, the Year 2000 issue could have a material impact on the
operations of the Company.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. It is effective in the
first quarter of 1998 and adoption will have no impact on the Company's net
income or stockholder's equity. SFAS No. 131 establishes new standards on
reporting information about operating segments in both annual and interim
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
Company will adopt the new requirements of SFAS No. 131 retroactively in fiscal
year 1998. Management anticipates that the adoption of SFAS No. 131 will
likely result in certain changes to the Company's reported segments.
<PAGE> 22
FORWARD LOOKING INFORMATION
The statements contained in this report which are not historical facts,
including, but not limited to, statements found under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
above, are forward looking statements that involve a number of risks and
uncertainties. The actual results of the future events described in such
forward looking statements in this report could differ materially from those
contemplated by such forward looking statements. Among the factors that could
cause actual results to differ materially are the risks and uncertainties
discussed in the report, including without limitations the portions of such
statements under the caption referenced above, and the uncertainties set forth
from time to time in the Company's other public reports and filings and public
statements.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors 23
Balance Sheets at fiscal year end 1997 and 1996 24
Statements of Operations for fiscal years ended 1997, 1996 and 1995 25
Statements of Changes in Stockholders' Equity for fiscal years
1997, 1996 and 1995 26
Statements of Cash Flows for fiscal years ended 1997, 1996 and 1995 27
Notes to Financial Statements 28-41
<PAGE> 23
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder of
MMI Products, Inc.
We have audited the accompanying balance sheets of MMI Products, Inc. as of
January 3, 1998 and December 28, 1996, and the related statements of
operations, stockholder's equity and cash flows for each of the three fiscal
years in the period ended January 3, 1998. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MMI Products, Inc. at January
3, 1998 and December 28, 1996, and the results of its operations and its cash
flows for each of the three fiscal years in the period ended January 3, 1998,
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Houston, Texas
March 13, 1998
<PAGE> 24
MMI PRODUCTS, INC.
BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,509 $ 234
Accounts receivable, net of allowance for doubtful
accounts of $1,876 and $1,701, respectively 38,940 35,637
Inventories 48,938 41,687
Income tax receivable 1,710 -
Deferred income taxes 1,178 3,722
Prepaid expenses and other current assets 1,206 1,315
--------- ---------
Total current assets 95,481 82,595
Property, plant and equipment
Land 4,814 4,814
Buildings and improvements 16,473 15,465
Machinery and equipment 50,343 46,639
--------- ---------
71,630 66,918
Less accumulated depreciation 25,712 22,046
--------- ---------
Property, plant and equipment, net 45,918 44,872
Intangibles assets 5,831 6,105
Deferred charges and other assets 5,588 1,691
--------- ---------
Total assets $ 152,818 $ 135,263
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 27,276 $ 29,114
Accrued interest 3,172 595
Accrued liabilities 10,025 10,538
Due to Holding, net 3,573 5,810
Current maturities of long-term debt,
including capital lease obligations 1,127 3,027
--------- ---------
Total current liabilities 45,173 49,084
Long-term debt, including capital lease obligations 122,740 52,251
Deferred income taxes and other long-term liabilities 5,778 5,394
Commitments and contingencies
Stockholder's equity (deficit)
Common stock, $1 par value; 500,000 shares
authorized; 252,000 shares issued and outstanding 252 252
Additional paid-in capital 14,711 14,599
Additional minimum pension liability (151) -
Retained earnings (deficit) (35,685) 13,683
--------- ---------
Total stockholder's equity (deficit) (20,873) 28,534
--------- ---------
Total liabilities and stockholder's equity (deficit) $ 152,818 $ 135,263
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 25
MMI PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------
January 3, December 28, December 30,
1998 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Net sales $346,905 $283,402 $233,284
Cost of sales 295,999 238,439 196,123
--------- ---------- ----------
Gross profit 50,906 44,963 37,161
Selling, general and administrative expenses 24,843 23,143 19,196
Nonrecurring expenses - stock options (Note 2) - 3,106 -
Other expenses, net 147 721 166
--------- ---------- ----------
Income before interest and income taxes 25,916 17,993 17,799
Interest expense:
Affiliates - 2,046 2,223
Other 13,018 5,383 5,172
--------- ---------- ----------
13,018 7,429 7,395
--------- ---------- ----------
Income before income taxes 12,898 10,564 10,404
Provision for income taxes 5,161 4,227 4,058
--------- ---------- ----------
Net income $ 7,737 $ 6,337 $ 6,346
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 26
MMI PRODUCTS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Additional
Additional Minimum Retained Total
Common Paid-In Pension Earnings Stockholder's
Stock Capital Liability (Deficit) Equity
-------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 252 $ 8,008 $ - $ 1,000 $ 9,260
Net income - - - 6,346 6,346
-------- ----------- --------- --------- ----------
Balance at December 30, 1995 252 8,008 - 7,346 15,606
Net income - - - 6,337 6,337
Contribution of capital
- Recapitalization - 3,485 - - 3,485
- stock options - 3,106 - - 3,106
-------- ----------- --------- --------- -----------
Balance at December 28, 1996 252 14,599 - 13,683 28,534
Net income - - - 7,737 7,737
Contribution of capital
- stock options - 112 - - 112
Distribution to Holding - - - (57,105) (57,105)
Additional minimum pension
liability - - (151) - (151)
-------- ----------- --------- --------- ----------
Balance at January 3, 1998 $ 252 $ 14,711 $ (151) $ (35,685) $ (20,873)
======== =========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 27
MMI PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------------
January 3, December 28, December 30,
1997 1996 1995
--------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,737 $ 6,337 $ 6,346
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,507 4,448 3,814
Nonrecurring expenses - stock options - 3,106 -
Provision for losses on accounts receivable - 879 448
Deferred income taxes 2,886 (1,088) 1,313
(Gain) loss on sale of property, plant, and equipment (22) 193 (100)
Other 112 - -
Changes in operating assets and liabilities, net of
effects of acquired businesses:
Increase in accounts receivable (3,139) (8,339) (5,585)
(Increase) decrease in inventories (7,029) (1,668) 1,034
Decrease in prepaid expenses and other assets 272 2,068 551
Increase in accounts payable and accrued liabilities 1,109 9,762 6,868
Increase (decrease) in income taxes (2,800) 372 (1,296)
Decrease in deferred interest payable - affiliates - (6,389) (648)
Increase (decrease) in due to Holding (2,237) 5,810 -
--------- ----------- -----------
Net cash provided by operating activities $ 2,396 $ 15,491 $ 12,745
--------- ----------- -----------
Investing activities:
Capital expenditures (4,560) (3,545) (2,246)
Proceeds from sale of property, plant and equipment 101 89 1,219
Acquisitions (552) (20,858) (13,714)
Other 35 - -
--------- ----------- -----------
Net cash used in investing activities (4,976) (24,314) (14,741)
--------- ----------- -----------
Financing activities:
Proceeds from credit facility and long-term debt 157,854 122,033 88,421
Payments on credit facility, long-term debt, and
capital lease obligations (90,943) (103,824) (84,740)
Payments on subordinated notes payable - affiliates - (14,800) -
Contribution of capital from Holding - 3,485 -
Distributions to Holding (57,105) - -
Debt offering costs (3,951) - -
--------- ----------- -----------
Net cash provided by financing activities 5,855 6,894 3,681
--------- ----------- -----------
Net change in cash and cash equivalents 3,275 (1,929) 1,685
Cash and cash equivalents, beginning of period 234 2,163 478
--------- ----------- -----------
Cash and cash equivalents, end of period $ 3,509 $ 234 $ 2,163
========= =========== ===========
Supplemental Cash Flow Information:
Supplemental disclosure of noncash investing activities
Issuance of capital lease obligations
for capital expenditures $ 1,678 $ 1,443 $ 1,282
Cash paid for interest 10,441 13,530 7,739
Cash paid for income taxes 4,822 4,938 4,043
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 28
MMI PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
January 3, 1998
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
MMI Products, Inc. (the "Company"), is a wholly-owned subsidiary of
Merchants Metals Holding Company (Holding). The Company is a manufacturer and
distributor of products used in the residential, commercial and infrastructure
construction industries. The manufactured products in each of the Company's
product lines are produced primarily from the same raw material, steel rod.
The Company's customers include contractors, fence wholesalers, industrial
manufacturers, highway construction contractors and fabricators of reinforcing
bar.
On December 13, 1996, the Company and Holding completed a recapitalization
transaction (the "Recapitalization"). Pursuant to the Recapitalization, (i)
Holding made an additional capital contribution to the Company of approximately
$3.5 million in cash and loaned the Company approximately $5.8 million, (ii)
the Company borrowed an additional $5.0 million in senior subordinated secured
notes payable from a supplier and an additional $1.0 million in other long-term
debt, and (iii) the Company repaid the full amount of subordinated notes
payable to affiliates of $14.8 million plus accrued interest.
On April 16, 1997, the Company issued $120 million of senior subordinated
notes due 2007. The net proceeds of $116.0 million, after fees and expenses,
were used (i) to distribute $57.1 million to Holding for the redemption by
Holding of certain of its equity interests, (ii) to repay the entire $10
million principal amount, plus accrued interest, on a senior subordinated
secured note payable, (iii) to repay the Company's remaining indebtedness under
a term loan facility of $11.4 million and (iv) to reduce the Company's
indebtedness under the revolving credit facility. See note 7.
Fiscal Year
The Company follows a 52-53 week fiscal year ending on the Saturday
closest to December 31st. The 1997, 1996, and 1995 fiscal years refer to the
fifty-three week period ended January 3, 1998, and the fifty-two week periods
ended December 28, 1996 and December 30, 1995.
Revenue Recognition
The Company records sales when its products are shipped.
<PAGE> 29
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
1. Description of Business and Significant Accounting Policies - (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all demand deposits and time deposits with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost except for
assets acquired in business combinations which are recorded at fair market
value at the date of acquisition. Depreciation is computed on the straight-
line method using rates based on the estimated useful lives of the related
assets. Estimated useful lives used for depreciation purposes are as follows:
Building and improvements 10 to 31 years
Machinery and equipment 2 to 20 years
Depreciation expense was $5,153,000, $3,997,000 and $3,193,000 for fiscal
years ended 1997, 1996 and 1995, respectively.
Major capital upgrades are capitalized. Maintenance, repairs and minor
upgrades are expensed as incurred. Gains and losses from dispositions are
included in the results from operations.
The Company leases certain machinery and equipment under capital leases.
Assets recorded under capital leases are amortized over the lives of the
respective leases. Assets under these obligations, totaling $3,427,000 and
$2,784,000 (net of accumulated amortization of $2,344,000 and $1,356,000) at
January 3, 1998 and December 28, 1996, respectively, are included in property,
plant and equipment in the accompanying balance sheets.
<PAGE> 30
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
1. Description of Business and Significant Accounting Policies - (Continued)
Impairment of Long-Lived Assets
The carrying value of long-lived assets, principally identifiable
intangibles, property, plant and equipment and any related goodwill, is
reviewed for potential impairment when events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable, as
determined based on the undiscounted cash flows over the remaining amortization
periods. In such a case, the carrying value of the related assets would be
reduced by the estimated shortfall of discounted cash flows.
Fair Value of Financial Instruments
The Company considers the recorded value of its monetary assets and
liabilities, which consist primarily of cash and cash equivalents, accounts
receivable, and accounts payable, to approximate their respective fair values
at January 3, 1998 and December 28, 1996. The estimated fair value of the
Company's long-term debt is approximately $130.8 million at January 3, 1998
based on the quoted market price.
Reclassifications
Certain reclassifications have been made to the 1995 and 1996 financial
statements in order to conform to the 1997 presentation.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. It is effective in the
first quarter of 1998 and adoption will have no impact on the Company's net
income or stockholder's equity. SFAS No. 131 establishes new standards on
reporting information about operating segments in both annual and interim
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
Company will adopt the new requirements of SFAS No. 131 retroactively in 1998.
Management anticipates that the adoption of SFAS No. 131 will likely result in
certain changes to the Company's reported segments.
2. Nonrecurring Expenses - Stock Options
Effective December 13, 1996 in connection with the Recapitalization, the
Company incurred nonrecurring charges relating to Holding's stock options
granted in previous years to certain employees and a supplier of the Company.
The aggregate effect of these expenses was $3.1 million for fiscal year 1996.
<PAGE> 31
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
2. Nonrecurring Expenses - Stock Options - (Continued)
Under Holding's 1988 Stock Option Plan, certain employees of the Company
received noncompensatory stock options for shares of Holding common stock. The
options expired generally 10 years from the date of grant. No options were
granted or exercised in fiscal year 1995. Effective December 13, 1996, Holding
amended the 1988 Stock Option Plan to convert the outstanding options for
common stock into options for a total of 22,895 shares of Holding's junior
series preferred stock. As a result of the amendment, which changed the
underlying securities of the options and resulted in a new measurement date,
the Company accrued $2.1 million in compensation expense in 1996. On April 16,
1997, the Company redeemed all of the outstanding options for Holding's junior
series preferred stock held by employees for a total value of $2.2 million.
In 1989, in connection with issuing a senior subordinated secured note to
a supplier, Holding granted the supplier stock options for shares of Holding
common stock which were to expire December 31, 1996. None of these options
were exercised. Effective December 13, 1996, Holding amended the supplier's
option agreement in connection with the Recapitalization to extend the
expiration date of the options three years and to convert the options for
common stock into options for 9,893 shares of Holding's junior series preferred
stock. As a result, the Company accrued $964,000 in expense in 1996. On April
16, 1997, the Company redeemed all of the outstanding options held by this
supplier for a total value of $998,000.
3. Acquisitions of Businesses
During fiscal years 1997, 1996 and 1995, the Company made the acquisitions
set forth below, each of which has been accounted for as a purchase. The
financial statements include the operating results of each business from the
date of the acquisition.
In September 1997, the Company acquired certain assets and assumed certain
liabilities of a fence distributor for $552,000, net of cash acquired.
Effective July 31, 1996, the Company acquired certain net assets,
consisting primarily of fixed assets and inventories, of the wire mesh and
galvanized wire manufacturing operations of Atlantic Steel Industries, Inc.
through its Sivaco/National Wire Group (National Wire) for a total cost of
$17.3 million. Liabilities assumed and acquisition expenses incurred totaled
$2,083,000. The purchase price approximated the fair market value of the
assets acquired.
During October 1996, the Company acquired certain assets and assumed
certain liabilities of two other companies for $3.6 million net of cash
acquired.
<PAGE> 32
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
3. Acquisition of Business - (Continued)
In 1995, the Company purchased certain tangible assets, consisting
primarily of fixed assets and inventories, of Semmerling Fence and Supply, Inc.
and Pioneer Fence and Pipe Supply, Inc. for a total cost of approximately $13.7
million in cash. The excess of the purchase price over the fair values of the
net assets acquired was $4.2 million and is being amortized over 20 years.
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
January 3, 1998 December 28, 1996
----------------- -----------------
(In Thousands)
<S> <C> <C>
Raw materials $ 11,188 $ 9,854
Work-in-process 255 312
Finished goods 37,495 31,521
--------- ---------
$ 48,938 $ 41,687
========= =========
</TABLE>
The Company entered into a procurement agreement in 1989 (which was
subsequently amended on December 13, 1996) with a supplier whereby the Company
appointed the supplier as its agent for import purchases of the Company's
primary raw material, steel rod. The agreement requires the Company to
purchase from the supplier a specified volume of steel rod annually for a
three-year term. At January 3, 1998, these purchase commitments are
approximately $50 million per year. During fiscal years 1997, 1996 and 1995,
65%, 63% and 75%, respectively, of the Company's steel rod purchases were from
this supplier. At January 3, 1998, approximately $27.5 million of steel rod
inventory owned by this supplier had been consigned for the Company's use.
5. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
January 3, 1998 December 28, 1996 Estimated Lives
--------------- ----------------- ---------------
(In Thousands)
<S> <C> <C> <C>
Goodwill $ 6,597 $ 6,486 5 - 40 years
Customer lists and other 1,760 4,233 3 - 20 years
--------- ---------
8,357 10,719
Less accumulated amortization 2,526 4,614
--------- ---------
Intangible assets, net $ 5,831 $ 6,105
========= =========
</TABLE>
Intangible assets are amortized on a straight-line basis over their
respective estimated life(the period when benefits are expected to be derived).
Total amortization expense for the fiscal years 1997, 1996 and 1995 was
$354,000, $451,000 and $476,000, respectively.
<PAGE> 33
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
January 3, 1998 December 28, 1996
----------------- -----------------
(In Thousands)
<S> <C> <C>
Accrued compensation $ 3,472 $ 3,464
Accrued insurance 2,254 2,220
Accrued retirement benefits 1,553 1,249
Accrued income taxes - 1,090
Other accrued liabilities 2,746 2,515
----------- ----------
$ 10,025 $ 10,538
=========== ==========
</TABLE>
7. LONG-TERM DEBT
Long-term debt, including capital lease obligations, consisted of the
following:
<TABLE>
<CAPTION>
January 3, 1998 December 28, 1996
----------------- -----------------
(In Thousands)
<S> <C> <C>
Revolving credit facility $ - $ 30,058
Term loan facility - 12,000
Senior subordinated secured note payable - 10,000
11.25% senior subordinated notes, due 2007,
interest payable semi-annually in arrears on
April 15 and October 15 120,000 -
Capital lease obligations 3,867 3,220
----------- -----------
123,867 55,278
Less current maturities 1,127 3,027
----------- -----------
Long-term debt, including capital
lease obligations $ 122,740 $ 52,251
=========== ===========
</TABLE>
<PAGE> 34
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
7. LONG-TERM DEBT - (CONTINUED)
11.25% Senior Subordinated Notes
On April 16, 1997, the Company issued $120 million of senior subordinated
notes due 2007. The net proceeds of $116.0 million, after fees and expenses,
were used (i) to distribute $57.1 million to Holding for the redemption by
Holding of certain of its equity interests, (ii) to repay the entire $10.0
million principal amount, plus accrued interest, on a senior subordinated
secured note payable, (iii) to repay the Company's remaining indebtedness under
a term loan facility of $11.4 million and (iv) to reduce the Company's
indebtedness under the revolving credit facility. The senior subordinated
notes are general unsecured obligations of the Company and are subordinated to
the Company's revolving credit facility.
Revolving Credit Facility
The Company's revolving credit facility provides for maximum borrowing of
$48.5 million (due December 2001) with interest payable at the bank's base rate
plus 0.25 percent or Eurodollar rate plus 2.0 percent (the bank's base rate
plus 0.25 percent or Eurodollar rate plus 2.75 percent at December 28, 1996).
As of January 3, 1998, the interest rate was 8.75 percent. The Company is
required to pay a commitment fee of 1/2 of 1.0 percent of the unused portion of
the credit facility on a monthly basis. The revolving credit facility is
secured by all assets and stock of the Company and guaranteed by Holding.
Borrowing availability under the revolving credit facility at January 3, 1998,
after taking into account borrowing base restrictions and outstanding letters
of credit, was $43.7 million. The Company had outstanding letters of credit
(which cannot exceed $5 million) totaling $1.1 million and $750,000 at January
3, 1998 and December 28, 1996, respectively. The terms of the revolving credit
facility contain, among other provisions, affirmative and negative covenants
that require the Company to maintain certain financial ratios, limit the amount
of additional indebtedness, limit the creation or existence of liens and set
certain restrictions on acquisitions, mergers and sales of assets. The
Company's distribution of dividends to Holding is not permitted under the
revolving credit facility other than in limited circumstances as set forth in
the loan agreement.
<PAGE> 35
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
7. LONG-TERM DEBT - (CONTINUED)
Scheduled maturities of long-term debt, including capital lease
obligations, are as follows:
<TABLE>
<CAPTION>
Long-Term Debt Capital Leases
-------------- --------------
(In Thousands)
<S> <C> <C>
1998 $ - $ 1,425
1999 - 1,181
2000 - 900
2001 - 570
2002 and thereafter 120,000 408
---------- ----------
120,000 4,484
Less amount representing interest - 617
---------- ----------
$ 120,000 $ 3,867
========== ==========
</TABLE>
On or prior to April 15, 2000, the Company may, at its option, redeem at
any time or from time to time up to 35% of the aggregate original principal
amount of the senior subordinated notes issued at a redemption price equal to
111.25% of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, thereon to the redemption date, with the net cash
proceeds of one or more public equity offerings; provided, however, that at
least $78.0 million in aggregate principal amount of the senior subordinated
notes remain outstanding following each such redemption and such redemption
shall occur not later than 60 days, after the date of the closing of any such
public equity offering.
The senior subordinated notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after April 15, 2002 at
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and liquidated damages, if any, thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on April 15 of the years indicated below:
Year Percentage
2002 105.625%
2003 103.750%
2004 101.875%
2005 and thereafter 100.000%
<PAGE> 36
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
8. OPERATING LEASES
The Company leases warehouse and office space and certain machinery and
equipment under operating leases. Future minimum lease payments on
noncancelable operating leases with remaining terms of one or more years
consisted of the following at January 3, 1998 (in thousands):
<TABLE>
<S> <C>
1998 $ 3,519
1999 2,614
2000 2,342
2001 1,510
2002 and thereafter 2,018
----------
Total $ 12,003
==========
</TABLE>
Total rental expense for the fiscal years 1997, 1996 and 1995 was
$4,225,000, $3,572,000 and $3,035,000, respectively.
9. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
401(k) Plan. The Company maintains the MMI Products, Inc. 401(k) Savings
Plan (the "401(k) Plan"). All Company employees are eligible to participate in
the 401(k) Plan after one year of employment. Employees may elect to make pre-
tax contributions up to the applicable statutory maximum limits to the 401(k)
Plan. The Company makes matching contributions (subject to statutory limits)
in an amount equal to 25% of the employee's contributions up to 2% of the
employee's compensation. In addition, the Company may make additional
contributions in such amounts as it may elect. Company contributions are
vested at a rate of 25% for each year of service.
Pension Plan. The Company maintains the MMI Products, Inc. Pension Plan
(the "Pension Plan"), which is a money purchase defined contribution plan.
Employees of the Company (other than employees covered by a collective
bargaining agreement) generally are eligible to participate in the Pension Plan
after one year of employment. The Company makes annual contributions to the
Pension Plan for each eligible employee in accordance with a formula that is
based on the participant's age and level of compensation. The Pension Plan
provides for 100% vesting after five years of service.
The Company's contributions to the 401(k) Plan and the Pension Plan for
the fiscal years 1997, 1996 and 1995 were $1,285,000, $1,042,000 and $900,000,
respectively.
<PAGE> 37
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Defined Benefit Plans
In connection with the 1996 National Wire acquisition (see Note 3), the
Company assumed the liability for a retirement plan which covers certain
employees under a collective bargaining agreement. Plan benefits are based
primarily on years of service. It is the policy of the Company to fund this
plan currently based upon actuarial determinations, and applicable regulations.
The components of net periodic pension cost is as follows:
<TABLE>
<CAPTION>
Fiscal Years
----------------------------------------
1997 1996
--------------- ---------------
(In Thousands)
<S> <C> <C>
Service cost $ 61 $ 58
Interest cost 133 140
Return on plan assets (61) (69)
Net amortization and deferral (49) 15
---------- ----------
Net periodic pension cost $ 84 $ 144
========== ==========
</TABLE>
The funding status of the plan is as follows:
<TABLE>
<CAPTION>
January 3, 1998 December 28, 1996
----------------- -----------------
(In Thousands)
<S> <C> <C>
Actuarial present value of accumulated
benefit obligations:
Vested $ 2,113 $ 1,741
Nonvested 29 76
----------- -----------
Accumulated benefit obligation $ 2,142 1,817
=========== ===========
Actuarial present value of projected benefit
obligations $ 2,142 $ 1,817
Plan assets at fair value, comprised of various
equity, debt, and government securities 1,437 1,178
----------- -----------
Projected benefit obligation in excess of plan assets 705 639
Unrecognized prior service cost (107) -
Unrecognized net loss (256) -
Additional minimum pension liability 363 -
----------- -----------
Pension liability included in balance sheets $ 705 $ 639
=========== ===========
</TABLE>
<PAGE> 38
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
<TABLE>
<CAPTION>
Fiscal Years
-------------------------------------
1997 1996
----------------- ---------------
<S> <C> <C>
Assumptions:
Discount rate 7.50% 7.50%
Expected long-term rate of return on assets 8.50% 8.50%
</TABLE>
The Company also contributes to certain multi-employer, defined benefit
plans covering certain employees under other collective bargaining agreements.
Total expenses for these plans were $245,000, $125,000 and $46,000 for fiscal
years 1997, 1996 and 1995, respectively.
Stock Options
On December 13, 1996, Holding issued noncompensatory options for 17,890
shares of Holding common stock to certain employees of the Company. These
options, exercisable for $1 per share, the fair value of the common stock at
the date of grant, vest over a four-year period and expire five years from the
date of grant. No such options were granted in 1995. On June 27, 1997,
Holding issued noncompensatory options for 1,000 shares of Holding common stock
to a director of the Company, such options having the identical terms as those
issued to employees on December 13, 1996. During 1997, Holding issued 3,230
shares of common stock pursuant to exercises of stock options.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS 123 establishes alternative methods of
accounting and disclosure for employee stock-based compensation arrangements.
The Company has elected to use the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations, for Holding's stock options
granted to the Company's employees. This method does not result in the
recognition of compensation expense when employee stock options are granted if
the exercise price of the option equals or exceeds the fair market value of the
stock at the date of grant.
If the accounting provisions of SFAS 123 had been adopted as of the
beginning of fiscal year 1995, the effect on fiscal year 1995, 1996 and 1997
earnings would not have been material. Further, based on current and
anticipated use of stock options by Holding, it is not envisioned that the
impact of the accounting provisions of SFAS 123 would be material in any future
period.
10. INCOME TAXES
As of December 30, 1995, the Company had minimum tax credit carry-forwards
of $1,031,000, which reduced 1996 federal regular income taxes.
<PAGE> 39
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
10. INCOME TAXES - (CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Fiscal Years
------------------------------------
1997 1996 1995
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $ 1,871 $ 4,206 $ 1,904
State and local 404 1,109 841
-------- -------- --------
2,275 5,315 2,745
Deferred:
Federal 2,412 (845) 1,140
State and local 474 (243) 173
-------- -------- --------
2,886 (1,088) 1,313
-------- -------- --------
Total $ 5,161 $ 4,227 $ 4,058
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
----------------- ---------------
(In Thousands)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 4,259 $ 4,258
Trade receivables valuation 1,116 -
Other 1,285 812
---------- ----------
Total deferred tax liabilities 6,660 5,070
Deferred tax assets:
Stock options - 1,186
Inventory valuation 752 1,209
Allowance for doubtful accounts 695 601
Self-insurance accruals 709 463
Other 410 301
---------- ----------
Total deferred tax assets 2,566 3,760
---------- ----------
Net deferred tax liabilities $ 4,094 $ 1,310
========== ==========
</TABLE>
<PAGE> 40
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
The reconciliation of income tax computed at U.S. federal statutory tax
rate to income tax expense is as follows for fiscal years 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Fiscal Years
--------------------------------
1997 1996 1995
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Tax at U.S. statutory rate $ 4,385 $ 3,697 $ 3,537
State and local income taxes, net of federal benefit 572 512 669
Other, net 204 18 (148)
-------- -------- --------
Total $ 5,161 $ 4,227 $ 4,058
======== ======== ========
</TABLE>
11. CONTINGENCIES
A former stockholder of Holding exercised its appraisal rights and filed a
lawsuit against Holding with respect to the value of the common and preferred
stock redeemed in connection with the Recapitalization which occurred on
December 13, 1996. In January 1997, Holding paid the stockholder $2.2 million
with respect to the value of the preferred stock, the original value offered in
the Recapitalization. The Company has recorded a liability to Holding for $3.7
million, which is equal to the amount the stockholder would have received for
its common stock if it had not exercised its appraisal rights. Although
management believes the value that the Recapitalization provided to be paid to
holders of Holding common stock was fair to such holders, there can be no
assurance that the court will agree. The payment of the $3.7 million, plus or
minus any difference resulting from the settlement of the value of the common
stock plus any interest owed to the former stockholder, will be funded by the
Company's revolving credit facility and recorded as an adjustment to the
contribution of capital from Holding. The payment will therefore have no
effect on the operating results of the Company. A trial date has been set in
August 1998.
The Company is involved in a number of legal actions arising in the
ordinary course of business. The Company believes that the various asserted
claims and litigation in which it is involved will not materially affect its
financial position or future operating results, although no assurance can be
given with respect to the ultimate outcome of any such claim or litigation.
12. SUBSEQUENT EVENTS
On February 18, 1998, the Company acquired certain net assets of The Burke
Group L.L.C. ("Burke). Burke is a manufacturer of hardware devices and
processor of chemicals used in the concrete construction industry, with
facilities in Converse, Texas and Long Beach, California. The acquisition
expands the offerings of the Company's concrete accessories product line. The
total purchase price was approximately $20.8 million, of which $19.4 million
was funded by the Company's revolving credit facility. The estimated $1.4
million remainder will also be funded by the Company's revolving credit
facility at the final settlement date.
<PAGE> 41
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
On February 23, 1998, the Company signed a letter of intent to purchase
land and building for a wire mesh manufacturing facility in South Florida with
a purchase price of approximately $2.7 million. Additional costs to acquire
and refurbish the property are estimated at $700,000. The purchase is
scheduled to close in May 1998.
On March 2, 1998, the Company purchased substantially all of the assets of
Wholesale Fencing Supply, Inc. and affiliated entities ("Wholesale") for
approximately $2.1 million, which was funded by the Company's revolving credit
facility. Wholesale is a manufacturer of ornamental iron fencing and a
distributor of fence products in Tacoma, Washington and two Oregon locations.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 (by fiscal quarter)
------------------------------------------------
1 2 3 4
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Net sales $ 69,587 $ 99,044 $ 94,698 $ 83,576
Gross profit 9,161 15,266 14,383 12,096
Net income (loss) 832 3,634 2,722 549
</TABLE>
<TABLE>
<CAPTION>
1996 (by fiscal quarter)
------------------------------------------------
1 2 3 4
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Net sales $ 51,777 $ 76,426 $ 82,593 $ 72,606
Gross profit 7,595 13,049 13,430 10,889
Nonrecurring expenses (1) - - - 3,106
Net income (loss) 291 3,393 3,316 (663)
</TABLE>
(1) In the fourth quarter, the Company recorded nonrecurring expenses
resulting from the modification of stock options granted in previous
years as part of the Recapitalization of the Company and Holding (see
Note 2).
<PAGE> 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the Company's
directors, and executive officers, including their respective ages.
<TABLE>
<S> <S> <S>
Name Age Position
- ---------------------- ------- ----------------------------------------------------
Julius S. Burns 65 President and Chief Executive Officer; Director
Thomas F. McWilliams 55 Director
Carl L. Blonkvist 61 Director
Robert N. Tenczar 48 Vice President, Chief Financial Officer and Secretary
James M. McCall 55 Vice President - General Manager - Mesh
Davy J. Wilkes 60 Vice President - General Manager - Concrete Accessories
</TABLE>
Julius S. Burns has been President and Chief Executive Officer and a
director of the Company since February 1989. At the present time, Mr. Burns is
also acting general manager of the fence product line of the Company. Prior to
February 1989, Mr. Burns served as President and General Manager of Ivy Steel &
Wire Company, Inc., a predecessor to the Company, for 13 years. Mr. Burns has
32 years of related industry experience.
Thomas F. McWilliams has been a director of the Company since 1992. Mr.
McWilliams is Managing Director of CVC, a small business investment company,
and has been affiliated with CVC since 1983. Mr. McWilliams is a member of
CVC's three-person investment committee. Mr. McWilliams is a director of Chase
Brass Industries, Inc., a metals processing company, Ergo Science Corporation,
a pharmaceutical product development company and various other private
companies.
Carl L. Blonkvist has been a director of the Company since April 1997.
Mr. Blonkvist is Senior Vice President of Operations for the Brinkmann
Corporation, and has been affiliated with the Brinkmann Corporation since June
1996. Mr. Blonkvist was Senior Vice President of Coca-Cola Foods from January
1994 to April 1996, and was a Senior Partner of Computer Science Corporation, a
consulting firm, from 1991 to 1994. In 1984, Mr. Blonkvist formed Paragon
Consulting Group, a consulting firm specializing in operations strategy, which
was purchased by Computer Science Corporation in 1991.
Robert N. Tenczar has been Vice President, Chief Financial Officer and
Secretary of the Company since May 1993. From 1985 to 1993, Mr. Tenczar was
employed by Baker Hughes Incorporated, Houston, Texas, his last assignment as
Vice President - Finance of its EnviroTech Controls division.
<PAGE> 43
James M. McCall has been employed with the Company and its predecessors in
various management positions of increasing responsibility since 1975, most
recently as the Company's Vice President - General Manager - Mesh since 1989.
Mr. McCall has 34 years of related industry experience.
Davy J. Wilkes has been employed by the Company and its predecessors since
1974, most recently as the Company's Vice President - General Manager -
Concrete Accessories since November 1992. Mr. Wilkes has 38 years of related
industry experience.
Each director holds office until the next annual meeting of stockholders
of the Company or until their successor is duly elected and qualified. All
officers are elected annually and serve at the direction of the Board of
Directors. The bylaws of the Company provide for a three member Board of
Directors. Directors of the Company are reimbursed for all expenses actually
incurred for each Board meeting which they attend. One member of the Board of
Directors receives a fee of $2,000 per meeting he attends. The other members
of the Board of Directors do not receive a fee for any meetings they attend.
The executive officers of the Company are elected by the Board of Directors to
serve at the discretion of the Board.
Indemnification of Directors
The Company has entered into Indemnification Agreements with certain of
its directors and executive officers pursuant to which it will indemnify such
persons against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement incurred as a result of the fact that such person in
his or her capacity as a director or officer, is made or threatened to be made
a party to any suit or proceeding. Such persons will be indemnified to the
fullest extent now or hereafter permitted by the DGCL. The Indemnification
Agreements also provide for the advancement of certain expenses to such
directors and officers in connection with any such suit or proceeding.
<PAGE> 44
ITEM 11. Executive Compensation
The following table sets forth the compensation for fiscal year 1997
awarded to or earned by the chief executive officer of the Company and the
three other most highly compensated executive officers of the Company whose
salary and bonus exceeded $100,000 for services rendered in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation (1) All Other
Name and Principal Position Salary Bonus Compensation
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Julius S. Burns $ 250,020 $ 450,000 $ 27,063(2)
President and Chief Executive Officer; Director
James M. McCall 150,000 90,000 10,759(3)
Vice President - General Manager - Mesh
Robert N. Tenczar 125,480 69,840 5,733(4)
Vice President, Chief Financial Officer and Secretary
Davy J. Wilkes 124,170 68,040 14,143(5)
Vice President - General Manager - Concrete Accessories
</TABLE>
(1) The named executive officers did not receive annual compensation not
properly categorized as salary or bonus, except for certain perquisites
and other personal benefits which are not shown because the aggregate
amount of such compensation for each of the named executive officers
during the fiscal year did not exceed the lesser of $50,000 or 10% of
total salary and bonus reported for such executive officer.
(2) Represents a $1,344 annual contribution to the 401(k) Plan (as defined in
Note 9) and a $26,295 annual contribution to the Pension Plan (as defined
in Note 9).
(3) Represents a $794 annual contribution to the 401(k) Plan and a $9,965
annual contribution to the Pension Plan.
(4) Represents a $763 annual contribution to the 401(k) Plan and a $4,970
annual contribution to the Pension Plan.
(5) Represents a $928 annual contribution to the 401(k) Plan and a $13,215
annual contribution to the Pension Plan.
None of the executive officers named in the Summary Compensation table
were granted options to purchase any capital stock of Holding during fiscal
year 1997.
MERCHANTS METALS HOLDING COMPANY 1988 STOCK OPTION PLAN
Certain eligible employees and non-employee directors of the Company and
Holding may be granted options to purchase up to an aggregate of 30,000 Holding
Class A Common Stock (as defined herein) pursuant to the Merchants Metals
Holding Company 1988 Stock Option Plan (the "Holding Stock Option Plan"). The
Holding Stock Option Plan is administered by the Administration Committee, the
members of which are appointed by the Board of Directors of Holding.
Presently, the members of the Administration Committee consists of the current
members of the Board of Directors of Holding (which are the same persons who
constitute the Board of Directors of the Company).
<PAGE> 45
The Administration Committee has the ability to determine, among other
things, which individuals will be granted options under the Holding Stock
Option Plan and such committee has the ability to determine the exercise price,
term (up to ten years) and vesting schedule of the options granted under the
Holding Stock Option Plan.
Any unexpired and unexercised options (or portion thereof) will be
forfeited if an employee ceases to be in the employ of the Company by reason of
disability or upon retirement, any unexercised options (or portions thereof)
shall terminate on the date that is three months from the date of such
employee's termination by reason of disability or retirement, as applicable
(unless such option expires by its terms on an earlier date).
In the event an employee dies while in the employ of the Company, any
options granted to such employee pursuant to the Holding Stock Option Plan will
be exercisable during the three month period commencing on the date following
the date of his death (unless it expires sooner under its terms). Such options
will terminate at the end of such three month period to the extent such options
were not exercised during such three month period.
As of January 3, 1998, there were outstanding options to purchase 15,660
shares of Holding Class A Common Stock at an exercise price of $1.00 per share.
401(k) PLAN
The Company maintains the MMI Products, Inc. 401(k) Savings Plan (the
"401(k) Plan"). All Company employees are eligible to participate in the
401(k) Plan after one year of employment. Employees may elect to make pre-tax
contributions up to the applicable statutory maximum limits to the 401(k) Plan.
The Company makes matching contributions (subject to statutory limits) in an
amount equal to 25% of the employee's contributions up to 2% of the employee's
compensation. In addition, the Company may make additional contributions in
such amounts as it may elect. Company contributions are vested at a rate of
25% for each year of service.
PENSION PLAN
The Company maintains the MMI Products, Inc. Pension Plan (the
"Pension Plan"), which is a money purchase defined contribution plan.
Employees of the Company (other than employees covered by a collective
bargaining agreement) generally are eligible to participate in the Pension Plan
after one year of employment. The Company makes annual contributions to the
Pension Plan for each eligible employee in accordance with a formula that is
based on the participant's age and level of compensation. The Pension Plan
provides for 100% vesting after five years of service.
<PAGE> 46
Employment Agreement
Julius S. Burns, the Company's President and Chief Executive Officer, has
entered into an employment agreement with the Company that will expire (unless
renewed) on December 31, 1999. The agreement provides for a base salary of
$250,000 per year, which may be increased annually in the discretion of the
Board of directors, and a discretionary annual bonus based on performance
criteria established from time to time by the Board of Directors.
If Mr. Burns' employment is terminated as a result of his death or total
disability, then Mr. Burns (or his estate in the event of his death) shall be
entitled to receive Mr. Burns' base salary accrued through the date of
termination of employment plus bonus payment prorated to the date of
termination based on Mr. Burns' bonus for the previous year.
If Mr. Burns' employment is terminated by the Company for Cause (as
defined therein), Mr. Burns will be entitled to receive only his base salary
accrued through the date of termination of employment. If Mr. Burns'
employment is terminated by the Company other than for Cause, Mr. Burns will be
entitled to receive, as a lump sum payment, the amounts to which he (or his
estate) would have been entitled in the event of his death or total disability,
plus monthly severance equal to his base salary for the lesser of twelve months
or the remaining term of the employment agreement.
If Mr. Burns' employment is terminated by the Company within one year
following a "change of control," then, in addition to the compensation to which
Mr. Burns would be entitled in the event of termination other than for Cause
(and in lieu of any other bonus payment), Mr. Burns will be entitled to receive
a bonus payment prorated for the lesser of 12 months or the remaining term of
the Employment Agreement.
PUT AGREEMENT
Upon Julius S. Burn's death, any MMI Products, Inc. common Units that Mr.
Burns owns will automatically be exchanged for a like number of shares of
Holding Common Stock. Mr. Burns has entered into the Amended and Restated Put
Agreement (the "Burns Put Agreement") pursuant to which Mr. Burns' estate will
have, upon satisfaction of certain conditions, the option during the ninety day
period following his death to cause Holding (or its designee) to repurchase the
number of shares of Holding Common Stock held by Mr. Burns at such time of his
death as have a fair market value of up to $2.0 million (the "Put Right"). The
Put Right may be exercised only if at the time of Mr. Burns' death: (a) Mr.
Burns was an employee of Holding or any of its subsidiaries; (b) Mr. Burns had
either (i) retired at or after age 67, (ii) voluntarily terminated his
employment with Holding or any of its subsidiaries for Good Reason (as defined
therein) within six months following a Change in Control (as defined therein),
(iii) been terminated by Holding or any of its subsidiaries without Cause (as
defined therein) or (iv) otherwise retired with the consent of the Board of
Directors of Holding; or (c) Mr. Burns was no longer employed by Holding due to
a disability recognized by the Board of Directors of Holding.
The purchase price to be paid by Holding upon the exercise of the Put
Right shall be payable through the application of proceeds payable under
certain life insurance contracts purchased by the Company (with a maximum
aggregate premium of up to $100,000) to provide funds to pay the maximum
purchase price of $2,000,000. The Burns Put Agreement will terminate on
December 31, 2000, unless
<PAGE> 47
earlier terminated in accordance with its terms. Holding, in its sole
discretion, may elect to terminate the Burns Put Agreement, at any time prior
to Mr. Burns' death, if Mr. Burns is in material default of his obligations
under that certain Non-Competition Agreement dated as of December 31, 1994,
between Mr. Burns and the Company.
NON-COMPETITION AGREEMENT
Julius S. Burns has entered into a Non-Competition Agreement with the
Company under which he has agreed not to: (i) disclose, during or after the
term of his employment, any of the Confidential Information (as defined
therein) to any person or entity for any reason or purpose whatsoever, (ii)
solicit or induce for a period of two years following termination any person
employed by, or the agent of, the Company to terminate his contract of
employment or agency with the Company and (iii) compete with the Company in any
business in which the Company is engaged in at the date of termination in any
state in the United States of America in which the Company has made sales
during the twelve months immediately preceding termination for a period of two
years following termination. If Mr. Burns is terminated by the Board of
Directors of the Company by written or oral notice, Mr. Burns' non-competition
restriction will apply only for a period of one year, plus the number of months
the Company elects to pay monthly severance payments to Mr. Burns after the
expiration of such one year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company is responsible for determining executive
officer compensation. Julius S. Burns currently serves as both a director and
the President and Chief Executive Officer of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Holding. Approximately 98%
of the capital stock of Holding is owned by MMI Products, L.L.C. ("Parent").
No director or named executive officer owns shares of Holding capital stock.
The following table and the accompanying footnotes set forth, as of January 3,
1998, the beneficial ownership of Parent's equity interests by (i) each person
who is known to the Company to own beneficially more than 5% of either class of
Parent's outstanding Common Units, (ii) each director and named executive
officer, and (iii) all directors and officers as a group. On all matters
submitted to a vote of the members of Parent, holders of Parent Class A Common
Units and Parent Class B Common Units (as defined herein) are entitled to cast,
in the aggregate, (i) 50.5% of the total number of votes and (ii) 49.5% of the
total number of votes, respectively, entitled to be cast by holders of all of
the Parent Common Units then outstanding.
<PAGE> 48
<TABLE>
<CAPTION>
Number of Percent of Class
Common Units of Common Units
------------------- ----------------- Percent of Total
Class A Class B(1) Class A Class B Voting Power (2)
------- ---------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Julius S. Burns 58,902 - 52.2% - 26.3%
c/o MMI Products, Inc.
515 W. Greens Rd., Ste. 710
Houston, Texas 77067
Thomas F. McWilliams - 17,014(3) - 2.6% 1.3%
c/o Citicorp Venture Capital Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
Robert N. Tenczar 7,500 - 6.6% - 3.4%
c/o MMI Products, Inc.
515 W. Greens Rd., Ste. 710
Houston, Texas 77067
James M. McCall 13,850 - 12.3% - 6.2%
c/o MMI Products, Inc.
515 W. Greens Rd., Ste. 710
Houston, Texas 77067
Davy J. Wilkes 10,450 - 9.3% - 4.7%
c/o Meadow Steel Products
5110 Santa Fe Road
Tampa, Florida 33619
Citicorp Venture Capital Ltd. - 497,473(4) - 76.3% 37.8%
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
CCT Partners III - 87,789(5) - 13.5% 6.7%
c/o Citicorp Venture Capital Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
William T. Comfort - 34,154 - 5.2% 2.6%
c/o Citicorp Venture Capital Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
Michael W. Babcock 7,520 - 6.7% - 3.4%
c/o Merchants Metals
71347 CR 23
New Paris, Indiana 46553
Michael Weaver 9,160 - 8.1% - 4.1%
4901 Langley Road
Houston, Texas 77093
All Directors and Executive
Officers as a Group 90,702 17,014 80.3% 2.6% 41.8%
</TABLE>
<PAGE> 49
(1) Each Parent Class B Common Unit is convertible at any time, at the option
of the holder, into one Parent Class A Common Unit.
(2) Represents the total voting power represented by the Parent Class A
Common Units or Parent Class B Common Units held by each of the indicated
persons.
(3) Includes 4,006 Parent Class B Common Units owned of record by Alchemy,
L.P., an affiliate of Mr. McWilliams.
(4) Does not include 87,789 Parent Class B Common Units held by CCT Partners
III, an affiliate of CVC, as to which CVC disclaims beneficial ownership.
(5) Does not include 497,473 Parent Class B Common Units held by CVC, an
affiliate of CCT Partners III, as to which CCT Partners III disclaims
beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Recapitalization
On December 13, 1996, the Company and Holding completed a recapitalization
transaction (the "Recapitalization"). The purposes of the Recapitalization
included (i) the cash-out of stockholders of Holding that were no longer
actively associated with Holding's business, (ii) the retirement of high coupon
(as compared to current market rates) debt and preferred stock and (iii) the
issuance of new Holding Common Stock (or options to acquire new Holding Common
Stock) to members of management who had not previously owned Holding Common
Stock, at affordable prices and without a dilutive (both numerical and
economic) impact on existing holders of Holding Common Stock.
In structuring the Recapitalization, the Board of Directors of Holding
utilized a valuation prepared by a nationally recognized accounting firm. The
valuation report determined that Holding had an enterprise value between $105
million and $115 million. This enterprise value was then reduced by the
implied value of the outstanding debt (principal plus unpaid interest) and
preferred stock (redemption price plus unpaid dividends) to arrive at the range
of implied value of common equity of $30,967,000 to $40,967,000 for Holding
Common Stock prior to Recapitalization. At the mid-point, and after taking
into account "in-the-money" options, the valuation per share of Holding Common
Stock immediately prior to the Recapitalization was $39.57.
In connection with the Recapitalization, and as result of a merger of a
newly formed "shell" company into Holding (the "Recapitalziation Merger"), all
of the old Holding Common Stock was either paid out in cash (at $39.57 per
share) or exchanged for new subordinated, non-convertible preferred stock with
a redemption price equal to the value of the exchanged Holding Common Stock.
In addition, certain investors and management of the Company purchased new
shares of a new class of Holding Common Stock for $1.00 per share. Because all
of the old Holding Common Stock was either cashed out or exchanged for new
preferred stock with a redemption price equal to the pre-Recapitalization value
of the old Holding Common Stock, the full common equity value of Holding before
the Recapitalization bears no relationship to the common equity value of
Holding after the Recapitalization. The value of the new class of Holding
Common Stock issued in the Recapitalization equaled the cash proceeds received
($1.00 per share).
<PAGE> 50
Immediately following the Recapitalization, Holding issued new Holding
Common Stock options to certain employees for an aggregate 17,890 shares of the
new class of Holding Common Stock, which options vest over a four year period.
Because Holding's Board of Directors did not intend for the new options to be
compensatory, the exercise price per share was set at $1.00, which represented
the fair market value per share of the new Holding Common Stock at the date of
grant, consistent with the price paid for new shares of Holding Common Stock in
the Recapitalization.
Pursuant to the Recapitalization, the Company repaid (i) approximately
$192,000 of the Company's subordinated indebtedness (plus accrued but unpaid
interest) held by Thomas F. McWilliams, a director of the Company, and (ii)
approximately $14,250,000 of the Company's subordinated indebtedness (plus
accrued but unpaid interest) held by CVC and an affiliate of CVC.
Also pursuant to the Recapitalization, as a result of the Recapitalization
Merger, the capital stock of Holding outstanding prior to the Recapitalization
Merger was converted into the right to receive cash. As a result, (i) CVC
became entitled to receive approximately $37,355,000, (ii) Thomas F. McWilliams
became entitled to receive approximately $822,000, (iii) Julius S. Burns, the
Company's President and Chief Executive Officer and a director of the Company,
became entitled to receive approximately $1,749,000, (iv) James M. McCall and
Davy J. Wilkes, who are executive officers of the Company, became entitled to
receive approximately $485,000 and $373,000, respectively, and (v) Michael W.
Babcock and Michael Weaver, each of whom owns in excess of 5% of the Holding
Class A Common Stock, became entitled to receive approximately $182,000 and
$63,000, respectively.
Immediately following the Recapitalization Merger, pursuant to the
Recapitalization, (i) CVC and an affiliate of CVC purchased shares of Holding
Common Stock and Holding Preferred Stock for an aggregate of approximately
$46,709,000 and (ii) Messrs. McWilliams (together with an affiliated limited
partnership), Burns, Tenczar, McCall, Wilkes, Babcock, Weaver and Comfort
purchased shares of Holding Common Stock and Holding Preferred Stock for
aggregate purchase prices of approximately $1,149,000, $1,487,000, $8,000,
$342,000, $289,000, $150,000, $72,000 and $1,279,000, respectively.
Redemption of Holding Preferred Stock and Repurchase of Stock Options
A portion of the proceeds of the $120 million senior subordinated notes
issued on April 16, 1997 was used to distribute to Holding sufficient funds to
permit Holding to redeem all of the outstanding Series A Junior Preferred
Stock, par value $.01 per share, of Holding (the "Holding Series A Junior
Preferred Stock") and the Series B Senior Preferred Stock, par value $.01 per
share, of Holding (the "Holding Series B Senior Preferred Stock," together with
the Holding Series A Junior Preferred Stock, the "Holding Preferred Stock"),
and to repurchase certain options held by Mannesmann Pipe and Steel Corporation
and members of the Company's management that were exercisable for shares of
Holding Series A Junior Preferred Stock. The number of shares of Holding
Series A Junior Preferred Stock for which such options were exercisable
increased automatically as dividends accrued with respect to shares of
outstanding Holding Series A Junior Preferred Stock. Upon completion of the
senior subordinated notes offering, Thomas F. McWilliams, Julius S. Burns,
James M. McCall, Davy J. Wilkes, CVC, CCT Partners III, William T. Comfort,
Michael W. Babcock, and Michael Weaver received in the aggregate approximately
$1,170,000, $2,281,000, $539,000, $411,000, $40,545,000, $7,155,000,
$1,287,000, $288,000 and $143,000, respectively, for their shares of Holding
Preferred Stock and their options.
<PAGE> 51
Contribution of Holding Common Stock to Parent
On June 12, 1997, in connection with the formation of Parent, holders of
Holding Common Stock representing more than 98% of the voting power of Holding
contributed (the "Contribution") all of their respective shares of Holding
Common Stock to Parent in exchange for the same number of Parent Common Units.
As a result of the Contribution, Parent owns more than 98% of Holding Common
Stock (representing more than 98% of the voting power of Holding).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets at fiscal year end 1997 and 1996
Statements of Operations for fiscal years 1997, 1996 and 1995
Statements of Changes in Stockholder's Equity for fiscal years
1997, 1996 and 1995
Statements of Cash Flows for fiscal years 1997, 1996 and 1995
Notes to Financial Statements
2. Financial Statement Schedule
Included in Part IV of this report:
Schedule II - Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements or
notes thereto.
<PAGE> 52
3. Exhibits
3.1 Restated Certificate of Incorporation of MMI Products, Inc. (1)
3.2 Amended and Restated By-laws of MMI Products, Inc. (1)
4.1 Indenture dated as of April 16, 1997 between MMI Products, Inc.
and U.S. Trust Company of Texas, N.A. (1)
4.2 Registration Rights Agreement dated as of April 16, 1997
among MMI Products, Inc. and Bear, Stearns & Co. Inc. (1)
10.1 Amended and Restated Loan and Security Agreement dated as of
December 13, 1996 among MMI Products, Inc., Fleet Capital
Corporation, as a lender and collateral agent, and Transamerica
Business Credit Corporation, as amended. (1)
10.2 Stockholders Agreement dated as of December 13, 1996 by and
among Merchant Metals Holding Company and certain of its
stockholders. (1)
10.3 Employment Agreement dated as of December 31, 1994 by and
among MMI Products, Inc. and Julius S. Burns, as amended. (1)
10.4 MMI Products, Inc. Pension Plan, as amended. (1)
10.5 Amended and Restated Put Agreement dated as of June 11, 1997,
between Merchants Metals Holding Company and Julius S. Burns. (1)
10.6 Procurement Agreement dated as of December 13, 1996 between
MMI Products, Inc. and Mannesmann Pipe & Steel Corporation, as
amended. (1)
10.7 The Merchants Metals Holding Company 1988 Stock Option Plan
dated as of December 12, 1988, as amended. (1)
10.8 The MMI Products, Inc. 401(k) Savings Plan, as amended. (1)
10.9 Non-Competition Agreement dated as of December 31, 1994
between MMI Products, Inc. and Julius S. Burns. (1)
10.10 Indemnification Agreement dated as of April 16, 1997
between MMI Products, Inc. and Julius S. Burns. (1)
10.11 Indemnification Agreement dated as of April 16, 1997
between MMI Products, Inc. and Carl L. Blonkvist. (1)
10.12 Indemnification Agreement dated as of April 16, 1997
between MMI Products, Inc. and Thomas F. McWilliams. (1)
10.13 Indemnification Agreement dated as of April 16, 1997
between MMI Products, Inc. and James M. McCall. (1)
10.14 Indemnification Agreement dated as of April 16, 1997
between MMI Products, Inc. and Davy J. Wilkes. (1)
10.15 Indemnification Agreement dated as of April 16, 1997
between MMI Products, Inc. and Robert N. Tenczar. (1)
10.16 Purchase Agreement dated as of April 11, 1997 among MMI
Products, Inc. and Bear, Stearns & Co. Inc. (1)
10.17 Limited Liability Company Agreement of MMI Products, L.L.C.
10.18 Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and
Julius S. Burns. (1)
<PAGE> 53
10.19 Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and
Robert N. Tenczar. (1)
10.20 Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and
James M. McCall. (1)
10.21 Amended and Restated Repurchase Agreement dated as of
June 12, 1997 between Merchants Metals Holding Company and
Davy J. Wilkes. (1)
10.22 Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and
William T. Stewart. (1)
10.23 Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and
Michael W. Babcock. (1)
10.24 Amended and Restated Repurchase Agreement dated as of June
12, 1997 between Merchants Metals Holding Company and
Michael Weaver. (1)
10.25 Asset Purchase Agreement by and between MMI Products, Inc. and
Atlantic Steel Industries, Inc., dated as of June 10, 1996.
10.26 Asset Purchase Agreement by and between MMI Products, Inc. and
The Burke Group, L.L.C., dated as of December 12, 1997.
21.1 None
27 Financial Data Schedule
(1) Incorporated by reference to the Exhibits filed with MMI Products,
Inc.'s Registration Statement on Form S-4 (Registration
No. 333-29141)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended January 3,
1998.
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
By: /s/ Robert N. Tenczar
---------------------------------
Robert N. Tenczar, Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 27, 1998 By: *
------------------------------------
Julius S. Burns, President
and Chief Executive Officer
(principal executive officer)
Date: March 27, 1998 By: /s/ Robert N. Tenczar
------------------------------------
Robert N. Tenczar, Vice President
and Chief Financial Officer
(principal financial and accounting officer)
Date: March 27, 1998 By: *
------------------------------------
Thomas F. McWilliams, Director
Date: March 27, 1998 By: *
------------------------------------
Carl L. Blonkvist, Director
* By: /s/ Robert N. Tenczar
--------------------------------
Robert N. Tenczar
Attorney-in-fact
<PAGE> 55
SCHEDULE II
MMI PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fiscal Year Ended January 3, 1998:
Allowance for Doubtful Accounts $ 1,701 $ - $ (175)(1) $ 1,876
Reserve for damaged and
slow-moving inventory 1,833 (620)(3) 267(2) 946
Fiscal Year Ended December 28, 1996:
Allowance for Doubtful Accounts $ 1,314 $ 879 $ 492(1) $ 1,701
Reserve for damaged and
slow-moving inventory 417 1,558 142(2) 1,833
Fiscal Year Ended December 30, 1997:
Allowance for Doubtful Accounts $ 1,546 $ 448 $ 680(1) $ 1,314
Reserve for damaged and
slow-moving inventory 123 623 329(2) 417
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Write off of inventory.
(3) Reversal of reserves due to changes in estimates.
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
ATLANTIC STEEL INDUSTRIES, INC.
AND
MMI PRODUCTS, INC.
DATED AS OF JUNE 10, 1996
<PAGE>
Table of Contents
Page
ARTICLE I SALE AND PURCHASE OF ASSETS 1
1.1 Agreement to Sell and Purchase 1
1.2 Purchase Price; Assumed Liabilities, Etc 3
1.3 Prorations 5
1.4 Allocation of Consideration 5
1.5 Post-Closing Adjustment 6
ARTICLE II REPRESENTATIONS AND WARRANTIES 7
2.1 Representations and Warranties of Seller 7
2.1.1 Corporate Matters 7
2.1.2 Authorization and Effect of Agreement 7
2.1.3 Conflicts 8
2.1.4 Consents 8
2.1.5 Selected Financial Data. 8
2.1.6 Absence of Certain Changes and Events 8
2.1.7 Real Property 9
2.1.8 Physical Assets and Properties 9
2.1.9 Contracts. 10
2.1.10 Conversion Costs 11
2.1.11 Assumed Liability Obligations to Affiliates 11
2.1.12 Compliance With Laws 11
2.1.13 Environmental Matters 11
2.1.14 Litigation; Decrees 13
2.1.15 Employee Plans 13
2.1.16 Warranty and Product Liability Claims 16
2.1.17 Labor Matters 16
2.1.18 Customers. 16
2.1.19 Licenses, Permits, Etc. 16
2.1.20 Compensation 17
2.1.21 Intellectual Properties 17
2.1.22 Finders 17
2.1.23 Sufficiency of Acquired Assets 17
2.2 Representations and Warranties of Purchaser 18
2.2.1 Corporate Organization 18
2.2.2 Authorization and Effect of Agreement 18
<PAGE>
2.2.3 Conflicts 18
2.2.4 Consents 18
2.2.5 Finders 18
2.2.6 Financing 18
ARTICLE III PRE-CLOSING COVENANTS 19
3.1 Covenants of Seller 19
3.1.1 Employees and Business Relations 19
3.1.2 Incorrect Representations or Warranties 19
3.1.3 Satisfaction of Conditions 19
3.1.4 Sale of Acquired Assets, Negotiations 19
3.1.5 Access 20
3.1.6 Operation of the Business 20
3.1.7 Updates to Selected Financial Data 21
3.1.8 Rod Orders 21
3.1.9 WARN Act Compliance 21
3.1.10 Real Property Transfer Related Documents 21
3.2 Covenants of Purchaser 21
3.2.1 Cooperation 22
3.2.2 Employees 22
3.2.3 Employee Plans 22
3.3 HSR Act 26
3.4 Duty to Inform 26
3.5 Real Property Transfer Related Documents 26
3.6 Estoppel Certificates 26
3.7 Ivaco Steel Mills Personnel 27
ARTICLE IV CLOSING 27
4.1 Closing 27
4.2 Conditions to Closing 27
ARTICLE V SURVIVAL AND INDEMNIFICATION 30
5.1 Survival of Representations, Warranties and Covenants 30
5.2 Indemnification by Seller 31
5.3 Indemnification by Purchaser 32
5.4 Indemnification Procedures 33
5.5 Limitations 37
5.6 Adjustment to Purchase Price 37
<PAGE>
ARTICLE VI POST-CLOSING COVENANTS 37
6.1 Non-Competition 37
6.2 Accounts Receivable 38
6.3 Intentionally Omitted 38
6.4 Galvanized Wire Operation Assistance 38
6.5 Access to Records 39
6.6 Physical Inventory 39
6.7 Further Assurances 40
6.8 Florida Plant Evaluation 40
ARTICLE VII MISCELLANEOUS PROVISIONS 42
7.1 Termination 42
7.2 Transfer Taxes; Title Insurance Premiums, Etc. 42
7.3 Expenses 42
7.4 Contents of Agreement; Parties in Interest; etc. 42
7.5 Assignment and Binding Effect 43
7.6 Waiver 43
7.7 Notices 43
7.8 Bulk Sales 44
7.9 Governing Law 44
7.10 Confidentiality 44
7.11 No Benefit to Others 44
7.12 Headings; Gender; Certain Terms 44
7.13 Severability 45
7.14 Remedies Cumulative 45
7.15 Specific Performance, Injunctive Relief 45
7.16 Counterparts 45
7.17 Schedules 45
7.18 Public Announcements 45
<PAGE>
Schedules
- ---------
Schedule 1.1A Georgia Plant Acquired Assets
Schedule 1.1B Records
Schedule 1.1C Certain Excluded Assets
Schedule 1.1D Seller's Safety and Environmental Rules
Schedule 1.2A Conversion Costs
Schedule 1.2B Certain Assumed Liabilities
Schedule 2.1.1 Foreign Jurisdictions
Schedule 2.1.4 Required Consents
Schedule 2.1.5 Selected Financial Data
Schedule 2.1.6 Changes
Schedule 2.1.7A Owned Real Property
Schedule 2.1.7B Leased Real Property
Schedule 2.1.7C Encumbrances on Owned Real Property
Schedule 2.1.7D Real Property Compliance
Schedule 2.1.8A Listed Acquired Assets
Schedule 2.1.8B Leased Tangible Property
Schedule 2.1.9A Contracts
Schedule 2.1.9B Defaults
Schedule 2.1.11 Affiliate Obligations
Schedule 2.1.12 Compliance With Laws
Schedule 2.1.13A Environmental Notices
Schedule 2.1.13B Environmental Conditions
Schedule 2.1.13C Hazardous Materials
Schedule 2.1.13D Environmental Proceedings
Schedule 2.1.13E Storage Tanks and Permits
Schedule 2.1.14 Litigation
Schedule 2.1.15B Employee Plan Compliance
Schedule 2.1.15C Employee Plan Liability
Schedule 2.1.16 Warranties and Claims
Schedule 2.1.17 Labor Matters
Schedule 2.1.18 Customers
Schedule 2.1.19 Licenses, Permits, Etc.
Schedule 2.1.20A Compensation
Schedule 2.1.20B Employment Agreements
Schedule 2.1.20C Consulting, Commission Agreements
Schedule 2.1.21 Intellectual Properties
Schedule 2.2.4 Purchaser Consents
Schedule 5.2(c) Known Environmental Matters
<PAGE>
Exhibits
- --------
Exhibit A Bill of Sale
Exhibit B Assignment and Assumption Agreement
Exhibit C Lease Assignment
Exhibit D Certain Licenses and Permits
Exhibit E Form of Opinion of Seller's Counsel
Exhibit F Form of Opinion of Purchaser's Counsel
<PAGE> 1
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of the 10th day of June, 1996, between Atlantic Steel Industries, Inc., a
New York corporation ("Seller"), and MMI Products, Inc., a Delaware corporation
("Purchaser").
RECITALS:
A. Seller, through its Sivaco/National Wire Group division, presently
produces wire mesh in the United States (such production, and the marketing and
sale of such production, being hereinafter referred to as the "Wire Mesh
Business").
B. Seller conducts the Wire Mesh Business exclusively through
Seller's facilities in Baltimore, Maryland (the "Maryland Plant"), Toledo, Ohio
(the "Ohio Plant"), Tampa, Florida (the "Florida Plant") and Newnan, Georgia
(the "Georgia Plant," and together with the Maryland Plant, the Ohio Plant and
the Florida Plant, the "Plants").
C. Seller also produces galvanized wire at the Maryland Plant (the
"Galvanized Wire Operation").
D. Seller desires to sell, and Purchaser desires to purchase, the
Acquired Assets (as hereinafter defined), on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Agreement to Sell and Purchase.
(a) Subject to the provisions of this Agreement, Seller hereby
agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from
Seller, all of Seller's assets and properties of every nature, whether real,
personal or mixed, that either (a) are used in the conduct of the Wire Mesh
Business at the Plants or (b) are used in the conduct of the Galvanized Wire
Operation (excluding, however, the Excluded Assets, as hereinafter defined),
provided that with respect to the Georgia Plant, such assets and properties
will only include those assets and properties specifically listed or described
on Schedule 1.1A (collectively, the "Acquired Assets"). Without limiting the
foregoing, the Acquired Assets will include the following (except to the extent
any of the following constitute Excluded Assets): (i) the real property owned
<PAGE> 2
by Seller represented by the Maryland Plant and the Florida Plant, as more
particularly described on Schedule 2.1.7A, (ii) leasehold interests in the real
property represented by the Ohio Plant and in certain real property represented
by the Florida Plant, as more particularly described on Schedule 2.1.7B, (iii)
all tangible personal property (owned or leased) located on the premises of the
Maryland Plant, the Ohio Plant and the Florida Plant and, to the extent
specifically listed or described on Schedule 1.1A, the Georgia Plant, (iv)
Seller's rights under the contracts, agreements and purchase orders under which
Purchaser assumes any obligations pursuant to this Agreement ("Contracts"), (v)
to the extent available, originals or copies (as determined by Seller) of the
information listed or described on Schedule 1.1B (collectively, the "Records"),
(vi) warranty or similar rights relating to the Acquired Assets, (vii) all
rights of ownership of Seller, if any, to the use of the name "National Wire,"
(viii) all raw material, work-in-process and finished goods inventory related
to the Wire Mesh Business or the Galvanized Wire Operation (collectively, the
"Acquired Business"), as applicable, including, without limitation, all zinc
related to the Galvanized Wire Operation, whether in the galvanizing line or
otherwise located at the Maryland Plant, and all wire and wire rod at the
Plants, but with respect to the Georgia Plant, only the wire and wire rod
related to the wire mesh business conducted there (the "Acquired Inventory"),
(ix) the Intellectual Properties (as hereinafter defined) and (x) all rights to
receive payment for goods shipped on or following the Closing Date (as
hereinafter defined), provided, that such goods are part of the Acquired
Inventory and purchased by Purchaser pursuant to this Agreement (the "Purchaser
Receivables"). As used in this Agreement, "Excluded Assets" means (A) cash,
certificates of deposit, bank or savings and loan accounts, U.S. government
securities, and any other marketable securities, (B) accounts receivable
existing as of the close of business on the day immediately prior to the
Closing Date (which shall include rights to receive payment for goods shipped
prior to the Closing Date) (the "Seller Receivables"), (C) records, files and
similar data not listed or described on Schedule 1.1B, (D) deposits held by
utilities or governmental authorities, (E) all claims, deposits, prepayments,
refunds, rebates, causes of action, choses in action, rights of recovery,
rights of setoff, and rights of recovery including, without limitation, any
such item relating to the payment of taxes, including, without limitation,
those taxes described in the last sentence of Section 1.2(b), (F) insurance
policies and proceeds from such policies (except for insurance proceeds that
relate to damage or loss of any Acquired Assets, which proceeds will be
included as Acquired Assets), (G) any right to receive general and/or
administrative services following the Closing from personnel at Seller's
Atlanta headquarters or from any of Seller's affiliates, (H) employee and
intercompany receivables existing as of the close of business on the day
immediately prior to the Closing Date and (I) the other assets listed on
Schedule 1.1C. The Acquired Assets shall be sold and transferred to the
Purchaser free and clear of all liens, pledges, mortgages, charges, burdens,
options or other rights to acquire the same, security interests, easements,
restrictive covenants and other restrictions on use, adverse claims, or other
encumbrances of any character whatsoever ("Encumbrances"), other than Permitted
Encumbrances (hereinafter defined) and subject to obtaining the consents set
forth on Schedule 2.1.4. On the Closing Date, all of the Acquired Assets that
consist of tangible personal property will be located either (1) at the
Maryland, Ohio or Florida Plants (collectively, the "Continuing Plants") or (2)
the Georgia Plant. The Acquired Assets consisting of tangible personal
property located at the Georgia Plant (the "Georgia Tangible Assets") shall be
removed by Purchaser from such facility as soon as reasonably practicable
following Closing Date, but in no event more than 120 days following the
Closing Date. Seller will provide Purchaser, without charge to Purchaser, with
reasonable assistance in the supervision of the disconnection and loading of
the Georgia Tangible Assets for transport. Except as provided in the
immediately preceding sentence, the loading and transportation of the Georgia
Tangible Assets will be at Purchaser's sole expense, and Purchaser represents
and warrants that it will have reasonable insurance coverage for all risks that
<PAGE> 3
may be reasonably likely to be applicable under the circumstances. Purchaser
will not be responsible for any modifications or repairs at the Georgia Plant
that are made necessary as a result of the removal of the Georgia Tangible
Assets other than modifications or repairs which are solely the result of
Purchaser's negligence. Purchaser shall and shall cause its designees to
comply with Seller's reasonable safety and environmental rules, as set forth on
Schedule 1.1D, with respect to such disconnection, loading and removal of the
Georgia Tangible Assets.
(b) Anything in this Agreement to the contrary notwithstanding,
this Agreement shall not constitute an agreement to assign any lease, contract,
purchase order or other agreement if an attempted assignment thereof, without
the consent of a third party thereto, would constitute a breach or default
thereof, cause or permit the acceleration or termination thereof, or in any way
materially and adversely affect the rights of Seller or Purchaser thereunder.
If Seller shall be unable to obtain a consent necessary for the assignment of
its title to, interest in or rights under any lease, contract, purchase order
or other agreement to be assigned hereunder, then, unless such consent is a
condition to Closing pursuant to Section 4.2(a)(viii), Seller and Purchaser
shall cooperate in any reasonable arrangement designed to (i) provide Purchaser
with the benefits, risks and burdens of such lease, contract, purchase orders
or other agreement, including without limitation, (A) compliance by Seller on
Purchaser's behalf and at Purchaser's expense with any such lease, contract,
purchase order or other agreement and (B) enforcement for the benefit of
Purchaser of any and all rights of Seller against a third party thereto arising
out of the breach or cancellation by such third party or otherwise, or (ii)
enable Seller to meet its obligations, if any, under any such lease, contract,
purchase order or other agreement, or to limit, to the greatest extent
reasonably possible, any liability of Seller arising from its failure to
perform any obligation thereunder.
1.2 Purchase Price; Assumed Liabilities, Etc.
(a) In consideration for the sale of the Acquired Assets to
Purchaser, and in consideration of the other agreements related thereto or
entered into in connection therewith, the Purchaser hereby agrees (i) to pay to
Seller at the Closing (as hereinafter defined), the sum of (A) $10,425,000 plus
(B) the Acquired Inventory Value (as hereinafter defined), less (C) the Accrued
Vacation Amount (as hereinafter defined), in cash or immediately available
funds to an account designated by Seller at least two business days prior to
the Closing (collectively the "Closing Payment") and (ii) to assume at the
Closing the obligation to pay, perform and discharge the Assumed Liabilities,
as defined in Section 1.2(b) below. In order to facilitate the Closing, Seller
shall prepare and deliver to Purchaser, at least three business days prior to
the Closing Date, a statement (the "Estimate Statement") showing the amount
reasonably estimated by Seller, in good faith, to be the Acquired Inventory
Value and the Accrued Vacation Amount. Prior to the Closing, Seller shall
provide Purchaser with copies of or reasonable access to such books and records
<PAGE> 4
as are reasonably necessary for purposes of verifying the amounts set forth in
the Estimate Statement. The consideration paid by Purchaser at Closing shall
be based on the Estimate Statement and shall be adjusted post-Closing, if
necessary, pursuant to Section 1.5 hereof. For purposes of this Agreement,
"Acquired Inventory Value" shall mean the lower of market or Cost (as
hereinafter defined) of the Acquired Inventory, in each case determined in
accordance with generally accepted accounting principles, consistently applied
("GAAP"). For purposes of this Section 1.2(a), "Cost" shall mean, with respect
to Acquired Inventory classified in accordance with GAAP as (a) raw materials
(wire, wire rod and zinc), Seller's cost of such materials, including, without
limitation, any customs duties or import taxes (Seller's cost and use of such
materials being determined by the first in, first out method blending purchases
monthly on a Plant-by-Plant basis) and (b) work-in-process and finished goods,
Seller's raw material cost determined in accordance with clause (a) of this
sentence plus Seller's conversion cost determined based on Seller's actual
year-to-date (through April 28, 1996) conversion costs at the Plant at which
such work-in-process or finished goods have been produced, as set forth for
each Plant on Schedule 1.2A. For purposes of this Agreement, "Accrued Vacation
Amount" shall mean the amount accrued by Seller in compliance with Seller's
vacation policy, through the date immediately preceding the Closing Date, for
vacation time with respect to employees of Seller whom Purchaser has employed.
(b) "Assumed Liabilities" means (i) the contractual obligations
of Seller existing at the Closing under raw material purchase orders placed by
Seller in the ordinary course of business in a manner consistent with prior
practice to the extent not filled as of the Closing and which relate
exclusively to the Acquired Business (as hereinafter defined) (the "Supply
Orders"); (ii) customer purchase orders relating exclusively to the Acquired
Business that exist at the Closing and which were accepted by Seller in the
ordinary course of business in a manner consistent with prior practice under
which obligations exist to supply goods to customers following the Closing (the
"Customer Orders"), (iii) contractual obligations of Seller under the contracts
and agreements listed or described on Schedule 2.1.7B, but only to the extent
that such obligations relate to periods after the Closing, (iv) obligations of
Seller to its employees whom Purchaser has employed for accrued vacation time,
amounts in respect of which are included in the Accrued Vacation Amount
pursuant to Section 1.2(a), (v) all liabilities relating to Employees (as
hereinafter defined) and Former Employees (as hereinafter defined) assumed by
Purchaser pursuant to Section 3.2.3, (vi) contractual obligations of Seller
under the contracts and agreements existing at the Closing and listed on
Schedule 2.1.8B (as updated pursuant to the last sentence of Section 2.1), or
not required to be so listed because such contracts or agreements do not meet
the dollar threshold set forth in Section 2.1.8B, but only to the extent such
obligations relate to periods after the Closing, (vii) contractual obligations
of Seller under contracts and agreements existing at the Closing and listed on
Schedule 2.1.9A and Schedule 2.1.11 (as updated pursuant to the last sentence
of Section 2.1), or not required to be so listed because such contracts or
agreements do not meet the dollar, cancelability or materiality thresholds set
forth in Section 2.1.9(a), but only to the extent such obligations relate to
periods after the Closing and (viii) contractual obligations of Seller under
the collective bargaining agreements listed on Schedule 2.1.17, but only to the
extent such obligations relate to periods after the Closing, and (ix) the other
<PAGE> 5
obligations listed on Schedule 1.2B. Purchaser does not and shall not agree to
pay, assume, perform, or discharge any of Seller's debts, obligations, or
liabilities (whether known or unknown, direct or indirect, absolute or
contingent, matured or unmatured, or otherwise), whether the same currently
exist or come to exist in the future, except the Assumed Liabilities. Without
limiting the foregoing, Assumed Liabilities shall not include any of (a)
Seller's liabilities for borrowed money, (b) Seller's liabilities and
obligations for federal, state or local income taxes resulting from the sale of
the Acquired Assets hereunder, (c) except as otherwise provided in Section 7.2,
Seller's liabilities and obligations for any federal, state, local or foreign
excise, franchise, sales, use, gross receipts, property, ad valorem or other
taxes or imports (including any penalties or interest attributable thereto) or
any governmental assessments for contributions to workers' compensation or
similar funds attributable either to Seller's operations not involving the
Acquired Assets or to the period ending concurrently with the Closing or (d)
any liability with respect to all reports, returns and similar documents with
respect to the Union Employee Plan, as defined in Section 2.1.15, required to
be filed with any governmental agency or distributed to any Union Employee Plan
participant or any liability with respect to the individual retirement accounts
to which Seller has forwarded payroll deductions for Employees and Former
Employees pursuant to the Agreement between Sivaco/National Wire of Florida, a
division of Atlantic Steel Industries, Inc., and United Steelworkers of America
Local Union No. 6813 effective November 15, 1993, and any predecessor thereto.
1.3 Prorations. Ad valorem taxes, real property taxes, personal
property taxes and other assessments including, without limitation, water,
sewage and other utility charges on the Acquired Assets, and rents and other
charges payable with respect to leases assumed by Purchaser, will be prorated
between Seller and Purchaser as of 12:01 a.m. on the Closing Date based on the
number of days of the applicable period that each party owns the Acquired
Assets or is the lessee under such leases. Utility charges relating to the
Acquired Assets will be prorated between Seller and Purchaser as of 12:01 a.m.
on the Closing Date. To the extent practicable, all such prorations and
payments will be made on the Closing Date, with the balance to be made as soon
as practicable following the Closing Date.
1.4 Allocation of Consideration. As used herein, the term
"Consideration" shall mean the sum of (a) the cash amounts paid by Purchaser
pursuant to Section 1.2(a), as adjusted pursuant to Section 1.5, plus (b) the
Assumed Liabilities. Within 60 days after the Closing Date, Purchaser shall
prepare and deliver to Seller a schedule (the "Price Allocation Schedule"),
allocating, with the consent of Seller (which consent shall not be unreasonably
withheld), the Consideration paid by Purchaser among the non-competition
covenant and each category of the Acquired Assets in accordance with Section
1060 of the Code (as hereinafter defined). Any objections by Seller to the
Price Allocation Schedule prepared by Purchaser shall be raised, in writing,
within ten business days after the receipt of Seller of such Schedule. Any
such objection that is not resolved by mutual agreement of the parties within
ten business days of the date of Purchaser's receipt of Seller's written
objection shall be resolved by a nationally recognized accounting firm chosen
by and mutually acceptable to both Purchaser and Seller. The resolution by
such selected accounting firm shall be final and binding upon the parties
hereto and, if necessary, a revised Price Allocation Schedule reflecting such
resolution shall be prepared by Purchaser as soon as possible thereafter. The
<PAGE> 6
Price Allocation Schedule (as revised, if applicable) shall be binding on the
parties hereto, and Seller and Purchaser agree to act in accordance with such
Schedule in the preparation of IRS Form 8594 (and any similar form prepared
under applicable state, local or foreign tax law) and in the preparation,
filing and audit of any tax return.
1.5 Post-Closing Adjustment.
(a) Within 45 days after the Closing Date, Seller shall prepare and
deliver to Purchaser a statement (the "Final Statement"), setting forth
Seller's good faith determination of the actual adjustment, if any, to the
Closing Payment (the "Final Adjustment Amount"). During the 15-day period
following delivery of the Final Statement to Purchaser, Seller shall provide
Purchaser with access during normal business hours to such books, records,
working papers or other information as is reasonably necessary in the review of
the Final Statement and the calculation of the Final Adjustment Amount to
enable Purchaser to verify the accuracy of the Final Statement. The Final
Statement shall become final and binding upon all parties hereto on the
sixteenth day following delivery thereof (without counting such day of
delivery) to Purchaser unless the Purchaser gives written notice of
disagreement with the Final Statement (a "Notice of Disagreement") to Seller
prior to such date. Any Notice of Disagreement shall specify in reasonable
detail the nature of any disagreement so asserted, and relate solely to the
review of the Final Statement and the calculation of the Final Adjustment
Amount.
(b) If a Notice of Disagreement is given by Purchaser in a timely
manner, then the Final Statement shall become final and binding upon all
parties hereto on the earlier of (x) the date Seller and Purchaser resolve in
writing any differences they may have with respect to all matters specified in
the Notice of Disagreement and (y) the date all disputed matters are finally
resolved in writing by the Arbitrator (as hereinafter defined). During the
15-day period following the delivery of a Notice of Disagreement, Seller and
Purchaser shall seek in good faith to resolve any differences which they may
have with respect to any matter specified in the Notice of Disagreement and
each shall provide the other with reasonable access to such books, records,
working papers or other information as is reasonably necessary in the
preparation or calculation of (i) the Final Adjustment Amount, (ii) the Final
Statement, (iii) any Notice of Disagreement or (iv) otherwise with respect to
any thereof. At the end of such 15-day period if there has been no resolution
of the matters specified in the Notice of Disagreement, Seller and Purchaser
shall submit to an arbitrator (the "Arbitrator") for review and resolution any
and all matters arising under this Section which remain in dispute. The
Arbitrator shall be the Atlanta, Georgia office of a nationally recognized
independent public accounting firm mutually selected by Seller and Purchaser
that is not the principal outside accounting firm for Seller or Purchaser or
any person which directly or indirectly controls 25% or more of the voting
stock of Seller or Purchaser. If Seller and Purchaser are unable to agree upon
an Arbitrator, their respective principal outside accounting firms shall
mutually select another nationally recognized independent public accounting
firm to act as Arbitrator hereunder. The Arbitrator shall render a decision
resolving each of the matters submitted to the Arbitrator within 30 days
following submission thereto (or as soon thereafter as reasonably practicable).
<PAGE> 7
All fees and expenses of the Arbitrator pursuant to this Agreement with respect
to such dispute shall be borne by the party who the Arbitrator determines was
not the one closer in the aggregate to being correct with respect to the
matters being disputed. All determinations made by the Arbitrator pursuant to
this Section 1.5 shall be set forth in writing and shall be final, conclusive
and binding on the parties hereto and shall not be subject to any judicial
review.
(c) Within five business days after the Final Statement becomes final
and binding upon the parties, Seller or Purchaser, as the case may be, shall
pay the Final Adjustment Amount. All payments pursuant to this Section 1.5
shall be by wire transfer of immediately available funds to an account
designated by the recipient at least two business days prior to the date of
payment.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Seller. Seller represents and
warrants to Purchaser as follows:
2.1.1 Corporate Matters. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has the requisite corporate power and authority to own, lease or
otherwise hold the Acquired Assets owned, leased or otherwise held by it and to
carry on the Acquired Business as presently conducted by it. Schedule 2.1.1
contains a listing of all of the jurisdictions in which Seller is in good
standing and duly qualified to conduct business as a foreign corporation as a
result of its ownership or lease of Acquired Assets or its conduct of the
Acquired Business.
2.1.2 Authorization and Effect of Agreement. Seller has the
requisite corporate power and authority to execute, deliver and perform its
obligations under each of the Transaction Documents (as hereinafter defined)
executed or to be executed by Seller. The execution, delivery and performance
by Seller of each of the Transaction Documents executed or to be executed by
Seller have been duly authorized by all necessary corporate action of Seller.
This Agreement has been duly executed and delivered by Seller. This Agreement
constitutes, and each of the other Transaction Documents to be executed by
Seller will constitute, the valid and binding obligation of Seller, enforceable
against Seller, in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors, rights and remedies generally) and subject as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity. As used herein, the
term "Transaction Documents" refers collectively to this Agreement, the special
warranty deeds to be executed and delivered by Seller relating to the Owned
Real Property (as hereinafter defined), the Bill of Sale and Assignment to be
executed and delivered by Seller in the form of Exhibit A hereto (the "Bill of
Sale"), the Assignment and Assumption Agreement to be executed and delivered by
Seller and Purchaser in the form of Exhibit B hereto (the "Assignment and
Assumption Agreement") and any other agreement or other document executed by
Seller or Purchaser pursuant to this Agreement.
<PAGE> 8
2.1.3 Conflicts. Neither the execution, delivery nor performance
of any Transaction Document executed or to be executed by Seller will violate
or conflict with, or result in any default under, or result in the creation of
any lien, charge or encumbrance under, (a) any statute, law, ordinance, rule,
regulation, judgment, writ or decree ("Law") applicable to Seller, or any of
its properties, which violation, conflict, default or creation could reasonably
be expected to have a Material Adverse Effect (as hereinafter defined), (b)
assuming the receipt of the consents of third parties listed on Schedule 2.1.4,
any agreement or commitment to which Seller is a party or by which any of its
properties are bound, which violation, conflict, default or creation could
reasonably be expected to have a Material Adverse Effect, or (c) the charter or
bylaws of Seller. As used herein, the term "Material Adverse Effect" means any
material adverse effect on the operations, assets, liabilities or value of the
Acquired Business (other than any material adverse effect resulting from events
or circumstances affecting the wire mesh or galvanized wire industries
generally) or on the ability of Seller to consummate the transactions
contemplated hereunder.
2.1.4 Consents. Except as listed or described on Schedule
2.1.4, no actions, consents, or approvals of, or filings with, any third
parties or governmental authorities (collectively, "Consents") are required in
connection with the execution, delivery or performance by Seller of the
Transaction Documents executed or to be executed by Seller; provided, however,
that Seller is not required to list on Schedule 2.1.4 any Consents required for
the assignment to Purchaser of any agreements, arrangements, commitments,
guarantees, or other instruments not required to be listed on Schedule 2.1.7B,
2.1.8B, 2.1.9A or 2.1.17.
2.1.5 Selected Financial Data. The selected financial data at and
for the year ended December 31, 1995, and at and for the 17 weeks ended April
28, 1996, as set forth on Schedule 2.1.5 (the "Selected Financial Data"), is
true and correct in all material respects. The Selected Financial Data
includes all elements of the pre-tax income statements for the Maryland,
Florida and Ohio Plants with the exception of (a) costs of goods sold
(including raw material cost, manufacturing costs which are shown separately,
and changes in inventory), (b) retiree health benefits except as set forth in
the notes to Schedule 2.1.5, (c) interest expense and income except as set
forth in the notes to Schedule 2.1.5, (d) gains or losses on disposal of fixed
assets, (e) costs relating to the moving of personnel and the administrative
offices from Baltimore, Maryland to Newnan, Georgia, (f) overhead expenses
charged to the Acquired Business from Seller's group, corporate or parent
offices, (g) computer department charges including those with respect to data
line communications, and (h) general accounting costs and audit fees. The
Selected Financial Data for the Georgia Plant includes conversion costs,
departmental costs and inventories (tons) only.
2.1.6 Absence of Certain Changes and Events. Except as set forth
on Schedule 2.1.6, since December 31, 1995, Seller has not conducted the
Acquired Business other than in the ordinary course, consistent with prior
practice. Except as set forth on Schedule 2.1.6, since December 31, 1995,
there has not been any Material Adverse Effect nor has there been any event or
circumstance which could be reasonably likely to cause such a Material Adverse
Effect.
<PAGE> 9
2.1.7 Real Property.
(a) All of the real property owned by Seller and included in the
Acquired Assets (the "Owned Real Property") is listed, along with a legal
description of each parcel of such Owned Real Property, on Schedule 2.1.7A.
There are no leases or other agreements granting to any other party the right
to occupy or use any of the Owned Real Property. Schedule 2.1.7B sets forth a
true and complete list of each lease or other agreement (the "Real Property
Leases") under which Seller leases, or otherwise occupies or uses any real
property (other than Owned Real Property) included in the Acquired Assets (the
"Leased Real Property" and together with the Owned Real Property, the "Real
Property"). At Closing, Seller will convey to Purchaser the lessee's leasehold
interests in the Leased Real Property, free and clear of all Encumbrances,
other than Permitted Encumbrances. As used in this Agreement, "Permitted
Encumbrances" means (i) liens for taxes, assessments and governmental charges
not yet due and payable, (ii) zoning Laws, (iii) with respect to Owned Real
Property, the encumbrances listed on Schedule 2.1.7C , (iv) with respect to the
Leased Real Property the matters and terms set forth in the Real Property
Leases; (v) with respect to Leased Tangible Property (as hereinafter defined)
the matters and terms set forth in the leases related thereto; (vi) with
respect to the Owned Real Property, any state of facts either (x) a survey of
the Real Property would show, provided that no such state of facts will be
considered a Permitted Encumbrance if such state of facts (A) could reasonably
be expected to interfere in any material respect with Purchaser's ability to
use any such Owned Real Property as it is currently being used by Seller or (B)
would constitute or result in any violation of Law which would be material to
any parcel of Owned Real Property, or (y) shown on surveys delivered to and
approved by Buyer prior to the date hereof and (vii) any Encumbrances created
by the Purchaser.
(b) Except as set forth on Schedule 2.1.7D, the Real Property, any
improvements thereon, and the use by Seller thereof conform, to the Knowledge
of Seller, in all material respects, to (i) all applicable Laws, including but
not limited to zoning requirements and the Americans With Disabilities Act, and
(ii) all restrictive covenants, if any.
2.1.8 Physical Assets and Properties.
(a) The physical assets and properties listed on Schedule 2.1.8A
are included within the Acquired Assets (it being understood that such schedule
is not a complete list of the Acquired Assets). Seller (subject to the
exception set forth on Schedule 2.1.8A) has, and upon the Closing Purchaser
(not subject to the exception set forth on Schedule 2.1.8A) will have, good
title to all tangible assets and properties, whether personal or mixed,
included in the Acquired Assets (the "Owned Tangible Property"), free and clear
of all Encumbrances, other than Permitted Encumbrances. Schedule 2.1.8B sets
<PAGE> 10
forth a true and complete list and brief description, as of the date of this
Agreement, of each lease or other agreement under which Seller leases,
licenses, holds, or operates any item of physical property, other than Real
Property and other than the Owned Tangible Property, used exclusively with
respect to the Acquired Business (such leased tangible property being referred
to herein as the "Leased Tangible Property"); provided, however, that Schedule
2.1.8B need not include a list or description of any such lease involving
payments by Seller, computed on an annual basis, of less than $10,000 per year
and which, together with all other such leases not listed or described on
Schedule 2.1.8B, involve payments by Seller computed on an annual basis, of
less than $100,000 per year in the aggregate. Seller has valid and enforceable
leasehold interests in the Leased Tangible Property, free and clear of all
Encumbrances, other than Permitted Encumbrances.
(b) The Owned Tangible Property and the Leased Tangible Property
complies, in all material respects, with all applicable Laws. There are no
items of tangible personal property situated on the Real Property that are not
included in (or with respect to which valid leasehold interests are not
included in) the Acquired Assets.
2.1.9 Contracts. Set forth on Schedule 2.1.9A is a list of the
following agreements (whether written or oral), arrangements, commitments,
guarantees, or other instruments to which Seller is a party and which relate
exclusively to the Acquired Business, excluding, however, (a) the contracts and
agreements listed on Schedule 2.1.7B, 2.1.8B, 2.1.11, 2.1.17 or 2.1.20C and
(b) employee benefit plans and arrangements either (x) not being assumed by
Purchaser or (y) referred to in Section 2.1.15:
(i) any agreement, arrangement, commitment, guarantee or other
instrument under which Seller has outstanding obligations of more than $25,000
(or obligations of more than $100,000 in the aggregate with all other
agreements, arrangements, commitments, guarantees or other instruments not
listed on Schedule 2.1.7B, 2.1.8B, 2.1.9A or 2.1.17);
(ii) any agreement that restricts the right of Seller to engage in
any type of business that would be binding on Purchaser;
(iii) any customer contracts which either (a) have a performance
period of longer than 60 days following the Closing Date, (b) involve more than
ten truckloads of product or (c) involve a purchase price of $100,000 or more;
(iv) any partnership or joint venture agreement; and
(v) any arrangements with third parties to act as manufacturer
representatives with respect to the Acquired Business.
<PAGE> 11
The agreements, arrangements, commitments, guarantees and other documents
listed on Schedule 2.1.9A are legal, valid and binding obligations of Seller
and, to the Knowledge (as hereinafter defined) of Seller, of the other parties
thereto, enforceable in accordance with their terms subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors, rights and remedies generally and subject to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity); and no defenses,
offsets or counterclaims thereto have been asserted in writing, or, to the
Knowledge of Seller, is there a reasonable basis for any defense, offset or
counterclaim to be asserted by any party thereto other than Seller, nor has
Seller waived any substantial rights thereunder. For purposes of this
Agreement, "Knowledge" of a party means actual knowledge of any executive
officers of such party and, in addition, in the case of Seller, any of George
Goldstein or the most senior management person at each Plant. Except as
disclosed on Schedule 2.1.9B, Seller has not, since December 31, 1995, received
written notice of any material default, and Seller is not in material default,
under any of the agreements, arrangements, commitments, guarantees and other
documents listed on Schedule 2.1.9A, and there has not occurred any event
which, with the lapse of time or giving of notice, or both, would constitute a
material default by Seller under any of such agreements, arrangements,
commitments, guarantees and other documents listed on Schedule 2.1.9A
2.1.10 Conversion Costs. Schedule 1.2A fairly presents the
year-to-date (through April 28) conversion costs at each Plant, prepared on a
consistent basis with the prior year, except as otherwise indicated in Schedule
2.1.5.
2.1.11 Assumed Liability Obligations to Affiliates. Except as set
forth on Schedule 2.1.11, none of the Assumed Liabilities will constitute
obligations to any Affiliate of Seller. As used in this Agreement, an
"Affiliate" of any party means any corporation or other entity with respect to
which such party (or any Affiliate thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors or members of equivalent governing body.
2.1.12 Compliance With Laws. Except as set forth in Schedule
2.1.12, Seller is not in violation of, nor, since December 31, 1995, has Seller
received any written notice of any alleged violation of, any Law in the conduct
of the Acquired Business, the violation of which could reasonably be expected
to have a Material Adverse Effect.
2.1.13 Environmental Matters.
(a) Except as set forth in Schedule 2.1.13A, since December 31,
1995 (or, to the Knowledge of Seller, before such date regarding any unresolved
written notices), Seller has not received written notice alleging violation of
any applicable federal, state, or local Laws, licenses or permits relating to
the environment in effect as of the date hereof, or orders or agreements now in
effect with any governmental authority or other person (collectively,
"Environmental Laws") and none of the Real Property is in violation of any
applicable Environmental Laws, the violation of which could reasonably be
expected to have a Material Adverse Effect.
<PAGE> 12
(b) Except as set forth on Schedule 2.1.13B, there are no facts,
circumstances or conditions relating to, arising from, associated with or
attributable to the Real Property or the facilities or operations thereon that
will give rise to an environmental claim or obligation to clean up or remediate
contamination resulting in Environmental Costs and Liabilities which facts,
circumstances or conditions result from or arise out of any action or inaction
by Seller prior to the Closing and which could reasonably be expected to have a
Material Adverse Effect. "Environmental Costs and Liabilities" shall mean any
and all losses, liabilities, obligations, damages, fines, penalties, judgments,
actions, claims, costs and expenses (including reasonable fees, disbursements
and expenses of legal counsel, experts, engineers and consultants and the costs
of investigation and feasibility studies, remedial or removal actions and
cleanup activities) which result from or arise out of any requirement under any
Environmental Law; provided, however, that, "Environmental Costs and
Liabilities" shall not include consequential damages other than of the nature
described in the following sentence, provided that under no circumstances will
the term "consequential damages" as used herein be deemed to refer to any
damages resulting from third party actions or claims. "Environmental Costs and
Liabilities" shall include any amount up to, but not more than, $25,000 per
week of consequential damages to the extent such damages are suffered or
incurred during each of the second, third and fourth weeks of the first two
occasions in which there occurs a temporary or permanent shut-down of the
operations of a Plant or any portion of a Plant in connection with a response
or compliance-related action required under any Environmental Law (each of such
first two occasions, a "Plant Shut-Down"); provided, however, that in no event
shall Environmental Costs and Liabilities include consequential damages arising
out of any Plant Shut-Down resulting from any condition, fact or occurrence or
any series of conditions, facts, or occurrences related to any prior Plant
Shut-Down; and provided, further, however, that in no event shall such
consequential damages exceed $75,000 in the case of any single Plant Shut-Down,
or $150,000 in the aggregate.
(c) Except as set forth on Schedule 2.1.13C, to the Knowledge of
Seller and except for any of the following which would not result in a
violation of any Environmental Law or in any Environmental Costs and
Liabilities, (i) there is no friable asbestos contained in or forming a part
of any building, building component, structure or office space included in the
Real Property, (ii) no polychlorinated biphenyls are used or stored on any Real
Property, (iii) there are no underground storage tanks or surface impoundments
located on, under or at any Real Property, and (iv) Seller in operating the
Acquired Business, has not generated, stored, treated or disposed of any
Hazardous Wastes (as defined under 40 C.F.R. Parts 260-270 or applicable
analogous state law) nor, to the Knowledge of Seller, has any predecessor done
so on any Real Property, excluding, solely with respect to clause (iv), any
Environmental Costs and Liabilities incurred in the ordinary course of
business.
(d) Except as disclosed on Schedule 2.1.13D, none of the
operations of the Acquired Business is subject to any judicial or
administrative civil or criminal proceeding (including potentially responsible
party notices or information requests issued pursuant to the federal Superfund
law or any state analogs) pursuant to Environmental Laws nor, to the Knowledge
of Seller, has such a proceeding been threatened.
<PAGE> 13
(e) Without limiting the generality or effect of the foregoing
subsections, Schedule 2.1.13E is a true and correct list of (i) all underground
storage tanks, and the capacity, contents and age of such tanks, located on any
Real Property and (ii) all material permits, variances, authorizations or
approvals issued to Seller and necessary for the continued operation of the
Acquired Business in the same manner as presently conducted.
2.1.14 Litigation; Decrees. Except as disclosed on Schedule
2.1.14, there are no lawsuits, claims or administrative or other proceedings or
investigations pending or, to the Knowledge of Seller, threatened by, against
or affecting Seller and relating to the Acquired Assets or the Acquired
Business, which could reasonably be expected to have a Material Adverse Effect.
Except as disclosed on Schedule 2.1.14, Seller is not a party to or subject to
the provisions of any judgment, order, writ, injunction, decree or award of any
court, arbitrator or governmental or regulatory official, body or authority
relating to the Acquired Assets or the Acquired Business, which could
reasonably be expected to have a Material Adverse Effect.
2.1.15 Employee Plans.
(a)Definitions:
(i) "Employee" shall mean any person employed by Seller on the
day immediately prior to the Closing Date in connection with the Acquired
Business at the Maryland Plant, Ohio Plant or Florida Plant or, in the case of
the Georgia Plant, those persons listed on Schedule 2.1.20A under the heading
"SNW-Georgia." Where applicable, Employee shall include the beneficiaries and
dependents of such Employee.
(ii) "Former Employee" shall mean any person formerly employed
by the Seller, or any predecessor thereto, who rendered any services in
connection with the Acquired Business. Where applicable, Former Employee shall
include the beneficiaries and dependents of such Former Employee.
(iii) "Multiemployer Pension Plan" shall mean the Central
States, Southeast and Southwest Areas Pension Fund.
(iv) "Salaried Savings Plan" shall mean the National Wire
Products Tax Incentive Savings Plan for Salaried Employees.
(v) "Union Employee Plan" shall mean the Revised Pension
Plan Agreement of National Wire Products and United Steelworkers of America,
Local 5861.
<PAGE> 14
(b) The Union Employee Plan:
(i) With respect to the Union Employee Plan, the Seller has
provided Purchaser with copies of the (a) the plan and trust (including all
amendments thereto), (b) the most recent annual report, actuarial report and
financial report, (c) the most recent determination letter issued by the
Service, and (d) the most recent summary plan description and summary of
material modifications.
(ii) The Union Employee Plan has been maintained and
administered in all material respects in compliance with its terms and with
applicable law. The Union Employee Plan is intended to be qualified within the
meaning of section 401 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Seller has received a determination letter from the Internal
Revenue Service (the "Service") to the effect that the Union Employee Plan is
qualified and exempt from Federal income taxes under sections 401(a) and
501(a), respectively, of the Code, this determination letter has not been
revoked, and, to the Knowledge of the Seller, revocation has not been
threatened; and the Union Employee Plan has not been amended since the
effective date of its most recent determination letter in any respect that
might adversely affect its qualification, materially increase its cost or
require security under section 307 of ERISA. The Seller has also provided the
Purchaser with all amendments to the Union Employee Plan made since the most
recent favorable determination letter. No event has occurred that could
subject the Union Employee Plan to tax under section 511 of the Code.
(iii) Except as disclosed in Schedule 2.1.15B, there are no
investigations by any governmental agency, termination proceedings or other
claims (except for claims for benefits payable in the normal operation of the
Union Employee Plan), suits or proceedings against or involving the Union
Employee Plan or asserting any rights or claims to benefits under the Union
Employee Plan that could give rise to any material liability.
(iv) Except as disclosed in Schedule 2.1.15B, (1) all
contributions to, and payments from, the Union Employee Plan that have been
required to be made in accordance with the terms of the Union Employee Plan,
any applicable collective bargaining agreement, and section 302 of ERISA or
section 412 of the Code have been timely made except where any failure would
not result in a material liability, (2) there has been no application for or
waiver of the minimum funding standards of section 412 of the Code with respect
to the Union Employee Plan, and (3) the Union Employee Plan does not have an
"accumulated funding deficiency" within the meaning of section 412(a) of the
Code as of the end of the most recently completed plan year.
(v) Schedule 2.1.15B discloses whether, with respect to the
Union Employee Plan: (1) any "prohibited transaction" (as defined in section
4975 of the Code or section 406 of ERISA) has occurred that involves the assets
of the Union Employee Plan, which is not exempt under section 408 of ERISA and
4975 of the Code, and with respect to which there is a reasonable likelihood of
a material liability to the Purchaser; (2) the Union Employee Plan has been
<PAGE> 15
terminated or been the subject of a "reportable event" (as defined in section
4043 of ERISA and the regulations promulgated thereunder) other than a
reportable event with respect to which the 30-day notice requirement has been
waived or which may result from the consummation of the transactions
contemplated by the Agreement; and (3) the Seller or any trustee, administrator
or other fiduciary of the Union Employee Plan or any agent of any of the
foregoing has engaged in any transaction or acted in a manner that could, or
failed to act so as to, subject the Purchaser or any trustee, administrator or
other fiduciary to any material liability for breach of fiduciary duty under
ERISA or any other applicable law.
(vi) Except as disclosed in Schedule 2.1.15B, all premium
payments due to the Pension Benefit Guaranty Corporation pursuant to ERISA
section 4007 prior to the date hereof have been timely paid.
(vii) With respect to the Union Employee Plan, the Seller
has provided the Purchaser with a letter from the Plan's actuary (receipt of
which is acknowledged) regarding the Plan's funded status, on both an ongoing
and termination basis, as of the most recent valuation date. The information
supplied to the actuary by the Seller for use in preparing these reports was
complete and accurate in all material respects and the Seller has no reason to
believe that the conclusions expressed in this letter were incorrect.
(viii) No employee of the Seller will be entitled to any
additional benefits or any acceleration of the time of payment or vesting of
any benefits under the Union Employee Plan as a result of the transaction
contemplated by this Agreement.
(ix) Notwithstanding anything to the contrary in this
Agreement, on the Closing Date, the Seller will provide the Purchaser with
copies of all records for any Employee or Former Employee that will be required
to administer the Union Employee Plan and warrants and represents that such
records are complete and accurate in all material respects. The Seller agrees
to reasonably cooperate with the Purchaser in the event that an Employee or
Former Employee challenges the accuracy of any record provided pursuant to this
Section in the course of a claim for benefits under the Union Employee Plan.
(c) The Multiemployer Plan: The Seller has provided the Purchaser
with a letter from the Multiemployer Plan (receipt of which is hereby
acknowledged) regarding the amount of withdrawal liability (as defined in
section 4201 of ERISA) that would be incurred if the Seller had withdrawn from
the plan in 1995. Except as disclosed in Schedule 2.1.15C, the Seller has no
reason to believe that the conclusion expressed in this letter is incorrect.
(d) The Salaried Savings Plan: The Salaried Savings Plan is
intended to be qualified within the meaning of section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the Seller has received a
determination letter from the Internal Revenue Service (the "Service") to the
<PAGE> 16
effect that the Salaried Savings Plan is qualified and exempt from Federal
income taxes under sections 401(a) and 501(a), respectively, of the Code; this
determination letter has not been revoked, and, to the knowledge of the Seller,
revocation has not been threatened; and the Salaried Savings Plan has not been
amended since the effective date of its most recent determination letter in any
respect that might adversely affect its qualification or exempt status. The
Salaried Savings Plan has been maintained and administered in all material
respect in compliance with the applicable provisions of the Code relating to
qualified plans. The Seller has delivered to the Purchaser a copy of the most
recent determination letter received with respect to the Salaried Savings Plan,
along with a copy of any pending application for a determination letter. The
Seller has also provided the Purchaser with all amendments to the Salaried
Savings Plan made since the most recent favorable determination letter.
2.1.16 Warranty and Product Liability Claims. Except as described
on Schedule 2.1.16, Seller has not made any express warranties or guaranties
with respect to any products manufactured or sold or services rendered in the
operation of the Acquired Business. Except as described on Schedule 2.1.16, no
written claims have been asserted during the past two years that any product of
the Acquired Business caused any injury or harm to any person.
2.1.17 Labor Matters. Except as listed on Schedule 2.1.17
Seller, with respect to Employees and Former Employees, (a) has no written
handbook applicable to such Employees, (b) is and has been in compliance since
January 1, 1996, with all applicable Laws regarding employment and employment
practices, terms and conditions of employment, wages and hours, occupational
safety and health and workers' compensation and is not engaged in any unfair
labor practices, which the failure to comply with could reasonably be expected
to have a Material Adverse Effect, (c) has no grievances pending or, to the
Knowledge of Seller, threatened against it that could reasonably be expected to
have a Material Adverse Effect and (d) has no charges or complaints pending or,
to the Knowledge of Seller, threatened against it before the National Labor
Relations Board, the Equal Employment Opportunity Commission or any other
federal, state or local agency responsible for the prevention of unlawful
employment practices. There is no labor strike, slowdown, work stoppage or
lockout actually pending or, to the Knowledge of Seller, threatened against or
affecting the Acquired Business or the Acquired Assets. Except as listed on
Schedule 2.1.17, Seller is not a party to any collective bargaining agreement,
no such agreement determines the terms and conditions of the employment of any
Employee or Former Employee, and no collective bargaining agent has been
certified as a representative of any of the Employees or Former Employees.
Except as listed on Schedule 2.1.17, to the Knowledge of Seller, no union
organizational campaign is currently pending with respect to any of the
Employees or Former Employees.
2.1.18 Customers. Schedule 2.1.18 contains a listing of the
ten largest customers of each Plant (based on purchases) for (i) the 17 weeks
ended April 30, 1995, (ii) the 12 months ended December 31, 1995 and (iii) the
17 weeks ended April 28, 1996.
<PAGE> 17
2.1.19 Licenses, Permits, Etc. Schedule 2.1.19 sets forth, to
the Knowledge of Seller, all governmental licenses, franchises, permits and
other authorizations held by Seller and relating to the Acquired Business
(other than those listed on Schedule 2.1.13E). Seller holds all government
licenses, franchises, permits and other authorizations necessary in the conduct
of the Acquired Business which the failure to hold could reasonably be expected
to have a Material Adverse Effect.
2.1.20 Compensation. Schedule 2.1.20A contains the name and
position of each salaried Employee as of the date hereof and sets forth the
total current annual salary, bonus and commission arrangements for each such
person. Schedule 2.1.20B sets forth a true and complete list of all employment
agreements between Seller and any Employee. Schedule 2.1.20C sets forth a true
and complete list of all consulting, service or commission agreements to which
Seller is a party and which relate to the Acquired Business.
2.1.21 Intellectual Properties. Set forth on Schedule 2.1.21
is a listing of all patents, trademarks, trade names, service marks, copyrights
and other items of intellectual property included in the Acquired Assets (the
"Intellectual Properties"). No rights with respect to any of the Intellectual
Properties have been licensed to any other person. To the knowledge of Seller,
the Intellectual Properties used in connection with the operations of the
Acquired Business do not violate or infringe upon the rights of any other
person in any patent, trademark, trade name, service mark, copyright or other
intellectual property. Except for the service mark and trade name "Sivaco,"
and any derivative or form thereof (the rights to which name are not being
transferred to Purchaser and are not included in the Acquired Assets), the
Intellectual Properties constitute all intellectual properties currently used
in connection with and material to the operations of the Acquired Business.
2.1.22 Finders. Neither Seller nor any other Affiliate of Seller
has made any agreement with any person or taken any action which would cause
any person to become entitled to an agent's, broker's, or finder's fee or
commission in connection with the transactions contemplated hereby.
2.1.23 Sufficiency of Acquired Assets. The Acquired Assets
constitute all properties and assets (other than the Excluded Assets and other
than inventory and other assets acquired or disposed of in the ordinary course
of business) currently used in connection with the Acquired Business.
Except as expressly set forth in this Section 2.1, Seller makes no
representations or warranties, express or implied, at law or in equity, in
respect of any of the Acquired Assets, liabilities or operations, including,
without limitation, with respect to merchantability or fitness for any
particular purpose, and any such other representations or warranties are hereby
expressly disclaimed. Purchaser hereby acknowledges and agrees that, except to
the extent specifically set forth in this Section 2.1, the Purchaser is
purchasing the Acquired Assets on an "as-is, where-is" basis. Without limiting
the generality of the foregoing, Seller makes no representation or warranty
regarding any assets other than the Acquired Assets or any liabilities other
than the Assumed Liabilities, and none shall be implied at law or in equity.
Seller shall be permitted to update Schedules 2.1.8A, 2.1.8B, 2.1.9A, 2.1.11,
<PAGE> 18
2.1.20A and 2.1.20C at any time or from time to time prior to the Closing to
reflect changes occurring after the date hereof but prior to the Closing,
provided that such changes do not occur as a result of any violation by Seller
of Section 3.1.6 of this Agreement or any other provision of this Agreement.
2.2 Representations and Warranties of Purchaser. Purchaser represents
and warrants to Seller as follows:
2.2.1 Corporate Organization. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
2.2.2 Authorization and Effect of Agreement. Purchaser has
the requisite corporate power and authority to execute, deliver and perform its
obligations under each of the Transaction Documents executed or to be executed
by Purchaser. The execution, delivery and performance by Purchaser of each of
the Transaction Documents executed or to be executed by Purchaser have been
duly authorized by the board of directors of Purchaser. This Agreement has
been duly executed and delivered by Purchaser. This Agreement constitutes, and
each of the other Transaction Documents to be executed by Purchaser will
constitute, the valid and binding obligation of Purchaser, enforceable against
Purchaser in accordance with its terms.
2.2.3 Conflicts. Neither the execution, delivery, nor performance
of any Transaction Document executed or to be executed by Purchaser will
violate or conflict with, or result in any default under (a) any Law applicable
to Purchaser, which violation, conflict or default could reasonably be expected
to have a Material Adverse Effect, (b) assuming the receipt of the consents
listed in Schedule 2.2.4, any agreement or commitment to which Purchaser is a
party or by which any of its properties are bound, which violation, conflict or
default could reasonably be expected to have a Material Adverse Effect, or (c)
any provision of the certificate of incorporation or bylaws of Purchaser.
2.2.4 Consents. Except as listed on Schedule 2.2.4, no actions,
consents, or approvals of, or filings with, any third parties or governmental
authorities are required in connection with the execution, delivery or
performance by Purchaser of the Transaction Documents executed or to be
executed by Purchaser.
2.2.5 Finders. Neither Purchaser nor any Affiliate of Purchaser
has made any agreement with any person or taken any action which would cause
any person to become entitled to an agent's, broker's or finder's fee on
commission in connection with the transactions contemplated hereby.
2.2.6 Financing. Purchaser has financing available to permit
Purchaser to effect the purchase of the Acquired Assets pursuant to this
Agreement.
<PAGE> 19
ARTICLE III
PRE-CLOSING COVENANTS
3.1 Covenants of Seller. Seller covenants and agrees that, pending
the Closing and except as otherwise agreed to in writing by Purchaser:
3.1.1 Employees and Business Relations. Seller shall use
commercially reasonable efforts to keep available the services of the present
Employees (except normal separations of Employees in the ordinary course of the
Business and consistent with prior practice), agents and consultants of the
Acquired Business and to maintain the relations and goodwill with the
suppliers, customers, distributors and any others having business relations
with the Business; it being understood by Purchaser, however, that Employees of
Seller upon becoming aware of the transactions contemplated by this Agreement
may voluntarily terminate their employment with Seller and Seller has no
control over such voluntary terminations. Seller shall provide "continuation
coverage" to any "qualified beneficiary" who is covered by a "group health
plan" sponsored, maintained or contributed to by Seller and who has experienced
a "qualifying event" or is receiving such "continuation coverage" on or prior
to the Closing Date. "Continuation coverage," "qualified beneficiary,"
"qualifying event" and "group health plan" shall have the meanings given such
terms under Section 4980B of the Code and Section 601 et seq. of ERISA.
3.1.2 Incorrect Representations or Warranties. Seller shall
promptly disclose to Purchaser any information contained in its representations
and warranties or the schedules hereto which, because of an event occurring
after the date hereof as to which Seller has Knowledge, makes said warranties
and representations or schedules incomplete or incorrect in any material
respect (or in any respect in the case of representations and warranties which
contain materiality qualifiers) as of any time after the date hereof until the
Closing Date.
3.1.3 Satisfaction of Conditions. Subject to the requirements of
Section 3.1.6, Seller shall use commercially reasonable efforts to conduct the
Acquired Business in such a manner that on the Closing Date the representations
and warranties of Seller contained in this Agreement shall be true in all
material respects (or in all respects in the case of representations and
warranties that contain materiality qualifiers) as though such representations
and warranties were made on and as of such date. Furthermore, Seller shall
cooperate with Purchaser and use commercially reasonable efforts to satisfy
promptly all conditions required hereby to be satisfied by Seller in order to
expedite the consummation of the transactions contemplated hereby.
3.1.4 Sale of Acquired Assets, Negotiations. Seller will not, and
will cause its Affiliates, employees, agents, legal counsel, and financial
advisors not to, solicit, accept, consider or approve any other offer to
purchase any of the Acquired Assets (other than sales of inventory and other
dispositions of assets in the ordinary course of business), or engage in any
similar transaction nor hold discussions or negotiations with, or provide any
information to, any other individual, corporation, partnership or other entity
concerning such sales or transactions (other than such actions which are in
furtherance of the transactions contemplated herein or are required by any
applicable regulatory authorities). Seller shall not provide any confidential
<PAGE> 20
information concerning the Acquired Business to any third party other than in
the ordinary course of business and consistent with prior practice or as
required by law.
3.1.5 Access. Subject to the terms of the Confidentiality
Agreement referred to in Section 7.4, Seller shall provide to Purchaser's
officers, employees, counsel, accountants, lenders and other representatives,
during normal business hours, the following: (i) reasonable access to all
Records, any items that appear on any of the Schedules to this Agreement, any
customer or supplier invoices, and other items to which Purchaser needs access
for the purpose of making an orderly transition of the Acquired Business to
Purchaser, (ii) the ability, at reasonable times, to meet with the senior Plant
managers and, under the supervision of such senior Plant managers, to take
Plant tours and meet with salaried Employees (provided that such meetings with
salaried Employees will not include a discussion of compensation unless
approved in writing by Barry Retter), (iii) the ability to conduct third party
appraisals of the Acquired Assets, and (iv) reasonable access in connection
with the conduct of the physical inventory provided for by Section 6.6.
Purchaser will limit the number of persons provided with access to Seller's
assets or personnel in accordance with this Section 3.1.5 (the "Access
Personnel") in order to minimize disruption to Seller and not to unreasonably
interfere with Seller's business operations. Persons within Purchaser's
organization who constitute Access Personnel with respect to any given area of
access will be persons responsible for, or regularly involved in, such subject
matters within Purchaser's organization. Access of Purchaser's lenders in
accordance with this Section 3.1.5 will be cleared in advance by Purchaser with
the applicable Plant manager and will be supervised by such Plant manager.
3.1.6 Operation of the Business. Seller will:
(a) Conduct the Acquired Business consistently in all material
respects with Seller's prior practice, and not take or permit to be taken or do
or suffer to be done with respect to the Acquired Business anything other than
in the ordinary course of the Acquired Business as presently conducted, and not
permanently move from its current location (other than from a Plant to a
Continuing Plant) any asset to be sold to Purchaser;
(b) Maintain the tangible Acquired Assets in at least as good
condition as they were being maintained as of the date hereof, normal wear and
tear excepted; provided, however, that Seller will not be required to make any
repair except for repairs necessary to keep each Plant operational;
(c) Not terminate, create or amend any Employee Plan except as
required by law;
(d) Not grant any increases in Employee compensation, except
in the ordinary course of business and consistent with prior practice; and
<PAGE> 21
(e) Absent the approval of Purchaser, not accept or otherwise
enter into any customer contract which either (i) has a performance period of
longer than 60 days following the Closing, (ii) involves more than ten
truckloads of product or (iii) involves a purchase price of $100,000 or more;
provided, however, that Seller will not be required to inventory spare parts or
supplies in the quantities consistent with prior practices but will be required
to maintain reasonably adequate inventories thereof.
3.1.7 Updates to Selected Financial Data. Until the Closing,
within five days after the preparation thereof, from financial data regularly
prepared for Seller's management, Seller will provide to Purchaser, to the
extent available, an update of the Selected Financial Data. The information
provided in such update shall be true and correct in all material respects.
3.1.8 Rod Orders. Prior to the Closing Date, Seller shall
consult with Purchaser prior to making any new orders for rod. If Purchaser
shall inform Seller within 48 hours of such consultation with respect to any
particular rod order (each, a "Seller's Order") that Purchaser is able to
arrange a substitute order for rod at an aggregate cost (including shipping)
which is at least 5% lower, Seller shall make such substitute order; provided
that Seller shall be under no obligation to make any substitute order (a) for
rod which in the sole reasonable judgment of Seller is not of a comparable
quality to the rod Seller may obtain pursuant to the Seller's Order for which
Purchaser has offered a substitute or (b) that cannot be placed and filled
within substantially the same time periods as such Seller's Order.
3.1.9 WARN Act Compliance. Through the Closing Date, Seller
shall take all necessary actions to comply with the Federal Workers Adjustment
and Retraining Act to the extent applicable with respect to employees at the
Georgia Plant. Purchaser shall not take any action with respect to the
Employees of Seller at the Maryland Plant, Ohio Plant or Florida Plant which
would result in Seller having any disclosure or announcement obligations under
such act. Purchaser shall not have any disclosure or announcement obligations
under the WARN Act with respect to any employees or former employees of Seller
at the Georgia Plant. Seller and Purchaser shall indemnify and hold each other
harmless from any action, claim, suit, proceeding or assertion of liability
resulting from any noncompliance with this Section 3.1.9.
3.1.10 Real Property Transfer Related Documents. Seller shall
prepare and file all transfer related affidavits, reports, statements or
similar documents required to be prepared or filed by Seller with respect to
conveyances of Real Property.
3.2 Covenants of Purchaser. Purchaser covenants and agrees that, pending
the Closing,
<PAGE> 22
3.2.1 Cooperation. Purchaser will cooperate with Seller and use
commercially reasonable efforts to satisfy promptly all conditions required
hereby to be satisfied by Purchaser in order to expedite the consummation of
the transactions contemplated hereby.
3.2.2 Employees. Within 15 days following the date of this
Agreement, Purchaser will provide Seller with a list (the "Employee List") of
Employees to whom Purchaser does not intend to make offers of employment (which
list shall not include more than 12 Employees). Purchaser will offer
employment as of the Closing to all Employees, other than those included on the
Employee List, at the same level of base compensation (excluding any bonus and
commission arrangements) and on other terms of employment and conditions
substantially similar to those in effect immediately prior to the Closing for
other comparably situated employees of Purchaser (other than terms and
conditions relating to employee benefit plans which are the subject of Section
3.2.3 and will be governed by that Section); provided, however, that nothing
herein shall limit the ability of Purchaser to change the level of compensation
and other terms and conditions of employment after the Closing Date. Seller
shall be responsible for and shall cause to be discharged and satisfied in full
all amounts owed to any Employee or Former Employee, including wages, salaries,
accrued vacation, any employment, incentive, compensation or bonus agreements
or other benefits or payments on account of termination of employment prior to
Closing by Seller (other than such amounts which are included in the definition
of Assumed Liabilities for which Purchaser shall be responsible and shall cause
to be discharged and satisfied in full) and shall indemnify Purchaser and hold
Purchaser harmless from any losses thereunder.
3.2.3 Employee Plans.
(a) Employee Benefit Plans. Purchaser shall cause all
Employees to become participants effective as of the Closing in the employee
benefit plans sponsored by Purchaser on the same terms as similarly situated
employees of Purchaser. With respect to each plan of Purchaser that is an
"employee welfare benefit plan" as defined in Section 3(1) of ERISA ("Purchaser
Welfare Plans"), Purchaser will waive all pre-existing condition exclusions,
actively at work and waiting period conditions. Purchaser will provide credit
under its employee benefit plans to Employees for service with Seller and its
Affiliates for all purposes for which such service was recognized by Seller and
its Affiliates, other than for benefit accrual under the pension plans
sponsored by or contributed to by Purchaser, provided that such service credit
shall not be required to the extent that it would result in duplication of
benefits in respect of the same period of service. Employees' medical expenses
incurred prior to the Closing shall be taken into account in satisfying
deductible and out-of-pocket limitations for the year in which the Closing
occurs under the Purchaser Welfare Plans. Seller will retain all liabilities
accrued prior to the Closing Date under the employee plans sponsored by or
contributed to by Seller, other than the Union Employee Plan or the
Multiemployer Pension Plan (to the extent provided below in Section 3.2.3(c)),
including (i) in the case of medical benefits, liability for all medical
expenses incurred prior to the Closing Date and liability for all medical
expenses incurred by employees not actively performing services as of the
Closing Date due to an injury or illness that is determined to result in the
Employee's disability, without regard to whether such determination is made
prior to or after the Closing and without regard to whether such medical
<PAGE> 23
expenses are incurred prior to or after the Closing, and (ii) in the case of
disability benefits, liability for employees who were not actively performing
services as of the Closing Date due to an injury or illness that is determined
to result in the Employee's disability, without regard to whether such
determination is made prior to or after the Closing. To the extent Purchaser
pays any benefits with respect to which Seller has retained the liability
pursuant to the preceding sentence, Seller will reimburse Purchaser for all
such amounts as soon as practicable after receipt of written notice from
Purchaser. Purchaser agrees to cooperate reasonably with any Employee with
respect to whom Seller has retained liability for medical or disability
benefits and to take all commercially reasonable action to enable such Employee
to return to active service as soon as appropriate. Purchaser shall be
responsible for all Employee-related liabilities accrued or incurred following
the Closing, including in the case of medical benefits, except to the extent
provided above, liability for medical expenses incurred following the Closing.
(b) Pension Plans.
(i) 401(k) Plan. Purchaser will permit Employees
who participate in the National Wire Products Tax Incentive Savings Plan for
Salaried Employees to effect a direct rollover of their accounts to Purchaser's
401(k) plan (including outstanding participant loans). Purchaser will amend
its 401(k) plan if necessary to allow such rollovers.
(ii) Defined Benefit Plan for Union Employees. Prior
to the Closing, Seller and Purchaser will take all action necessary so that
Purchaser will, effective as of the Closing Date, become the employer and plan
sponsor of the Revised Pension Plan Agreement of National Wire Products and
United Steelworkers of America, Local 5861 (the "Union Employee Plan"); subject
however, to Seller's Election (as defined below) to retain such plan. On or
after the Closing, Purchaser shall continue to maintain (for such period as may
be required by the applicable Collective Bargaining Agreement) the Union
Employee Plan in accordance with its terms as in effect immediately prior to
the Closing and as may be required by the applicable Collective Bargaining
Agreement (with such changes as may be required by law or the applicable
Collective Bargaining Agreement). Seller will cause the trustees of the master
trust in which the Union Employee Plan participates (the "Master Trust"), as of
the Master Trust's valuation date next following the Closing Date (the "Union
Employee Plan's Valuation Date"), to value, in a manner consistent with its
prior practices, the Union Employee Plan's allocable share of the assets of the
Master Trust (the "Union Employee Plan's Asset Value"). As soon as practicable
after the determination of the Union Employee Plan's Asset Value, Seller shall
cause the trustees of the Master Trust to transfer to a successor trustee
designated by Purchaser an amount in cash or other property mutually acceptable
to Purchaser and Seller (the "Union Employee Plan's Transferred Assets") equal
to the Union Employee Plan's Asset Value, (a) increased by interest during the
period from the Union Employee Plan's Valuation Date to the date of transfer
(the "Interim Period") on the portion of the Union Employee Plan's Transferred
Assets held in cash at an interest rate equal to the interest rate credited
<PAGE> 24
from time to time during the Interim Period on short term investments held in
the Master Trust (the "Interest Rate"), and (b) reduced by (i) an amount equal
to the benefit payments made to participants in the Union Employee Plan or
their beneficiaries under the Union Employee Plan during the Interim Period
plus interest at the Interest Rate on such benefit payments for the Interim
Period and (ii) an amount equal to the allocable share (determined in
accordance with past practice) of fees and expenses of the Union Employee Plan
arising during the Interim Period plus interest at the Interest Rate on such
allocable share of fees and expenses for the Interim Period.
Within 60 days after the Closing Date, Purchaser will either (a) provide
Seller with an opinion letter of counsel acceptable to Seller that the
successor trust established by Purchaser in connection with the Union Employee
Plan satisfies the requirements for exemption under Section 501 of the Code as
of the later of its effective date or the date of transfer of the Union
Employee Plan's Transferred Assets or (b) deliver to Seller a favorable
determination letter issued by the IRS that the successor trust established by
Purchaser in connection with the Union Employee Plan satisfies the requirements
for exemption under Section 501 of the Code as of the later of its effective
date or the date of transfer of the Union Employee Plan's Transferred Assets.
No transfer shall be made unless Purchaser provides Seller with the opinion
letter or determination letter referred to herein.
In consideration for the transfer of assets described in this section,
Purchaser shall, effective as of the Closing Date, assume all of the
liabilities and obligations of the Seller and its Affiliates in respect of the
Union Employee Plan (i) relating to benefits accrued as of the Closing Date,
(ii) for all minimum funding obligations payable after the Closing Date and
(iii) all other obligations of a plan sponsor arising after the Closing Date
and Seller and its Affiliates shall be relieved of all such liabilities and
obligations with respect to the Union Employee Plan.
If Seller elects within five days prior to Closing in writing to retain
the Union Employee Plan (the "Election"), the foregoing terms regarding
transfer of the sponsorship of the Union Employee Plan and the assets relating
thereto shall be ineffective and the Purchase Price will be increased by
$700,000.
(iii) Pension Plan for Non-Union Employees. Seller will
retain all liabilities under, and there will be no transfer of assets with
respect to, the Employees' Retirement Plan of National Wire Products. All
Employees participating in such plan as of the Closing will be treated as
having terminated as of the Closing Date. Such Employees will be permitted to
participate in any pension plans established or maintained by Purchaser for
similarly situated employees.
(c) Union Employees.
(i) Collective Bargaining Agreements. Purchaser will
assume all collective bargaining agreements currently in force at the Plants,
specifically: the Agreement between SNW/Ohio, a Division of Atlantic Steel
Industries, Inc. and Teamsters, Chauffeurs, & Warehousemen, Local No. 20; the
Agreement between Sivaco/National Wire of Florida and United Steelworkers of
America, Local Union No. 6813; and the Agreement between Sivaco/National Wire
<PAGE> 25
Maryland and United Steelworkers of America, Local Union No. 5861, and as
provided in Section 1.2(b), all of Seller's obligations thereunder arising
after the Closing.
(ii) Multiemployer Pension Plan. (A) With respect to
the Multiemployer Pension Plan, Purchaser and Seller intend to satisfy the
requirements of Section 4204 of ERISA to avoid a withdrawal by Seller or its
Affiliates as a result of the transactions contemplated hereby from the
Multiemployer Pension Plan in respect of the Employees covered by the
Multiemployer Pension Plan. In this regard, effective as of 12:01 a.m. on the
Closing Date, Purchaser shall become a successor employer contributing to the
Multiemployer Pension Plan on behalf of the Employees participating therein
pursuant to the terms of the applicable Collective Bargaining Agreement and
Purchaser will make contributions after the Closing Date to the Multiemployer
Pension Plan for substantially the same number of contribution base units (as
defined in ERISA Section 4001 (a)(11)) for which the Seller or its Affiliates
had an obligation to contribute to the Multiemployer Pension Plan.
(B) Purchaser will provide to the Multiemployer
Pension Plan, as soon as practicable after the Closing Date and in any event by
the time required pursuant to Section 4204 of ERISA, a bond issued by a
corporate surety company that is an acceptable surety for purposes of Section
412 of ERISA with a five-year term commencing as of the first day of the first
plan year of the Multiemployer Pension Plan immediately following the Closing
Date (the "Protected Period") or establish an escrow account with a bank or
similar financial institution, with the same term, satisfactory to the trustees
of the Multiemployer Pension Plan in an amount equal to the greater of (x) the
average of Seller's or its Affiliate's annual contributions to the
Multiemployer Pension Plan for the three plan years preceding the plan year in
which the Closing Date occurs, or (y) Seller's contribution to the
Multiemployer Pension Plan for the plan year preceding the plan year in which
the Closing Date occurs.
(C) If there is a partial or complete withdrawal (as such
terms are defined in Sections 4205(a) and 4203(a) of ERISA respectively) from
the Multiemployer Pension Plan by Purchaser prior to the end of the Protected
Period, Seller or such Affiliate of Seller that was obligated to contribute to
such Multiemployer Pension Plan shall be secondarily liable for any withdrawal
liability Seller or such Affiliate would have had to the Multiemployer Pension
Plan had Seller and Purchaser not entered into the agreements contained in this
Section 3.2.3(c) to the extent the liability of Purchaser to the Multiemployer
Pension Plan as a result of such complete or partial withdrawal therefrom is
not paid by Purchaser or its Affiliates to the Multiemployer Pension Plan in
respect of such withdrawal.
(D) Purchaser and Seller agree to take all action
necessary to request and use all reasonable efforts to obtain a variance or
exemption from the Multiemployer Pension Plan or Pension Benefit Guaranty
Corporation with respect to the Purchaser's bond or escrow obligation and the
Seller's contractual promise to be secondarily liable in accordance with ERISA
<PAGE> 26
Section 4204 and the regulations promulgated thereunder. If such variance or
exemption is granted or in the event an exemption from such requirements is
available under applicable regulation and the Multiemployer Pension Plan
confirms that such exemption is applicable, then paragraph (B) and/or (C) of
this Section 3.2.3(c)(ii), as the case may be, shall not apply.
(d) Retiree Medical Benefits. Seller shall retain all
liability for all post retirement medical and life insurance benefits for all
Former Employees who have retired prior to the Closing. Purchaser shall be
responsible for all post retirement medical and life insurance benefits for any
Employee who retires after the Closing; provided, however, that nothing herein
shall obligate Purchaser to provide either post-retirement medical or life
insurance benefits to any Employee after the Closing.
3.3 HSR Act. Seller and Purchaser agree to make (or that their
respective ultimate parent entities, if different, will make) appropriate
filings of Notification and Report Forms pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with respect to
the transactions contemplated hereby within three business days after the date
of execution of this Agreement and to supply promptly any additional
information and documentary material that may be requested pursuant to the HSR
Act. Neither Seller nor Purchaser will take any action that will have the
effect of delaying, impairing or impeding the receipt of any required approvals
or consents or the termination of any waiting periods. Seller, within two days
following written notification of Purchaser's filing of a Notification and
Report Form pursuant to the HSR Act, will reimburse Purchaser for one-half of
the HSR Act filing fee paid by Purchaser.
3.4 Duty to Inform. If, prior to the Closing, Purchaser discovers any
facts that would make any of Seller's representations or warranties or
schedules set forth in this Agreement incomplete or incorrect, in any material
respect, Purchaser shall disclose such information to Seller promptly, and in
all cases, prior to Closing. Notwithstanding anything to the contrary in the
foregoing sentence, the discovery by Purchaser of such facts shall not relieve
Seller of any of the consequences associated with the discovery and existence
of such information.
3.5 Real Property Transfer Related Documents. Purchaser shall prepare
and file all transfer related affidavits, reports, statements or similar
documents required to be prepared or filed by Purchaser with respect to
conveyances of Real Property.
3.6 Estoppel Certificates. Seller will use commercially reasonable
efforts to assist Purchaser in obtaining from the landlords with respect to the
Ohio Plant and the leased portion of the Florida Plant such landlords' estoppel
certificates as are requested by Purchaser's lenders; provided, that Seller
shall not be obligated under this Section 3.6 to incur any out-of-pocket costs
unless such costs are advanced to Seller by Purchaser without restriction.
<PAGE> 27
3.7 Ivaco Steel Mills Personnel. Purchaser shall permit the five
employees of Ivaco Steel Mills who currently maintain offices at the Maryland
Plant to continue to use such offices, without charge, following the Closing
Date until September 30, 1996.
ARTICLE IV
CLOSING
4.1 Closing. Unless this Agreement is first terminated as provided in
Section 7.1 hereof, and subject to the satisfaction or waiver of all conditions
to the consummation of the transactions contemplated hereby, the closing of the
transactions contemplated hereby (the "Closing") shall take place at the
offices of Baker & Botts, L.L.P., Houston, Texas, beginning at 9:00 a.m. (local
time) on the later of July 15, 1996, or five business days following the
expiration of the applicable waiting period under the HSR Act. The date on
which the Closing occurs is referred to herein as the "Closing Date." The
Closing shall not be deemed to have been completed until the last of the
conditions to be satisfied pursuant to this Agreement has been satisfied or
waived.
4.2 Conditions to Closing.
(a) The obligations of Purchaser to effect the Closing are
subject to the fulfillment, satisfaction or waiver of each of the following
conditions precedent:
(i) The representations and warranties of Seller contained in
this Agreement or in any schedule, certificate or document delivered by Seller
to Purchaser pursuant to the provisions hereof shall have been true on the date
hereof in all material respects (except that any representations and warranties
of Seller which contain materiality qualifiers shall have been true in all
respects) and after taking into account the last sentence of Section 2.1 shall
be true on the Closing Date in all material respects (except that any
representations and warranties of Seller which contain materiality qualifiers
shall be true in all respects), with the same effect as though such
representations and warranties were made as of such date. Purchaser shall have
received a certificate of the President or a Vice President of Seller or George
Goldstein, dated the Closing Date, to the effect that the conditions specified
in this clause (i) have been fulfilled.
(ii) Seller shall have performed and complied in all material
respects with all agreements and conditions required by this Agreement to be
performed or complied with by Seller prior to or at the Closing. Purchaser
shall have a received certificate of the President or a Vice President of
Seller or George Goldstein, dated the Closing Date, to the effect that the
conditions specified in this clause (ii) have been fulfilled.
(iii) Seller shall have executed and delivered to Purchaser special
warranty deeds in a form customary in each jurisdiction in which the Owned Real
Property is located.
<PAGE> 28
(iv) Seller shall have executed and delivered to Purchaser the
Bill of Sale and such other instruments of conveyance in a form reasonably
satisfactory to Purchaser as shall in Purchaser's reasonable opinion be
necessary or appropriate to convey to Purchaser all of the Acquired Assets
(other than the Owned Real Property) free and clear of all Encumbrances other
than Permitted Encumbrances.
(v) Purchaser shall have received title insurance commitments for
the Owned Real Property in a form, and with such modifications, deletions and
endorsements reasonably requested by Purchaser, customary in each jurisdiction
in which the Owned Real Property is located redated to the date and time of the
Closing with no Encumbrances other than Permitted Encumbrances and the printed
exceptions set forth therein (amended or deleted as is customary in the
applicable jurisdiction).
(vi) Seller shall have executed and delivered an Assignment and
Assumption Agreement.
(vii) Seller shall have executed and delivered a Lease
Assignment and Assumption Agreement (the "Lease Assignment") in substantially
the form of Exhibit C hereto.
(viii) All Consents listed (or required to be listed) on
Schedule 2.1.4 shall have been obtained (except any such Consents identified as
"immaterial" consents on Schedule 2.1.4).
(ix) Purchaser shall have obtained any governmental licenses or
permits listed on Exhibit D.
(x) Fried, Frank, Harris, Shriver & Jacobson, counsel for Seller,
shall have delivered to Purchaser a written opinion, dated the Closing Date, in
substantially the form of Exhibit E hereto.
(xi) No injunction shall have been instituted by a court of
competent jurisdiction restraining or prohibiting the consummation by Purchaser
of the transactions contemplated by this Agreement. In the event any such
injunction shall have been issued, Purchaser agrees to use its reasonable
efforts, through the 120th day following the date hereof, to have such
injunction lifted, provided that (A) Seller and Purchaser share equally in all
costs associated with such efforts and (B) neither Seller nor Purchaser is
obligated to spend more than an aggregate of $50,000 with respect thereto.
(xii) No proceeding which, in the reasonable opinion of
Purchaser (based on the advice of its counsel), is material shall have been
instituted in a court of competent jurisdiction seeking damages on account or
as a result of the consummation by Purchaser of the transactions contemplated
<PAGE> 29
by this Agreement which, if adversely determined, would have a Material Adverse
Effect and which presents a reasonable probability that the plaintiff will
prevail on the merits.
(xiii) Between the date hereof and the Closing Date, there
shall have been no Material Adverse Effect.
(xiv) The New Florida Consultant (as hereinafter defined) shall
have been jointly selected by Purchaser and Seller.
(xv) Purchaser shall be reasonably satisfied that, at the time
of Closing, the Maryland Plant air emissions (at normal operating levels)
comply with all applicable Environmental Laws such that the Maryland Plant air
emissions shall not prevent Purchaser from obtaining any permits required to be
obtained as a result of Purchaser acquiring the Maryland Plant.
(b) The obligations of Seller to effect the Closing are subject to the
fulfillment, satisfaction or waiver of each of the following conditions
precedent:
(i) The representations and warranties of Purchaser contained in
this Agreement or in any list, certificate or document delivered by Purchaser
to Seller pursuant to the provisions hereof shall have been true on the date
hereof in all material respects (except that any representations and warranties
of Purchaser which contain materiality qualifiers shall have been true in all
respects) and shall be true on the Closing Date in all material respects
(except that representations and warranties of Purchaser which contain
materiality qualifiers shall be true in all respects) with the same effect as
though such representations and warranties were made as of such date. Seller
shall have received a certificate of the President or a Vice President of
Purchaser, dated the Closing Date, to the effect that the conditions specified
in this clause (i) have been fulfilled.
(ii) Purchaser shall have performed and complied in all material
respects with all agreements and conditions required by this Agreement to be
performed or complied with by Purchaser prior to or at the Closing. Seller
shall have received a certificate of the President or a Vice President of
Purchaser, dated the Closing Date, to the effect that the conditions specified
in this clause (ii) have been fulfilled.
(iii) Purchaser shall have executed and delivered to Seller the
Assignment and Assumption Agreement.
(iv) Purchaser shall have executed and delivered to Seller the
Lease Assignment.
<PAGE> 30
(v) All consents or approvals listed (or required to be listed)
on Schedule 2.2.4 shall have been obtained.
(vi) Baker & Botts, L.L.P., counsel for Purchaser, shall have
delivered to Seller a written opinion dated the Closing Date, in substantially
the form of Exhibit F hereto.
(vii) No injunction shall have been instituted by a court of
competent jurisdiction restraining or prohibiting the consummation by Seller of
the transactions contemplated by this Agreement. In the event any such
injunction shall have been issued, Seller agrees to use its reasonable efforts,
through the 120th day following the date hereof, to have such injunction
lifted, provided that (A) Seller and Purchaser share equally in all costs
associated with such efforts and (B) neither Seller nor Purchaser is obligated
to spend more than an aggregate of $50,000 with respect thereto.
(viii) No proceeding which, in the reasonable opinion of Seller
(based on the advice of its counsel), is material shall have been instituted in
a court of competent jurisdiction seeking damages on account or as a result of
the consummation by Seller of the transactions contemplated by this Agreement
which, if adversely determined, would have a Material Adverse Effect and which
presents a reasonable probability that the plaintiff will prevail on the
merits.
(ix) The New Florida Consultant shall have been jointly selected
by Purchaser and Seller.
ARTICLE V
SURVIVAL AND INDEMNIFICATION
5.1 Survival of Representations, Warranties and Covenants.
(a) Each of the representations and warranties contained in this
Agreement or in any document delivered in connection herewith will survive the
Closing and remain in full force and effect thereafter until the date that is
one year following the Closing Date, except that the representations and
warranties set forth in Section 2.1.8 (as to title to assets only) and 2.1.15
will survive the Closing and remain in full force and effect thereafter until
30 days following the expiration of any applicable statutes of limitation, and
the representations and warranties set forth in Section 2.1.13 shall survive
the Closing and remain in full force and effect thereafter until the date that
is forty-two (42) months following the Closing Date.
(b) Unless a specified period is set forth in this Agreement (in
which event such specified period will control), the covenants contained in
Article VI of this Agreement will survive the Closing and remain in effect
until complied with by the applicable party or parties.
<PAGE> 31
5.2 Indemnification by Seller. Within the time periods specified
in Section 5.1 with respect to representations and warranties of Seller, and
within the time periods specified in subparagraph (c) below with respect to the
indemnification provided by Seller pursuant to such subparagraph, and subject
to the procedures set forth in Section 5.4 and the limitations set forth in
Section 5.5, if the Closing occurs, Seller shall indemnify and hold harmless
each Purchaser Party (as hereinafter defined) in respect of any and all Damages
(as hereinafter defined) resulting from or relating to:
(a) any and all liabilities and obligations of Seller of any
nature whatsoever, except for the Assumed Liabilities;
(b) breach of any representation or warranty or nonfulfillment
of any covenant or agreement on the part of Seller under this Agreement, or any
misrepresentation in or omission from any certificate, schedule, statement,
document or instrument furnished to Purchaser pursuant hereto or in connection
with the negotiation, execution or performance of this Agreement as to which
Seller has received notification, pursuant to Section 5.4 below, from any
Purchaser Party within the time periods specified in Section 5.1;
(c) any Environmental Costs and Liabilities (except such
Environmental Costs and Liabilities which result from or arise out of any
action or decision after the Closing by Purchaser to change the use of a given
property to a nonindustrial use, and except for any Identified Florida Plant
Response Costs (as hereinafter defined) which shall be governed by Section
5.2(e) and Section 6.8) as to which Seller has received notification, pursuant
to Section 5.4(d) below, from any Purchaser Party within 42 months following
the Closing Date, which result from or arise out of (i) any action or inaction
of Seller or any director, officer, employee, agent, representative or
subcontractor of Seller or any other third party occurring prior to the Closing
relating to or resulting from the operation of the Acquired Business or (ii)
any condition on, under or at the Real Property prior to the Closing; provided,
however, that Seller shall have no indemnification obligations with respect to
any Environmental Costs and Liabilities to the extent resulting from (A) any
voluntary actions (other than (x) routine environmental compliance audits
performed by or on behalf of the Purchaser, (y) environmental assessments
required by, and performed in the ordinary course of due diligence on behalf
of, any lender or investor of Purchaser or (z) in connection with the matters
set forth on Schedule 5.2(c)), by Purchaser or any director, officer, employee,
agent, representative or subcontractor of Purchaser or any other third party
acting on behalf of, or under the supervision of, Purchaser to investigate or
remediate Hazardous Wastes on, under or at any of the Real Property, or (B) any
disclosure, report or other communication (whether oral or written) from
Purchaser or any director, officer, employee, agent, representative or
subcontractor of Purchaser or any other third party acting on behalf of, or
under the supervision of, Purchaser to any governmental authority or other
third party ("Notification"), unless Purchaser believes, in its good faith
business judgment (exercised without regard to the availability of
indemnification hereunder), and after consultation with counsel, that such
Notification is required under any Environmental Law. Purchaser agrees to
consult with Seller prior to any such Notification, except in the event that
such advance consultation is prohibited or rendered impracticable by exigent
circumstances, in which case Purchaser shall promptly thereafter notify Seller
of such Notification;
<PAGE> 32
(d) failure to comply with any bulk sales or similar provisions
of law in connection with the transfer of the Acquired Assets to Purchaser; or
(e) if (and only if) Purchaser exercises its right pursuant to
Section 6.8(b) to require Seller to repurchase the Owned Florida Real Property
(as hereinafter defined), any and all Environmental Costs and Liabilities
(including but not limited to the Identified Florida Plant Response Costs)
incurred by any Purchaser Party relating to the Owned Florida Real Property,
except for any Environmental Costs and Liabilities caused by Purchaser or any
director, officer, employee, agent, representative or subcontractor of
Purchaser or any third party during the period in which Purchaser owns the
Owned Florida Real Property.
"Purchaser Party" shall mean Purchaser, any Affiliate of Purchaser, and any
officer, director, or employee of Purchaser or of any Affiliate of Purchaser.
"Damages" shall mean any and all actual damages, liabilities, fines, fees,
penalties, interest obligations, deficiencies, losses and expenses, including,
without limitation, reasonable attorneys' fees and expenses. A party suffering
any Damages shall have an obligation to mitigate such Damages; provided that
such Damages can be mitigated without unreasonable effort (as determined by
such party in its sole and reasonable discretion) and without any out-of-pocket
cost to such party (unless such out-of-pocket costs are advanced without
restriction by the other party).
5.3 Indemnification by Purchaser. Within the time periods specified
in Section 5.1 with respect to representations and warranties of Purchaser and
subject to the procedures set forth in Section 5.4 and the limitations set
forth in Section 5.5, if the Closing occurs, Purchaser shall indemnify and hold
harmless each Seller Party (hereinafter defined) in respect of any and all
Damages resulting from or relating to:
(a) any and all Assumed Liabilities;
(b) breach of any representation or warranty or nonfulfillment of
any covenant or agreement on the part of Purchaser under this Agreement, or any
misrepresentation in or omission from any certificate, schedule, statement,
document or instrument furnished to Seller pursuant hereto or in connection
with the negotiation, execution or performance of this Agreement as to which
Purchaser has received notification, pursuant to Section 5.4 below, from any
Seller Party within the time periods specified in Section 5.1; or
(c) any Environmental Costs and Liabilities incurred by any Seller
Party which result from or arise out of (i) any action or inaction (other than
with respect to such Environmental Costs and Liabilities subject to Seller's
indemnification obligation in Section 5.2(c), or which would be subject to such
obligation if not for the limitation period in Section 5.2(c), or Section
5.2(e)) of Purchaser or any director, officer, employee, agent, representative
<PAGE> 33
or subcontractor of Purchaser occurring after the Closing relating to or
resulting from the operation of the Acquired Business, or any third party after
the Closing through the date of sale of the applicable Real Property by
Purchaser to a non-Affiliated purchaser, or (ii) any condition which results
from or arises out of the introduction of any Hazardous Wastes on, under or at
the Real Property by Purchaser or any director, officer, employee, agent,
representative or subcontractor of Purchaser after the Closing, or any third
party after the Closing through the date of sale of the applicable Real
Property by Purchaser to a non-Affiliated purchaser. Notwithstanding anything
to the contrary in this Agreement, for the purposes of this Section 5.3(c)
only, Environmental Laws shall include such Laws, licenses, permits and orders
and agreements with any governmental authority or third party, in each case as
in effect on or after the Closing.
"Seller Party" shall mean Seller, any Affiliate of Seller, or any officer,
director, or employee of Seller or of any Affiliate of Seller.
5.4 Indemnification Procedures.
(a) If an indemnitee becomes aware of any matter (other than
environmental matters which are addressed in Section 5.4(d)) that it believes
is indemnifiable pursuant to Section 5.2 or 5.3 and such matter involves (i)
any claim made against the indemnitee by any person or entity other than a
Purchaser Party or a Seller Party or (ii) the commencement of any action, suit,
investigation, arbitration, or similar proceeding against the indemnitee by any
Person other than a Purchaser Party or a Seller Party, the indemnitee will give
the indemnifying party prompt written notice of such claim or the
commencement of such action, suit, investigation, arbitration, or similar
proceeding. Such notice will (x) provide (with reasonable specificity) the
basis on which indemnification is being asserted, (y) set forth the actual or
estimated amount of Damages for which indemnification is being asserted, if
known, and (z) be accompanied by copies of all relevant pleadings, demands, and
other papers served on the indemnitee. Failure of the indemnitee to give
prompt notice pursuant to this Section 5.4(a) shall not relieve the
indemnifying party of its obligations, except to the extent that the
indemnifying party is actually prejudiced by such failure to give prompt
notice.
(b) The indemnifying party will have a period of 30 days after the
delivery of each notice required by Section 5.4(a) hereof during which to
respond to such notice. If the indemnifying party elects to defend the claim
described in such notice, the indemnifying party will be obligated to
compromise or defend (and will control the defense of) such claim, at its own
expense and by counsel chosen by the indemnifying party and reasonably
satisfactory to the indemnitee. The indemnitee will cooperate with the
indemnifying party and counsel for the indemnifying party in the defense
against any such claim, and the indemnitee will have the right to participate
at its own expense in the defense of any such claim. If the indemnifying party
does not respond within such 30-day period or responds during such 30 day
period but elects not to defend such claim, the indemnitee will be free,
<PAGE> 34
without prejudice to any of the indemnitee's rights hereunder, to compromise or
defend (and control the defense of) such claim and to pursue such remedies as
may be available to the indemnitee under applicable Law; provided that any
compromise or settlement of such claim will require the prior written consent
of the indemnifying party, which shall not be unreasonably withheld. The
election by an indemnifying party to defend a claim shall not be deemed an
admission by such party that such claim is indemnifiable pursuant to Section
5.2 or 5.3 hereof.
(c) If an indemnitee becomes aware of any matter (other than
environmental matters which are addressed in Section 5.4(d)) that it believes
is indemnifiable pursuant to Section 5.2 or 5.3 other than any matter described
in Section 5.4(a) hereof, the indemnitee will give the indemnifying party
prompt written notice of such claim. Such notice will (i) provide (with
reasonable specificity) the bases for which indemnification is being asserted
and (ii) set forth the actual or estimated amount of Damages for which
indemnification is being asserted. Failure of the indemnitee to give prompt
notice pursuant to this Section 5.4.3 shall not relieve the indemnifying party
of its obligations, except to the extent that the indemnifying party is
actually prejudiced by such failure to give prompt notice. The indemnifying
party will have a period of 30 days after the delivery of each notice required
by this Section 5.4.3 during which to respond to such notice. If the
indemnifying party accepts (in writing) full responsibility for the claim
described in such notice, the actual or estimated amount of Damages reflected
in such notice will be conclusively deemed a liability that the indemnifying
party owes, and will pay (in cash) upon demand, to the indemnitee. If the
indemnifying party has disputed such claim or does not respond within such
30-day period, the indemnifying party and the indemnitee agree to proceed in
good faith to negotiate a resolution of such dispute. If all such disputes are
not resolved through negotiations within 30 days after such negotiations begin,
either the indemnifying party or the indemnitee may initiate litigation to
resolve such disputes. If the indemnifying party does not respond within 30
days after delivery of any claim notice required by this Section 5.4.3, the
indemnitee may initiate litigation to resolve such claim.
(d) Notwithstanding anything to the contrary contained in this
Section 5.4, any claims for indemnification pursuant to Section 5.2(b) relating
to the breach of any representation or warranty set forth in Section 2.1.13,
Section 5.2(c), Section 5.2(e) or Section 5.3(c) shall be governed exclusively
by the procedures set forth in this Section 5.4(d).
(i) If an indemnitee seeking indemnification under Section 5.2(b)
relating to the breach of any representation or warranty set forth in Section
2.1.13, Section 5.2(c), Section 5.2(e) or Section 5.3(c) receives notice of any
order, directive, decree, demand, notice of potential liability, or complaint
by any governmental authority or other third party, or the commencement of any
action, proceeding or investigation by any governmental authority (including,
without limitation, those resulting from any routine environmental compliance
audit or any disclosure, report or other communication by Purchaser to any
governmental authority in accordance with Section 5.2(c)) or other third party,
or becomes aware of any other claim for indemnification other than a third-
party claim, in each case that may result in Environmental Costs and
<PAGE> 35
Liabilities ("Environmental Claim"), the indemnitee promptly shall give written
notice thereof ("Environmental Claim Notice") to the indemnifying party. The
Environmental Claim Notice shall (x) provide (with reasonable specificity) the
bases for which indemnification is being asserted, (y) indicate, to the extent
that may reasonably be determined, the amount (estimated, if necessary) of any
Environmental Costs and Liabilities for which indemnification is being
asserted, and (z) be accompanied by copies of all the relevant pleadings,
demands, and other papers served on or received by the indemnitee. Failure of
the indemnitee to give prompt notice pursuant to this Section 5.4(d) shall not
relieve the indemnifying party of its obligations, except to the extent that
the indemnifying party is actually prejudiced by such failure to give prompt
notice. The indemnifying party shall have a period of 30 days after the
delivery of each notice required by this Section 5.4(d) during which to respond
to such notice. If the indemnifying party elects to assume the defense or
control (including the planning or implementation of any investigation,
remediation or other response action) of the Environmental Claim described in
the Environmental Claim Notice, then the indemnifying party shall be obligated
to defend or control the Environmental Claim, at its own expense and by counsel
and environmental experts chosen by the indemnifying party and reasonably
satisfactory to the indemnitee, it being understood that following any such
assumption, the indemnifying party shall have no indemnification obligation
hereunder to pay any fees or expenses of any consultants, experts or legal
counsel of the indemnitee thereafter expended or incurred by the indemnitee in
connection with such Environmental Claim. The indemnitee shall cooperate with
the indemnifying party and counsel and environmental experts for the
indemnifying party in the defense or control of the Environmental Claim, and
the indemnitee shall have the right, at its own expense, to consult with the
indemnifying party in the defense or control of any Environmental Claim (it
being understood that in no event shall any such consultation interfere with
the indemnifying party's defense or control). If the indemnifying party does
not respond within such 30-day period or responds during such 30-day period but
elects not to assume the defense or control of the Environmental Claim, the
indemnitee shall be free, without prejudice to any of the indemnitee's rights
hereunder, to defend or control the Environmental Claim, with counsel and
environmental experts selected by the indemnitee and reasonably satisfactory to
the indemnifying party, at the indemnifying party's expense; provided, however,
that any compromise or settlement of any Environmental Claim will require the
prior written consent of the indemnifying party, which consent shall not be
unreasonably withheld. The election by an indemnifying party to control any
Environmental Claim shall not be deemed an admission by such party that such
Environmental Claim is indemnifiable pursuant to Section 5.2 or 5.3 hereof.
(ii) Subject to the terms and conditions set forth in this Section
5.4(d), in the event that an Environmental Claim Notice shall have been given
by the indemnitee to the indemnifying party prior to the expiration of the
applicable survival period of the right to indemnification for such
Environmental Claim, then such right to indemnification shall survive, to the
extent of such Environmental Claim only, until such Environmental Claim is
<PAGE> 36
resolved, whether or not the Environmental Costs and Liabilities resulting from
such Environmental Claim have been finally determined at the time the
Environmental Claim Notice is given, but only if (y) in the case of any
Environmental Claim made by reason of a written third-party claim, the
Environmental Claim Notice is accompanied by a copy of the written notice of
the third-party claimant and (z) in the case of any Environmental Claim made
other than by reason of a written third-party claim, some Environmental Costs
and Liabilities shall have been incurred in good faith at or prior to the date
of such Environmental Claim Notice in connection with a requirement of
Environmental Law and such Environmental Claim Notice is accompanied by
available test results, if any, setting forth the basis for the Environmental
Claim as to which the Environmental Claim Notice relates.
(iii) Notwithstanding anything to the contrary contained in this
Section 5.4(d), the indemnifying party or the indemnitee, as the case may be,
having undertaken to defend or control any Environmental Claim, shall undertake
such defense or control (including the planning or implementation of any
investigation, remediation or other response action) in a Commercially
Reasonable Manner. "Commercially Reasonable Manner" shall be determined from
the perspective of a reasonable business person acting (without regard to the
availability of indemnification hereunder) to achieve compliance (based on
reasonable reliance on the advice of expert third-party environmental
consultants or counsel) with or avoid or mitigate liability under Environmental
Laws. The indemnitee's rights with respect to Environmental Costs and
Liabilities under Section 5.2(b) relating to the breach of any representation
or warranty set forth in Section 2.1.13, Section 5.2(c) or Section 5.3(c) shall
be reduced to the extent that actions undertaken by it are not conducted in a
Commercially Reasonable Manner and such actions (y) increase the amount of
Environmental Costs and Liabilities, or (z) result in Environmental Costs and
Liabilities which but for such actions would not have been expended or
incurred. In the event of a disagreement between the indemnifying party and
the indemnitee concerning whether any action with respect to any Environmental
Claim is taken in a Commercially Reasonable Manner, the parties shall each
designate one representative to represent them respecting such disagreement and
the designated representatives shall in good faith attempt to resolve such
disagreement on a reasonable basis with the assistance of their respective
environmental consultants; any disagreements which cannot be resolved by the
designated representatives after sixty (60) business days shall promptly be
referred to an independent consultant having expertise in the matter at issue,
mutually acceptable to the parties (or, if the parties cannot so agree, the
American Arbitration Association shall select such a consultant who shall be
independent from each of the parties and whose fees and expenses shall be paid
equally by the parties), who shall evaluate the facts and circumstances at
issue and shall recommend a course of action which the independent consultant
believes in its good faith judgment should be taken (but shall not itself
perform such action). Such recommendation shall be final and binding upon the
parties. The parties agree to act as promptly as practicable in implementing
the foregoing procedures, and further agree that, in the event of exigent
<PAGE>
circumstances that require any actions by the indemnifying party or the
indemnitee, as the case may be, before the foregoing procedures can be
implemented, each of the indemnifying party and the indemnitee, as the case may
be, may undertake such actions at its own expense and shall be entitled to
indemnification hereunder to the extent that its actions are subsequently
ratified by such procedure.
(iv) The respective indemnification obligations of Seller and
Purchaser under Section 5.2(b) relating to the breach of any representation or
warranty set forth in Section 2.1.13, or Section 5.2(c), Section 5.2(e),
Section 5.3(c), or Section 6.8 shall constitute the sole and exclusive remedy
of each of Seller and Purchaser for the recovery of Environmental Costs and
Liabilities and each of Seller and Purchaser hereby waives any rights and
remedies that it may have against, and covenants not to sue, the other under
any Environmental Law, including, without limitation, any claims for
contribution under CERCLA or common law; provided that the foregoing limitation
shall not apply to Environmental Costs and Liabilities arising out of any fraud
or intentional misconduct of Seller or Purchaser.
5.5 Limitations. No claim by an indemnitee for indemnification which
relates solely to the breach of a representation or warranty may be made unless
and until such indemnitee (and all other indemnitees that have incurred Damages
otherwise indemnifiable by such indemnifying party) have incurred Damages
otherwise indemnifiable under this Agreement which total at least $375,000 in
the aggregate (the "Basket"), at which time all amounts in excess of $175,000
(the "Deductible") may be recovered as provided in this Article V. In
addition, Seller will not be liable under this Article V for claims by all
indemnitees for indemnification which relates solely to the breach of a
representation or warranty for an aggregate amount in excess of the
Consideration (the "Cap"). Notwithstanding the foregoing, irrespective of the
Deductible, Basket or the Cap, full recovery may be had for all Damages
resulting from the intentional, willful or reckless breach of any
representation or warranty, and any amount so recovered will not be applied to
either the applicable Deductible, the Basket or the Cap. The right of
Purchaser for indemnification under and in accordance with the provisions of
this Article V shall be the exclusive remedy of the Purchaser and each other
Purchaser Party against Seller in the event of any breaches by Seller of any of
its representations and warranties set forth in this Agreement.
5.6 Adjustment to Purchase Price. Seller and Purchaser agree that
any indemnity payment made to Seller or Purchaser under this Article V will be
treated by the parties on their tax returns as an adjustment to the purchase
price for the Acquired Assets.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 Non-Competition. Until and including the third anniversary
of the Closing Date (the "Non-Competition Period"), neither Seller, nor any
other Affiliate of Seller will, directly or indirectly, engage in the
manufacturing of wire mesh in the United States; provided, however, that Seller
<PAGE>
and its Affiliates shall not be prohibited during the Non-Competition Period
from selling in the United States within the 12-month period commencing on the
Closing Date or the 12-month periods commencing on the first and second
anniversary of the Closing Date, up to 1,500 tons of wire mesh during each such
12-month period. Without limiting the foregoing, a person will be deemed to be
engaged in the manufacturing or sale of wire mesh in the United States if it
owns any equity interest in an entity engaging in such activities; provided,
however, that this Section 6.1 shall not be violated solely as a result of the
ownership of less than 5% of any class of equity securities of a publicly-
traded company. Nothing in this Section 6.1 shall prohibit Seller or its
affiliates from engaging in the manufacturing and/or sale of galvanized wire or
any other wire or other products not specifically covered by this Section 6.1
in the United States. It is the intention of the parties that, in the event a
court of competent jurisdiction determines that the scope and/or duration of
the covenant set forth in this Section 6.1 is excessive so as to render the
covenant unenforceable as written, such court shall reduce the scope and/or
duration of such covenant to the minimum extent necessary to make the covenant
enforceable.
6.2 Accounts Receivable.
(a)Purchaser will pay to Seller, on a weekly basis following the
Closing Date, all amounts received by Purchaser and identified by the obligor
as payments in respect of the Seller Receivables. With respect to any payments
received by Purchaser from obligors with respect to Seller Receivables which
are not clearly identifiable as relating to invoices in respect of Purchaser
Receivables, Purchaser and Seller will cooperate (including jointly contacting
the obligors) to determine the intent of the obligors with respect to such
payments, and such payments will be applied in accordance with the obligors'
intent.
(b) Seller will pay to Purchaser, on a weekly basis following the
Closing Date, all amounts received by Seller and identified by the obligor as
payments in respect of Purchaser Receivables. With respect to any payments
received by Seller from obligors with respect to Purchaser Receivables which
are not clearly identifiable as relating to invoices in respect of Seller
Receivables, Seller and Purchaser will cooperate (including jointly contacting
the obligors) to determine the intent of the obligors with respect to such
payments, and such payments will be applied in accordance with the obligors'
intent.
(c) Neither Purchaser nor Seller shall instruct any obligor to pay
such party's invoices in lieu of paying the other party's invoices.
6.3 Intentionally Omitted.
6.4 Galvanized Wire Operation Assistance. Seller shall provide to
Purchaser, at Purchaser's request, for a period of 45 days following the
Closing, reasonable assistance in introducing customers of the Galvanized Wire
Operation to Purchaser's personnel who will be responsible for servicing such
customers.
<PAGE> 39
6.5 Access to Records. Seller and Purchaser shall cooperate fully,
as and to the extent reasonably requested by the other party, in connection
with the provision of access to information relating to any of the Acquired
Assets or any aspect of the Acquired Business that is in the possession of any
party and is reasonably requested by the other party, including but not limited
to any such information requested in connection with any (a) audit, litigation
or other proceeding with respect to taxes, (b) claim for indemnification
hereunder, (c) inquiry of any governmental authority, (d) financial reporting
and accounting matters (but only to the extent required by law) and (e)
litigation or other proceedings with third parties. Such cooperation shall
include the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such matter and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder; provided,
however, that such records or information so provided may be used only for the
purposes specifically described in this Section 6.5 and may not be used to the
competitive disadvantage of the party providing such records or information or
for any other purpose. Seller and Purchaser shall (i) retain all books and
records with respect to the foregoing matters until the applicable statutes of
limitations (including any extensions) shall have run), (ii) abide by all
record retention agreements entered into with any governmental authority and
(iii) give the other party reasonable written notice (and opportunity to copy)
prior to destroying or discarding any such books and records proposed for
destruction or discard. A party that is supplied with Confidential Information
(as hereinafter defined) of the other party pursuant to this Section 6.5 shall,
except as otherwise required by law or by the reasonable purposes for which
such information was requested, keep such information confidential and limit
the use of such information to the reasonable purposes for which such
information is supplied. In the event that the party receiving any
Confidential Information hereunder (the "Receiving Party") is compelled (by
oral questions, interrogatories requests for information or documents,
subpoena, civil investigative demand or other process) to disclose any
Confidential Information, such party will provide the other party (the
"Providing Party) with prompt notice of such request or requirement so that the
Providing Party may seek an appropriate protective order or other appropriate
remedy or waive compliance with the provisions of this Section 6.5. In the
absence of the entry of a protective order or other appropriate remedy, the
Receiving Party may disclose that portion of the Confidential Information
which, in the opinion of its counsel it is compelled by law to disclose. The
Receiving Party will use its best efforts to assist the Providing Party in
obtaining a protective order and, upon the failure of the Providing Party to
obtain a protective order, will use its best efforts to obtain reliable
assurance that confidential treatment will be accorded the Confidential
Information. As used herein, "Confidential Information" shall have the same
meaning ascribed to the term "Information" in the Confidentiality Agreement
referred to in Section 7.4. Any Confidential Information provided pursuant to
this Section 6.5 which is no longer necessary for the purposes described herein
shall be destroyed or returned immediately by the Receiving Party.
Notwithstanding anything to the contrary herein, the Receiving Party will not
be restricted from using any information, including Confidential Information,
received pursuant to this Section 6.5 for the reasonable purposes for which it
is supplied.
6.6 Physical Inventory. The Acquired Inventory Value for purposes
of the Closing Payment shall be based on book inventory as of the close of
business on the day immediately prior to the Closing Date. A physical
inventory with respect to the Acquired Inventory will be conducted on or prior
to the Closing Date, but as close to the Closing Date as possible, by Plant
<PAGE> 40
personnel under the joint supervision of Seller, Purchaser and their respective
outside accounting firms. Any adjustment to the Acquired Inventory Value
resulting from such physical inventory will be reflected in the Final
Adjustment Amount in accordance with the provisions of Section 1.5.
6.7 Further Assurances. From time to time at or after the Closing,
at the request of either Purchaser or Seller, Seller or Purchaser, as
applicable, will execute and deliver such other instruments of conveyance,
assignment, transfer and delivery and take such other action as the other party
reasonably may request in order to consummate the transactions contemplated
hereby, including but not limited to the execution and delivery of such
instruments and agreements as may be necessary or advisable to fully effect the
transfer to Purchaser of the Acquired Assets and the assumption by Purchaser of
the Assumed Liabilities.
6.8 Florida Plant Evaluation.
(a) Purchaser shall permit an environmental consultant jointly
selected by Purchaser and Seller (the "New Florida Consultant") to conduct soil
and groundwater sampling and analysis in the area of the Florida Plant's
stormwater retention pond. The fees and expenses of the New Florida Consultant
in conducting such sampling and analysis shall be paid 50% by Seller and 50% by
Purchaser. Within 20 days following the completion of the soil and groundwater
sampling and analysis (which completion shall in no event be later than 30 days
following the Closing), or, if the New Florida Consultant recommends additional
monitoring, as soon as practicable thereafter (which in no event shall be later
than 90 days following the Closing) the New Florida Consultant shall deliver to
Seller and Purchaser a written report (the "Florida Pond Assessment") setting
forth the results of the sampling and analysis. The New Florida Consultant
shall recommend in such Florida Pond Assessment a remedial or other response
action (including, if applicable, that no further action is required) or, if
applicable, alternative remedial or other response actions with respect to such
stormwater retention pond (each a "Proposed Florida Response Action," and
collectively, "Proposed Florida Response Actions"), and the estimated costs
thereof; provided, however, that in no event shall the New Florida Consultant
itself perform such Proposed Florida Response Action within 20 days following
the receipt by Seller and Purchaser of the Florida Pond Assessment (other than
any such Proposed Florida Response Action which Purchaser believes, in its good
faith business judgment (exercised without regard to the availability of
indemnification hereunder), and after consultation with counsel, is required,
and cannot be delayed until after such 20 days, under applicable Environmental
Laws). In the event that Purchaser does not exercise its right pursuant to
Section 6.8(b) to require Seller to repurchase the Owned Florida Real Property,
then the costs of any Proposed Florida Response Action or, if the New Florida
Consultant recommends alternative Proposed Florida Response Actions, then the
costs of any Proposed Florida Response Action selected by Purchaser to be
implemented (including, without limitation, any fees and expenses of the
environmental consultant(s) selected to perform the Proposed Florida Response
Action) (the "Identified Florida Plant Response Costs"), shall be borne as
follows: (i) 50% by Seller and 50% by Purchaser with respect to the first
$100,000 of Identified Florida Plant Response Costs; (ii) 100% by Seller with
respect to the next $100,000 of Identified Florida Plant Response Costs; and
(iii) 100% by Purchaser with respect to any remaining Identified Florida Plant
Response Costs; it being understood that in no event shall Seller's obligations
with respect to Identified Florida Plant Response Costs exceed, in the
aggregate, $150,000.
<PAGE> 41
(b) In the event that (i) the upper limit of the New Florida
Consultant's estimate of Identified Florida Plant Response Costs contained in
the Florida Pond Assessment equals or exceeds, in the aggregate, $300,000, or
(ii) the New Florida Consultant fails to deliver the Florida Pond Assessment on
or prior to 90 days following the Closing, then Purchaser, at its sole option,
may elect, by delivery of written notice (the "Repurchase Exercise Notice") to
Seller within 20 days following delivery, if any, to Purchaser of the Florida
Pond Assessment but, in any event, no later than 100 days following the
Closing, to require Seller to purchase from Purchaser the Owned Real Property
located in Florida and identified on Schedule 2.1.7A (the "Owned Florida Real
Property") for a cash purchase price of $300,000 (the "Florida Repurchase
Option"). The closing of the sale of the Owned Florida Real Property to Seller
shall occur, subject to the provisions of Section 6.8(c), as soon as
practicable and in any event not more than 20 days after the delivery to Seller
of the Repurchase Exercise Notice. At such closing, (i) Purchaser shall
deliver to Seller a special warranty deed to the Owned Florida Real Property,
duly executed by Purchaser, in a form customary in the State of Florida, and
(ii) Seller shall pay to Purchaser $300,000 in immediately available funds
(with real property taxes and other assessments relating to the Owned Florida
Real Property being prorated between Seller and Purchaser as of 12:01 a.m. on
the date of such closing based on the number of days in the applicable period
that each party owns the Owned Florida Real Property in a manner consistent
with Section 1.3 hereof). Notwithstanding anything contained in this Agreement
to the contrary, the Florida Repurchase Option shall expire and shall be deemed
null and void in the event that either (i) Purchaser fails to exercise such
Florida Repurchase Option within 20 days following the delivery to Purchaser of
the Florida Pond Assessment or, in any event, no later than 100 days following
the Closing, or (ii) any Identified Florida Plant Response Costs shall have
been actually incurred (other than as permitted pursuant to Section 6.8(a) or
required by any order or other directive issued by any governmental entity
under applicable law).
(c) If Purchaser delivers the Repurchase Exercise Notice in
accordance with Section 6.8(b), then Purchaser shall have the option,
exercisable by Purchaser by delivery of written notice of such exercise to
Seller (the "Lease Exercise Notice") within ten days following the delivery to
Seller of the Repurchase Exercise Notice, to lease the Owned Florida Real
Property from Seller. If Purchaser exercises such option to lease the Owned
Florida Real Property, then the parties will, on the closing date of the
purchase of the Owned Florida Real Property by Seller, enter into a triple net
lease with respect to the Owned Florida Real Property (the "New Florida Real
Property Lease") which will contain substantially the same terms as the lease
and agreement renewal between General Management and Development Corp. and
Atlanta Steel Industries, Inc., dated June 1, 1993, relating to the Leased Real
Property in Tampa, Florida (the "Existing Florida Real Property Lease") and
which will provide for a two-year lease term (with an option on the part of
Purchaser to extend such lease for an additional two years). The New Florida
Property Lease will provide for fixed rent payments by Purchaser on a per
square foot basis equal to $3.15 per square foot per year (which includes
applicable sales tax). The New Florida Real Property Lease shall additionally
provide for Purchaser to pay to Seller all other sums and amounts that are
payable by the tenant under the Existing Florida Real Property Lease
(appropriately adjusted to take into account the different square footages of
the premises). Notwithstanding the exercise by Purchaser of the Florida
Repurchase Option or the execution of the New Florida Real Property Lease, the
indemnification provisions herein with respect to Environmental Costs and
Liabilities relating to the Florida Plant shall remain in full force and
effect.
<PAGE> 42
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Termination.
(a) Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated by written notice of termination at any time
before the Closing only as follows:
(i) by mutual consent of Seller and Purchaser;
(ii) by Purchaser or Seller in writing if the Closing shall not
have occurred on or before the 120th day following the date hereof;
(iii) by Purchaser or Seller if the other party is in breach
in any material respect (or in the case of representations and warranties
containing materiality qualifiers, in any respect) of any representation,
warranty, covenant or other agreement set forth in this Agreement and such
breach has not been cured to the reasonable satisfaction of the non-breaching
party within ten days following the delivery of notice to the non-breaching
party of such breach; or
(iv) by Purchaser or Seller if damage in excess of $1,000,000
(based on replacement cost) in the aggregate occurs to any of the Acquired
Assets.
(ii) In the event of the termination hereof pursuant to the
provisions of this Section 7.1, no party shall have any liability under this
Agreement other than for breaches of this Agreement occurring prior to such
termination. Additionally, nothing contained herein shall be construed to
limit any party's right of specific performance of this Agreement.
7.2 Transfer Taxes; Title Insurance Premiums, Etc. Purchaser and
Seller shall each pay 50% of all applicable transfer, sales, use or similar
taxes, if any, and recording charges and fees due as a result of the sale or
transfer of any interest in Real Property in accordance with this Agreement.
Purchaser shall pay all applicable transfer, sales, use or similar taxes, if
any, due as a result of the sale or transfer of all other Acquired Assets in
accordance with this Agreement. Purchaser shall pay all premiums and expenses
in connection with the issuance to Purchaser of title insurance policies on all
Owned Real Property in such amounts as Purchaser elects. The costs of
obtaining any land title surveys of the Owned Real Property that were ordered
by Purchaser in connection with obtaining clean title commitments on the Owned
Real Property shall be paid by Purchaser.
7.3 Expenses. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses (including legal, accounting and
investment banking fees and expenses) incidental to the preparation of this
Agreement, the carrying out of the provisions of this Agreement and the
consummation of the transactions contemplated hereby.
7.4 Contents of Agreement; Parties in Interest; etc. This Agreement
and the related Transaction Documents set forth the entire understanding of the
parties hereto with respect to the transactions contemplated hereby. This
<PAGE> 43
Agreement shall not be amended or modified except by written instrument duly
executed by each of the parties hereto. Any and all previous agreements and
understandings between or among the parties regarding the subject matter
hereof, whether written or oral, are superseded by this Agreement; provided,
however, that the Confidentiality Agreement between Purchaser and Seller and
dated as of November 30, 1994, as amended, shall continue in full force and
effect until the Closing.
7.5 Assignment and Binding Effect. This Agreement may not be assigned
prior to the Closing by any party hereto without the prior written consent of
the other parties; provided, however, that this Agreement (or any portion
thereof) may be assigned by Purchaser to a direct or indirect wholly owned
subsidiary of Purchaser; provided, however, that no such assignment by
Purchaser shall relieve Purchaser of liability hereunder in the event of
nonperformance of any provision of this Agreement by such direct or indirect
wholly owned subsidiary. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and permitted assigns of Seller and
Purchaser.
7.6 Waiver. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party.
7.7 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and (a) delivered personally; (b) sent by telex or telecopy; (c)
delivered by overnight express (charges prepaid); or (d) sent by first class
registered mail or certified mail, postage prepaid, as follows:
If to Purchaser, to:
MMI Products, Inc.
515 W. Greens Road, Suite 710
Houston, Texas 77067
Attention: Julius S. Burns
Fax: (713) 876-1648
With a required copy to:
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201-2980
Attention: Michael A. Saslaw
Fax: (214) 953-6503
<PAGE> 44
If to Seller, to:
Atlantic Steel Industries, Inc.
Sivaco/National Wire Group
Overlook III, Suite 1900
2859 Paces Ferry Road
Atlanta, Georgia 30339
Attention: George Goldstein
Fax: (770) 431-5102
With a required copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Jeffrey Bagner
Fax: (212) 859-8586
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Notices sent by hand delivery shall be
deemed to have been given when received; notices mailed in accordance with the
foregoing shall be deemed to have been given three days following the date so
mailed; notices sent by telex or telecopy shall be deemed to have been given
when electronically confirmed; and notices sent by next day overnight courier
shall be deemed to have been given on the next business day following the date
so sent.
7.8 Bulk Sales. The parties waive compliance with any bulk sales or
similar provisions of law applicable to the transfer of the Acquired Assets in
accordance with this Agreement. Seller will indemnify Purchaser pursuant to
Article V hereof for any Damages incurred by Purchaser as a result of the
failure to comply with any such bulk sales or similar provisions of law.
7.9 Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of Delaware, without
regard to principles of conflict of laws.
7.10 Confidentiality. Following the Closing, neither Seller, nor any
other Affiliate of Seller will use or disclose any confidential documents or
information relating to the Acquired Assets. All information and documents
relating to the Acquired Assets will be deemed to be confidential unless such
documents or information can be shown to have been in the public domain prior
to such use or disclosure other than as a result of information disclosed by
Seller, or any agent or Affiliate of Seller in violation of this Agreement.
7.11 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and, in the case of Article V hereof, the other indemnified
parties, and their heirs, executors, administrators, legal representatives,
successors and assigns, and they shall not be construed as conferring any
rights on any other persons.
7.12 Headings; Gender; Certain Terms. All section headings contained in
this Agreement are for convenience of reference only, do not from a part of
this Agreement and shall not affect in any way the meaning or interpretation of
this Agreement. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine, or neuter, as
<PAGE> 45
the context requires. Any reference to a "person" herein shall include an
individual, firm, corporation, partnership, trust, governmental authority or
body, association, unincorporated organization or any other entity. Any
reference to "including" herein shall mean "including but not limited to." The
conjunction "or" shall denote any one or more, or any combination or all, of
the specified items or matters involved in the applicable list.
7.13 Severability. Any provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. Furthermore, in lieu of such invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such invalid or unenforceable provision as may
be possible and be valid and enforceable.
7.14 Remedies Cumulative. The remedies (including indemnification) of
the parties under this Agreement are cumulative and will not exclude any other
remedies to which any party may be lawfully entitled.
7.15 Specific Performance, Injunctive Relief. Each of the Seller and
Purchaser acknowledges and agrees that the other party would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the Seller and Purchaser agrees that the other party shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter
in addition to any other remedy to which they may be entitled, at law or in
equity.
7.16 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
7.17 Schedules. Any information disclosed in any schedule hereto will
be deemed to be included in all schedules except where the information
disclosed on a particular schedule cannot reasonably be determined to apply to
another schedule.
7.18 Public Announcements. Neither Seller nor Purchaser shall make any
public statements, including, without limitation, any press releases, with
respect to this Agreement and the transactions contemplated hereby, without the
prior written consent of the other party (which consent may not be unreasonably
withheld) except as may be required by law or by any exchange or market on
which its securities are traded.
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
ATLANTIC STEEL INDUSTRIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
MMI PRODUCTS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
EXHIBIT A
BILL OF SALE
THIS BILL OF SALE (this "Bill of Sale"), dated as of ________, 1996, is
made by Atlantic Steel Industries, Inc., a New York corporation ("Seller") to
MMI Products, Inc., a Delaware corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Asset Purchase Agreement (the "Purchase
Agreement"), dated as of June 10, 1996, by and between Seller and Purchaser,
Seller has agreed to sell to Purchaser the Acquired Assets, on the terms and
subject to the conditions set forth in the Purchase Agreement, and Purchaser
has agreed to acquire and accept the Acquired Assets from the Seller on such
basis; and
WHEREAS, Seller desires to deliver to Purchaser such instruments of
transfer as are required effectively to vest in Purchaser all right, title and
interest in and to the Acquired Assets to be conveyed pursuant hereto;
WHEREAS, Section 4.2(a)(iv) of the Purchase Agreement contemplates that
this Bill of Sale is to be delivered by Seller to Buyer at Closing; and
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have the respective meanings ascribed thereto in the Purchase
Agreement.
NOW, THEREFORE, in consideration of the promises, covenants and agreements
contained herein and in the Purchase Agreement and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
Seller does hereby sell, assign, transfer and deliver to Purchaser all of
Seller's right, title and interest in and to the Acquired Assets that
constitute tangible personal property (the "Tangible Personal Property"), free
and clear of all Encumbrances (other than the Permitted Encumbrances) of any
kind or character;
FURTHER, except as expressly set forth in the Purchase Agreement, Seller
makes no representations or warranties, express or implied, at law or in
equity, including, without limitation, with respect to merchantability or
fitness for any particular purpose, and Seller disclaims any such other
representations or warranties. Purchaser hereby acknowledges and agrees that,
except to the extent specifically set forth in the Purchase Agreement, the
Purchaser is purchasing the Acquired Assets on an "as-is, where-is" basis;
FURTHER, Seller and Purchaser acknowledge that the Excluded Assets are
specifically excluded from the Acquired Assets and are not being sold pursuant
hereto;
TO HAVE AND TO HOLD the Tangible Personal Property, with all of the
appurtenances thereto, unto Purchaser and its successors and assigns for its
and their use.
<PAGE>
IN WITNESS WHEREOF, this Bill of Sale has been duly executed by an officer
of the undesigned thereunto duly authorized all on the date first above
written.
ATLANTIC STEEL INDUSTRIES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT B
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), dated as of
___________, 1996, is entered into by and between Atlantic Steel Industries,
Inc., a New York corporation ("Seller"), and MMI Products, Inc., a Delaware
corporation ("Purchaser").
WITNESSETH:
WHEREAS, pursuant to that certain Asset Purchase Agreement, dated as of
June 10, 1996 (the "Purchase Agreement"), between Purchaser and Seller, Seller
has agreed to sell to Purchaser the Acquired Assets, on the terms and subject
to the conditions set forth in the Purchase Agreement;
WHEREAS, Section 1.2 of the Purchase Agreement provides that Purchaser
shall, as of the Closing Date, assume, pay, perform and discharge certain
liabilities of Seller;
WHEREAS, Sections 4.2(a)(vi) and 4.2(b)(iii) of the Purchase Agreement
contemplate that this Agreement is to be entered into and delivered at Closing;
and
WHEREAS, all capitalized terms not otherwise defined herein and defined in
the Purchase Agreement shall have the meaning attributed thereto in the
Purchase Agreement;
NOW, THEREFORE, in consideration of the promises, covenants and agreements
contained herein and in the Purchase Agreement and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
8. Assignment of Assets. Seller does hereby sell, assign, transfer and
deliver to Purchaser all of Seller's right, title and interest in and to the
Acquired Assets, other than (a) interests in Real Property (including but not
limited to leases of Real Property) which are being conveyed or assigned to
Purchaser separately, and (b) any Acquired Assets being conveyed to Purchaser
pursuant to that certain Bill of Sale of even date herewith, executed and
delivered by Seller to Purchaser, and Purchaser does hereby accept such
assignment, free and clear of all Encumbrances (other than Permitted
Encumbrances) of any kind or character.
9. Assumption of Liabilities. Purchaser does accept the foregoing
assignment and hereby assume and will pay, perform and discharge when due, all
of the Assumed Liabilities. Except for the Assumed Liabilities, Purchaser does
not assume, nor will Purchaser be obligated to pay, perform, discharge or be
responsible or liable for, any obligations, duties or liabilities of Seller.
10. No Assignment Where Prohibited. Anything in this Agreement to the
contrary notwithstanding, unless any such necessary consent shall have been
obtained, this Agreement shall not constitute an agreement to assign any lease,
contract, purchase order or other agreement if an attempted assignment thereof,
without the consent of a third party thereto, would constitute a breach thereof
or default thereof, cause or permit the termination thereof, or in any way
materially and adversely affect the rights of Seller and Purchaser thereunder.
<PAGE>
11. Seller Not Bound. Seller shall not be bound by, liable for or
required to perform any duties or obligations under the Contracts which are
provided for in any amendment, modification, renewal, extension or supplement to
any of the Contracts which may be entered into by Purchaser after the date
hereof.
12. Successors. This Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Conflicts. In the event of a conflict between the terms and
conditions of this Agreement and the terms and conditions of the Purchase
Agreement, the terms and conditions of the Purchase Agreement shall govern,
supersede and prevail.
15. Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions) shall be governed by
and construed in accordance with the internal laws (and not principles of
conflict of laws) of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
Seller:
ATLANTIC STEEL INDUSTRIES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Purchaser:
MMI PRODUCTS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT C
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION OF LEASE (the "Agreement"), dated as of
_______________, 1996, is entered into by and between Atlantic Steel Industries,
Inc., a New York corporation ("Seller"), and MMI Products, Inc., a Delaware
corporation ("Purchaser").
WITNESSETH:
WHEREAS, pursuant to that certain Asset Purchase Agreement, dated as of
June 10, 1996 (the "Purchase Agreement"), between Purchaser and Seller, Seller
has agreed to sell to Purchaser the Acquired Assets, on the terms and subject
to the conditions set forth in the Purchase Agreement;
WHEREAS, Seller and ____________________ ("Landlord") are parties to that
certain Lease Agreement dated ____________________, as amended to the date
hereof (the "Lease Agreement");
WHEREAS, Sections 4.2(a)(vii) and 4.2(b)(iv) of the Purchase Agreement
contemplate that this Agreement is to be entered into and delivered at Closing;
and
WHEREAS, all capitalized terms not otherwise defined herein and defined in
the Purchase Agreement shall have the meaning attributed thereto in the Purchase
Agreement.
NOW, THEREFORE, in consideration of the premises, the parties hereto agree
as follows:
1. Seller hereby assigns and transfers to Purchaser all of Seller's
right, title and interest in and to the Lease Agreement, effective as of the
date hereof.
2. Purchaser hereby (i) accepts the foregoing assignment and transfer
to Purchaser of all of Seller's right, title and interest in and to the Lease
Agreement effective as of the date hereof and (ii) assumes and agrees to comply
with all of the terms and provisions of the Lease Agreement and perform all of
the covenants and obligations of Seller under the Lease Agreement, but only to
the extent such covenants and obligations relate to periods from and after the
date hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
Seller:
ATLANTIC STEEL INDUSTRIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Purchaser:
MMI PRODUCTS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
EXHIBIT D
CERTAIN LICENSES AND PERMITS
None.
<PAGE>
EXHIBIT E
OPINION OF FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
_________, 1996
MMI Products, Inc.
515 W. Greens Road, Suite 710
Houston, Texas 77067
Ladies and Gentlemen:
We have acted as special counsel for Atlantic Steel Industries, Inc., a
New York corporation (the "Company"), in connection with the Asset Purchase
Agreement, dated as of June 10, 1996 (the "Agreement"), between you and the
Company. This opinion is delivered to you pursuant to Section 4.2(xi) of the
Agreement. All capitalized terms used herein that are defined in, or by
reference in, the Agreement have the meanings assigned to such terms therein,
or by reference therein, unless otherwise defined herein. With your
permission, all assumptions and statements of reliance herein have been made
without any independent investigation or verification on our part except to the
extent otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have (i) investigated such questions
of law, (ii) examined originals or certified, conformed or reproduction copies
of such agreements, instruments, documents and records of the Company, such
certificates of public officials and such other documents, and (iii) received
such information from officers and representatives of the Company as we have
deemed necessary or appropriate for the purposes of this opinion.
In all such examinations, we have assumed the legal capacity of all natural
persons executing documents, the genuineness of all signatures, the authenticity
of original and certified documents and the conformity to original or certified
copies of all copies submitted to us as conformed or reproduction copies. As to
various questions of fact relevant to the opinions expressed herein, we have
relied upon, and assume the accuracy of, representations and warranties
contained in the Transaction Documents (as hereinafter defined) and certificates
and oral or written statements and other information of or from representatives
of the Company and others and assume compliance on the part of the parties to
the Transaction Documents with their respective covenants and agreements
contained therein.
<PAGE>
To the extent it may be relevant to the opinions expressed herein, we have
assumed that the Purchaser has the power to enter into and perform the
Transaction Documents and to consummate the transactions contemplated thereby
and that the Transaction Documents have been duly authorized, executed and
delivered by, and constitute valid and binding obligations of, the Purchaser,
enforceable against the Purchaser in accordance with their terms.
Based upon the foregoing, and subject to the limitations, qualifications
and assumptions set forth herein, we are of the opinion that:
1. The Company is a corporation incorporated, validly existing and in
good standing under the laws of the State of New York and has full corporate
power and authority to execute and deliver the Agreement and each of the
documents which are exhibits to the Agreement and which are being executed and
delivered by the Company (collectively, the "Transaction Documents") and to
consummate the transactions contemplated thereby. The execution, delivery and
performance by the Company of the Transaction Documents and the consummation by
the Company of the transactions contemplated thereby have been duly authorized
by all necessary corporate action on the part of the Company.
2. Each of the Transaction Documents has been validly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
3. The execution, delivery and performance of the Transaction Documents
by the Company will not (a) violate any provision of the certificate of
incorporation or bylaws of the Company, (b) conflict with, or result in the
breach, termination or acceleration of rights or obligations under, or
constitute a default under, any of the terms, conditions or provisions of any
mortgage, indenture, bond, or other material agreement (collectively, "Material
Agreements") identified to us in the Officer's Certificate of the Company
delivered to us in connection with this opinion, a copy of which is attached
hereto as Annex A (the "Officer's Certificate") upon which we have relied, (c)
constitute a violation of any law or regulation of the State of New York or the
United States applicable to the Company, or (d) violate any writ, order,
injunction or decree of any court or governmental instrumentality which is
identified to us in the Officer's Certificate (collectively, "Orders").
4. Except as contemplated by the Agreement or the schedules thereto, no
consent, approval, waiver, license or authorization or other action by or
filing with any Governmental Authority is required in connection with the
execution, delivery or consummation at the Closing of the Transaction Documents
by the Company. As used herein "Governmental Authority" means any legislative,
judicial, administrative or regulatory body of the State of New York or the
United States of America having jurisdiction or authority over the Company.
<PAGE>
5. In the course of our engagement to represent or advise the Company
professionally, we have not become aware of any pending legal proceeding
before, or pending investigation by, any Governmental Authority or any
arbitration tribunal, nor have we devoted substantive attention in the form of
legal representation as to any current overtly threatened litigation, against
or directly affecting the Company and related to the Acquired Assets or the
Acquired Business, or the transactions contemplated by the Transaction
Documents, which with respect to any of the foregoing could reasonably be
expected to have a Material Adverse Effect, other than as may be referred to
in the Officer's Certificate. In making the foregoing statement, we have
endeavored, to the extent we have believed necessary, to determine from lawyers
currently in our firm who have performed substantive legal services for the
Company, whether such services involved substantive attention in the form of
legal representation concerning pending legal proceedings or pending
investigations or overtly threatened litigation of the nature referred to above,
and we have relied upon the Officer's Certificate. Beyond that, we have not
made any review, search or investigation of public files or records or files or
records of the Company or of its transactions, or any other investigation or
inquiry with respect to the foregoing statement.
The opinions set forth above are subject to the following limitations:
(a) the opinion in paragraph 2 above is subject to (i) applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws, and related judicial doctrines now or hereafter in effect
affecting creditors'rights generally and (ii) general principles of equity
(including, without limitation, standards of materiality, good faith, fair
dealing and reasonableness, equitable defenses and limits on the availability of
equitable remedies), whether such principles are considered at law or in equity;
(b) the opinions in clauses (b) and (d) of paragraph 3 above are limited
in that we express no opinion with respect to any violation not readily
ascertainable from the face of any Material Agreement or Order, or arising under
or based upon any cross default provision insofar as it relates to a default
under an agreement not identified to us in the Officer's Certificate, or arising
under or based upon any covenant of a financial or numerical nature or requiring
computation (it being understood that we have not made any review, search or
investigation of public files or records or files or records of the Company or
of its transactions, nor have we made any other investigation or inquiry with
respect to any Material Agreement or Order;
<PAGE>
(c) the opinions in clauses (c) of paragraph 3 above and paragraph 4
above are limited to our review of only those laws and regulations that, in our
experience, are normally applicable to transactions of the type contemplated by
the Agreement.
In addition, we express no opinion (a) as to the enforceability of any
provision in the Transaction Documents (i) relating to indemnification,
contribution or exculpation in connection with violations of any statutory
duties or public policy, or in connection with willful, reckless or unlawful
acts or gross acts of negligence of the indemnified or exculpated party or the
party receiving contributions; (ii) restricting or purporting to restrict the
freedom of a party to compete or freely engage in any activity to sell, develop
or utilize any product; or (iii) relating to choice of governing law to the
extent that the enforceability of any such provision is to be determined by any
court other than a court of the State of New York, (b) as to the effect on
enforceability of any of the Transaction Documents of any decision of an
arbitration tribunal or an arbitrator pursuant to any provision for mandatory or
optional arbitration to the extent such decision does not give effect to the
terms of such Transaction Document, (c) as to the enforceability of any
provision of the Transaction Documents requiring arbitration or (d) as to the
application of state or federal anti-fraud, trade regulation, antitrust or
similar laws.
In rendering our opinion in paragraph 3(b) above insofar as it requires
interpretation of the Material Agreements referred to therein (i) we have
assumed with your permission that all courts of competent jurisdiction would
enforce such Material Agreements as written but would apply the internal laws of
the State of New York without giving effect to any choice of law provisions
contained therein or any choice of law principles which would result in the
application of the internal laws of any other state; (ii) to the extent that any
questions of legality or legal construction have arisen in connection with our
review, we have applied the internal laws of the state of New York in resolving
such questions; and (iii) we express no opinion with respect to the effect of
any discretionary action or inaction by the Company under such Material
Agreements which may result in a breach or default thereunder. We advise you
that certain of such Material Agreements may be governed by laws other than the
laws of the State of New York, that such laws may vary substantially from the
laws of the State of New York and that this opinion may not be relied upon as to
whether or not a breach would occur under the law actually governing such
Material Agreements.
<PAGE>
The opinions expressed herein are limited to the laws of the United States
of America and the laws of the State of New York, as currently in effect. For
purposes of this opinion, we have assumed, with your permission, that the laws
of the State of Delaware (other than the General Corporation Law of the State of
Delaware) are the same as the laws of the State of New York.
The opinions expressed herein are solely for your benefit in connection
with the Agreement and may not be relied on in any manner or for any purpose by
any other person or entity and may not be quoted in whole or in part without our
prior written consent.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By:
-------------------------
Jeffrey Bagner
EXHIBIT F
OPINION OF BAKER & BOTTS, L.L.P.
____________, 1996
Atlantic Steel Industries, Inc.
Sivaco/National Wire Group
Overlook III, Suite 1900
2859 Paces Ferry Road
Atlanta, Georgia 30339
Ladies and Gentlemen:
We have acted as counsel for MMI Products, Inc., a Delaware corporation
(the "Company") in connection with that certain Asset Purchase Agreement, dated
as of June 10, 1996 (the "Agreement"), between you and the Company. Unless
otherwise defined herein, all capitalized terms used herein shall have the
respective meanings assigned to them in the Agreement. This opinion is being
furnished to you pursuant to Section 4.2 of the Agreement.
We have familiarized ourselves with the Company's Certificate of
Incorporation and Bylaws, each as amended to date, and have examined the
originals, or copies certified or otherwise identified, of corporate records of
the Company, certificates of public officials and representatives of the
Company and other instruments and documents, as a basis for the opinions
hereinafter expressed. In giving such opinions, we have relied upon
certificates of officers of the Company with respect to the accuracy of the
material factual matters contained in such certificates. We have assumed that
all signatures on all documents examined by us are genuine, that all documents
submitted to us as originals are authentic and that all documents submitted to
us as copies are true and correct copies of the originals thereof.
On the basis of the foregoing, and subject to the assumptions, limitations
and qualifications set forth herein, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware.
2. The Company has full corporate power and authority to execute and
deliver the Agreement and each of the documents which is an exhibit to the
Agreement and which is being executed and delivered by the Company
(collectively, the "Transaction Documents"), and to consummate the transactions
contemplated thereby. The execution, delivery and performance by the Company
of the Transaction Documents and the consummation of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action on the part of the Company.
3. Each of the Transaction Documents has been validly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
<PAGE>
reorganization or similar laws affecting creditors' rights generally, or by the
application of general principles of equity.
4. The execution, delivery and performance of the Transaction Documents
by Seller will not (a) violate any provision of the Certificate of
Incorporation or Bylaws of the Company, (b) conflict with, or result in the
breach or acceleration of rights or obligations under, or constitute a default
under, any of the terms, conditions or provisions of any mortgage, indenture,
bond, or other material agreement to which the Company is a party or by which
any of its assets may be bound (collectively, "Material Agreements") identified
to us in the Officer's Certificate of the Company delivered to us in connection
with this opinion, a copy of which is attached hereto as Annex A (the
"Officer's Certificate"), (c) constitute a violation of any applicable law or
regulation of the State of Texas or the United States applicable to the Company
or (d) violate any writ, order, injunction or decree of any court or
governmental instrumentality binding on the Company which is identified in the
Officer's Certificate (collectively, "Orders").
5. Except as contemplated by the Agreement or the schedules thereto, no
consent, approval, waiver, license or authorization or other action by or
filing with any governmental authority of the State of Texas or the United
States is required in connection with the execution, delivery or performance of
the Transaction Documents by the Company.
6. To our knowledge, there are no claims, actions, suits, proceedings
or investigations pending or threatened, at law or in equity, or before or by
and court, arbitrator or governmental or regulatory official, body or authority
which (i) question the legality or validity of any of the Transaction
Documents, (ii) question the legality or validity of actions taken or to be
taken pursuant to any of the Transaction Documents, (iii) seek to prohibit the
execution and delivery of, or prevent the consummation of any of the
transactions contemplated by any of the Transaction Documents, or (iv) seek
damages arising out of or related to the execution and delivery of, or on
account of actions to be taken under, any of the Transaction Documents.
The foregoing opinions are subject to the following additional
assumptions, limitations, qualifications and exceptions:
(A) With respect to the opinions set forth in paragraph 1 above, we have
relied, with your permission and without any independent investigation or
verification, solely upon certificates furnished to us by the Secretary of
State of the State of Delaware.
(B) The opinions set forth above, insofar as they relate to the
enforceability of the Transaction Documents, are subject to general principles
of equity (whether considered in a proceeding at law or in equity). In
addition, we give no opinion with respect to the enforceability of any
provision in the Transaction Documents providing for the remedy of specific
performance. In addition, we express no opinion (i) as to the enforceability
of any provision in the Transaction Documents (a) relating to indemnification,
contribution or exculpation in connection with violations of any statutory
duties or public policy, or in connection with willful, reckless or unlawful
acts or gross acts of negligence of the indemnified or exculpated party or the
party receiving contributions; (b) restricting or purporting to restrict the
freedom of a party to compete or freely engage in any activity to sell, develop
or utilize any product; or (c) relating to choice of governing law to the
extent that the enforceability of any such provision is to be determined by any
court other than a court of the State of Texas, (ii) as to the effect on
enforceability of any of the Transaction Documents of any decision of an
arbitration tribunal or an arbitrator pursuant to any provision for mandatory
or optional arbitration to the extent such decision does not give effect to the
<PAGE>
terms of such Transaction Document, (iii) as to the enforceability of any
provision of the Transaction Documents requiring arbitration or (iv) as to the
application of state or federal anti-fraud, trade regulation, antitrust or
similar laws.
(C) The opinions in clauses (b) and (d) of paragraph 4 above are
limited in that we express no opinion with respect to any violation not readily
ascertainable from the face of any Material Agreement or Order, or arising
under or based upon any cross default provision insofar as it relates to a
default under an agreement not identified to us in the Officer's Certificate,
or arising under or based upon any covenant of a financial or numerical nature
or requiring computation (it being understood that we have not made any review,
search or investigation of public files or records or files or records of the
Company or of its transactions, nor have we made any other investigation or
inquiry with respect to any Material Agreement or Order);
(D) We have assumed, with your permission and without any independent
investigation or verification, (i) Seller has all requisite power to execute,
deliver and perform its obligations under such Transaction Documents; (ii) the
execution, delivery and performance of each of the Transaction Documents has
been duly authorized by all requisite action on the part of Seller; (iii) the
due execution and delivery of the Transaction Documents by Seller; (iv) that
each of the Transaction Documents constitutes the legal, valid and binding
obligation of Seller, enforceable against such party in accordance with its
terms; (v) that the representations and warranties as to factual matters made
by the Company in the Asset Purchase Agreement are true and complete; (vi) the
authenticity of all documents submitted to us as original documents; (vii) the
conformity to authentic, original documents of all documents submitted to us as
copies (whether telecopies, photocopies or conformed copies); (viii) the
genuineness of all signatures (and the competency of any signatories who are
natural persons); and (ix) that all information submitted to us was accurate
and complete (including the completeness of all documents furnished to us, and
that no amendments, modifications or revisions to such documents are in
existence).
(E) The opinions in paragraph 4(c) above are limited to our review of
only those laws and regulations that, in our experience, are normally
applicable to transactions of the type contemplated by the Agreement.
(F) In rendering our opinion in paragraph 4(b) above insofar as it
requires interpretation of the Material Agreements referred to therein (i) we
have assumed with your permission that all courts of competent jurisdiction
would enforce such Material Agreements as written but would apply the internal
laws of the State of Texas without giving effect to any choice of law
provisions contained therein or any choice of law principles which would result
in the application of the internal laws of any other state; (ii) to the extent
that any questions of legality or legal construction have arisen in connection
with our review, we have applied the internal laws of the state of Texas in
resolving such questions; and (iii) we express no opinion with respect to the
effect of any discretionary action or inaction by the Company under such
Material Agreements which may result in a breach or default thereunder. We
advise you that certain of such material Agreements may be governed by laws
other than the laws of the State of Texas that such laws may vary substantially
from the laws of the State of Texas and that this opinion may not be relied
upon as to whether or not a breach would occur under the law actually governing
such Material Agreements.
<PAGE>
(G) Whenever an opinion herein is qualified by "known to us" or similar
phrase, this firm has relied exclusively, without independent investigation, on
one or more certificates from one or more officers of the Company with respect
to the matters set forth in such opinion. This firm has made no independent
investigation as to the accuracy or completeness of any of the information
contained in such certificate(s). However, in the course of rendering the
legal services described in the introductory paragraphs of this opinion, no
facts or circumstances have come to the attention of those attorneys in this
firm who rendered such legal services that gave this firm current actual
knowledge that any such information is incorrect in any material respect.
(H) The foregoing opinions are limited in all respects to the laws of
the State of Texas, the Delaware General Corporation Law and applicable Federal
law, and we express no opinion as to matters governed by the laws of any other
jurisdiction. We undertake no obligation or responsibility to update or
supplement this opinion in response to subsequent changes in the law or future
events affecting any of the transactions contemplated by the Asset Purchase
Agreement. We note that the Transaction Documents provide that they are
governed by the laws of the State of Delaware. While we express no opinion
with respect to the laws of the State of Delaware (other than the General
Corporation Law of the State of Delaware), we have assumed that the internal
laws of the State of Delaware (other than General Corporation Law of the State
of Delaware) are the same as the internal laws of the State of Texas. We have
made no investigation to confirm whether such assumption is correct.
The foregoing opinions are rendered to you at the request of the Company,
are solely for your benefit in connection with the transactions consummated on
the date hereof pursuant to the Asset Purchase Agreement and may not be relied
upon by any other person or for any other purpose.
Very truly yours,
<PAGE>
ASSET PURCHASE AGREEMENT
Dated as of December 12, 1997,
Among
MMI PRODUCTS, INC. ("PURCHASER")
and
THE BURKE GROUP, L.L.C. ("SELLER")
<PAGE>
TABLE CONTENTS
LIST OF SCHEDULES iv
LIST OF EXHIBITS v
ARTICLE I
SALE AND PURCHASE OF ASSETS 1
1.1 Agreement to Sell and Purchase 1
1.2 Purchase Price; Assumed Liabilities, Etc. 2
1.3 Indemnification Fund 5
1.4 Prorations 5
1.5 Allocation of Consideration 5
1.6 Post-Closing Adjustment 5
1.7 Uncollectible Accounts 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES 7
2.1 Representations and Warranties of Seller 7
2.1.1 Organization 8
2.1.2 Authorization and Effect of Agreement 8
2.1.3 Conflicts 8
2.1.4 Consents 9
2.1.5 Financial Statements 9
2.1.6 Absence of Certain Changes and Events 10
2.1.7 Inventory 10
2.1.8 Real Property 10
2.1.9 Physical Assets and Properties 12
2.1.10 Intangible Assets and Properties 12
2.1.11 Contracts 13
2.1.12 Contract Defaults 13
2.1.13 Sufficiency of Acquired Assets 13
2.1.14 Compliance With Laws 13
2.1.15 Environmental Matters 14
2.1.16 Insurance 15
2.1.17 Litigation; Decrees 15
2.1.18 Employee Matters 15
2.1.19 Labor Matters 18
2.1.20 Customers and Suppliers 18
2.1.21 Warranty and Product Liability Claims 18
2.1.22 Licenses, Permits, Etc. 19
2.1.23 Employees and Consultants 19
<PAGE>
2.1.24 Disclosure 19
2.1.25 Taxes and Fees 19
2.1.26 Accounts Receivable 20
2.1.27 Interest in Competitors, Suppliers, Customers, Etc 20
2.1.28 Finders 20
2.1.29 Books of Account 20
2.2 Representations and Warranties of Purchaser 20
2.2.1 Corporate Organization 20
2.2.2 Authorization and Effect of Agreement 20
2.2.3 Conflicts 21
2.2.4 Consents 21
2.2.5 Adequate Funds 21
2.2.6 Disclosure 21
ARTICLE III
COVENANTS 21
3.1 Covenants of Seller 21
3.1.1 Employees and Business Relations 22
3.1.2 Update Representations and Warranties 22
3.1.3 Satisfaction of Conditions 22
3.1.4 Sale of Acquired Assets; Negotiations 22
3.1.5 Access 23
3.1.6 Operation of the Business 23
3.1.7 WARN Act Compliance 24
3.1.8 Environmental Inspections 25
3.1.9 Employees 25
3.1.10 1997 Financial Statements 25
3.1.11 HSR Notification 25
3.1.12 Physical Inventory 26
3.1.13 Environmental Matters 26
3.2 Covenants of Purchaser 26
3.2.1 Closing 26
3.2.2 Employees 26
3.2.3 Employee Benefits 26
3.2.4 Collective Bargaining Agreements 27
3.2.5 Surveys; Title Commitments 27
ARTICLE IV
CLOSING 27
4.1 Closing 27
4.2 Conditions to Closing 27
<PAGE>
ARTICLE V
SURVIVAL AND INDEMNIFICATION 31
5.1 Survival of Representations, Warranties and Covenants 31
5.2 Indemnification by Seller 32
5.3 Indemnification by Purchaser 33
5.4 Indemnification Procedures 33
5.5 Limitations 35
5.6 Remedies Cumulative 35
5.7 Adjustment to Purchase Price 35
ARTICLE VI
POST-CLOSING COVENANTS 35
6.1 Payment Received 35
6.2 Copies of Records 35
6.3 Use of Name 35
6.4 Further Assurances 36
ARTICLE VII
MISCELLANEOUS PROVISIONS 36
7.1 Termination 36
7.2 Transfer Taxes 37
7.3 Expenses 37
7.4 Contents of Agreement; Parties in Interest; etc. 37
7.5 Assignment and Binding Effect 38
7.6 Waiver 38
7.7 Non-Assignable Contracts 38
7.8 Notices 38
7.9 Governing Law 39
7.10 Confidentiality and Press Release 39
7.11 No Benefit to Others 40
7.12 Headings; Gender; Certain Terms 40
7.13 Schedules and Exhibits 40
7.14 Risk of Loss and Casualty Damage 40
7.15 Severability 41
7.16 Counterparts 41
7.17 Attorney Fees 41
<PAGE>
LIST OF SCHEDULES
Schedule 1.1 Excluded Assets
Schedule 1.2A Critical Expenditures
Schedule 1.2F Certain Assumed Liabilities
Schedule 2.1.1 Jurisdictions of Qualification
Schedule 2.1.4 Consents
Schedule 2.1.6 Certain Changes and Events
Schedule 2.1.7 Inventory
Schedule 2.1.8A Owned Real Property
Schedule 2.1.8B Real Property Leases
Schedule 2.1.8C Additional Real Property
Schedule 2.1.8D Real Property Disputes
Schedule 2.1.8E Property Condition
Schedule 2.1.9A Physical Assets and Properties
Schedule 2.1.9B Leases
Schedule 2.1.10A Owned Intangible Properties
Schedule 2.1.10B Licensed Intangible Properties
Schedule 2.1.11 Contracts
Schedule 2.1.12 Contract Defaults
Schedule 2.1.13 Other Assets
Schedule 2.1.14 Legal Matters
Schedule 2.1.15A Environmental Matters
Schedule 2.1.15B Environmental Circumstances
Schedule 2.1.15C Certain Environmental Concerns
Schedule 2.1.15D Environmental Proceedings
Schedule 2.1.15E Hazardous Waste Matters; Permits
Schedule 2.1.16 Insurance Policies
Schedule 2.1.17 Litigation; Decrees
Schedule 2.1.18 Employee Benefit Plans
Schedule 2.1.19 Labor Matters
Schedule 2.1.20 Customers and Suppliers
Schedule 2.1.21 Warranty and Product Liability Claims
Schedule 2.1.22 Licenses and Permits
Schedule 2.2.23 Employment and Consulting Agreements
Schedule 2.2.27 Interest in Competitors, Suppliers,
Customers
Schedule 2.2.4 Consents
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Bill of Sale and Assignment
Exhibit C Assumption Agreement
Exhibit D Noncompetition Agreement
Exhibit E Limited Power of Attorney
Exhibit F Opinion of Counsel of Seller
Exhibit G Opinion of Counsel of Purchaser
<PAGE> 1
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
on December 12, 1997, between MMI Products, Inc, a Delaware corporation
("Purchaser") and The Burke Group, L.L.C., a Delaware limited liability company
("Seller").
RECITALS:
WHEREAS, Seller presently operates a concrete accessories plant in
Converse, Texas (the "Texas Plant"), a chemical processing plant in Carson,
California (the "California Plant"), and an engineering services firm in
Sacramento, California (such operations, together with all activities of the
Seller relating thereto, being referred to herein as the "Business");
WHEREAS, Seller desires to sell, and Purchaser desires to purchase, the
Acquired Assets (hereinafter defined), on the terms and subject to the
conditions set forth in this Agreement; and
WHEREAS, Seller wishes to delegate to Purchaser, and Purchaser is willing
to assume, specified Assumed Liabilities (hereinafter defined), on the terms
and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, the terms and provisions
set forth herein, the mutual benefits to be gained by the performance thereof
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Agreement to Sell and Purchase. Subject to the provisions
of this Agreement, Seller hereby agrees to sell to Purchaser and Purchaser
hereby agrees to purchase from Seller, all the assets and properties of every
kind and nature, real, personal or mixed, tangible or intangible, wherever
situated, of Seller, including all land, buildings, improvements, fixtures,
machinery, tooling, furniture, vehicles, equipment, tools, inventory, accounts
receivable, raw materials, work in process, finished goods, supplies, pre-paid
expenses, indemnification rights, technology, know-how, patents, trademarks,
tradenames, proprietary information, trade secrets, computer programs,
copyrights, customer lists, goodwill and other intangible property rights of
any kind whatsoever, licensing agreements and other contractual rights, and all
of Seller's books and records relating to the operations of the Business, as
each of the foregoing exists as of the Closing Date, as hereinafter defined
(such assets being sold being collectively referred to as the "Acquired
Assets"); excluding, however, cash, cash equivalents, marketable securities,
<PAGE> 2
income tax refunds, accrued interest receivables, insurance policies and claims
thereunder (other than the proceeds of any claims which relate to the Acquired
Assets), and the other assets listed on Schedule 1.1 (collectively, the
"Excluded Assets"). The Acquired Assets shall be sold and transferred to
Purchaser free and clear of all liens, pledges, mortgages, charges, burdens,
options or other rights to acquire the same, security interests, easements,
restrictive covenants and other restrictions on use, adverse claims, or other
encumbrances of any character whatsoever ("Encumbrances"), other than Permitted
Encumbrances (hereinafter defined).
1.2 Purchase Price; Assumed Liabilities, Etc.
(a) In consideration for the sale of the Acquired Assets to the
Purchaser, and in consideration of the other agreements related thereto or
entered into in connection therewith, the Purchaser hereby agrees (a) to pay to
Seller the sum of (i) $18,000,000, plus (ii) $6.00 for each $1.00 that Seller's
EBITDA (hereinafter defined) for the year ended December 31, 1997 is greater
than $3.0 million; provided that such increase in the Purchase Price pursuant
to this clause (ii) shall not exceed $1,500,000, minus (iii) $6.00 for each
$1.00 that Seller's EBITDA for the year ended December 31, 1997 is less than
$3.0 million; provided that such decrease in the Purchase Price pursuant to
this clause (iii) shall not exceed $1,500,000, minus (iv) the principal amount
of capital lease obligations relating to Acquired Assets as of the Closing
Date, minus (v) the excess, if any, of the "projected benefit obligation" (as
defined in FASB 87) over the current value of the plan assets, determined with
respect to the Union Pension Plan (hereinafter defined) as of the Closing Date
in accordance with FASB 87, plus (vi) Net Working Capital (hereinafter defined)
as of the Closing Date minus the average Net Working Capital of Seller as of
the end of each of the 13 months from December 1996 through December 1997;
provided, however, that if such calculation under this clause (vi) results in a
negative number, the Purchase Price shall be reduced by such amount, plus (vii)
the amount equal to the actual cost expended to purchase and install the
Critical Expenditures (hereinafter defined) to the extent expended and
completed prior to the Closing; provided that such amount shall not exceed
$900,000 (the sum of clauses (i) through (vii) being referred to herein as the
"Purchase Price"); and (b) to assume at the Closing the payment, performance
and discharge of the Assumed Liabilities, as defined below. Subject to the
provisions of the last sentence of this subparagraph (a), the amount to be paid
at Closing (the "Closing Payment") shall be based on an estimate of the
Purchase Price, provided that, for the purpose of such estimate, clauses (ii)
and (iii) shall not be taken into account. Such Purchase Price estimate shall
be made in accordance with Section 1.2(b). The Closing Payment shall be
payable in cash or immediately available funds to an account designated by
Seller at least two business days prior to Closing; provided, however, that a
portion of the Closing Payment equal to the "Indemnification Fund" (as defined
in Section 1.3 hereof) will be paid by Purchaser into escrow and applied as
described in Section 1.3 hereof. At the election of Seller, and if agreeable
to Purchaser, the Purchase Price may be paid in the form of an installment note
on terms mutually satisfactory to Seller and Purchaser.
<PAGE> 3
(b) In order to facilitate the Closing, Seller shall prepare
and deliver to Purchaser, at least ten business days prior to the Closing Date,
a statement (an "Estimate Statement") showing the amount reasonably estimated
by Seller, in good faith, to be the Closing Payment, together with the
calculations made to arrive at such estimated Closing Payment. Prior to
Closing, Seller shall provide Purchaser (or any auditor designated by
Purchaser) with copies of or reasonable access to such books and records as are
reasonably necessary for purposes of verifying the amounts set forth in the
Estimate Statement, including (but not limited to) Seller's preliminary
financial statements for the year ended December 31, 1997. Seller and
Purchaser agree to work together in good faith to resolve on or before the
Closing Date any disagreement with respect to any matter set forth in the
Estimate Statement. The Closing Payment amount paid by Purchaser at Closing
shall be based on the Estimate Statement agreed to by Purchaser and shall be
adjusted post-Closing pursuant to Section 1.6 hereof.
(c) For purposes hereof, "EBITDA" shall mean earnings before
interest, income taxes, depreciation and amortization expense and before
management fees. Interest expense shall only include financing costs directly
associated with contracts or other agreements related to borrowed money,
including, but not limited to, capital lease obligations.
(d) For purposes hereof, "Net Working Capital" shall mean an amount
equal to the value of Seller's inventories measured at the lower of cost or
market (net of reserves for excess quantities and obsolescence in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved ("GAAP")), plus the accounts receivable (net of an
allowance for uncollectible accounts established in accordance with GAAP), plus
prepaid expenses, deposits, and other current tangible assets, minus the
accounts payable and accrued liabilities which relate solely to the Business
and which were incurred in the ordinary course of the Business consistent with
past practice (other than accounts payable or accrued liabilities relating to
the payment of salary or severance or provision of benefits with respect to the
employment by Seller of any employee or independent contractor of Seller or of
any former employee of Seller).
(e) For purposes hereof, "Critical Expenditures" shall mean (i)
the tilt up brace equipment and components identified on Schedule 1.2A
purchased by Seller for an aggregate cost of $681,956, which Purchaser has
approved as of the date hereof, and (ii) the tooling, the computer equipment,
the software and the leasehold improvements also listed on Schedule 1.2A but
only if and to the extent that Purchaser hereafter approves of such
expenditures.
(f) "Assumed Liabilities" means (i) accounts payable and accrued
liabilities recorded in Seller's financial statements as of the Closing Date
relating solely to the Business and incurred in the ordinary course of the
Business consistent with past practice and which are taken into account in the
<PAGE> 4
calculation of Net Working Capital as of the Closing Date, (ii) the specific
liabilities of Seller under the distributorship and dealer agreements listed on
Schedule 1.2F hereof, including those agreements with Whitecap Industries,
Inc., to the extent such obligations accrue following the Closing Date and
(iii) the specific liabilities of Seller under the contracts, purchase
commitments, sales orders and arrangements listed on Schedule 1.2F hereof to
the extent such obligations accrue following the Closing Date, and any other
liabilities which Purchaser otherwise agrees to assume; provided, however, that
"Assumed Liabilities" shall not include any liabilities for which (A)
assumption by Purchaser would be prohibited under the terms of such contracts
or arrangements or (B) the terms of such contracts or arrangements are not
individually the same or better than the terms of such contracts or
arrangements existing as of November 18, 1997, unless the changes to such terms
were approved in advance by Purchaser. Purchaser does not and shall not agree
to pay, assume, perform, or discharge any of Seller's debts, obligations, or
liabilities (whether known or unknown, direct or indirect, absolute or
contingent, matured or unmatured, or otherwise), whether the same currently
exist or come to exist in the future, except the Assumed Liabilities.
Notwithstanding the foregoing and except as provided for in Sections 3.2.3 and
3.2.4, Purchaser shall assume no liability or obligation with respect to the
payment of salary or severance or provision of benefits, including but not
limited to the benefits payable under any Employee Benefit Plan (hereinafter
defined) with respect to the employment by Seller of any employee or
independent contractor of Seller or of any former employee of Seller, and any
liabilities or obligations of the Seller arising out of or resulting from any
Employee Benefit Plan or any other employee benefit agreement, arrangement,
understanding, program or practice, including any liabilities or obligations
arising under section 4980B of the Internal Revenue Code of 1986, as amended
(the "Code"). Seller shall be responsible for compliance with the COBRA notice
and continuation coverage requirements under Part 6 of Title I of the
Employment Retirement Income Security Act of 1974, as amended ("ERISA"), with
respect to all employees (and their beneficiaries) experiencing a qualifying
event (as defined in Section 603 of ERISA) on account of the transactions
contemplated by this Agreement or occurring prior to the Closing.
Additionally, without limiting the foregoing, Assumed Liabilities shall not
include any of (a) Seller's liabilities for borrowed money or for interest on
such borrowed money, (b) Seller's liabilities or obligations for federal, state
or local income taxes, (c) Seller's liabilities or obligations under contracts
relating to Seller's equity or Seller's equityholders, (d) Seller's
liabilities or obligations with respect to goods and services received by
Seller prior to the Closing Date which were not included in Seller's recorded
balance of accounts payable and accrued expenses as of the Closing Date, (e)
Seller's liabilities or obligations with respect to any litigation or other
claims (including, but not limited to, product liability litigation or claims)
arising in connection with pre-Closing operations of the Acquired Assets or the
Business and (f) Seller's liabilities or obligations arising out of
Environmental Laws (as hereinafter defined) arising in connection with
pre-Closing operations of the Acquired Assets or the Business (including,
without limitation, any off-site disposal activities) or the Real Property or
any other real property (including previously-owned real property) owned,
leased or operated by Seller or any predecessor of Seller or any prior owner of
all or part of its business or assets (including without limitation the
Converse, Texas voluntary remediation plan described in Schedule 2.1.15B hereof
(the "Converse Remediation")).
<PAGE> 5
1.3 Indemnification Fund. To provide a fund (the "Indemnification
Fund") for certain of Seller's potential indemnification obligations hereunder,
$1,000,000 of the Closing Payment shall be delivered to an escrow agent in
Houston, Texas reasonably acceptable to the parties (the "Escrow Agent"), to be
held after the Closing Date in accordance with the terms of the Escrow
Agreement to be executed by Seller and Purchaser substantially in the form of
Exhibit A hereto (the "Escrow Agreement"), subject to any changes (reasonably
acceptable to Purchaser and Seller) which may be requested by the Escrow Agent.
The Indemnification Fund shall be held and disposed of in accordance with the
terms of the Escrow Agreement. All interest and other income on the
Indemnification Fund shall be the property of, and shall be paid to, Seller
upon final release of all funds held in escrow pursuant to the Escrow
Agreement; provided, however, that if Purchaser is entitled to any portion of
the Indemnification Fund, Purchaser shall be entitled to any interest or other
income attributable thereto.
1.4 Prorations. Utility charges, ad valorem taxes and property
taxes and personal property taxes on the Acquired Assets and rents and other
charges payable with respect to leases and other contracts assumed by Purchaser
will be prorated between Seller and Purchaser as of 12:01 a.m. on the Closing
Date. Rent for any leasehold estate also shall be prorated. Security deposits
shall be assigned to Purchaser. To the extent practicable, all such prorations
and payments will be made on the Closing Date, with the balance to be made as
soon as practicable following the Closing Date in one or more payments.
1.5 Allocation of Consideration. As used herein, the term
"Consideration" shall mean the sum of (i) the cash amounts paid by Purchaser
pursuant to Section 1.2(a), plus (ii) the Assumed Liabilities as defined in
Section 1.2(f). The parties hereto agree that the Consideration will be
allocated in accordance with a schedule to be agreed upon by the parties within
60 days following the Closing Date. Prior to the Closing, the parties will
arrive at an estimate of such allocation. All tax returns, reports and other
similar filings will be prepared and timely filed by each of Seller and
Purchaser consistently with one another with respect to the final allocation of
the Consideration and strictly in accordance with such allocation.
1.6 Post-Closing Adjustment
(a) Within 60 days after the Closing Date, Seller shall prepare
and deliver to Purchaser a statement (the "Final Statement"), setting forth
Seller's good faith determination of the difference between (x) the Purchase
Price (based on the actual amounts of the items in clauses (i) - (vii) of
Section 1.2(a)) and (y) the amount of the Closing Payment (the "Final
Adjustment Amount"). The Final Statement shall reflect, among other things, the
EBITDA for the year ended December 31, 1997 computed from Seller's 1997
Financial Statements (hereinafter defined), the Net Working Capital calculation
set forth in Section 1.2(a)(vi) and the actual cost to purchase or install the
<PAGE> 6
Critical Expenditures. During the 30-day period following delivery of the
Final Statement to Purchaser, Seller shall provide Purchaser (or any auditor
designated by Purchaser) with access during normal business hours to such
books, records, working papers or other information as is reasonably necessary
in the review of the Final Statement and the calculation of the Final
Adjustment Amount to enable Purchaser to verify the accuracy of the Final
Statement, including but not limited to the 1997 Financial Statements, the work
papers of KPMG Peat Marwick related thereto and access to authorized
representatives of KPMG Peat Marwick with respect thereto. The Final Statement
shall become final and binding upon all parties hereto on the thirty-first day
following delivery thereof (without counting such day of delivery) to Purchaser
unless the Purchaser gives written notice of disagreement with the Final
Statement (a "Notice of Disagreement") to Seller prior to such date. Any
Notice of Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted, and relate solely to the review of the Final
Statement and the calculation of the Final Adjustment Amount, including (but
not limited to) any adjustments required as a result of the audit performed by
KPMG Peat Marwick on Seller's 1997 Financial Statements.
(b) If a Notice of Disagreement is given by Purchaser in a
timely manner, then the Final Statement shall become final and binding upon all
parties hereto on the earlier of (x) the date Seller and Purchaser resolve in
writing any differences they may have with respect to all matters specified in
the Notice of Disagreement and (y) the date all disputed matters are finally
resolved in writing by the Arbitrator (as hereinafter defined). During the
30-day period following the delivery of a Notice of Disagreement, Seller and
Purchaser shall seek in good faith to resolve any differences which they may
have with respect to any matter specified in the Notice of Disagreement and
each shall provide the other with reasonable access to such books, records,
working papers or other information as is reasonably necessary in the
preparation or calculation of (i) the Final Adjustment Amount, (ii) the Final
Statement, (iii) any Notice of Disagreement or (iv) otherwise with respect to
any thereof. At the end of such 30-day period if there has been no resolution
of the matters specified in the Notice of Disagreement, Seller and Purchaser
shall submit to an arbitrator (the "Arbitrator") for review and resolution any
and all matters arising under this Section which remain in dispute. The
Arbitrator shall be the Los Angeles, California office of a nationally
recognized independent public accounting firm mutually selected by Seller and
Purchaser that is not the principal outside accounting firm for Seller or
Purchaser. If Seller and Purchaser are unable to agree upon an Arbitrator,
their respective principal outside accounting firms shall mutually select
another nationally recognized independent public accounting firm to act as
Arbitrator hereunder. The Arbitrator shall be provided with all books,
records, working papers or other information, and access to authorized
representatives of Purchaser, Seller or KPMG Peat Marwick, as is reasonably
necessary for its review and resolution of such matters in dispute. The
Arbitrator shall render a decision resolving each of the matters submitted to
the Arbitrator within 30 days following submission thereto (or as soon
thereafter as reasonably practicable). All fees and expenses of the Arbitrator
pursuant to this Agreement with respect to such dispute shall be borne by the
party who the Arbitrator determines was not the one closer in the aggregate to
being correct with respect to the matters being disputed. All determinations
made by the Arbitrator pursuant to this Section 1.6 shall be set forth in
writing and shall be final, conclusive and binding on the parties hereto and
shall not be subject to any judicial review.
<PAGE> 7
(c) Within five business days after the Final Statement
becomes final and binding upon the parties, Seller or Purchaser, as the case
may be, shall pay the Final Adjustment Amount. All payments pursuant to this
Section 1.6 shall be by wire transfer of immediately available funds to an
account designated by the recipient at least two business days prior to the
date of payment.
1.7 Uncollectible Accounts. Purchaser shall use commercially
reasonable efforts to collect the trade and other receivables of Seller that
are included in the Acquired Assets; provided, however, that Purchaser shall
not be required to threaten or institute legal proceedings or to employ a
collection agency to collect such receivables. Promptly following the
expiration of the six-month period following the Closing Date, Purchaser shall
deliver to Seller a written notice setting forth the aggregate amount of such
trade and other receivables of Seller, less the recorded allowance for
collection losses as of the Closing Date, that were not paid in full prior to
the expiration of such six-month period (the "Receivable Amount"), together
with an itemized list thereof. Seller agrees to pay the Receivable Amount to
Purchaser in cash or immediately available funds within three business days
following the delivery by Purchaser of such notice to Seller. If the
Receivable Amount is not paid within such three business day period, such amount
shall accrue interest at the prime rate per annum (as published on such
date by the Wall Street Journal in the "Money Rates" column of such
publication), for the period commencing upon the expiration of such three
business day period and ending on the date the Receivable Amount, plus accrued
interest thereon, is paid. Upon receipt of the Receivable Amount by Purchaser,
Purchaser shall assign to Seller the uncollected receivables in respect of
which the Receivable Amount was paid and shall provide such records Seller may
reasonably request from time to time in connection with its collection of such
uncollected receivables. Purchaser and Seller agree that all sums collected by
Purchaser from any customer (who is obligated with respect to both Seller's and
Purchaser's accounts receivable) after the Closing shall be applied to the
specific invoice referenced on such customer's payment or remittance; provided,
however, that if no specific invoice is referenced on such payment or
remittance and Purchaser cannot otherwise reasonably determine in good faith
the intent of such customer, Purchaser shall make a good faith inquiry of such
customer who shall instruct Purchaser as to the appropriate invoice relating to
such payment or remittance. Neither Purchaser nor Seller shall instruct any
customer to pay such party's invoices in lieu of paying the other party's
invoices.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Seller. Seller represents
and warrants to Purchaser as follows:
<PAGE>
2.1.1 Organization. Seller is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite limited liability company power and
authority to own, lease or otherwise hold the Acquired Assets owned, leased or
otherwise held by it and to carry on the Business as presently conducted by it.
Seller is in good standing and duly qualified to conduct business as a foreign
entity in every jurisdiction in which its ownership or lease of property or
conduct of the business makes such qualification necessary, except where the
failure to be so qualified (individually or in the aggregate) has not had and
would not reasonably be expected to have a Material Adverse Effect. As used
herein, the term "Material Adverse Effect" means any material adverse effect on
the operations, assets, properties or condition (financial or otherwise) of
Seller or the Business. All of the jurisdictions in which Seller is in good
standing and duly qualified to conduct business as a foreign entity are listed
on Schedule 2.1.1.
2.1.2 Authorization and Effect of Agreement. Seller has the
requisite limited liability company power and authority to execute, deliver and
perform its obligations under each of the Transaction Documents (hereinafter
defined). The execution, delivery and performance by Seller of each of the
Transaction Documents has been duly authorized by all requisite limited
liability company action. This Agreement has been duly executed and delivered
by Seller. This Agreement constitutes, and each of the other Transaction
Documents will constitute, the valid and binding obligation of Seller
enforceable against Seller in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity). As used herein,
the term "Transaction Documents" refers collectively to this Agreement, the
Bill of Sale and Assignment to be executed by Seller in the form of Exhibit B
hereto (the "Bill of Sale"), the Assumption Agreement to be executed by
Purchaser and Seller in the form of Exhibit C hereto (the "Assumption
Agreement"), the Noncompetition Agreement to be executed by Purchaser, Seller
and Arnold W. Ackerman in the form of Exhibit D (the "Noncompetition
Agreement"), the Escrow Agreement, real property deeds to be executed by Seller
with respect to the Owned Real Property (hereinafter defined) and any other
documents executed and delivered by Seller pursuant to this Agreement.
2.1.3 Conflicts. Neither the execution, delivery nor
performance by Seller of any Transaction Document will (i) violate any material
Law (hereinafter defined) applicable to Seller or any of its respective
properties, (ii) assuming the receipt of third party consents referred to in
Section 2.1.4 below, violate, conflict with, permit the cancellation or
acceleration of, or give rise to a loss of any benefit under, any material
agreement or commitment to which Seller is a party or by which any of its
properties are bound, or (iii) violate or conflict with any provision of the
limited liability company agreement or certificate of formation, each as
amended to date, of Seller. Seller has not entered into, and is not aware of,
<PAGE> 9
any agreement pursuant to which any person or entity has obtained the right to
acquire the Acquired Assets or the Business or engage in any transaction
similar to the transactions contemplated by this Agreement whereby any person
or entity can acquire all or a portion of the Acquired Assets or ownership
interests in Seller. As used herein "Law" means any domestic or foreign
statute, law, ordinance, rule, regulation, standards or guidelines.
2.1.4 Consents. Except for filings with the Federal Trade
Commission (the "FTC") and the U.S. Department of Justice pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the expiration of the applicable waiting period thereunder, and
except as listed on Schedule 2.1.4, no actions, consents, or approvals of, or
filings with, any governmental authorities or any third parties are required in
connection with the execution, delivery or performance by Seller of the
Transaction Documents.
2.1.5 Financial Statements.
(a) Seller has delivered to Purchaser true and complete copies
of unaudited consolidating balance sheets of Seller at the end of each of the
ten months from December 1996 through September 1997 and related statements of
income and cash flow for the month ended September 30, 1997 and the nine months
ended September 30, 1997, all of which, with the exception of the absence of
notes, have been prepared in accordance with GAAP. Such balance sheets fairly
present in all material respects the financial position, assets and liabilities
(whether accrued, absolute, contingent or otherwise) of Seller at the dates
indicated and such statements of income and cash flow fairly present in all
material respects the results of operations and cash flow of Seller for the
periods indicated, in each case in accordance with GAAP. Such unaudited
financial statements contain all adjustments, which are solely of a normal
recurring nature, necessary to present fairly in all material respects the
financial position and results at the dates and for the periods then ended. As
used herein, the term "Balance Sheet" refers to the unaudited balance sheet of
Seller at September 30, 1997 and the term "Balance Sheet Date" refers to
September 30, 1997.
(b) Seller shall deliver to Purchaser true and complete copies
of monthly balance sheets, statements of income, cash flow and changes in
members equity as soon as they are available. Upon delivery thereof, such
balance sheet will fairly present in all material respects the financial
position, assets and liabilities (whether accrued, absolute, contingent or
otherwise) of Seller at the date indicated and such statements of income, cash
flow and changes in members equity will fairly present in all material respects
the results of operations, cash flow and changes in members equity of Seller
for the period indicated.
(c) All of the financial statements referred to in this Section
2.1.5 are sometimes referred to herein collectively as the "Financial
Statements." The Financial Statements have been prepared in accordance with the
books and records and accounting methods of Seller. Since December 31, 1996,
there has been no material change in any financial reporting or accounting
methods, practices or policies or in any method of calculating any bad debt,
contingency or other reserve for financial reporting purposes or for any other
accounting purposes.
<PAGE> 10
2.1.6 Absence of Certain Changes and Events. Except as set
forth on Schedule 2.1.6, since December 31, 1996, Seller has not conducted the
Business other than in the ordinary course, consistent with Seller's past
practice. Except as set forth on Schedule 2.1.6, since December 31, 1996,
there has not been any material adverse change in the Business or the financial
condition or results of operations of the Business.
2.1.7 Inventory. All inventory of Seller reflected on the
Balance Sheet and all inventory of Seller included in the Acquired Assets was
acquired and has been obtained in the ordinary course of the Business and
consistent with Seller's past practice; is of good and merchantable quality;
consists of a quality, quantity and condition usable or saleable in the
ordinary course of the Business. Except as indicated in Schedule 2.1.7, Seller
is not under any obligation with respect to returns or allowances relating to
any goods in the possession of wholesalers, retailers or other customers.
Seller has no obsolete inventory in excess of its recorded reserve for such
obsolescence as of the Closing Date.
2.1.8 Real Property.
(a) All of the real property owned by Seller and included in the
Acquired Assets (the "Owned Real Property") is listed, along with a legal
description of each parcel of such Owned Real Property and copies of all title
insurance policies issued to Seller or in Seller's possession relating thereto,
on Schedule 2.1.8A. Except as set forth in Schedule 2.1.8A, Seller owns, and
upon the Closing Purchaser will own, good, marketable and indefeasible fee
simple title to the Owned Real Property, free and clear of all Encumbrances,
other than Permitted Encumbrances (hereinafter defined). There are no leases
or other agreements granting to any other party the right to occupy or use any
of the Owned Real Property. Schedule 2.1.8B sets forth a true and complete
list of each lease or other agreement (the "Real Property Leases") under which
Seller leases, or otherwise occupies or uses any real property (other than
Owned Real Property) included in the Acquired Assets (the "Leased Real
Property" and together with the Owned Real Property, the "Real Property") and
copies of all title insurance policies issued to Seller or in Seller's
possession relating thereto. Seller has, and upon the Closing, Purchaser will
have, valid and enforceable leasehold interests in the Leased Real Property,
free and clear of all Encumbrances, other than Permitted Encumbrances. As used
in this Agreement, "Permitted Encumbrances" means liens for ad valorem taxes
and assessments not yet due and payable, mechanics liens incurred in the
ordinary course of the Business consistent with past practice, and other minor
encumbrances which do not and will not, in any material respect, adversely
affect the transferability, use or value of the Real Property as it is
currently being used in connection with the Business.
<PAGE> 11
(b) Except as set forth on Schedule 2.1.8C, the Real Property
constitutes all real property used in connection with the Business. Except as
set forth in Schedule 2.1.8C, the Real Property, any improvements thereon, and
the use by Seller thereof conform, in all material respects, to (i) all
applicable Laws, including but not limited to zoning requirements and the
Americans With Disabilities Act, and (ii) all restrictive covenants, if any.
There are no eminent domain proceedings pending, or to Seller's knowledge,
threatened against the Real Property. The Real Property has adequate ingress
or egress to public streets and highways. All real estate taxes, assessments
and use charges pertaining to the Owned Real Property that have become due have
been paid in full.
(c) The Real Property is connected to and is served by water,
solid waste and sewage disposal, drainage, telephone, gas, electricity and
other utility equipment facilities and services necessary for the operation or
use of the Real Property or to Seller's knowledge required by law . Such
facilities and services are adequate for the present use and operation of the
Real Property on a fully occupied basis, and are installed and connected
pursuant to valid permits and are in material compliance with all governmental
regulations. To Seller's knowledge, no fact or condition exists which would
result in the termination or impairment in the furnishing of utility services
to the Real Property. With respect to the prior three sentences, Seller has
not received any written notice to the contrary.
(d) To Seller's knowledge, all material improvements (i) have
been constructed in a good and workmanlike manner, free from defects in
workmanship and material; and (ii) have been constructed, occupied, maintained
and operated in material compliance with all applicable Laws, insurance
requirements, contracts, leases, permits, licenses, ordinances, restrictions,
building set-back lines, covenants, reservations, and easements, and Seller has
received no notice, written or verbal, claiming any material violation of any
of the same or requesting or requiring the performance of any material repairs,
alterations or other work in order to so comply. The heating, air
conditioning, plumbing, ventilating, utility, sprinkler and other mechanical
and electrical systems, apparatus and appliances located on the Real Property
or in the improvements are in good operating condition.
(e) The Real Property has not been materially damaged by fire
or other casualty except for such damage which has been fully repaired and
restored prior to the date of this Agreement.
(f) Except as set forth in Schedule 2.1.8D, there has not been
(i) any threatened cancellation of any Real Property Leases, (ii) any
outstanding disputes, of a material nature, under any Real Property Leases or
(iii) to Seller's knowledge, any bases for any claim of breach or default
thereunder. Seller has no reason to believe that any of the Real Property
Leases that are renewable will not be renewed by the other party on reasonable
terms.
<PAGE> 12
(g) Except as set forth in Schedule 2.1.8E, the improvements on
the Real Property are in reasonable condition and are not in need of major
repair or renovation.
2.1.9 Physical Assets and Properties.
(a) Set forth on Schedule 2.1.9A is a listing of all physical
assets and properties, other than Real Property, owned by Seller as of the date
hereof and included in the Acquired Assets. Seller has (and, upon the Closing
Purchaser will have) good title to all tangible assets and properties, whether
personal or mixed, purported to be owned by Seller and included in the Acquired
Assets (the "Owned Tangible Property"), free and clear of all Encumbrances,
other than Permitted Encumbrances. Schedule 2.1.9B sets forth a true and
complete list and brief description of each lease or other agreement under
which Seller leases, licenses, holds, or operates any item of physical
property, other than the Owned Tangible Property, that is included in the
Acquired Assets (such leased tangible property being referred to herein as the
"Leased Tangible Property"). Seller has valid and enforceable leasehold
interests in the Leased Tangible Property, free and clear of all Encumbrances,
other than Permitted Encumbrances.
(b) Except as set forth on Schedule 2.1.9B, the Owned Tangible
Property and Leased Tangible Property, taken as a whole, and each material item
of Owned Tangible Property and Leased Tangible Property, is in good condition
and repair (normal wear and tear excepted), is fit for the purposes for which
it was intended to be used, is sufficient and adequate to carry on the Business
as now conducted, and complies in all material respects with all applicable
material Laws.
2.1.10 Intangible Assets and Properties. Set forth on Schedule
2.1.10A is a true and complete listing of all intangible assets and properties,
including, without limitation, all patents, copyrights, trademarks and service
marks, owned by Seller as of the date hereof (the "Owned Intangible
Properties"). Set forth on Schedule 2.1.10B is a true and complete listing of
all intangible assets and properties, including, without limitation, all
patents, copyrights, trademarks and service marks, which Seller licenses from
third parties (the "Licensed Intangible Properties"). The Owned Intangible
Properties and the Licensed Intangible Properties constitute all intangible
assets and properties used in connection with the operation of the Business.
Except as disclosed on Schedule 2.1.10A, Seller has (and, as of the Closing,
Purchaser will have) good and marketable title to the Owned Intangible
Properties, free and clear of all Encumbrances. Except as disclosed on
Schedule 2.1.10B, Seller has (and, as of the Closing, Purchaser will have), in
all material respects, the valid and enforceable right to use the Licensed
Intangible Properties in the manner the Licensed Intangible Properties are used
in connection with the Business as currently conducted, without the requirement
for any payment therefor and free and clear of all Encumbrances. The operations
of the Business do not, in any material respect, infringe on the intellectual
property rights of any other person or entity.
<PAGE> 13
2.1.11 Contracts. Set forth on Schedule 2.1.11 is a list of
each agreement (whether written or oral), arrangement, commitment, guarantee,
or other instrument to which Seller is a party or by which Seller or its assets
or the Business may be bound or affected that is included in the Acquired
Assets; provided, however, Seller shall not be required to list the leases or
other agreements relating to the Leased Real Property and the Leased Tangible
Property as set forth on Schedules 2.1.8B and 2.1.9B, respectively. All such
agreements, arrangements, commitments, guarantees and other instruments are
legal, valid and binding obligations of Seller, and to Seller's knowledge, of
the other parties thereto, enforceable in accordance with their terms; all
payments required to be made thereunder have been made by the parties required
to do so, except to the extent that any payments are being contested in good
faith and are listed as such on Schedule 2.1.11; and no defenses, offsets or
counterclaims thereto have been asserted in writing, or, to Seller's knowledge,
may be made by any party thereto other than Seller, nor has Seller waived any
substantial rights thereunder.
2.1.12 Contract Defaults. Except as disclosed on Schedule
2.1.12, Seller has not, since January 1, 1997, received written notice of any
default, and Seller is not in default, under any material agreement,
arrangement, commitment, guarantee or other instrument relating to, binding, or
affecting Seller or the assets used in the conduct of the Business to which
Seller is a party or by which Seller or such assets, Business, or operations
may be bound or affected, and there has not occurred any event which, with the
lapse of time or giving of notice, or both, would constitute a default under
any such material agreement. Except as set forth on Schedule 2.1.12, there has
not been (i) any threatened cancellation of any contract set forth on Schedule
2.1.11, (ii) any outstanding dispute under such contracts listed on Schedule
2.1.11 or (iii) to Seller's knowledge, any bases for any claim of breach or
default thereunder. Subject to the receipt of any consents listed on Schedule
2.1.4, the execution, delivery and performance of this Agreement will not
entitle any other party to a contract specified on Schedule 2.1.11 to cancel,
suspend or terminate such contract or cause a diminution of Seller's rights
thereunder. Except as set forth on Schedule 2.1.11, in the case of any such
contracts (specified on Schedule 2.1.11) which Seller was not an original
party, Seller's rights thereunder have been duly assigned to Seller by written
instrument, and where required, such assignment has been consented to in
writing by the other party or parties thereto, and Seller has furnished
Purchaser with true and complete copies of all such assignments and consents.
Seller has no reason to believe that any of the contracts specified on Schedule
2.1.11 that are renewable will not be renewed by the other party on reasonable
terms.
2.1.13 Sufficiency of Acquired Assets. Except as set forth on
Schedule 2.13, the Acquired Assets constitute all properties and assets used by
Seller in the conduct of the Business as currently conducted.
<PAGE> 14
2.1.14 Compliance With Laws. Except as set forth in Schedule
2.1.14, Seller is not in violation of, in any material respect, nor, since
November 20, 1996, has Seller, or to Seller's knowledge since January 1, 1996
has Seller (or any predecessor of Seller), received any written notice of any
alleged violation of, any Law in the conduct of the Business. Seller is not in
default of or in violation with respect to any judgment, order, injunction or
decree of any court, administrative agency or other governmental authority.
2.1.15 Environmental Matters.
(a) Except as set forth in Schedule 2.1.15A, Seller has not
received notice alleging violation of any applicable federal, state, or local
statutes, codes, rules, regulations, licenses or permits relating to the
environment, natural resources or public or employee health or safety
("Environmental Laws") and none of the Real Property is in violation of any
applicable Environmental Laws, to the extent that any violation of the
Environmental Laws would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(b) Except as set forth on Schedule 2.1.15B, there are no facts
or circumstances or conditions known to Seller relating to, arising from,
associated with or attributable to the Real Property or the facilities or
operations thereon that will give rise to an environmental claim, an
obligation, current or contingent, to clean up or remediate contamination or
result in Environmental Costs and Liabilities. "Environmental Costs and
Liabilities" shall mean any and all losses, liabilities, obligations, damages,
fines, penalties, judgments, actions, claims, costs and expenses (including
fees, disbursements and expenses of legal counsel, experts, engineers and
consultants and the costs of investigation and feasibility studies, remedial or
removal actions and cleanup activities) arising from or under any Environmental
Law now in effect, order or agreement now in effect with any governmental
authority or other person in connection with any action or inaction by Seller
prior to the Closing.
(c) Except as set forth on Schedule 2.1.15C, (i) there is no
asbestos contained in or forming a part of any building, building component,
structure or office space included in the Real Property, (ii) no
polychlorinated biphenyls or related compounds are used or stored on any Real
Property, (iii) there are no underground storage tanks or surface impoundments
located on, under or at any Real Property; and (iv) except in compliance with
Environmental Laws, Seller in operating the Business, has not generated,
stored, treated or disposed of any Hazardous Wastes (as defined under 40 C.F.R.
Parts 260-270 or analogous state law) nor, to the knowledge of Seller, has any
predecessor done so on any Real Property.
(d) Except as disclosed on Schedule 2.1.15D, none of the
operations of the Business is subject to any judicial or administrative civil
or criminal proceeding (including potentially responsible party notices or
information requests issued pursuant to the federal Superfund law or any
analogs pursuant to Environmental Laws) nor, to the knowledge of Seller, has
such a proceeding been threatened.
<PAGE> 15
(e) Without limiting the generality or effect of the foregoing
subsections, Schedule 2.1.15E contains a true and correct list of (i) all
on-site and off-site locations where Seller or, to the knowledge of Seller, any
predecessor or affiliate thereof has stored, disposed or arranged for the
disposal of any hazardous wastes relating to the Business, including all
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products, and (ii) all material permits, variances, authorizations
or approvals issued to Seller and necessary for the continued operation of the
Business.
2.1.16 Insurance. The assets, properties and operations of Seller
are insured under various policies of general liability and other forms of
insurance listed on Schedule 2.1.16, which policies are, in full force and
effect on the date hereof, valid and enforceable in accordance with their
terms.
2.1.17 Litigation; Decrees. Except as disclosed on Schedule
2.1.17, there are no lawsuits, claims or administrative or other proceedings or
investigations pending or, to Seller's knowledge, threatened by, against or
affecting Seller and relating to the Acquired Assets, the Business, this
Agreement or the transactions contemplated hereby. Seller is not a party to or
subject to the provisions of any judgment, order, writ, injunction, decree or
award of any court, arbitrator or governmental or regulatory official, body or
authority relating to the Acquired Assets or the Business.
2.1.18 Employee Matters.
(a) Schedule 2.1.18 sets forth each "employee benefit plan,
"as defined in section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and all other employee compensation and benefit
arrangements or payroll practices, including, without limitation, all severance
pay, sick leave, vacation pay, salary continuation for disability, consulting
or other compensation agreements, retirement, deferred compensation, bonus,
long-term incentive, stock option, stock purchase, hospitalization, medical
insurance, life insurance, and scholarship plans or programs maintained by the
Seller or any trade or business (whether or not incorporated) which is under
common control, or which is treated as a single employer, with the Seller under
section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which the
Seller or an ERISA Affiliate has contributed or is obligated to contribute (all
such plans or arrangements being hereinafter referred to as the "Employee
Benefit Plans") on account of any person presently employed by Seller (an
"Employee") or formerly so employed by Seller (a "Former Employee"), or under
which any Employee or Former Employee participates or has accrued any rights.
The terms Employee and Former Employee will include, where applicable, the
beneficiaries and dependents of an Employee or Former Employee. Except as
disclosed on Schedule 2.1.18, neither the Seller nor any ERISA Affiliate has
ever contributed to any plan subject to section 413 of the Code or to any
multiple employer welfare arrangement, as defined in section 3(40) of ERISA.
The Seller has no commitment or obligation to establish or adopt any new or
additional Employee Benefit Plans or to materially increase the benefits under
any existing Employee Benefit Plan.
<PAGE> 16
(b) The Seller will promptly deliver to Purchaser (i) a true,
correct, and complete copy of each Employee Benefit Plan, including copies of
all amendments, or, in the case of any unwritten Employee Benefit Plan,
descriptions thereof. Seller will also promptly deliver to Purchaser (i) a
copy of the determination letter with respect to the Burke Chemicals Pension
Plan for Members of the Oil, Chemical & Atomic Workers International Union
AFL-CIO, Long Beach Local 1-128 (the "Union Pension Plan") and The Burke Group
L.L.C. 401(k) Plan and Trust (the "Burke 401(k) Plan"); (ii) copies of the most
recent Form 5500 filed with the Service with respect to the Union Pension Plan
and the Burke 401(k) Plan; (iii) the most recent summary plan description for
the Union Pension Plan and the Burke 401(k) Plan and any summaries of material
modifications; and (iv) copies of the trust agreements and any insurance or
annuity contracts relating to the Union Pension Plan or the Burke 401(k) Plan.
(c) Each of the Union Pension Plan and the Burke 401(k) Plan has
been maintained and administered in compliance with its terms and with
applicable law. Each of the Union Pension Plan and the Burke 401(k) Plan is
intended to qualify under section 401 of the Code and the trust maintained
pursuant to each such plan is intended to be exempt from federal
determination letter from the Internal Revenue Service to the effect that each
of the Union Pension Plan and the Burke 401(k) Plan and the respective trusts
are so qualified and exempt. Neither of the determination letters has been
revoked, and to the knowledge of the Seller, revocation has not been
threatened. Nothing has occurred with respect to the operation of the Union
Pension Plan or the Burke 401(k) Plan that could reasonably be expected to
cause such revocation. Neither the Union Pension Plan nor the Burke 401(k)
Plan has been amended since the effective date of each respective determination
letter in any respect that might adversely affect its qualification, increase
its cost or require security under section 307 of ERISA.
(d) With respect to the Union Pension Plan and the Burke 401(k)
Plan, to the best of Seller's knowledge, there are no investigations by any
governmental agency, termination proceedings or other claims (except for claims
for benefits payable in the normal operation), suits or proceedings against or
involving the Union Pension Plan or the Burke 401(k) Plan or asserting any
rights or claims to benefits under the Union Pension Plan or the Burke 401(k)
Plan that could give rise to any liability.
(e) All contributions to, and payments from, the Union Pension
Plan and the Burke 401(k) Plan that have been required to be made in
accordance with the terms of such plans, any applicable collective bargaining
agreement, and section 302 of ERISA or section 412 of the Code have been timely
made. There has been no application for or waiver of the minimum funding
standards of section 412 of the Code with respect to the Union Pension Plan.
The Union Pension Plan does not have an "accumulated funding deficiency" within
the meaning of section 412(a) of the Code as of the end of the most recently
completed plan year.
<PAGE> 17
(f) With respect to each of the Union Pension Plan and the Burke
401(k) Plan: (1) no "prohibited transaction" (as defined in section 4975 of
the Code or section 406 of ERISA) has occurred that involves the respective
assets of such plans, which is not exempt under section 408 of ERISA and 4975
of the Code, and with respect to which there is a reasonable likelihood of a
material liability to the Purchaser; (2) neither the Union Pension Plan nor the
Burke 401(k) Plan has been terminated nor has either been the subject of a
"reportable event" (as defined in section 4043 of ERISA and the regulations
promulgated thereunder) other than a reportable event with respect to which the
30-day notice requirement has been waived or which may result from the
consummation of the transactions contemplated by the Agreement; and (3) neither
the Seller nor any trustee, administrator or other fiduciary of the Union
Pension Plan or the Burke 401(k) Plan or any agent of any of the foregoing has
engaged in any transaction or acted in a manner that could, or failed to act so
as to, subject the Seller or the Purchaser or any trustee, administrator or
other fiduciary to any material liability for breach of fiduciary duty under
ERISA or any other applicable law.
(g) With respect to the Union Pension Plan, all premium payments
due to the Pension Benefit Guaranty Corporation pursuant to ERISA section 4007
prior to the date hereof have been timely paid.
(h) The Seller has provided Purchaser with a copy of the most
recent actuarial report for the Union Pension Plan, prepared as of August 1,
1997, and with a study from the Union Pension Plan's actuary regarding such
plan's funded status on a termination basis, as of January 15, 1997. The
information supplied to the actuary by Seller for use in preparing these
valuations was complete and accurate and Seller has no reason to believe that
the conclusions expressed therein are incorrect.
(i) No Employee or Former Employee of the Seller will be
entitled to any additional benefit or any acceleration of the time of payment
or vesting of any benefit under any of the Employee Benefit Plans set forth on
Schedule 2.1.18 as a result of the transaction contemplated by this Agreement.
(j) Notwithstanding anything to the contrary in this Agreement,
on the Closing Date, the Seller will provide the Purchaser with copies of all
records for any Employee or Former Employee that will be required to administer
the Union Pension Plan and warrants and represents that such records are
complete and accurate in all material respects. The Seller agrees to
reasonably cooperate with the Purchaser in the event that an Employee or Former
Employee challenges the accuracy of any record provided pursuant to this
Section in the course of a claim for benefits under the Union Pension Plan.
<PAGE> 18
(k) Seller complies with the applicable requirements of Section
4980B of the Code with respect to each plan that it maintains, contributes to
or is required to maintain or contribute to for the benefit of any present or
former employees or their beneficiaries that is a group health plan as such
term is defined in Section 5000(b)(1) of the Code.
2.1.19 Labor Matters. Except as listed and described on
Schedule 2.1.18 and Schedule 2.1.19, with respect to Employees and Former
Employees, (i) Seller has no written personnel policy applicable to such
Employees, (ii) since November 20, 1996 and, to Seller's knowledge, since
January 1, 1995, Seller (or any predecessor of Seller) is and has been, in all
material respects, in compliance with all applicable Laws regarding employment
and employment practices, terms and conditions of employment, wages and hours,
occupational safety and health and workers' compensation and is not engaged in
any unfair labor practices, (iii) Seller has no grievances pending or, to
Seller's knowledge, threatened against it and (iv) Seller has no charges or
complaints pending or, to Seller's knowledge, threatened against it before the
National Labor Relations Board, the Equal Employment Opportunity Commission or
any other federal, state or local agency responsible for the prevention of
unlawful employment practices. There is no labor strike, slowdown, work
stoppage or lockout actually pending or, to Seller's knowledge, threatened
against or affecting the Business. Except as described on Schedule 2.1.19,
Seller is not a party to any collective bargaining agreement, no such agreement
determines the terms and conditions of any Employee or Former Employee, and no
collective bargaining agent has been certified as a representative of any of
the Employees or Former Employees. Except as described on Schedule 2.1.19, to
Seller's knowledge, no union organizational campaign is currently pending with
respect to any of the Employees or Former Employees.
2.1.20 Customers and Suppliers. Schedule 2.1.20 sets forth a true
and complete list of (i) the 10 largest customers of the Business based on
revenues during the ten months ended October 31, 1997, respectively, showing
the approximate total sales by Seller with respect to the Business to each such
customer during the ten months ended October 31, 1997 and (ii) the 10 largest
suppliers of the Business based on Seller's purchases during the ten months
ended October 31, 1997 showing the approximate total purchases by Seller with
respect to the Business from each such supplier during the ten months ended
October 31, 1997. Except as described on Schedule 2.1.20, since January 1,
1997, no customer or supplier listed on Schedule 2.1.20 has informed Seller
that it will materially change its business relationship with Seller and to
Seller's knowledge there are not any circumstances which are likely to cause
such a material change. Except as described on Schedule 2.1.20, Seller has no
reason to believe that, following the Closing, any particular customer or
supplier will fail to do business with Purchaser substantially as such customer
or supplier currently does business with Seller.
2.1.21 Warranty and Product Liability Claims. Except as set
forth on Schedule 2.1.21, Seller has not made any express warranties or
guarantees with respect to any products manufactured or sold or services
<PAGE> 19
rendered in the operation of the Business. Except as described on Schedule
2.1.21, no claims have been asserted since November 20, 1996 that any product
of Seller, or to Seller's knowledge during the past two years that any product
of Seller (or any predecessor of Seller), was defective or caused any injury or
harm to any person, including all such claims and allegations relating to
returns, express or implied warranty violations, failure to warn or similar
matters. To Seller's knowledge, no basis exists for any person to make any
such claim, except as described on Schedule 2.1.21.
2.1.22 Licenses, Permits, Etc. Schedule 2.1.22 sets forth all
material governmental licenses, franchises, permits and other authorizations
held by Seller (other than those listed on Schedule 2.1.15). To the extent
transferable, all such governmental licenses, franchises, permits and other
authorizations (including those listed on Schedule 2.1.15) will be assigned to
Purchaser at the Closing. Such government licenses, franchises, permits and
other authorizations constitute all material government licenses, franchises,
permits and other authorizations necessary in the conduct of the Business.
2.1.23 Employees and Consultants. Seller has supplied Purchaser
with a true and complete list of each person employed by Seller and the total
current compensation and benefits of each such person. Schedule 2.1.23 sets
forth a true and complete list of all employment agreements between Seller and
any Employee. Schedule 2.1.23 also sets forth a true and complete list of all
consulting, service or commission agreements to which Seller is a party or
otherwise relating to the Business.
2.1.24 Disclosure. No representation or warranty by Seller
contained in this Agreement, and no statement contained in any document
(including the Financial Statements and the schedules hereto) furnished or to
be furnished by or on behalf of Seller or any affiliate thereof to Purchaser or
any of Purchaser's representatives in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
2.1.25 Taxes and Fees. Seller has paid and discharged, or has
caused to be paid and discharged, all taxes, assessments, excises, levies and
other obligations and liabilities for which it is obligated and will pay and
discharge all such items which will have become due and payable prior to or as
of the Closing Date with respect to the Acquired Assets or the Business.
Seller has duly filed or will file, or has caused or will cause to be duly
filed, with the appropriate federal, state and local governmental agencies all
returns and reports required to be filed by Seller as of the Closing Date and
with respect to any taxable period prior to or which includes the Closing Date
(each of which fairly present or will present the information purported to be
shown and reflect or will reflect, all tax liability of Seller for the periods
in question) and Seller has paid or will pay in full (or will contest in good
faith) all taxes, interest, penalties, assessments or deficiencies, if any, due
to, or claimed to be due by, any such taxing authority in respect of the
periods for which such returns and reports were filed. All necessary payments
<PAGE> 20
required to be withheld for Seller's employees (including, without limitation,
for unemployment insurance) have been properly withheld and paid. There are no
tax liens affecting any of the Acquired Assets other than liens for current
taxes not yet due and payable.
2.1.26 Accounts Receivable. The accounts receivable of Seller
as set forth on the Balance Sheet or arising since the date thereof are valid
and genuine and have arisen solely out of bona fide sales and deliveries of
goods, performance of services and other business transactions in the ordinary
course of the Business consistent with past practices; and are not subject to
valid defenses, set-offs or counterclaims. The allowance for collection losses
on the Balance Sheet has been determined in accordance with GAAP consistent
with past practice. The Seller has no reason to believe that any accounts
receivable included in the Acquired Assets are not collectible at the full face
amount thereof in the ordinary course of the Business.
2.1.27 Interest in Competitors, Suppliers, Customers, Etc.
Except as set forth in Schedule 2.1.27, neither Seller nor any entity in which
Seller has any interest, has any direct or indirect ownership interest (other
than ownership of less than 5% of a class of equity securities of a publicly
held company) in any competitor, supplier, contractor or customer of the
Business or any property used in the operation of the Business.
2.1.28 Finders. Except for fees payable by Seller to Duff
Ackerman Goodrich & Associates, neither Seller nor any other affiliate of
Seller has made any agreement with any person or taken any action which would
cause any person to become entitled to an agent's, broker's, or finder's fee or
commission in connection with the transactions contemplated hereby.
2.1.29 Books of Account. Seller has not engaged in any
transaction, maintained any bank account or used any of the funds of Seller
except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the Business.
2.2 Representations and Warranties of Purchaser. Purchaser
represents and warrants to Seller as follows:
2.2.1 Corporate Organization. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
2.2.2 Authorization and Effect of Agreement. Purchaser has
the requisite corporate power and authority to execute, deliver and perform its
obligations under each of the Transaction Documents executed or to be executed
by Purchaser. The execution, delivery and performance by Purchaser of each of
the Transaction Documents executed or to be executed by Purchaser has been duly
authorized by all requisite corporate action. This Agreement has been duly
<PAGE> 21
executed and delivered by Purchaser. This Agreement constitutes, and each of
the other Transaction Documents to be executed by Purchaser will constitute,
the valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in a proceeding at law or in equity).
2.2.3 Conflicts. Neither the execution, delivery, nor
performance of any Transaction Document executed or to be executed by Purchaser
will (i) violate any material Law applicable to Purchaser, (ii) assuming
receipt of the third party consents referred to in Section 2.2.4, violate,
conflict with, permit the cancellation or acceleration of, or give rise to a
loss of any benefit under, any material agreement or commitment to which
Purchaser is a party or by which any of its properties are bound, or (iii)
violate or conflict with any provision of the certificate of incorporation or
bylaws, each as amended to date, of Purchaser.
2.2.4 Consents. Except for filings with the FTC and the U.S.
Department of Justice pursuant to the HSR Act, and the expiration of the
applicable waiting period thereunder, and except as listed on Schedule 2.2.4,
no actions, consents, or approvals of, or filings with, any governmental
authorities or any third parties are required in connection with the execution,
delivery or performance by Purchaser of the Transaction Documents executed or
to be executed by Purchaser.
2.2.5 Adequate Funds. Purchaser has available to it all funds
necessary to effect the purchase of the Acquired Assets in accordance with the
terms of this Agreement.
2.2.6 Disclosure. No representation or warranty by Purchaser
contained in this Agreement, and no statement contained in any document
furnished or to be furnished by or on behalf of Purchaser or any affiliate
thereof to Seller or any of Seller's representatives in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact, or omits or will omit to state any material fact necessary,
in light of the circumstances under which it was or will be made, in order to
make the statements herein or therein not misleading.
ARTICLE III
COVENANTS
3.1 Covenants of Seller. Seller covenants and agrees that, pending
the Closing and except as otherwise agreed to in writing by Purchaser:
<PAGE> 22
3.1.1 Employees and Business Relations. Seller shall use all
commercially reasonable efforts to keep available the services of the present
Employees (except normal separations of employees other than officers in the
ordinary course of the Business and consistent with past practice), agents and
consultants of the Business and to maintain the relations and goodwill with the
suppliers, customers, distributors and any others having business relations with
the Business.
3.1.2 Update Representations and Warranties. Seller shall promptly
disclose to Purchaser any information contained in its representations and
warranties herein or the schedules hereto which, because of an event occurring
after the date hereof, makes said representations and warranties or schedules
incomplete or incorrect as of any time after the date hereof until the Closing
Date; provided, however, that none of such disclosures shall be deemed to
modify, amend or supplement the representations and warranties of Seller herein
or the schedules hereto for any purposes of this Agreement, except as consented
to, in writing, by Purchaser, whose consent shall not be unreasonably withheld;
provided, however, that in no event shall Purchaser's failure to consent be
deemed to be unreasonably withheld if such disclosures would, individually or
in the aggregate, impair the value or the use of the Acquired Assets or the
Business.
3.1.3 Satisfaction of Conditions. Seller shall use all
commercially reasonable efforts to conduct the Business in such a manner that
on the Closing Date the representations and warranties of Seller contained in
this Agreement shall be true in all material respects as though such
representations and warranties were made on and as of such date. Furthermore,
Seller shall cooperate with Purchaser and use all commercially reasonable
efforts to satisfy promptly all conditions required hereby to be satisfied by
Seller in order to expedite the consummation of the transactions contemplated
hereby.
3.1.4 Sale of Acquired Assets; Negotiations. Seller shall not,
and Seller shall not cause or permit its respective affiliates, directors,
officers, employees, agents, representatives, legal counsel, and financial
advisors to, (i) solicit, initiate, accept, consider entertain or encourage the
submission of proposals or offers from any person or entity with respect to the
acquisition contemplated by this Agreement or any similar transaction wherein
such person or entity would acquire all or any portion of the Acquired Assets
or ownership interests in Seller, or any merger, consolidation, or business
combination, directly or indirectly, with or for Seller or all or substantially
all of the Business, or (ii) participate in any negotiations regarding, or,
except as required by legal process (including pursuant to discovery or
agreements existing on the date hereof), furnish to any person or entity (other
than Purchaser) information with respect to, or otherwise cooperate in any way
with, or assist or participate in, facilitate, or encourage, any effort or
attempt by any person or entity (other than Purchaser) to do or seek any of the
foregoing. Seller shall not enter into any agreement or consummate any
transactions that would interfere with the consummation of the transactions
contemplated by this Agreement. Seller shall promptly notify Purchaser if it
receives any written inquiry, proposal or offer described in this Section 3.1.4
<PAGE> 23
or any verbal inquiry, proposal or offer described in this Section 3.1.4 that
is competitive with the terms of the transactions contemplated by this
Agreement, and Seller shall inform such inquiring person or entity of the
existence of this Agreement and make such inquiring person or entity aware of
Seller's obligations under this Section 3.1.4. The notification under this
Section 3.1.4 shall include the identity of the person or entity making such
inquiry, offer, or other proposal, the terms thereof, and any other information
with respect thereto as Purchaser may reasonably request. Seller shall not
provide any confidential information concerning the Business or its properties
or assets to any third party other than in the ordinary course of the Business
and consistent with prior practice. Seller has ceased and caused to be
terminated any existing activities, discussions or negotiations with any person
or entity conducted heretofore with respect to any of the foregoing.
3.1.5 Access. Seller shall give to Purchaser's officers,
employees, counsel, accountants and other representatives free and full access
to and the right to inspect, during normal business hours and at such other
times as may be agreed upon in advance with the officers and representatives of
Seller, all of the premises, properties, assets, records, contracts and other
documents relating to the Business and shall permit them to consult with the
officers, employees, accountants, auditors, counsel and agents of Seller for
the purpose of making such investigation of the Business, as Purchaser shall
desire to make, provided that such investigation shall not unreasonably
interfere with Seller's business operations, and shall permit them to consult
with any customers or suppliers of Seller regarding the Business, provided that
such consultation shall not unreasonably interfere with Seller's or such
customer's or supplier's business operations. Furthermore, Seller shall
furnish to Purchaser all such documents and copies of documents and records and
information with respect to the affairs of the Business and copies of any
working papers relating thereto as Purchaser shall from time to time reasonably
request and shall permit Purchaser and its agents to make such physical
inventories and inspections of the Acquired Assets as Purchaser may request
from time to time.
3.1.6 Operation of the Business. Seller will (unless the prior
written consent of Purchaser is obtained):
(a) Not take or permit to be taken or do or suffer to be done
anything other than in the ordinary course of business as presently conducted,
not move from its current location, sell or otherwise dispose of any asset of
Seller relating to the Business (other than Excluded Assets and other than
inventory or equipment sold in the ordinary course of the Business and
consistent with past practice) and will use commercially reasonable efforts to
keep the Business intact.
(b) Maintain the Acquired Assets in at least as good condition
as they were being maintained as of the date hereof, normal wear and tear
excepted.
<PAGE> 24
(c) Other than for cash distributions for partner tax purposes, not
declare or pay any distribution in respect of Seller's equity interests or make
any other payment, repurchase or distribution in respect of Seller's equity
interests.
(d) Except for the Critical Expenditures, not make, or commit to
make, any capital expenditures greater than $20,000 in the aggregate.
(e) Not create or amend any Employee Benefit Plan except as
required by law.
(f) Not grant any increases in officer compensation or, except in
the ordinary course of the Business and consistent with past practice, in the
compensation of any other Employees.
(g) Not make any write-downs or write-offs of assets outside the
ordinary course of the Business consistent with past practice.
(h) Operate the Business in material compliance with all
applicable Laws.
(i) Not enter into any new contract or arrangement outside the
ordinary course of the Business, consistent with past practice, with aggregate
payments due to or from Seller of $20,000 or more or modify or terminate any
existing contract or arrangement with aggregate payments due to or from Seller
of $20,000 or more.
(j) In connection with any contract or arrangement that expires
pursuant to its terms between the date hereof and the Closing Date, not renew
such contract or arrangement or enter into new terms (the "Renewal Contract")
with respect to such contract or arrangement without the prior written consent
of Purchaser.
(k) Not take any action which materially accelerates the
collection of the accounts receivable or decelerates the payment of accounts
payable.
(l) Maintain insurance covering the Acquired Assets on a basis
consistent with past practice.
(m) Pay all debts and obligations incurred by it in the operation
of the Business in the ordinary course of the Business consistent with past
practice.
3.1.7 WARN Act Compliance. Through the Closing Date, Seller
shall take all necessary actions to comply with the Federal Workers Adjustment
and Retraining Act to the extent applicable. Purchaser shall not have any
disclosure or announcement obligations under such act with respect to any
Employees or Former Employees of Seller, and Seller shall indemnify Purchaser
and hold Purchaser harmless from any action, claim, suit, proceeding or
assertion of liability with respect thereto.
<PAGE> 25
3.1.8 Environmental Inspections. Seller agrees to cooperate
with any reasonable request of Purchaser for a site assessment or site review
concerning any environmental matter, including the making available of such
personnel of Seller as Purchaser may reasonably request, so long as such
activities do not unreasonably interfere with the conduct of Seller's business.
At the discretion of Purchaser, Purchaser may arrange, at its sole expense, for
one or more independent contractors to conduct tests of the Real Property,
including tests of air, soil (including surface and subsurface materials),
surface water and ground water, or any equipment or facilities located thereon,
in order to identify any present or past release or threatened release of any
hazardous substances. Such tests may be done at any time, or from time to
time, upon reasonable notice and under reasonable conditions, which do not
impede the performance of such tests.
3.1.9 Employees. Seller acknowledges that notwithstanding any
benefits which Purchaser may offer or provide to any Employee to whom Purchaser
has extended an offer of employment, Seller has certain obligations with
respect to Seller's Employees under Section 4980B of the Code and Section 601
et seq. of ERISA and agrees to comply with those obligations. Seller shall be
responsible for and shall cause to be discharged and satisfied in full all
amounts owed to any Employee or Former Employee, including wages, salaries,
accrued vacation, any employment, incentive, compensation or bonus agreements
or other benefits or payments on account of termination of employment prior to
Closing by Seller, and shall indemnify Purchaser and hold Purchaser harmless
from any losses thereunder.
3.1.10 1997 Financial Statements. As soon as available, but in
no event later than 15 days prior to Seller's delivery of the Final Statement
pursuant to Section 1.6 hereof, Seller shall provide to Purchaser true and
complete copies of the audited balance sheet of Seller at December 31, 1997 and
the related statements of income, cash flow and changes in members equity for
the fiscal year then ended, with an audit report thereon issued by KPMG Peat
Marwick (the "1997 Financial Statements"). Such balance sheet, including the
related notes, will, upon its delivery to Purchaser, fairly present in all
material respects the financial positions, assets and liabilities (whether
accrued, absolute, contingent or otherwise ) of Seller at the date indicated
and such statement of income, cash flow and changes in members equity will,
upon its delivery to Purchaser, fairly present in all material respects the
results of operation, cash flow and changes in members equity of Seller for the
period indicated, in each case in accordance with GAAP.
3.1.11 HSR Notification. Purchaser and Seller shall use
commercially reasonable efforts (including the filing of a request for early
termination) to obtain the early termination of the waiting period under the
HSR Act. Seller shall reimburse Purchaser for one-half of the filing fees for
Purchaser's HSR Act filing.
<PAGE> 26
3.1.12 Physical Inventory. Purchaser may conduct a physical
inventory in conjunction with Seller's year-end inventory under the supervision
of Seller and each of the parties respective accounting firms; provided,
however, that upon Purchaser's reasonable request, Seller shall permit
Purchaser to conduct additional inventory procedures (including any additional
physical inventories) at any time following Seller's year-end inventory as
Purchaser deems reasonable to update and verify such physical inventory up to
and including the Closing Date. Any adjustment to the value of the inventory
to be acquired by Purchaser (as reflected in Net Working Capital) resulting
from such physical inventory shall be reflected in the Final Adjustment Amount
in accordance with Section 1.6.
3.1.13 Environmental Matters. At the request of Purchaser,
Seller shall cooperate with Purchaser, including use of all commercially
reasonable efforts, in causing Purchaser to be added, prior to the Closing
Date, as a co-applicant to Seller's application for participation in the Texas
Natural Resource Conversation Commission's Voluntary Cleanup Program covering
the Texas Plant.
3.2 Covenants of Purchaser. Purchaser covenants and agrees that,
pending the Closing and except as otherwise agreed to in writing by Seller:
3.2.1 Closing. Purchaser will cooperate with Seller and use
commercially reasonable efforts to satisfy promptly all conditions required
hereby to be satisfied by Purchaser in order to expedite the consummation of the
transactions contemplated hereby.
3.2.2 Employees. Within 30 days following the date of this
Agreement, Purchaser will provide Seller with a list (the "Employee List") of
all Employees to whom Purchaser intends to make offers of employment.
Purchaser will offer employment as of the Closing to all Employees on such
Employee List, on terms of employment and conditions substantially similar to
those in effect immediately prior to Closing for other comparably situated
employees of Purchaser; provided, however, that nothing herein shall limit the
ability of Purchaser to change the level of compensation and other terms and
conditions of employment after the Closing Date.
3.2.3 Employee Benefits.
(a) Prior to the Closing, Seller and Purchaser will take all
action necessary so that Purchaser will, effective as of the Closing Date,
become the employer and plan sponsor of the Union Pension Plan. On or after
the Closing, Purchaser shall continue to maintain (for such period as may be
required by the applicable collective bargaining agreement) the Union Pension
Plan in accordance with its terms as in effect immediately prior to the Closing
and as may be required by the applicable collective bargaining agreement (with
such changes as may be required by law or the applicable collective bargaining
agreement).
<PAGE> 27
(b) In connection with Purchaser's assumption of the Union
Pension Plan, Seller will cause the transfer of all of the assets attributable
to the Union Pension Plan to the extent not automatically transferred in
connection with Purchaser's assumption of such plan. Purchaser shall,
effective as of the Closing Date, assume all of the liabilities and obligations
of the Seller and its Affiliates in respect of the Union Pension Plan (i)
relating to benefits accrued as of the Closing Date, (ii) for all minimum
funding obligations payable after the Closing Date and (iii) all other
obligations of a plan sponsor arising after the Closing Date and Seller and its
Affiliates shall be relieved of all such liabilities and obligations with
respect to the Union Pension Plan.
(c) Purchaser will permit Employees who are hired by Purchaser and
who are eligible to participate in Purchaser's 401(k) plan to effect a direct
rollover of their accounts in the Burke 401(k) Plan to the Purchaser's 401(k)
plan; provided that such rollover is permissible under the terms of Purchaser's
401(k) plan and the Code; provided, further that Seller shall have provided to
Purchaser such written representations and other evidence reasonably
satisfactory to Purchaser to permit Purchaser to conclude that such rollover is
permissible.
3.2.4 Collective Bargaining Agreements. Purchaser will assume
the Articles of Agreement between EDOCO, a subsidiary of The Burke Group,
L.L.C., and Oil, Chemical & Atomic Workers, International Union, AFL-CIO, Long
Beach Local 1-128, which is currently in force at the California Plant and all
of Seller's obligations thereunder arising solely after the Closing.
3.2.5 Surveys; Title Commitments. Purchaser shall use
commercially reasonable efforts to obtain the surveys and title commitments
contemplated by clauses (xvi) and (xvii) of Sections 4.2(a), respectively as
promptly as reasonably practicable.
ARTICLE IV
CLOSING
4.1 Closing. Unless this Agreement is first terminated as provided
in Section 7.1 hereof, and subject to the satisfaction or waiver of all
conditions to the consummation of the transactions contemplated hereby, the
closing of the transactions contemplated hereby (the "Closing") shall take
place at the offices of Baker & Botts, L.L.P., in Houston, Texas, beginning at
9:00 a.m. (local time) on January 30, 1998 or at such other time or on such
other date as the Purchaser and Seller shall otherwise agree. The date on
which the Closing occurs is referred to herein as the "Closing Date." The
Closing shall not be deemed to have been completed until the last of the
conditions to be satisfied pursuant to this Agreement has been satisfied or
waived.
<PAGE> 28
4.2 Conditions to Closing.
(a) The obligations of Purchaser to effect the Closing are
subject to the fulfillment, satisfaction or waiver of each of the following
conditions precedent prior to the Closing:
(i) The representations and warranties of Seller contained
in this Agreement or in any schedule, certificate or document delivered by
Seller to Purchaser pursuant to the provisions hereof shall have been true in
all material respects (except that any representations and warranties of Seller
which contain materiality qualifiers shall have been true in all respects) on
the date hereof and shall be true in all material respects (except that any
representations and warranties of Seller which contain materiality qualifiers
shall be true in all respects) on the Closing Date with the same effect as
though such representations and warranties were made as of such date.
Purchaser shall have received a certificate of Seller, dated the Closing Date,
to the effect that the conditions specified in this clause (i) have been
fulfilled.
(ii) Seller shall have performed and complied in all material
respects with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
Purchaser shall have received a certificate of Seller, dated the Closing Date
to the effect that the conditions specified in this clause (ii) have been
fulfilled.
(iii) Seller shall have executed and delivered to Purchaser
the Bill of Sale and such other instruments of conveyance, all containing a
general warranty of title, as shall in Purchaser's reasonable opinion be
necessary or appropriate to convey to Purchaser all of the Acquired Assets free
and clear of all Encumbrances, other than Permitted Encumbrances.
(iv) Seller shall have executed and delivered to Purchaser
a Limited Power of Attorney in the form of Exhibit E hereto.
(v) Seller shall have executed and delivered to Purchaser the
Escrow Agreement.
(vi) Each of Seller and Arnold W. Ackerman shall have executed
and delivered to Purchaser the Noncompetition Agreement.
(vii) All consents or approvals listed (or required to
be listed) on Schedule 2.1.4 shall have been obtained.
(viii) Purchaser shall have obtained from Seller
evidence satisfactory to Purchaser of the payment or release of any and all
Encumbrances against any of the Acquired Assets (other than Permitted
Encumbrances).
<PAGE> 29
(ix) Seller shall have (A) furnished to Purchaser (x) copies
certified by the appropriate governmental official of the State of Delaware as
of a date not more than ten (10) days prior to the Closing Date, of Seller's
certificate of formation and all amendments thereto and (y) copies, certified
by the Secretary or an Assistant Secretary of Seller, as of the Closing Date,
of Seller's Limited Liability Company Agreement; (B) furnished to Purchaser a
certificate of good standing issued with respect to Seller by the appropriate
governmental official of the State of Delaware as of a date not more than ten
(10) days prior to the Closing Date; and (C) executed and delivered all such
other documents, including a secretary's certificate relating to incumbency and
corporate proceedings, and taken all such other actions as reasonably requested
by Purchaser in connection with the consummation of the transactions
contemplated hereby.
(x) Howard Rice Nemerovski Canady Falk & Rabkin, a
Professional Corporation (and/or Texas counsel selected by Seller and
reasonably satisfactory to Purchaser), counsel for Seller, shall have delivered
to Purchaser a written opinion, dated the Closing Date, in substantially the
form of Exhibit F hereto.
(xi) No inquiry, action, claim, or proceeding which, in
the reasonable opinion of Purchaser, is material shall have been asserted,
threatened or instituted against Purchaser to restrain or prohibit the
consummation by Purchaser of the transactions contemplated by this Agreement or
to challenge the validity of such transactions or any part thereof or seeking
damages on account or as a result thereof.
(xii) No inquiry, action, claim, or proceeding which, if
determined adversely to Seller, would reasonably be expected to have a Material
Adverse Effect on the Business shall have been asserted, threatened, or
instituted.
(xiii) There shall have been no material adverse change in
the Business or the Acquired Assets since December 31, 1996.
(xiv) [Intentionally Omitted].
(xv) All filings required under the HSR Act shall have been
made and the applicable waiting period shall have expired or been earlier
terminated without the receipt of any objection or the commencement or threat
of any litigation by a governmental authority of competent jurisdiction to
restrain the consummation of the transactions contemplated by this Agreement.
(xvi) Purchaser shall have obtained, at Purchaser's expense,
to the extent necessary to obtain a clean title commitment (with no survey
exception), a survey of the real property associated with the California Plant
<PAGE> 30
that complies with the "Minimum Standard Detail Requirements for ALTA/ACSM Land
Title Surveys" jointly established and adopted by ALTA and ACSM in 1992,
including items 1, 2, 3, 5, 6, 8, 9, 10, 11 and 13 of Table A thereof, and the
Accuracy Standards (as adopted by ALTA and ACSM and in effect on the date of
the certification) of an Urban Survey, utilizing a form of survey certification
reasonably satisfactory to Purchaser.
(xvii) Purchaser shall have obtained, at Purchaser's expense,
a title insurance commitment issued by a title company that is reasonably
satisfactory to Purchaser with respect to the leasehold interest relating to
the California Plant conveyed hereunder evidencing a commitment to issue an
ALTA Leasehold Owner's title insurance policy on a form reasonably satisfactory
to Purchaser, insuring valid and enforceable leasehold interests, for such
amount as Purchaser reasonably directs subject only to Permitted Encumbrances
(xviii) Purchaser shall have received an update of Schedule
2.1.9A to reflect any changes occurring subsequent to the date of this
Agreement through and including the date immediately prior to the Closing Date.
Such update shall be marked to show the changes made from the original Schedule
2.1.9A.
(b) The obligations of Seller to effect the Closing are
subject to the fulfillment, satisfaction or waiver of each of the following
conditions precedent prior to the Closing:
(i) The representations and warranties of Purchaser
contained in this Agreement or in any schedule, certificate or document
delivered by Purchaser to Seller pursuant to the provisions hereof shall have
been true in all material respects (except that any representations and
warranties of Purchaser which contain materiality qualifiers shall have been
true in all respects) on the date hereof and shall be true in all material
respects (except that any representations and warranties of Purchaser which
contain materiality qualifiers shall be true in all respects) on the Closing
Date with the same effect as though such representations and warranties were
made as of such date. Seller shall have received a certificate of Purchaser,
dated the Closing Date, to the effect that the conditions specified in this
clause (i) have been fulfilled.
(ii) Purchaser shall have performed and complied in all
material respects with all agreements, covenants and conditions required by
this Agreement to be performed or complied with by Purchaser prior to or at the
Closing. Seller shall have received a certificate of Purchaser, dated the
Closing Date to the effect that the conditions specified in this clause (ii)
have been fulfilled.
<PAGE. 31
(iii) Purchaser shall have executed and delivered to
Seller the Assumption Agreement.
(iv) Purchaser shall have executed and delivered to Seller
the Noncompetition Agreement.
(v) No inquiry, action, claim, or proceeding which, in the
reasonable opinion of Seller, is material shall have been asserted, threatened,
or instituted against Seller to restrain or prohibit the consummation by Seller
of the transactions contemplated by this Agreement or to challenge the validity
of such transactions or any part thereof or seeking damages on account or as a
result thereof.
(vi) All filings required under the HSR Act shall have been
made and the applicable waiting period shall have expired or been earlier
terminated without the receipt of any objection or the commencement or threat
of any litigation by a governmental authority of competent jurisdiction to
restrain the consummation of the transactions contemplated by this Agreement.
(vii) All consents or approvals listed (or required to
be listed) on Schedule 2.2.4 shall have been obtained.
(viii) Baker & Botts, L.L.P., counsel for Purchaser, shall
have delivered to Seller a written opinion, dated the Closing Date, in
substantially the form of Exhibit G hereto.
ARTICLE V
SURVIVAL AND INDEMNIFICATION
5.1 Survival of Representations, Warranties and Covenants.
(a) Each of the representations and warranties contained in
this Agreement or in any document delivered in connection herewith will survive
the Closing and remain in full force and effect thereafter until the one year
anniversary of the Closing Date, regardless of any investigation at any time
made by or on behalf of Purchaser or Seller, except that the representations
and warranties set forth in Sections 2.1.8 (as to title to assets only), 2.1.9
(as to title to assets only), 2.1.10 (as to title to assets only), 2.1.15,
2.1.18 and 2.1.25 will survive the Closing and remain in full force and effect
thereafter until 30 days following the expiration of any applicable statutes of
limitation (including any extensions).
(b) Unless a specified period is set forth in this Agreement
(in which event such specified period will control), the covenants contained in
this Agreement of this Agreement will survive the Closing and remain in effect
indefinitely.
<PAGE> 32
5.2 Indemnification by Seller. Seller shall indemnify and hold
harmless each Purchaser Party (hereinafter defined) in respect of any and all
Damages (hereinafter defined) resulting from or relating to:
(a) any and all liabilities and obligations of Seller of any
nature whatsoever, except for the Assumed Liabilities;
(b) any and all actions, suits, claims, or legal, administrative,
arbitration, governmental or other proceedings or investigations against any
Purchaser Party that relate to Seller, the Business, the Acquired Assets or any
affiliate of Seller in which the principal event giving rise thereto occurred
prior to the Closing or which results from or arise out of any action or
inaction prior to the Closing of Seller, or any director, officer, employee,
agent, representative or subcontractor of Seller;
(c) nonperformance or breach of any representation or warranty
on the part of Seller under this Agreement or any other Transaction Document,
or any misrepresentation in or omission from any certificate furnished to
Purchaser pursuant hereto; or
(d) nonfulfillment of any covenant or agreement on the part of
Seller under this Agreement or any other Transaction Document.
(e) any failure of Seller or Purchaser to comply with any bulk
sales or transfer law (including the bulk sales provisions of the Uniform
Commercial Code in any jurisdiction) of any jurisdiction applicable to the sale
and transfer of the Acquired Assets contemplated hereby.
(f) subject to Section 7.2 hereof, all sales and transfer taxes
in respect of real or personal property which may be due as a result of the
sale taking place pursuant to this Agreement.
(g) All actions, suits, proceedings, demands, assessments,
judgments, reasonable attorney's fees, costs and expenses incident to any of
the foregoing.
"Purchaser Party" shall mean Purchaser, any affiliate of Purchaser, including,
without limitation, the owners of Purchaser, and any officer, director, or
employee of Purchaser or of any affiliate of Purchaser, including, without
limitation, the owners of Purchaser. "Damages" shall mean any and all damages,
liabilities, fines, fees, penalties, interest obligations, deficiencies, losses
and expenses (including but not limited to reasonable attorneys' fees and
expenses).
<PAGE> 33
5.3 Indemnification by Purchaser. Purchaser shall indemnify and
hold harmless each Seller Party (hereinafter defined) in respect of any and all
Damages resulting from or relating to:
(a) any and all Assumed Liabilities;
(b) nonperformance or breach of any representation or warranty
on the part of Purchaser under this Agreement or any other Transaction
Document, or any misrepresentation in or omission from any certificate
furnished to Seller pursuant hereto;
(c) nonfulfillment of any covenant or agreement on the part of
Purchaser under this Agreement or any other Transaction Document; or
(d) any and all actions, suits, claims, or legal, administrative,
arbitration, governmental or other proceedings or investigations against any
Seller Party (hereinafter defined) that relate to Purchaser, the Business, the
Acquired Assets or any affiliate of Purchaser which result from or arise out of
any action or inaction after the Closing of Purchaser or any director, officer,
employee, agent, representative or subcontractor of Purchaser.
(e) subject to Section 7.2 hereof, all sales and transfer taxes
in respect of real or personal property which may be due as a result of the
sale taking place pursuant to this Agreement.
(f) All actions, suits, proceedings, demands, assessments,
judgments, reasonable attorney's fees, costs and expenses incident to any of
the foregoing.
"Seller Party" shall mean Seller, any affiliate of Seller, including, without
limitation, the owners of Seller, or any officer, director, or employee of
Seller or of any affiliate of Seller, including, without limitation, the owners
of Seller.
5.4 Indemnification Procedures.
(a) If an indemnitee becomes aware of any matter that it
believes is indemnifiable pursuant to Section 5.2 or 5.3 and such matter
involves (i) any claim made against the indemnitee by any person or entity
other than a Purchaser Party or a Seller Party or (ii) the commencement of any
action, suit, investigation, arbitration, or similar proceeding against the
indemnitee by any Person other than a Purchaser Party or a Seller Party, the
indemnitee will give the indemnifying party prompt written notice of such claim
or the commencement of such action, suit, investigation, arbitration, or
similar proceeding. Such notice will (A) provide (with reasonable specificity)
the basis on which indemnification is being asserted, (B) set forth the actual
or estimated amount of Damages for which indemnification is being asserted, if
known, and (C) be accompanied by copies of all relevant pleadings, demands, and
<PAGE> 34
other papers served on the indemnitee. Failure of the indemnitee to give
prompt notice pursuant to this Section 5.4.1 shall not relieve the indemnifying
party of its obligations, except to the extent that the indemnifying party is
actually prejudiced by such failure to give prompt notice.
(b) The indemnifying party will have a period of 30 days
after the delivery of each notice required by Section 5.4.1 hereof during which
to respond to such notice. If the indemnifying party elects to defend the
claim described in such notice, the indemnifying party will be obligated to
compromise or defend (and will control the defense of) such claim, at its own
expense and by counsel chosen by the indemnifying party and reasonably
satisfactory to the indemnitee. The indemnitee will cooperate with the
indemnifying party and counsel for the indemnifying party in the defense
against any such claim, and the indemnitee will have the right to participate
at its own expense in the defense of any such claim. If the indemnifying party
does not respond within such 30-day period or responds during such 30 day
period but elects not to defend such claim, the indemnitee will be free,
without prejudice to any of the indemnitee's rights hereunder, at indemnifying
party's expense, to compromise or defend (and control the defense of) such
claim and to pursue such remedies as may be available to the indemnitee under
applicable Law.
(c) If the indemnifying party controls the defense of any claim,
any compromise or settlement of such claim will require the prior written
consent of the indemnitee, which will not be unreasonably withheld.
(d) If an indemnitee becomes aware of any matter that it
believes is indemnifiable pursuant to Section 5.2 or 5.3 other than any matter
described in Section 5.4.1 hereof, the indemnitee will give the indemnifying
party prompt written notice of such claim. Such notice will (i) provide (with
reasonable specificity) the bases for which indemnification is being asserted
and (ii) set forth the actual or estimated amount of Damages for which
indemnification is being asserted. Failure of the indemnitee to give prompt
notice pursuant to this Section 5.4.4 shall not relieve the indemnifying party
of its obligations, except to the extent that the indemnifying party is
materially prejudiced by such failure to give prompt notice. The indemnifying
party will have a period of 30 days after the delivery of each notice required
by this Section 5.4.4 during which to respond to such notice. If the
indemnifying party accepts (in writing) full responsibility for the claim
described in such notice, the actual or estimated amount of Damages reflected
in such notice will be conclusively deemed a liability that the indemnifying
party owes, and will pay (in cash) upon demand, to the indemnitee. If the
indemnifying party has disputed such claim or does not respond within such
30-day period, the indemnifying party and the indemnitee agree to proceed in
good faith to negotiate a resolution of such dispute. If all such disputes are
not resolved through negotiations within 30 days after such negotiations begin,
either the indemnifying party or the indemnitee may initiate litigation to
resolve such disputes. If the indemnifying party does not respond within 30
days after delivery of any claim notice required by this Section 5.4.4, the
indemnitee may initiate litigation to resolve such claim.
<PAGE> 35
5.5 Limitations. No claim by an indemnitee for indemnification
for the breach of a representation or warranty in this Agreement (or in any
certificate delivered pursuant hereto) may be made unless and until such
indemnitee (together with all other Purchaser Parties or Seller Parties, as the
case may be) has incurred Damages which total at least $100,000 in the
aggregate, at which time all amounts in excess of $100,000 may be recovered as
provided in this Article V. In addition, the aggregate amount of Damages which
Seller or Purchaser is obligated to indemnify and hold harmless an indemnitee
(together will all other Purchaser Parties or Seller Parties, as the case may
be) against pursuant to Section 5.2(c) hereof or Section 5.3(b) hereof,
respectively, shall be limited to $5,000,000.
5.6 Remedies Cumulative. The remedies provided herein shall be
cumulative and shall not preclude the assertion by any party hereto of any
other rights or the seeking of any other remedies against the other party
hereto.
5.7 Adjustment to Purchase Price. Seller and Purchaser agree that any
indemnity payment made to Seller or Purchaser under this Article V will be
treated by the parties on their tax returns as an adjustment to the purchase
price for the Acquired Assets.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 Payment Received. Seller and Purchaser each agrees that after
the Closing they will hold and will promptly transfer and deliver to the
appropriate party, from time to time as and when received by them, any cash,
checks with appropriate endorsements (using their best efforts not to convert
such checks into cash), or other property that they may receive on or after the
Closing which properly belongs to another party, including any insurance
proceeds, and will account to the appropriate party for all such receipts.
From and after the Closing, Purchaser shall have the right and authority to
endorse the name of Seller (which endorsement of the name of Seller shall
include the words "without recourse") on any check or any other evidences of
indebtedness received by Purchaser on account of the Business and the Acquired
Assets transferred to Purchaser hereunder.
6.2 Copies of Records. From and after the Closing Date and until
the second anniversary of the Closing Date, Purchaser shall allow Seller to
make copies, for legitimate business uses, of the books and records of Seller
which are transferred to Purchaser at Closing relating to time periods prior to
and including the Closing Date. Such copies may be made only upon reasonable
notice to Purchaser and shall be made at Seller's expense.
6.3 Use of Name. From and after the Closing Date, Seller agrees to
sign or file such consents or other documents as Purchaser shall reasonably
request in order to permit Purchaser to use the name "The Burke Group" and
"EDOCO" and variants thereof. From and after the Closing Date, Seller shall
not itself use the name "The Burke Group" or "EDOCO" or any similar names or
<PAGE> 36
variants thereof. On the Closing Date, Seller will file with the appropriate
authorities in Delaware and in each other jurisdiction in which Seller is
qualified to do business such documentation as shall be necessary to change
Seller's name in each such jurisdiction to a name bearing no similarity to "The
Burke Group" or "EDOCO"" or any variants thereof.
6.4 Further Assurances. From time to time at or after the Closing,
at the request of Purchaser, Seller will execute and deliver such other
instruments of conveyance, assignment, transfer and delivery and take such
other action as Purchaser reasonably may request in order to consummate the
transactions contemplated hereby, including the execution and delivery of such
instruments and agreements as may be necessary or advisable to fully effect the
transfer to Purchaser of the Acquired Assets.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Termination.
(a) Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated by written notice of termination at any time
before the Closing only as follows:
(i) By mutual consent of Seller and Purchaser.
(ii) By Purchaser or Seller in writing if the Closing shall
not have occurred on or before February 16, 1998.
(iii) By Purchaser if Seller is in breach of any
representation, warranty or covenant set forth in this Agreement and such
breach has not been cured to the reasonable satisfaction of Purchaser within
ten days following the delivery of notice to Seller of such breach.
(iv) By Seller if Purchaser is in breach of any
representation, warranty or covenant set forth in this Agreement and such
breach has not been cured to the reasonable satisfaction of Seller within ten
days following the delivery of notice to Purchaser of such breach.
(v) By Purchaser or Seller if damages in excess of
$250,000 (based on replacement cost) in the aggregate occurs to any of the
Acquired Assets.
(vi) By Purchaser or Seller if any remediation costs necessary
to bring the Real Property into compliance with applicable Environmental Laws
and any related fines, penalties or other similar costs (including but not
limited to any such costs disclosed to Purchaser prior to the date hereof)
equals an amount in excess of an aggregate of $250,000.
<PAGE> 37
(b) Seller acknowledges that Purchaser has not had adequate time to
review the schedules to this Agreement nor has Purchaser been provided with any
of the documents or other items referred to in such schedules. In addition,
Purchaser has not had the opportunity to conduct any due diligence
investigation with respect to the Acquired Assets or the Business. As a
result, anything herein or elsewhere to the contrary notwithstanding, this
Agreement may be terminated by Purchaser by written notice of termination at
any time on or prior to January 22, 1998 if:
(i) Purchaser is not satisfied in its sole discretion with the
schedules to this Agreement or any of the documents or other items reflected in
the such schedules; or
(ii) Purchaser is not satisfied in its sole discretion with
the results of the due diligence investigation conducted by Purchaser (or by
any third party designated by Purchaser) with respect to the Acquired Assets or
the Business, including but not limited to, the investigation of (i) the
documents or other items disclosed in the schedules to this Agreement, (ii) the
physical count of inventories and costing tests, (iii) verification of
collectibility of accounts receivable and (iv) determination of Purchaser's
long term liabilities under GAAP as a result of its assumption of the
obligations under the Union Pension Plan.
(c) In the event of the termination hereof pursuant to the
provisions of this Section 7.1, no party shall have any liability under this
Agreement other than for its breach, prior to such termination, of any
representation, warranty, agreement or covenant contained herein.
Additionally, nothing contained herein shall be construed to limit any party's
right of specific performance of this Agreement, if applicable.
7.2 Transfer Taxes. Seller and Purchaser shall each bear
responsibility for, and timely pay, 50% of all applicable transfer and sales
taxes, if any, due as a result of the transfer of the Acquired Assets in
accordance herewith.
7.3 Expenses. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses (including legal, accounting and
investment banking fees and expenses) incidental to the preparation and
negotiation of this Agreement, the carrying out of the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
7.4 Contents of Agreement; Parties in Interest; etc. This Agreement
sets forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby. It shall not be amended or modified except
by written instrument duly executed by each of the parties hereto. Any and all
previous agreements and understandings between or among the parties regarding
the subject matter hereof, whether written or oral, are superseded by this
Agreement.
<PAGE> 38
7.5 Assignment and Binding Effect. This Agreement may not be assigned
prior to the Closing by any party hereto without the prior written consent of
the other parties; provided, however, that this Agreement may be assigned by
Purchaser to an affiliate of Purchaser; provided, however, that no such
assignment by Purchaser shall relieve Purchaser of liability hereunder in the
event of nonperformance of any provision of this Agreement by such affiliate.
Subject to the foregoing, all of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
successors and permitted assigns of Seller and Purchaser.
7.6 Waiver. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party.
7.7 Non-Assignable Contracts. Nothing contained in this Agreement
shall be construed as an assignment or an attempted assignment of any contract
which is in law non-assignable without the consent of the other party or
parties thereto, unless such consent shall be given.
7.8 Notices. Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and (a) delivered personally; (b) sent by telex or telecopy; (c)
delivered by overnight express (charges prepaid); or (d) sent by first class
registered mail or certified mail, postage prepaid, as follows:
If to Purchaser, to:
MMI Products, Inc.
515 W. Greens Road
Suite 710
Houston, Texas 77067
Attention: Mr. Julius S. Burns
Facsimile: (228) 876-1648
With required copy to:
Baker & Botts, L.L.P.
2001 Ross Avenue, Suite 700
Dallas, Texas 75201
Attention: Mr. Michael A. Saslaw
Facsimile: 214-953-6503
<PAGE> 39
If to Seller to:
The Burke Group, L.L.C.
c/o Duff Ackerman Goodrich & Associates, L.P.
Two Embarcadero Center
Suite 2930
San Francisco, California 94111
Attention: Mr. Arnold W. Ackerman
Facsimile: 415-788-7311
With a required copy to:
Howard Rice Nemerovski Canady Falk & Rabkin,
a Profession Corporation
Three Embarcadero Center
Seventh Floor
San Francisco, California 94111
Attention: Mr. Richard Canady
Facsimile: 415-399-3041
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Notices sent by hand delivery shall be
deemed to have been given when received; notices mailed in accordance with the
foregoing shall be deemed to have been given three days following the Date so
mailed; notices sent by telex or telecopy shall be deemed to have been given
when electronically confirmed; and notices sent by overnight courier shall be
deemed to have been given on the next business day following the date so sent.
7.9 Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of Texas without giving
effect to any choice of laws rules that may require the application of the laws
of any other jurisdiction.
7.10 Confidentiality and Press Release.
(a) In connection with the transactions contemplated by this
Agreement, any information furnished to, or obtained by, Purchaser from Seller
or by Seller from Purchaser, as the case may be, or any of their respective
officers, employees, attorneys, accountants, or authorized representatives, as
a result of investigations by such parties or otherwise furnished by one party
to the others in connection with the transactions contemplated by this
Agreement, shall be treated as confidential information and kept confidential
(unless otherwise having become publicly available through no breach of this
Agreement) and, in the event that the transactions contemplated by this
Agreement are not consummated, Seller, on the one hand, and Purchaser, on the
other hand, each agree, upon such request, to return to the other parties all
<PAGE> 40
written information and copies thereof furnished by the other parties to such
party, and each such party agrees to preserve and protect the confidential
information and not to use such confidential information for itself, or permit
any such confidential information to be made available to third parties, except
to the extent contemplated hereby or as otherwise required by law. Following
the Closing, neither Seller nor any other affiliate of Seller will use or
disclose any confidential documents or information relating to the Business,
except as otherwise required by applicable law. All information and documents
relating to the Business will be deemed to be confidential unless such
documents or information can be shown to have been in the public domain prior
to such use or disclosure other than as a result of information disclosed by
Seller or any other affiliate of Seller in violation of this Agreement.
(b) Seller on the one hand, and Purchaser, on the other hand,
hereby acknowledge and agree that the portion of any proposed press release by
such party pertaining to the transactions contemplated hereby which references
either such transactions or other parties hereto by name shall be coordinated
with, and agreed upon, prior to the release or publication of such press
release by Purchaser, on one hand, and Seller, on the other hand.
7.11 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and, in the case of Article V hereof, the other indemnified
parties, and their heirs, executors, administrators, legal representatives,
successors and assigns, and they shall not be construed as conferring any
rights on any other persons.
7.12 Headings; Gender; Certain Terms. All section headings contained in
this Agreement are for convenience of reference only, do not from a part of
this Agreement and shall not affect in any way the meaning or interpretation of
this Agreement. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine, or neuter, as
the context requires. Any reference to a "person" herein shall include an
individual, firm, corporation, partnership, trust, governmental authority or
body, association, unincorporated organization or any other entity. Any
reference to "including" herein shall mean "including but not limited to."
The conjunction "or" shall denote any one or more, or any combination or all,
of the specified items or matters involved in the applicable list.
7.13 Schedules and Exhibits. All exhibits and schedules referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
7.14 Risk of Loss and Casualty Damage. The risk of loss or damage by
fire or other casualty to the Acquired Assets or to the Business shall be upon
Seller until transferred to Purchaser pursuant to this Agreement.
<PAGE> 41
7.15 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. Furthermore, in lieu of such invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such invalid or unenforceable provision as may
be possible and be valid and enforceable.
7.16 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
7.17 Attorney Fees. In the event any party hereto initiates any legal
action arising out of or in connection with this Agreement, the prevailing
party shall be entitled to recover from the other party all reasonable
attorneys' fees and costs.
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
PURCHASER:
MMI PRODUCTS, INC.
By: /s/ Julius S. Burns
--------------------------
Name: Julius S. Burns
Title: President
SELLER:
THE BURKE GROUP, L.L.C.
By: /s/ Arnold W. Ackerman
--------------------------
Name: Arnold W. Ackerman
Title: Chairman/CEO
<PAGE>
EXHIBIT A
INDEMNIFICATION ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
__________, 1997 (the "Closing Date") by and among MMI Products, Inc., a
Delaware corporation ("Purchaser"), The Burke Group, L.L.C., a Delaware limited
liability company ("Seller") and _________________________, as escrow agent
("Escrow Agent"). Purchaser, Seller and Escrow Agent are sometimes
collectively referred to as the "Parties," and individually referred to as a
"Party."
RECITALS
A. Each of Purchaser and Seller is a party to that certain Asset
Purchase Agreement dated December ____, 1997 among Purchaser and Seller (the
"Purchase Agreement").
B. The Purchase Agreement provides for, among other things, the
execution and delivery of this Agreement to establish an escrow fund from which
certain indemnification obligations of Seller may be paid.
C. Capitalized terms used in this Agreement, but not otherwise defined,
shall have the respective meanings ascribed to them in the Purchase Agreement.
NOW, THEREFORE, for good, valid and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE 1.
APPOINTMENT OF ESCROW AGENT;
ESTABLISHMENT OF ESCROW; INVESTMENT
1.1 Appointment of Escrow Agent: Limited Responsibilities. Each of
Purchaser and Seller hereby appoints, and Escrow Agent hereby accepts such
appointment and agrees to act, as escrow agent and to hold, safeguard, and
disburse the Indemnification Fund (as defined below) pursuant to the terms and
conditions hereof. This Agreement expressly sets forth all the duties of
Escrow Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations shall be read into this Agreement against Escrow Agent.
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto except this Agreement.
<PAGE>
1.2 Deposit of Indemnification Fund. Concurrently with the
execution and delivery of this Agreement, Purchaser is depositing with Escrow
Agent an amount equal to $1,000,000 in immediately available funds (as
increased or decreased by any earnings or losses thereon and as reduced by any
disbursements under Article 2, the "Indemnification Fund"). Escrow Agent
acknowledges receipt of cash in the amount of the initial deposit specified
above. The aggregate cash purchase price paid to Seller at the Closing
pursuant to Section 1.2 of the Purchase Agreement shall be reduced by the
amount of the Indemnification Fund.
1.3 Investment of Indemnification Fund. The Escrow Agent shall,
pending the disbursement of the Indemnification Fund pursuant to this
Agreement, invest the Indemnification Fund in accordance with the joint
instructions of Purchaser and Seller in (a) direct obligations of, or
obligations fully guaranteed by, the United States of America or any agency
thereof, (b) certificates of deposit issued by a commercial bank having a
combined capital surplus and undivided profits of not less than $100,000,000,
(c) money market funds investing solely in any of the above, or (d) other
investments as jointly approved by Purchaser and Seller. Absent such joint
instructions from Purchaser and Seller, the Escrow Agent shall invest the
Indemnification Fund in any of the instruments or accounts listed in clauses
(a), (b) or (c) of the preceding sentence. Escrow Agent is authorized to
liquidate in accordance with its customary procedures any portion of the
Indemnification Fund consisting of investments to provide for disbursements
required to be made under this Agreement.
ARTICLE 2.
CLAIMS; TERMINATION OF ACCOUNTS
2.1 Claim Procedures.
(a) Claim Procedure. From time to time on or before the expiration
of the applicable period specified in the Purchase Agreement, Purchaser may
give notice (a "Notice") to Seller and Escrow Agent specifying in reasonable
detail the nature and dollar amount of any claim (a "Claim") Purchaser may have
under Article V of the Purchase Agreement. If Seller gives notice to Purchaser
and Escrow Agent disputing any Claim (a "Counter Notice") within thirty (30)
days following receipt by Escrow Agent of the Notice regarding such Claim, such
Claim shall be resolved as provided in Section 2.1(b). If no Counter Notice is
received by Escrow Agent within such 30-day period, then the dollar amount of
damages claimed by Purchaser as set forth in its Notice shall be deemed
established for purposes of this Escrow Agreement and the Purchase Agreement
and, at the end of such 30-day period, Escrow Agent shall pay to Purchaser the
dollar amount claimed in the Notice from (and only to the extent of) the
Indemnification Fund (plus the amount of earnings attributable thereto).
Escrow Agent shall not inquire or consider whether a Claim complies with the
requirements of Article V of the Purchase Agreement.
<PAGE>
(b) Resolution of a Claim Dispute. If a Counter Notice is given with
respect to a Claim, Escrow Agent shall make a disbursement with respect to the
Indemnification Fund only in accordance with (i) written instructions of both
Purchaser and Seller, or (ii) a final non-appealable order of a court of
competent jurisdiction. Escrow Agent shall act on such court order without
further question.
2.2 Disbursements from Indemnification Fund.
(a) Partial Disbursement. On the date of the one year anniversary
of the Closing Date (the "Partial Disbursement Date"), Escrow Agent shall pay
to Seller by way of certified check or bank check an amount equal to the
difference of (x) the entire amount of the Indemnification Fund then remaining
(excluding any earnings thereon), minus (y) the aggregate dollar amount of
Claims, if any (as shown in the Notices of such Claims) outstanding on such
date, minus (z) $250,000.
(b) Final Disbursement. On the date of the second year anniversary
of the Closing Date (the "Final Disbursement Date"), Escrow Agent shall
distribute to Seller the excess, if any, of the then remaining amount of the
Indemnification Fund over the aggregate dollar amount of Claims, if any (as
shown in the Notices of such Claims) outstanding on such date. If any amount
is retained in the Indemnification Fund for pending Claims, then Escrow Agent
shall retain such amount until it receives joint written instructions of
Purchaser and Seller or a final nonappealable order of a court of competent
jurisdiction regarding the disbursement of such amount.
(c) Earnings. Seller shall be entitled to all earnings on the
Indemnification Fund, provided that, if Purchaser is entitled to a portion of
the Indemnification Fund, Purchaser shall also be entitled to the earnings
attributable to such portion. Notwithstanding anything to the contrary
contained herein, earnings on the Indemnification Fund shall not be released
until the Final Disbursement Date.
(d) Termination of Fund. Upon payment of all moneys in the
Indemnification Fund (regardless of the applicable clause of Section 2.2
pursuant to which such payments were made), the Indemnification Fund shall be
deemed closed, and this Agreement shall be deemed terminated with respect to
the Indemnification Fund.
ARTICLE 3.
DUTIES OF ESCROW AGENT
3.1 Degree of Care. Escrow Agent shall not be under any duty to give
the Indemnification Fund held by it hereunder any greater degree of care than
it gives its own similar property and shall not be required to invest any funds
held hereunder except as directed in this Agreement.
<PAGE>
3.2 Liability: Indemnification of Escrow Agent. Escrow Agent shall
not be liable, except for its own negligence or willful misconduct and, except
with respect to claims based upon such negligence or willful misconduct that
are successfully asserted against Escrow Agent, Seller on the one hand and
Purchaser on the other hand shall jointly and severally indemnify and hold
harmless Escrow Agent (and any successor Escrow Agent) from and against any and
all losses, liabilities, claims, actions, damages and expenses, including
reasonable attorneys' fees and disbursements, arising out of and in connection
with this Agreement. Without limiting the foregoing, Escrow Agent shall in no
event be liable in connection with its investment or reinvestment of any cash
held by it hereunder in good faith, in accordance with the terms hereof,
including, any liability for any delays (not resulting from its gross
negligence or willful misconduct) in the investment or reinvestment of the
Indemnification Fund, or any loss of interest incident to any such delays.
Nothing in this paragraph shall constitute a waiver of any claim which
Purchaser or Seller may have against the other for contribution arising from
their joint obligations to hold the Escrow Agent harmless hereunder. This
section shall survive notwithstanding any termination of this Agreement or the
resignation of Escrow Agent.
3.3 Reliance by Escrow Agent. Escrow Agent shall be entitled to rely
upon any order, judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder without being required to determine the
authenticity or the correctness of any fact stated therein or the propriety or
validity of the service thereof. Escrow Agent may act in reliance upon any
instrument or signature believed by it to be genuine and may assume that the
person purporting to give receipt or advice or make any statement or execute
any document in connection with the provisions hereof has been duly authorized
to do so. Escrow Agent may conclusively presume that the undersigned
representative of any party hereto which is an entity other than a natural
person has full power and authority to instruct Escrow Agent on behalf of that
party unless written notice to the contrary is delivered to Escrow Agent.
3.4 Advice of Counsel. Escrow Agent may act pursuant to the advice of
counsel with respect to any matter relating to this Agreement and shall not be
liable for any action taken or omitted by it in good faith in accordance with
such advice.
3.5 Subject to Taxes and Regulations. Escrow Agent does not have any
interest in the Indemnification Fund deposited hereunder but is serving as
escrow holder only and having only possession thereof. Any disbursements of
income from the Indemnification Fund shall be subject to withholding
regulations then in force with respect to United States taxes. Seller and
Purchaser will provide Escrow Agent with appropriate Internal Revenue Service
Forms W-9 for tax identification number certification.
3.6 No Representation. Escrow Agent makes no representation as to the
validity, value, genuineness, or the collectibility of any security or other
document or instrument held by or delivered to it.
<PAGE>
3.7 No Advice. Escrow Agent shall not be called upon to advise any
party as to the wisdom in selling or retaining or taking or refraining from any
action with respect to any securities or other property deposited hereunder.
3.8 Resignation of Escrow Agent. Escrow Agent (and any successor
Escrow Agent) may at any time resign as such by delivering the Indemnification
Fund to any successor Escrow Agent jointly designated in writing by Seller on
the one hand and Purchaser on the other hand, or to any court of competent
jurisdiction, whereupon Escrow Agent shall be discharged of and from any and
all further obligations arising from or in connection with this Agreement. The
resignation of Escrow Agent will take effect on the earlier of (a) the
appointment of a successor (including a court of competent jurisdiction) or (b)
the day which is 30 days after the date of delivery of its written notice of
resignation to the other parties hereto. If at the effective time of Escrow
Agent's resignation it has not received a designation of a successor Escrow
Agent, Escrow Agent's sole responsibility after that time shall be to retain
and safeguard the Indemnification Fund until receipt of a designation of
successor Escrow Agent or a joint written disposition instruction by Seller on
the one hand and Purchaser on the other hand or a final non-appealable order of
a court of competent jurisdiction.
3.9 Disputed Disbursements. In the event of any disagreement between
Seller on the one hand and Purchaser on the other hand resulting in adverse
claims or demands being made in connection with the Indemnification Fund or in
the event that Escrow Agent is in doubt as to what action should be taken
hereunder, Escrow Agent shall be entitled to retain the applicable
Indemnification Fund until Escrow Agent shall have received (a) a final
non-appealable order of a court of competent jurisdiction directing delivery of
the applicable Indemnification Fund, or (b) a written agreement executed by
Seller on the one hand and Purchaser on the other hand directing delivery of
the applicable Indemnification Fund, in which event Escrow Agent shall disburse
the applicable Indemnification Fund in accordance with such order or agreement.
Escrow Agent shall act on such court order without further question.
3.10 Compensation of Escrow Agent. Seller on the one hand and Purchaser
on the other hand shall pay Escrow Agent compensation (as payment in full) for
the services to be rendered by Escrow Agent hereunder in the amount of $____ on
the Closing Date and $____ annually thereafter and agree to reimburse Escrow
Agent for all reasonable expenses, disbursements, and advances incurred or made
by Escrow Agent in performance of its duties hereunder (including reasonable
fees, expenses, and disbursements of its counsel). Any such compensation and
reimbursement to which Escrow Agent is entitled shall be borne fifty percent
(50%) by Purchaser and fifty percent (50%) by Seller. If on the Final
Disbursement Date, the final fees, costs, expenses or reasonable attorney's
fees, provided for herein, have not been paid, the Escrow Agent shall have the
right to pay such fees, costs, expenses or reasonable attorney's fees from the
Indemnification Fund.
3.11 Use of Services. Seller and Purchaser authorizes Escrow Agent,
for any securities held hereunder, to use the services of any United States
central securities depository that Escrow Agent reasonably deems appropriate,
including the Depositary Trust Company and the Federal Reserve Book Entry
System.
<PAGE>
ARTICLE 4.
MISCELLANEOUS
4.1 Severability. If any provision of this Agreement as applied to any
part or to any circumstance shall be held invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions of this
Agreement and the application of such provision to any other part or to any
other circumstance shall not be affected or impaired thereby.
4.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the Parties.
4.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which when taken together shall constitute the same agreement.
4.4 Headings. The captions and headings used in this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction or interpretation hereof.
4.5 Waiver. Any of the terms or conditions of this Agreement may be
waived in writing at any time by the Party which is entitled to the benefits
thereof. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of such provision at any time in the future or a
waiver of any other provision hereof. The rights and remedies of the Parties
are cumulative and not alternative.
4.6 No Third-Party Beneficiaries. Nothing in this Agreement shall
create or confer upon any Person, other than the Parties or their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities, except as expressly provided herein.
4.7 Notices. Unless otherwise provided herein, any notice,
request, instruction, consent or other document required or permitted to be
given pursuant to this Agreement shall be in writing and delivered personally,
by facsimile or by a nationally recognized overnight courier service to the
address for each Party specified below, or at such other address or location
for a Party as shall be specified in writing by that Party. Any notice,
request, instruction, consent or other document delivered as provided herein
shall be deemed effectively given on the day after the dispatch of such notice.
<PAGE>
If to Purchaser:
MMI Products, Inc.
515 West Greens Rd.
Suite 710
Houston, Texas 77067
Attention: Julius S. Burns
Facsimile: (228) 876-1648
With required copy to:
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201-2980
Attention: Michael A. Saslaw
Facsimile: (214) 953-6503
If to Seller:
The Burke Group, L.L.C.
c/o Duff, Ackerman, Goodrich & Associates, L.P.
Two Embarcadero Center
Suite 2930
San Francisco, California 94111
Attention: Arnold W. Ackerman
Facsimile: 415-788-7311
With required copy to:
Howard Rice Nemerovski
Canady Falk & Rabkin, P.C.
Three Embarcadero Center
Seventh Floor
San Francisco, California 94111
Attention: Richard Canady
Facsimile: (415) 399-3041
If to Escrow Agent:
- -------------------------
- -------------------------
- -------------------------
<PAGE>
Facsimile:
---------------------
4.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without giving
effect to any choice of laws rules that may require the application of the laws
of any other jurisdiction.
4.9 Interpretation. Unless specifically stated otherwise, references
to articles, sections and schedules refer to articles, sections and schedules
in this Agreement. References to "includes" and "including" mean "includes
without limitation" and "including without limitation." Wherever from the
context it appears appropriate, each term stated in either the singular or
plural shall include the singular and plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, feminine and
neuter gender.
4.10 Entire Agreement. This Agreement constitutes the sole
understanding of the Parties with respect to the matters contemplated hereby
and supersede and render null and void all prior agreements and understandings,
written and oral, between the Parties with respect to such matters. No Party
shall be liable or bound to the other Parties in any manner by any promises,
conditions, representations, warranties or covenants except as specifically set
forth herein.
4.11 Amendment. Except as otherwise specifically provided for
in this Agreement, no amendment, modification or alteration of the terms or
provisions of this Agreement, including any schedules or exhibits, shall be
binding unless the same shall be in writing and duly executed by the Party
against whom such amendment, modification or alteration is sought to be
enforced.
4.12 Assignment. This Agreement may not be assigned by any Party
without the prior written consent of the non-assigning Parties; provided,
however, that Purchaser may assign its rights under this Agreement to any
affiliate of Purchaser or in connection with the sale or other transfer by
Purchaser of the Acquired Assets.
<PAGE>
IN WITNESS WHEREOF, each Party has executed, or caused to be executed, this
Agreement as of the Closing Date.
SELLER:
THE BURKE GROUP, L.L.C.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
PURCHASER:
MMI PRODUCTS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ESCROW AGENT:
[NAME OF NATIONAL BANK]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
THIS BILL OF SALE AND ASSIGNMENT (this "Bill of Sale and Assignment"),
dated as of ___________, 1997, is made by The Burke Group, L.L.C., a Delaware
limited liability company ("Seller") to MMI Products, Inc., a Delaware
corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Asset Purchase Agreement (the "Purchase
Agreement"), dated as of December__, 1997, by and between Seller and Purchaser,
Seller has agreed to sell to Purchaser the Acquired Assets (as defined in the
Purchase Agreement), on the terms and subject to the conditions set forth in
the Purchase Agreement, and Purchaser has agreed to acquire and accept the
Acquired Assets from the Seller on such basis; and
WHEREAS, Seller desires to deliver to Purchaser such instruments of
transfer as are required effectively to vest in Purchaser all right, title and
interest in and to the Acquired Assets;
WHEREAS, Section 4.2(a)(iii) of the Purchase Agreement contemplates that
this Bill of Sale and Assignment is to be delivered by Seller to Purchaser at
Closing; and
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have the respective meanings ascribed thereto in the Purchase
Agreement.
NOW, THEREFORE, in consideration of the promises, covenants and agreements
contained herein and in the Purchase Agreement and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged and
accepted), the Seller does hereby agree as follows:
SECTION 1. Transfer of Assets. Seller does hereby sell, assign,
transfer and deliver unto Purchaser all of Seller's right, title and interest
in and to the Acquired Assets, free and clear of all Encumbrances (other than
Permitted Encumbrances) of any kind or character:
TO HAVE AND TO HOLD the Acquired Assets, with all of the appurtenances
thereto, unto Purchaser and its successors and assigns for its and their
use, it being understood that Seller does hereby bind itself, its
successors and assigns to warrant and defend (to the extent provided in
the Purchase Agreement) the same unto Purchaser and its successors and
assigns against any person whomsoever claiming the same, or any part
thereof or interest therein.
<PAGE>
SECTION 2. Warranties Cumulative. Seller acknowledges that any
warranties or representations contained in the Purchase Agreement are in
addition to and cumulative of any and all warranties and representations
contained in this Bill of Sale and Assignment.
SECTION 3. Further Assurances. Seller hereby acknowledges and reaffirms
its obligations under Section 6.4 of the Purchase Agreement to execute and
deliver such other instruments of conveyance, assignment, transfer and delivery
and take such other action as may be necessary or advisable to fully effect the
transfer to Purchaser of the Acquired Assets or as may otherwise be required
hereby.
SECTION 4. Governing Law. To the extent permitted by applicable law,
this Bill of Sale and Assignment and all questions and issues relating to its
validity, enforceability, interpretation and performance shall be governed by
and construed in accordance with the laws of the State of Texas.
SECTION 5. Parties in Interest. This Bill of Sale and Assignment shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns and legal representatives.
SECTION 6. Conflicts. In the event of any conflict or ambiguity between
the terms hereof and the Purchase Agreement, the terms of the Purchase
Agreement shall govern and be controlling.
IN WITNESS WHEREOF, this Bill of Sale and Assignment has been duly
executed and delivered as of the date first above written.
THE BURKE GROUP, L.L.C.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
EXHIBIT C
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT (this "Assumption Agreement") dated as of
____________, 1997, is entered into by and between The Burke Group, L.L.C., a
Delaware limited liability company (the "Seller") and MMI Products, Inc., a
Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to the Asset Purchase Agreement dated as of December
___, 1997 between Seller and Purchaser (the "Purchase Agreement"), Purchaser
has agreed to assume the payment, performance and discharge of the Assumed
Liabilities (as defined in the Purchase Agreement), on terms and subject to
conditions and exceptions set forth in the Purchase Agreement;
WHEREAS, Section 4.2(b)(iii) of the Purchase Agreement contemplates that
this Assumption Agreement is to be entered into and delivered at Closing:
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have the respective meanings ascribed thereto in the Purchase
Agreement.
NOW, THEREFORE, in consideration of the promises, covenants and agreements
contained herein and in the Purchase Agreement and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto agree as follows:
SECTION 1. Assumption of Liabilities. Purchaser does hereby assume and
will pay, perform and discharge when due, all of the Assumed Liabilities.
Except for the Assumed Liabilities, Purchaser does not assume, nor will
Purchaser be obligated to pay, perform or discharge or be responsible or liable
for, any obligations, duties or liabilities of Seller.
SECTION 2. Conflicts. In the event of any conflict or ambiguity between
the terms hereof and the Purchase Agreement, the terms of the Purchase
Agreement shall govern and be controlling.
SECTION 3. Counterparts. This Assumption Agreement may be executed in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 4. Governing Law. This Assumption Agreement and all questions
and issues relating to its validity, enforceability, interpretation and
performance shall be governed by and construed in accordance with the laws of
the State of Texas.
<PAGE>
SECTION 5. Parties in Interest. This Assumption Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns and legal representatives.
IN WITNESS WHEREOF, this Assumption Agreement has been duly executed by an
officer of the undersigned thereunto duly authorized all on the date first
above written.
PURCHASER:
MMI PRODUCTS, INC.
By:
-------------------------------------
Name:
---------------------------------
Title:
--------------------------------
SELLER:
THE BURKE GROUP, L.L.C.
By:
-------------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT D
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement"), dated as of
________________, 1997 among The Burke Group, L.L.C., a Delaware limited
liability company ("Seller"), MMI Products, Inc. a Delaware corporation
("Purchaser") and Arnold W. Ackerman, individually ("Ackerman," and together
with Seller, the "Restricted Persons").
W I T N E S S E T H :
WHEREAS, Purchaser and Seller are parties to that certain Asset Purchase
Agreement, dated as of December ___, 1997 (the "Purchase Agreement"), pursuant
to which Purchaser has agreed to purchase, in accordance with and subject to
the terms and conditions set forth in the Purchase Agreement, certain of the
assets owned by Seller and used in connection with the operations of a concrete
accessories plant in Converse, Texas (the "Texas Plant"), a chemical processing
plant in Carson, California (the "Carson Plant") and an engineering services
firm in Sacramento, California (the "Sacramento Firm," and together with the
Texas Plant and the Carson Plant, the "Facilities," the operations of which,
together with all activities of the Seller relating thereto, being referred to
herein as the "Business");
WHEREAS, to protect the value of the assets, properties and rights to be
purchased by Purchaser pursuant to the Purchase Agreement, as a condition to
Purchaser's obligation to purchase such assets, properties and rights,
Purchaser is requiring that each Restricted Person enter into this Agreement
with Purchaser. The Restricted Persons acknowledge that they are receiving
substantial benefits from the performance by Purchaser of the Purchase
Agreement and that they have agreed to enter into this Agreement to induce
Purchaser to perform the transactions contemplated by the Purchase Agreement;
and
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have the respective meanings ascribed thereto in the Purchase
Agreement;
NOW, THEREFORE, in consideration of the promises, mutual covenants and
agreements set forth herein and in the Purchase Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound, agree as
follows:
1. Covenant Not to Compete.
(a) For a period of three years following the date hereof (the
"Restricted Period"), without the express prior written permission of
Purchaser, each of the Restricted Persons agrees that it will not, and will not
cause or permit any of its affiliates, directors, officers, members, agents or
<PAGE>
other representatives to, directly or indirectly through any affiliates or
agents, own, engage in, manage, operate, join, control, lend to, invest in or
participate in the ownership, management, operations or control of, or be
connected with, directly or indirectly, as a stockholder (other than as a
passive holder of not more than five percent (5%) of any class of securities of
any corporation or partnership, which securities have been registered under
Section 12 of the Securities Exchange Act of 1934, as amended), director,
officer, employee, agent, partner, consultant, manager, operator, joint
venturer or otherwise (whether for compensation or without compensation), any
business or organization that is involved in (i) the manufacture, processing,
sale, marketing or distribution of concrete accessories or hardware or
chemicals used or useful in concrete construction applications or (ii) the
provision of engineering services related to such activities, in the United
States, its territories or possessions (the "Noncompetition Area").
(b) During the Restricted Period, each of the Restricted Persons
agrees that it will not directly or indirectly solicit or induce any person
employed by the Purchaser or any of its affiliates to leave the employment of
the Business or the Purchaser or its affiliates.
(c) During the Restricted Period, each of the Restricted Persons
agrees that it will not recruit or otherwise solicit or induce customers or
suppliers of the Business or Purchaser to terminate their arrangement for the
provision of services by or to the Business or Purchaser or otherwise to
interfere with or cease their relationships with Purchaser, either directly or
indirectly.
(d) The parties hereto intend that the covenants contained in this
Section 1 shall be construed as a series of separate covenants, one for each
municipality, community, or county included within the Noncompetition Area.
Should any court of competent jurisdiction determine that any covenant set
forth in this Section 1 is unenforceable in respect of scope, duration,
geographic area or any other matter, such court shall be empowered to
substitute, to the extent enforceable, provisions similar to those set forth
herein or other provisions so as to provide to Purchaser, to the fullest extent
permitted by applicable law, the benefits intended by this Section 1.
2. Consideration. Each of the Restricted Persons agrees that
Purchaser's entry into and performance of the Purchase Agreement (which will
substantially benefit each Restricted Person) constitutes the full
consideration for the covenants and agreements of the Restricted Persons under
this Agreement.
3. Proprietary Information. Each of the Restricted Persons
acknowledges that, upon the closing of transactions contemplated by the
Purchase Agreement, the information, observations and data obtained by each of
the Restricted Persons concerning the Acquired Assets, the Assumed Liabilities
and the Business (except for the Excluded Assets) will be the property of
Purchaser. Therefore, each of the Restricted Persons agrees that it will not,
and will cause each of its affiliates, directors, officers, members, agents and
other representatives not to, disclose to any person or entity or use for its
own account or the account of any person or entity (other than Purchaser) any
of such information, observations or data without Purchaser's express prior
written consent, unless and to the extent that the aforementioned matters
<PAGE>
become generally known to and available for use by the public otherwise than as
a result of a Restricted Person's or any of such affiliate's, director's,
officer's, member's, agent's or other representative's act or omission to act
or to the extent such disclosure is required by applicable law (in which case
Purchaser shall be given reasonable notice prior to such disclosure). Each of
the Restricted Persons agrees to deliver to Purchaser, at any time upon
Purchaser's request, all memoranda, notes, plans, records, reports, and other
documents (and copies thereof) relating to the Acquired Assets, the Assumed
Liabilities or the Business which it may then possess or have under his/its
control. In the event that either of the Restricted Persons or any of their
respective affiliates is requested or required (by interrogatory, subpoena,
demand or other legal process) to disclose any of such information,
observations or data, such Restricted Person shall promptly notify Purchaser
and cooperate with Purchaser to preserve the confidentially thereof to the
extent it may do so under applicable law.
4. Injunctive Relief. Each of the Restricted Persons acknowledges
that the breach, or threatened breach, by it or any of its affiliates of the
provisions of this Agreement would cause irreparable harm to Purchaser, which
harm could not be fully redressed by the payment of damages to Purchaser. Each
of the Restricted Persons acknowledges that the duration, scope and
geographical application of this Agreement are reasonable under the
circumstances. Accordingly, Purchaser shall be entitled, in addition to any
other right or remedy it may have at law or in equity, to an injunction
enjoining or restraining each of the Restricted Persons and its affiliates, or
any of them, from any violation or threatened violation of this Agreement and
each of the Restricted Persons hereby consents to the issuance of such
injunction.
5. Benefit and Assignment. No person or entity other than the
parties hereto (and permitted assigns, as described below) is or shall be
entitled to bring any action to enforce any provision of this Agreement against
any of the parties hereto, and the covenants and agreements set forth in this
Agreement shall be solely for the benefit of, and shall be enforceable only by,
the parties hereto. None of the rights hereunder shall be assignable by any
party without the prior written consent of the other parties; provided,
however, that Purchaser shall have the right to assign this Agreement to any
affiliate of Purchaser, to any lending institution in connection with any
financing arrangements or to any transferee of all or any portion of the
Acquired Assets.
6. Entire Agreement; Amendment. This Agreement constitutes the
entire agreement among the parties hereto with respect to the subject matter
hereof, and supersedes all prior oral and written agreements, commitments or
understandings with respect to the matters provided herein. The provisions of
this Agreement may only be waived, changed, modified, extended or discharged by
an instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
7. Severability. If any part or any provision of this Agreement
shall be invalid or unenforceable under applicable law, said part or provision
shall be ineffective to the extent of such invalidity or unenforceability only,
without in any way affecting the remaining parts of such provisions or the
remaining provisions of this Agreement, which shall be construed as if such
invalid parts or provisions had not been inserted, except to the extent
inconsistent with Section 1(d) hereof.
<PAGE>
8. Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions) shall be governed by
and construed in accordance with the laws of the State of Texas, without
reference to its principles of conflict of laws.
9. No Waiver. No delay or omission by Purchaser in exercising any
right under this Agreement will operate as a waiver of that or any other right.
A waiver or consent given by Purchaser on any one occasion is effective only in
that instance and will not be construed as a bar to or waiver of any right on
any other occasion.
10. Attorney's Fees. If any action, suit or proceeding is brought by
any of the parties hereto arising out of or relating to this Agreement or its
breach, the successful or prevailing party in any such action, suit or
proceeding shall be entitled to the full amount of its reasonable expenses,
including all court costs and attorney's fees paid or incurred in connection
therewith, in addition to such other relief as such party shall be entitled to.
11. Section Headings. The section headings in this Agreement are for
convenience only, form no part of this Agreement and shall not affect the
interpretation of this Agreement.
12. Execution in Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
PURCHASER:
MMI PRODUCTS, INC.
By:
-----------------------------------
Name:
-------------------------------
Title:
------------------------------
RESTRICTED PERSONS:
THE BURKE GROUP, L.L.C.
By:
-----------------------------------
Name:
-------------------------------
Title:
------------------------------
By:
-----------------------------------
Arnold W. Ackerman
<PAGE>
EXHIBIT E
LIMITED POWER OF ATTORNEY
STATE OF
-----------------------
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF
----------------------
The undersigned The Burke Group, L.L.C., a Delaware limited liability
company, as seller ("Seller"), as part of the consideration for the purchase on
the date hereof by MMI Products, Inc., a Delaware corporation, as Purchaser
("Purchaser"), pursuant to that certain Asset Purchase Agreement dated as of
December ___, 1997, between Purchaser and Seller (the "Purchase Agreement"), of
the Acquired Assets (as defined in the Purchase Agreement), does hereby
constitute and appoint Purchaser, its successors and assigns the true and
lawful attorney of Seller with full power of substitution and resubstitution,
having full right and authority, in the name of Seller or in the name of
Purchaser, to collect all accounts receivable due from customers of the
Business (as defined in the Purchase Agreement).
Seller and Purchaser have agreed that all such collections made on and
after the date hereof with respect to the periods prior to the date hereof are
for the account of Purchaser. On and after the date hereof, Seller agrees that
it shall not contact, or make any attempt to collect from such customers, and
that Purchaser shall have the right to endorse with the name of Seller any
checks received in payment of such accounts receivable.
Seller further agrees that the foregoing powers are coupled with an
interest and shall not be revocable by Seller in any manner or for any reason.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Limited Power of
Attorney to be duly executed and delivered as of the ____ day of ___________,
1997.
THE BURKE GROUP, L.L.C.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
STATE OF
----------------------
SS:
COUNTY OF
---------------------
Before me _________________________________ on this day personally
appeared _________________________, known to me to be the person whose name is
subscribed to the foregoing instrument, and known to me to be the
_______________________ of The Burke Group, L.L.C., a Delaware limited
liability company, and acknowledged to me that he executed said instrument for
the purposes and consideration therein expressed, and as the act of said
corporation.
GIVEN under my hand and seal of office on this the ____ day of
___________, 1997.
----------------------------
Notary Public in and for
the State of _______________
My Commission Expires:
- ------------------------
My County of Residence:
- ------------------------
<PAGE>
EXHIBIT F
FORM OF LEGAL OPINION OF SELLER'S COUNSEL
The opinion of Howard Rice Nemerovski Canady Falk & Rabkin, a Professional
Corporation, counsel to Seller, to be delivered at Closing pursuant to Section
4.2(a)(x) of this Agreement shall be to the effect set forth below.
Capitalized terms used in this Exhibit F without definition have the respective
meanings set forth in this Agreement.
1. Seller is a limited liability company duly formed, validly
existing and in good standing under the Delaware Limited Liability Company Act
(the "Delaware Limited Liability Company Act") with all requisite power and
authority to own, lease and operate its property and assets and to carry on its
business as now conducted. Seller is duly qualified to do business as a
foreign limited liability company and is in good standing in Texas and
California .
2. Seller has all requisite limited liability company power and
authority to execute, deliver and perform its obligations under each of the
Transaction Documents to which it is a party, and to consummate the
transactions contemplated thereby. The execution, delivery and performance by
Seller of the Transaction Documents to which it is a party and the consummation
by Seller of the transactions contemplated thereby have been duly and validly
authorized by all necessary action on the part of Seller and its members.
3. Each of the Transaction Documents to which Seller is a party has
been duly and validly executed and delivered by Seller and its members, and
constitutes a legal, valid and binding obligation of Seller enforceable against
such party in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, receivership,
liquidation, fraudulent conveyance or similar laws relating to or affecting
creditors' rights generally or by the application of general principles of
equity (whether considered in a proceeding at law or in equity).
4. Neither the execution, delivery and performance of the Transaction
Documents to which Seller is a party by Seller, nor the sale of the Acquired
Assets by Seller pursuant thereto (a) contravenes or violates any provision of
the certificate of formation or limited liability company agreement of Seller,
(b) results in the breach, termination or acceleration of rights or obligations
under, constitutes a default under (with or without notice or the lapse of time
or both) or results in the imposition of a lien under, any of the terms,
conditions or provisions of any material agreement to which Seller is a party
listed on Schedule 2.1.8B, 2.1.9B or 2.1.11 to the Agreement or identified as
material in an officer's certificate delivered to counsel to Seller, or (c)
constitutes or results in a violation of any applicable Law applicable to
Seller or, to our knowledge, any order, writ, injunction or decree of any court
or governmental instrumentality to which Seller is named a party.
<PAGE>
5. To our knowledge, Schedule 2.1.17 to the Agreement sets forth
a list and description of (i) all lawsuits, claims or administrative or other
proceedings or investigations pending or threatened by, against or affecting
Seller and relating to the Acquired Assets, Business, the Agreement or the
transactions contemplated thereby and (ii) all judgments, orders, writs,
injunctions, decrees or awards of any court, arbitrator or governmental or
regulatory official, body or authority relating to the Acquired Assets or the
Business. To our knowledge, there are no claims, actions, suits, proceedings
or investigations pending or threatened, at law or in equity, or before or by
any court, arbitrator or governmental or regulatory official, body or authority
which (i) question the legality or validity of any of the Transaction
Documents, (ii) question the legality or validity of actions taken or to be
taken pursuant to any of the Transaction Documents, (iii) seek to prohibit the
execution and delivery of, or prevent the consummation of any of the
transactions contemplated by, any of the Transaction Documents, or (iv) seek
damages arising out of or related to the execution and delivery of, or on
account of actions to be taken under, any of the Transaction Documents.
6. Except for the consents and approvals referred to in Schedule
2.1.4 of the Agreement, no consent, approval, waiver, license or authorization
or other action by or filing with any governmental authority is required in
connection with the execution, delivery or performance by Seller of the
Transaction Documents to which it is a party.
<PAGE>
EXHIBIT G
FORM OF LEGAL OPINION OF PURCHASER'S COUNSEL
The opinion of Baker & Botts, L.L.P., counsel to Purchaser, to be
delivered at Closing pursuant to Section 4.2(b)(vii) of this Agreement shall be
to the effect set forth below. Capitalized terms used in this Exhibit G
without definition have the respective meanings set forth in this Agreement.
1. Purchaser is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. Purchaser is duly
qualified to do business as a foreign corporation and is in good standing in
Texas and California.
2. Purchaser has all requisite corporate power and authority to execute,
deliver and perform its obligations under each of the Transaction Documents to
which it is a party, and to consummate the transactions contemplated thereby.
The execution, delivery and performance by Purchaser of the Transaction
Documents to which it is a party and the consummation of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action on the part of Purchaser.
3. Each of the Transaction Documents to which Purchaser is a party has
been duly and validly executed and delivered by Purchaser and constitutes a
legal, valid and binding obligation of Purchaser, enforceable against Purchaser
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, receivership, liquidation,
fraudulent conveyance or similar laws relating to or affecting creditors'
rights generally or by the application of general principles of equity (whether
considered in a proceeding at law or in equity).
4. Neither the execution, delivery and performance of the
Transaction Documents to which Purchaser is a party by Purchaser, nor the
purchase of the Acquired Assets by Purchaser pursuant thereto (a) contravenes
or violates any provision of the certificate of incorporation or bylaws of
Purchaser, (b) results in the breach, termination or acceleration of rights or
obligations under, or constitutes a default under (with or without notice or
lapse of time or both), any of the terms, conditions or provisions of any
material agreement to which Purchaser is a party or by which any of its assets
may be bound that is filed as an exhibit to Purchaser's Registration Statement
on Form S-4 (Reg. No. 333-29141) or to any subsequently filed Quarterly Reports
on Form 10-Q of Purchaser, (c) constitutes or results in a violation of any
applicable Law applicable to Purchaser or, to our knowledge, any order, writ,
injunction or decree of any court or governmental instrumentality to which
Purchaser is named as a party which is identified to us in an officer's
certificate of Purchaser.
<PAGE>
5. To our knowledge, there are no claims, actions, suits, proceedings
or investigations pending or threatened, at law or in equity, or before or by
any court, arbitrator or governmental or regulatory official, body or authority
which (i) question the legality or validity of any of the Transaction
Documents, (ii) question the legality or validity of actions taken or to be
taken pursuant to any of the Transaction Documents, (iii) seek to prohibit the
execution and delivery of, or prevent the consummation of any of the
transactions contemplated by any of the Transaction Documents, or (iv) see
damages arising out of or related to the execution and delivery of, or on
account of actions to be taken under, any of the Transaction Documents.
6. Except for the consents and approvals referred to in Schedule
2.2.4 of the Agreement, no consent, approval, waiver, license or authorization
or other action by or filing with any governmental authority of the State of
Texas or the United States is required in connection with the execution,
delivery or performance by Purchaser of the Transaction Documents to which it
is a party.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001040736
<NAME> MMI PRODUCTS, INC
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JAN-03-1998
<EXCHANGE-RATE> 1.0
<CASH> 3,509
<SECURITIES> 0
<RECEIVABLES> 40,816
<ALLOWANCES> 1,876
<INVENTORY> 48,938
<CURRENT-ASSETS> 95,481
<PP&E> 71,630
<DEPRECIATION> 25,712
<TOTAL-ASSETS> 152,818
<CURRENT-LIABILITIES> 45,173
<BONDS> 120,000
0
0
<COMMON> 252
<OTHER-SE> (21,125)
<TOTAL-LIABILITY-AND-EQUITY> 152,818
<SALES> 346,905
<TOTAL-REVENUES> 346,905
<CGS> 295,999
<TOTAL-COSTS> 295,999
<OTHER-EXPENSES> 24,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,018
<INCOME-PRETAX> 12,898
<INCOME-TAX> 5,161
<INCOME-CONTINUING> 7,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,737
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
