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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 2, 1999
[ ] 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 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 April 1, 1999, all of which are held
by Merchants Metals Holding Company.
DOCUMENTS INCORPORATED BY REFERENCE - NONE
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PART I
ITEM 1. BUSINESS
GENERAL
MMI Products, Inc. (MMI), a Delaware corporation and a wholly-owned subsidiary
of Merchants Metals Holding Company (Holding), was organized in 1953. MMI was
acquired by Citicorp Venture Capital, Ltd. and members of MMI's management in
1986.
MMI is a leading manufacturer and distributor of products used in the
residential, commercial and infrastructure construction industries. MMI has
established leading market positions in the fence and concrete construction
industries by combining efficient manufacturing, high quality and broad product
offerings and extensive distribution capabilities. MMI employs a combination of
state-of-the-art and traditional production methods to achieve cost efficiencies
in its manufacturing processes. In addition, while MMI's manufacturing
facilities are geared primarily toward high-volume, standardized production to
promote efficiencies, many of MMI'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. MMI
also benefits from raw material purchasing efficiencies because the majority of
manufactured products are produced from the same raw material.
MMI has developed an extensive and well positioned distribution network,
consisting of 72 company-operated distribution centers, located in 31 states.
MMI's distribution network services over 5,000 customers, including construction
contractors, fence wholesalers, industrial manufacturers, highway construction
contractors and fabricators of concrete reinforcing bar. In addition to serving
customers nationwide, distribution centers and production facilities are well
positioned to serve areas of high population and construction growth. MMI
currently has manufacturing or distribution facilities in each of the ten states
with the largest projected increases in population through 2025. MMI
manufactures its products from 18 principal manufacturing facilities
strategically located throughout the United States.
ACQUISITIONS
Historically, a significant portion of MMI's growth has been achieved through
acquisitions. Since 1989, MMI has completed twelve acquisitions, including eight
in the past four years, which have substantially increased MMI's net sales and
EBITDA. In 1998, MMI completed three acquisitions.
On February 18, 1998, MMI acquired the assets and assumed certain liabilities of
The Burke Group L.L.C. ("Burke"), a manufacturer of hardware devices and
processor of chemicals used in the concrete construction industry. The
acquisition expanded the breadth of MMI's concrete accessories product line. The
total purchase price was $20.6 million, which was funded by MMI's revolving
credit facility. On September 4, 1998, MMI sold the chemical processing
operations included in the Burke acquisition for approximately $3.6 million in
cash.
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On March 2, 1998, MMI purchased substantially all of the assets of Wholesale
Fencing Supply, Inc. and affiliated entities for approximately $2.1 million, of
which $1.1 million was funded by the revolving credit facility and $1.0 million
by a note payable to seller. The operations acquired include a manufacturer of
ornamental iron fencing in Tacoma, Washington, and distributors of fence
products in Tacoma, Washington, and two Oregon locations.
On October 6, 1998, MMI purchased all the issued and outstanding capital stock
of Security Fence Supply Co., Inc., a Maryland corporation ("Security Fence")
for cash of approximately $24.4 million, which was funded by the revolving
credit facility. Immediately following the purchase, the real property acquired
was sold to the former principals of Security Fence for approximately $3.6
million in cash and leased back to MMI for a term of five years at approximate
market rental rates. Security Fence specializes in commercial and industrial
fencing. It manufactures chain link and vinyl coated chain link fabric as well
as ornamental iron and vinyl fence products.
BUSINESS SEGMENTS
MMI reports the results of its operations in two business segments: Fence and
Concrete Construction Products. Financial information for each business segment
is disclosed in Note 12 of Notes to Consolidated Financial Statements.
Both the Fence and Concrete Construction Products segments share common factors
in relation to seasonality of business and raw materials.
Seasonality and Cyclicality. MMI'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 sales and profitability. Although MMI believes that a
cyclical downturn is inevitable, MMI has implemented the following strategies
which it believes will mitigate the impact of any such downturn on its future
operating results and liquidity:
o Increased the focus on products used in the commercial and
infrastructure construction industries, which historically have been
less cyclical than the residential construction industry.
o Positioned Concrete Construction Products segment to benefit from
anticipated increases in infrastructure spending.
o Expanded distribution network to serve diverse areas of high
population growth, as well as to limit the effects of any regional
economic downturns.
As a result of seasonality, 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 second
and third quarter.
Raw Materials. MMI's manufactured products are produced primarily from steel
rod. Because both business segments require large quantities of the same raw
material, MMI purchases steel rod in significantly larger quantities than would
be the case if the business segments were part of separate stand-alone
enterprises. Because of such large volume purchases, MMI believes that it
typically purchases steel rod at a cost below industry standard. Since steel rod
cost comprises a substantial portion of cost of goods sold (approximately 33%
in fiscal year 1998), MMI believes such cost savings provide a significant
competitive advantage.
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In recent years, more than 50% of the steel rod purchased has been produced
overseas. Most of the purchases of foreign steel rod are made through Mannesmann
Pipe and Steel Corporation, which arranges the importation of rod from various
overseas sources. Major suppliers of steel rod in the United States include
Ameristeel, Atlantic Steel, Co-Steel Raritan, Keystone Steel, and North Star
Steel.
MMI generally 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, there is no exposure to significant risks of fluctuations in
foreign currency exchange rates with respect to such agreements.
Fence Segment
The Fence segment is made up of three operating entities, Merchants Metals,
Security Fence and Anchor Die Cast. Merchants Metals is headquartered in
Houston, Texas with the operations segregated and managed by geographic
divisions. Security Fence is a manufacturer and distributor of a variety of
fence products and is located in Bladensburg, Maryland. Anchor Die Cast, a small
manufacturer and distributor of fence fittings, is located in Harrison,
Arkansas. The Fence segment contributed 49.7%, 51.2% and 58.2% of consolidated
net sales in fiscal years 1998, 1997 and 1996, respectively.
Products. The Fence segment manufactures galvanized and vinyl coated chain link
fence fabric, a full line of aluminum die cast and galvanized pressed steel
fittings, and vinyl coated colored pipe, ornamental iron fence products, and
vinyl fencing. These products are manufactured at seven principal facilities.
The segment 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. The
segment also assembles wooden fence panels for residential fences at several of
its facilities.
Fence products are used in a variety of applications. The 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. PVC color
coated wire, together with vinyl coated colored pipe, tubing and fittings, are
used primarily for tennis courts and other residential applications. The segment
also offers other fence products that 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.
In fiscal year 1998, approximately 46% of the Fence segment sales represented
products manufactured by the segment. The remaining fence products were
purchased as finished goods from third parties for distribution. Purchases of
finished fence products are primarily from domestic manufacturers. MMI 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.
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Production Process. The chain link fence manufacturing process is virtually the
same at each manufacturing facility. The dominant manufacturing process, which
is known as "GAW" or "galvanized after weaving", involves three steps.
o The first step, wire drawing, transforms steel rod into steel wire,
primarily ranging in thickness from 12.5 gauge (.095 inches) to 6.0
gauge (.192 inches).
o 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.
o 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 segment also produces other types of coated wire fabric, including polyvinyl
chloride or "PVC" coated, aluminum coated, and galvanized before weaving
("GBW"). In addition, vinyl coatings are applied to the pipe, tubing, and
fittings used with vinyl coated chain link fabric. Anchor Die Cast manufactures
a full line of aluminum die cast and galvanized pressed steel fittings.
Sales and Marketing; Principal Customers. The Fence segment sells fence products
principally to fence wholesalers and residential and commercial contractors.
Although some sales of fence products are through home centers, such sales are
not a primary focus of sales efforts. No one customer accounted for more than
10% of the Fence segment revenues in fiscal year 1998.
The segment's dedicated sales force consists of approximately 81 employees whose
sales territories cover the 48 contiguous states. Sales generally are made
through 53 regional distribution centers (seven of which are located at
manufacturing facilities), which are located in 30 states. Because customer
orders typically require rapid turn-around time, the distribution centers are
strategically located near customers' facilities. The segment also distributes
its fence products through a network of 338 authorized dealers located
throughout the country.
Competition. The Fence segment's major national competitor is Master-Halco,
Inc., which has a more extensive distribution network than MMI. MMI believes,
however, that its more extensive fence manufacturing capabilities provide an
advantage to some major accounts. The segment also competes with two strong
regional competitors, 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 remaining competitors are smaller regional manufacturers and
wholesalers.
Although the ability to sell fence products at a competitive price is an
important competitive factor, MMI 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. MMI believes that its
reputation for quality and service and its ability to deliver product quickly
due to the locations of its 53 fence distribution centers, enable MMI to obtain
a slight premium in its sales price for fence products, as compared to its
principal competitors.
Concrete Construction Products Segment
The Concrete Construction Products segment is made up of two operating entities,
Ivy Steel and Wire and Meadow-Burke Products. Ivy is headquartered in Houston,
Texas and Meadow-Burke
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is headquartered in Tampa, Florida. Both companies segregate their management
and operations by geographic region. The Concrete Construction Products segment
contributed 50.3%, 48.8% and 41.8% of consolidated net sales in fiscal years
1998, 1997 and 1996, respectively.
Products. Concrete construction products include various classes of wire mesh,
which serve as a structural reinforcing grid for concrete construction,
including concrete pipe, roads, bridges, runways and sewage and drainage
projects. In addition, the segment produces 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 segment 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 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.
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. Ivy 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. Structural mesh is marketed 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, MMI believes that the overall
construction cost to the customer is generally lower if structural mesh is
utilized. The segment also manufactures galvanized strand wire which is used by
manufacturers and processors of all types of wire products, including shelving,
household and automotive products.
The concrete accessory products include supports for steel reinforcing bars and
wire mesh, form ties and related products, basket assemblies (including welded
and loose dowel basket assemblies), anchors and inserts (including imbedded
attachments and lifting devices, composite structural wire members and prestress
strand hold down anchors) and bracing devices for holding in place tilt-up
concrete walls. Although the segment manufactures most of its concrete
accessories, 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 segment. New products are continually introduced in an
effort to provide a full line of concrete accessories to customers.
Concrete accessories are used in a variety of applications. Supports are used to
position and install steel reinforcing bars and wire mesh in the construction of
roads, bridges and other heavy construction projects. Welded and loose dowel
basket assemblies are used to reinforce joints between concrete pieces in the
paving of roads, highways, and runways. Anchors and inserts are used to fasten
and lift precast panels and floor panels in the construction of, among other
things, commercial buildings.
In fiscal year 1998, approximately 93% of the segments sales represented
manufactured products. The remaining 7% of segment sales were purchased as
finished goods for resale through 22 regional distribution facilities.
Production Process. The Concrete Construction Products segment manufactures its
products at 11 principal facilities, which are strategically located throughout
the United States.
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Wire mesh is manufactured with wire that ranges in size from 1/8-inch diameter
to 3/4-inch diameter, in both smooth and deformed patterns. The 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.
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.
The concrete accessory manufacturing process also consists of drawing steel rod
into wire which is then fed 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, other raw materials are used such
as round bar stock, slit steel coils, reinforcing steel bars and paints,
plastisol and epoxy powder used for various coatings.
Sales and Marketing; Principal Customers. The segment sells its products
principally to construction products distributors, industrial manufacturers
(such as pre-casters of concrete products), large reinforcing bar fabricators,
commercial building supply dealers and construction contractors.
The specialized sales force for the wire mesh product line consists of
approximately 13 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 concrete accessories, wire mesh
products are shipped directly from one of the six wire mesh manufacturing
facilities to the customer, generally in truckload quantities. Most wire mesh
production is in response to particular customer orders. Light wire mesh used
for residential construction, however, is produced in standard patterns in
anticipation of customer orders.
The dedicated sales force for concrete accessories consists of approximately 35
employees whose sales territories cover the 48 contiguous states. Concrete
accessories are distributed primarily through 16 regional distribution centers
(five of which are located at concrete accessories manufacturing facilities).
Because orders for concrete accessories typically require rapid turn-around
time, these distribution centers are strategically located near customers'
facilities.
No one customer accounted for more than 10% of the Concrete Construction
Products segment revenues in fiscal year 1998.
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Competition. The segment's major competitor for wire mesh is Insteel Wire
Products, Inc. The segment faces strong regional competitors in Midwestern,
Southeastern, and Mid-Atlantic states. There is also competition from smaller
regional manufacturers and wholesalers of wire mesh products.
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 MMI. The segment also faces strong full line competition from a regional
competitor and from two other significant competitors, who offer a more limited
number of products.
MMI believes that its ability to produce a greater variety of wire mesh products
in a wider geographical area provides an advantage to major accounts. MMI
believes that its willingness and ability to provide custom-made products that
fit its customers' individual needs provide a competitive advantage. For
concrete accessories, MMI believes that price, extensive product selection and
ability to deliver product quickly are the principal competitive factors.
MMI believes that its raw material costs (which MMI believes are lower than many
of its competitors) enhance the segment's ability to compete effectively with
respect to product price in the concrete construction market.
REGULATION
Environmental Regulation. MMI is subject to extensive and changing federal,
state and local Environmental Laws including laws and regulations that (i)
relate to air and water quality, (ii) impose limitations on the discharge of
pollutants into the environment, and (iii) 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 MMI's facilities or at
third-party facilities at which MMI has arranged for the disposal treatment of
hazardous materials.
Although no assurances can be given, MMI believes that MMI and its operations
are in compliance in all material respects with all Environmental Laws and MMI
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. MMI cannot predict the effect such future requirements, if
enacted, would have on MMI although MMI believes that such regulations would be
enacted over time and would affect the industry as a whole.
Health and Safety Matters. MMI'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. MMI 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 MMI will be required in the near future to expend
material amounts by reason of such health and safety laws and regulations, MMI
is unable to predict the ultimate cost of compliance with these changing
regulations.
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EMPLOYEES
As of January 2, 1999, MMI had approximately 2,200 full time employees. MMI is a
party to seven collective bargaining agreements with five unions, of which a
total of 284 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. MMI
considers its relations with its employees to be good.
AVAILABLE INFORMATION
MMI files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements
and other information filed by MMI at the SEC's public reference rooms at 450
Fifth Street, N.W., Washington, D.C. 20549, or at the SEC offices in New York,
New York and Chicago, Illinois. Please call (800) SEC-0330 for further
information on the public reference rooms. MMI's filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the SEC at http://www.sec.gov.
ITEM 2. PROPERTIES
MMI's principal executive offices are located in approximately
11,000 square feet of leased space in Houston, Texas.
The operating facilities of MMI can be broken down into two
categories, manufacturing plants and distribution centers. The majority of the
manufacturing plants are owned by MMI. The majority of the distribution centers
are leased from third parties. The following table sets forth the facilities
general information by operating segment:
<TABLE>
<CAPTION>
Type of facility States Size*
- ---------------------------------------------------- ------- ---------------------
<S> <C> <C>
Fence Manufacturing Plants 7 609,100 square feet
Fence Distribution Centers 30 537,974 square feet
Concrete Construction Products Manufacturing Plants 11 1,116,875 square feet
Concrete Construction Products Distribution Centers 11 149,567 square feet
</TABLE>
* Does not include square footage of outside storage and other outdoor areas.
ITEM 3. LEGAL PROCEEDINGS
MMI is involved in various claims and lawsuits incidental to its business. MMI
does not believe that these claims and lawsuits in the aggregate will have a
material adverse affect on MMI's business, financial condition and results of
operations.
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.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data derived from
MMI's audited consolidated financial statements and should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and Notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Years
(In Thousands) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 418,355 $ 346,905 $ 283,402 $ 233,284 $ 197,617
Gross profit 67,394 50,906 44,963 37,161 34,144
Nonrecurring expenses (1) -- -- 3,106 -- --
Net income 10,930 7,737 6,337 6,346 7,512
BALANCE SHEET DATA
(AT PERIOD END):
Working capital $ 58,854 $ 50,308 $ 33,511 $ 36,563 $ 29,222
Total assets 220,226 152,818 135,263 103,856 86,498
Total long-term debt and capital
leases, including current maturities 160,437 123,867 55,278 49,485 44,454
Stockholder's equity (deficit) (13,007) (20,873) 28,534 15,606 9,260
CASH FLOW DATA:
Net cash provided by operating
activities $ 15,161 $ 2,396 $ 15,491 $ 12,745 $ 11,516
Net cash used in investing
activities (47,886) (4,976) (24,314) (14,741) (2,452)
Net cash provided by (used in)
financing activities 31,195 5,855 6,894 3,681 (8,891)
EBITDA (2) $ 42,781 $ 31,423 $ 25,547 $ 21,613 $ 19,997
Cash dividends (3) 1,292 57,105 -- -- 308
</TABLE>
(1) In fiscal year 1996, MMI recorded nonrecurring expense resulting from
the modification of stock options granted in previous years as part of
the Recapitalization of MMI and Merchant Metals Holding Company
("Holding"). See Note 2 to the audited consolidated financial
statements included elsewhere herein.
(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.
(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 MMI 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. In fiscal
year 1998, $1.3 million was distributed to Holding to finalize the
1997 redemption of certain of its equity interests.
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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 MMI. This analysis should be read in conjunction with MMI's
Consolidated Financial Statements and Notes thereto, appearing elsewhere herein.
GENERAL
MMI is a leading manufacturer and distributor of products used in the
residential, commercial and infrastructure construction industries. Earnings,
including business segment earnings were as follows:
<TABLE>
<CAPTION>
(In Thousands) Fiscal Years
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fence segment earnings $ 14,043 $ 11,290 $ 9,261
Concrete Construction Products segment earnings 22,315 14,980 12,289
Corporate (1) (764) (354) (3,557)
-------- -------- --------
Earnings before interest and income taxes 35,594 25,916 17,993
Interest expense 17,320 13,018 7,429
-------- -------- --------
Earnings before income taxes 18,274 12,898 10,564
Income taxes 7,344 5,161 4,227
-------- -------- --------
Net income $ 10,930 $ 7,737 $ 6,337
======== ======== ========
</TABLE>
(1) Corporate represents only amortization of intangible assets and
non-recurring charges. Corporate general and administrative expenses
are allocated to the segments based upon proportional net sales.
On a consolidated basis MMI's significant growth in net sales and earnings
result primarily from business acquisitions, the expansion of the fence
segment's distribution network, strong activity in the commercial and
infrastructure construction markets and increase in market share. Net sales
increased 20.6% in 1998 and 22.4% in 1997. Net income increased 41.3% in 1998
and 22.1% in 1997. In 1998, the primary contribution to net income growth was
the increased sales of concrete accessory products. The acquisition of The Burke
Group in early 1998 contributed additional sales of concrete accessories which
generally carry a higher gross profit margin than other company products.
Interest expense increased $4.3 million in 1998 and $5.6 million in 1997. The
increase is primarily due to the issuance of $120 million 11.25% Senior
Subordinated Notes in April 1997. If the proceeds from the issuance of the 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. 1998 interest
expense is $1.9 million higher than 1997 pro forma interest due to an increase
in borrowings from the credit facility primarily for funding of acquisitions and
capital expenditures. 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.
The effective income tax rate remained flat for fiscal years 1996 and 1997 and
increased slightly in fiscal year 1998 as a result of the non-deductible
goodwill associated with the Security Fence acquisition in October 1998.
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FENCE SEGMENT
<TABLE>
<CAPTION>
(In Thousands) Fiscal Years
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales $208,117 $177,640 $164,971
Gross profit 30,893 25,464 23,461
Gross profit margin 14.8% 14.3% 14.2%
SG&A and other expense $ 16,850 $ 14,174 $ 14,200
Earnings before interest and income taxes 14,043 11,290 9,261
EBITDA 16,962 13,722 11,441
</TABLE>
Net Sales. Net sales increased 17.2% in 1998 and 7.7% in 1997. These increases
are primarily due to acquisitions and the opening of new distribution centers.
Also contributing to 1998 increases were favorable weather conditions and
increased housing starts. Net sales for the fourth quarter of 1998 had a 16.0%
increase over the fourth quarter 1997 exclusive of the Security Fence
acquisition in October 1998. Total fourth quarter growth including three months
of Security Fence operations was 33.9%. The opening of a new fence distribution
center in January 1997 and an acquisition in late 1997 contributed to the
majority of the 1997 net sales increase.
Gross Profit. The fence segment's gross profit margin percentage has remained
relatively flat over the last three years. The increase in 1998 was primarily
due to lower steel rod prices and higher margin products introduced in the
fourth quarter from the Security Fence acquisition.
SG&A and other expense. SG&A and other expense ("SG&A") increased 18.9% in 1998
and remained flat in 1997. SG&A as a percentage of sales was 8.1%, 8.0%, and
8.6% for 1998, 1997, and 1996, respectively. The increase in expense in 1998 was
principally due to business acquisitions and the opening of distribution
centers. SG&A as a percentage of sales was relatively flat in 1998 and 1997. The
higher 1996 ratio to sales was primarily the result of an increase in the
allowance for doubtful accounts.
CONCRETE CONSTRUCTION PRODUCTS SEGMENT
<TABLE>
<CAPTION>
(In Thousands) Fiscal Years
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales $210,238 $169,265 $118,431
Gross profit 36,501 25,442 21,502
Gross profit margin 17.4% 15.0% 18.1%
SG&A and other expense $ 14,186 $ 10,462 $ 9,213
Earnings before interest and income taxes 22,315 14,980 12,289
EBITDA 25,819 17,701 14,106
</TABLE>
Net Sales. Net sales increased 24.2% in 1998 and 42.9% in 1997. Increases are
primarily the result of acquisitions and strong activity in commercial and
infrastructure construction markets. In 1998, the Burke Group acquisition
contributed $23.9 million, a 14.1% increase in net sales. Also impacting 1998
was increased sales to the segment's largest customer, a company which has also
grown through acquisitions. Three acquisitions in the second half of 1996
contributed significantly to the 1997 sales increases. The mesh product line
provided the majority of the 1997 increase, 86.6%, which was principally due to
the full twelve month impact of two of the
12
<PAGE> 13
1996 acquisitions. The concrete accessory product line sales increase in 1997
was also primarily due to an acquisition in the fourth quarter of 1996.
Gross Profit. Gross profit increased 43.5% in 1998 and 18.3% in 1997. Gross
profit margins increased to 17.4% in 1998 from 15.0% in 1997. The 1998 increase
in gross profit was primarily due to the increase in mix of higher margin
concrete accessories. This increase was partially offset by a slight decrease in
the mesh products margin due to fluctuations in raw material costs. Rapidly
declining costs of purchased steel rod and competitive pressure reduced mesh
prices early in 1998 when the company still held in inventory rod purchased at
higher costs in 1997. The 1997 gross profit margin decreased from 18.1% in 1996
to 15.0%. This decrease was principally due to increased sales of lower margin
products in both the mesh and concrete accessory lines, combined with the start
up of a new concrete accessory plant and the incurrence of higher raw material
costs.
SG&A expense. SG&A expenses increased 35.6% in 1998 and 13.6% in 1997. As a
percentage of sales, SG&A expense was 6.7%, 6.2% and 7.8% in 1998, 1997, and
1996, respectively. The increase in SG&A expenses was primarily due to the
growth in sales from acquisitions. The increase in SG&A expense as a percentage
of sales in 1998 is principally due to the higher selling costs related to the
Burke Group concrete accessory products. The decrease in SG&A expense as a
percentage of sales in 1997 is due to growth in the made-to-order wire mesh
product line, which has a lower relative sales cost, and efficiencies achieved
from integrating acquired businesses into the segment's operations.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities generated $15.2 million of cash in 1998 compared with $2.4
million and $15.5 million in 1997 and 1996, respectively. Net income adjusted
for non-cash items such as depreciation, amortization, and other non-cash
charges provided $18.6 million, $16.2 million and $13.9 million in 1998, 1997,
and 1996, respectively. Net income adjusted for non-cash items was utilized
primarily to support growth in operating assets. Excluding acquired assets,
accounts receivable and inventory increased $20.5 million, $10.2 million and
$10.0 million in 1998, 1997, and 1996, respectively. Additional cash was
provided by an increase in payables and accrued liabilities, especially in 1998,
which had an increase of $17.7 million due to internal growth in the business.
Investing activities utilized $47.9 million, $5.0 million and $24.3 million in
1998, 1997 and 1996, respectively. In 1998 and 1996 the majority of this cash
was used for acquisitions. The three acquisitions in 1998 utilized $37.7 million
and three acquisitions in 1996 used $20.9 million. Capital expenditures for
expansion, improvement and replacement of property plant and equipment was $10.2
million, $4.6 million and $3.5 million in 1998, 1997 and 1996, respectively.
Capital expenditures in 1998 included $3.2 million for a wire mesh plant
facility which replaced a previously leased building, and $1.9 million for
rental equipment, a new product line resulting from the Burke acquisition.
Financing activities provided $31.2 million in 1998 compared to $5.9 million and
$6.9 million in 1997 and 1996, respectively. The increase in 1998 was due to the
funding of acquisitions, particularly the Security Fence acquisition in October
1998. Financing cash flow in 1997 included the issuance of senior subordinated
notes and the use of their net proceeds as discussed below.
13
<PAGE> 14
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. EBITDA was $42.8 million, $31.4
million and $25.5 million in 1998, 1997, and 1996, respectively. The increase in
EBITDA is primarily the result of higher net sales and gross profit resulting
from acquisitions and other changes as discussed in the segment analysis above.
Senior Subordinated Notes. On April 16, 1997, MMI issued $120 million of 11.25%
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 MMI's
remaining indebtedness under a term loan facility of $11.4 million and (iv) to
reduce MMI's indebtedness under the revolving credit facility. As a result, of
the issuance MMI's interest expense increased $4.3 million in 1998
(approximately $2.4 million is from the full twelve month impact of the notes)
and $5.6 million in 1997. If the proceeds from the 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 notes plus the amortization of deferred financing costs over the
life of the debt less interest expense on debt that would have been retired.
On February 9, 1999, MMI issued $30 million of a new series of the 11.25% Senior
Subordinated Notes in a private offering. The net proceeds were approximately
$31.1 million, including original issuance premium after expenses. MMI intends
to use the net proceeds to reduce its borrowings under the revolving credit
facility. A portion of the outstanding borrowings under the revolver are subject
to interest rate swap agreements maturing from February 21, 1999 through April
9, 1999. Pending the expiration of such agreements, MMI will invest a portion of
the net proceeds in short-term investments.
MMI's capital expenditure budget for fiscal year 1999 is $10.0 million and will
be funded by the revolving credit facility.
In fiscal 1998, MMI made capital expenditures in excess of the limits
established in the revolving credit facility and did not satisfy certain
reporting requirements to its lenders during fiscal 1998 and subsequent to year
end. MMI has obtained waivers from the lenders for each of these items. In March
1999, the revolving credit facility was amended to modify certain reporting
requirements through August 1999. MMI believes that it will be able to comply
with the amended reporting requirements and other restrictive covenants in the
revolving credit facility throughout its fiscal year 1999.
MMI 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.
14
<PAGE> 15
MMI 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
MMI's future operating cash flows and the size of potential acquisitions, MMI
will seek additional sources of financing subject to limitations set forth in
its senior subordinated notes indenture.
EFFECT OF INFLATION
The impact of inflation on MMI'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 MMI's operating results.
IMPACT OF YEAR 2000
State of Readiness. MMI completed an assessment and has completed or is in the
process of modifying or replacing portions of its software so that its computer
systems will function properly with respect to dates in the Year 2000 and
beyond. In October 1998, MMI replaced its general ledger, accounts payable,
accounts receivable, sales analysis, and financial reporting systems with
software which is Year 2000 compliant. Year 2000 compliance in other systems is
to be achieved through modification of internally developed programs and is
scheduled to be completed by the third quarter of 1999.
Third Party Relationships. MMI does not expect any significant disruption of
operations in the event that any of its suppliers or customers fail to achieve
Year 2000 compliance.
Contingency Plans. Programming changes of internally developed systems may
require a reduction in the scope of modifications and/or the enlistment of third
party resources if the scheduled completion date appeared to be in jeopardy.
Specific contingency plans have been identified for all of the outstanding
projects.
Risks and Uncertainties. Based on the completion of several software and
hardware replacement projects, internal plans for remaining system modification
projects, limited exposure to reliance on third party Year 2000 compliance and
completion of contingency plans, MMI believes that it will experience at most,
isolated and minor disruptions of business processes as a result of the Year
2000 issue. Such disruptions are not expected to have a material effect on MMI's
business, consolidated financial position or results of operations. However, the
magnitude of all Year 2000 disturbances cannot be predicted. Failure to complete
these programs as planned 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, all of which could have a material impact on MMI's
business, consolidated financial position or results of operations.
Costs. MMI's growth in recent years has required system software and hardware
upgrades and improvements that were planned for and initiated in 1996. The costs
of the purchased software and hardware upgrades related to these projects
incurred through January 2, 1999 was approximately $700,000 and has been
capitalized in property, plant and equipment in the accompanying consolidated
balance sheets. MMI has also incurred costs of approximately $450,000 through
January 2, 1999 related to these projects for software implementation and
modification of existing programs that has been expensed as incurred. In fiscal
year 1999, MMI expects to incur approximately $240,000 to complete these
projects, including Year 2000 specific modifications. Because the costs of
software and hardware upgrades were already being incurred, and planned
modification of internal systems is primarily for improvement and increased
capacity, the actual cost for Year 2000 specific upgrades and modifications is
not expected to exceed $100,000 and will be expensed as incurred.
15
<PAGE> 16
NEW ACCOUNTING STANDARDS
As of January 4, 1998, MMI adopted Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income (Statement 130) and Statement
No. 131, Disclosures about Segments of an Enterprise and Related Information
(Statement 131).
Statement 130 establishes new rules for reporting and display of comprehensive
income and its components; however, the adoption of Statement 130 had no impact
on MMI's consolidated net income or stockholder's equity. Prior year financial
statements have been reclassified to conform to the requirements of Statement
130.
Statement 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. Statement 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The adoption of Statement 131 did not affect MMI's consolidated
results of operations or financial position. See Note 12 of Notes to
Consolidated Financial Statements.
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
MMI's other public reports and filings and public statements.
16
<PAGE> 17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MMI is subject to market risk exposure related to changes in interest rates on
its revolving credit facility and its senior subordinated notes. Borrowings
under the credit facility bear interest, at the option of MMI, at either the
bank's base rate plus 0.25 percent or Eurodollar rate plus 1.5 percent. For
fiscal year 1998, the weighted average balance outstanding under this credit
facility was $26.2 million. Based on this balance, a one percent change in the
interest rate would cause a change in interest expense of approximately
$262,000. MMI is exposed to changes in the fair value of it's $120 million
11.25% fixed rate senior subordinated notes. At January 2, 1999, the fair value
of the notes was approximately 108% of par, or $129.6 million. At January 3,
1998, the fair value of the notes was approximately 109% of par, or $130.8
million. Although the fair value of these notes has not fluctuated much, the
variation in fair value is a function of market interest rate changes and the
investor perception of the investment quality of the senior subordinated notes.
MMI also has exposure to price fluctuations associated with steel rod, its
primary raw material. MMI negotiates purchase commitments from one to nine
months in advance to limit its exposure to price fluctuation and ensure
availability of the materials. Approximately 50% of steel rod is purchased from
foreign sources.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 18
Consolidated Balance Sheet at fiscal year end 1998 and 1997 19
Consolidated Statement of Operations for fiscal years 1998, 1997 and 1996 20
Consolidated Statement of Changes in Stockholder's Equity (Deficit) for fiscal
years 1998, 1997 and 1996 21
Consolidated Statement of Cash Flows for fiscal years 1998, 1997 and 1996 22
Notes to Consolidated Financial Statements 23 - 38
</TABLE>
17
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder of
MMI Products, Inc.
We have audited the accompanying consolidated balance sheets of MMI Products,
Inc. and subsidiary as of January 2, 1999 and January 3, 1998, and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the three fiscal years in the period ended January 2, 1999. 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 consolidated financial position of MMI Products, Inc.
and subsidiary at January 2, 1999 and January 3, 1998, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 2, 1999, 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 31, 1999
18
<PAGE> 19
MMI PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 2, January 3,
ASSETS 1999 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,979 $ 3,509
Accounts receivable, net of allowance for doubtful accounts of
$1,926 and $1,876, respectively 58,633 38,940
Inventories 62,347 48,938
Income tax receivable -- 1,710
Deferred income taxes 1,495 1,178
Prepaid expenses 1,443 1,206
--------- ---------
Total current assets 125,897 95,481
Property, plant and equipment
Land 4,814 4,814
Buildings and improvements 17,890 16,473
Machinery and equipment 69,669 50,343
--------- ---------
92,373 71,630
Less accumulated depreciation 31,456 25,712
--------- ---------
Property, plant and equipment, net 60,917 45,918
Intangible assets 29,123 5,831
Deferred charges and other assets 4,289 5,588
--------- ---------
Total assets $ 220,226 $ 152,818
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 50,328 $ 27,276
Accrued interest 3,238 3,172
Accrued liabilities 11,175 10,025
Income tax payable 672 --
Due to Holding, net -- 3,573
Current maturities of long-term obligations 1,630 1,127
--------- ---------
Total current liabilities 67,043 45,173
Long-term obligations 158,807 122,740
Deferred income taxes and other long-term liabilities 7,383 5,778
Commitments and contingencies
Stockholder's deficit
Common stock, $1 par value; 500,000 shares authorized;
252,000 shares issued and outstanding 252 252
Additional paid-in capital 13,009 14,711
Accumulated other comprehensive income, net of tax of $148 and
$105, respectively (221) (151)
Retained deficit (26,047) (35,685)
--------- ---------
Total stockholder's deficit (13,007) (20,873)
--------- ---------
Total liabilities and stockholder's deficit $ 220,226 $ 152,818
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
19
<PAGE> 20
MMI PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------
January 2, January 3, December 28,
1999 1998 1996
---------- ---------- ------------
<S> <C> <C> <C>
Net sales $ 418,355 $ 346,905 $ 283,402
Cost of sales 350,961 295,999 238,439
--------- --------- ---------
Gross profit 67,394 50,906 44,963
Selling, general and administrative expense 31,874 24,843 23,143
Nonrecurring expense - stock options (Note 2) -- -- 3,106
Other (income) expense, net (74) 147 721
--------- --------- ---------
Income before interest and income taxes 35,594 25,916 17,993
Interest expense:
Affiliates -- -- 2,046
Other 17,320 13,018 5,383
--------- --------- ---------
17,320 13,018 7,429
--------- --------- ---------
Income before income taxes 18,274 12,898 10,564
Provision for income taxes 7,344 5,161 4,227
--------- --------- ---------
Net income $ 10,930 $ 7,737 $ 6,337
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
20
<PAGE> 21
MMI PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Total
Additional Retained Other Stockholder's
Common Paid-In Earnings Comprehensive Equity
Stock Capital (Deficit) Income (Deficit)
-------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 30, 1995 $ 252 $ 8,008 $ 7,346 $ -- $ 15,606
Net income -- -- 6,337 -- 6,337
Contribution of capital
- Recapitalization (Note 1) -- 3,485 -- -- 3,485
- stock options (Note 2) -- 3,106 -- -- 3,106
-------- -------- -------- -------- --------
Balance at December 28, 1996 252 14,599 13,683 -- 28,534
Net income -- -- 7,737 -- 7,737
Additional minimum pension
liability -- -- -- (151) (151)
--------
Comprehensive income -- -- -- -- 7,586
--------
Contribution of capital
- stock options -- 112 -- -- 112
Distribution to Holding -- -- (57,105) -- (57,105)
-------- -------- -------- -------- --------
Balance at January 3, 1998 252 14,711 (35,685) (151) (20,873)
Net income -- -- 10,930 -- 10,930
Additional minimum pension
liability -- -- -- (70) (70)
--------
Comprehensive income -- -- -- -- 10,860
--------
Adjustment to 1996 Contribution
of capital (Note 1) -- (1,702) -- -- (1,702)
Dividend to Holding (Note 1) -- -- (1,292) -- (1,292)
-------- -------- -------- -------- --------
Balance at January 2, 1999 $ 252 $ 13,009 $(26,047) $ (221) $(13,007)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
21
<PAGE> 22
MMI PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------
January 2, January 3, December 28,
1999 1998 1996
---------- ---------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,930 $ 7,737 $ 6,337
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,187 5,507 4,448
Nonrecurring expenses - stock options -- -- 3,106
Provision for losses on accounts receivable 234 -- 879
Deferred income taxes 340 2,886 (1,088)
(Gain) loss on sale of equipment (81) (22) 193
Other -- 112 --
Changes in operating assets and liabilities, net of effects of
acquired businesses:
Increase in accounts receivable (12,914) (3,139) (8,339)
Increase in inventories (7,546) (7,029) (1,668)
Decrease in prepaid expenses and other assets 333 272 2,068
Increase in accounts payable and accrued liabilities 17,701 1,109 9,762
Increase (decrease) in income taxes 2,629 (2,800) 372
Decrease in deferred interest payable - affiliates -- -- (6,389)
Increase (decrease) in due to Holding (3,652) (2,237) 5,810
--------- --------- ---------
Net cash provided by operating activities 15,161 2,396 15,491
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (10,226) (4,560) (3,545)
Proceeds from sale of equipment 52 101 89
Acquisitions, net of cash acquired (37,721) (552) (20,858)
Other 9 35 --
--------- --------- ---------
Net cash used in investing activities (47,886) (4,976) (24,314)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term obligations 187,316 157,854 122,033
Payments on long-term obligations (153,127) (90,943) (103,824)
Payments on subordinated notes payable - affiliates -- -- (14,800)
Contribution of capital from Holding (1,702) -- 3,485
Dividend to Holding (1,292) -- --
Distribution to Holding -- (57,105) --
Debt offering costs -- (3,951) --
--------- --------- ---------
Net cash provided by financing activities 31,195 5,855 6,894
--------- --------- ---------
Net change in cash and cash equivalents (1,530) 3,275 (1,929)
Cash and cash equivalents, beginning of period 3,509 234 2,163
--------- --------- ---------
Cash and cash equivalents, end of period $ 1,979 $ 3,509 $ 234
========= ========= =========
Supplemental Cash Flow Information:
Supplemental disclosure of noncash investing activities
Issuance of capital lease obligations for capital expenditures $ 1,385 $ 1,678 $ 1,443
Cash paid for interest $ 16,721 $ 10,441 $ 13,530
Cash paid for income taxes $ 4,371 $ 4,822 $ 4,938
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
22
<PAGE> 23
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 1999
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The consolidated financial statements include the accounts of MMI Products, Inc.
and its wholly-owned subsidiary, Security Fence Supply Co. Inc. (since its
acquisition on October 6, 1998) (collectively, "MMI" or the "Company"). MMI
Products, Inc. is a wholly-owned subsidiary of Merchants Metals Holding Company
("Holding") which is substantially wholly-owned by MMI Products, L.L.C. MMI is a
manufacturer and distributor of products used in the residential, commercial and
infrastructure construction industries within the United States. The
manufactured products in each of MMI's product lines are produced primarily from
the same raw material, steel rod. MMI's customers include contractors, fence
wholesalers, industrial manufacturers, highway construction contractors and
fabricators of reinforcing bar.
On December 13, 1996, MMI and Holding completed a recapitalization transaction
(the "Recapitalization"). Pursuant to the Recapitalization, (i) Holding made an
additional capital contribution to MMI of approximately $3.5 million in cash and
loaned MMI approximately $5.8 million, (ii) MMI 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) MMI repaid the full
amount of subordinated notes payable to affiliates of $14.8 million plus accrued
interest.
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. 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. In October 1998,
Holding paid $6.45 million, including accrued interest of $1.04 million, to
settle the value of the common stock redeemed. The $ 1.7 million increase in the
original value offered in the Recapitalization has been charged to Additional
Paid-in-Capital to reflect finalization of the December 1996 change in capital
contributions by Holding. MMI declared a dividend of $1.3 million to Holding
during the fourth quarter of 1998 to settle the interest and legal expenses paid
on Holding's behalf by MMI. The $6.45 million settlement was funded by MMI's
revolving credit facility and had no effect on the operating results of MMI.
On April 16, 1997, MMI 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 an MMI senior subordinated secured note payable, (iii)
to repay MMI's remaining indebtedness under a term loan facility of $11.4
million and (iv) to reduce MMI's indebtedness under the revolving credit
facility. See Note 7.
23
<PAGE> 24
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Fiscal Year
MMI follows a 52-53 week fiscal year ending on the Saturday closest to December
31st. The 1998, 1997, and 1996 fiscal years refer to the fifty-two week period
ended January 2, 1999, the fifty-three week period ended January 3, 1998 and the
fifty-two week period ended December 28, 1996, respectively.
Revenue Recognition
MMI records sales when its products are shipped.
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
MMI considers all demand deposits and time deposits with original maturities of
three months or less when purchased 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 $6,423,000, $5,153,000 and $3,997,000 for fiscal years
1998, 1997 and 1996, 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.
24
<PAGE> 25
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
MMI leases certain machinery and equipment under capital leases. Assets recorded
under capital leases are amortized over the lives of the respective leases with
the related amortization included in depreciation expense. Assets under these
obligations, totaling $3,574,000 and $3,427,000 (net of accumulated amortization
of $3,560,000 and $2,344,000) at January 2, 1999 and January 3, 1998,
respectively, are included in property, plant and equipment in the accompanying
consolidated balance sheets.
Goodwill
Goodwill represents the excess cost of companies acquired over the fair value of
their net identifiable assets. Goodwill is being amortized on a straight-line
basis over periods ranging from 20 to 40 years. The carrying value of goodwill,
as well as the related amortization periods, is periodically evaluated to
determine whether adjustments to the carrying value or related lives are
required. This evaluation is based on MMI's projection of undiscounted cash
flows of the acquired operations over the remaining amortization period. To the
extent such projections indicate that future undiscounted cash flows are not
sufficient to recover the carrying amounts of the related goodwill, the
underlying assets are written down by charges to expense so that the carrying
amount is equal to fair value, primarily determined based on future discounted
cash flows.
Impairment of Long-Lived Assets
The carrying values of long-lived assets, principally identifiable intangibles,
property, plant and equipment and any related goodwill, are 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 estimated future undiscounted cash flows. If such assets are considered to
be impaired, the carrying value of the related assets would be reduced to their
estimated fair value.
Concentration of Credit Risk
Financial instruments that could potentially subject MMI to concentrations of
credit risk are accounts receivable. MMI continuously evaluates the
creditworthiness of its customers and generally does not require collateral. No
customer accounted for 10% or more of consolidated revenues for fiscal years
1998, 1997 or 1996.
Fair Value of Financial Instruments
MMI 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 2, 1999
and January 3, 1998. The estimated fair value of MMI's long-term debt is
approximately $129.6 million and $130.8 million at January 2, 1999 and January
3, 1998, respectively, based on the quoted market price.
25
<PAGE> 26
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Reclassifications
Certain reclassifications have been made to the 1996 and 1997 financial
statements in order to conform to the 1998 presentation.
New Accounting Standards
As of January 4, 1998, MMI adopted Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income (Statement 130) and Statement
No. 131, Disclosures about Segments of an Enterprise and Related Information
(Statement 131).
Statement 130 establishes new rules for reporting and display of comprehensive
income and its components; however, the adoption of Statement 130 had no impact
on MMI's consolidated net income or shareholder's equity. Prior year financial
statements have been reclassified to conform to the requirements of Statement
130.
Statement 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. Statement 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The adoption of Statement 131 did not affect MMI's consolidated
results of operations or financial position. See Note 12.
2. NONRECURRING EXPENSES - STOCK OPTIONS
Effective December 13, 1996 in connection with the Recapitalization, MMI
incurred nonrecurring charges relating to Holding's stock options granted in
previous years to certain employees and a supplier of MMI. The aggregate effect
of these expenses was $3.1 million for fiscal year 1996.
Under Holding's 1988 Stock Option Plan, certain employees of MMI received
noncompensatory stock options for shares of Holding common stock. The options
expired generally 10 years from the date of grant. None of these options were
exercised. 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, MMI accrued $2.1 million in compensation
expense in 1996. On April 16, 1997, MMI 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
26
<PAGE> 27
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
2. NONRECURRING EXPENSES - STOCK OPTIONS - (CONTINUED)
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, MMI accrued $964,000 in expense in 1996. On April
16, 1997, MMI redeemed all of the outstanding options held by this supplier for
a total value of $998,000.
3. ACQUISITIONS OF BUSINESSES
During fiscal year 1998, MMI made the acquisitions set forth below, each of
which has been accounted for under the purchase method of accounting. The
accompanying consolidated financial statements include the operating results of
each of the acquired businesses from the date of the acquisition.
In February, 1998, MMI acquired certain net assets of The Burke Group L.L.C.
("Burke"), 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 purchase price was $20.6 million with assets acquired of
$12.1 million and liabilities assumed of $3.4 million. The excess of the
purchases price over the fair value of the net assets acquired was $11.9 million
and is being amortized over 40 years. In September 1998, MMI sold the chemical
processing business for approximately $3.6 million in cash, the book value of
the net assets sold.
In March 1998, MMI acquired certain assets of a fence manufacturer and
distributor for $2.1 million, of which $1.1 million was funded by the revolving
credit facility and $1.0 million by a note payable to seller.
In October 1998, MMI acquired all of the issued and outstanding capital stock of
Security Fence Supply Co., Inc. ("Security"), for cash of approximately $24.4
million. Immediately following the purchase, MMI sold the real property acquired
to the former principals of Security for $3.6 million and leased it back for a
term of five years at rates which approximate market. Security is a manufacturer
of commercial and industrial fencing located in Bladensburg, Maryland. Assets
acquired were $13.8 million and liabilities assumed were $4.1 million. The
excess of the purchase price over the fair value of the net assets acquired was
$11.1 million and is being amortized over 40 years.
The following table reports the unaudited pro forma consolidated results of
operations as though Burke and Security had been acquired as of the beginning of
fiscal year 1997:
<TABLE>
<CAPTION>
(In Thousands) Fiscal Years
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $442,701 $404,274
Gross profit 72,653 64,410
Net income 11,582 8,663
</TABLE>
27
<PAGE> 28
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
(In Thousands) January 2, 1999 January 3, 1998
--------------- ---------------
<S> <C> <C>
Raw materials $17,024 $11,188
Work-in-process 1,150 255
Finished goods 44,173 37,495
------- -------
$62,347 $48,938
======= =======
</TABLE>
MMI has a procurement agreement with a purchasing agent who brokers purchases of
imported steel rod. The agreement requires MMI to purchase from the agent an
average of 100,000 tons of steel rod annually through fiscal year 2001. During
fiscal years 1998, 1997 and 1996, 46%, 65% and 63%, respectively, of MMI's steel
rod purchases were from this supplier. At January 2, 1999, approximately $9.9
million of steel rod inventory owned by this agent had been consigned for MMI's
use. Actual steel rod purchase commitments at January 2, 1999, for this
supplier, and others was approximately $27 million.
5. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
(In Thousands) January 2, 1999 January 3, 1998 Estimated Lives
------------- ------------- -------------
<S> <C> <C> <C>
Goodwill $ 29,997 $ 6,597 20 - 40 years
Customer lists and other 2,451 1,760 3 - 20 years
------------- -------------
32,448 8,357
Less accumulated amortization 3,325 2,526
------------- -------------
Intangible assets, net $ 29,123 $ 5,831
============= =============
</TABLE>
Intangible assets are amortized on a straight-line basis over their respective
estimated lives (the period when benefits are expected to be derived). Total
amortization expense for fiscal years 1998, 1997 and 1996 was $764,000, $354,000
and $451,000, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
(In Thousands) January 2, 1999 January 3, 1998
--------------- ---------------
<S> <C> <C>
Accrued compensation $ 5,114 $ 3,472
Accrued insurance 1,606 2,254
Accrued retirement benefits 1,356 1,553
Other accrued liabilities 3,099 2,746
------- -------
$11,175 $10,025
======= =======
</TABLE>
28
<PAGE> 29
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
7. LONG-TERM DEBT
Long-term debt, including capital lease obligations, consisted of the following:
<TABLE>
<CAPTION>
(In Thousands) January 2, 1999 January 3, 1998
--------------- ---------------
<S> <C> <C>
Revolving credit facility $ 35,422 $ --
11.25% Senior subordinated notes, due 2007,
interest payable semi-annually in arrears on
April 15 and October 15 120,000 120,000
Capital lease obligations 4,019 3,867
Other notes payable 996 --
-------- --------
160,437 123,867
Less current maturities 1,630 1,127
-------- --------
Long-term obligations $158,807 $122,740
======== ========
</TABLE>
11.25% Senior Subordinated Notes
On April 16, 1997, MMI 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 MMI's remaining indebtedness under a term loan facility of $11.4
million and (iv) to reduce MMI's indebtedness under the revolving credit
facility. The senior subordinated notes are general unsecured obligations of MMI
and are subordinated to MMI's revolving credit facility.
On February 9, 1999, MMI issued in a private offering, $30 million of senior
subordinated notes due 2007. This is a second series of the subordinated notes
issued on April 16, 1997. The net proceeds were approximately $31.1 million,
including original issuance premium after expenses.
Revolving Credit Facility
MMI's revolving credit facility provides for maximum borrowings of $48.5 million
(due December 2001) with interest payable at the bank's base rate plus 0.25
percent or Eurodollar rate plus 1.5 percent (the bank's base rate plus 0.25
percent or Eurodollar rate plus 2.0 percent at January 3, 1998). Approximately
$33 million of MMI's outstanding borrowings at year end are subject to interest
rate swap agreements maturing from February 24, 1999 through April 9, 1999. As
of January 2, 1999, the average interest rate was 7.01 percent. MMI 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 MMI and guaranteed by Holding. Borrowing availability
under the revolving credit facility at January 2, 1999, after taking into
account borrowing base restrictions and outstanding letters of credit, was $46.1
million. MMI had outstanding letters of credit (which cannot exceed $20 million)
totaling $2.4 million and $1.1 million at January 2, 1999 and January 3, 1998,
respectively.
29
<PAGE> 30
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
7. LONG-TERM DEBT - (CONTINUED)
The terms of the revolving credit facility contain, among other provisions,
affirmative and negative covenants that require MMI 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. MMI'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. The 1998 dividend to Holding
was permitted under the terms of the revolving credit facility as it related to
expenses paid on behalf of Holding in final settlement of the 1996
Recapitalization discussed in Note 1.
In fiscal 1998, MMI made capital expenditures in excess of the limits
established in the revolving credit facility and did not satisfy certain
reporting requirements to the lenders during fiscal 1998 and subsequent to year
end. MMI has obtained waivers from the lenders for each of these items. In March
1999, the revolving credit facility was amended to modify certain reporting
requirements through August 1999. MMI believes that it will be able to comply
with the amended reporting requirements and other restrictive covenants in the
revolving credit facility throughout its fiscal year 1999.
Scheduled maturities of long-term debt, including capital lease obligations, are
as follows:
<TABLE>
<CAPTION>
(In Thousands) Long-Term Debt Capital Leases
-------------- --------------
<S> <C> <C>
1999 $ 332 $ 1,551
2000 332 1,419
2001 35,754 1,001
2002 -- 525
2003 and thereafter 120,000 99
-------- --------
156,418 4,595
Less amount representing interest -- 576
-------- --------
$156,418 $ 4,019
======== ========
</TABLE>
On or prior to April 15, 2000, MMI 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.
30
<PAGE> 31
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
8. LONG-TERM DEBT - (CONTINUED)
The senior subordinated notes will be redeemable at the option of MMI, in whole
or in part, at any time on or after April 15, 2002 at the 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:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2002 105.625%
2003 103.750%
2004 101.875%
2005 and thereafter 100.000%
</TABLE>
8. OPERATING LEASES
MMI 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 2, 1999 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 3,607
2000 3,045
2001 2,049
2002 1,144
2003 and thereafter 1,042
--------
Total $ 10,887
========
</TABLE>
Total rental expense for fiscal years 1998, 1997 and 1996 was $5,103,000,
$4,225,000 and $3,572,000, respectively.
9. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
401(k) Plan. MMI 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.
MMI 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, MMI may make additional contributions in such amounts
as it may elect. Company contributions are vested over four years at a rate of
25% for each year of service.
Pension Plan. MMI maintains the MMI Products, Inc. Pension Plan (the "Pension
Plan"), which is a money purchase defined contribution plan. Employees of MMI
(other than employees covered by a collective bargaining agreement) generally
are eligible to participate in the Pension Plan after one year of employment.
31
<PAGE> 32
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
MMI 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.
MMI's contributions to the 401(k) Plan and the Pension Plan for fiscal years
1998, 1997 and 1996 were $1,385,000, $1,285,000 and $1,042,000, respectively.
Defined Benefit Plans
MMI maintains 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 MMI to fund this plan currently based upon
actuarial determinations, and applicable tax regulations.
<TABLE>
<CAPTION>
(In Thousands) Fiscal Years
-----------------------
1998 1997
------- -------
<S> <C> <C>
Reconciliation of benefit obligation
Obligation at beginning of year $ 2,142 $ 1,817
Service cost 65 61
Interest cost 157 133
Plan amendments 0 107
Actuarial loss 387 138
Benefit payments (329) (114)
Settlements (189) 0
------- -------
Obligation at end of year 2,233 2,142
------- -------
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year 1,437 1,178
Actual return on plan assets 137 111
Employer contributions 407 311
Actuarial gain (loss) 286 (49)
Benefit payments (329) (114)
Settlements (246) 0
------- -------
Fair value of plan assets at end of year (1) 1,692 1,437
------- -------
Funded status
Funded status at end of year (541) (705)
Unrecognized prior-service cost 96 107
Unrecognized loss 369 256
------- -------
Net amount recognized $ (76) $ (342)
------- -------
</TABLE>
(1) Plan assets are comprised of various equity, debt and government securities.
32
<PAGE> 33
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
The following table provides the amounts recognized in the statement of
financial position :
<TABLE>
<CAPTION>
(In Thousands) January 2, 1999 January 3, 1998
--------------- ---------------
<S> <C> <C>
Accrued benefit liability $(541) $(705)
Intangible asset 96 107
Accumulated other comprehensive income 369 256
----- -----
Net amount recognized $ (76) $(342)
===== =====
</TABLE>
The plan's accumulated benefit obligation was $2,233 and $2,142 for fiscal years
1998 and 1997, respectively.
<TABLE>
<CAPTION>
(In Thousands) Fiscal Years
-------------------
1998 1997
----- -----
<S> <C> <C>
Service cost $ 65 $ 61
Interest cost 157 133
Expected return on plan assets (137) (62)
Amortization of prior-service cost 11 0
Amortization of net (gain) loss 5 (49)
----- -----
Net periodic benefit cost $ 101 $ 83
===== =====
</TABLE>
The amount included within other comprehensive income arising from changes in
the additional minimum pension liability was $70,000 and $151,000 for fiscal
years 1998 and 1997, respectively.
The prior-service costs are amortized on a straight-line basis over the average
remaining working lifetime of participants. Gains and losses in excess of 10% of
the greater of benefit obligation and the market-related value of assets are
amortized over the average remaining working lifetime of participants expected
to receive benefits.
<TABLE>
<CAPTION>
Fiscal Years
-----------------------
1998 1997
------- -------
<S> <C> <C>
Weighted average assumptions:
Discount rate 7.00% 7.50%
Expected long-term rate of return on assets 8.50% 8.50%
</TABLE>
MMI also contributes to certain multi-employer, defined benefit plans covering
certain employees under other collective bargaining agreements. Total expenses
for these plans were $280,000, $245,000 and $125,000 for fiscal years 1998, 1997
and 1996, respectively.
33
<PAGE> 34
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
9. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Stock Options
On December 13, 1996, Holding issued noncompensatory options for 17,890 shares
of Holding common stock to certain employees of MMI. 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. On June
27, 1997, Holding issued noncompensatory options for 1,000 shares of Holding
common stock to a director of MMI, 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 1998, no
options were issued or exercised.
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123) establishes alternative methods of accounting and disclosure for
employee stock-based compensation arrangements. MMI uses the intrinsic value
method of accounting as prescribed by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, for Holding's stock options
granted to MMI'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 used in fiscal years 1996,
1997, and 1998, earnings would not have been materially different than reported.
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
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
(In Thousands) Fiscal Years
--------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 5,759 $ 1,871 $ 4,206
State and local 1,245 404 1,109
------- ------- -------
7,004 2,275 5,315
Deferred:
Federal 280 2,412 (845)
State and local 60 474 (243)
------- ------- -------
340 2,886 (1,088)
------- ------- -------
Total $ 7,344 $ 5,161 $ 4,227
======= ======= =======
</TABLE>
34
<PAGE> 35
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
10. INCOME TAXES - (CONTINUED)
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. Net deferred tax
liabilities increased $1,034,000 in fiscal year 1998 due to the Security Fence
acquisition. As of December 30, 1995, MMI had a minimum tax credit carryforward
of $1,031,000, which reduced 1996 federal regular income taxes.
Significant components of MMI's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
(In Thousands) January 2,1999 January 3,1998
-------------- --------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $5,049 $4,259
Trade receivables valuation 837 1,116
Other 2,107 1,285
------ ------
Total deferred tax liabilities 7,993 6,660
Deferred tax assets:
Inventory valuation 771 752
Allowance for doubtful accounts 715 695
Self-insurance accruals 667 709
Other 417 410
------ ------
Total deferred tax assets 2,570 2,566
------ ------
Net deferred tax liabilities $5,423 $4,094
====== ======
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax rate
to income tax expense is as follows for fiscal years 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In Thousands) Fiscal Years
--------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Tax at U.S. statutory rate $6,396 $4,514 $3,697
State and local income taxes, net of federal benefit 844 572 512
Other, net 104 75 18
------ ------ ------
Total $7,344 $5,161 $4,227
====== ====== ======
</TABLE>
11. CONTINGENCIES
MMI is involved in a number of legal actions arising in the ordinary course of
business. MMI 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.
35
<PAGE> 36
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
12. SEGMENT REPORTING
MMI has five operating units that are aggregated into two reportable segments;
Fence and Concrete Construction Products. The Fence Segment has three operating
units that offer similar products and services. The Concrete Construction
Products Segment has two operating units that offer complimentary products and
services within the concrete construction industry.
Fence Segment. The Fence Segment manufactures chain link fence fabric, a full
line of aluminum die cast and galvanized pressed steel fittings, ornamental iron
products, PVC color coated wire and vinyl coated color pipe, tubing and
fittings. In addition, the segment also distributes a variety of fence products
including pipe, tubing, wood, vinyl, aluminum, and ornamental iron fence
products, gates, hardware, and other related products. The fence products are
used in a variety of residential and commercial applications.
Concrete Construction Products Segment. The Concrete Construction Products
Segment manufactures wire mesh and a variety of concrete accessories. Concrete
accessories include supports for steel reinforcing bars and wire mesh, form
ties, basket assemblies, anchors and inserts. The concrete construction products
are used in the construction of roads, bridges and other heavy construction
projects including commercial buildings.
The accounting policies of the reportable segments are the same as those
described in Note 1 of the Notes to Consolidated Financial Statements. MMI
evaluates the performance of its operating segments based upon income before
interest expense, income taxes, depreciation, amortization and nonrecurring
items.
Summarized financial information concerning the reportable segments is shown in
the following table. The Corporate column for earnings before interest and
income taxes represents only amortization of intangibles and nonrecurring items.
Corporate general and administrative expenses are allocated to the segments
based upon proportional net sales.
12. SEGMENT REPORTING - (CONTINUED)
<TABLE>
<CAPTION>
(In Thousands) Fiscal Year 1998
---------------------------------------------------------------
Fence Concrete Corporate Total
Construction
-------- ------------ --------- --------
<S> <C> <C> <C> <C>
External sales $208,117 $210,238 $ -- $418,355
Earnings before interest and income
taxes 14,043 22,315 (764) 35,594
Interest expense -- -- 17,320 17,320
Income taxes -- -- 7,344 7,344
Net income 14,043 22,315 (25,428) 10,930
Depreciation 2,919 3,504 -- 6,423
EBITDA (1) 16,962 25,819 -- 42,781
Segment Assets (2) 89,304 92,700 38,222 220,226
Capital Expenditures 1,606 8,325 295 10,226
</TABLE>
36
<PAGE> 37
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
<TABLE>
<CAPTION>
Fiscal Year 1997
---------------------------------------------------------------
Fence Concrete Corporate Total
Construction
-------- ------------ --------- --------
<S> <C> <C> <C> <C>
External sales $177,640 $169,265 $ -- $346,905
Earnings before interest and income
taxes 11,290 14,980 (354) 25,916
Interest expense -- -- 13,018 13,018
Income taxes -- -- 5,161 5,161
Net income 11,290 14,980 (18,533) 7,737
Depreciation 2,432 2,721 -- 5,153
EBITDA (1) 13,722 17,701 -- 31,423
Segment Assets (2) 63,200 69,683 19,935 152,818
Capital Expenditures 1,277 3,126 157 4,560
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1997
---------------------------------------------------------------
Fence Concrete Corporate Total
Construction
-------- ------------ --------- --------
<S> <C> <C> <C> <C>
External sales $164,971 $118,431 $ -- $283,402
Nonrecurring expenses (3) -- -- 3,106 3,106
Earnings before interest and income
taxes 9,261 12,289 (3,557) 17,993
Interest expense -- -- 7,429 7,429
Income taxes -- -- 4,227 4,227
Net income 9,261 12,289 (15,213) 6,337
Depreciation 2,180 1,817 -- 3,997
EBITDA (1) 11,441 14,106 -- 25,547
Segment Assets (2) 57,734 63,658 13,871 135,263
Capital Expenditures 1,295 1,839 411 3,545
</TABLE>
(1) EBITDA is defined as the sum of income before interest expense, income
taxes, depreciation and amortization, and certain nonrecurring expenses
(see note (3) below). 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.
(2) Segment assets include substantially all accounts receivable, inventory and
property, plant and equipment. Corporate assets include all other
components of total consolidated assets.
(3) Nonrecurring expense resulting from the modification of stock options
granted in previous years as part of recapitalization of MMI and Holding.
37
<PAGE> 38
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In Thousands) 1998 (by fiscal quarter)
-----------------------------------------------------
1 2 3 4
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 86,308 $116,181 $114,062 $101,804
Gross profit 12,041 18,829 19,233 17,291
Net income 389 3,897 4,236 2,408
</TABLE>
<TABLE>
<CAPTION>
1997 (by fiscal quarter)
-------------------------------------------------
1 2 3 4
------- ------- ------- -------
<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 832 3,634 2,722 549
</TABLE>
38
<PAGE> 39
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
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 MMI's directors
and executive officers, including their respective ages.
<TABLE>
<CAPTION>
Name Age Position
- ------------------------ --- -------------------------------------------------------
<S> <C> <C>
Julius S. Burns 66 President and Chief Executive Officer; Director
Thomas F. McWilliams 56 Director
Carl L. Blonkvist 62 Director
Robert N. Tenczar 49 Vice President, Chief Financial Officer and Secretary
James M. McCall 56 Vice President - General Manager - Mesh
Davy J. Wilkes 61 Vice President - General Manager - Concrete Accessories
Mike W. Weaver 51 Vice President - General Manager - Fence
</TABLE>
Julius S. Burns has been President and Chief Executive Officer and a director of
MMI since February 1989. Prior to February 1989, Mr. Burns served as President
and General Manager of Ivy Steel & Wire Company, Inc., a predecessor to MMI, for
13 years. Mr. Burns has 33 years of related industry experience.
Thomas F. McWilliams has been a director of MMI 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 MMI 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 MMI 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.
James M. McCall has been employed with MMI and its predecessors in various
management positions of increasing responsibility since 1975, most recently as
MMI's Vice President - General Manager - Mesh since 1989. Mr. McCall has 35
years of related industry experience.
Davy J. Wilkes has been employed by MMI and its predecessors since 1974, most
recently as MMI's Vice President - General Manager - Concrete Accessories since
November 1992. Mr. Wilkes has 39 years of related industry experience.
Mike W. Weaver has been employed by MMI and its predecessors since 1971, most
recently as MMI's Vice President - General Manager - Fence since September 1998.
Mr. Weaver has 28 years of related industry experience.
Each director holds office until the next annual meeting of stockholders of MMI
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 MMI
provide for a three member Board of Directors. Directors of MMI are reimbursed
for all expenses actually incurred for each Board
39
<PAGE> 40
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 MMI
are elected by the Board of Directors to serve at the discretion of the Board.
Indemnification of Directors
MMI 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 General Corporation Law of the State of
Delaware. The Indemnification Agreements also provide for the advancement of
certain expenses to such directors and officers in connection with any such suit
or proceeding.
40
<PAGE> 41
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation for fiscal years 1998 and 1997
awarded to or earned by the chief executive officer of MMI and the four other
most highly compensated executive officers of MMI 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 1998 $ 275,040 $1,230,726 $ 28,399 (2)
President and Chief Executive Officer; Director 1997 250,020 450,000 27,639 (3)
James M. McCall 1998 160,500 90,652 12,637 (4)
Vice President - General Manager - Mesh 1997 150,000 90,000 10,759 (4)
Robert N. Tenczar 1998 136,940 78,012 6,956 (5)
Vice President, Chief Financial Officer and Secretary 1997 125,480 69,840 5,733 (5)
Davy J. Wilkes 1998 132,850 77,652 16,378 (6)
Vice President - General Manager - Concrete Accessories 1997 124,170 68,040 14,143 (6)
Mike W. Weaver 1998 131,090 55,710 7,461 (7)
Vice President - General Manager - Fence
</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 annual contribution to the Pension Plan (as defined in Note 9).
(3) Represent a $1,344 annual contribution to the 401(k) Plan and a $26,295
annual contribution to the Pension Plan.
(4) Represents a $1,089 and $794 annual contribution to the 401(k) Plan and a
$11,548 and $9,965 annual contribution to the Pension Plan, in 1998 and 1997,
respectively.
(5) Represents a $1,029 and $763 annual contribution to the 401(k) Plan and a
$5,927 and $4,970 annual contribution to the Pension Plan, in 1998 and 1997,
respectively.
(6) Represents a $1,003 and $928 annual contribution to the 401(k) Plan and a
$15,375 and $13,215 annual contribution to the Pension Plan, in 1998 and 1997,
respectively.
(7) Represents a $842 annual contribution to the 401(k) Plan and a $6,619
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 years
1998 or 1997.
MERCHANTS METALS HOLDING COMPANY 1988 STOCK OPTION PLAN
Certain eligible employees and non-employee directors of MMI 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.
41
<PAGE> 42
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 MMI).
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 MMI 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 MMI, 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 2, 1999, 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
MMI 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. MMI 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,
MMI 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
MMI maintains the MMI Products, Inc. Pension Plan (the "Pension Plan"), which is
a money purchase defined contribution plan. Employees of MMI (other than
employees covered by a collective bargaining agreement) generally are eligible
to participate in the Pension Plan after one year of employment. MMI 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.
42
<PAGE> 43
EMPLOYMENT AGREEMENT
Julius S. Burns, MMI's President and Chief Executive Officer, has entered into
an employment agreement with MMI 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 MMI 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 MMI
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 MMI 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 twelve months or the remaining term of the
Employment Agreement.
PUT AGREEMENT
Upon Julius S. Burn's death, any common units of MMI Products, L.L.C. (which
owns approximately 98% of Holding) 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 MMI (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
43
<PAGE> 44
December 31, 2000, unless 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 MMI.
NON-COMPETITION AGREEMENT
Julius S. Burns has entered into a Non-Competition Agreement with MMI 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, MMI to terminate his contract of employment or agency with MMI and
(iii) compete with MMI in any business in which MMI is engaged in at the date of
termination in any state in the United States of America in which MMI 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 MMI by written or oral notice, Mr. Burns' non-competition
restriction will apply only for a period of one year, plus the number of months
MMI 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 MMI is responsible for determining executive officer
compensation. Julius S. Burns currently serves as both a director and the
President and Chief Executive Officer of MMI.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
MMI 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 2, 1999, the
beneficial ownership of Parent's equity interests by (i) each person who is
known to MMI 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.
44
<PAGE> 45
<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>
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%0
</TABLE>
45
<PAGE> 46
(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, MMI 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 "Recapitalization 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 MMI 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).
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<PAGE> 47
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, MMI repaid (i) approximately $192,000 of MMI's
subordinated indebtedness (plus accrued but unpaid interest) held by Thomas F.
McWilliams, a director of MMI, and (ii) approximately $14,250,000 of MMI'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, MMI's
President and Chief Executive Officer and a director of MMI, became entitled to
receive approximately $1,749,000, (iv) James M. McCall and Davy J. Wilkes, who
are executive officers of MMI, 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
MMI'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,
47
<PAGE> 48
$7,155,000, $1,287,000, $288,000 and $143,000, respectively, for their shares of
Holding Preferred Stock and their options.
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
Consolidated Balance Sheets at fiscal year end 1998 and 1997
Consolidated Statements of Operations for fiscal years 1998,
1997 and 1996
Consolidated Statements of Changes in Stockholder's Equity for
fiscal years 1998, 1997 and 1996
Consolidated Statements of Cash Flows for fiscal years 1998,
1997 and 1996
Notes to Consolidated 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.
48
<PAGE> 49
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)
10.1 Registration Rights Agreement dated as of April 16, 1997 among
MMI Products, Inc. and Bear, Stearns & Co. Inc. (1)
10.2 Registration Rights Agreement dated as of February 12, 1999
among MMI Products, Inc. and Bear, Stearns & Co. Inc. (2)
10.3 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)
10.4 Stockholders Agreement dated as of December 13, 1996 by and
among Merchant Metals Holding Company and certain of its
stockholders. (1)
10.5 Employment Agreement dated as of December 31, 1994 by and
among MMI Products, Inc. and Julius S. Burns, as amended. (1)
10.6 MMI Products, Inc. Pension Plan, as amended. (1)
10.7 Amended and Restated Put Agreement dated as of June 11, 1997,
between Merchants Metals Holding Company and Julius S. Burns.
(1)
10.8 Procurement Agreement dated as of December 13, 1996 between
MMI Products, Inc. and Mannesmann Pipe & Steel Corporation, as
amended. (1)
10.9 The Merchants Metals Holding Company 1988 Stock Option Plan
dated as of December 12, 1988, as amended. (1)
10.10 The MMI Products, Inc. 401(k) Savings Plan, as amended. (1)
10.11 Non-Competition Agreement dated as of December 31, 1994
between MMI Products, Inc. and Julius S. Burns. (1)
10.12 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Julius S. Burns. (1)
10.13 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Carl L. Blonkvist. (1)
10.14 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Thomas F. McWilliams. (1)
10.15 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and James M. McCall. (1)
10.16 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Davy J. Wilkes. (1)
10.17 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Robert N. Tenczar. (1)
10.18 Purchase Agreement dated as of April 11, 1997 among MMI
Products, Inc. and Bear, Stearns & Co. Inc. (1)
10.19 Limited Liability Company Agreement of MMI Products, L.L.C. (1)
10.20 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Julius S.
Burns. (1)
49
<PAGE> 50
10.21 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Robert N.
Tenczar. (1)
10.22 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and James M.
McCall. (1)
10.23 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Davy J.
Wilkes. (1)
10.24 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and William T.
Stewart. (1)
10.25 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Michael W.
Babcock. (1)
10.26 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Michael
Weaver. (1)
10.27 Asset Purchase Agreement by and between MMI Products, Inc. and
Atlantic Steel Industries, Inc., dated as of June 10, 1996. (3)
10.28 Asset Purchase Agreement by and between MMI Products, Inc. and
The Burke Group, L.L.C., dated as of December 12, 1997. (3)
21.1 None
27 Financial Data Schedule (2)
99.1 Purchase Agreement dated as of February 9, 1999 among MMI
Products, Inc. and Bear, Stearns & Co. Inc. (2)
(1) Incorporated by reference to the Exhibits filed with MMI Products,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-29141)
(2) Filed herewith
(3) Incorporated by reference to the Exhibits filed with MMI Products,
Inc.'s Form 10-K for 1997.
(b) Reports on Form 8-K
Current Report on Form 8-K/A dated October 6, 1998, with respect to the
acquisition of Security Fence Supply Co., Inc.
50
<PAGE> 51
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.
MMI PRODUCTS, INC.
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: April 2, 1999 By: *
------------------------------------------------
Julius S. Burns, President
and Chief Executive Officer
(principal executive officer)
Date: April 2, 1999 By: /s/ ROBERT N. TENCZAR
------------------------------------------------
Robert N. Tenczar, Vice President
and Chief Financial Officer
(principal financial and accounting officer)
Date: April 2, 1999 By: *
------------------------------------------------
Thomas F. McWilliams, Director
Date: April 2, 1999 By: *
------------------------------------------------
Carl L. Blonkvist, Director
* By: /s/ ROBERT N. TENCZAR
------------------------------
Robert N. Tenczar
Attorney-in-fact
51
<PAGE> 52
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 2, 1999:
Allowance for Doubtful Accounts $ 1,876 $ 234 $ 184(1) $ 1,926
Reserve for damaged and
slow-moving inventory 946 103(3) 415(2) 634
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
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Write off of inventory.
(3) Reversal of reserves due to changes in estimates.
52
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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)
10.1 Registration Rights Agreement dated as of April 16, 1997 among
MMI Products, Inc. and Bear, Stearns & Co. Inc. (1)
10.2 Registration Rights Agreement dated as of February 12, 1999
among MMI Products, Inc. and Bear, Stearns & Co. Inc. (2)
10.3 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)
10.4 Stockholders Agreement dated as of December 13, 1996 by and
among Merchant Metals Holding Company and certain of its
stockholders. (1)
10.5 Employment Agreement dated as of December 31, 1994 by and
among MMI Products, Inc. and Julius S. Burns, as amended. (1)
10.6 MMI Products, Inc. Pension Plan, as amended. (1)
10.7 Amended and Restated Put Agreement dated as of June 11, 1997,
between Merchants Metals Holding Company and Julius S. Burns.
(1)
10.8 Procurement Agreement dated as of December 13, 1996 between
MMI Products, Inc. and Mannesmann Pipe & Steel Corporation, as
amended. (1)
10.9 The Merchants Metals Holding Company 1988 Stock Option Plan
dated as of December 12, 1988, as amended. (1)
10.10 The MMI Products, Inc. 401(k) Savings Plan, as amended. (1)
10.11 Non-Competition Agreement dated as of December 31, 1994
between MMI Products, Inc. and Julius S. Burns. (1)
10.12 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Julius S. Burns. (1)
10.13 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Carl L. Blonkvist. (1)
10.14 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Thomas F. McWilliams. (1)
10.15 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and James M. McCall. (1)
10.16 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Davy J. Wilkes. (1)
10.17 Indemnification Agreement dated as of April 16, 1997 between
MMI Products, Inc. and Robert N. Tenczar. (1)
10.18 Purchase Agreement dated as of April 11, 1997 among MMI
Products, Inc. and Bear, Stearns & Co. Inc. (1)
10.19 Limited Liability Company Agreement of MMI Products, L.L.C. (1)
10.20 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Julius S.
Burns. (1)
</TABLE>
<PAGE> 54
<TABLE>
<S> <C>
10.21 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Robert N.
Tenczar. (1)
10.22 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and James M.
McCall. (1)
10.23 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Davy J.
Wilkes. (1)
10.24 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and William T.
Stewart. (1)
10.25 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Michael W.
Babcock. (1)
10.26 Amended and Restated Repurchase Agreement dated as of June 12,
1997 between Merchants Metals Holding Company and Michael
Weaver. (1)
10.27 Asset Purchase Agreement by and between MMI Products, Inc. and
Atlantic Steel Industries, Inc., dated as of June 10, 1996. (3)
10.28 Asset Purchase Agreement by and between MMI Products, Inc. and
The Burke Group, L.L.C., dated as of December 12, 1997. (3)
21.1 None
27 Financial Data Schedule (2)
99.1 Purchase Agreement dated as of February 9, 1999 among MMI
Products, Inc. and Bear, Stearns & Co. Inc. (2)
</TABLE>
(1) Incorporated by reference to the Exhibits filed with MMI Products,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-29141)
(2) Filed Herewith
(3) Incorporated by reference to the Exhibits filed with MMI Products,
Inc.'s Form 10-K for 1997.
<PAGE> 1
EXHIBIT 10.2
CONFIDENTIAL
================================================================================
MMI PRODUCTS, INC.
$30,000,000
11 1/4% Series C Senior Subordinated Notes due 2007
Registration Rights Agreement
February 12, 1999
BEAR, STEARNS & CO. INC.
================================================================================
<PAGE> 2
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of February 12, 1999 by and between MMI Products, Inc., a
Delaware corporation (the "Company") and Bear, Stearns & Co. Inc. (the "Initial
Purchaser"), who has agreed to purchase the Company's 11 1/4% Series C Senior
Notes due 2007 (the "Series C Notes") pursuant to the Purchase Agreement (as
defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
February 9, 1999 (the "Purchase Agreement"), by and between the Company and the
Initial Purchaser. In order to induce the Initial Purchaser to purchase the
Series C Notes, the Company has agreed to provide the registration rights set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligation of the Initial Purchaser set forth in Section 2 of
the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummation: A Registered Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (ii) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company
to the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series C Notes that were
properly tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series C Notes, each Interest
Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Offer: The registration by the Company under the Act of the
Series B Notes pursuant to a Registration Statement pursuant to which the
Company offers the Holders of all outstanding Transfer Restricted Notes the
opportunity, subject to the provisions of this Agreement, to exchange all such
outstanding Transfer Restricted Notes
2
<PAGE> 3
held by such Holders for Series B Notes in an aggregate principal amount equal
to the aggregate principal amount of the Transfer Restricted Notes tendered in
such exchange offer by such Holder.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Holder: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of April 16, 1997, between the
Company and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"),
pursuant to which the Notes are to be issued, as amended or supplemented from
time to time in accordance with the terms thereof.
Initial Purchaser: As defined in the preamble hereto.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series B Notes and the Series C Notes, collectively.
Person: An individual, partnership, limited liability company,
corporation, trust, association or other unincorporated organization, or a
government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date relating to
Notes, each Person who is a Holder of Notes on the record date with respect to
the Interest Payment Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Notes pursuant to the
Shelf Registration Statement, which is filed pursuant to the provisions of this
Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
3
<PAGE> 4
Series B Notes: The Company's 11 1/4% Series B Senior Notes due 2007 to
be issued pursuant to the Indenture in the Exchange Offer.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Specified Participant: In the case of (a) the Shelf Registration
Statement (or any amendment or supplement thereto), any selling Holder and the
underwriter(s), if any, with respect to the Transfer Restricted Notes that are
the subject thereof and (b) the Exchange Offer Registration Statement (or any
amendment or supplement thereto), any Broker-Dealer that has given written
notice to the Company that such Broker-Dealer intends to participate in the
Exchange Offer or has participated in the Exchange Offer.
TIA: The Trust Indenture Act of 1939, as in effect on the date of the
Indenture.
Transfer Restricted Notes: Each Series C Note until the earliest to
occur of (i) the date on which such Series C Note has been exchanged by a person
other than a Broker-Dealer for a Series B Note in the Exchange Offer, (ii)
following the exchange by a Broker-Dealer in the Exchange Offer of a Series C
Note for a Series B Note, the date on which such Series B Note is sold to a
purchaser who receives from such Broker-Dealer on or prior to the date of such
sale a copy of the Prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Series C Note has been effectively
registered under the Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Series C Note is
distributed to the public pursuant to Rule 144 under the Act or may be
distributed to the public pursuant to Rule 144(k) under the Act.
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Notes. The securities entitled to the benefits
of this Agreement are the Transfer Restricted Notes.
(b) Holders of Transfer Restricted Notes. A Person is deemed to be a
holder of Transfer Restricted Notes (each, a "Holder") whenever such Person owns
Transfer Restricted Notes of record.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under applicable
law or Commission policy (after the procedures set forth in Section 6(a) below
have been complied with), the Company shall (i) cause to be filed with the
Commission as soon as practicable after the Closing Date, but in no event later
than 90 days after the Closing Date, a Registration Statement under the Act
relating to the Series B Notes and the
4
<PAGE> 5
Exchange Offer, (ii) use its best efforts to cause such Registration Statement
to become effective at the earliest possible time, but in no event later than
180 days after the Closing Date, (iii) in connection with the foregoing, file
(A) all pre-effective amendments to such Registration Statement as may be
necessary in order to cause such Registration Statement to become effective, (B)
if applicable a post-effective amendment to such Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings in connection
with the registration and qualification of the Series B Notes to be made under
the Blue Sky laws of such jurisdictions as are necessary to permit Consummation
of the Exchange Offer, and (iv) upon the effectiveness of such Registration
Statement, commence the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Notes to be offered in
exchange for the Transfer Restricted Notes and to permit resales of Notes held
by Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 business days. The Company shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the Notes shall be included in the Exchange Offer
Registration Statement. The Company shall use its best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective and not later than 30
business days thereafter.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus contained in the Exchange Offer Registration
Statement that any Broker-Dealer who holds Series C Notes that are Transfer
Restricted Notes and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Notes acquired directly from the Company) may exchange such Series C
Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed
to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with any
resales of the Series B Notes received by such Broker-Dealer in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall also contain
all other material information with respect to such resales by Broker-Dealers
that the Commission may require in order to permit such resales pursuant
thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer
or disclose the amount of Notes held by any such Broker-Dealer except to the
extent required by the Commission as a result of a change in policy after the
date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for
5
<PAGE> 6
resales of Notes acquired by Broker-Dealers for their own accounts as a result
of market-making activities or other trading activities, and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of 180 days from the date on which the Exchange Offer Registration
Statement is declared effective.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
one-year period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not available to
any Holder or may not be consummated because, in either case, it would violate
applicable securities laws or because the applicable interpretations of the
staff of the Commission would not permit the Company to effect the Exchange
Offer (after the procedures set forth in Section 6(a) below have been complied
with) or (ii) the Company has not Consummated the Exchange Offer within 210 days
of the Closing Date, then the Company shall use its reasonable best efforts to:
(x) cause to be filed a shelf registration statement
pursuant to Rule 415 under the Act, which may be an amendment
to the Exchange Offer Registration Statement (in either event,
the "Shelf Registration Statement") on or prior to the earlier
to occur of (1) the 60th day after the date on which the
Company determines that it is not required to file the
Exchange Offer Registration Statement or to consummate the
Exchange Offer and (2) the 240th day after the Closing Date
(such earliest date being the "Shelf Filing Deadline"), which
Shelf Registration Statement shall provide for resales of all
Transfer Restricted Notes the Holders of which shall have
provided the information required pursuant to Section 4(b)
hereof; and
(y) cause such Shelf Registration Statement to be
declared effective by the Commission on or before the 75th day
after the Shelf Filing Deadline.
The Company shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for resales of Notes by the Holders of Transfer Restricted Notes
entitled to the benefit of this Section 4(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years following the Closing Date.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Notes may include
any of its Transfer Restricted Notes in any Shelf Registration Statement
pursuant to this Agreement
6
<PAGE> 7
unless and until such Holder furnishes to the Company in writing, within 20
business days after receipt of a request therefor, such information as the
Company may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder of
Transfer Restricted Notes shall be entitled to Liquidated Damages pursuant to
Section 5 hereof unless and until such Holder shall have used its best efforts
to provide all such reasonably requested information. Each Holder as to which
any Shelf Registration Statement is being effected agrees to furnish promptly to
the Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement is
not filed with the Commission on or prior to the date specified for such filing
in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement (assuming that the Company is required pursuant to Section 3 of this
Agreement to file the Exchange Offer Registration Statement and to consummate
the Exchange Offer) or (iv) any Registration Statement required by this
Agreement is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose (during the period that
such Registration Statement is required to be kept effective or usable for its
intended purpose) without being succeeded immediately by a post-effective to
such Registration Statement that causes such failure and that is itself
immediately declared effective (each such event referred to in clauses (i)
through (iv), a "Registration Default"), the Company hereby agrees to pay
liquidated damages to each Holder of Transfer Restricted Notes affected by such
Registration Default on each Interest Payment Date accruing from and after the
date of each Registration Default, and shall continue to accrue thereafter until
such Registration Default has been cured or waived, at a rate equal to 0.25% per
annum of the principal amount of Notes during the first 90-day period
immediately following the occurrence of such Registration Default, which rate
shall increase by an additional 0.25% per annum on the first day of each
subsequent 90-day period up to a maximum rate equal to 1.0% per annum. All
accrued liquidated damages shall be paid to Record Holders by the Company in the
manner provided in the Indenture. Following the cure of all Registration
Defaults relating to any particular Transfer Restricted Notes, the accrual of
liquidated damages with respect to such Transfer Restricted Notes will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Note at the time
such security ceases to be a Transfer Restricted Note shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
7
<PAGE> 8
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all of the provisions of Section
6(c) below, shall use its best efforts to effect such exchange to permit the
sale of Transfer Restricted Notes being sold in accordance with the intended
method or methods of distribution thereof, and shall comply with all of the
following provisions:
(i) If in the reasonable opinion of counsel to the
Company there is a significant question as to whether the
Exchange Offer is permitted by applicable law, the Company
hereby agrees to seek a no-action letter or other favorable
decision from the Commission allowing the Company to
Consummate an Exchange Offer for such Series C Notes. The
Company hereby agrees to pursue the issuance of such a
decision to the Commission staff level but shall not be
required to take commercially unreasonable action to effect a
change of Commission policy. The Company hereby agrees,
however, to (A) participate in telephonic conferences with the
Commission, (B) deliver to the Commission staff an analysis
prepared by counsel to the Company setting forth the legal
bases, if any, upon which such counsel has concluded that such
an Exchange Offer should be permitted and (C) diligently
pursue a resolution (which need not be favorable) by the
Commission staff of such submission.
(ii) As a condition to its participation in the
Exchange Offer pursuant to the terms of this Agreement, each
Holder of Transfer Restricted Notes shall furnish, upon the
request of the Company, prior to the Consummation thereof, a
written representation to the Company (which may be contained
in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that (A) it is not
an affiliate of the Company, (B) it is not engaged in, and
does not intend to engage in, and has no arrangement or
understanding with any Person to participate in, a
distribution of the Series B Notes to be issued in the
Exchange Offer and (C) it is acquiring the Series B Notes in
its ordinary course of business. In addition, all such Holders
of Transfer Restricted Notes shall otherwise cooperate in the
Company's preparations for the Exchange Offer. Each Holder
will be required to acknowledge and agree (as set forth in the
letter of transmittal contemplated by the Exchange Offer
Registration Statement) that, if it is a Broker-Dealer or if
such Holder intends to use the Exchange Offer to participate
in a distribution of the securities to be acquired in the
Exchange Offer, such Holder (1) could not under Commission
policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and
Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993,
and similar no-action letters (including any no-action letter
obtained pursuant to clause (i) above), and
8
<PAGE> 9
(2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction
should be covered by an effective registration statement
containing the selling security holder information required by
Item 507 or 508, as applicable, of Regulation S-K, if the
resales are of Series B Notes obtained by such Holder in
exchange for Series C Notes acquired by such Holder directly
from the Company.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall, if requested by the
Commission, provide a supplemental letter to the Commission
(A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988),
Morgan Stanley and Co., Inc. (available June 5, 1991) and, if
applicable, any no-action letter obtained pursuant to clause
(i) above and (B) including a representation that the Company
has not entered into any arrangement or understanding with any
Person to distribute the Series B Notes to be received in the
Exchange Offer and that, to the best of the Company's
information and belief, each Holder participating in the
Exchange Offer is acquiring the Series B Notes in its ordinary
course of business and has no arrangement or understanding
with any Person to participate in the distribution of the
Series B Notes received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Notes being sold in accordance with
the intended method or methods of distribution thereof and, pursuant thereto,
the Company will as expeditiously as possible prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Notes in accordance with the intended method or methods
of distribution thereof.
(c) General Provisions. In connection with any Registration Statement
and any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Notes (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Notes by
Broker-Dealers) the Company shall:
(i) use its best efforts to keep such Registration
Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or
4 of this Agreement, as applicable; upon the occurrence of any
event that would cause any such Registration Statement or the
Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable
for resale of Transfer Restricted Notes during the period
required by this Agreement,
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<PAGE> 10
the Company shall file promptly an appropriate amendment to
such Registration Statement, in the case of clause (A),
correcting any such misstatement or omission, and, in the case
of either clause (A) or (B), use its best efforts to cause
such amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the Registration
Statement as may be necessary to keep the Registration
Statement effective for the applicable period set forth in
Section 3 or 4 hereof, as applicable, or such shorter period
as will terminate when all Transfer Restricted Notes covered
by such Registration Statement have been sold; cause the
Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Act, and to comply fully with the
applicable provisions of Rules 424 and 430A under the Act in a
timely manner; and comply with the provisions of the Act with
respect to the disposition of all securities covered by such
Registration Statement during the applicable period in
accordance with the intended method or methods of distribution
by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the Specified Participants promptly and,
if requested by such Persons, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect
to any Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or
of the suspension by any state securities commission of the
qualification of the Transfer Restricted Notes for offering or
sale in any jurisdiction, or the initiation of any proceeding
for any of the preceding purposes, (D) of the existence of any
fact or the happening of any event that makes any statement of
a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the
Registration Statement or the Prospectus in order to make the
statements of material fact therein not misleading. If at any
time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Notes under state
securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at
the earliest possible time;
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<PAGE> 11
(iv) furnish to each Specified Participant before
filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments
or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference
after the initial filing of such Registration Statement),
which documents will be subject to the review of such Holders
and underwriter(s), if any, for a period of at least three
business days, and the Company shall not file any such
Registration Statement or Prospectus or any amendment or
supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to
which a selling Holder or Transfer Restricted Notes covered by
such Registration Statement or the underwriter(s), if any,
shall reasonably object within five business days after the
receipt thereof. A selling Holder or underwriter, if any,
shall be deemed to have reasonably objected to such filing if
such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a
material misstatement or omission;
(v) promptly prior to the filing of any document that
is to be incorporated by reference into a Registration
Statement or Prospectus, provide copies of such document to
each Specified Participant, make the Company's representatives
available for discussion of such document and other customary
due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders
or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for
inspection by the selling Holders, any managing underwriter
participating in any disposition pursuant to the Shelf
Registration Statement, and any attorney or accountant
retained by such selling Holders or any managing
underwriter(s), all relevant financial and other records,
pertinent corporate documents and properties of the Company
and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such
Holder, underwriter, attorney or accountant in connection with
the Shelf Registration Statement subsequent to the filing
thereof and prior to its effectiveness;
(vii) if requested by any Specified Participant,
promptly incorporate in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling
Holders and underwriter(s), if any, may reasonable request to
have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the
Transfer Restricted Notes, information with respect to the
principal amount of Transfer Restricted Notes,
11
<PAGE> 12
information with respect to the principal amount of Transfer
Restricted Notes being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the
offering of the Transfer Restricted Notes to be sold in such
offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable
after the Company is notified of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment;
(viii) cause the Transfer Restricted Notes covered by
the Registration Statement to be rated with the appropriate
rating agencies, if so requested by the Holders of a majority
in aggregate principal amount of Notes covered thereby or the
managing underwriter(s), if any;
(ix) furnish to each Specified Participant, without
charge, at least one conformed copy of the Registration
Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits
incorporated therein by reference);
(x) deliver to each Specified Participant, without
charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company
hereby consents to the use of the Prospectus and any amendment
or supplement thereto by each of the selling Holders and each
of the underwriter(s), if any, in connection with the offering
and the sale of the Transfer Restricted Notes covered by the
Prospectus or any amendment or supplement thereto;
(xi) In connection with an underwritten offering of
Transfer Restricted Notes pursuant to a Shelf Registration
Statement, enter into an underwriting agreement as is
customary in underwritten offerings and take all such other
actions as are reasonably requested by the managing
underwriter(s) in order to expedite or facilitate the
registration or the disposition of such Transfer Restricted
Notes, and in such connection, (i) make such representations
and warranties to the underwriters, with respect to the
business of the Company and its subsidiaries, if any, and the
Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the same
if and when requested; (ii) obtain an opinion of counsel to
the company and updates thereof in form and substance
reasonably satisfactory to the managing underwriters,
addressed to the underwriters covering the matters customarily
covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by
underwriters; (iii) obtain "cold comfort" letters and updates
thereof in form and substance reasonably satisfactory to the
managing
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<PAGE> 13
underwriters from the independent certified public
accountant(s) of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of
the Company or of any business acquired by the Company for
which financial statements and financial data are, or are
required to be, included in the Registration Statement),
addressed to each of the underwriters, such letters to be in
customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as may be
reasonably requested by underwriters; and (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification and contribution provisions and procedures no
less favorable than those set forth in Sections 8 and 9 hereof
(or such other provisions and procedures acceptable to Holders
of a majority in aggregate principal amount of Transfer
Restricted Notes covered by such Registration Statement and
the managing underwriter(s) or agents) with respect to all
parties to be indemnified pursuant to said Section. The above
shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder. In
addition, notwithstanding anything herein to the contrary, in
connection with any other offering of Transfer Restricted
Notes pursuant to a Shelf Registration Statement, the Company
shall obtain those items specified in clauses (ii) and (iii)
of the foregoing sentence concurrently with the effectiveness
of the Shelf Registration Statement and any post-effective
amendments thereto;
(xii) prior to any public offering of Transfer
Restricted Notes pursuant to the Shelf Registration Statement,
cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the
registration and qualification of the Transfer Restricted
Notes under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s) may
request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of
the Transfer Restricted Notes covered by the Shelf
Registration Statement; provided, however, that the Company
shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any
action that would subject it to the service of process in
suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xiii) issue, upon the request of any Holder of
Series C Notes covered by the Shelf Registration Statement,
Series B Notes, having an aggregate principal amount equal to
the aggregate principal amount of Series C Notes surrendered
to the Company by such Holder in exchange therefor or being
sold by such Holder; such Series B Notes to be registered in
the name of such Holder or in the name of the purchaser(s) of
such Notes, as the case may be; in return, the Series C Notes
held by such
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<PAGE> 14
Holder shall be surrendered to the Company for cancellation;
(xiv) cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation
and delivery of certificates representing Transfer Restricted
Notes to be sold and not bearing any restrictive legends; and
enable such Transfer Restricted Notes to be in such
denominations and registered in such names and the Holders or
underwriter(s), if any, may request at least two business days
prior to any sale of Transfer Restricted Notes made by such
underwriter(s);
(xv) use its best efforts to cause the Transfer
Restricted Notes covered by the Registration Statement to be
registered with or approved by such other governmental
agencies of authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to
consummate the disposition of such Transfer Restricted Notes,
except as may be required solely as a consequence of the
nature of such Seller's business (in which case the Company
will cooperate in all reasonable respects);
(xvi) if any fact or event contemplated by clause
(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration
Statement or related Prospective or any document incorporated
therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of Transfer
Restricted Notes, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(xvii) provide a CUSIP number for all Transfer
Restricted Notes not later than the effective date of the
Registration Statement and provide the Trustee under the
Indenture with printed certificates for the Transfer
Restricted Notes which are in a form eligible for deposit with
The Depository Trust Company;
(xviii) cooperate and assist in any filings required
to be made with the NASD and in the performance of any due
diligence investigation by any underwriter (including any
"qualified independent underwriter") that is required in
accordance with the rules and regulations of the NASD;
(xix) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make generally available to its security holders, as soon as
practicable, a consolidated earnings statement meeting the
requirements of Rule 158 (which need not be audited) for the
twelve-month period (A) commencing at the end of any fiscal
quarter in which Transfer Restricted Notes are sold to
underwriters in a firm or best efforts Underwritten Offering
or (B) if not sold to
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<PAGE> 15
underwriters in such an offering, beginning with the first
month of the Company's first fiscal quarter commencing after
the effective date of the Registration Statement;
(xx) cause the Indenture to be qualified under the
TIA not later than the effective date of the first
Registration Statement required by this Agreement, and, in
connection therewith, cooperate with the Trustee and the
Holders of Notes to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use its
best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other
forms and documents required to be filed with the Commission
to enable such Indenture to be so qualified in a timely
manner;
(xxi) use its best efforts to cause all Transfer
Restricted Notes covered by the Registration Statement to be
listed on each securities exchange on which similar securities
issued by the Company are then listed if requested by the
Holders of a majority in aggregate principal amount of Series
C Notes or the managing underwriter(s), if any; and
(xxii) provide promptly to each Holder upon request
each document filed with the Commission pursuant to the
requirements of Section 13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Note that,
upon receipt of any notice from the Company of the existence of any fact of the
kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Notes pursuant to the applicable
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof, or
until it is advised in writing (the "Advice") by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in this Prospectus. If
so desired by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted Notes
that was current at the time of receipt of such notice. In the event the Company
shall give any such notice, the time period regarding the effectiveness of such
Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall
be extended by the number of days during the period from the date of such notice
to the date when each selling Holder covered by such Registration Statement
shall have received the copies of the supplemented or amended Prospectus
contemplated by Section (6)(c)(xvi) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration
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<PAGE> 16
Statement becomes effective, including without limitation: (i) all registration
and filing fees and expenses (including filing made by any Initial Purchaser or
Holder with the NASD (and, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel that may be required by the
rules and regulations of the NASD)); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities law; (iii) all expenses
of printing (including printing certificates for the Series B Notes to be issued
in the Exchange Offer and printing of Prospectuses in the case of an
Underwritten Offering, if required by the managing underwriter(s)), messenger
and delivery services and telephone; (iv) all fees and disbursements of counsel
for the Company (subject to reimbursement provisions in the Purchase Agreement)
and, in the context specified in Section 7(b) below, the Holders and Transfer
Restricted Notes; (v) all application and filing fees in connection with listing
Notes on a national securities exchange or automated quotation system pursuant
to the requirements hereof; and (vi) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with the Shelf Registration Statement, if applicable,
the Company will reimburse the Initial Purchaser and the Holders of Transfer
Restricted Notes being resold pursuant to the "Plan of Distribution" contained
therein, for the reasonable fees and disbursements of not more than one counsel,
who shall be Latham & Watkins or such other counsel as may be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Notes for
whose benefit such Registration Statement is being prepared. Such Holders shall
be responsible for any and all other out-of-pocket expenses of the Holders of
Transfer Restricted Notes incurred in connection with the registration of the
Transfer Restricted Notes of such Holders.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder,
(ii) each person, if any, who controls any Holder within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and (iii) the respective
officers, directors, partners and employees of any Holder or any controlling
person (any person referred to in clauses (i), (ii) or (iii) may hereinafter be
referred to as an "indemnified Holder"), to the fullest extent lawful, from and
against any and all losses, liabilities, claims, damages and expenses whatsoever
(including but not limited to reasonable attorneys' fees and any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any investigation or litigation, commended or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
16
<PAGE> 17
a material fact contained in any Registration Statement or Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company will not be liable in any such case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises out
of or is based upon any such untrue statement or alleged untrue statement or
omission made therein upon and in conformity with written information furnished
to the Company by or on behalf of any of the Holders expressly for use therein.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have, including under this Agreement.
(b) Each Holder of Transfer Restricted Notes agrees, severally and not
jointly, to indemnify and hold harmless the Company, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act to the same extent as the foregoing indemnity from the
Company to each of the Indemnified Holders, but only with respect to information
relating to such Holder furnished in writing by such Holder for use in any
Registration Statement, or in any amendment thereof or supplement thereto:
provided, however, that in no case shall any selling Holder be liable or
responsible for any amount in excess of proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation. This indemnity will be in addition to any liability which the Holder
may otherwise have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 6 or otherwise except to the extent that it has been
prejudiced in any material respect by such failure). In case any such action is
brought against any indemnified party, and it notified an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such action
within a reasonable time after notice of commencement of the action, or (iii)
such indemnified party or parties shall have been advised by counsel that there
may be legal defenses available to it or them which are different from or
additional to those available to the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense
17
<PAGE> 18
of such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses of counsel shall be borne by the indemnifying
parties; provided, however, that the indemnifying party under subsection (a) or
(b) above shall only be liable for the legal expenses of one counsel (in
addition to any local counsel) for all indemnified parties in each jurisdiction
in which any claim or action is brought. Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its prior written consent;
provided that such consent was not unreasonably withheld.
SECTION 9. CONTRIBUTION
In order to provide for contribution in circumstances in which the
indemnification provided for in Section 8 is for any reason held to be
unavailable from the Company or is insufficient to hold harmless a party
indemnified thereunder, the Company, on the one hand, and the Holders on the
other hand, shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, but after the deducting in the case
of losses, claims, damages, liabilities and expenses suffered by the Company,
any contribution received by the Company from persons, other than a Holder, who
may also be liable for contribution, including persons who control the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act) to which the Company, or any Holder may be subject, in such proportion as
is appropriate to reflect the relative benefits received by the Company, on one
hand, and each Holder, on the other hand, from the offering of the Series C
Notes or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 8, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company, on one hand, and the Holders on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on one
hand, and the Holders, on the other hand, shall be deemed to be in the same
proportion as (i) the total proceeds from the offering of Series C Notes (net of
discounts but before deducting expenses) received by the Company and (ii) the
discounts and commissions received by the Initial Purchaser respectively. The
relative fault of the Company, on one hand, and of each Holder, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or such Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and each Holder of Transfer Restricted Notes agree that it would not
be just and equitable if contribution pursuant to this Section 9 were determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to above. Notwithstanding the
provisions of this Section 9, (i) in no case shall any Holder be required to
contribute any amount in excess of the amount by which the
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<PAGE> 19
proceeds received by such Holder upon the sale of the Transfer Restricted Notes
giving rise to such obligation exceeds the amount of any damages which such
Holder has otherwise been required to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission and (ii) no person guilty of
fraudulent misrepresentation (with the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentations. For purposes of this Section 7, (A) each person,
if any, who controls the Initial Purchaser within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and (B) the respective officers,
directors, partners, employees, representatives and agents of such Holder or any
controlling persons shall have the same rights to contribution as the Initial
Purchaser, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as the Company, subject in each case to clauses (i)
and (ii) of this Section 9. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section 9, notify such party or
parties from whom contribution may be sought, but the failure to so notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have under this Section 9 or
otherwise. No party shall be liable for contribution with respect to any action
or claim settled without its prior written consent; provided that such written
consent was not unreasonably withheld.
SECTION 10. RULE 144A
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Notes remain outstanding and during any period in which the Company
is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, to make available to any Holder or beneficial owner of Transfer
Restricted Notes in connection with any sale thereof and any prospective
purchaser of such Transfer Restricted Notes from such Holder or beneficial
owner, in each case upon request, the information required by Rule 144A(d)(4)
under the Act in order to permit resales of such Transfer Restricted Notes
pursuant to Rule 144A.
SECTION 11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted Notes on
the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of such
underwriting arrangements.
SECTION 12. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Notes covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Notes in an Underwritten
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<PAGE> 20
Offering. In any such Underwritten Offering, the investment banker or investment
bankers and manager or managers that will administer the offering will be
selected by the Holders of a majority in aggregate principal amount of the
Transfer Restricted Notes included in such offering; provided that such
investment bankers and managers must be reasonably satisfactory to the Company.
SECTION 13. MISCELLANEOUS
(a) Remedies. The Company agrees that monetary damages (including the
liquidated damages contemplated thereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company shall not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. The Company shall not take any
action, or permit any change to occur, with respect to the Notes that would
materially and adversely affect the ability of the Holders to consummate any
Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereby may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Notes. Notwithstanding the foregoing, a waiver or consent to
departure from the provisions hereof the relates exclusively to the rights of
Holders whose securities are being tendered pursuant to the Exchange Offer and
that does not affect directly or indirectly the rights of other Holders whose
securities are not being tendered pursuant to such Exchange Offer may be given
by the Holders of a majority of the outstanding principal amount of Transfer
Restricted Notes being tendered or registered.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the Indenture;
and
(ii) if to the Company:
MMI Products, Inc.
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<PAGE> 21
515 West Greens Road
Suite 710
Houston, Texas 77067
Telecopier No.: 713/876-1648
Attention: Julius S. Burns
With a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Telecopier No.: 214/746-7777
Attention: Michael A. Saslaw, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of transfer Restricted Notes; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Notes from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision is every other
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<PAGE> 22
respect and of the remaining provisions contained herein shall not be affected
or impaired thereby.
(k) Entire Agreement. This Agreement, constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof, and
supersede all prior agreements, understandings, negotiations, discussions,
representations and warranties, both oral and written, among the parties hereto
with respect to the subject matter hereof.
(Signature page to follow)
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<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MMI PRODUCTS, INC.
By:
----------------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
----------------------------------
Name:
Title:
S-1
<PAGE> 1
EXHIBIT 99.1
CONFIDENTIAL
================================================================================
MMI PRODUCTS, INC.
$30,000,000
11 1/4% Series C Senior Subordinated Notes due 2007
Purchase Agreement
February 9, 1999
BEAR, STEARNS & CO. INC.
================================================================================
<PAGE> 2
MMI PRODUCTS, INC.
$30,000,000
11 1/4% Series C Senior Subordinated Notes due 2007
PURCHASE AGREEMENT
February 9, 1999
New York, New York
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
MMI Products, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to Bear, Stearns & Co. Inc. (the "Initial Purchaser") $30,000,000
aggregate principal amount of its 11 1/4% Series C Senior Subordinated Notes due
2007 (the "Series C Notes"), subject to the terms and conditions set forth in
this Purchase Agreement (this "Agreement"). The Notes (as defined below) will be
issued pursuant to an indenture (the "Indenture"), dated April 16, 1997, between
the Company and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee").
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to such terms in the Indenture.
The Company intends to use the proceeds of the sale of the Series C
Notes to repay certain indebtedness as described under "Use of Proceeds" in the
Offering Memorandum (as defined below).
1. Issuance of Securities. The Company proposes, upon the terms and
subject to the conditions set forth herein, to issue and sell to the Initial
Purchaser an aggregate of $30,000,000 principal amount of Series C Notes. The
Series C Notes and the Series B Notes (as defined below) issuable in exchange
therefor are collectively referred to herein as the "Notes."
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act of 1933,
as amended (the "Act"), the Series C Notes (and all securities issued in
exchange therefor or in substitution thereof) shall bear the following legend:
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<PAGE> 3
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OF AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED
HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
NON-UNITED STATES PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY
OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
2. Offering. The Series C Notes will be offered and sold to the
Initial Purchaser pursuant to an exemption from the registration requirements
under the Act. The Company has prepared a preliminary offering memorandum, dated
February 8, 1999 (the "Preliminary Offering Memorandum"), and a final offering
memorandum, dated February 9, 1999, including those documents filed with the
Securities and Exchange Commission ("the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
exhibits thereto incorporated by reference therein (collectively, the
"Incorporated Documents") and attached as Annexes thereto (the "Offering
Memorandum"), relating to the Company and the Series C Notes.
The Initial Purchaser has advised the Company that the Initial
Purchaser will make offers (the "Exempt Resales") of the Series C Notes on the
terms set forth in the Offering
2
<PAGE> 4
Memorandum, as amended or supplemented, solely to persons whom the Initial
Purchaser reasonably believes to be "qualified institutional buyers", as defined
in Rule 144A under the Act ("QIBs" or "Eligible Purchasers"). The Initial
Purchaser will offer the Series C Notes to such Eligible Purchasers initially at
a price equal to 107.125% of the principal amount thereof. Such price may be
changed at any time without notice.
Holders (including subsequent transferees) of the Series C Notes will
have the registration rights set forth in the registration rights agreement
relating thereto (the "Registration Rights Agreement"), to be dated the Closing
Date (as defined below), for so long as such Series C Notes constitute "Transfer
Restricted Notes" (as defined in the Registration Rights Agreement). Pursuant to
the Registration Rights Agreement, the Company will agree to file with the
Commission, under the circumstances set forth therein, (i) a registration
statement under the Act (the "Exchange Offer Registration Statement") relating
to newly issued 11 1/4% Series B Senior Subordinated Notes due 2007 or such
other series of notes as the Company may issue in the event it is unable to
issue additional 11 1/4% Series B Senior Subordinated Notes due 2007 (in either
case, the "Series B Notes") to be offered in exchange for the Series C Notes
(the "Exchange Offer") and (ii), if required, a shelf registration statement
pursuant to Rule 415 under the Act (the "Shelf Registration Statement" and,
together with the Exchange Offer Registration Statement, the "Registration
Statements") relating to the resale by certain holders of the Series C Notes,
and to use its best efforts to cause the Registration Statements to be declared
effective and to consummate the Exchange Offer. This Agreement, the Notes, the
Indenture and the Registration Rights Agreement are hereinafter sometimes
referred to collectively as the "Operative Documents".
3. Purchase, Sale and Delivery. (a) On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell to the
Initial Purchaser, and the Initial Purchaser agrees to purchase from the
Company, $30,000,000 aggregate principal amount of Series C Notes. The purchase
price for the Series C Notes will be $1,044.47 per $1,000 principal amount Note.
(b) Delivery of the Series C Notes shall be made, against payment
of the purchase price therefor, at the offices of Weil, Gotshal & Manges LLP at
100 Crescent Court, Suite 1300, Dallas, Texas 75201, or such other location as
may be mutually acceptable. Such delivery and payment shall be made at 10:00
a.m., Dallas time, on February 12, 1999 or at such other time as shall be agreed
upon by the Initial Purchaser and the Company. The time and date of such
delivery and payment are herein called the "Closing Date".
(c) One or more Series C Notes in definitive form, registered in
the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"),
having an aggregate amount corresponding to the aggregate amount of the Series C
Notes sold pursuant to Exempt Resales to QIBs (the "Global Note"), shall be
delivered by the Company to the Initial Purchaser (or as the Initial Purchaser
directs), against payment by the Initial Purchaser of the purchase price
therefor, by wire transfer, in same-day funds, to
3
<PAGE> 5
an account designated by the Company, provided that the Company shall give at
least two business days' prior written notice to the Initial Purchaser of the
information required to effect such wire transfer. The Global Note shall be made
available to the Initial Purchaser or its agents for inspection not later than
9:30 a.m., New York City time, on the business day immediately preceding the
Closing Date.
4. Agreements of the Company. The Company covenants and agrees with
the Initial Purchaser as follows:
(a) To advise the Initial Purchaser promptly and, if requested by
the Initial Purchaser, confirm such advice in writing, (i) of the issuance by
any state securities commission of any stop order suspending the qualification
or exemption from qualification of any Notes for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by any state
securities commission or other regulatory authority or (ii) of the happening of
any event that makes any statement of a material fact made in the Preliminary
Offering Memorandum or the Offering Memorandum untrue or that requires the
making of any additions to or changes in the Preliminary Offering Memorandum or
the Offering Memorandum in order to make the statements of material fact
therein, in the light of the circumstances under which they are made, not
misleading. The Company shall make every reasonable effort to prevent the
issuance of any stop order or order suspending the qualification or exemption of
any Notes under any state securities or Blue Sky laws and, if at any time any
state securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption of any Notes under any state
securities or Blue Sky laws, the Company shall make every reasonable effort to
obtain the withdrawal or lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchaser and those persons identified
by the Initial Purchaser to the Company, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchaser may reasonably request. The
Company consents to the use of the Preliminary Offering Memorandum and the
Offering Memorandum, and any amendments and supplements thereto required
pursuant hereto, by the Initial Purchaser in connection with Exempt Resales.
(c) Not to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum prior to the Closing Date unless the
Initial Purchaser shall previously have been advised thereof and shall not have
objected thereto within a reasonable time after being furnished a copy of such
amendment or supplement. The Company shall promptly prepare, upon the Initial
Purchaser's reasonable request, any amendment or supplement to the Preliminary
Offering Memorandum or the Offering Memorandum that may be necessary or
advisable in connection with Exempt Resales.
(d) If, after the date hereof and prior to consummation of any
Exempt Resale, any event shall occur as a result of which, in the judgment of
the Company or in the reasonable opinion of counsel for the Company or the
Initial Purchaser, it becomes
4
<PAGE> 6
necessary or advisable to amend or supplement the Preliminary Offering
Memorandum or Offering Memorandum in order to make the statements of material
fact therein, in the light of the circumstances when such Offering Memorandum is
delivered to an Eligible Purchaser which is a prospective purchaser, not
misleading, or if it is necessary or advisable to amend or supplement the
Preliminary Offering Memorandum or Offering Memorandum to comply with applicable
law, (i) to promptly notify the Initial Purchaser and (ii) to promptly prepare
an appropriate amendment or supplement to such Preliminary Offering Memorandum
or Offering Memorandum so that the statements of material fact therein as so
amended or supplemented will not, in the light of the circumstances when it is
so delivered, be misleading, or so that such Preliminary Offering Memorandum or
Offering Memorandum will comply with applicable law.
(e) To cooperate with the Initial Purchaser and counsel for the
Initial Purchaser in connection with the qualification or registration of the
Series C Notes under the securities or Blue Sky laws of such jurisdictions as
the Initial Purchaser may reasonably request and to continue such qualification
in effect so long as required for the Exempt Resales; provided, however, that
the Company shall not be required in connection therewith to register or qualify
as a foreign corporation where it is not now so qualified or to take any action
that would subject it to service of process in suits or taxation, in each case,
in any jurisdiction where it is not now so subject.
(f) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is terminated,
to pay all costs, expenses, fees and taxes incident to the performance of the
obligations of the Company hereunder, including in connection with: (i) the
preparation, printing, filing and distribution of the Preliminary Offering
Memorandum and the Offering Memorandum (including, without limitation, financial
statements) and all amendments and supplements thereto required pursuant hereto
(other than legal fees and expenses of counsel to the Initial Purchaser in
connection with any of the foregoing), (ii) the preparation (including, without
limitation, duplication costs) and delivery of all preliminary and final Blue
Sky Memoranda and all other agreements, memoranda, correspondence and all other
documents prepared and delivered in connection herewith and with the Exempt
Resales (including Blue Sky filing fees, but excluding legal fees and expenses
of counsel to the Initial Purchaser in connection with any of the foregoing),
(iii) the issuance, transfer and delivery by the Company of the Notes to the
Initial Purchaser, (iv) the qualification or registration of the Notes for offer
and sale under the securities or Blue Sky laws of the several states (including,
without limitation, the cost of printing and mailing a Blue Sky Memorandum and
the reasonable fees and disbursements of counsel for the Initial Purchaser
relating thereto), (v) furnishing such copies of the Preliminary Offering
Memorandum and the Offering Memorandum, and all amendments and supplements
thereto, as may be requested for use in connection with Exempt Resales, (vi) the
preparation of certificates for the Notes (including, without limitation,
printing and engraving thereof), (vii) the fees, disbursements and expenses of
the Company's accountants, (viii) all expenses and listing fees in connection
with the application for quotation of the Notes in the National Association of
Securities Dealers, Inc. ("NASD") Private Offering, Resales and Trading through
Automated Linkages ("PORTAL") market (but excluding legal fees and expenses
5
<PAGE> 7
of counsel to the Initial Purchaser in connection with the foregoing), (ix) all
fees and expenses (including fees and expenses of counsel) of the Company in
connection with the approval of the Notes by DTC for "book-entry" transfer, (x)
rating the Notes by rating agencies, (xi) the reasonable fees and expenses of
the Trustee and its counsel, (xii) the performance by the Company of its other
obligations under this Agreement and the other Operative Documents, (xiii)
"roadshow" travel and other expenses incurred in connection with the marketing
and sale of the Notes, and (xiv) the fees, disbursements and expenses of the
Company's counsel; provided, however, that, except as provided in this Section
4(f) or Section 11(d), the Initial Purchaser shall pay its own costs and the
costs and expenses of its counsel.
(g) To use the proceeds from the sale of the Series C Notes in
the manner described in the Offering Memorandum under the caption "Use of
Proceeds".
(h) Not to voluntarily claim, and to resist actively any attempts
to claim, the benefit of any usury laws against the holders of any Notes.
(i) To do and perform all things required to be done and
performed under this Agreement by it prior to or after the Closing Date and to
make every reasonable effort to satisfy all conditions precedent on its part to
the delivery of the Series C Notes pursuant to the directions of the Initial
Purchaser.
(j) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Series C Notes in a manner that would
require the registration under the Act of the sale to the Initial Purchaser, the
QIBs of the Series C Notes or to take any other action that would result in the
Exempt Resales not being exempt from registration under the Act.
(k) For so long as any of the Notes remain outstanding and during
any period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, to make available to any holder or beneficial owner of Series C
Notes in connection with any sale thereof and any prospective purchaser of such
Series C Notes from such holder or beneficial owner, in each case upon request,
the information required by Rule 144A(d)(4) under the Act.
(l) To use its best efforts to cause the Exchange Offer to be
made in the appropriate form to permit the Series B Notes to be offered in
exchange for the Series C Notes and to comply with all applicable federal and
state securities laws in connection with the Exchange Offer.
(m) To make every reasonable effort to effect the inclusion of
the Notes in the PORTAL market in accordance with the rules and regulations of
the NASD, relating to trading in the PORTAL market, and to make every reasonable
effort to obtain approval of the Series C Notes by DTC for "book-entry"
transfer.
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<PAGE> 8
(n) For so long as any of the Notes remain outstanding, to
deliver without charge to the Initial Purchaser, as it may reasonably request,
promptly upon their becoming available, copies of (i) all publicly available
reports or other publicly available information that the Company shall mail or
otherwise make available to its security holders and (ii) all reports, financial
statements and proxy or information statements filed by the Company with the
Commission or any national securities exchange and such other publicly available
information concerning the Company including, without limitation, press
releases.
(o) Prior to the Closing Date, to furnish to the Initial
Purchaser, as soon as they have been prepared in the ordinary course by the
Company or its accountants, as the case may be, copies of any unaudited interim
financial statements for any period subsequent to the periods covered by the
financial statements appearing in the Offering Memorandum.
(p) Not to take, directly or indirectly, any action designed to,
or that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Notes. Except as permitted by the Act, the Company will not
distribute any (i) preliminary offering memorandum, including, without
limitation, the Preliminary Offering Memorandum, (ii) offering memorandum,
including, without limitation, the Offering Memorandum or (iii) other offering
material in connection with the offering and sale of the Notes.
(q) To comply with all of its agreements set forth in this
Agreement, the Indenture, the Registration Rights Agreement and the other
Operative Documents to which it is a party and all agreements set forth in the
representation letters of the Company to DTC relating to the approval of the
Notes by DTC for "book-entry" transfer.
5. Representations and Warranties. (a) The Company represents and
warrants to the Initial Purchaser that:
(i) The Preliminary Offering Memorandum and the Offering
Memorandum have been prepared in connection with the Exempt Resales.
The Preliminary Offering Memorandum as of its date did not and the
Offering Memorandum as of its date does not and as of the Closing Date
will not, and any supplement or amendment to either of them as of the
date of such supplement or amendment will not, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties contained in this paragraph shall not apply to statements
in or omissions from the Preliminary Offering Memorandum and the
Offering Memorandum (or any supplement or amendment thereto) made in
reliance upon and in conformity with information relating to the
Initial Purchaser furnished to the Company in writing by the Initial
Purchaser expressly for use therein, as such information is enumerated
in Article 9 herein. No stop order preventing the use of the
Preliminary Offering
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<PAGE> 9
Memorandum or the Offering Memorandum, or any amendment or supplement
thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration
requirements of the Act, has been issued.
(ii) Each of the Incorporated Documents, at the time they
were filed with the Commission, complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of
the Commission under the Exchange Act, no such document when it was
filed, and, when read together with the other information in the
Offering Memorandum, as of its date and at the Closing Date, contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. There are no contracts, indentures, mortgages, loan
agreements, leases or other instruments or documents of the Company or
the Subsidiary (as defined) that are required to be described or
referred to in the Incorporated Documents or to be filed as exhibits
thereto by the Exchange Act or by the rules and regulations
thereunder, other than those described or referred to therein or filed
as exhibits thereto.
(iii) Each of the Company and Security Fence Supply Co.,
Inc., a Maryland corporation (the "Subsidiary"), (A) has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, (B) has all
requisite corporate power and authority to carry on its business as it
is currently being conducted and as described in the Offering
Memorandum and to own, lease and operate its properties and (C) is
duly qualified and in good standing as a foreign corporation and
authorized to do business in each jurisdiction in which the nature of
its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified could not
reasonably be expected to (x) result, individually or in the
aggregate, in a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise), or affairs
of the Company and the Subsidiary, taken as a whole, (y) interfere
with or adversely affect the issuance of the Notes pursuant hereto or
(z) in any manner draw into question the validity of this Agreement or
any other Operative Document or the transactions described in the
Offering Memorandum under the caption "Use of Proceeds" (any of the
events set forth in clauses (x), (y) or (z), a "Material Adverse
Effect"). Other than the Subsidiary, the Company has no other
subsidiaries and does not control, directly or indirectly, any other
person, including any corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust or
unincorporated organization.
(iv) All of the outstanding capital stock of the Company
has been duly authorized, validly issued, and is fully paid and
nonassessable and was not issued in violation of any preemptive or
similar rights. On October 3, 1998, after giving pro forma effect to
the issuance and sale of the Series C Notes pursuant hereto and the
application of the net proceeds therefrom, the Company
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<PAGE> 10
would have had an authorized and outstanding capitalization as set
forth in the Offering Memorandum under the caption "Capitalization",
subject to the Notes and assumptions included therein.
(v) There are not currently any outstanding subscriptions,
rights, warrants, calls, commitments of sale or options to acquire, or
instruments convertible into or exchangeable for, any capital stock or
other equity interest of the Company.
(vi) All of the outstanding capital stock of the
Subsidiary is owned, directly or indirectly, by the Company, free and
clear of any security interest, claim, lien, limitation on voting
rights or encumbrance, except for any such security interest, claim,
lien, limitation on voting rights or encumbrance pursuant to the
Amended and Restated Loan and Security Agreement, dated as of December
13, 1996, as amended, and all such securities have been duly
authorized, validly issued, and are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights.
(vii) When the Series C Notes are issued and delivered
pursuant to this Agreement, neither the Series C Notes will be of the
same class (within the meaning of Rule 144A under the Act) as
securities of the Company that are listed on a national securities
exchange registered under Section 6 of the Exchange Act or that are
quoted in a United States automated inter-dealer quotation system.
(viii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and each of the other Operative Documents to which it is a
party and to consummate the transactions contemplated hereby and
thereby, including, without limitation, the corporate power and
authority to issue, sell and deliver the Notes as provided herein and
therein.
(ix) This Agreement has been duly and validly authorized,
executed and delivered by the Company and is the legal, valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity.
(x) The Indenture has been duly and validly authorized,
executed and delivered by the Company and the Trustee, is the legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject
to general principles of equity. The Indenture conforms, in all
material respects, to the description thereof in the Offering
Memorandum.
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<PAGE> 11
(xi) The Registration Rights Agreement has been duly and
validly authorized by the Company and, when duly executed and
delivered by the Company and the Initial Purchaser, will be the legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject
to general principles of equity. The Registration Rights Agreement
will conform, in all material respects, to the description thereof in
the Offering Memorandum.
(xii) The Series C Notes have been duly and validly
authorized by the Company for issuance and sale to the Initial
Purchaser pursuant to this Agreement and, when issued and
authenticated in accordance with the terms of the Indenture and
delivered against payment therefor in accordance with the terms hereof
and thereof, will be the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
terms and entitled to the benefits of the Indenture, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity. The Series C
Notes will conform, in all material respects, to the description
thereof in the Offering Memorandum.
(xiii) The Series B Notes have been duly and validly
authorized for issuance by the Company and, when issued and
authenticated in accordance with the terms of the Exchange Offer and
the Indenture, will be the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
terms and entitled to the benefits of the Indenture, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity. The Series B
Notes will conform, in all material respects to the description
thereof in the Offering Memorandum.
(xiv) The Company is not and, after giving effect to the
Offering, will not be (A) in violation of its charter or bylaws, (B)
in default in the performance of any bond, debenture, note, indenture,
mortgage, deed of trust or other agreement or instrument to which it
is a party or by which it is bound or to which any of its properties
is subject that could reasonably be expected to have a Material
Adverse Effect or (C) in violation of any local, state, federal or
foreign law, statute, ordinance, rule, regulation, requirement,
judgment or court decree (including, without limitation, environmental
laws, statutes, ordinances, rules, regulations, judgments or court
decrees) applicable to it or any of its assets or properties (whether
owned or leased) that could reasonably be expected to have a Material
Adverse Effect. To the best knowledge of the Company, there exists no
condition that, with notice, the passage of time or otherwise, would
constitute a default under any such document or instrument that could
reasonably be expected to have a Material Adverse Effect.
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<PAGE> 12
(xv) None of (A) the execution, delivery or performance by
the Company of this Agreement or any of the other Operative Documents
to which it is a party, and (B) the issuance and sale of the Notes,
violates, conflicts with or constitutes a breach of any of the terms
or provisions of, or, after giving effect to the Offering, will
violate, conflict with or constitute a breach of any of the terms or
provisions of, or a default under (or an event that with notice or the
lapse of time, or both, would constitute a default), or requires
consent under, or results in the imposition of a lien or encumbrance
on any properties of the Company or the Subsidiary, or an acceleration
of any indebtedness of the Company pursuant to, (1) the charter or
bylaws of the Company or the Subsidiary, (2) any bond, debenture,
note, indenture, mortgage, deed of trust or other material agreement
or material instrument to which the Company or the Subsidiary is a
party or by which either of them or their respective property is or
may be bound, all of which material agreements are set forth in
Exhibit A, (3) any statute, rule or regulation applicable to the
Company, the Subsidiary or any of their respective assets or
properties or (4) any judgment, order or decree of any court or
governmental agency or authority having jurisdiction over the Company,
the Subsidiary or any of their respective assets or properties, except
in the case of clauses (2), (3) and (4) above, as would not reasonably
be expected to have a Material Adverse Effect. No consent, approval,
authorization or order of, or filing, registration, qualification,
license or permit of or with (A) any court or governmental agency,
body or administrative agency or (B) any other person is required for
(1) the execution, delivery and performance by the Company of this
Agreement or any of the other Operative Documents to which it is a
party, or (2) the issuance and sale of the Notes and the transactions
contemplated hereby and thereby, except such as have been obtained and
made (or, in the case of the Series B Notes and Registration Rights
Agreement, must be obtained and made) under the Act, the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and
state securities or Blue Sky laws and regulations or such as may be
required by the NASD, and except those which the failure to obtain
would not reasonably be expected to have a Material Adverse Effect.
(xvi) There is (A) no action, suit, investigation or
proceeding before or by any court, arbitrator or governmental agency,
body or official, domestic or foreign, now pending or, to the
knowledge of the Company, threatened to which the Company or the
Subsidiary is or may be a party or to which the business or property
of the Company or the Subsidiary is subject, (B) no statute, rule,
regulation or order that has been enacted, adopted or issued by any
governmental agency or that has been proposed by any governmental body
and (C) no injunction, restraining order or order of any nature by a
federal or state court or foreign court of competent jurisdiction to
which the Company or the Subsidiary is or may be subject or to which
the business, assets, or property of the Company or the Subsidiary is
or may be subject that, in the case of clauses (A), (B) and (C) above,
(1) is required to be disclosed in the Preliminary Offering Memorandum
and the Offering Memorandum and that is not so disclosed or (2) could
reasonably be expected to have a Material Adverse Effect.
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<PAGE> 13
(xvii) No action has been taken and no statute, rule,
regulation or order has been enacted, adopted or issued by any
governmental agency that prevents the issuance of the Series C Notes
or prevents or suspends the use of the Offering Memorandum; no
injunction, restraining order or order of any nature by a federal or
state court of competent jurisdiction has been issued that prevents
the issuance of the Notes or prevents or suspends the sale of the
Notes in any jurisdiction referred to in Section 4(e) hereof; and
every request of any securities authority or agency of any
jurisdiction for additional information has been complied with in all
material respects.
(xviii) Except as could not reasonably be expected to have
a Material Adverse Effect, there is (A) no unfair labor practice
complaint pending against the Company or the Subsidiary nor, to the
best knowledge of the Company, threatened against it or the
Subsidiary, before the National Labor Relations Board, any state or
local labor relations board or any foreign labor relations board, and
no significant grievance or significant arbitration proceeding arising
out of or under any collective bargaining agreement is so pending
against the Company or the Subsidiary or, to the knowledge of the
Company, threatened against it or the Subsidiary, (B) no significant
strike, labor dispute, slowdown or stoppage pending against the
Company or the Subsidiary nor, to the best knowledge of the Company,
threatened against the Company or the Subsidiary and (C) to the
knowledge of the Company, no union representation question existing
with respect to the employees of the Company or the Subsidiary. Except
as could not reasonably be expected to have a Material Adverse Effect,
to the knowledge of the Company, no collective bargaining organizing
activities are taking place with respect to the Company or the
Subsidiary. Except as could not reasonably be expected to have a
Material Adverse Effect, neither the Company nor the Subsidiary has
not violated (A) any federal, state or local law or foreign law
relating to discrimination in hiring, promotion or pay of employees,
(B) any applicable wage or hour laws or (C) any provision of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or the rules and regulations thereunder.
(xix) Each of the Company and the Subsidiary has been and
is in compliance with all foreign, federal, state or local law,
including common law, statute, code, regulation, or similar legally
binding requirements relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws") except for
non-compliance that could not reasonably be expected to have a
Material Adverse Effect.
(xx) Except as could not reasonably be expected to have a
Material Adverse Effect, there is no alleged liability, or to the best
knowledge of the Company, potential liability (including, without
limitation, alleged or potential
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<PAGE> 14
liability or investigatory costs, cleanup costs, governmental response
costs, natural resource damages, property damages, personal injuries
or penalties) of the Company or the Subsidiary arising out of, based
on or resulting from (a) the presence or release into the environment
of any Hazardous Material (as defined below) at any location, whether
or not owned by the Company or the Subsidiary, or (b) any violation or
alleged violation of any Environmental Law, which alleged or potential
liability is required to be disclosed in the Offering Memorandum,
other than as disclosed therein. The term "Hazardous Material" means
(i) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, (ii) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (iii) any petroleum or
petroleum product, (iv) any polychlorinated biphenyl and (v) any
pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulated under or within the meaning of
any other law relating to protection of human health or the
environment or imposing liability or standards of conduct concerning
any such chemical material, waste or substance.
(xxi) Except as could not reasonably be expected to have a
Material Adverse Effect, each of the Company and the Subsidiary has
such permits, licenses, franchises and authorizations of governmental
or regulatory authorities ("permits"), including, without limitation,
permits required under any applicable Environmental Laws, as are
necessary to own, lease and operate its properties and to conduct its
business. Except as could not reasonably be expected to have a
Material Adverse Effect, each of the Company and the Subsidiary has
fulfilled and performed all of its obligations with respect to such
permits and has not received any actual notice, nor is it aware, of
any proceeding seeking the revocation or termination of any such
permit, nor is it aware of the existence of any facts which would give
any governmental or regulatory authority a basis for revoking or
terminating any such permit.
(xxii) Each of the Company and the Subsidiary has (A) good
and marketable title to all of the material properties and material
assets described in the Offering Memorandum as owned by it, free and
clear of all liens and encumbrances, except for such as do not
materially affect the value of such property or materially interfere
with its use of such property, and (B) peaceful and undisturbed
possession under all material leases to which it is a party as lessee,
and each of such leases is valid and binding on the part of the
Company or the Subsidiary, respectively. To the knowledge of the
Company, no material default by the landlord is existing under any
such lease, except as could not reasonably be expected to have a
Material Adverse Effect.
(xxiii) Except as could not reasonably be expected to have
a Material Adverse Effect, each of the Company and the Subsidiary
owns, possesses or has the right to employ all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, software, systems or
13
<PAGE> 15
procedures), trademarks, service marks and trade names, computer
programs, technical data and information (collectively, the
"Intellectual Property") presently employed by it in connection with
the businesses now operated by it. The use of the Intellectual
Property in connection with the business and operations of the Company
and the Subsidiary does not infringe on the rights of any person,
except as could not reasonably be expected to have a Material Adverse
Effect.
(xxiv) All tax returns required to be filed by the Company
and the Subsidiary in all jurisdictions have been so filed. All taxes,
including withholding taxes, penalties and interest, assessments, fees
and other charges due or claimed to be due from the Company and the
Subsidiary or that are due and payable have been paid, other than
those being contested in good faith and for which adequate reserves
have been provided or those currently payable without penalty or
interest. To the knowledge of the Company, there are no material
proposed additional tax assessments against the Company or the
Subsidiary or its assets or property.
(xxv) The Company is not (i) an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment
Company Act").
(xxvi) There are no holders of securities of the Company
who, by reason of the execution by the Company of this Agreement or
any other Operative Document or the consummation by the Company of the
transactions contemplated hereby and thereby, have the right to
request or demand that the Company register under the Act or analogous
foreign laws and regulations securities held by them.
(xxvii) Each of the Company and the Subsidiary maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that: (A) transactions are executed in accordance
with management's general or specific authorizations; (B) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles
and to maintain accountability for assets; (C) access to assets is
permitted only in accordance with management's general or specific
authorization; (D) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate
action is taken with respect thereto; and (E) the Company and the
Subsidiary, respectively, will be capable of complying with all of the
reporting requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
(xxviii) Each of the Company and the Subsidiary maintains
insurance covering its properties, operations, personnel and business.
Such insurance insures against such losses and risks as are adequate
in accordance with customary industry practice to protect the Company
or the Subsidiary, as the case may be, and their respective business.
Neither the Company nor the Subsidiary has received notice from any
insurer or agent of such insurer that substantial capital improvements
or other expenditures that are material to the Company or the
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<PAGE> 16
Subsidiary, as the case may be, will have to be made in order to
continue such insurance. All such insurance is outstanding and duly in
force on the date hereof and will remain outstanding and duly in force
on the terms in effect on the date hereof, subject only to changes
made in the ordinary course of business, consistent with past
practice, which do not, singly or in the aggregate, materially alter
the coverage thereunder or the risks covered thereby or which could
not reasonably be expected to have a Material Adverse Effect.
(xxix) None of the Company, the Subsidiary or, to the
knowledge of the Company, any of the officers or directors of the
Company or the Subsidiary or any other person acting on the Company's
behalf, has (A) taken, directly or indirectly, any action designed to,
or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Notes or (B) since the
date of the Preliminary Offering Memorandum (1) sold, bid for,
purchased or paid any person any compensation for soliciting purchases
of the Notes or (2) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities
of the Company.
(xxx) No registration under the Act of the Series C Notes
is required for the sale of the Series C Notes to the Initial
Purchaser as contemplated hereby or for the Exempt Resales assuming
(A) that the purchasers who buy the Series C Notes in the Exempt
Resales are either QIBs and (B) the accuracy of the Initial
Purchaser's representations regarding the absence of general
solicitation in connection with the sale of Series C Notes to the
Initial Purchaser and the Exempt Resales contained herein. No form of
general solicitation or general advertising was used by the Company or
any of its representatives (other than the Initial Purchaser, as to
which the Company makes no representation or warranty) in connection
with the offer and sale of any of the Notes in connection with Exempt
Resales, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising. No securities of the same class as the Notes have been
issued and sold by the Company within the six-month period immediately
prior to the date hereof.
(xxxi) Each of the Company and the Subsidiary has
delivered all material employee pension or benefit plans with respect
to which it, or any corporation considered an affiliate of the Company
or the Subsidiary within the meaning of Section 407(d)(7) of ERISA (an
"ERISA Affiliate"), is a party in interest or disqualified person. The
execution and delivery of this Agreement, the other Operative
Documents and the sale of the Series C Notes to be purchased by the
QIBs will not involve any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of
1986, as amended. The representation made by the Company in the
preceding sentence is made in reliance upon and subject to the
accuracy of, and compliance with, the
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<PAGE> 17
representations and covenants made or deemed made by the QIBs as set
forth in the Offering Memorandum under the caption "Notice to
Investors".
(xxxii) Each of the Preliminary Offering Memorandum and
the Offering Memorandum, as of its date, and each amendment or
supplement thereto, as of its date, contains the information specified
in, and meets the requirements of, Rule 144A(d)(4) under the Act.
(xxxiii) Subsequent to the respective dates as of which
information is given in the Offering Memorandum and up to the Closing
Date, except as set forth in the Offering Memorandum, (A) neither the
Company nor the Subsidiary has incurred any liabilities or
obligations, direct or contingent, which are material, individually or
in the aggregate, to the Company, nor entered into any material
transaction not in the ordinary course of business, in either case
that would require disclosure in the Offering Memorandum, (B) there
has not been, singly or in the aggregate, any change or development
which could reasonably be expected to result in a Material Adverse
Effect and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital
stock.
(xxxiv) None of the execution, delivery and performance of
this Agreement, the issuance and sale of the Notes, the application of
the proceeds from the issuance and sale of the Notes and the
consummation of the transactions contemplated thereby as set forth in
the Offering Memorandum, will violate Regulations G, T, U or X
promulgated by the Board of Governors of the Federal Reserve System or
analogous foreign laws and regulations.
(xxxv) The accountants who have certified or will certify
the financial statements included or to be included as part of the
Offering Memorandum are independent accountants. The historical
financial statements of the Company comply as to form in all material
respects with the requirements applicable to registration statements
on Form S-1 under the Act and present fairly in all material respects
the financial position and results of operations of the Company at the
dates and for the periods indicated. Such financial statements have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
presented. The pro forma financial data and as adjusted balance sheet
data included in the Offering Memorandum have been prepared on a basis
consistent with such historical statements, except for the pro forma
adjustments specified therein, and gives effect to assumptions made on
a reasonable basis and present fairly in all material respects the
historical and proposed transactions contemplated by this Agreement
and the other Operative Documents; and such pro forma financial data
and as adjusted balance sheet data financial statements comply as to
form in all material respects with the requirements applicable to pro
forma financial statements included in registration statements on Form
S-1 under the Act. The other historical financial information and data
included in the Offering Memorandum are prepared
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<PAGE> 18
on a basis consistent with the financial statements included in the
Offering Memorandum and the books and records of the Company.
(xxxvi) Neither the Company nor the Subsidiary intends to,
nor does either believe that it will, incur debts beyond its ability
to pay such debts as they mature. The present fair saleable value of
the assets of the Company exceeds the amount that will be required to
be paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company as they become
absolute and matured. The assets of the Company do not constitute
unreasonably small capital to carry out the business of the Company as
conducted or as proposed to be conducted. Upon the issuance of the
Notes, the present fair saleable value of the assets of the Company
will exceed the amount that will be required to be paid on or in
respect of the existing debts and other liabilities (including
contingent liabilities) of the Company as they become absolute and
matured. Upon the issuance of the Notes and the consummation of the
other Transactions, the assets of the Company will not constitute
unreasonably small capital to carry out its business as now conducted,
including the capital needs of the Company, taking into account the
projected capital requirements and capital availability.
(xxxvii) Except pursuant to this Agreement, there are no
contracts, agreements or understandings between the Company or the
Subsidiary and any other person that would give rise to a valid claim
against the Company, the Subsidiary or the Initial Purchaser for a
brokerage commission, finder's fee or like payment in connection with
the issuance, purchase and sale of the Notes.
(xxxviii) There exist no conditions that would constitute
a default (or an event which with notice or the lapse of time, or
both, would constitute a default) under any of the Operative
Documents.
(xxxix) Each certificate signed by any officer of the
Company and delivered to the Initial Purchaser or counsel for the
Initial Purchaser shall be deemed to be a representation and warranty
by the Company to the Initial Purchaser as to the matters covered
thereby.
The Company acknowledges that the Initial Purchaser and, for
purposes of the opinions to be delivered to the Initial Purchaser pursuant to
Section 8 hereof, counsel for the Company and counsel for the Initial Purchaser,
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.
(b) The Initial Purchaser represents, warrants and covenants
to the Company and agrees that:
(i) The Initial Purchaser is a QIB, with such knowledge
and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Series
C Notes.
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<PAGE> 19
(ii) The Initial Purchaser (A) is not acquiring the Series
C Notes with a view to any distribution thereof that would violate the
Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling
the Series C Notes only to QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A.
(iii) No form of general solicitation or general
advertising has been or will be used by the Initial Purchaser or any
of its representatives in connection with the offer and sale of any of
the Series C Notes, including, but not limited to, articles, notices
or other communications published in any newspaper, magazine, or
similar medium or broadcast over television or radio, or any seminar
or meeting whose attendees have been invited by any general
solicitation or general advertising.
(iv) The Initial Purchaser agrees that, in connection with
the Exempt Resales, it will solicit offers to buy the Series C Notes
only from, and will offer to sell the Series C Notes only to, QIBs.
The Initial Purchaser further (A) agrees that it will offer to sell
the Series C Notes only to, and will solicit offers to buy the Series
C Notes only from, QIBs who in purchasing such Series C Notes will be
deemed to have represented and agreed that they are purchasing the
Series C Notes for their own accounts or accounts with respect to
which they exercise sole investment discretion and that they or such
accounts are QIBs, (B) agrees and acknowledges that such Series C
Notes will not have been registered under the Act and may be resold,
pledged or otherwise transferred only (x)(I) to a person who the
seller reasonably believes is a QIB in a transaction meeting the
requirements of Rule 144A, (II) in a transaction meeting the
requirements of Rule 144, (III) outside the United States to a foreign
person in a transaction meeting the requirements of Rule 904 under the
Act or (IV) in accordance with another exemption from the registration
requirements of the Act (and based upon an opinion of counsel if the
Company so requests), (y) to the Company or (z) pursuant to an
effective registration statement under the Act and, in each case, in
accordance with any applicable securities laws of any state of the
United States or any other applicable jurisdiction and (C) agrees that
it will, and acknowledges that each subsequent holder is required to,
notify any purchaser of the security evidenced thereby of the resale
restrictions set forth in (B) above.
The Initial Purchaser understands that the Company and, for
purposes of the opinions to be delivered to the Initial Purchaser pursuant to
Section 8 hereof, counsel for the Company and counsel for the Initial Purchaser
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless (i) the
Initial Purchaser, (ii) each person, if any, who controls the Initial Purchaser
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
and (iii) the respective
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<PAGE> 20
officers, directors, partners and employees of the Initial Purchaser or any
controlling person to the fullest extent lawful, from and against any and all
losses, liabilities, claims, damages and expenses whatsoever (including but not
limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any investigation or litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Offering
Memorandum or the Offering Memorandum, or in any supplement thereto or amendment
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company will not be liable in
any such case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Initial Purchaser expressly for
use therein. This indemnity agreement will be in addition to any liability which
the Company may otherwise have, including under this Agreement.
(b) The Initial Purchaser agrees to indemnify and hold
harmless the Company and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any losses, liabilities, claims, damages and reasonable expenses
whatsoever (including but not limited to reasonable attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any investigation or litigation, commenced or threatened, or
any claim whatsoever and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Offering Memorandum or the Offering
Memorandum, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Initial Purchaser expressly for use therein;
provided, however, that in no case shall the Initial Purchaser be liable or
responsible for any amount in excess of the discounts and commissions received
by the Initial Purchaser, less such sums reimbursed by the Initial Purchaser to
the Company. This indemnity will be in addition to any liability which the
Initial Purchaser may otherwise have, including under this Agreement.
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<PAGE> 21
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 6 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such action
within a reasonable time after notice of commencement of the action or (iii)
such indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses of counsel shall be borne by the indemnifying
parties; provided, however, that the indemnifying party under subsection (a) or
(b) above shall only be liable for the legal expenses of one counsel (in
addition to any local counsel) for all indemnified parties in each jurisdiction
in which any claim or action is brought. Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its prior written consent;
provided, however, that such consent was not unreasonably withheld.
7. Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 6 is for any
reason held to be unavailable from the Company or is insufficient to hold
harmless a party indemnified thereunder, the Company, on the one hand, and the
Initial Purchaser, on the other hand, shall contribute to the aggregate losses,
claims, damages, liabilities and expenses of the nature contemplated by such
indemnification provision (including any investigation, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claims asserted, but after deducting in
the case of losses, claims, damages, liabilities and expenses suffered by the
Company any contribution received by the Company from Persons, other than the
Initial Purchaser, who may also be liable for contribution, including Persons
who control the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act) to which the Company and the Initial Purchaser may be
subject, in such proportion as is appropriate to
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<PAGE> 22
reflect the relative benefits received by the Company, on the one hand, and the
Initial Purchaser, on the other hand, from the offering of the Series C Notes
or, if such allocation is not permitted by applicable law or indemnification is
not available as a result of the indemnifying party not having received notice
as provided in Section 6, in such proportion as is appropriate to reflect not
only the relative benefits referred to above but also the relative fault of the
Company, on the one hand, and the Initial Purchaser, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and the Initial Purchaser, on the other hand, shall be deemed to be in
the same proportion as (i) the total proceeds from the offering of Series C
Notes (net of discounts but before deducting expenses) received by the Company
and (ii) the discounts and commissions received by the Initial Purchaser, less
such sums reimbursed by the Initial Purchaser to the Company. The relative fault
of the Company, on the one hand, and of the Initial Purchaser, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Initial Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Initial Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 7, (i) in no case shall the Initial Purchaser be required to
contribute any amount in excess of the amount by which the discounts and
commissions applicable to the Series C Notes purchased by the Initial Purchaser
pursuant to this Agreement exceeds the amount of any damages which the Initial
Purchaser has otherwise been required to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, (A) each person,
if any, who controls the Initial Purchaser within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and (B) the respective officers,
directors, partners, employees, representatives and agents of the Initial
Purchaser or any controlling person shall have the same rights to contribution
as the Initial Purchaser, and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
shall have the same rights to contribution as the Company, subject in each case
to clauses (i) and (ii) of this Section 7. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 7, notify such party
or parties from whom contribution may be sought, but the failure to so notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have under this
Section 7 or otherwise. No party shall be liable for contribution with respect
to any action or claim settled without its prior written consent; provided,
however, that such written consent was not unreasonably withheld.
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<PAGE> 23
8. Conditions of Initial Purchaser's Obligations. The obligations
of the Initial Purchaser to purchase and pay for the Series C Notes, as provided
herein, shall be subject to the satisfaction of the following conditions:
(a) All of the representations and warranties of the Company
contained in this Agreement shall be true and correct on the date hereof and on
the Closing Date with the same force and effect as if made on and as of the date
hereof and the Closing Date, respectively. The Company shall have performed or
complied in all material respects with all of the agreements herein contained
and required to be performed or complied with by it at or prior to the Closing
Date.
(b) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchaser not later than 10:00 a.m., New York City
time, on the day following the date of this Agreement or at such later date and
time as to which the Initial Purchaser may agree, and no stop order suspending
the qualification or exemption from qualification of the Series C Notes in any
jurisdiction referred to in Section 4(e) shall have been issued and no
proceeding for that purpose shall have been commenced or shall be pending or
threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the issuance of
the Series C Notes; no action, suit or proceeding shall have been commenced and
be pending against or affecting or, to the best knowledge of the Company,
threatened against the Company or the Subsidiary before any court or arbitrator
or any governmental body, agency or official that, if adversely determined,
could reasonably be expected to result in a Material Adverse Effect; and no stop
order shall have been issued preventing the use of the Offering Memorandum, or
any amendment or supplement thereto, or which could reasonably be expected to
have a Material Adverse Effect.
(d) Since the dates as of which information is given in the
Offering Memorandum, (i) there shall not have been any material adverse change,
or any development that is reasonably likely to result in a material adverse
change, in the capital stock or the long-term debt, or material increase in the
short-term debt, of the Company or the Subsidiary from that set forth in the
Offering Memorandum, (ii) no dividend or distribution of any kind shall have
been declared, paid or made by the Company on any class of its capital stock and
(iii) neither the Company nor the Subsidiary shall have incurred any liabilities
or obligations, direct or contingent, that are material, individually or in the
aggregate, to the Company, and that are required to be disclosed on a
consolidated balance sheet or notes thereto in accordance with generally
accepted accounting principles and are not disclosed on the latest balance sheet
or notes thereto included in the Offering Memorandum. Since the date hereof and
since the dates as of which information is given in the Offering Memorandum,
there shall not have occurred any material adverse change in the business,
financial condition or results of operations of the Company or the Subsidiary,
taken as a whole.
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<PAGE> 24
(e) The Initial Purchaser shall have received a certificate,
dated the Closing Date, signed on behalf of the Company, in form and substance
satisfactory to the Initial Purchaser, confirming, as of the Closing Date, the
matters set forth in paragraphs (a), (b), (c) and (d) of this Section 8.
(f) The Initial Purchaser shall have received on the Closing
Date an opinion, dated the Closing Date, in form and substance satisfactory to
the Initial Purchaser and counsel for the Initial Purchaser, of Weil, Gotshal &
Manges LLP, counsel for the Company, to the effect set forth in Exhibit B
hereto.
(g) At the time this Agreement is executed and at the Closing
Date, the Initial Purchaser shall have received from Ernst & Young LLP,
independent public accountants, dated as of the date of this Agreement and as of
the Closing Date, customary comfort letters addressed to the Initial Purchaser
and in form and substance satisfactory to the Initial Purchaser and counsel for
the Initial Purchaser with respect to the financial statements and certain
financial information of the Company contained in the Offering Memorandum.
(h) The Initial Purchaser shall have received an opinion dated
the Closing Date, in form and substance reasonably satisfactory to the Initial
Purchaser, of Latham & Watkins, counsel for the Initial Purchaser, covering such
matters as are customarily covered in such opinions.
(i) Latham & Watkins shall have been furnished with such
documents, in addition to those set forth above, as they may reasonably require
for the purpose of enabling them to review or pass upon the matters referred to
in this Section 8 and in order to evidence the accuracy, completeness or
satisfaction in all material respects of any of the representations, warranties
or conditions herein contained as to matters or issues that arise between the
date of this Agreement and the Closing Date.
(j) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchaser such further information, certificates and
documents as the Initial Purchaser may reasonably request.
(k) The Company shall have entered into the Registration
Rights Agreement and the Initial Purchaser shall have received counterparts,
conformed as executed, thereof.
(l) The Company shall have delivered to the Initial Purchaser
an executed waiver of Fleet Capital Corporation and Transamerica Business Credit
Corporation (collectively, the "Lenders") in connection with the Amended and
Restated Loan and Security Agreement, dated as of December 13, 1996, as further
amended, by and among the Company and the Lenders, in a form satisfactory to the
Initial Purchaser.
All opinions, certificates, letters and other documents
required by this Section 8 to be delivered by the Company will be in compliance
with the provisions hereof
23
<PAGE> 25
only if they are reasonably satisfactory in form and substance to the Initial
Purchaser. The Company will furnish the Initial Purchaser with such conformed
copies of such opinions, certificates, letters and other documents as it shall
reasonably request.
9. Initial Purchaser's Information. The Company acknowledges that
the statements with respect to the offering of the Series C Notes set forth in
the last paragraph of the cover page and the first sentence of the third
paragraph and the fourth sentence of the fifth paragraph under the caption "Plan
of Distribution" in such Offering Memorandum constitute the only information
furnished in writing by the Initial Purchaser expressly for use in the Offering
Memorandum.
10. Survival of Representations and Agreements. All
representations and warranties, covenants and agreements of the Initial
Purchaser and the Company contained in this Agreement, including the agreements
contained in Sections 4(f) and 11(d), the indemnity agreements contained in
Section 6 and the contribution agreements contained in Section 7, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Initial Purchaser or any controlling person thereof or by or
on behalf of the Company or any controlling person thereof, and shall survive
delivery of and payment for the Series C Notes to and by the Initial Purchaser.
The representations contained in Section 5 and the agreements contained in
Sections 4(f), 6, 7 and 11(d) shall survive the termination of this Agreement,
including any termination pursuant to Section 11.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective upon execution and
delivery of a counterpart hereof by each of the parties hereto.
(b) The Initial Purchaser shall have the right to terminate
this Agreement at any time prior to the Closing Date by notice to the Company
from the Initial Purchaser, without liability (other than with respect to
Sections 6 and 7) on the Initial Purchaser's part to the Company if, on or prior
to such date, (i) the Company shall have failed, refused or been unable to
perform in any material respect any agreement on its part to be performed
hereunder, (ii) any other condition to the obligations of the Initial Purchaser
hereunder as provided in Section 8 is not fulfilled when and as required in any
material respect, (iii) in the reasonable judgment of the Initial Purchaser, any
material adverse change shall have occurred since the respective dates as of
which information is given in the Offering Memorandum in the condition
(financial or otherwise), business, properties, assets, liabilities, prospects,
net worth, results of operations or cash flows of the Company, other than as set
forth in the Offering Memorandum, or (iv)(A) any domestic or international event
or act or occurrence has materially disrupted, or in the opinion of the Initial
Purchaser will in the immediate future materially disrupt, the market for the
Company's securities or for securities in general; or (B) trading in securities
generally on the New York Stock Exchange, the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq
National Market shall have been suspended or materially limited, or minimum or
maximum prices
24
<PAGE> 26
for trading shall have been established, or maximum ranges for prices for
securities shall have been required, on either such exchange, or by such
exchange or other regulatory body or governmental authority having jurisdiction;
or (C) a banking moratorium shall have been declared by federal or state
authorities, or a moratorium in foreign exchange trading by major international
banks or persons shall have been declared; or (D) there is an outbreak or
escalation of armed hostilities involving the United States on or after the date
hereof, or if there has been a declaration by the United States of a national
emergency or war, the effect of which shall be, in the Initial Purchaser's
judgment, to make it inadvisable or impracticable to proceed with the offering
or delivery of the Series C Notes on the terms and in the manner contemplated in
the Offering Memorandum; or (E) there shall have been such a material adverse
change in general economic, political or financial conditions or if the effect
of international conditions on the financial markets in the United States shall
be such as, in the Initial Purchaser's judgment, makes it inadvisable or
impracticable to proceed with the delivery of the Series C Notes as contemplated
hereby.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, telephonic facsimile or telegraph, confirmed in
writing by letter.
(d) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to clause (iv) of Section 11(b),
in which case each party will be responsible for its own expenses), or if the
sale of the Series C Notes provided for herein is not consummated because any
condition to the obligations of the Initial Purchaser set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will reimburse the Initial Purchaser for all out-of-pocket expenses
(including the reasonable fees and expenses of Initial Purchaser's counsel)
incurred by the Initial Purchaser in connection herewith.
12. Notice. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to the
Initial Purchaser shall be mailed, delivered, or telexed, telegraphed or
telecopied and confirmed in writing to Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York 10167, Attention: Corporate Finance Department,
telecopy number: (212) 272-3092, with a copy to Latham & Watkins, 885 Third
Avenue, Suite 1000, New York, NY 10022-4802, Attention: Roger H. Kimmel, Esq.,
telecopy number (212) 751-4864; and if sent to the Company shall be mailed,
delivered or telexed, telegraphed or telecopied and confirmed in writing to MMI
Products, Inc., 515 West Greens Road, Suite 710, Houston, Texas 77067,
Attention: Julius S. Burns, telecopy number: (713) 876-1648, with a copy to
Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite 1300, Dallas, Texas
75201-6950, Attention: Michael A. Saslaw, telecopy number (214) 746-7777;
provided, however, that any notice pursuant to Section 7 shall be mailed,
delivered or telexed, telegraphed or telecopied and confirmed in writing.
13. Parties. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Initial Purchaser, the Company and the
controlling persons and agents referred to in Sections 6 and 7, and their
respective successors and assigns, and no other
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<PAGE> 27
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained. The term "successors and assigns" shall not include a
purchaser, in its capacity as such, of Notes from the Initial Purchaser.
14. Construction. This Agreement shall be construed in accordance
with the internal laws of the State of New York. TIME IS OF THE ESSENCE IN THIS
AGREEMENT.
15. Captions. The captions included in this Agreement are included
solely for convenience of reference and are not to be considered a part of this
Agreement.
16. Counterparts. This Agreement may be executed in various
counterparts which together shall constitute one and the same instrument.
(Signature page to follow)
<PAGE> 28
If the foregoing correctly sets forth the understanding between the
Initial Purchaser and the Company please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
MMI PRODUCTS, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Accepted and agreed to as of
the date first above written:
BEAR, STEARNS & CO. INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
S-1
<PAGE> 29
EXHIBIT A
Material Agreements
1. Option Agreement, dated as of July 6, 1989, between Ivy Holding
Corporation and Mannesmann Pipe & Steel Corporation ("Mannesmann").
2. Amendment No. 1 to Option Agreement, dated as of December 13, 1996,
between Merchant Metals Holding Company ("Holding") and Mannesmann.
3. Amendment No. 2 to Option Agreement, dated as of March 27, 1997, between
Holding and Mannesmann.
4. Termination Agreement to Option Agreement, dated as of April 16, 1997,
between Holding and Mannesmann.
5. Procurement Agreement, dated as of December 13, 1996, between the
Company and Mannesmann.
6. Amendment No. 1 to Procurement Agreement, dated as of March 27, 1997,
between the Company and Mannesmann.
7. Consignment Agreement, dated as of December 13, 1996, between the
Company and Mannesmann.
8. Stockholders' Agreement, dated as of December 13, 1996, among Holding,
Citicorp Venture Capital, Ltd. and the stockholders of Holding whose signatures
are found on the execution page thereof.
9. The Ivy Holding Corporation 1988 Stock Option Plan, dated as of December
12, 1988.
10. First Amendment to the Ivy Holding Corporation 1988 Stock Option Plan,
dated as of December 13, 1996.
11. MMI Products, Inc. Pension Plan, as amended.
12. MMI Products, Inc. 401(k) Savings Plan, as amended.
13. Merchants Metals Holding Company 1988 Stock Option Plan, dated as of
December 12, 1988, as amended.
14. Amended and Restated Loan and Security Agreement, dated as of December
13, 1996, among the Company, Fleet Capital Corporation ("Fleet") and
Transamerica Business Credit Corporation ("Transamerica"), as lenders, and
Fleet, as Collateral Agent.
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<PAGE> 30
15. First Amendment to Amended and Restated Loan and Security Agreement,
dated as of April 11, 1997, among the Company, Fleet and Transamerica, as
lenders, and Fleet, as Collateral Agent.
16. Employment Agreement, dated as of December 31, 1994, between the
Company and Julius S. Burns, as amended.
17. Amendment No. 1 to Employment Agreement, dated April 16, 1997, between
the Company and Julius S. Burns.
18. Non-Competition Agreement, dated as of December 31, 1994, between the
Company and Julius S. Burns.
19. Amended and Restated Put Agreement, dated as of June 11, 1997, between
Holding and Julius S. Burns.
20. Amended and Restated Senior Subordinated Secured Promissory Note, dated
December 13, 1996, in the principal sum of $10,000,000, executed by the Company
and payable to the order of Mannesmann or any successor holder.
21. Termination Agreements, each dated as of April 16, 1997, among Holding
and each holder of options for shares of Series A Junior Preferred Stock, par
value $.01, of Holding.
22. Indemnification Agreement, dated as of April 16, 1997, between the
Company and Julius S. Burns.
23. Indemnification Agreement, dated as of April 16, 1997, between the
Company and Thomas F. McWilliams.
24. Indemnification Agreement, dated as of April 16, 1997, between the
Company and Carl L. Blonkvist.
25. Indemnification Agreement, dated as of April 16, 1997, between the
Company and Robert N. Tenczar.
26. Indemnification Agreement, dated as of April 16, 1997, between the
Company and James M. McCall.
27. Indemnification Agreement, dated as of April 16, 1997, between the
Company and Davy J. Wilkes.
28. Limited Liability Company Agreement of MMI Products, L.L.C.
29. Amended and Restated Repurchase Agreement, dated as of June 12, 1997,
between Holding and Julius S. Burns.
A-2
<PAGE> 31
30. Amended and Restated Repurchase Agreement, dated as of June 12, 1997,
between Holding and Robert N. Tenczar.
31. Amended and Restated Repurchase Agreement, dated as of June 12, 1997,
between Holding and James M. McCall.
32. Amended and Restated Repurchase Agreement, dated as of June 12, 1997,
between Holding and Davy J. Wilkes.
33. Amended and Restated Repurchase Agreement, dated as of June 12, 1997,
between Holding and William T. Stewart.
34. Amended and Restated Repurchase Agreement, dated as of June 12, 1997,
between Holding and Michael W. Babcock.
35. Amended and Restated Repurchase Agreement, dated as of June 12, 1997,
between Holding and Michael Weaver.
36. Asset Purchase Agreement, dated as of June 10, 1996, between the
Company and Atlantic Steel Industries, Inc.
37. Asset Purchase Agreement, dated as of December 12, 1997, between the
Company and The Burke Group, L.L.C.
38. Purchase Agreement, dated February 9, 1999, between the Company and the
Initial Purchaser.
39. Indenture, dated as of April 16, 1997, between the Company and the
Trustee.
40. The Series C Notes.
A-3
<PAGE> 32
EXHIBIT B
Form of Opinion of Weil, Gotshal & Manges LLP
1. To the knowledge of such counsel, no stop order preventing the use of
the Preliminary Offering Memorandum or the Offering Memorandum, or any amendment
or supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Act, has been issued by the United States Securities and Exchange Commission
or any state securities commission.
2. Each of the Company and the Subsidiary (A) is duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, (B) has all requisite corporate power and
authority to carry on its business as described in the Offering Memorandum and
to own, lease and operate its properties and (C) is duly qualified and in good
standing as a foreign corporation and authorized to do business in each
jurisdiction in which it operates or owns facilities or properties reflected in
the Offering Memorandum.
3. All of the outstanding capital stock of the Company has been duly
authorized, validly issued, and is fully paid and nonassessable and is owned of
record and, to such counsel's knowledge beneficially, solely by Holding.
4. To such counsel's knowledge, there are not currently any outstanding
subscriptions, rights, warrants, calls, commitments of sale or options to
acquire, or instruments convertible into or exchangeable for, any capital stock
or other equity interest of the Company.
5. To such counsel's knowledge, the Company has no material subsidiaries
other than the Subsidiary.
6. When the Series C Notes are issued and delivered pursuant to this
Agreement, no Series C Note will be of the same class (within the meaning of
Rule 144A under the Act) as securities of the Company that are listed on a
national securities exchange registered under Section 12 of the Exchange Act or
that are quoted in a United States automated inter-dealer quotation system.
7. The Company has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and each of the other
Operative Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby, including, without limitation, the corporate
power and authority to issue, sell and deliver the Notes as provided herein and
therein.
B-1
<PAGE> 33
8. This Agreement has been duly authorized, executed and delivered by the
Company and, assuming due authorization, execution and delivery thereof by the
Initial Purchaser, is the valid and binding agreement of the Company.
9. Each of the Indenture and the Registration Rights Agreement has been
duly authorized, executed and delivered by the Company and, assuming due
authorization, execution and delivery thereof by the Trustee and the Initial
Purchaser, respectively, is the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity.
10. The Indenture, the Series C Notes, and the Registration Rights
Agreement conform, and the Series B Notes (when issued in accordance with the
terms of the Indenture and the Registration Rights Agreement) will conform, as
to legal matters in all material respects to the descriptions thereof contained
in the Offering Memorandum.
11. The Series C Notes have been duly authorized by the Company for
issuance and sale to the Initial Purchaser pursuant to this Agreement and, when
issued and authenticated in accordance with the terms of the Indenture and
delivered against payment therefor in accordance with the terms hereof and
thereof, will be the valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the benefits
of the Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
12. The Series C Notes have been duly authorized for issuance by the
Company and, when issued and authenticated in accordance with the terms of the
Exchange Offer and the Indenture, will be the valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms and
entitled to the benefits of the Indenture, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of equity.
13. None of (A) the execution, delivery or performance by the Company of
this Agreement or any of the other Operative Documents to which it is a party
and (B) the issuance and sale of the Notes violates, conflicts with or
constitutes a breach of any of the terms or provisions of, or a default under
(or an event that with notice or the lapse of time, or both, would constitute a
default), or requires consent under, or results in the imposition of a lien or
encumbrance on any properties of the Company or the Subsidiary, or an
acceleration of any indebtedness of the Company pursuant to, (1) the charter or
bylaws of the Company or the Subsidiary, (2) to such counsel's knowledge, any
bond, debenture, note, indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or the Subsidiary is a party or by which either
of them or their respective property is or may be bound and which has been
identified to such counsel by the Company as material as reflected on Exhibit A
to the Purchase Agreement, (3) any
B-2
<PAGE> 34
existing statute, rule or regulation of the United States, the State of New
York, the State of Texas or (solely with respect to the General Corporation Law
of the State of Delaware) the State of Delaware that in such counsel's
experience is normally applicable to transactions such as the issuance and sale
of the Notes (provided, that such counsel need express no opinion with respect
to compliance with any federal or state securities or anti-fraud, rule or
regulation except as otherwise specifically stated in such opinion), except for
any such violation, conflict, breach or default referred to in clauses (2), (3)
or (4) as would not reasonably be expected to have a Material Adverse Effect, or
(4) to such counsel's knowledge, any judgment, order or decree of any court or
governmental agency or authority having jurisdiction over the Company or any of
its assets or properties. Assuming compliance with applicable state securities
and Blue Sky laws, as to which such counsel need express no opinion, and except
for the filing and effectiveness of a registration statement under the Act and
qualification of the Indenture under the Trust Indenture Act, or in connection
with the Registration Rights Agreement, no consent, approval, authorization or
order of, or filing, registration, qualification, license or permit of or with
any court or other governmental authority of the United States, the State of New
York, the State of Texas or the State of Delaware (solely with respect to the
General Corporation Law of the State of Delaware) is required for (1) the
execution, delivery and performance by the Company of this Agreement or any of
the other Operative Documents to which it is a party or (2) the issuance and
sale of the Notes and the transactions contemplated hereby and thereby, except
such as have been obtained and made or have been disclosed in the Offering
Memorandum, and except where the failure to obtain such consents or waivers
would not, singly or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
14. To such counsel's knowledge there are no legal or governmental
proceedings pending or threatened against the Company or the Subsidiary, other
than legal or governmental proceedings referred to in the Offering Memorandum
and other than claims, lawsuits and other proceedings which in the opinion of
the Company should not have a Material Adverse Effect.
15. The Company is not an "investment company" within the meaning of the
Investment Company Act.
16. Except as set forth in the Registration Rights Agreement, to such
counsel's knowledge, there are no holders of securities of the Company who, by
reason of the execution by the Company of this Agreement or any other Operative
Document or the consummation by the Company of the transactions contemplated
hereby and thereby, have the right to request or demand that the Company
register under the Act or analogous foreign laws and regulations securities held
by them.
17. No registration under the Act of the Series C Notes is required for the
sale of the Series C Notes to the Initial Purchaser as contemplated hereby or
for the Exempt Resales assuming (A) that the Initial Purchaser is a QIB, (B)
that the purchasers who buy the Series C Notes in the Exempt Resales are QIBs
(C) the accuracy of the Initial Purchaser's representations regarding the
absence of general solicitation in connection
B-3
<PAGE> 35
with the sale of Series C Notes to the Initial Purchaser and the Exempt Resales
contained herein, (D) the accuracy of the Company's representations in this
Agreement, (E) that the certificates representing the Series C Notes bear the
legends contemplated by the Indenture and (F) receipt by the purchasers to whom
the Initial Purchaser initially resells the Series C Notes of a copy of the
Offering Memorandum at or prior to the delivery of confirmation of sale.
18. The Offering Memorandum, as of its date, and each amendment or
supplement thereto made prior to the Closing Date, as of its date (except for
the financial statements, including the notes thereto, and supporting schedules
and other financial, statistical and accounting data included therein or omitted
therefrom, as to which no opinion need be expressed), contains the information
specified in Rule 144A(d)(4) under the Act.
19. Each of the Incorporated Documents, and in any amendment thereof or
supplement thereto (other than the financial statements and schedules and other
financial and statistical data included or incorporated by reference therein, as
to which no opinion need be rendered) when they were filed with the Commission
complied as to form in all material respects with the Exchange Act and the rules
and regulations thereunder.
20. Assuming the proceeds from the sale of the Notes are applied as
described in the Offering Memorandum, none of the execution, delivery and
performance of this Agreement, the issuance and sale of the Notes, the
application of the proceeds from the issuance and sale of the Notes and the
consummation of the transactions contemplated thereby as set forth in the
Offering Memorandum, will violate Regulations G, T, U or X promulgated by the
Board of Governors of the Federal Reserve System.
21. The Indenture has been qualified under the Trust Indenture Act.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company and
representatives of the independent certified public accountants of the Company
and the Initial Purchaser and its representatives at which the contents of the
Preliminary Offering Memorandum and the Offering Memorandum and related matters
were discussed and, although it has not undertaken to investigate or verify
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Preliminary Offering
Memorandum or the Offering Memorandum (except as indicated in paragraph 10 of
such opinion), on the basis of the foregoing, no facts have come to its
attention which led it to believe that the Preliminary Offering Memorandum or
the Offering Memorandum, including the Incorporated Documents, when read
together with the other information in the Offering Memorandum, as of its date
or the Closing Date contained an untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading (except as to financial statements and related notes, the
financial statement schedules and other financial and statistical data included
therein).
B-4
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<S> <C>
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<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JAN-02-1999
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0
0
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