SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) NOVEMBER 10, 1997
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 1-9580 76-0289495
(State of other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
</TABLE>
7135 ARDMORE HOUSTON, TEXAS 77054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 747-1025
______________________________________________________________
(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) ACQUISITION OF BOLT MANUFACTURING CO., INC.
Effective November 1, 1997, Industrial Holdings, Inc., a Texas
corporation (the "Company") acquired all the capital stock of Bolt Manufacturing
Co., Inc. doing business as WALKER BOLT Manufacturing Company ("WALKER"), a
Texas corporation, pursuant to the terms of a stock purchase agreement by and
among the Company and Ralph Walker, Jr. and David Introligator (the
"Shareholders"), the sole shareholders of WALKER.
WALKER manufactures specialty fasteners (which include bolts, screws,
nuts and washers), to order, in small quantities for quick delivery. Its
customers are primarily distributors which sell to refineries, chemical plants,
pulp mills and others in the United States and Canada.
The purchase price (the "Purchase Price") of the capital stock was $5
million cash, plus the repayment at closing of $1 million in notes payable by
WALKER to the Shareholders (the "Shareholder Notes"), plus the assumption of
liabilities. The purchase price was determined through arm's-length negotiations
between the Company and the Shareholders which had no pre-existing relationship
with the Company or any of its affiliates, directors, officers or associates
outside the normal course of business. The purchase price was financed as
described below.
In connection with the acquisition of WALKER, the Company entered
into with Heller Financial, Inc. ("Heller") an $8 million term note at LIBOR
(currently 5.63%) plus 2.5%, payable in installments of principal plus interest
over six years (the "Heller Note"). The Heller Note is secured by certain
machinery and equipment of the Company. Proceeds of $2.1 million from the Heller
Note were used to retire existing term notes payable to Comerica Bank - Texas
("Comerica"). The remaining proceeds, or $5.9 million, were used to finance a
portion of the purchase price of WALKER and repay the Shareholder Notes. The
remainder of the purchase price was financed through an increase in the
Company's existing Line of Credit Facility and Demand Note ("Demand Note") with
Comerica.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements for Acquired Companies
Independent Auditors' Report
Balance Sheets at September 30, 1997 (unaudited) and December 31,
1996 and 1995
Statements of Earnings for the Nine Months Ended September 30,
1997 and 1996 (unaudited) and Years Ended December 31,
1996 and 1995
Statements of Shareholders' Equity for the Nine Months Ended
September 30, 1997 (unaudited) and the Years Ended
December 31, 1996 and 1995
Statements of Cash Flows for the Nine Months Ended September
30, 1997 and 1996 (unaudited) and Years Ended December
31, 1996 and 1995
Notes to Financial Statements
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Financial Statements (Unaudited)
Pro Forma Condensed Consolidated Balance Sheet at
September 30, 1997 (Unaudited)
Notes to Pro Forma Condensed Consolidated Balance Sheet at
September 30, 1997
Pro Forma Condensed Consolidated Statement of Operations for the
Nine Months ended September 30, 1997 (Unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the
Year Ended December 31, 1996 (Unaudited)
Notes to Pro Forma Condensed Consolidated Statement of Operation
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EXHIBITS
PAGE
----
2.1 Purchase Agreement by and among Industrial Holdings,
Inc. (the "Company") and Bolt Manufacturing Co., Inc. Ex-1
7.1 Financial Statements of Bolt Manufacturing Co., Inc. F-1
7.2 Pro Forma Condensed Consolidated Financial Statements F-12
10.1 Promissory Note by and Among Industrial Holdings, Inc., American
Rivet Company, Inc., LSS-Lone Star-Houston, Inc., Bolt
Manufacturing Co., Inc. and Heller Financial, Inc. Ex-4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
INDUSTRIAL HOLDINGS, INC.
By: /s/ CHRISTINE A. SMITH
CHIEF FINANCIAL OFFICER
Date: December 1, 1997
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INDEX TO EXHIBITS
2.1 Purchase Agreement by and among Industrial Holdings, Inc. (the
"Company") and Bolt Manufacturing Co., Inc.
7.1 Financial Statements of Bolt Manufacturing Co., Inc.
7.2 Pro Forma Condensed Consolidated Financial Statements
10.1 Promissory Note by and Among Industrial Holdings, Inc., American
Rivet Company, Inc. ("American"), LSS-Lone Star-Houston, Inc.
("Lone Star"), Bolt Manufacturing Co., Inc. and Heller Financial, Inc.
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of November 1, 1997, by and among
INDUSTRIAL HOLDINGS, INC., a Texas corporation (the "Purchaser"), and RALPH
WALKER, JR. ("Walker"), a resident of Houston, Harris County, Texas, and M.
DAVID INTROLIGATOR ("Introligator"), a resident of Houston, Harris County,
Texas, being the shareholders (Walker and Introligator are herein collectively
referred to as the "Shareholders"), of BOLT MANUFACTURING CO., INC., a Texas
corporation doing business as WALKER BOLT MANUFACTURING CO. (the "Company").
W I T N E S S E T H:
WHEREAS, the Shareholders are the owners of one hundred (100%) percent
of the issued and outstanding shares of capital stock of the Company, such
shares being of the class and par value as set forth in TABLE I, and the
Shareholders desire to sell all of such shares to the Purchaser (all of such
shares of capital stock to be sold hereunder herein collectively referred to as
the "Shares"), and the Purchaser desires to purchase the Shares, all upon the
terms and conditions set forth herein; and
WHEREAS, this Agreement sets forth the terms and conditions to which the
parties have agreed and further contemplates the execution and delivery of
certain collateral agreements and the consummation of certain related
transactions hereinafter described;
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties, and subject to the terms and conditions set forth herein, the
parties agree as follows:
1. SALE AND PURCHASE OF THE SHARES. Each of the Shareholders agrees,
subject to the conditions to the Shareholder's obligations herein set forth, to
sell, assign and convey to the Purchaser on the Effective Date (as hereinafter
defined), free and clear of all security interests, pledges, liens, charges and
encumbrances, the number of Shares set opposite the name of such Shareholder in
TABLE I, and to transfer and deliver to the Purchaser the certificates
evidencing such Shares, duly endorsed in blank or accompanied by stock powers
duly executed in blank. The Purchaser agrees, subject to the conditions to its
obligations herein set forth, to purchase and accept the Shares for the
consideration set forth in Section 2(a) hereof.
2. PURCHASE PRICE AND PAYMENT; RELATED MATTERS.
2.1 The total purchase price (the "Purchase Price") for the Shares shall
be as follows:
(a) The sum of FOUR MILLION SEVEN HUNDRED NINE THOUSAND FIVE HUNDRED
SIXTY-FOUR AND NO/100 DOLLARS ($4,709,564.00), payable by the Purchaser
to the Share holders at the Closing on the Closing Date by cashiers
checks as follows:
SHAREHOLDER AMOUNT
----------- ------
Walker $1,883,825
Introligator $2,825,738
----------
Total $4,709,563
EX-1
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(b) The sum of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00), payable
by the Purchaser to the Shareholders in the form of cashiers checks at
the Closing on the Closing Date, in full and final satisfaction of the
following described promissory notes representing sums owing by the
Company to the Shareholders and set forth on the Interim Balance Sheet
(as defined below) (the "Shareholder Notes"), it being understood that
any sums remaining owing on any Shareholder Notes after application of
the $1,000,000.00 provided for in this Section 1(b) shall be
automatically forgiven and fully discharged, and further that the UCC-1
financing statements on file with the Texas Secretary of State by the
Company in favor of the Shareholders pertaining to the Shareholder Notes
shall be terminated at Closing:
(i) promissory note dated June 11, 1997 in the original principal
sum of $400,000.00 executed by the Company and payable to the
order of Walker; which note has an outstanding balance as of the
date hereof equal to $400,000.00; and
(ii) promissory note dated June 11, 1997 in the original
principal sum of $600,000.00 executed by the Company and payable
to the order of D. I. Financial; which note has an outstanding
balance as of the date hereof equal to $600,000.00.
(c) The sum of THREE HUNDRED FIFTY-SIX THOUSAND SEVEN HUNDRED SIXTY-ONE
AND NO/100 DOLLARS ($356,761.00), which sum shall be reduced by accrued
compensation of $200,000.00 to be paid to those employees of the Company
in the amounts set forth on SCHEDULE 2.1(C) hereto as a discretionary
bonus for past services rendered to the Company, with the balance of
$156,761.00 of undistributed earnings and profits being payable to the
Shareholders at the Closing on the Closing Date in the form of cashiers
checks as follows:
SHAREHOLDER AMOUNT
----------- ------
Walker $ 62,704
Introligator 94,057
--------
Total $156,761
Funds necessary to accomplish the payments described in this subsection
(c) shall be placed in the Company by the Purchaser at the Closing on
the Closing Date, and Purchaser shall cause the Company to issue checks
in the amounts and to the parties described herein above.
(d) The sum of ONE HUNDRED EIGHTEEN THOUSAND FIFTY AND NO/100 DOLLARS
($118,050), payable by the Purchaser to the Shareholders in the form of
a cashier's check at the Closing on the Closing Date, such sum being
equal to the estimated additional tax liability to be owing by the
Company as a result of built-in gains tax created by the filing of a
Section 338(h)(10) election (the "Election") with the Internal Revenue
Service (the "IRS") in connection with the transaction contemplated by
this Agreement to be paid to the Shareholders as follows:
SHAREHOLDER AMOUNT
----------- ------
Walker $ 47,220
Introligator 70,830
--------
Total $118,050
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Shareholders hereby covenant and agree with Purchaser that (i) the
Shareholders shall file the short period federal corporation income tax return
for the Company for the period January 1, 1997 through October 31, 1997 (the
"Short Period Tax Return"), (ii) the Shareholders shall pay the above built-in
gains tax with the filing of the Short Period Tax Return, and (iii) the
Shareholders shall cause a copy of the Short Period Tax Return, as filed, to be
delivered to Purchaser on or about the date of its filing with the IRS.
Purchaser shall provide the Shareholders with any and all information necessary
in order that the Shareholders are able to comply with their covenant to file
the aforementioned tax return. Purchaser hereby covenants with Shareholders to
timely pay any State of Texas franchise tax liability incurred as a result of
the Election.
2.2 ALLOCATION OF PURCHASE PRICE. ONE THOUSAND AND NO/100 ($1,000.00)
DOLLARS of the amount of the Purchase Price set forth in Section 2.1 is
hereby allocated to the covenant against competition of the Shareholders
set forth in Section 5(c) hereof. The Purchaser and Shareholders agree
to reflect the foregoing allocation in their respective income tax
returns; further Purchaser and Shareholders shall jointly file IRS Form
8023 (attached hereto as SCHEDULE 2.2) with the Internal Revenue Service
on or before the 15th day of the ninth (9th) month after the Effective
Date.
2.3 FURTHER ASSURANCES. Each of the Shareholders hereby agrees to
execute and deliver from time to time at the request of the Purchaser
and without further consideration, subject to approval by Shareholders'
counsel, such additional instruments of conveyance and transfer and to
take such other action as the Purchaser may reasonably require more
effectively to convey, assign, transfer and deliver the Shares to the
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The Shareholders,
jointly and severally, represent and warrant to and agree with the Purchaser
that:
(a) ORGANIZATION AND STANDING OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Texas. The Company has full corporate power and
authority to conduct its business as it is now being conducted and is
not qualified to do business as a foreign corporation in any other
jurisdiction. Attached hereto as SCHEDULE 3(A) are true, correct and
complete copies of the Company's Articles of Incorporation (duly
certified by the Secretary of State of the State of Texas) and By-Laws
(certified by the Secretary of the Company) as in effect on the date
hereof.
(b) SUBSIDIARIES. The Company has no subsidiaries. Further, the Company
does not own, directly or indirectly, any of the outstanding capital
stock or securities convertible into capital stock of any other
corporation, or own, directly or indirectly, any participating interest
in any partnership, joint venture or other business enterprise.
(c) CAPITAL STOCK. The authorized capital stock of the Company consists
of One Million (1,000,000) shares of Common Stock, $1.00 par value per
share, of which, on the date hereof, Sixty- two Thousand Five Hundred
(62,500) shares are validly issued and outstanding, fully paid and
nonassessable, 100% of which are owned by the Shareholders as set forth
on Table I. The Company has no treasury shares, outstanding
subscriptions, options or other agreements or commitments obliga ting it
to issue shares of capital stock. Shareholders have not, and have not
permitted the Company to issue or enter into any subscriptions, options,
agreements or other commitments in respect of the issuance, transfer,
sale, repurchase or encumbrance of any shares of capital stock.
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(d) FINANCIAL STATEMENTS. The following audited and unaudited financial
statements of the Corporation have been delivered to the Purchaser and
are attached as SCHEDULE 3(D) hereto:
(i) the audited balance sheets of the Company as of December 31,
1996 and December 31, 1995 (the "Audited Balance Sheets") and
the related audited statements of income and retained earnings
and cash flows for the years then ended (together with related
notes and schedules), which financial statements contain a
report of Weinstein Spira & Company, P.C., independent auditors,
reporting thereon (such balance sheets, the related statements
of income and retained earnings and cash flows, and the related
notes and schedules, being hereinafter together referred to as
the "Audited Financial Statements"); and
(ii) the unaudited statements of income and retained earnings
and cash flows of the Company as of September 30, 1997 and
September 30, 1996, together with the unaudited balance sheet of
the Company as of September 30, 1997 (the "Unaudited Balance
Sheets") for the purpose of inclusion in the Purchaser's public
filings, being hereinafter together referred to as the
"Unaudited Financial Statements"); and
(iii) the unaudited balance sheet of the Company as of October
31, 1997 (the "Interim Balance Sheet") and the related unaudited
statement of income for the ten (10) month period then ended
(together with related notes and schedules) (such balance sheet
and related statements of income, and the related notes and
schedules, being hereinafter together referred to as the
"Interim Financial Statements").
The Audited Financial Statements, and to the best of the
Shareholders' knowledge, the Unaudited Financial Statements and
the Interim Financial Statements (collectively, the "Financial
Statements"), including the related notes and schedules, have
been prepared from the books and records of the Company in
conformity with generally accepted accounting principles applied
by the Company on a basis consistent with preceding years and
throughout the periods involved ("GAAP") and present fairly the
financial position of the Company as of the dates of such
statements, subject with respect to the Interim Financial
Statements to year-end adjustments.
The trade accounts and other receivables of the Company which
are classified as current assets on the Audited Balance Sheets,
the Unaudited Balance Sheets and the Interim Balance Sheet
(collectively, the "Balance Sheets") are bona fide receivables,
were acquired in the ordinary course of business, are stated in
accordance with GAAP and, subject to the reserve for doubtful
accounts, are believed to be good and collectible, and are not
subject to any factoring arrangement.
The inventories of the Company reflected on the Balance Sheets
have been valued in accordance with GAAP. As of October 31,
1997, there have been no write-ups of inventories or other
assets.
To the best of the Shareholders' knowledge, the Company has no
liabilities of the type and in amounts required to be reflected
or disclosed in a balance sheet (or notes thereto) prepared in
accordance with GAAP other than:
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(i) those set forth or reserved against in the Interim
Balance Sheet,
(ii) those incurred since the date of the Interim
Balance Sheet in the ordinary course of business,
(iii) those disclosed in the schedules attached hereto,
and
(iv) those referred to in this Agreement or that exist
by reason of this Agreement.
The Company's books of account have been kept in all material
respects in the ordinary course of business in accordance with
GAAP, the transactions entered therein represent bona fide
transactions, and the revenues, expenses, assets and liabilities
of the Company have been properly recorded in such books in all
material respects.
(e) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in any
Schedule delivered to the Purchaser pursuant to this Section 3 or except
as contemplated by this Agreement, since the date of the Interim
Financial Statements, and to the best of the Shareholders' knowledge,
the Company has not:
(i) issued, delivered or agreed to issue or deliver any stock,
bonds or other corporate securities (whether authorized and
unissued or held in the treasury) or granted or agreed to grant
any options, warrants or other rights calling for the issuance
thereof;
(ii) borrowed or agreed to borrow any funds or incurred, or
become subject to, any obligation or liability (absolute or
contingent) except in the ordinary course of business in
customary amounts;
(iii) paid any obligation or liability (absolute or contingent)
except in the ordinary course of business in customary amounts;
(iv) paid any obligation or liability (absolute or contingent)
other than current liabilities reflected in or shown on the
Company's Financial Statements (or the notes thereto) and
obligations or liabilities incurred since the date thereof and
permitted to be so incurred by the foregoing clause (ii) of this
Section (e);
(v) except as otherwise permitted herein, declared or made, or
agreed to declare or make, any payment of dividends or
distribution of any assets of any kind whatsoever to the Share
holders, or purchased or redeemed any shares of its capital
stock;
(vi) except as otherwise permitted herein, sold or transferred,
or agreed to sell or transfer, any of its assets, properties or
rights (except sales in the ordinary course of business) or
canceled or agreed to cancel, any debts or claims;
(vii) entered or agreed to enter into any agreement or
arrangement granting any preferential rights to purchase
substantially all of the assets, properties or rights of the
Company (including management and control thereof), or requiring
the consent of any party to the transfer and assignment of such
assets, properties or rights (or changes in management or
control thereof), or providing for the merger or consolidation
of the Company with or into
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another corporation;
(viii) suffered any material losses or waived any rights of
material value;
(ix) except in the ordinary course of business, made or
permitted any amendment or termination of any contract,
agreement or license to which it is a party;
(x) except for the discretionary merit bonuses to those Company
employees set forth on SCHEDULE 2.1(C), made any accrual or
arrangement for a payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or
former officer or employee;
(xi) except for the discretionary merit bonuses to those Company
employees set forth on SCHEDULE 2.1(C), increased the rate of
compensation payable or to become payable by it to any of its
officers or key employees compensated at a rate in excess of
$10,000.00 per annum; or made any increase in any profit
sharing, bonus, incentive, deferred compensation, insurance,
pension, retirement or other employee benefit plan, payment or
arrangement made to, for or with any such officers or key
employees;
(xii) except for the verbal commitment of the Company to
purchase a particular lathe in late December 1997 at a cost of
approximately $15,000.00 for which no purchase order was issued,
made any capital expenditures or commitments therefor
aggregating more than $10,000.00 or committed to purchase
inventories, parts, supplies or other items in excess of its
normal, ordinary and usual requirements or at excessive prices,
all computed based on historical practices of the Company;
(xiii) experienced any significant labor trouble; or
(xiv) suffered any damage, destruction or loss, whether or not
covered by insurance, which materially and adversely affects its
assets or business, or had any material adverse change in the
business, operations, financial condition or prospects of the
Company.
Between the date of the Interim Financial Statements and the Closing
Date, the Shareholders shall not permit the Company to do any of the
things listed in Clauses (i) through (xii) of this Section (e) without
the prior written consent of the Purchaser, which consent will not be
unreasonably withheld, except as otherwise permitted by this Agreement.
(f) TAX MATTERS. (i) The Company has made an election to be treated for
federal income tax purposes as a Subchapter "S" corporation, within the
meaning of Internal Revenue Code Sections 1361 et seq., for the
respective periods shown on SCHEDULE 3(F)(I) hereto through the Closing
Date (the "S Period"). (ii) During the S Period, each Shareholder has
duly and timely filed all tax reports and returns required to be filed
by them. All such tax returns were consistent with the tax returns filed
by the Company. The Shareholders have timely paid in full all taxes
shown on their tax returns. The Shareholders shall bear full
responsibility for the payment of any and all taxes which are owed by
them. Except for an audit performed prior to the S Period of which there
were no adverse results, there are no currently pending audits,
inquiries, investigations or examinations relating to any of the
Shareholders tax returns pending, and there are no claims which have
been asserted relating to any of the Shareholders tax returns which if
determined adversely would result in the assertion by any governmental
entity of any tax deficiency against the Company. Since acquiring the
Shares of the Company, there have been no waivers or extensions of
statutes of limitations by the Shareholders. All other state, county and
local and other taxes, including without limitation, income taxes,
payroll taxes,
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corporate franchise taxes, sales, excise and use taxes and ad valorem
taxes, due and payable by the Company for the periods ended prior to the
Closing Date have been paid (or reserved for) and there is no further
liability other than the reserve (whether or not disclosed on its
returns) for any taxes relating to such periods, and no interest or
penalties have accrued or are accruing with respect thereto. The Company
has timely filed in correct form all tax returns and reports required to
be filed by it on or before the date of this Agreement with all such
taxing authorities. The current liability for state and local taxes
reflected on the Company's Financial Statements, if any, represents at
the date thereof, reasonable and adequate provision for the payment of
all accrued and unpaid current state and local taxes of the Company.
Other than those owing for the current period, no Federal taxes are due
and owing by the Company. No assessments of deficiencies have been made
against the Company, and no extensions of time are in effect for the
filing of any returns or the assessment of deficiencies. No examinations
by the IRS of the Federal income tax returns of the Company for any
taxable year are presently pending. The Shareholders have delivered to
the Purchaser true and complete copies of all of the Company's Federal
Income Tax Returns and payroll tax returns of the Company for each of
its fiscal years that Purchaser has requested. In the event that after
the Closing Date a deficiency is determined in the amount of Federal,
state or local tax payable by the Company, which deficiency relates to
periods prior to the Effective Date, then in that event, the
Shareholders, in the manner and to the extent set forth in Section 11
hereof, shall be fully responsible for and shall indemnify and hold the
Purchaser and the Company harmless from the payment of any such
deficiency, tax liability, penalty, interest, loss, costs, expenses or
claim (including attorney and accountant fees) with respect thereto.
The Shareholders shall cause the Election to be filed with the IRS
within fourteen (14) days after the Purchaser furnishes the Shareholders
with an allocation of the Purchase Price acceptable to Purchaser and
Shareholders.
(g) CONTRACTS AND OPERATING AGREEMENTS. To the best of the Shareholders'
knowledge, SCHEDULE 3(G) hereto is a complete and accurate listing of
all mortgages, liens, licenses, leases, sales representation agreements,
purchase orders, and other executory contracts, commitments and
agreements of the Company, to which or by which it is bound, whether
written or oral, (x) entered into in the ordinary course of business
involving the payment by the Company of more than $5,000.00 in the
aggregate with respect to any such contract, commitment or agreement, or
(y) entered into other than in the ordinary course of business (the
"Contracts"). To the best of the Shareholders' knowledge, each and all
of the Contracts have been duly executed by, or assigned to, the
Company, are currently in effect, are valid and binding upon the parties
thereto and are enforceable in all material respects in accordance with
their terms. Neither the Company nor the Shareholders are aware of any
facts that would prevent the performance of any of the Contracts.
Neither the Company nor (to the best of the Shareholders' knowledge) any
other party is in default under any one or more of the Contracts nor has
any claim of default been asserted by the Company or any such other
party. To the best of the Shareholders' knowledge, the Company has
committed no act and there has been no omission which will result in the
breach by it of any Contract.
(h) TITLE TO PROPERTIES AND RELATED MATTERS. To the best of the
Shareholders' knowledge, SCHEDULE 3(h) hereto is a complete list of any
and all real property and improvements, and all personal property
(including all major items of furnishings, equipment and automobiles)
owned by the Company. The
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assets reflected in Schedule 3(h) and in the Company's Financial
Statements, were at the date thereof, and, except for assets consumed or
disposed of in the ordinary course of business since the date thereof
(or distributed to the Shareholders as permitted hereunder), are now
owned by the Company by good and marketable title, will be at Closing
free and clear from all security interests, mortgages, liens, claims,
defects in title and encumbrances except liens, charges or encumbrances
discussed or referred to in the Company's Financial Statements, the
related notes or schedules thereto or in Schedule 3(h) delivered to the
Purchaser pursuant to this Section 3. Except as disclosed in Schedule
3(h), all such assets in use are in good operating condition and repair,
subject to ordinary wear and tear. Except as set forth in Section
3(e)(xii) regarding the lathe therein described, there are no material
capital expenditures currently contemplated or necessary to maintain the
current operation of the Company's business. Shareholders make no
representations with respect to the condition of the assets reflected on
Schedule 3(h), which assets are being accepted AS INSPECTED by the
Purchaser in their "AS IS," "WHERE IS" condition WITH ALL FAULTS.
(i) RECEIVABLES. All notes receivable, contracts receivable and accounts
receivable included in the Company's Financial Statements or which have
arisen since the date of the Company's Financial Statements (the
"Receivables") are valid, have arisen in the ordinary course of
business, and are collectible and are expected to be paid no later than
ninety (90) days after the date of Closing. None of the Receivables have
been the subject of any factoring by the Company. Except for any
Receivable owing to the Company by LSS-Lone Star-Houston, Inc.,
Shareholders hereby jointly and severally guarantee the collectability
of the Receivables of the Company within six (6) months of the Closing
Date to the extent of ninety-five percent (95%) of the total amount of
such Receivables as of the Closing Date. Upon any such payment by the
Shareholders hereunder, the Company shall assign such receivable to the
Shareholders.
(j) LITIGATION AND PROCEEDINGS. To the best of the Shareholders'
knowledge, there are no actions, suits or proceedings pending or, to the
knowledge of the Shareholders, threatened against or affecting the
Company or the Shareholders, at law or in equity, or by any governmental
department, commission, board, bureau or agency, or before any
arbitrator of any kind, which involve the possibi lity of any judgment
or liability not covered by casualty or liability insurance, except for
that certain Order of the Texas Water Commission Finding Substantial
Noncompliance and Requiring Certain Actions of the Company dated April
25, 1990 (the "TWC Order"); and the Company is not in default with
respect to any judgment, order, writ, injunction, decree, award, or, to
the best of the Shareholders' knowledge and belief, in default with
respect to any rule or regulation of an court, arbitrator or
governmental department, commission, board, bureau or agency. Purchaser
acknowledges that Shareholders have disclosed to Purchaser that there
have been EEOC claims made against the Company in the past, and shall
keep such matters confidential.
(k) INSURANCE COVERAGE. Attached as SCHEDULE 3(k) is a list of all
policies and contracts of insurance, including hospitalization, life,
property or liability, showing policy limits, expiration dates, types of
coverage and names of insured. Prior to Closing, the Company maintained
policies of casualty, liability, use and occupancy, and workmen's
compensation and other forms of insurance with reputable and financially
sound insurers, covering its properties and assets in amounts and
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against such losses and risks as are generally maintained for comparable
businesses and properties, and valid policies for such insurance were
duly in force.
(l) EMPLOYEE RELATIONS. Attached as SCHEDULE 3(l)-A is a list of all
bonus, incentive, compensation, disability, pension, profit sharing,
group insurance or employee welfare plans of any nature whatsoever
(collectively, the "Plans"); all employment contracts and all other
contracts, agreements or commitments to or with individual employees or
agents extending for a period of more than thirty (30) days from the
date thereof or providing for earlier termination only upon the payment
of a penalty, severance pay or an equivalent thereof;
(i) Except as set forth in SCHEDULE 3(l)-B, there are no written
employment agreements in effect between the Company and any of
its employees and no collective bargaining agreements covering
any such employees. The Company's employees are not members of a
collective bargaining group and no union organizing activities
are in process or contemplated. The Company does not contribute
or have any obligation to make any payments or contributions to a
multi-employer plan, as that term is defined in Section 3(37) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Company does not have any actual or potential
liability under Section 4201 of ERISA for any complete or partial
withdrawal from a multi-employer plan.
(ii) To the best of the Shareholders' knowledge, the Company is
in compliance with applicable laws respecting employment and
employment practices, terms and conditions of employment and
wages and hours of employees, and no labor strike, dispute,
slowdown or representation campaign or work-stoppage is pending
or threatened with respect to Company employees.
(iii) There is not, pending or threatened, any unfair labor
practice complaint against the Company pending before any
relevant authority or union representation petition respecting
the employees of the Company.
(iv) To the best of Shareholders' knowledge, the Plans comply in
all material respects with the requirements of applicable laws.
There are no actions, suits, claims or investigations pending or
threatened with respect to any Plan. There is no liability
required to be accrued under the Plans except to the extent
reflected in the Company's Financial Statements. The Company has
reserved funds on its Financial Statements to make full payment
of all amounts which the Company is required to pay prior to the
Effective Date under the terms of each Plan.
(v) To the best of the Shareholders' knowledge, the group health
plan maintained by the Company has been administered in good
faith compliance with the reasonable interpretation of the
continuation coverage requirements contained in Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
(vi) To the best of the Shareholders' knowledge, the Company has
not entered into any severance or similar arrangement in respect
of any present or former employee that will result in any
obligation (absolute or contingent) of Purchaser or the company
to make any payment to any present or former employee following
termination of employment.
(m) PATENTS, TRADEMARKS AND LICENSES. SCHEDULE 3(m) contains a complete
and accurate list of any and all domestic and foreign patents, patent
applications, licenses, trademarks, trademark
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applications, trade names, trade name applications, copyrights and
copyright applications owned by or licensed to the Company or in which
the Company has any right or interest whatsoever (the "Intellectual
Property"), all of which are in good standing. The Company owns or has
all rights necessary to use all such Intellectual Property necessary for
the conduct of its business as currently conducted, and the conduct of
such business does not conflict with or infringe upon any patent,
trademark, trade name, trade secret or copyright of others. The Company
has received no notice of any claim of infringement or other complaint
that its operations conflict with or infringe upon the patents, trade
names, trademarks, trade secrets or copyrights of others.
(n) COMPLIANCE WITH APPLICABLE LAWS. To the best of the Shareholders'
knowledge, the Company's business is being conducted in compliance with
applicable laws, ordinances, rules and regulations of governmental
authorities.
(o) INVENTORY. None of the inventories of the Company shown on the
Company's books are obsolete, defective or otherwise not saleable or
usable in the ordinary course of business. The levels of inventories
currently on hand are not in excess of or less than that necessary for
the operation of the Company's business in the ordinary course of
business consistent with past practices of the Company.
(p) GUARANTEES, ETC. To the best of the Shareholders' knowledge, the
Company has not given any guarantee, indemnity, warranty or bond, or
incurred any other similar obligation or created any security for or in
respect of, liabilities, actual or contingent, of any other person,
except for product warranties given in the ordinary course of business.
(q) OSHA AND ADA. The Company has not received notice of any violation
by the Company nor is any action pending which alleges any violation,
and to the best of the Shareholders' knowledge, the Company is not in
violation of either the Occupational Safety and Health Act of 1970 or
the Americans With Disabilities Act.
(r) CUSTOMERS. Other than the situation pertaining to TSP Texas Screw
Products ("TSP") described in that certain letter attached hereto as
SCHEDULE 3(r) (the "TSP Letter"), the Shareholders have no actual
knowledge or information that any of the Company's customers has ceased,
or intends to cease, to acquire products or services from the Company or
has reduced, or intends to materially reduce, the use of the products or
services sold by the Company for any reason or as a result of the
transaction contemplated by this Agreement. The Purchaser and the
Company intends to abide by the spirit and intent of the TSP Letter.
(s) OFFICERS, DIRECTORS AND EMPLOYEES. Attached hereto as SCHEDULE 3(s)
is a list of all officers and directors of the Company, and all
employees whose aggregate remuneration is in excess of $20,000.00 per
year. There are no amounts owed to any officer, director or employee of
the Company other than as reflected in the Company's Financial
Statements. Other than anyone associated with Ameritech Fastener
Manufacturing Co. ("Ameritech"), no officer, director or employee of the
Company, or any affiliate of the Company, owns, directly or indirectly,
beneficially or otherwise, any material interest in, or is an employee,
officer or director of, or a consultant, agent for or representative of,
any customer, competitor or supplier of the Company.
(t) ABSENCE OF ADVERSE AGREEMENTS. To the best of the Shareholders'
knowledge, and except for the TWC Order, the Company is not a party to
any instrument or agreement or subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree or award
which
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materially and adversely affects the business, properties, assets or
condition, financial or otherwise, of the Company.
(u) NO DEFAULTS. To the best of the Shareholders' knowledge, the Company
is not in default under, nor has any event occurred which with notice or
lapse of time or both, could result in a waiver (except caused by the
statute of limitations) of any material right or default under, any
outstanding indenture, mortgage, lease, contract or agreement to which
the Company is a party or by which the Company or its assets may be
bound, or under any provision of the Company's Articles of Incorpora
tion or By-Laws (or comparable instruments). All liabilities of the
Company are, and will be on the Effective Date, current and not in
default.
(v) BANKS, SIGNATORIES. SCHEDULE 3(v) is a list setting forth the name
of each bank, savings and loan or other financial institution in which
the Company has any account or safe deposit box, the style and number of
each such account or safe deposit box and the names of all persons
authorized to draw thereon or to have access thereto.
(w) NO CONFLICTS. To the best of Shareholders' knowledge, the execution
and performance of this Agreement and the transactions contemplated
hereby will not violate any provision of or result in a breach of or
constitute a default under the Articles of Incorporation or By-Laws of
the Company.
(x) BOOKS AND RECORDS. To the best of the Shareholders' knowledge, the
books and records of the Company are in all material respects complete
and correct and have been maintained in accordance with good business
practice and reflect a true record of all meetings or proceedings of the
Board of Directors and Shareholders of the Company.
(y) BROKERS. Neither the Company nor the Shareholders are a party to or
in any way obligated under a contract or other agreement, and there are
no outstanding claims against any of them, for the payment of any
broker's or finder's fees in connection with the origin, negotiation,
execution or performance of this Agreement.
(z) TITLE TO SHARES AND AUTHORITY. Each Shareholder now has and on the
Effective Date will have valid title to the Shares set opposite such
Shareholder's name in TABLE I and on the Effective Date, after the
contemporaneous termination of that certain Buy-Sell Agreement in effect
between the Shareholders, the Shareholders will have full right, power
and authority and due authorization to sell and transfer such Shares
hereunder, and upon the delivery of and payment for such Shares, such
Shareholder will transfer to the Purchaser valid title thereto, free and
clear of any security interests, pledges, liens or similar encumbrances.
This Agreement constitutes the valid and legally binding obligation of
each Shareholder, enforceable in accordance with its terms.
(aa) DISCLOSURE. Neither this Agreement, the Schedules attached hereto,
nor any other document furnished by the Company or the Shareholders to
Purchaser, taken as a whole, contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
contained herein and therein not misleading, and except as disclosed
herein or therein, there is no fact (other than matters of a general
economic or a political nature which do not effect the business of the
Company uniquely) known to the Shareholders which materially adversely
effects the properties, business, operations or financial condition of
the Company.
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(bb) NON-OWNED PROPERTY. Except for the assets of Ameritech which are
listed on SCHEDULE 3(BB) hereto, all tangible personal property located
at the Company's facility situated at 10202 Airline Drive, Houston,
Texas, as of the Closing Date, is owned by the Company and has been
included in the Company's Financial Statements.
(cc) INSPECTIONS. Up to the Closing Date, the Shareholders shall have
afforded, and shall continue to afford the Purchaser and its agents the
opportunity to make full and complete inspection of (i) the Company's
books and records (including without limitation, the Company's Financial
Statements, tax returns, accounts receivable, accounts payable, etc.),
(ii) the Company's assets (including without limitation, the inventory
and tangible and intangible personal property) and (iii) all mechanical
equipment, the roof, the structural integrity of the improvements on the
Real Property and the interior of the improvements.
(dd) REAL PROPERTY LEASES. The Company's facility located at 10202
Airline Drive and the vacant property across therefrom at 120 Dale
Street in Houston, Texas (the "Real Property") are leased pursuant to
the terms of a lease agreement with Jezierski Properties Partnership
(the "Landlord"), a true and correct copy of which is attached hereto as
SCHEDULE 3(dd)-A (the "Real Property Lease"). The Real Property Lease
(i) is in full force and effect, (ii) is not in default, (iii) contains
no provision which would cause a default or event of default by virtue
of the transactions evidenced hereby, and (iv) terminates on April 11,
2001. A portion of the real property covered by the Real Property Lease
located at 10202 Airline Drive, Houston, Texas 77037 (which portion is
described further on SCHEDULE 3[dd]-B hereto), is currently subleased by
the Company to Ameritech pursuant to a sublease agreement which is also
attached as SCHEDULE 3(dd)-B hereto (the "Ameritech Sublease"). The
Ameritech Sublease is in full force and effect, no default exists
thereunder, contains no provision which would cause a default or event
of default by virtue of the transactions evidenced hereby, and
terminates on December 31, 1997. At Closing, Shareholders shall have
delivered to Purchaser (1) a Landlord's Estoppel Certificate signed by
the Landlord in substantially the form of EXHIBIT "A-1" hereto, and (2)
a Tenant Estoppel Certificate signed by Ameritech in substantially the
form of EXHIBIT "A-2" hereto.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Shareholders that:
(a) ORGANIZATION, STANDING AND AUTHORITY OF THE PURCHASER. The Purchaser
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas, and has full corporate power and
authority to conduct its business as it is now being conducted, to enter
into and carry out the provisions of this Agreement.
(b) NO VIOLATION. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will
violate any provision of the Articles of Incorporation or By-Laws of the
Purchaser, violate any provision of any agreement or other obligation to
which the Purchaser is a party or by which the Purchaser is bound or to
which its assets are subject, or violate or result in a breach of,
constitute a default under, any judgment, order, decree, rule or
regulation of any court or governmental agency to which the Purchaser is
subject.
(c) CORPORATE PROCEEDINGS OF THE PURCHASER. The execution, delivery and
performance of this Agreement has been authorized by the Board of
Directors of the Purchaser, and this Agreement constitutes the valid and
legally binding obligation of the Purchaser, enforceable in accordance
with its terms.
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<PAGE>
(d) BROKERS. The Purchaser is not a party to or in any way obligated
under a contract or other agreement, and there are no outstanding claims
against it, for the payment of any broker's or finder's fees in
connection with the origin, negotiation, execution or performance of
this Agreement.
(e) INVESTMENT. The Shares will be acquired for investment and not with
a view to distribution thereof, nor with any intention of distributing
or selling or otherwise disposing of the Shares. Purchaser represents
that it has made an independent determination of the value of the Shares
being acquired hereunder and the value of the assets owned by the
Company. Purchaser further represents that it has had available to it
all information requested in order to have made the determination herein
described, and that it has not relied upon any opinions of Shareholders
as to such values.
(f) PAYMENT OF RESERVED ITEMS. Purchaser hereby represents to the
Shareholders that it shall cause the Company to pay any and all items
properly reserved for on the Company's Interim Financial Statements as
of the Effective Date, provided such reserves represent valid accruals
for such reserved items.
(g) OPPORTUNITY TO INSPECT. Purchaser hereby represents to the
Shareholders that it has been afforded by the Shareholders the
opportunity to make full and complete inspection of (i) the Company's
books and records (including the Company's Financial Statements, tax
returns, accounts receivable, accounts payable, etc.), (ii) the
Company's assets (including without limitation, the inventory and
tangible and intangible personal property), and (iii) all mechanical
equipment, the roof, the structural integrity of the improvements on the
Real Property and the interior of such improvements.
(h) REVIEW OF REAL PROPERTY LEASES. Purchaser hereby represents to the
Shareholders that it has been given copies of the Real Property Lease
and the Ameritech Sublease, and has been afforded by the Shareholders
the opportunity to make full and complete review thereof, and Purchaser
has approved the terms set forth therein.
(i) RESULTS OF DUE DILIGENCE. As of the Closing Date, and as a result of
its due diligence, Purchaser is not aware of any matter or condition
which would give rise to, or result in, a claim against Shareholders by
Purchaser.
5. ADDITIONAL COVENANTS AND AGREEMENTS OF SHAREHOLDERS.
(a) RESIGNATIONS. The Shareholders agree to deliver to the Purchaser at
Closing (effective on the Effective Date) the resignations of (i) each
of the Shareholders as the sole directors of the Company, (ii) Walker as
the Chairman of the Board of Directors and Chief Executive Officer of
the Company, (iii) Introligator as the Vice President of the Company,
(iv) Richard M. Kaplan as the Secretary of the Company, and (v) such
other officers and directors of the Company as may be requested by the
Purchaser.
(b) DELIVERY OF STOCK CERTIFICATES AND OTHER MATERIALS. At the Closing,
the Shareholders shall deliver to the Purchaser the certificates
evidencing the Shares duly endorsed and accompanied by executed Stock
Powers, as well as all minute books, stock certificate books, corporate
seals and other corporate books, records, data and papers of the
Company.
(c) COVENANT AGAINST COMPETITION. Each Shareholder hereby agrees that
from and after the
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Effective Date, he will not, directly or indirectly, for a period of
five (5) years, but not to exceed the maximum period allowed by law, (1)
own, operate, engage in or be interested in, affiliated or connected
with (other than by purchasing securities on a national securities
exchange or established over-the-counter market) any person, firm,
corporation or other entity (except for the Purchaser or any subsidiary
thereof) operating or purporting to operate any business in the States
of Texas, Louisiana, Mississippi, Alabama and Florida (the "Restricted
Territory") (but not to exceed the maximum area permitted by law) which
competes in any manner with the business of the Company as of the
Closing Date, including the manufacture of specialty nuts, bolts and
studs used primarily in the energy industry (the "Company's Business
Activity"); or (2) solicit or accept (either on his own account or as
the agent of another person) the business of any person in connection
with the Company's Business Activity in the Restricted Territory, such
person having been a customer of the Company for such goods or services
during the period of twelve (12) months prior to the Effective Date; (3)
induce, solicit or endeavor to entice any person to leave the service or
employment of the Company; or (4) use any trade name (including the
expression "Walker Bolt") (or any other name intended or likely to be
confused with such trade name) used by the Company at any time during
the four (4) years immediately preceding the Effective Date. Each
Shareholder hereby acknowledges that the foregoing restrictions are
reasonable in scope and necessary for the protection of the goodwill of
the Company and that a breach of this covenant would cause Purchaser and
the Company substantial damage impossible of precise determination.
Accordingly, in addition to such other rights and remedies as may be
available to the Purchaser and the Company in the event of any breach,
actual or threatened, of the foregoing provisions of this Section 5(c),
the Purchaser and the Company (or any successor or successors thereof),
shall be entitled to enjoin such breach, actual or threatened. Each
Shareholder further agrees that should any portion of the foregoing
covenant be unenforceable because of the scope thereof or the period
covered thereby or otherwise, the covenant shall be deemed to be reduced
and limited to enable it to be enforced to the extent permissible under
the laws and public policies in the jurisdiction in which enforcement is
sought. Notwithstanding the foregoing, nothing contained in this
paragraph shall in any manner, and at any time, affect, restrict or
limit (y) Shareholder Introligator (or an entity to which he is related)
from continuing to conduct, participate or take part in, to any extent,
the liquidation business, including, but not limited to, the liquidation
or sale of machinery or equipment similar to the machinery or equipment
owned by the Company, or used in connection with the Company's Business
Activity; or (z) Shareholder Walker from owning or being involved with
Ameritech.
(d) CONSENTS. The Shareholders and the Company shall obtain all
approvals and consents which must be obtained in order to effectuate the
transaction contemplated hereby and to satisfy the terms and conditions
of this Agreement, as reasonably requested by Purchaser prior to the
Closing.
6. DISCLOSURES AND DISCLAIMERS OF SHAREHOLDERS.
(a) DISCLAIMER BY SHAREHOLDERS REGARDING ENVIRONMENTAL CONDITION OF REAL
PROPERTY. The Shareholders have made no, and specifically disclaim, and
Purchaser accepts that Shareholders have disclaimed, any and all
representations, guaranties or warranties, express or implied, or
arising by operation of law of or relating to the Real Property,
including without limitation, of or relating to (i) the use, economic
potential, expenses, operation, characteristics or condition of the Real
Property or any portion thereof, including without limitation,
warranties, suitability, habitability, merchantability, tenantability,
design or fitness for any specific or a particular purpose, or good and
workmanlike condition, (ii) the nature, manner, construction, condition,
state of repair or lack of repair of any improvements located on the
Real Property, on the surface or subsurface thereof, whether or not
obvious, visible, or apparent, (iii) the nature or quality of
construction, structural design or engineering
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of the Real Property, (iv) the environmental condition of the Real
Property and the presence or absence of or contamination by Hazardous
Materials, or compliance of the Real Property with regulations or laws
pertaining to help or the environment, and these (the soil conditions,
drainage, flooding characteristics, utilities or other conditions)
existing in, on, or under the Real Property. The Purchaser hereby
expressly assumes all risks, liabilities, claims, damages, and costs
(and agrees that Shareholders shall not be held liable for any special,
direct, indirect, consequential or other damages) which arise or occur
on or after the Closing date resulting or arising from or related to the
ownership, use, lease, condition, location, maintenance, repair or
operation of the Real Property. Purchaser acknowledges that any
condition of the Real Property which Purchaser discovers or desires to
correct or improve after the Closing shall be at Purchaser's sole
expense. Purchaser expressly waives (to the extent allowed by applicable
law) any claims under federal law, state or other law that Purchaser
might otherwise have against Shareholders relating to the use,
characteristics or condition of the Real Property. The provisions of
this paragraph shall survive the Closing. As used in this Agreement, the
term "Hazardous Materials" shall mean any flammables, explosives,
radioactive material, hazardous waste, including without limitation,
substances defined as "asbestos," "asbestos containing material,"
"hazardous substances," "hazardous materials," or "toxic substances" in
the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, 42 U.S.C. Sec. 9601, ET SEQ.; and The Hazardous
Materials Transportation Act, 49 U.S.C. Sec. 1801, ET SEQ.; The
Resources Conversation and Recovery Act, 42 U.S.C. Sec. 6901 ET SEQ. For
purposes of this Contract, "Applicable Laws" shall mean any and all
laws, statutes, ordinances, rules, regulations, orders, or
determinations of any governmental authority pertaining to health or the
environment in effect in any and all jurisdictions in which
Shareholders, Purchaser, the owner, or any previous owner, tenant,
occupant or user of the Real Property, or any other person is conducting
or at any time has conducted business, or where the Real Property is
located, including without limitation, the federal Clean Air Act, as
amended; the federal Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended; the
Federal Water Pollution Control Act, as amended; the federal
Occupational Safety and Health Act of 1970, as amended; the Resource
Conversation and Recovery Act of 1976 ("RCRA"), as amended; the federal
Safe Drinking Water Act, as amended; the federal Toxic Substances
Control Act, as amended; the federal Superfund Amendments and
Reauthorization Act of 1986, as amended; the federal Hazardous Materials
Transportation Act, as amended; the federal Hazardous Substances Act, as
amended; the Texas Solid Waste Disposal Act of 1969, as amended; the
Texas Injection Well Act, as amended; the Texas Comprehensive Municipal
Solid Waste Management, Resource Recovery and Conservation Act, as
amended; the Texas Hazardous Substances, as amended; the Texas Water
Quality Control Act, as amended; the Texas Clean Air Act, as amended;
Petroleum Storage Tank Remediation Fund Act effective May 31, 1989, Ch.
227, ss.ss. 1-19, 1989 Tex. Sess. Law Serv. 1006 (Vernon), as amended;
and other environmental conservation or protection laws. The provisions
of this Section 6 shall supercede any other provision to the contrary
contained in this Agreement. The Environmental Liabilities Indemnity
Agreement being given to the Shareholder by the Purchaser pursuant to
this Agreement shall not be limited as to time or monetary amount.
(b) SEWAGE TREATMENT FACILITY. Purchaser acknowledges and agrees that
Shareholders have advised Purchaser that there is a sewage treatment
facility (the "Sewage Treatment Facility") located on the Real Property,
owned by the Landlord, and operated by the Company. Further, as a
material inducement to Shareholders to enter into this Agreement, and to
sell the Stock to Purchaser, Purchaser acknowledges and agrees that (i)
Purchaser has inspected the Sewage Treatment Facility, and is satisfied
with such inspection; (ii) Purchaser, in acquiring the Stock from
Shareholders, is in no way relying upon any statements or
representations made by Shareholders regarding the condition or
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<PAGE>
operation of the Sewage Treatment Facility; (iii) Purchaser is familiar
with the obligations of the Company under the Real Property Lease
regarding the Sewage Treatment Plant; (iv) Purchaser has been advised by
the Shareholders of the existence of, and given a copy of, the TWC
Order; (v) Purchaser has been informed and advised by Shareholders that
the Company has been unable to achieve a discharge effluent within
specifications of the State of Texas, and thus has been operating on a
"pump and haul" basis; and (vi) Purchaser hereby releases and
indemnifies Shareholders from any and all responsibility and liability
regarding the operation of the Sewage Treatment Facility by the Company,
and the TWC Order.
7. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations of the
Purchaser to consummate the transaction contemplated hereby shall be subject to
the satisfaction, on or before the Effective Date, of all of the following
conditions unless expressly waived in writing by the Purchaser:
(a) OPINION OF COUNSEL. The Purchaser shall have received the opinion of
Weycer Kaplan Pulaski & Zuber, P.C., counsel for the Shareholders and
the Company, dated the Effective Date, to the effect that:
(i) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Texas and has corporate power to carry on its business as it is
now being conducted;
(ii) the authorized capital stock and the outstanding shares of
the Company are as set forth in Section 3(c) hereof, and the
Shares are duly and validly issued, fully paid, non-assessable
and outstanding;
(iii) this Agreement has been duly executed and delivered by the
Shareholders and, assuming the legal competency of the
Shareholders, constitutes the valid and binding obligation of
the Shareholders enforceable in accordance with its terms
(except as otherwise limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors'
rights and except that such counsel need not express an opinion
as to whether any covenant contained herein is specifically
enforceable);
(iv) the transfer of the Shares from the Shareholders shall vest
in the Purchaser valid ownership in the Shares, free and clear
of all security interests, pledges, liens, encumbrances, charges
or assessments, and no other endorsement is required to transfer
such ownership to the Purchaser, and such counsel is not aware
of any adverse claim with respect to any Shares;
(v) except as stated in such opinion or in any Schedule
delivered to the Purchaser pursuant to Section 3 of this
Agreement, such counsel does not know of any litigation,
proceeding or governmental investigation pending or threatened
against or relating to the Company or to the properties or
business of the Company or against the Shareholders relating to
the transactions contemplated by this Agreement;
(vi) no authorization, consent or approval of any court or
governmental body or authority is necessary to the validity of
the transfer by the Shareholders of the Shares to the Purchaser
as provided in this Agreement; and
(vii) the consummation of the transaction contemplated by this
Agreement will not result
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<PAGE>
in the breach of or constitute a default under the Articles of
Incorporation or By-Laws of the Company, or any loan, credit or
similar agreement or any court decree to which the Company or
the Shareholders are a party and of which such counsel has
actual knowledge, or by which any of them or their properties
may be bound.
(b) OTHER LEGAL MATTERS. Legal matters in connection with this Agreement
and the transaction contemplated hereby shall have been approved by
Stumpf Falgout Craddock & Massey, P.C., counsel for the Purchaser, and
the Shareholders shall have furnished to such counsel originals of such
corporate records of the Company and copies of such other documents as
such counsel may reasonably have requested for such purpose, at least
three (3) days prior to the Closing Date.
(c) NO DAMAGE OR DESTRUCTION. Between the Effective Date and the Closing
Date, there shall not have occurred any casualty to any facility,
property, equipment or inventory owned or used by the Company as a
result of which either the monetary amount of damage or destruction
aggregates five (5%) percent or more of the aggregate book value shown
on the books of account of the entire facilities, properties, equipment
and inventory of the Company, or the total monetary amount of damage or
destruction is less than five (5%) percent of the aggregate book value
shown on the books of account of the entire facilities, properties,
equipment and inventory of the Company, but more than $50,000, and such
loss shall not be substantially covered by valid, existing insurance
underwritten by responsible insurers.
(d) NO MATERIAL ADVERSE CHANGES. The Shareholders shall have delivered
to the Purchaser their certificate stating that there has been no
material adverse change in the business, operations, financial condition
or properties of the Company since the date of the Company's Interim
Financial Statements.
(e) ABSENCE OF LITIGATION. No litigation, governmental action,
insolvency, receivership or other proceeding shall have been threatened,
asserted or commenced with respect to the transaction contemplated
herein.
(f) CONSENTS. The Shareholders and the Company shall have obtained all
approvals and consents which must be obtained in order to effectuate the
transaction contemplated hereby and to satisfy the terms and conditions
of this Agreement.
8. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS. The respective
obligations of the Shareholders to consummate the transaction contemplated
hereby shall be subject to the satisfaction, on or before the Effective Date, of
all of the following conditions, unless expressly waived in writing by the
Shareholders:
(a) PAYMENT OF SHAREHOLDER NOTES. The Purchaser shall cause the Company
to pay in full the Shareholder Notes at the Closing on the Closing Date.
(b) EXECUTION OF ENVIRONMENTAL LIABILITIES INDEMNITY AGREEMENT. The
Purchaser (or if this Agreement is assigned pursuant to Section 16(a),
then Purchaser and such assignee) shall execute an agreement in the form
of EXHIBIT "B" hereto pursuant to which the Purchaser shall indemnify
the Shareholders for any environmental liabilities (as defined therein)
pertaining to the Real Property.
9. THE CLOSING AND THE EFFECTIVE DATE. The execution and delivery of
this Agreement and the instruments, certificates and other documents required
hereunder (the "Closing") shall take place at the offices of Stumpf Falgout
Craddock & Massey, 1400 Post Oak Boulevard, Suite 400, Houston, Texas 77056, at
17
<PAGE>
8:00 a.m. local time on November 10, 1997, or at such other time and day or
other location as may be mutually agreed by the Purchaser and the Shareholders.
The date and time of such execution and delivery is herein called the "Closing
Date". On or effective as of 12:01 a.m., Houston, Texas, time on November 1,
1997, the sale and exchange of the Shares as contemplated hereunder shall be
effective (the "Effective Date"). On the Closing Date, certificates representing
the Shares, the minute books, stock certificate books, corporate seals and other
corporate books, records, data and papers of the Corporation shall be delivered
by the Shareholders against delivery of the Purchase Price pursuant to Section 2
hereof.
10. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) NATURE OF STATEMENTS. All statements contained in any schedule or
any certificate or other instrument delivered by or on behalf of the
Shareholders or the Purchaser pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties made by the Shareholders or the
Purchaser, as the case may be.
(b) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants, agreements and undertakings contained herein or
in any Schedule, certificate or other document shall remain operative
and in full force and effect, and shall survive the Effective Date and
the delivery of all consideration and documents pursuant to this
Agreement, and shall continue in effect for a period of two (2) years
after the Effective Date, subject to the limits of Section 11(c) hereof,
and, as to representations made by the Shareholders concerning or
affecting any tax liability of the Company, until a date which is six
(6) months after the statute of limitations has run against the Federal,
state and local government; provided, however, that any such
representation, warranty, covenant, agreement or undertaking as to which
a bona fide claim shall have been asserted during such survival period
shall continue in effect until such time as such claim shall have been
resolved in accordance with the terms of this Agreement.
11. INDEMNIFICATION BY SHAREHOLDERS AND RELATED MATTERS.
(a) INDEMNIFICATION BY SHAREHOLDERS. Subject to the provisions of
Sections 10(b) and 11(c) hereof, the Shareholders, jointly and
severally, agree to defend, indemnify and hold harmless the Pur chaser
and the Company, and their respective successors and assigns, from,
against and in respect of any loss, damages, liability or expense,
including reasonable fees for attorneys and other outside consultants
(hereinafter collectively called the "Losses"), resulting from:
(i) any material inaccuracy or material breach by any
Shareholder of any of the warranties or representations
contained in this Agreement, any schedule attached hereto, or in
any agreement or instrument executed in connection herewith;
(ii) any breach, non-compliance or nonfulfillment by any
Shareholder of any covenant, agreement or undertaking to be
complied with or performed by them contained herein or pursuant
to this Agreement; provided however, the breach by a Shareholder
of the covenant set forth in Section 5(c) above shall not give
rise to a joint and several indemnity obligation of both
Shareholders, but rather the Shareholder violating such covenant
shall be solely obligated to defend, indemnify and hold harmless
the Purchaser and the Company for any loss, damages, liability
or expense resulting therefrom;
18
<PAGE>
(iii) any Federal, state or local income tax liability
(including any penalty and interest thereon) of the Company (1)
with respect to taxable periods of the Company ending on or
before the Effective Date; (2) with respect to taxable periods
of the Company beginning before the Effective Date and ending
after the Effective Date to the extent attributable to the
income, assets, operations or reporting requirements of the
Company prior to the Effective Date; (3) which are imposed upon
the Purchaser as a result of any breach of warranty or
misrepresentation under Section 3(f); and (4) which the
Shareholders are obligated to indemnify Purchaser and the
Company pursuant to Section 3(f) hereof; and
(iv) any liability arising out of any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses
(including reasonable legal and accounting fees) incident to any
of the foregoing items in this Section 11(a).
(b) PROCEDURE FOR MAKING CLAIMS. If and whenever the Purchaser desires
to claim indemnification from the Shareholder pursuant to the provisions
of this Section 11, the Purchaser shall promptly deliver to the
Shareholders a certificate signed by the Chairman of the Board or Chief
Executive Officer of the Purchaser (the "Notice of Claim") stating that
the Purchaser or the Company, their successors and assigns, has paid or
properly accrued losses, damages or expenses in an aggregate stated
amount to which the Purchaser is entitled to indemnification pursuant to
this Section 11, provided, however, such notice shall be given prior to
the payment of an indemnity item if reasonable in light of the
circumstances causing, or threatening to cause, a loss, and specifying
the individual items of loss, damage or expense included in the amount
so stated, the date each such item was paid or properly accrued and the
nature of the misrepresentation, breach of warranty or claim to which
such item is related, provided, however, failure to notify the
Shareholders shall relieve the Shareholders from liability only if they
are prejudiced thereby. The Shareholders shall have the right to contest
(prior to payment or entry of an agreement to pay) and defend any claim
by a third party at the expense of the Shareholders. The Purchaser
and/or the Company, as the case may be, shall provide to the
Shareholders prompt and complete disclosure of all pertinent information
in the possession of or available to the Purchaser or the Company and
shall extend full and timely assistance and cooperation in the
investigation and defense of the claim, suit or action, with respect to
which such indemnification is claimed. Shareholders, in the defense of
any such claim, suit, action or proceeding, shall not con sent to the
entry of any judgment or decree except with the written consent of
Purchaser or the Company, nor enter into any settlement (except the
written consent of the Purchaser or the Company) which does not include
as an unconditional term thereof the giving by the claimant or plaintiff
to Purchaser or the Company of a release from every liability in respect
of such claim, suit, action or proceeding. In any defense of any claim
by a third party, Purchaser and Company shall have the right (but shall
not be obligated) to participate in such defense through counsel of its
own selection and at its own expense. Provided, however, should a
dispute arise between Purchaser, Shareholders and/or Company regarding
how the defense of such claim should be handled, the decision of the
Shareholders shall control.
(c) INDEMNIFICATION THRESHOLD AND LIMITATION OF SHAREHOLDERS'
INDEMNIFICATION LIABILITY. Notwithstanding any of the provisions of this
Section 11, Purchaser agrees not to make claims for Losses hereunder
unless and until the aggregate of such claims exceeds One Hundred
Thousand and No/100 Dollars ($100,000.00) (the "Indemnification
Threshold"); provided however, that (i) the Indemnification Threshold
shall not be applicable to claims by Purchaser for Losses arising from a
breach by any Shareholder of Sections 3(a), (c), (f) and (i), and any
claim arising from a breach of any provision of any such Section shall
not be taken into account for purposes of determining when the
Indemnification Threshold has been met, and (ii) in no event shall the
Shareholders' joint and several
19
<PAGE>
liability under this Section 11 exceed the aggregate sum of One Million
and No/100 Dollars ($1,000,000.00); and (iii) the Shareholders'
liability under this Section 11 applies only to claims made against the
Purchaser and/or the Company on or before October 31, 1999.
12. INDEMNIFICATION BY THE PURCHASER AND RELATED MATTERS.
(a) INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees to defend,
indemnify and hold harmless the Shareholders, their respective
successors, assigns and personal representatives, from, against and in
respect of any and all loss, damages, liability or expense, including
reasonable fees for attorneys and other outside consultants
(collectively, the "Losses") resulting from:
(i) the breach by the Purchaser of any of its covenants or
warranties, or the inaccuracy of any of its representations
contained herein;
(ii) any claims or causes of action asserted after the Effective
Date against either Shareholder pertaining to any action taken
thereby which was legally within the scope and duty of such
Shareholder's authority as an officer and director of the
Company; and
(iii) any liability arising out of any and all actions, suits,
proceedings, claims, demands, judgments, costs and expenses
(including reasonable legal and accounting fees) incident to any
of the foregoing items of this Section 12(a).
(b) PROCEDURE FOR MAKING CLAIMS. If and whenever the Shareholders
(collectively and individually) desire to claim indemnification from the
Purchaser pursuant to the provisions of this Section 12, the
Shareholders shall promptly deliver to the Purchaser a certificate
signed by the Shareholders (the "Notice of Claim") stating that the
Shareholders, their heirs, personal representatives, successors or
assigns, have paid or properly accrued losses, damages or expenses in an
aggregate stated amount to which the Shareholders is entitled to
indemnification pursuant to this Section 12, and specifying the
individual items of loss, damage or expense included in the amount so
stated, the date each such item was paid or properly accrued and the
nature of the misrep resentation, breach of warranty or claim to which
such item is related, provided, however, failure to notify the Purchaser
shall relieve the Purchaser from liability only if it is prejudiced
thereby. The Purchaser shall have the right to contest (prior to payment
or entry into an agreement to pay) and defend any claim by a third party
at the expense of the Purchaser. The Shareholders shall provide to the
Purchaser prompt and complete disclosure of all pertinent information in
the possession of or available to the Shareholders and shall extend full
and timely assistance in the cooperation in the investigation of the
defense of the claim, suit or action, with respect to which such
indemnification is claimed. The Purchaser, in the defense of any such
claim, suit, action or proceeding, shall not con sent to the entry of
any judgment or decree except with the written consent of the
Shareholders nor enter into any settlement (except with the written
consent of the Shareholders) which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the Shareholders
of a release from every liability in respect of such claim, suit, action
or proceeding. In any defense of any claim by a third party, the
Shareholders shall have the right (but shall not be obligated) to
participate in such defense through counsel of their own selection and
at their own expense. Provided, however, should a dispute arise between
the Purchaser and the Shareholders regarding how the defense of such
claim should be handled, the decision of the Purchaser shall control.
20
<PAGE>
13. EXPENSES. The Shareholders and the Purchaser shall pay their or its
own expenses (including without limitation counsel and accounting fees and
expenses) incident to the preparation and carrying out of this Agreement and the
consummation of the transactions contemplated hereby.
14. NOTICES. All notices, demands and requests which may be given or
which are required to be given by either party to the other shall be in writing
and shall be deemed effective when either: personally delivered to the intended
recipient; sent by certified or registered mail, return receipt requested,
addressed to the intended recipient at the address specified below; delivered in
person to the address set forth below for the party to which the notice was
given; deposited into the custody of a nationally recognized overnight delivery
service such as Federal Express Corporation, Emery or Purolator, addressed to
such party at the address specified below; or sent by facsimile, telegram or
telex, provided that receipt for such facsimile, tele gram or telex is verified
by the sender and followed by a notice sent in accordance with one of the other
provisions set forth above. Notices shall be effective on the date of delivery
or receipt, of, if delivery is not accepted, on the earlier of the date that
delivery is refused or three (3) days after the date the notice is mailed. For
purposes of this Paragraph, the addresses of the parties for all notices are as
follows (unless changes by similar notice in writing are given by the particular
person whose address is to be changed):
(a) if to the Shareholders, to the address of such Shareholders as
shown in Table I with a copy to: Richard M. Kaplan, Weycer
Kaplan Pulaski & Zuber, P.C., 1400 Summit Tower, Eleven Greenway
Plaza, Houston, Texas 77046-1104;
(b) or if to the Purchaser, to 7435 Ardmore, Houston, Texas 77054,
Attn: Robert E. Cone, Chief Executive Officer, with a copy to:
Lawrence J. Fontana, Stumpf Falgout Craddock & Massey, P.C.,
1400 Post Oak Boulevard, Suite 400, Houston, Texas 77056.
Any party hereto may designate a different address by written notice
given to the other parties.
15. SATISFACTION OF CONDITIONS; TERMINATION.
(a) BEST EFFORTS TO SATISFY CONDITIONS. The Shareholders agree to use
their best efforts to bring about the satisfaction of the conditions
specified in Section 7 hereof, and the Purchaser agrees to use its best
efforts to bring about the satisfaction of the conditions specified in
Section 8 hereof.
(b) TERMINATION. This Agreement may be terminated prior to the Closing,
without liability on the part of any party hereto to any other party
hereto, by the Purchaser or the Shareholders.
In the event of termination by the Purchaser or the Shareholders as
provided above, written notice shall forthwith be given to the other
party.
16. MISCELLANEOUS.
(a) ASSIGNMENT. This Agreement may not be assigned by any party hereto
without the prior written consent of the other parties, provided,
however, the Purchaser shall have the right at any time prior to Closing
to assign this Agreement to a corporation wholly-owned by the Purchaser;
should Purchaser assign this Agreement as aforesaid, Purchaser shall
execute at the Closing, an agreement agreeing to be bound by the
indemnification provisions of Section 12 above. Subject to the
foregoing, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their
21
<PAGE>
respective successors and assigns and the heirs, executors,
administrators and personal representatives of the Shareholders.
(b) SECTION AND PARAGRAPH HEADINGS. The Section and Paragraph headings
of this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
(c) AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by the parties hereto.
(d) ENTIRE AGREEMENT. This Agreement and the exhibits, Schedules,
certificates and documents referred to herein constitute the entire
agreement of the parties, and supersede all understandings with respect
to the subject matter hereof.
(e) PUBLIC ANNOUNCEMENTS. No publication and/or press release of any
nature shall be issued pertaining to this Agreement or the transaction
contemplated hereby without the prior written approval of the Purchaser,
except as may be required by law.
(f) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute
one and the same instrument.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, AND VENUE FOR ANY
DISPUTE ARISING HEREUNDER SHALL BE IN HARRIS COUNTY, TEXAS, AND THE
PARTIES HERETO IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF
THE STATE OF TEXAS.
(h) JOINDER OF SPOUSES. The spouses of the Shareholders join herein pro
forma, to acknowledge that they are fully aware of, understand and fully
consent to the provisions of this Agreement and its binding effect on
the community property interests, if any, they may own in the Shares
owned by their respective spouse, and that their respective awareness,
understanding and agreement is evidenced by their respective signatures
to this Agreement.
(i) ARBITRATION PROCEDURE. In the event of disputes between the parties
with respect to the terms and conditions of this Agreement, such
disputes shall be resolved by and through an arbitration proceeding to
be conducted under the auspices of the American Arbitration Association
("AAA") (or any like organization successor thereto) in Houston, Texas.
Such arbitration proceeding shall be conducted in as expedited a manner
as is then permitted by the commercial arbitration rules (formal or
informal) of the AAA, and the arbitrator or arbitrators in any such
arbitration (an "Arbitration") shall be persons who are expert in the
subject matter of the dispute. Both the foregoing agreement of the
parties to arbitrate any and all claims, and the results, determination,
finding, judgment and/or award rendered through such Arbitration, shall
be final and binding on the parties hereto and may be specifically
enforced by legal proceedings. The parties agree and acknowledge that
money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may, in its sole
discretion, ask for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this
Agreement.
22
<PAGE>
Such Arbitration may be initiated by written notice from either party to
the other which shall be compulsory and binding proceeding on each
party. The Arbitration shall be conducted before a panel of arbitrators
selected in accordance with the rules of the AAA. Each party shall bear
separately the cost of their respective attorneys, witnesses and experts
in connection with such Arbitration. Time is of the essence of this
arbitration procedure, and the arbitrators shall be instructed and
required to render their decision within ten (10) days following
completion of the Arbitration.
Any and all legal proceedings to enforce this Agreement (including any
action to compel arbitration hereunder or to enforce any award or
judgment rendered thereby) shall governed by Texas law.
(j) DECEPTIVE TRADE PRACTICES ACT AND REAL ESTATE FRAUD WAIVER.
Purchaser expressly waives the applicability of Chapter 17 of the Texas
Business and Commerce Code Sections 17.41 et. seq. - the Texas Deceptive
Trade Practices Act (the "DTPA") and chapter 27.01 of the Texas Business
and Commerce Code - the Real Estate Fraud Act (the "Act") with respect
to this transaction, to the greatest extent allowed. Purchaser
acknowledges that all elements necessary for an enforceable waiver exist
in this transaction. Specifically, Purchaser represents and warrants as
follows:
(i) Purchaser is not in a significantly disparate bargaining
position;
(ii) Purchaser is represented by competent, experience legal
counsel;
(iii) This transaction does not involve the purchase or lease of
a family residence;
(iv) The Purchase Price exceeds $500,000.00; and
(v) Purchaser expressly intends to waive the provisions of the
DTPA.
Purchaser also represents and warrants that it is a business consumer
with ample knowledge and bargaining power in this transaction. The
execution of this waiver shall not be interpreted to imply that this
transaction is otherwise within the ambit of the DTPA or the Act.
Purchaser has directed its legal counsel to execute a copy of this
Agreement solely for the purpose of satisfying the requirements of the
Act and for no other purpose. Purchaser acknowledges that it has fully
and completely discussed this waiver with its legal counsel and with
full knowledge instructs its legal counsel to execute the acknowledgment
required to waive the DTPA and the Act.
23
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
as of the date and year first above written.
PURCHASER:
INDUSTRIAL HOLDINGS, INC.
By: /s/ CHRISTINE A. SMITH
Vice President
SPOUSES: SHAREHOLDERS:
/s/ GEORGIA E. WALKER /s/ RALPH WALKER, JR.
/s/ JUDITH A. INTROLIGATOR /s/ M. DAVID INTROLIGATOR
PURCHASER'S ATTORNEY ACKNOWLEDGMENT
THIS CONTRACT IS EXECUTED BY LEGAL COUNSEL FOR PURCHASER SOLELY FOR
THE PURPOSE OF SATISFYING THE REQUIREMENTS OF TEX. BUS. COMM. CODE SECTION
17.42.
/s/ LAWRENCE J. FONTANA
Purchaser's Counsel
24
EXHIBIT 7.1
INDEPENDENT AUDITORS' REPORT
Board of Directors
Bolt Manufacturing Co., Inc.
Houston, Texas
We have audited the accompanying Balance Sheets of Bolt Manufacturing Co., Inc.
(an S Corporation) as of December 31, 1995 and 1996, and the related Statements
of Earnings, Shareholders' Equity and Cash Flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bolt Manufacturing Co., Inc.,
as of December 31, 1995 and 1996, and the results of its operations and cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
WEINSTEIN SPIRA & COMPANY, P.C.
Houston, Texas
January 24, 1997
F-1
<PAGE>
BOLT MANUFACTURING CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents:
Demand deposits ......................................... $ 5,159 $ 22,285 $ 17,603
Interest bearing deposits ............................... 218,803 186,687 316,816
---------- ---------- ----------
223,962 208,972 334,419
Receivables:
Trade - net of allowance for doubtful
accounts of $20,000 at
September 30, 1997; $10,000 at
December 31, 1996 and 1995 ............................ 995,056 850,956 896,998
Related party ........................................... 6,226 11,978 11,553
Other ................................................... 308 7,663 3,582
Inventories ................................................ 340,290 244,324 426,431
Prepaid expenses ........................................... 102,586 149,393 48,134
---------- ---------- ----------
Total Current Assets .................................. 1,668,428 1,473,286 1,721,117
---------- ---------- ----------
PROPERTY AND EQUIPMENT
Machinery and equipment .................................... 1,216,442 1,280,195 1,337,044
Office equipment ........................................... 81,301 81,128 92,958
Furniture and fixtures ..................................... 5,000 5,000 5,000
Tooling and dies ........................................... 10,000 10,000 10,000
Transportation equipment ................................... 33,454 45,608 45,608
Leasehold improvements ..................................... 2,115 2,115 8,776
---------- ---------- ----------
1,348,312 1,424,046 1,499,386
Less: Accumulated depreciation and
amortization ............................................ 980,327 1,050,782 1,129,009
---------- ---------- ----------
367,985 373,264 370,377
---------- ---------- ----------
$2,036,413 $1,846,550 $2,091,494
========== ========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Note payable .................................................. $ 260,000 $ 100,000
Accounts payable - trade ...................................... 197,344 92,678 $ 140,958
Accrued expenses .............................................. 240,178 243,621 413,416
---------- ---------- ----------
Total Current Liabilities ................................ 697,522 436,299 554,374
NOTES PAYABLE .................................................... 1,000,000
---------- ---------- ----------
697,522 436,299 1,554,374
SHAREHOLDERS' EQUITY
CAPITAL STOCK - common; $1 par value,
1,000,000 shares authorized; shares issued and outstanding .... 62,500 62,500 62,500
RETAINED EARNINGS ................................................ 1,276,391 1,347,751 474,620
---------- ---------- ----------
1,338,891 1,410,251 537,120
---------- ---------- ----------
$2,036,413 $1,846,550 $2,091,494
========== ========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
BOLT MANUFACTURING CO., INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------- ----------------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
SALES ...................................... $ 7,132,510 $ 6,452,216 $ 4,961,927 $ 5,419,698
Cost of Sales .............................. 4,747,191 4,421,520 3,358,171 3,521,325
----------- ----------- ----------- -----------
GROSS MARGIN ............................... 2,385,319 2,030,696 1,603,756 1,898,373
Operating Expenses ......................... 1,574,734 1,520,086 1,124,853 1,308,199
----------- ----------- ----------- -----------
EARNINGS FROM .............................. 810,585 510,610 478,903 590,174
----------- ----------- ----------- -----------
OPERATIONS
OTHER INCOME (EXPENSE)
Interest expense ....................... (31,787) (21,330) (16,679) (33,549)
Other income ........................... 9,110 6,821 1,814 1,137
Interest income ........................ 8,952 8,805 5,440 4,242
Gain on sale of assets ................. 4,903
----------- ----------- ----------- -----------
(13,725) (801) (9,425) (28,170)
----------- ----------- ----------- -----------
NET EARNINGS ............................... $ 796,860 $ 509,809 $ 469,478 $ 562,004
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
BOLT MANUFACTURING CO., INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996,
AND FOR THE NINE MONTH-PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1994 ................. 62,500 $ 62,500 $1,056,741 $1,119,241
Net Earnings ................................ 796,860 796,860
Distributions to Shareholders ............... (577,210) (577,210)
---------- ----------- ---------- ----------
BALANCE - DECEMBER 31, 1995 ................. 62,500 62,500 1,276,391 1,338,891
Net Earnings ................................ 509,809 509,809
Distributions to Shareholders ............... (438,449) (438,449)
---------- ----------- ---------- ----------
BALANCE - DECEMBER 31, 1996 ................. 62,500 62,500 1,347,751 1,410,251
Net Earnings (Unaudited) .................... 562,004 562,004
Distributions to Shareholders
(Unaudited) ............................. (1,435,135) (1,435,135)
---------- ----------- ---------- ----------
BALANCE - SEPTEMBER 30, 1997
(Unaudited) ............................. 62,500 $ 62,500 $ 474,620 $ 537,120
========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
BOLT MANUFACTURING CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers ......... $ 7,095,172 $ 6,583,131 $ 5,085,978 $ 5,379,299
Cash paid to suppliers and
employees ......................... (6,224,908) (5,883,188) (4,415,294) (4,622,403)
Interest received .................... 8,952 8,805 5,440 4,242
Interest paid ........................ (31,787) (21,330) (16,679) (25,216)
----------- ----------- ----------- -----------
Net Cash Provided by
Operating Activities ........... 847,429 687,418 659,445 735,922
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment .................. (123,308) (110,526) (78,831) (75,340)
Proceeds from dispositions ............. 6,567
----------- ----------- ----------- -----------
Net Cash Used in Investing
Activities ..................... (123,308) (103,959) (78,831) (75,340)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of debt ....................... (120,000) (160,000) (90,000) (100,000)
Distributions to shareholders .......... (577,210) (438,449) (438,449) (1,435,135)
Proceeds from shareholder notes ........ 1,000,000
----------- ----------- ----------- -----------
Net Cash Used in Financing
Activities ..................... (697,210) (598,449) (528,449) (535,135)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................... 26,911 (14,990) 52,165 125,447
Cash and Cash Equivalents -
Beginning of Period .................... 197,051 223,962 223,962 208,972
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD .. $ 223,962 $ 208,972 $ 276,127 $ 334,419
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
RECONCILIATION OF NET EARNINGS
TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net earnings ................................... $ 796,860 $ 509,809 $ 469,478 $ 562,004
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization ............. 107,869 103,583 77,608 78,227
Bad debt expense .......................... 1,185 27,684 13,500 16,009
Gain on sale of fixed assets .............. (4,903)
(Increase) Decrease in:
Receivables ............................ (47,634) 103,309 108,737 (57,545)
Inventories ............................ (11,754) 95,966 (3,457) (182,107)
Prepaid expenses ....................... (20,009) (46,807) (111,698) 101,259
Increase (Decrease) in:
Accounts payable - trade ............... 450 (104,666) (53,780) 48,280
Accrued expenses ....................... 20,462 3,443 159,057 169,795
--------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......... $ 847,429 $ 687,418 $ 659,445 $ 735,922
========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-7
<PAGE>
BOLT MANUFACTURING CO., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, IS UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company maintains its accounts on the accrual basis of accounting in
accordance with generally accepted accounting principles. Accounting principles
followed by the Company and the methods of applying those principles which
materially affect the determination of financial position, results of
operations, and cash flows are summarized below:
DESCRIPTION OF BUSINESS
Bolt Manufacturing Co., Inc. manufactures specialty bolts and nuts for
customers throughout the United States and Canada.
INCOME RECOGNITION
Revenue is recognized at the date of product shipment, and accounts
receivable are recorded at that time. Earnings are charged with a provision
for doubtful accounts based on current review of collectibility of accounts.
INVENTORIES
Inventories, consisting of raw materials, work-in-process, and finished goods
are presented at the lower of cost (as determined by the first-in, first-out
method) or market. Work-in-process and finished goods include the cost of
material and any related direct and indirect production costs. Inventories
consist of the following:
DECEMBER 31,
------------------------- September 30,
1995 1996 1997
-------- -------- --------
Raw materials ............... $260,931 $196,361 $307,443
Work-in-process ............. 59,300 37,109 94,974
Finished goods .............. 20,059 10,854 24,014
-------- -------- --------
$340,290 $244,324 $426,431
======== ======== ========
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed at
rates sufficient to amortize the cost of the assets over their estimated
useful lives using the straight-line method. Depreciation is based on the
following estimated useful lives:
Machinery and equipment 5 - 7 years
Office equipment 5 years
Furniture and fixtures 5 years
Tooling and dies 5 years
Transportation equipment 3 years
Leasehold improvements 6 years
F-8
<PAGE>
BOLT MANUFACTURING CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, IS UNAUDITED)
INCOME TAX
The Company is taxed under the S Corporation provisions of the Internal
Revenue Code. Under these provisions, the Company is not liable for federal
corporate income taxes. Instead, the shareholders are liable for individual
federal income taxes on the Company's taxable income.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents. There are deposits in excess of
federally insured limits.
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.
NOTE 2 - OPERATING LEASES
The Company leases its warehouse and office facilities and certain equipment
under operating lease agreements. At December 31, 1996, the future minimum
rental payments required under the leases were as follows:
YEAR ENDING
DECEMBER 31,
1997 $ 91,660
1998 83,342
1999 77,400
2000 77,400
2001 19,350
--------
$349,152
Rent expense for the periods ended December 31, 1995 and 1996, and September 30,
1996 and 1997, totaled $77,400 and $77,300, $57,950 and $58,050, respectively.
F-9
<PAGE>
BOLT MANUFACTURING CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, IS UNAUDITED)
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company paid $88,000 in consulting fees to related parties during the year
ended December 31, 1995.
The Company paid $99,000 in consulting fees to an affiliate of a shareholder
during the period ended September 30, 1997.
As discussed in Note 4, the Company has $1,000,000 in shareholder notes payable.
The Company received $14,385 and $1,250 in expense reimbursements from an entity
related by common ownership for the year ended December 31, 1996 and 1995,
respectively. At December 31, 1996 and 1995, respectively, the Company had a
receivable from the entity of $11,978 and $6,226.
The Company received $44,234 and $14,082 in expense reimbursements from an
entity related by common ownership for the period ended September 30, 1997 and
1996, respectively. At September 30, 1997 and 1996, respectively, the Company
had a receivable from the entity of $11,553 and $7,135.
Additionally, in April, 1996, the Company began subleasing part of its facility
to the related entity under a lease agreement which has been classified as an
operating lease. The lease expired December 31, 1996. The Company renewed the
lease for an additional 12 months expiring on December 31, 1997. Total rent
income for the year ended December 31, 1996, and the nine months ended September
30, 1997, under this agreement was $6,400 and $9,000, respectively.
NOTE 4 - NOTE PAYABLE
The Company had a note agreement with a bank which bore interest at the prime
rate plus .5% per annum and was secured by accounts receivable, equipment,
general intangibles and inventory. The note was due on demand; if no demand is
made it is payable in monthly installments of $10,000, plus interest, until
February, 1998. Outstanding borrowings at December 31, 1995 and 1996, were
$260,000 and $100,000, respectively. As of March 31, 1997, the Company has paid
the note in full.
The Company also had a $100,000 line-of-credit with a bank, bearing interest at
prime plus 1%, secured by equipment, accounts receivable, inventory, fixtures,
and intangibles, which matured on April 1, 1997. There were no borrowings under
this line-of-credit at December 31, 1996.
At April 1, 1997, the Company obtained a $150,000 line-of-credit with a bank,
bearing interest at prime plus 1%, secured by accounts receivable, inventory,
fixtures and intangibles, which matures on August 15, 1998. There were no
borrowings under this line-of-credit at September 30, 1997.
F-10
<PAGE>
BOLT MANUFACTURING CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, IS UNAUDITED)
The Company has entered into loan agreements which contain restrictive
covenants, including maintenance of certain financial ratios and restrictions on
borrowings. At December 31, 1996, the Company was in compliance with the
covenants and restrictions.
As of September 30, 1997, the Company has note agreements with its shareholders
for a principal amount of $1,000,000. The notes bear interest at 10% per annum,
with interest due quarterly beginning September, 1997. The notes are secured by
equipment and are due on June 11, 1999. Interest of $30,525 has been expensed,
with $22,192 being paid to shareholders as of September 30, 1997.
NOTE 5 - SUBSEQUENT EVENT
Effective November 1, 1997, the shareholders of the Company sold all outstanding
shares of stock to Industrial Holdings, Inc. for approximately $5,000,000, cash
plus repayment of the shareholders' notes of $1,000,000 and the assumption of
certain liabilities.
NOTE 6 - UNAUDITED INTERIM STATEMENTS
The financial statements as of September 30, 1997, and for the six months ended
September 30, 1996 and 1997, are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary to a fair presentation of the financial statements for these interim
periods have been made. Accounting estimates at interim dates inherently involve
greater reliance on estimates than at year end. The results for the interim
periods are not necessarily indicative of the results to be obtained for a full
fiscal year.
F-11
EXHIBIT 7.2
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma financial statements give effect to
the November 1997 acquisition by the Company of Bolt Manufacturing Co., Inc.
doing business as WALKER BOLT Manufacturing Co. ("WALKER") in a transaction
accounted for as a purchase. The allocation of purchase price is based on
preliminary information currently available and will be revised as necessary.
The estimated purchase price adjustments are subject to completion of asset
appraisals, the final determination of certain tax liabilities, differences
between the estimated and actual costs of professional fees and adjustments to
certain other accruals.
The unaudited pro forma condensed consolidated balance sheet is based on
the September 30, 1997 balance sheets of the Company included in the Report on
Form 10-Q for the three months ended September 30, 1997 and of WALKER included
in the financial statements of WALKER appearing elsewhere in this Report on Form
8-K, and has been prepared to reflect the acquisition of WALKER as if the
acquisition had been consummated at September 30, 1997. The acquisitions of Lone
Star and MVS were completed in the first quarter of 1997 and their balance
sheets as of September 30, 1997 are included in that of the Company.
The unaudited pro forma condensed consolidated statements of operations
are based on the income statements of the Company, American, Lone Star and MVS
(not presented separately herein) and WALKER appearing elsewhere in this Report
on Form 8-K as if the acquisitions had occurred at the beginning of the period
presented. Such unaudited pro forma condensed consolidated financial statements
combine (i) the audited operating results for the Company for the year ended
December 31, 1996 and the unaudited operating results for the nine months ended
September 30, 1997 (ii) the audited operating results of MVS for the year ending
December 31, 1996 and the unaudited results of operations for the two-months
ended February 28, 1997; (iii) the audited operating results of Lone Star for
the year ended December 31, 1996; (iv) the unaudited operating results of
American for the period from January 1, 1996 through September 30, 1996; and (v)
the audited operating results of WALKER for the year ended December 31, 1996 and
the unaudited operating results for the nine months ended September 30, 1997.
The results of operations for the one month ended January 31, 1997 for Lone Star
and one month ended October 31, 1996 for American have not been presented based
upon management's belief that such would not be significant to the pro forma
statements of operations.
The Company acquired WALKER effective November 1, 1997, MVS on March 1,
1997, Lone Star on February 1, 1997 and American on November 1, 1996 and the
operating results subsequent to the date of acquisition are reflected in the
Company's historical information for the periods presented.
F-12
<PAGE>
The pro forma financial information does not purport to be indicative
either of the results of operations that would have occurred had the purchase
been made at the beginning of the periods presented or future results of
operations of the combined companies. These unaudited pro forma financial
statements should be read in conjunction with the historical financial
statements and notes thereto of the Company included in its 1996 Annual Report
on Form 10-K and in its Report on Form 10-Q for the quarter ended September 30,
1997, the financial statements of American filed with Form 8-K/A dated November
18, 1996, Lone Star filed with Form 8-K/A dated February 6, 1997, MVS filed with
Form 8-K/A dated June 12, 1997 and WALKER included elsewhere in this Form 8-K.
F-13
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ------------------------------
ADJUSTMENTS
IHI WALKER (NOTE 1) COMBINED
------- ------ -------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents .............................. $ 216 $ 334 $ (30)(a) $ 520
Accounts receivable-trade ......................... 11,084 897 (57)(b) 11,924
Inventories ....................................... 12,556 426 12,982
Advances to shareholders .......................... 92 92
Notes receivable, current portion ................. 981 981
Other current assets .............................. 1,153 64 1,217
------- ------ -------- -------
Total current assets ........................ 26,082 1,721 (87) 27,716
Property and equipment, net ............................ 18,918 370 3,630(c) 22,918
Notes receivable ....................................... 1,214 1,214
Other assets ........................................... 768 30(c) 798
Goodwill, net .......................................... 12,833 1,112(d) 13,945
------- ------ -------- -------
Total assets ................................ $59,815 $2,091 $ 4,685 $66,591
======= ====== ======== =======
</TABLE>
F-14
<PAGE>
INDUSTRIAL HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- ---------------------------
ADJUSTMENTS
IHI WALKER (NOTE 1) COMBINED
------- ------ -------- --------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable ................................... $ 10,110 $ $ 309 (e) $ 10,419
Accounts payable-trade .......................... 6,958 141 (57)(b) 7,042
Accrued expenses and other ...................... 2,320 413 90 (g) 2,823
Current portion of long-term debt ............... 1,617 793 (e) 2,410
-------- ------- ------- --------
Total current liabilities ................... 21,005 554 1,135 22,694
Long-term debt, less current portion ................. 6,045 1,000 7,207 (e) 11,132
(1,000)(e)
(2,120)(e)
Deferred compensation payable ........................ 248 248
Deferred income taxes payable ........................ 2,648 2,648
Common stock with put redemption option ............. 6,000 6,000
Shareholders' equity
Common stock .................................... 58 63 (63)(f) 58
Additional paid-in capital ...................... 20,656 20,656
Retained earnings ............................... 3,155 474 (474)(f) 3,155
-------- ------- ------- --------
Total shareholders' equity ................ 23,869 537 (537) 23,869
-------- ------- ------- --------
Total liabilities and shareholders' equity $ ......... $ 59,815 $ 2,091 $ 4,685 $ 66,591
======== ======= ======= ========
</TABLE>
F-15
<PAGE>
Note 1 - The pro forma balance sheet reflects the acquisition of WALKER for cash
of $5 million, payment of $1 million note payable to shareholders by WALKER plus
estimated transaction expenses. The allocation of purchase price is based on
preliminary information and is subject to change based on the final
determination of certain tax liabilities, differences between the estimated and
actual costs of professional fees, completion of asset appraisals and
adjustments to certain other accruals:
a. Reflect use of cash to pay certain transaction expenses.
b. Eliminate intercompany accounts.
c. Adjust the assets and liabilities of WALKER to their estimated fair market
values at the acquisition date.
d. Record goodwill on the purchase of WALKER.
e. Record the drawdown on the Company's demand note with Comerica Bank of
Texas ("Comerica"), retire existing term note and term note payable to
Heller Financial, Inc. ("Heller") and the repayment of $1,000,000 note
payable assumed in the WALKER Acquisition and of $2,120,000 in existing
term note payable to Comerica.
f. Eliminate the shareholders equity of WALKER.
g. Record accrued transaction costs.
F-16
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------
ACQUISITION ADJUSTMENTS
HISTORICAL (NOTE 1)
---------------------------------- --------------------
IHI MVS WALKER MVS WALKER COMBINED
-------- --------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Sales $59,642 $ 1,762 $ 5,420 $ (166)(a) $ 66,658
Cost of sales 44,953 1,293 3,522 135 (b) 49,737
(166)(a)
Gross profit 14,689 469 1,898 (135) 16,921
Selling, general and 10,438 152 1,308 (250)(d) 11,712
administrative
17 47 (b)
-------- --------- -------- ------- -------- --------
Income from operations 4,251 317 590 (17) 68 5,209
Other income (expense):
Interest expense (1,281) (34) (350)(e) (1,665)
Interest income 130 3 4 (3) (4)(f) 130
Other income (expense) 273 2 275
-------- --------- -------- ------- -------- --------
Total other income (expense) (878) 3 (28) (3) (354) (1,260)
-------- --------- -------- ------- -------- --------
Income before income taxes 3,373 320 562 (20) (286) 3,949
Income tax expense 1,363 82 (5) 95 (g) 1,535
-------- --------- -------- ------- -------- --------
Net income $ 2,010 $ 238 $ 562 $ (15) $ (381) $ 2,414
======== ========= ======== ======= ======== ========
Earnings per share (h) $ .30 $ .35
======== ========
</TABLE>
F-17
<PAGE>
INDUSTRIAL HOLDINGS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------------------
ACQUISITION ADJUSTMENTS
HISTORICAL (NOTE 3)
------------------------------------------------ ------------------------------------
IHI MVS LONE STAR AMERICAN WALKER MVS LONE STAR AMERICAN WALKER COMBINED
------- ------ ------- -------- ----- ----- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $51,423 $ 6,374 $ 15,474 $ 6,786 $ 6,452 $(275)(a) $ 86,234
Cost of sales 40,849 4,366 9,498 5,118 4,422 $ 26 $ (34) 179 (b) 66,312
2,163 (c)
(275)(a)
------- ------ ------- -------- ----- ----- ------ ------ ----- --------
Gross profit 10,574 2,008 5,976 1,668 2,030 (2,189) 34 (179) 19,922
Selling, general and 8,002 843 5,587 1,164 1,520 (392) (329) (246)(d) 14,542
administrative (2,163) (c)
$ 205 161 127 63 (b)
------- ------ ------- -------- ----- ----- ------ ------ ----- --------
Income from operations 2,572 1,165 389 504 510 (205) 205 236 4 5,380
Other income (expense):
Interest expense (1,336) (114) (21) (182) (558) (482)(e) (2,693)
Interest income 160 7 71 9 (7) (71) (9)(f) 160
Other income (expense) 139 8 1 26 11 185
------- ------ ------- -------- ----- ----- ------ ------ ----- --------
Total other income
(expense) (1,037) 15 (113) 97 (1) (7) (182) (629) (491) (2,348)
------- ------ ------- -------- ----- ----- ------ ------ ----- --------
Income before income
taxes 1,535 1,180 276 601 509 (212) 22 (393) (487) 3,032
Income tax expense 408 439 90 240 -- (12) 7 (157) 8 (g) 1,023
------- ------ ------- -------- ----- ----- ------ ------ ----- --------
Net income $ 1,127 $ 741 $ 186 $ 361 $ 509 $(200) $ 16 $ (236) $(495) $ 2,009
======= ====== ======= ======== ======= ====== ====== ======= ====== ========
Earnings per share (h) $ .26 $ .39
======= ========
</TABLE>
F-18
<PAGE>
Note 3 - The above statements give effect to the following pro forma adjustments
necessary to reflect the acquisition and the issuance of debt related to the
acquisition of WALKER outlined in Note 1 to the pro forma balance sheet:
a. Eliminate intercompany sales.
b. Adjust depreciation and amortization expense for changes resulting from
(i) the increase in acquired property, plant and equipment as a result of
the allocation of the purchase price and depreciation of the fair market
value of the acquired property, plant and equipment over their remaining
useful lives of 3 to 30 years and (ii) amortization of acquired goodwill
over 20 years.
c. Reclassify amounts from selling general and administrative expenses to
cost of sales to be consistent with the classification used by the
Company.
d. Reduce cost of sales and selling, general and administrative expenses for
contractual reductions as part of the acquisition in executive payrolls,
elimination of directors fees, reduction in executive benefits and
elimination of expenses related to Florida entertainment facility
eliminated as part of the American acquisition.
e. Adjust interest expense (i) for Lone Star on $1,700,000 of 8.25% term
debt, $1,400,000 demand note and 8% $500,000 term note payable to seller;
(ii) for American on $1,800,000 of 8.25% term debt, $3,712,000 demand note
and 12% $3,500,000 bridge note; and (iii) for Walker on $309,000 demand
note, $5,880,000 8.1% term note.
f. Eliminate interest income.
g. Adjust income taxes as a result of the changes in the pro forma pretax
earnings of the acquired subsidiaries.
h. Increase in earnings per share as a result of pro forma earnings of the
acquired subsidiaries and increase in weighted average of common stock
equivalents (i) for MVS for the effect of 600,000 shares of IHI common
stock issued to the selling shareholders (ii) for Lone Star for the effect
of 84,211 shares of IHI common stock issued to selling shareholder, and
(iii) for American for the effect of 540,000 warrants.
F-19
EXHIBIT 10.1
Loan No.: 1960082-0001
PROMISSORY NOTE
$8,000,000.00 November 10, 1997
FOR VALUE RECEIVED, INDUSTRIAL HOLDINGS, INC., a Texas corporation,
AMERICAN RIVET COMPANY, Inc., an Illinois corporation, LSS-LONE STAR-HOUSTON,
INC., a Texas corporation, and BOLT MANUFACTURING COMPANY, INC., a Texas
corporation (collectively, "Maker"), jointly and severally, promises to pay to
the order of HELLER FINANCIAL, INC., a Delaware corporation (together with any
holder of this Note, "Payee"), at its office located at 500 West Monroe Street,
Chicago, Illinois 60661, or at such other place as Payee may from time to time
designate, the principal sum of Eight Million and 00/100 Dollars
($8,000,000.00), together with interest thereon at a rate per annum equal to the
One Month LIBOR Rate (hereafter defined), plus two and 50/100 percent (2.50%),
payable in seventy-two (72) consecutive monthly installments of principal plus
interest commencing January 1, 1998, and continuing on the same day of each
consecutive calendar month thereafter until this Note is fully paid. Subject to
adjustment in accordance with the next sentence in the event of the Mandatory
Prepayment (as defined in Section 3 of the Security Agreement (defined below)),
the first seventy-one (71) such monthly installments shall each be in the
principal amount of One Hundred Eleven Thousand One Hundred Eleven and 12/100
Dollars ($111,111.12), plus accrued interest, and the final monthly installment
shall be in the amount of the entire then outstanding principal balance
hereunder, plus all accrued and unpaid interest, charges and other amounts owing
hereunder or under the Security Agreement (defined below). Notwithstanding
anything else in this Note, if Maker makes the Mandatory Prepayment, each
consecutive monthly installment payment hereunder shall thereafter be in an
equal amount of principal, plus accrued interest, provided, however that the
final monthly installment shall be in the amount of the entire then outstanding
principal balance hereunder, plus all accrued and unpaid interest, charges and
other amounts owing hereunder or under the Security Agreement. All payments
shall be applied first to interest and then to principal. Interest shall be
computed on the basis of a 360-day year and charged for the actual number of
days elapsed. Maker shall make an interest only initial payment on December 1,
1997 of all accrued interest from the date of this Note through November 30,
1997.
For purposes of this Note, the term "One Month LIBOR Rate" means, for each
calendar month, a rate of interest equal to:
(a) the rate of interest determined by Payee at which deposits in
U.S. Dollars are offered for the one (1) month interest period based on
information presented on the Reuters Screen LIBO Page as of 11:00 A.M. (London
time) on the day which is two (2) business days (not counting Saturdays) prior
to the first day of each calendar month; provided that if at least two (2) such
offered rates appear on the Reuters Screen LIBO Page in respect of such interest
period, the arithmetic mean of all such rates (as determined by Payee) will be
the rate used; provided further that if there are fewer than two (2) offered
rates or Reuters ceases to provide LIBOR quotations, such rate shall be
the average rate of interest determined by Payee at which deposits in U.S.
Dollars are offered for the one
Ex-4
<PAGE>
(1) month interest period by Bankers Trust Company and Chase Bank, N. A. (or
their respective successors) to banks with combined capital and surplus in
excess of $500,000,000 in the London interbank market as of 11:00 A.M. (London
time) on the applicable interest rate determination date, divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) business days prior to the
beginning of each calendar month (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other governmental authority
having jurisdiction with respect thereto, as now and from time to time in
effect) for Eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) which are required to be maintained
by a member bank of the Federal Reserve System;
(Such rate to be adjusted to the nearest one sixteenth of one percent (1/16
of 1%) or, if there is no nearest one sixteenth of one percent (1/16 of 1%), to
the next higher one sixteenth of one percent (1/16 of 1%)).
For the initial funding month (or any fraction thereof) under this Note,
the interest rate hereunder shall be the One Month LIBOR Rate in effect on the
day of funding, plus Two and 50/100 percent (2.50%).
Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein or
collectable hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such applicable lawful maximum.
This Note is secured by the collateral described in the Security Agreement
dated November 10, 1997, between Maker and Payee (the "Security Agreement;" and
together with all related documents and instruments, the "Loan Documents") to
which reference is made for a statement of the nature and extent of protection
and security afforded, certain rights of Payee and certain rights and
obligations of Maker, including Maker's rights and obligations, if any, to
prepay the principal balance hereof.
Time is of the essence hereof. If payment of any installment or any other
sum due under this Note or the Loan Documents is not paid within ten (10) days
of its hen due date, Maker agrees to pay a late charge equal to the lesser of
(i) five cents (5(cent)) per dollar on, and in addition to, the amount of each
such payment, or (ii) the maximum amount Payee is permitted to charge by law. In
the event of the occurrence of an Event of Default (as defined in the Security
Agreement), then the entire unpaid principal balance hereof with accrued and
unpaid interest thereon, together with all other sums payable under this Note or
the Loan Documents, shall, at the option of Payee and without notice or demand,
become immediately due and payable, such accelerated balance bearing interest
until paid at the rate of Three Five and 50/100 percent (35.50%) per annum above
the then otherwise applicable interest rate hereunder.
<PAGE>
Maker and all endorsers, guarantors or any others who may at any time
become liable for the payment hereof hereby consent to any and all extensions of
time, renewals, waivers and modifications of, and substitutions or release of
security or of any party primarily or secondarily liable on, or with respect to,
this Note or any of the Loan Documents or any of the terms and provisions
thereof that may be made, granted or consented to by Payee, and agree that suit
may be brought and maintained against any one or more of them, at the election
of Payee, without joinder of the others as parties thereto, and that Payee shall
not be required to first foreclose, proceed against, or exhaust any security
herefor, in order to enforce payment of this Note by any one or more of them.
Maker and all endorsers, guarantors or any others who may at any time become
liable for the payment hereof hereby severally waive presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
and all other notices in connection with this Note, filing of suit and diligence
in collecting this Note or enforcing any of the security herefor, and, without
limiting any provision of any of the Loan Documents, agree to pay, if permitted
by law, all expenses incurred in collection, including reasonable attorneys'
fees, and hereby waive all benefits of valuation, appraisement and exemption
laws.
If there be more than one Maker, all the obligations, promises, agreements
and covenants of Maker under this Note are joint and several.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING PAYEE'S
RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, MAKER HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL)
HAVING SITUS WITHIN THE STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO
THE LAST KNOWN ADDRESS OF MAKER, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN
TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND
FREELY MADE. MAKER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT PAYEE HAS ALREADY RELIED ON THE WAIVER
IN MAKING THE LOAN EVIDENCED BY THIS NOTE, AND THAT PAYEE WILL CONTINUE TO RELY
ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. MAKER FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
<PAGE>
INDUSTRIAL HOLDINGS, INC. AMERICAN RIVET COMPANY, INC.
By:/s/ CHRISTINE A. SMITH By:/s/ CHRISTINE A. SMITH
Name: Christine A. Smith Name: Christine A. Smith
Title: Vice President Title: Vice President
LSS-LONE STAR-HOUSTON, INC. BOLT MANUFACTURING CO., INC.
By:/s/ CHRISTINE A. SMITH By:/s/ CHRISTINE A. SMITH
Name: Christine A. Smith Name: Christine A. Smith
Title: Vice President Title: Vice President
Witness/Attest:
/s/ LARRY FONTANA
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 24, 1997, on the financial
statements of Bolt Manufacturing Co., Inc. as of December 31, 1996 and 1995, and
for each of the years then ended included herein in the Industrial Holdings,
Inc. Current Report to the Securities and Exchange Commission, Form 8-K.
WEINSTEIN SPIRA & COMPANY, P.C.
Houston, Texas
November 26, 1997
