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) FEBRUARY 6, 1997
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 1-9580
(State of other jurisdiction of (Commission File Number)
incorporation)
76-0289495
(IRS Employer Identification No.)
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 OF DISPOSITION OF ASSETS
(a) ACQUISITION OF LSS-LONE STAR-HOUSTON, INC.
On February 6, 1997, Industrial Holdings, Inc., a Texas corporation
(the "Company") acquired all the capital stock of LSS-Lone Star-Houston, Inc.
("Lone Star"), a Texas corporation, pursuant to the terms of a stock purchase
agreement by and among the Company and Judith Jandl (the "Shareholder"), the
sole shareholder of Lone Star.
The total purchase price (the "Purchase Price") of the capital stock of
Lone Star was $5.9 million, including estimated transaction expenses. The
purchase price was determined through arm's-length negotiations between the
Company and the Shareholder which had no pre-existing relationship with the
Company or any of its affiliates, directors, officers or associates. The
purchase price was financed as described below.
Lone Star, with revenues of $15.5 million in 1996, is a leading
manufacturer and distributor of fasteners to the petrochemical and energy
industries, and a specialty provider of custom in-house coating services. Lone
Star will operate within the Fastener Manufacturing and Sales Division.
(b) COMERICA BANK-TEXAS ("COMERICA") FINANCING.
On January 27, 1997, the Company increased its Line of Credit Facility
and Demand Note ("Demand Note") with Comerica to $14 million from $12 million.
The Demand Note is by and among the Company and its wholly owned subsidiaries
and bears interest at the prime rate. This Demand Note allows each subsidiary to
borrow funds based on 80% of eligible accounts receivable and 40 to 50% of
eligible inventory with specified sublimits for each individual subsidiary. $1.4
million of the proceeds of the Demand Note were used to fund the acquisition of
Lone Star.
On February 6, 1997, the Company, its wholly owned subsidiaries and
Comerica entered into an $800,000 Term Loan with interest at the prime rate,
payable in 60 monthly installments of $13,333 plus interest. The Term Loan is
secured by the machinery and equipment of Lone Star.
On February 6, 1997, the Company, its wholly owned subsidiaries and
Comerica entered into a $900,000 Mortgage Note with interest at the prime rate,
payable in 180 monthly installments of $5,000 plus interest. The Mortgage Note
is secured by the real estate of Lone Star.
(c) SELLER FINANCING
On January 6, 1997, the Company entered into a $500,000 term note with
the Shareholder ("Shareholder Note"). The Shareholder Note, which matures
January 1, 2002, bears interest at 8% and is payable in 20 quarterly
installments of $25,000 plus interest.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements for Acquired Companies
At this time, it is impracticable to provide the required
financial statements for Lone Star. Therefore, the required
financial statements will be filed as soon as they are available
and in any event within sixty days after the consummation of the
acquisition.
(b) Proforma Financial Information
At this time, it is impracticable to provide the required pro
forma financial information for Lone Star. Therefore, the required
pro forma financial information will be filed as soon as they are
available and in any event within sixty days after the
consummation of the acquisition.
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EXHIBITS
2.1 Purchase Agreement by and among Industrial Holdings, Inc. and Judith Jandl
(the "Shareholder").
10.1 Line of Credit Facility and Demand Note by and among Industrial Holdings,
Inc., LSS - Lone Star-Houston, Inc., Pipeline Valve Specialty, Inc.,
Landreth Engineering Company, American Rivet Company, Rex (the "Company
and its subsidiaries") and Comerica Bank Texas, N.A. ("Comerica").
10.2 Term Loan in the amount of $800,000 by and among the Company and its
subsidiaries and Comerica.
10.3 Mortgage Note in the amount of $900,000 by and among the Company and its
subsidiaries and Comerica.
10.4 Term Note in the amount of $500,000 payable to the Shareholder.
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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
Christine A. Smith
CHIEF FINANCIAL OFFICER
Date: February 18, 1997
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EXHIBIT INDEX
EXHIBIT NUMBER AND DESCRIPTION PAGE
2.1 Purchase Agreement by and among Industrial Holdings, Inc. and Judith Jandl
(the "Shareholder").............................................. Ex-1
10.1 Line of Credit Facility and Demand Note by and among Industrial Holdings,
Inc., LSS-Lone Star-Houston, Inc., Pipeline Valve Specialty, Inc.,
Landreth Engineering Company, American Rivet Company, Rex (the "Company
and its subsidiaries") and Comerica Bank Texas, N.A. ("Comerica") Ex-2
10.2 Term Loan in the amount of $800,000 by and among the Company and its
subsidiaries and Comerica........................................ Ex-3
10.3 Mortgage Note in the amount of $900,000 by and among the Company and its
subsidiaries and Comerica........................................ Ex-4
10.4 Term Note in the amount of $500,000 payable to the Shareholder... Ex-5
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
INDUSTRIAL HOLDINGS, INC.,
AND
JUDITH C. JANDL
covering the stock of
LSS-LONE STAR-HOUSTON, INC.
Dated effective February 1, 1997
Ex-1
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") executed effective
February 1, 1997, by and between INDUSTRIAL HOLDINGS, INC., a Texas corporation,
or its assigns (the "Purchaser"), and JUDITH C. JANDL, an individual, being the
sole shareholder (the "Shareholder"), in LSS-LONE STAR-HOUSTON, INC., a Texas
corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Shareholder is the owner of one thousand (1,000) shares of
Common Stock, $1.00 par value of the Corporation, which shares represent one
hundred (100%) percent of the issued and outstanding shares of capital stock of
the Corporation (herein collectively referred to as the "Shares"); and
WHEREAS, the Shareholder desires to sell all of the Shares to the
Purchaser, 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:
Section 1. SALE AND PURCHASE OF THE SHARES. The Shareholder, upon and
subject to the terms and conditions set forth herein, hereby agrees to sell,
assign and convey to the Purchaser, free and clear of all security interests,
pledges, liens, charges and encumbrances, all the Shares, and the Shareholder
hereby agrees to transfer and deliver to the Purchaser at the Closing the
certificates evidencing the Shares, duly endorsed in blank or accompanied by
stock powers duly executed in blank. The Purchaser, upon and subject to the
terms and conditions set forth herein, hereby agrees to purchase and accept the
Shares for the consideration set forth in Section 2 hereof.
Section 2. PURCHASE PRICE. The purchase price for the Shares shall be paid
to the Shareholder by the Purchaser as follows:
a. the sum of Three Million Five Hundred Thousand and No/100 Dollars
($3,500,000.00) shall be payable to the Shareholder at the Closing by
cashier's check or wire transfer;
b. the sum of Five Hundred Thousand and No/100 Dollars ($500,000.00)
shall be evidenced and paid in accordance with the terms of a promissory
note (the
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"Note"), payable to the Shareholder, such Note to be in substantially the
form of EXHIBIT "A" attached hereto with the blanks appropriately
completed and to be payable as follows: the Note shall bear interest at
the rate of eight (8%) percent per annum and be payable in twenty (20)
equal quarterly installments of principal and accrued interest each in the
amount of $30,574.86 (based upon a five [5] year amortization of the
Note), commencing on April 1, 1997, with a final payment of the unpaid
principal balance and accrued interest being due and payable on the
twentieth (20th) quarterly payment date; the Note shall be prepayable at
any time by the Purchaser without notice, penalty or fee; in the event
Shareholder dies prior to the final payment of the Note in full, Purchaser
shall continue to make such quarterly payments thereon to the
Shareholder's estate;
c. the Shareholders shall receive, as partial payment of the
Purchase Price, eighty-four thousand two hundred eleven (84,211) shares of
Purchaser's Common Stock, $0.01 par value per share (the "IHI Stock"). The
shares shall be issued in compliance with Regulation D of the Securities
Act of 1933, and the Shareholder hereby agrees to comply with Regulation D
and to execute and deliver such investment letters and other instruments
as the Purchaser's counsel shall reasonably request to insure compliance
with Regulation D. All shares of the IHI Stock issued to the Shareholder
pursuant to this subsection shall be stamped or otherwise imprinted with a
legend in substantially the following form: "The shares of Common Stock
represented by this certificate have not been registered under the
Securities Act of 1933, as amended, or the Securities Act of the State of
Texas. They may not be offered for sale, sold, transferred, pledged or
otherwise disposed of, unless (i) they are registered under the Securities
Act of 1933, as amended, or (ii) if the sale or transfer of such shares is
exempt from the registration provisions of the Securities Act of 1933, as
amended." IHI shall use its best efforts to file or cause to be filed a
Registration Statement on Form S-3 with the Securities and Exchange
Commission on or before June 1, 1997, which Registration Statement shall
include the IHI Stock.
2.1. ADDITIONAL CONSIDERATION. As additional consideration for the
purchase of the Shares for which the Shareholder shall receive direct benefit,
the Purchaser shall cause to be paid in full at Closing those certain financial
obligations of the Corporation listed on SCHEDULE 2.2-A to the Shareholder's
Disclosure Letter and Purchaser shall obtain, in conjunction therewith, a full
release of Shareholder from any personal liability on such financial
obligations. Listed on SCHEDULE 2.2-B to the Shareholder's Disclosure Letter
are, to the best of the Shareholder's knowledge, those liabilities and financial
obligations of the Corporation for which the Shareholder has personal liability,
but which are not to be paid in full by the Purchaser at Closing (the "Schedule
2.2-B Liabilities"). The Schedule 2.2-B Liabilities shall continue in effect
after the Closing and Purchaser shall assume the payment thereof in the ordinary
course. Subject to the provisions of Section 11 below, Purchaser hereby agrees
to indemnify and hold Shareholder harmless of and from any and all claims by the
obligees made against the Shareholder for not only the Schedule 2.2-B
Liabilities, but also for any other liabilities of the Corporation for which the
Shareholder has personal liability (which liabilities
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have not been disclosed herein to Purchaser) for sums owing thereon from and
after the Closing Date.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. The
Shareholder represents and warrants to and agrees with the Purchaser that,
except as contemplated in this Agreement or as set forth in, or by reference in,
the disclosure letter delivered by the Shareholder to the Purchaser prior to the
execution and delivery of this Agreement (collectively, the "Shareholder's
Disclosure Letter"):
Section 3.1. ORGANIZATION AND STANDING OF THE CORPORATION. The
Corporation is a corporation duly incorporated, organized, validly
existing and in good standing under the laws of the State of Texas. The
Corporation 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. Schedule 3.1 to the
Shareholder's Disclosure Letter contains complete and correct copies of
the Articles of Incorporation including any amendments thereto and By-Laws
of the Corporation as in effect on the date hereof.
Section 3.2. SUBSIDIARIES. The Corporation has one (1) wholly-owned
subsidiary known as Amflow Master Environmental, Inc., a Texas corporation
("Amflow"). Amflow has no subsidiaries. The Corporation does not (i) own,
directly or indirectly, any of the outstanding capital stock or securities
convertible into capital stock of any other corporation (other than
Amflow), or (ii) own, directly or indirectly, any participating interest
in any partnership, joint venture or other business enterprise. The
Financial Statements described in Section 3.4 below include within them
Amflow's income, retained earnings, cash flows, assets and liabilities.
References hereinafter to the Corporation shall include Amflow.
Section 3.3. CAPITAL STOCK. The authorized capital stock of the
Corporation consists of one thousand (1,000) shares of Common Stock, $1.00
par value, of which, on the date of this Agreement all one thousand
(1,000) shares are validly issued and outstanding, fully paid and
nonassessable, one hundred (100%) percent of which are owned by the
Shareholder, free and clear of all liens and encumbrances. The Corporation
has no shares of treasury stock. The Corporation does not have any
outstanding subscriptions, options or other agreements or commitments
obligating it to issue shares of capital stock.
Section 3.4. FINANCIAL STATEMENTS, ETC. The following audited and
unaudited financial statements of the Corporation (which include Amflow)
have been delivered to the Purchaser and are attached as Schedule 3.4 to
the Shareholder's Disclosure Letter:
a. the reviewed (unaudited) balance sheet of the Corporation
(including Amflow) as of December 31, 1995 and 1994 (the "Reviewed
Balance Sheet") and the related statements of income and retained
earnings and cash flows for the years then ended (together with
related notes and schedules), (such balance sheets, the related
statements of income and retained earnings and cash flows, and the
related notes and
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schedules, being hereinafter together referred to as the "Reviewed
Financial Statements"); and
b. the unreviewed, unaudited balance sheet of the Corporation
(including Amflow) as of November 30, 1996 (the "Interim Balance
Sheet") and the related unreviewed, unaudited statement of income
for the eleven (11) 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 Reviewed 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 Corporation
(including Amflow) in conformity with generally accepted accounting principles
applied by the Corporation (including Amflow) on a basis consistent with
preceding years and throughout the periods involved ("GAAP") and present fairly
the financial position of the Corporation (including Amflow) as of the dates of
such statements, subject with respect to the Interim Financial Statements to
year-end adjustments and to the absence of a physical inventory count and
certain statements, notes and schedules.
The trade accounts and other receivables of the Corporation (including
Amflow) which are classified as current assets on the Reviewed Balance Sheet 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 Corporation (including Amflow) reflected on the
Balance Sheets have been valued in accordance with GAAP. There have been no
write-ups of inventories or other assets except as set forth in the
Shareholder's Disclosure Letter.
The Corporation (including Amflow) 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:
(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 Shareholder's Disclosure Letter,
and
(iv) those referred to in this Agreement or that exist by
reason of this Agreement.
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The Corporation's (including Amflow'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 Corporation (including Amflow)
have been properly recorded in such books in all material respects.
Section 3.5. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since November
30, 1996, the Corporation has not:
a. 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;
b. 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;
c. paid any obligation or liability (absolute or contingent)
other than current liabilities reflected in or shown on the
Corporation'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 (b) of this
Section 3.5;
d. declared or made, or agreed to declare or make, any payment
of dividends or distribution of any assets of any kind whatsoever to
the Shareholder, or purchased or redeemed any shares of its capital
stock;
e. sold or transferred, or agreed to sell or transfer, any of
its assets, properties or rights, or cancelled or agreed to cancel,
any debts or claims, in each case except in the ordinary course of
business;
f. 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
Corporation (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
Corporation with or into another corporation;
g. suffered any material losses or waived any rights of
material value, except for those losses suffered in the months of
November and December of 1996 which have been disclosed to the
Purchaser in the Interim Financial Statements;
h. 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;
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i. other than making year-end bonus payments totaling
$78,000.00 to the Corporation's employees for 1996, the Corporation
has not 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;
j. 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 $15,000 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;
k. made any capital expenditures or commitments therefor
aggregating more than $10,000, 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 Corporation;
l. experienced any significant labor trouble; or
m. 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
Corporation.
Between the date hereof and the Closing, the Shareholder shall not permit
the Corporation to do any of the things listed in Clauses (a) through (m)
of this Section 3.5 without the prior written consent of the Purchaser,
which consent will not be unreasonably withheld, except as otherwise
permitted by this Agreement.
Section 3.6. TAX MATTERS. The Corporation has filed when due,
including any extensions, all federal, state, county and local income,
payroll, corporate franchise, sales, excise and use and ad valorem tax
(collectively, "Tax") reports and returns in connection with the
Corporation's business, assets and employees, and has paid and discharged
all Taxes related to the assets or the business of the Corporation for the
periods covered by such returns shown thereon to be due. The Corporation
has made available to the Purchaser, to the extent requested by the
Purchaser, all Tax reports and returns of the Corporation for all periods
ending prior to the date hereof. The current liability for Federal, state
and local taxes reflected on the Financial Statements, if any, represents
at the date thereof, reasonable and adequate provision for the payment of
all accrued and unpaid current Federal, state and local taxes of the
Corporation based upon the Corporation's tax structure. No assessments of
defi ciencies have been made against the Corporation, and no extensions of
time are in effect for the filing of any returns or the assessment of
deficiencies. No examinations by the Internal Revenue Service of the
Federal income tax returns of the Corporation for any taxable year are
presently pending. In the event that after the Closing, a deficiency is
determined in the
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amount of Federal, state or local tax payable by the Corporation, which
deficiency relates to periods prior to the Effective Date of Closing, then
in that event, the Shareholder, in the manner set forth in Section 10
hereof, shall be fully responsible for and shall indemnify and hold the
Purchaser and the Corporation harmless from the payment of any such
deficiency, tax liability, penalty, interest, loss, costs, expenses or
claim (including attorney and accoun tant fees) with respect thereto.
The Corporation has not received notice of any Tax deficiency
outstanding, proposed or assessed against or allocable to the Corporation,
nor has the Corporation executed any waiver of any statute of limitations
on the assessment or collection of any Tax.
Section 3.7. CONTRACTS AND COMMITMENTS. Schedule 3.7 to the
Shareholder's Disclosure Letter is a complete and accurate listing of all
mortgages, liens, licenses, leases, sales representation agreements,
purchase orders (with unexpired terms of more than 12 months) and all
other executory contracts, undertakings, commitments and agreement of the
Corporation, to which or by which it is bound, whether written or oral,
(i) entered into in the ordinary course of business involving the payment
by or to the Corporation of more than $20,000.00 in the aggregate with
respect to any such contract, undertaking, commitment or agreement, (ii)
entered into other than in the ordinary course of business, or (iii) with
any of Shareholder's Affiliates (the "Contracts"). For the purposes of
this Agreement, the term "Shareholder's Affiliates" shall include all
"affiliates" of the Shareholder as such term is defined in the rules and
regulations promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended. All of the Contracts have been
duly executed by the Corporation, are currently in effect, are valid and
binding upon the Corporation and are enforceable in accordance with their
terms. Neither the Corporation nor the Shareholder is aware of any facts
that would prevent the performance of any of the Contracts. Neither the
Corporation nor any other party is in default under any one or more of the
Contracts nor has any claim of default been asserted by the Corporation or
any such other party. The Corporation has committed no act and there has
been no omission which will result in the breach by it of any Contract and
there has been no occurrence which will give rise to product liability or
breach of warranty, not covered in full by insurance, on the part of the
Corporation arising out of products sold, designed, manufactured,
assembled, repaired, maintained, delivered or installed or services
rendered by the Corporation prior to the Closing.
Section 3.8. REAL AND PERSONAL PROPERTY AND RELATED MATTERS.
Schedule 3.8 to the Shareholder's Disclosure Letter is a complete list of
all real property and improvements, and all personal property (including
all major items of furnishings, equipment and automobiles) owned by the
Corporation. The assets reflected in Schedule 3.8 to the Shareholder's
Disclosure Letter and in the Corporation'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, are now owned by the
Corporation by good and marketable title, free and clear from all security
interests, mortgages, liens, claims, defects and encumbrances except
liens, charges or encumbrances discussed or referred to in the
Corporation's Financial Statements, the
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related notes or schedules thereto or in Schedule 3.8 to the Shareholder's
Disclosure Letter. All such assets are in good operating condition and
repair, subject to ordinary wear and tear. All of such assets (including
the Real Estate, as hereinafter defined) have been properly maintained,
with no extraordinary maintenance planned or anticipated, and are adequate
and sufficient for the operation of the Corporation's business as
historically operated by the Corporation. There are no material capital
expenditures currently contemplated or necessary to maintain the current
operation of the Corporation's business. Schedule 3.8-1 to the
Shareholder's Disclosure Letter lists those certain motor vehicles
currently used in the operation of the Corporation's business but which
are titled in the Shareholder's name personally. Shareholder agrees that
prior to the Closing, she shall convey title to such motor vehicles to the
Corporation.
Section 3.9. LITIGATION AND PROCEEDINGS. There are no actions, suits
or proceedings pending or, to the knowledge of the Shareholder, threatened
against or affecting the Corporation or the Shareholder, at law or in
equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind, which involve the possibility of any judgment or
liability not fully covered by casualty or liability insurance; and the
Corporation is not in default with respect to any judgment, order, writ,
injunction, decree, award, rule or regulation of an court, arbitrator or
governmental department, commission, board, bureau, agency or
instrumentality. The Corporation has complied in all respects with all
applicable Federal, state, municipal and other political subdivision or
governmental agency statutes, ordinances and regulations, including
without limitation, those imposing taxes, in every applicable
jurisdiction, in respect of the ownership of its properties and the
conduct of its business.
Section 3.10. INSURANCE COVERAGE. Schedule 3.10 to the Shareholder's
Disclosure Letter is a list of all policies and contracts of insurance,
including hospitalization, life, property, liability and worker's
compensation, showing policy limits, expiration dates, types of coverage
and names of insured. The Corporation maintains policies of casualty,
liability, use and occupancy, and other forms of insurance with reputable
and financially sound insurers, covering its properties and assets in
amounts and against such losses and risks as are generally maintained for
comparable businesses and properties, and valid policies for such
insurance are now duly in force.
Section 3.11. EMPLOYEES, COMPENSATION AND BENEFITS. Schedule 3.11 to
the Shareholder's Disclosure Letter 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"); and 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.
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a. There are no written employment agreements in effect
between the Corporation and any of its employees and no collective
bargaining agreements covering any such employees. The Corporation's
employees are not members of a collective bargaining group and no
union organizing activities are in process or contemplated. The only
pension, profit sharing or other retirement plan, whether or not
qualified, in effect by the Corporation is the Corporation's 401(k)
Plan, a true and complete copy of this has been provided to the
Purchaser. The Corporation 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 Corporation does not have any actual or potential liability
under Section 4201 of ERISA for any complete or partial withdrawal
from a multi-employer plan.
b. The Corporation is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions
of employment and wages and hours of employees, and there is no
labor strike, dispute, slowdown or representation campaign or
work-stoppage pending or threatened with respect to employees of the
Corporation, nor has the Corporation experienced any of the
foregoing within the preceding three (3) years.
c. There is not any, pending or threatened, any unfair labor
practice complaint against the Corporation pending before any
relevant authority or union representation petition respecting the
employees of the Corporation. The Shareholder shall be fully
responsible for and shall indemnify and hold the Purchaser and the
Corporation harmless from any and all losses, damages, claims,
costs, and expenses (including attorney and accountant fees) with
respect to any such complaints.
d. The Plans comply in all respects with the requirements of
all 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 Corporation's Financial Statements. The
Corporation has made or set aside funds to make full payment of all
amounts which the Corporation is required to pay prior to the date
hereof under the terms of each Plan, or under any governmental rule
or regulation relating to employment matters. No termination of any
Plan by the Corporation at or prior to the Closing has resulted or
will result in the imposition of any liability on the Corporation.
e. Each "Group Health Plan" (within the meaning of Section
162(i)(3) of the Internal Revenue Code of 1986) maintained by the
Corporation has, as of the first day of each Group Health Plan's
first plan year beginning on or after September 1, 1987, 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).
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Section 3.12. PATENTS, TRADEMARKS AND LICENSES. Schedule 3.12 to the
Shareholder's Disclosure Letter contains a complete and accurate list of
all domestic and foreign patents, patent applications, licenses,
trademarks, trademark applications, trade names, trade name applications,
copyrights and copyright applications owned by or licensed to the
Corporation or in which the Corporation has any right or interest
whatsoever, all of which are valid and in good standing. The Corporation
owns or has all rights necessary to use all patents, inventions,
trademarks and copyrights 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 Corporation 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.
Section 3.13. ENVIRONMENT AND HEALTH.
a. The real estate and improvements thereon owned and/or
leased by the Corporation located at 24131 Hardy Road, Spring, Texas
77383, more particularly described in Schedule 3.13 of the
Shareholder's Disclosure Letter (hereinafter collectively referred
to as the "Real Estate") and its existing uses comply, and the
Corporation is not in violation of, and has not violated, in
connection with the ownership, use, maintenance or operation of the
Real Estate and the conduct of the Corporation's business
operations, any applicable statutes, laws, rules, regulations,
ordinances, codes, licenses or permits of any governmental
authorities relating to environmental matters including without
limitation the Comprehensive Response, Compensation and Liability
Act of 1980, the Resource Conservation and Recovery Act of 1976, and
the Toxic Substance Control Act of 1976.
b. The Corporation has (i) operated the Real Estate and has at
all times received, handled, used, stored, treated, shipped and
disposed of all hazardous and toxic substances, petroleum products
and waste in compliance with all applicable environmental, health or
safety statutes, ordinances, orders, rules, regulations and
requirements, and (ii) removed from and off the Real Estate all
hazardous or toxic substances, petroleum products and waste.
c. There are no statutes, orders, rules or regulations
relating to environmental matters requiring any work, repairs,
construction or capital expenditures with respect to any of the Real
Estate, nor has the Corporation received any notice of any of the
same.
d. Except in compliance with all applicable environmental
health or safety statutes, ordinances, rules or regulations, no
hazardous or toxic materials, substances, pollutants, contaminants
or wastes have been released into the environment, or deposited,
discharged, placed or disposed of at, on or near the Real Estate by
the
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Corporation, nor has the Real Estate been used at any time by the
Corporation as a landfill or a waste disposal site. No asbestos,
urea formaldehyde or polychlorinated biphenyls are present on the
Real Estate. There have never been any underground storage tanks
located at the Real Estate.
e. No notices of any violation of any of the matters referred
to in subsections (a) through (d) of this Section 3.13 relating to
Real Estate or its use have been received by the Corporation. There
are no writs, injunctions, decrees, orders or judgments outstanding
and no lawsuits, claims, proceedings or investigations pending or
threatened, relating to the ownership, use, maintenance or operation
of any of the Real Estate and there is no basis for the institution
of filing of any such lawsuit, claim, proceeding or investigation.
f. No employee of the Corporation has submitted a claim to the
Corporation or filed suit alleging that such employee suffers from
chronic injury or illness resulting from exposure to toxic
substances, hazardous substances or manufacturing processes used in
connection with the Corporation's business or present at the place
of business of the Corporation.
Section 3.14. LICENSES, PERMITS AND AUTHORIZATIONS. Schedule 3.14 to
the Shareholder's Disclosure Letter is a list of each permit, license or
similar authorization from any governmental authority issued with respect
to the operation or ownership of the Corporation, and which is material to
the operation or ownership of such properties with the expiration dates of
each. All such licenses, permits, approvals, consents and other
governmental or regulatory authorizations held by the Corporation are
valid and sufficient for all business conducted by it (including all
permits necessary for the operation and use of the Real Estate and for the
disposal of any wastes or other substances generated or used in the
operation of the Corporation's business or the Real Estate). The
Corporation's business is being conducted in compliance with all
applicable laws, ordinances, rules and regulations of all governmental
authorities, including, without limitation, export rules and regulations.
Section 3.15. AMERICANS WITH DISABILITIES ACT. The Corporation has
not received notice of any violation by the Corporation, and the
Corporation is not in violation of and has not been in violation of, the
Americans with Disabilities Act, including rules and regulations
thereunder, or any other federal, state, local or foreign laws, including
rules and regulations thereunder, regulating or otherwise affecting
persons with disabilities.
Section 3.16. INVENTORIES. None of the inventories of the
Corporation are obsolete, defective or otherwise not saleable in the
ordinary course of business. The levels of the inventories currently on
hand are not in excess of or less than that necessary for the operation of
the Corporation's business in the ordinary course of business consistent
with past practices of the Corporation.
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Section 3.17. NON-OWNED PROPERTY. All tangible personal property
located at the Corporation's facility situated on the Real Estate is owned
by the Corporation and has been included in the Corporation's Financial
Statements.
Section 3.18. GUARANTEES, ETC. BY THE CORPORATION. The Corporation
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.
Section 3.19. OSHA. The Corporation has not received notice of any
violation by the Corporation, and the Corporation is not in violation of
and has not been in violation of, the Occupational Safety and Health Act
of 1970, including rules and regulations thereunder, or any other federal,
state, local or foreign laws, including rules and regulations thereunder,
regulating or otherwise affecting employee health and safety.
Section 3.20. CUSTOMERS. The Shareholder does not have any knowledge
or information or reason to believe that any of the Corporation's
customers has ceased, or intends to cease, to acquire products or services
from the Corporation or has reduced, or intends to reduce, the use of the
products or services sold by the Corporation for any reason or as a result
of the transaction contemplated by this Agreement.
Section 3.21. OFFICERS, DIRECTORS AND EMPLOYEES. Schedule 3.21 to
the Shareholder's Disclosure Letter contains a list of all officers and
directors of the Corporation, 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 Corporation other than as
reflected in the Corporation's Financial Statements for the periods
covered thereby. No officer, director or employee of the Corporation, or
any affiliate of the Corporation, owns, directly or indirectly,
beneficially or otherwise, any 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 Corporation.
Section 3.22. ABSENCE OF ADVERSE AGREEMENTS. The Corporation is not
a party to any instrument or subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, award, rule
or regulation which materially and adversely affects the business,
properties, assets or condition, financial or otherwise, of the
Corporation.
Section 3.23. NO DEFAULTS. The Corporation is not in default under,
nor has any event occurred which with notice or lapse of time or both,
could result in a waiver of any material right or default under, any
outstanding indenture, mortgage, contract or agreement to which the
Corporation is a party or by which the Corporation or its assets may be
bound, or under any provision of the Corporation's Articles of
Incorporation or By-Laws (or comparable instruments).
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Section 3.24. BANKS AND SIGNATORIES. Schedule 3.24 to the
Shareholder's Disclosure Letter contains a list setting forth the name of
each bank, savings and loan or other financial institution in which the
Corporation 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.
Section 3.25. NO CONFLICTS. 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 Corporation, or under any law,
or any order, writ, injunction or decree of any court, governmental agency
or arbitration tribunal, or under any contract, agreement or instrument to
which the Corporation is a party or by which its properties may be bound.
Section 3.26. BOOKS AND RECORDS. The books and records of the
Corporation 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 Corporation.
Section 3.27. BROKERS. The Corporation and/or the Shareholder is a
party to and is obligated only under a contract for the payment of a
broker's or finder's fee to Mezzanine Financial Relations, Inc. (the
"Shareholder's Broker") in connection with the origin, negotiation,
execution or performance of this Agreement. The Purchaser hereby agrees to
assume the full payment obligation, and shall pay at the Closing, for the
benefit of the Corporation and/or Shareholder, the broker's or finder's
fee due to Shareholder's Broker.
Section 3.28. INSPECTIONS. Between the date hereof and the date of
Closing, the Shareholder shall afford the Purchaser and its agents the
opportunity to make full and complete inspection of (i) the Corporation's
books and records (including without limitation, the Corporation's
Financial Statements, tax returns, accounts receivable, accounts payable,
etc.), (ii) the Corporation's assets (including without limitation, the
inventory and tangible and intangible personal property) and (iii) the
Real Estate (including all mechanical equipment, the roof, the structural
integrity of the improvements on the Real Estate, the interior of the
improvements and the environmental condition of the Real Estate).
Section 3.29. TITLE TO SHARES AND AUTHORITY. The Shareholder has
valid and marketable title to the Shares, free and clear of any security
interests, pledges, liens or similar encumbrances, and the Shareholder has
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 the Shareholder will transfer to the Purchaser valid and marketable
title thereto, free and clear of any security interests, pledges, liens or
similar encumbrances. This Agreement constitutes the valid and legally
binding obligation of the Shareholder, enforceable in accordance with its
terms.
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Section 3.30. DISCLOSURE. Neither this Agreement, the Schedules
attached hereto, nor any other document furnished by the Corporation or
the Shareholder to the Purchaser 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 Corporation uniquely) known to the Shareholder which materially
adversely effects or in the future can be reasonably expected to
materially adversely effect the properties, business, operations or
financial condition or prospects of the Corporation.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to and agrees with the Shareholder that:
Section 4.1. 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.
Section 4.2. NO VIOLATION. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) violate any provision of the Articles of Incorporation or
By-Laws of the Purchaser, (ii) 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 (iii) 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.
Section 4.3. CORPORATE PROCEEDINGS OF THE PURCHASER. The execution,
delivery and performance of this Agreement has been authorized by the
Board of Directors of the Purcha ser, and this Agreement constitutes the
valid and legally binding obligation of the Purchaser, enforceable in
accordance with its terms.
Section 4.4. BROKERS. Except as set forth in Section 3.27 above, the
Purchaser has 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.
Section 5. 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 Closing, of all of the following
conditions unless expressly waived in writing by the Purchaser:
Section 5.1. REPRESENTATIONS AND COVENANTS. All representations and
warranties of the Shareholder contained in this Agreement shall be true in
all respects on and as of the Closing as if such representations and
warranties were made on and as of such date (except to the extent any such
representation or warranty is made as of a specified date), and the
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Shareholder shall have performed all agreements and covenants to be
performed by him on or prior to the Closing.
Section 5.2. OTHER LEGAL MATTERS. Legal matters in connection with
this Agreement and the transaction contemplated hereby shall have been
approved by Stumpf Falgout Craddock & Massey, counsel for the Purchaser,
and the Shareholder shall have furnished to such counsel originals of such
corporate records of the Corporation and copies of such other documents as
such counsel may reasonably have requested for such purpose.
Section 5.3. ENVIRONMENTAL CONDITION. The environmental condition of
the Real Estate has been approved by the Purchaser and its advisors.
Section 5.4. 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.
Section 5.5. CLOSING RESPONSIBILITIES. The Shareholder shall have
delivered or caused to be delivered each of the items described in Section
7.3 hereof.
Section 5.6. REGULATORY APPROVAL. Purchaser, Shareholder and the
Corporation shall have received from appropriate third parties and
regulatory agencies, any and all approvals necessary to consummate the
transaction evidenced by this Agreement.
Section 5.7. APPROVAL OF PURCHASER'S BOARD OF DIRECTORS. Purchaser's
Board of Directors shall have formally approved the terms of this
Agreement.
Section 5.8. NO DAMAGE OR DESTRUCTION. Prior to the Closing Date,
there shall not have occurred any casualty to any facility, property,
equipment or inventory owned or used by the Corporation as a result of
which either a. 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 Corporation, or b. 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 Corporation, but more than $50,000, and
such loss shall not be substantially covered by valid, existing insurance
underwritten by responsible insurers.
Section 6. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDER. The obligation of
the Shareholder to consummate the transaction contemplated hereby shall be
subject to the satisfaction, on or before the Closing, of all of the following
conditions, unless expressly waived in writing by the Shareholder:
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Section 6.1. REPRESENTATIONS AND COVENANTS. All representations and
warranties of the Purchaser contained in this Agreement shall be true in
all material respects on and as of the Closing as if such representations
and warranties were made on and as of such date and the Purchaser shall
have performed all agreements and covenants to be performed by it on or
prior to the Closing.
Section 6.2. OTHER LEGAL MATTERS. Legal matters in connection with
this Agreement and the transaction contemplated hereby shall have been
approved by O'Donnell, Ferebee, McGonigal & Stone, counsel for the
Shareholder and the Corporation, and the Purchaser shall have furnished to
such counsel originals of such corporate records of the Purchaser and
copies of such other documents as such counsel may reasonably have
requested for such purpose.
Section 6.3. CLOSING RESPONSIBILITIES. The Purchaser shall have
delivered or caused to be delivered each of the items described in Section
7.4 hereof.
Section 7. COVENANT AGAINST COMPETITION. The Shareholder agrees that from
and after the Effective Date of Closing, it will not, directly or indirectly,
except on behalf of the Purchaser, for a period ending two (2) years after the
date on which Shareholder's employment by the Corporation and/or the Purchaser
pursuant to the terms of the Shareholder's Employment Agreement (as hereinafter
defined) is terminated (but not to exceed the maximum period allowed by law):
a. own, operate, engage in or be interested, affiliated or connected
with (other than by purchasing securities on a national security exchange
or established over the counter market) any person, firm, the Corporation
or other entity (except the Purchaser, the Corporation or any subsidiary
thereof) operating or purporting to operate a business within the State of
Texas which is engaged in the manufacture or distribution to third parties
of fasteners of the type currently being produced by the Corporation or of
a type which may be produced by the Corporation during the Shareholder's
tenure as its President;
b. solicit or accept (either on his own account or as the agent of
another person) the business of any person in the state of Texas who has
been a customer of the Corporation for such goods or services during the
period of twelve (12) months prior to the Closing Date, in connection with
holding of inventory, manufacturing or distributing to third parties of
fasteners of the type currently being produced by the Corporation or of a
type which may be produced by the Corporation during the Shareholder's
tenure as its President;
c. induce, solicit or endeavor to entice any person to leave the
service or employment of the Corporation; or
d. use any trade name used by the Corporation at any time during the
four (4) years immediately preceding the Closing Date or any other name
intended or likely to be confused with such trade name.
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For the purposes of this Section 7, the term "Affiliates" shall include
all "affiliates" of the Purchaser and/or the Corporation as such terms are
defined in the rules and regulations promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Upon Purchaser's default in the repayment of the Note, which default is
not cured after written notice to Purchaser from Shareholder and the expiration
of a reasonable period of time within which Purchaser has not cured or made a
good faith attempt to cure such default (not less than 30 days), then the
foregoing covenants of Shareholder shall be of no further force or effect.
Provided however, in the event Purchaser later cures such default, then the
foregoing covenants shall also be automatically reinstated as if no default
under the Note had occurred.
The Shareholder hereby acknowledges that the foregoing time and area
restrictions are reasonable in scope and necessary for the protection of the
goodwill of the Corporation and that a breach of this covenant would cause the
Purchaser and the Corporation substantial damage impossible of precise
determination. Accordingly, in addition to such other rights and remedies as may
be available to the Purchaser and the Corporation in the event of any breach,
actual or threatened, of the foregoing provisions of this Section 7, the
Purchaser and the Corporation (or any successor or successors thereof), shall be
entitled to enjoin such breach, actual or threatened. The 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 anything to the contrary stated in this Section
7, the Purchaser hereby acknowledges that the Shareholder is and shall continue
to be the sole shareholder of Lone Star Screw Company of Houston, Inc., a herms
of this Agreement. Purchaser agrees that the Shareholder and Lone Star Screw
shall be permitted to continue to conduct business with those certain specified
customers of Lone Star Screw listed on Schedule 7 to the Shareholder's
Disclosure Letter (the "Specified Customers") and that such activity shall not
be considered a violation of the provisions of Section 7 above, but only on the
condition that all products sold by Lone Star Screw and the Shareholder to the
Specified Customers shall be purchased by Lone Star Screw from the Corporation
on terms satisfactory to the Corporation.
Section 8. THE CLOSING.
Section 8.1. DATE, TIME AND PLACE. Except as otherwise mutually
agreed by the Purchaser and the Shareholder, the closing (the "Closing")
shall occur at the offices of Stumpf Falgout Craddock & Massey, 1400 Post
Oak Boulevard, Suite 400, Houston, Texas 77056 at 4:00 p.m. local time, on
February 6, 1997, or at such other time and place as the
parties may mutually agree upon.
Section 8.2. EFFECTIVE DATE OF CLOSING. The Closing shall be
effective as of 12:01 a.m. February 1, 1997 (the "Effective Date of
Closing").
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Section 8.3. THE SHAREHOLDER'S RESPONSIBILITIES AT CLOSING. At the
Closing, the Shareholder shall deliver, or cause to be delivered, to the
Purchaser the following:
a. STOCK CERTIFICATES. The certificates evidencing the Shares,
duly en dorsed in blank, or accompanied by stock powers duly
executed in blank.
b. RESIGNATIONS. The resignations of those officers and
directors of the Corporation as may be requested by the Purchaser.
c. CORPORATE RECORDS. The minute books, stock certificate
books, corporate seals and other corporate books, records, data and
papers of the Corporation, and the original deed and Owner's Policy
of Title Insurance for the Real Estate.
d. CERTIFICATE OF THE SHAREHOLDER. A Certificate executed by
the Shareholder confirming the satisfaction of the conditions set
forth in Section 6.1.
e. EMPLOYMENT AGREEMENTS. An employment agreement between the
Shareholder and the Corporation in the form attached hereto as
EXHIBIT "B-1" (the "Shareholder's Employment Agreement"), and an
employment agreement between Jerome A. Jandl and the Corporation in
the form attached hereto as EXHIBIT "B-2" (the "Jerome Jandl
Employment Agreement").
f. OPINION OF COUNSEL. The opinion of O'Donnell, Ferebee,
McGonigal & Stone, counsel for the Shareholder and the Corporation,
dated the Closing Date, in the form attached as EXHIBIT "C" to this
Agreement.
Section 8.4. THE PURCHASER'S RESPONSIBILITIES AT CLOSING. At the
Closing, the Purchaser shall deliver, or cause to be delivered, to the
Shareholder:
a. PURCHASE PRICE. The Purchase Price in the amount and in the
manner set forth in Section 2.1 hereof.
b. PROMISSORY NOTE. The Promissory Note in accordance with the
provisions of Section 2 hereof.
c. IHI STOCK. The IHI Stock in accordance with the provisions
of Section 2 hereof.
d. EMPLOYMENT AGREEMENTS. The Shareholder's Employment
Agreement and the Jerome Jandl Employment Agreement.
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e. OPINION OF COUNSEL. The opinion of Stumpf Falgout Craddock
& Massey, counsel for the Purchaser, in the form of EXHIBIT "D" to
this Agreement.
f. DISCHARGE OF INDEBTEDNESS. Evidence satisfactory to the
Shareholder that the Purchaser, at Purchaser's expense and without
any adjustment of the Purchase Price or other cost to the
Shareholder, has paid or otherwise discharged at or prior to Closing
all indebtedness and other obligations of the Corporation to (i) the
Shareholder and (ii) lenders, lessors and other persons on which the
Shareholder is a guarantor or otherwise contingently liable which
are listed on SCHEDULE 2.2-A to the Shareholder's Disclosure Letter.
Section 9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Section 9.1. NATURE OF STATEMENTS. All statements contained in any
schedule or any certificate or other instrument delivered by or on behalf
of the Shareholder or the Purchaser pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties made by the Shareholder or the Purchaser,
as the case may be.
Section 9.2. 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
Closing and the delivery of all consideration and documents pursuant to
this Agreement, and shall continue in effect until the second (2nd)
anniversary date of the Closing (the "Indemnification Cutoff Date"). No
claim may be made by the Purchaser or the Shareholder for indemnification
pursuant to Section 10 or 11 of this Agreement or otherwise, or for any
other relief pursuant to this Agreement or otherwise, in respect of any
breach or failure of any representation or warranty on or after the
Indemnification Cutoff Date.
Section 10. INDEMNIFICATION BY SHAREHOLDER AND RELATED MATTERS.
Section 10.1. INDEMNIFICATION BY SHAREHOLDER. Subject to the
limitations set forth in Section 10.3 below, Shareholder agrees to defend,
indemnify and hold harmless the Purchaser and the Corporation, and their
respective successors and assigns, from, against and in respect of any and
all loss or damage resulting from:
a. the breach by the Shareholder of any of the warranties,
representations, covenants, agreements or undertakings contained
herein;
b. any Federal, state or local income tax liability (including
any penalty and interest thereon) of the Corporation which the
Shareholder is obligated to indemnify the Purchaser and the
Corporation pursuant to Section 3.6 hereof;
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c. any liabilities of the Corporation which are not included
in the Corporation's Financial Statements as of the Effective Date
of Closing;
d. 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.
Section 10.2. PROCEDURE FOR MAKING CLAIMS. If and whenever the
Purchaser desires to claim indemnification by the Shareholder pursuant to
the provisions of Section 10, the Purchaser shall promptly deliver to the
Shareholder a certificate signed by the Chairman of the Board, President
or Vice President of the Purchaser (the "Notice of Claim") (i) stating
that the Purchaser or the Corporation, 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 10, and (ii) 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 Shareholder shall
relieve the Shareholder from liability only if he is prejudiced thereby.
The Shareholder shall have the right to defend any claim by a third party
at the expense of the Shareholder. The Purchaser and the Corporation, as
the case may be, shall provide to the Shareholder prompt and complete
disclosure of all pertinent information in the possession of or available
to the Purchaser or the Corporation 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 Shareholder, in the defense of any such suit, action or
proceeding, shall not consent to the entry of any judgment or decree
except with the written consent of the Purchaser and the Corporation, nor
enter into any settlement (except the written consent of the Purchaser and
the Corporation) which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to the Purchaser and the
Corporation 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 Purchaser and the Corporation 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.
Section 10.3. THRESHOLD AND AGGREGATE LIMITATIONS ON
INDEMNIFICATION. Notwithstanding anything to the contrary contained in
Section 10.1, the Shareholder shall not be obligated to indemnify the
Purchaser or the Corporation, or their respective successors and assigns,
from the following:
a. any claim resulting in loss, damage or costs to the
Purchaser or the Corporation of ONE THOUSAND AND NO/100 ($1,000.00)
DOLLARS, or less ("Nominal Claims");
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b. any claims resulting in loss, damage or costs to the
Purchaser or the Corporation which in the aggregate do not exceed
the sum of SEVENTY-FIVE THOUSAND AND NO/100 ($75,000.00) DOLLARS
(the "Aggregate Threshold"); Nominal Claims shall not be included in
calculating the Aggregate Threshold; and
c. any claim arising after the Indemnification Cutoff Date.
The Shareholder's liability to indemnify the Purchaser and/or the
Corporation pursuant to the terms of this Agreement shall be limited to
the aggregate sum of ONE MILLION AND NO/100 ($1,000,000.00) DOLLARS (the
"Maximum Indemnity").
Section 10.4.LIMITATION ON INDEMNIFICATION FOR MATTERS COVERED BY
INSURANCE. Notwithstanding anything to the contrary contained in this
Section 10, the Shareholder will not be required to indemnify the
Corporation and the Purchaser to the extent that such matter requiring
indemnification is covered and paid by the Corporation's or the
Purchaser's insurance carrier(s). The Purchaser waives all rights of
subrogation to the extent of the coverage and payments made by such
insurance carrier(s) on an indemnity item hereunder, provided, however,
such waiver of subrogation shall be inapplicable and void if it would
cancel or void the Corporation's or the Purchaser's insurance coverage for
an item subject to indemnity hereunder. The Purchaser shall cause the
Corporation to maintain, for a period of time not less two (2) years from
the Closing Date, insurance coverages of the type and with limits
comparable to those in effect on the Closing Date.
The Purchaser represents to the Shareholder that waiver of
subrogation under the Purchaser's current insurance coverage would not
void any such coverage and the Purchaser will use its best efforts to
continue coverage which permits the waiver of subrogation. In the event
the Purchaser cannot obtain such coverage, it will promptly notify the
Shareholder in writing so that they may attempt to obtain coverage for
their potential liability.
Section 11. INDEMNIFICATION BY THE PURCHASER. The Purchaser agrees to
defend, indemnify and hold harmless the Shareholder and his respective
successors, assigns and personal representatives from, against and in respect of
any and all loss or damage resulting from:
a. any breach of the Purchaser's warranties and
representations, or any misstatement or omission of facts, or
failure to state facts necessary to make those statements made not
misleading, under this Agreement, or from the breach of any
covenant, agreement or undertaking contained herein; and
b. 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.
21
<PAGE>
Section 12. EXPENSES. Except for the Purchaser's agreement to pay the fee
of the Shareholder's broker provided for hereinabove, the Shareholder and the
Purchaser shall pay 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.
Section 13. NOTICES. All notices, demands and requests which may be given
or which are required to be given by either party to the other, and any exercise
of a right of termination provided by this Agreement, shall be in writing and
be: (i) sent by certified or registered mail, return receipt requested,
addressed to the intended recipient at the address specified for such party
herein; or (ii) deposited into the custody of a nationally recognized overnight
delivery service such as Federal Express, addressed to such party at the address
specified herein. Notices shall be effective on the date of delivery or receipt,
or if delivery is not accepted, on the earlier of the date that delivery is
refused or three (3) days after the notice is mailed pursuant to (i) preceding
or the day after deposited into the custody of an overnight delivery service
pursuant to (ii) preceding. For purposes hereof, the addresses of the parties
for all notices are as follows (unless changed by similar notice in writing
given by the particularly person whose address is to be changed):
a. if to the Shareholder:
Judith C. Jandl
10907 Sweetspire
The Woodlands, Texas 77380
Telephone: (281) ____________
with a copy to:
Michael O'Donnell
O'Donnell, Ferebee, McGonigal & Stone
Paragon Center One
450 Gears, Sixth Floor
Houston, TX 77067-4584
Telephone: (713) 875-8200
Facsimile: (713) 875-4962
22
<PAGE>
b. if to the Purchaser,
Industrial Holdings, Inc.
7135 Ardmore Street
Houston, TX 77054
Attention: Robert E. Cone,
Chief Executive Officer
Telephone: (713) 747-1025
Facsimile: (713) 747-9462
with a copy to:
Lawrence J. Fontana
Stumpf Falgout Craddock & Massey
1400 Post Oak Boulevard, Suite 400
Houston, Texas 77056
Telephone: (713) 871-0919
Facsimile: (713) 871-0408
Section 14. SATISFACTION OF CONDITIONS; TERMINATION.
Section 14.1. BEST EFFORTS TO SATISFY CONDITIONS. The Shareholder
agrees to use its best efforts to bring about the satisfaction of the
conditions specified in Section 5 hereof, and the Purchaser agrees to use
its best efforts to bring about the satisfaction of the conditions
specified in Section 6 hereof.
Section 14.2.TERMINATION. This Agreement may be terminated, without
liability on the part of any party hereto to any other party hereto, by:
a. the Board of Directors of the Purchaser, if a default shall
be made by the Shareholder in the observance or in the due and
timely performance by the Shareholder of any of the covenants of the
Shareholder herein contained, or if there shall have been a material
breach by the Shareholder of any of the warranties and
representations of the Shareholder herein contained, or if the
conditions of this Agreement to be complied with or performed at or
before the Closing shall not have been complied with or performed at
the time required for such compliance or performance and such
non-compliance or non-performance shall not have been waived by the
Purchaser; or
b. the Shareholder, if a material default shall be made by the
Purchaser in the observance or in the due and timely performance by
the Purchaser of any of the covenants of the Purchaser herein
contained, or if there shall have been a material breach by the
Purchaser of any of its warranties and representations herein
contained,
23
<PAGE>
or if the conditions of this Agreement to be complied with or
performed by the Purchaser at or before the Closing shall not have
been complied with or performed at the time required for such
compliance or performance and such non-compliance or non-performance
shall not have been waived by the Shareholder.
In the event of termination by the Purchaser or the Shareholder as
provided above, written notice shall forthwith be given to the other
party.
Section 15. MISCELLANEOUS.
Section 15.1.FURTHER ASSURANCES. The Shareholder hereby agrees to
execute and deliver from time to time at the request of the Purchaser and
without further consideration, 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, and to effectuate the terms, agreements and
covenants contained in this Agreement.
Section 15.2.ASSIGNMENT. Purchaser may assign its rights and
obligations under this Agreement to any of its affiliates. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and assigns.
Section 15.3.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.
Section 15.4.AMENDMENT. This Agreement may be amended only by an
instrument in writing executed by the parties hereto.
Section 15.5. 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.
Section 15.6.PUBLIC ANNOUNCEMENTS. No publication and/or press
release of any nature shall be issued pertaining to this Agreement or the
transactions contemplated hereby without the prior written approval of the
Purchaser, except as may be required by law.
Section 15.7.U.S. DOLLARS. All monetary amounts referred to in this
Agreement are stated in U.S. Dollars.
Section 15.8.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.
24
<PAGE>
Section 15.9.GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS.
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/ ROBERT E. CONE
Robert E. Cone, President
and Chief Executive Officer
SHAREHOLDER:
/s/ JUDITH C. JANDL
JUDITH C. JANDL
25
<PAGE>
EXHIBIT "A"
[form of Promissory Note]
(see attached)
26
<PAGE>
EXHIBIT "B-1"
[form of Shareholder's Employment Agreement]
(see attached)
27
<PAGE>
EXHIBIT "B-2"
[form of Jerome Jandl's Employment Agreement]
(see attached)
28
<PAGE>
EXHIBIT "C"
[form of opinion of counsel to Shareholder and Corporation]
(see attached)
29
<PAGE>
EXHIBIT "D"
[form of opinion of counsel to Purchaser]
(SEE ATTACHED)
30
EXHIBIT 10.1
MASTER NOTE
================================================================================
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C>
$14,000,000.00 01-27-1997 514 120 2313836285 43542
</TABLE>
================================================================================
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: Industrial Holdings, Inc., Lender: Comerica Bank - Texas
Landreth Engineering Company, Houston-One Shell-Middle Market
Pipeline Valve Specialty, P.O.Box 650282
Inc., The Rex Group, Inc., Rex Dallas, TX 75265-0282
Machinery Sales, Inc., Rex
Machinery Movers, Inc., U.S.
Crating, Inc., Rex
International Corporation,
First Texas Credit
Corporation, XTEL Corporation,
Losco, Inc., Rex Supply
Corporation, American Rivet
Company, Inc., LSS-Lone
Star-Houston, Inc., and Amflow
Master Environmental, Inc.
(TIN: 760289495)
7135 Ardmore
Houston, Texas 77054
================================================================================
FOR VALUE RECEIVED, the undersigned promise(s) to pay ON DEMAND to the order of
Comerica Bank-Texas ("Lender"), at any office of the Lender in the State of
Texas, Fourteen Million AND NO/100 DOLLARS ($14,000,000.00) (or such portion
thereof as shall have been advanced by the Lender and not repaid as hereinafter
provided) with interest until demand at a per annum rate equal to the Lender's
prime rate from time to time in effect plus zero percent (%), and thereafter at
a default rate equal to the rate of interest otherwise prevailing hereunder plus
three percent (3%) per annum (but in no event in excess of the maximum rate
permitted by law). The Lender's "prime rate" is that annual rate of interest so
designated by the Lender and which is changed by the Lender from time to time.
Interest rate changes will be effective for interest computation purposes as and
when the Lender's prime rate changes. Interest shall be calculated on the basis
of a 360-day year for the actual number of days outstanding. The Lender's "prime
rate" is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any of its customers. The Lender may make commercial
loans at rates of interest at, above or below its "prime rate."
If at any time the interest rate which would otherwise prevail hereunder exceeds
the Maximum Legal Rate (as hereinafter defined), any subsequent reductions in
such otherwise prevailing rate shall nor reduce the rate of interest hereunder
below the Maximum Legal Rate until the amount of accrued interest hereunder
equals the amount that wold have accrued if the prevailing rate had at all times
equaled the Maximum Legal Rate.
The principal amount payable hereunder shall be the sum of all advances made by
the Lender to or at the request of the undersigned, less principal payments
actually received in cash by the Lender. The books and records of the Lender
shall be the best evidence of the principal amount and the unpaid interest
amount owing at any time hereunder and shall be conclusive absent manifest
error. No interest shall accrue hereunder until the date of the first advance
made by the Lender; thereafter, interest on all advances shall accrue and be
computed on the principal balance outstanding from time to time hereunder until
the same is paid in full. Advances made hereunder shall be made at the sole
discretion of the Lender, and the Lender shall have no obligation whatsoever to
make advances.
This Master Note (herein called the "Note") and any other indebtedness and
liabilities whatsoever of the undersigned (or any of them) to the Lender, and
any and all renewals, modifications or extensions thereof, whether joint or
several, contingent or absolute, now existing or hereafter arising, and
howsoever evidenced (herein collectively called "Indebtedness") are secured by
all items deposited in any account of any of the undersigned with the Lender and
by all proceeds of such items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Lender, by all property of any of
the undersigned from time to time in the possession of the Lender and by any
other collateral, rights and properties described in each and every mortgage,
security agreement, pledge, assignment and other security or collateral
agreement which has been, or will hereafter from time to time be, executed by
any (or all) of the undersigned to or for the benefit of the Lender (all herein
collectively called the "Collateral").
If the undersigned or any endorser, guarantor or accommodation party (or any of
them) fails to pay this Note on demand, or any other Indebtedness when due, by
demand, maturity, acceleration or otherwise, then the Lender may at its option
and without prior notice to the undersigned (or any of them) declare any or all
of such other indebtedness to be immediately due and payable (notwithstanding
any provisions contained in the evidence thereof to the contrary), sell or
liquidate all or any portion of the Collateral offset against the Indebtedness
any amounts owing by the Lender to the undersigned (or any of them), charge
interest at the default rate herein provided and exercise any one or more of the
rights and remedies granted to the Lender by the agreement with the undersigned
(or any of them) or given to the Lender under applicable law.
If the Note is signed by two or more (whether by all as makers or by one or more
as accommodation party), the obligations hereunder and each undertaking hereby
made shall be that of all and any two or more jointly and also of each
severally. This Note shall bind the undersigned and the undersigned's respective
heirs, personal representatives, successors and assigns.
Each maker and endorser waives presentment, demand, protest and notice of
dishonor and agrees that no extension or indulgence to the undersigned (or any
of them) or release or nonenforcement of any security, or release of any party,
whether with or without notice, shall affect the obligations of any maker,
indorser or accommodation party.
Each maker and indorser agrees to reimburse to the holder of this Note for any
and all costs and expenses (including , but not limited, to, reasonable attorney
fees) incurred in collecting or attempting to collect the Note.
No agreements, conditions, provisions or stipulations contained in this Note, or
the default of the undersigned, or the exercise by the holder hereof
of the right to accelerate the payment or the maturity of principal and
interest, or to exercise any option whatsoever contained herein, or in any other
agreements between
Ex-2
<PAGE>
the undersigned and Lender, or the arising of any contingency whatsoever, shall
entitle the holder of this Note to contract for, charge or collect, in any
event, interest exceeding the maximum rate of nonusurious interest allowed from
time to time by applicable state or federal law as now or as may hereinafter be
in effect, including, as to article 5069-1.04 Vernon's Texas Civil Statutes (and
as the same may be incorporated by reference in other Texas statutes), but
otherwise without limitation, that rate based upon the "indicated rate ceiling"
(herein referred to as the "Maximum Legal Rate") and in no event shall the
undersigned be obligated to pay interest exceeding such Maximum Legal Rate; and
all agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel the undersigned to
pay a rate of interest exceeding the Maximum Legal Rate shall be without binding
force or effect, at law or in equity, to the extent only of the excess of
interest over such Maximum Legal Rate. In the event any interest is contracted
for, charged or collected in excess of the Maximum Legal Rate (hereinafter
referred to as the "Excess"), the undersigned acknowledges and stipulates that
any such contract, charge or receipt shall be the result of an accidental and
bona fide error, and that any Excess received by Lender shall be first applied
to reduce the principal then unpaid hereunder; second, applied to reduce any
other Indebtedness; and third, returned to the undersigned, it being the
intention of the parties hereto not to enter at any time into an usurious or
other illegal relationship. The undersigned recognizes that such an
unintentional result could inadvertently occur. By the execution of this Note,
the undersigned covenants that (a) the credit or return of any Excess shall
constitute the acceptance by the undersigned of such Excess, and (b) the
undersigned shall not seek or pursue any other remedy, legal or equitable,
against Lender, or any holder hereof based, in whole or in part, upon the
contracting for, charging or receiving of any interest in excess of the Maximum
Legal Rate. For the purpose of determining whether or not any Excess has been
contracted for, charged or received by Lender or any holder hereof, all interest
at any time contracted for, charged or received by Lender or any term of this
Note.
THIS NOTE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS AND APPLICABLE FEDERAL LAW, BUT IN ANY EVENT CHAPTER 15 OF TITLE 79,
VERNON'S TEXAS CIVIL STATUTES (AND AS THE SAME MAY BE INCORPORATED BY REFERENCE
IN OTHER TEXAS STATUTES) SHALL NOT APPLY TO THE INDEBTEDNESS EVIDENCED BY THIS
NOTE. BORROWER HEREBY WAIVES THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER BORROWER OR LENDER AGAINST THE
OTHER.
The undersigned acknowledges and agrees that this Note is payable on demand at
any time notwithstanding any provisions for acceleration or events of default
contained herein or in any security agreement, deed of trust or other agreement
securing payment hereof.
BORROWER:
Industrial Holdings, Inc., Landreth Engineering Company, Pipeline Valve
Specialty, Inc., The Rex Group, Inc., Rex Machinery Sales, Inc., Rex
Machinery Movers, Inc., U.S. Crating, Inc., Rex International Corporation,
First Texas Credit Corporation, XTEL Corporation, Losco, Inc., Rex Supply
Corporation, American Rivet Company, Inc., LSS-Lone Star-Houston, Inc.,
and Amflow Master Environmental, Inc.
By: /s/ ROBERT E. CONE
Robert E. Cone, President of Industrial Holdings, Inc.
By: /s/ ROBERT E. CONE
Robert E. Cone, Chief Executive Officer of the following: American
Rivet Company, Inc., Landreth Engineering Company, Pipeline Valve
Specialty, Inc., The Rex Group, Inc., Rex Supply Corporation, Rex
Machinery Sales, Inc., Rex Machinery Movers, Inc., U.S. Crating, Inc., Rex
International Corporation, First Texas Credit Corporation, XTEL
Corporation, Losco, Inc., LSS-Lone Star-Houston, Inc., and Amflow Master
Environmental, Inc.
================================================================================
EXHIBIT 10.2
PROMISSORY NOTE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C>
$800,000.00 01-27-1997 11-01-2002 514 090 2313836285 43542
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: Industrial Holdings, Inc., Landreth Engineering Company, Pipeline
Valve Specialty, Inc., The Rex Group, Inc., Rex Machinery Sales, Inc.,
Rex Machinery Movers, Inc., U.S. Crating, Inc., Rex International
Corporation, First Texas Credit Corporation, XTEL Corporation, Losco,
Inc., Rex Supply Corporation, American Rivet Company, Inc., LSS-Lone
Star-Houston, Inc., and Amflow Master Environmental, Inc. (TIN:
760289495)
7135 Ardmore
Houston, Texas 77054
Lender: Comerica Bank - Texas
Houston-One Shell-Middle Market
P.O. Box 650282
Dallas, TX 75265-0282
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRINCIPAL AMOUNT: $800,000,00 Initial Rate: 8.25% Date of Note: January 27, 1997
</TABLE>
PROMISE TO PAY. Industrial Holdings, Inc., Landreth Engineering Company,
Pipeline Valve Specialty, Inc., The Rex Group, Inc., Rex Machinery Sales, Inc.,
Rex Machinery Movers, Inc., U.S. Crating, Inc., Rex International Corporation,
First Texas Credit Corporation, XTEL Corporation, Losco, Inc., Rex Supply
Corporation, American Rivet Company, Inc., LSS-Lone Star-Houston, Inc., and
Amflow Master Environmental, Inc. ("Borrower") promises to pay to Comerica Bank
- - Texas ("Lender"), or order, in lawful money of the United States of America,
the principal amount of Eight Hundred Thousand & 00/100 Dollars ( ($800,000.00),
together with interest on the unpaid principal balance from January 27, 1997,
until maturity.
PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan on demand, or if no demand is made, in 59 principal
payments of $13,333.34 each and one final principal and interest payment of
$13,427.66. Borrower's first principal payment is due March 1, 1997, and all
subsequent principal payments are due on the same day of each month after that.
In addition, Borrower will pay regular monthly payments of all accrued unpaid
interest due as of each payment date. Borrower's first interest payment is due
March 1, 1997, and all subsequent interest payments are due on the same day of
each month after that. Borrower's final payment due February 1. 2002, will be
for all principal and accrued interest not yet paid. Interest on this Note is
computed on a 365/360 simple interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding, unless such calculation would result in a usurious rate, in
which case interest shall be calculated on a per diem basis of a year of 365 or
366 days, as the case may be. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is Lender's Prime Rate (the
"Index"). This is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers. This rate may or may not be
the lowest rate available from Lender at any given time. Lender will tell
Borrower the current index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each day. THE INDEX CURRENTLY IS 8.250%
PER ANNUM. THE INTEREST RATE TO BE APPLIED PRIOR TO MATURITY TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE EQUAL TO THE INDEX, RESULTING
IN AN INITIAL RATE OF 8.250% PER ANNUM. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law. For purposes of this Note, the "maximum rate allowed by applicable law"
means the greater of (a) the maximum rate of interest permitted under federal or
other law applicable to the indebtedness evidenced by this Note, or (b) the
"Indicated Rate Ceiling" as referred to in Article 5069-1.04(a)(1) V.T.C.S.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the principal balance due
and may result in Borrower making fewer payments.
POST MATURITY RATE. The Post Maturity Rate on this Note is the maximum rate
allowed by applicable law. Borrower will pay interest on all sums due after
final maturity, whether by acceleration or otherwise, at that rate, with the
exception of any amounts added to the principal balance of this Note based on
Lender's payment of insurance premiums, which will continue to accrue interest
at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired. (h) Lender in good faith deems itself insecure.
If any default, other than default in payment, is curable, it may be cured (and
no event of default will have occurred) if Borrower, after receiving written
notice from Lender demanding cure of such default: (a) cures the default within
fifteen (15) days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates
Ex-3
<PAGE>
steps which Lender deems in Lender's sole discretion to be sufficient to cure
the default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office any
instrument securing this loan; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor vehicle
offered as security for this loan, or premiums or identifiable charges received
in connection with the sale of authorized insurance. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF TEXAS. IF THERE IS A
LAWSUIT, AND IF THE TRANSACTION EVIDENCED BY THIS NOTE OCCURRED IN DALLAS
COUNTY, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF
THE COURTS OF DALLAS COUNTY, THE STATE OF TEXAS. LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OF BORROWER AGAINST THE OTHER. (INITIAL HERE S/REC )
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND APPLICABLE FEDERAL LAWS.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. If any part of this Note cannot be
enforced, this fact will not affect the rest of the Note. In particular, this
section means (among other things) that Borrower does not agree or intend to
pay, and Lender does not agree or intend to contract for, charge, collect, take,
reserve or receive (collectively referred to herein as "charge or collect"), any
amount in the nature of interest or in the nature of a fee for this loan, which
would in any way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Texas
(as applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies under
this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note to the extent allowed by law, waive
presentment, demand for payment and protest, notice of dishonor, notice of
intent to accelerate the maturity of this Note, and notice of acceleration of
the maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
INDUSTRIAL HOLDINGS, INC.,LANDRETH ENGINEERING COMPANY, PIPELINE VALVE
SPECIALTY, INC., THE REX GROUP, INC., REX MACHINERY SALES, INC., REX MACHINERY
MOVERS, INC., U.S. CRATING, INC., REX INTERNATIONAL CORPORATION, FIRST TEXAS
CREDIT CORPORATION, XTEL CORPORATION,LOSCO, INC., REX SUPPLY CORPORATION,
AMERICAN RIVET COMPANY, INC., LSS-LONE STAR-HOUSTON, INC., AND AMFLOW MASTER
ENVIRONMENTAL, INC.
By: /s/ ROBERT E. CONE
Robert E. Cone, President of Industrial Holdings, Inc.
By: /s/ ROBERT E. CONE
Robert E. Cone, Chief Executive Officer of the following: American Rivet
Company, Inc., Landreth Engineering Company, Pipeline Valve Specialty, Inc., The
Rex Group, Inc., Rex Supply Corporation, Rex Machinery Sales, Inc., Rex
Machinery Movers, Inc., U.S. Crating, Inc., Rex International Corporation, First
Texas Credit Corporation, XTEL Corporation, Losco, Inc., LSS-Lone Star-Houston,
Inc., and Amflow Master Environmental, Inc.
EXHIBIT 10.3
NOTE
Houston, Texas
$900,000.00 , 1997
--------------
FOR VALUE RECEIVED, INDUSTRIAL HOLDINGS, INC., a Texas corporation,
LSS-LONE STAR-HOUSTON, INC., a Texas corporation, AMFLOW MASTER ENVIRONMENTAL,
INC., a Texas corporation, AMERICAN RIVET COMPANY, INC., an Illinois
corporation, LANDRETH ENGINEERING COMPANY, a Texas corporation, PIPELINE VALVE
SPECIALTY, INC., a Texas corporation, THE REX GROUP, INC., a Texas corporation,
REX SUPPLY CORPORATION, a Texas corporation, REX MACHINERY SALES, INC., a Texas
corporation, REX MACHINERY MOVERS, INC., a Texas corporation, U.S. CRATING,
INC., a Texas corporation, REX INTERNATIONAL CORPORATION, a Texas corporation,
FIRST TEXAS CREDIT CORPORATION, a Texas corporation, XTEL CORPORATION, a Texas
corporation, and LOSCO, INC., a Texas corporation, jointly and severally,
promise to pay to the order of COMERICA BANK-TEXAS, a Texas corporation, at P.O.
Box 4167, Houston, Texas 77210-4167 (or such other place as the holder hereof
may hereafter designate in writing), in immediately available funds and in
lawful money of the United States of America, the principal sum of Nine Hundred
Thousand and No/100 Dollars ($900,000.00) (or the unpaid balance of all
principal advanced against this note, if that amount is less), together with
interest as follows: (a) interest on the unpaid principal balance of this note
from time to time outstanding at the Stated Rate and interest on all past due
amounts, both principal and accrued interest, from the respective due dates
thereof until paid at the Past Due Rate and (b) the Additional Interest;
PROVIDED, that for the full term of this note the interest rate produced by the
aggregate of all sums paid or agreed to be paid to the holder of this note for
the use, forbearance or detention of the debt evidenced hereby (including, but
not limited to, all interest on this note at the Stated Rate plus the Additional
Interest) shall not exceed the Ceiling Rate.
16. DEFINITIONS. As used in this note, the following terms shall have the
respective meanings indicated:
(1) "ACCOUNTS," "EQUIPMENT," "GENERAL INTANGIBLES" and "INVENTORY" shall
have the meanings assigned to them in the Uniform Commercial Code in force and
effect in the State of Texas on the date of this Agreement.
(2) "ADDITIONAL INTEREST" means the aggregate of all amounts accrued or
paid pursuant to this note or any of the other Loan Documents (other than
interest on this note at the Stated Rate) which, under applicable laws, are or
may be deemed to constitute interest on the indebtedness evidenced by this note.
(3) "ANNIVERSARY DATE" shall have the meaning assigned thereto in SECTION
4 hereof.
(4) "BUSINESS DAY" means any day, other than a Saturday or a Sunday, when
Payee is open for business.
Ex-4
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(5) "CEILING RATE" means, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or Texas laws
permits the higher interest rate, stated as a rate per annum. On each day, if
any, that Chapter One establishes the Ceiling Rate, the Ceiling Rate shall be
the "indicated rate ceiling" (as defined in Chapter One) for that day. Payee may
from time to time, as to current and future balances, implement any other
ceiling under Chapter One by notice to any Maker, if and to the extent permitted
by Chapter One. Without notice to any Maker or any other person or entity, the
Ceiling Rate shall automatically fluctuate upward and downward as and in the
amount by which such maximum nonusurious rate of interest permitted by
applicable law fluctuates.
(6) "CHAPTER ONE" means Chapter One of Title 79, Texas Revised Civil
Statutes, 1925, as amended.
(7) "CONSOLIDATED LEC NOTE" means that certain promissory note dated
November 1, 1996 in the original principal sum of $578,152.63 executed by
Makers, payable to the order of Payee, as the same may be amended, restated,
modified, rearranged, renewed and extended from time to time.
(8) "DEBT" means the indebtedness evidenced by this note and the
indebtedness to Payee incurred under or evidenced by the Other Notes and the
other Loan Documents.
(9) "DEED OF TRUST" means the Deed of Trust and Security Agreement (with
Assignment of Rents) dated concurrently herewith from LSS-Loan Star-Houston,
Inc., f/k/a Loan Star Screw Company of Houston, to Payee, covering, among other
property, certain real property located in Harris County, Texas, together with
any and all improvements thereon from time to time and the personal property
related to the real property covered by the Deed of Trust, as the same may be
amended, supplemented, restated or replaced from time to time.
(10)"EQUIPMENT NOTE A" means that certain promissory note dated November
1, 1996 in the original principal sum of $1,800,000.00, executed by Makers,
payable to the order of Payee, as the same may be amended, restated, modified,
rearranged, renewed and extended from time to time.
(11)"EQUIPMENT NOTE B" means that certain promissory note dated of even
date herewith in the original principal sum of $800,000.00, executed by Makers,
payable to the order of Payee, as the same may be amended, restated, modified,
rearranged, renewed and extended from time to time.
(12)"GAAP" shall mean, as of any applicable date of determination,
generally accepted accounting principles consistently applied.
(13)"GENERAL SECURITY AGREEMENT" means that certain Security Agreement of
even date herewith from Makers, in favor of Payee, covering, among other
property more fully described therein, all of Makers' Accounts, General
Intangibles, Inventory and Equipment, as the same may be amended, modified,
renewed, extended, ratified, confirmed and supplemented from time to time.
(14)"IHI" means Industrial Holdings, Inc., a Texas corporation.
(15)"LINE OF CREDIT NOTE" means that certain Master Note dated of even
date herewith executed by Makers, payable to the order of Payee, in the original
principal sum of $14,000,000.00, as the same may be amended, restated, modified,
rearranged, renewed and extended from time to time.
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(16)"LOAN DOCUMENTS" means any and all papers now or hereafter governing,
evidencing, guaranteeing or securing or otherwise relating to all or any part of
the indebtedness evidenced by this note or any of the Other Notes.
(17)"MAKERS" means IHI, LSS-Loan Star-Houston, Inc., a Texas corporation,
Amflow Master Environmental, Inc., a Texas corporation, American Rivet Company,
Inc., an Illinois corporation, Landreth Engineering Company, a Texas
corporation, Pipeline Valve Specialty, Inc., a Texas corporation, The Rex Group,
Inc., a Texas corporation, Rex Supply Corporation, a Texas corporation, Rex
Machinery Sales, Inc., a Texas corporation, Rex Machinery Movers, Inc., a Texas
corporation, U.S. Crating, Inc., a Texas corporation, Rex International
Corporation, a Texas corporation, First Texas Credit Corporation, a Texas
corporation, XTEL Corporation, a Texas corporation, and Losco, Inc., a Texas
corporation. "MAKER" means any one of them.
(18)"MATURITY DATE" means the maturity of this note, fifteen (15) calendar
years from the date hereof, as the same may hereafter be accelerated pursuant to
the provisions of this note or any of the other Loan Documents.
(19)"ORIGINAL LANDRETH NOTE" means that certain promissory note in the
original principal sum of $506,783.40, dated as of October 26, 1992, executed by
Landreth, payable to the order of Payee, as the same may be amended, restated,
modified, rearranged, renewed and extended from time to time.
(20)"OTHER NOTES" means Line of Credit Note, Equipment Note A, Equipment
Note B, the Consolidated LEC Note, the Rex/Mach Note, the Original Landreth Note
and any and all other promissory notes now or hereafter executed by any of the
Makers in connection with the specific advance loan facility in favor of Makers,
established by Payee, including (i) that certain promissory note dated December
5, 1994 in the original principal sum of $16,400, executed by Makers payable to
the order of Payee; (ii) that certain promissory noted dated January 23, 1995 in
the original principal sum of $22,400, executed by Makers payable to the order
of Payee; (iii) that certain promissory noted dated August 20, 1996 in the
original principal sum of $31,600.00, executed by Makers payable to the order of
Payee; (iv) that certain promissory noted dated October 18, 1996 in the original
principal sum of $35,500.00, executed by Makers payable to the order of Payee;
(v) that certain promissory noted dated January 10, 1997 in the original
principal sum of $11,400.00 executed by Makers payable to the order of Payee, as
any of the same may be amended, modified, restated, renewed, extended, replaced
or substituted for from time to time.
(21)"PAST DUE RATE" means, on any day, a rate per annum equal to the
Ceiling Rate for that day, or only if applicable law imposes no maximum
nonusurious rate of interest for that day, then the Past Due Rate for that day
shall be a rate per annum equal to the Stated Rate plus five percent (5%) per
annum.
(22)"PAYEE" means Comerica Bank-Texas, a Texas banking corporation, and
any other holder or holders of this note from time to time and, upon acquisition
of this note by any holder or holders other than the named payee, effective as
of the time of such acquisition, the term "Payee" shall mean all of the then
holders of this note, to the exclusion of all prior holders not then retaining
or reserving an interest in this note, to the end that all the rights, powers,
remedies, liens, benefits and privileges accruing and to accrue hereunder to
Payee, as such term is used herein, shall inure to the benefit of and be owned
and held by the holder or holders of this note from time to time, whether such
holder acquires this note through succession to or assignment from
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a prior Payee.
(23)"PRIME RATE" means, on any day, the rate established from time to time
by Payee for the guidance of its loan officers, whether otherwise published or
announced. Without notice to any Maker or any other person or entity, the Prime
Rate shall automatically fluctuate upward and downward as and in the amount by
which said prime rate fluctuates, with each change to be effective as of the
date of each change in said prime rate. THE PRIME RATE IS A REFERENCE RATE AND
DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED TO ANY
CUSTOMER, AND PAYEE DISCLAIMS ANY STATEMENT, REPRESENTATION OR WARRANTY TO THE
CONTRARY. PAYEE MAY MAKE COMMERCIAL LOANS OR OTHER LOANS AT RATES OF INTEREST
AT, ABOVE OR BELOW THE PRIME RATE.
(24)"REX/MACH NOTE" means that certain promissory note in the original
principal sum of $848,592.00, dated as of July 11, 1996, executed by Makers,
payable to the order of Payee, as the same may be amended, restated, modified,
rearranged, renewed and extended from time to time.
(25)"STATED RATE" means, on any day, a rate per annum equal to the Prime
Rate; PROVIDED, that if on any day the Prime Rate for that day shall exceed the
Ceiling Rate for that day, the Stated Rate shall be fixed at the Ceiling Rate on
that day and on each day thereafter until the total amount of interest accrued
at the Stated Rate on the unpaid principal balance of this note plus the
Additional Interest equals the total amount of interest which would have accrued
if there had been no Ceiling Rate. If this note matures (or is prepaid) before
such equality is achieved, then, in addition to the unpaid principal and accrued
interest then owing pursuant to the other provisions of this note, Makers,
jointly and severally, promise to pay on demand to the order of the holder of
this note interest in an amount equal to the excess (if any) of (a) the lesser
of (i) the total interest which would have accrued on this note if the Stated
Rate had been defined as equal to the Ceiling Rate from time to time in effect
and (ii) the total interest which would have accrued on this note if the Stated
Rate were not so prohibited from exceeding the Ceiling Rate, over (b) the total
interest actually accrued hereon to such maturity (or prepayment) date. Without
notice to any Maker or any other person or entity, the Stated Rate shall
automatically fluctuate upward and downward in accordance with the provisions of
this Subsection.
17. SECURITY; NOTATION OF LOANS AND PAYMENTS. This note is secured or
guaranteed by, among other security, the Deed of Trust and the General Security
Agreement. The unpaid principal balance of this note at any time shall be the
total of all amounts lent or advanced against this note less the amount of all
payments or permitted prepayments made on this note and by or for the account of
any Maker. All loans and advances and all payments and permitted prepayments
made hereon may be endorsed by the holder of this note on a schedule which may
be attached hereto (and thereby made a part hereof for all purposes) or
otherwise recorded in the holder's records; PROVIDED, that any failure to make
notation of (a) any advance shall not cancel, limit or otherwise affect any
Maker's obligations or any holder's rights with respect to that advance, or (b)
any payment or permitted prepayment of principal shall not cancel, limit or
otherwise affect any Maker's entitlement to credit for that payment as of the
date received by the holder. The obligation (if any) of Payee to make any
further advances against this note shall cease and terminate upon the occurrence
of a default under this note or an event which, with notice, the passage of time
or both would constitute such a default under this note. Payee may condition any
advance against this note upon delivery to Payee of a written request for
advance, in form and substance satisfactory to Payee, accompanied by such
supporting evidence as Payee may require. Amounts paid or prepaid under this
note may not be reborrowed.
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18. COMPUTATION OF INTEREST. Interest on the amount of each advance
against this note shall be computed on the amount of that advance and from the
date it is made. Such interest shall be computed for the actual number of days
elapsed in a year consisting of 360 days, unless the Ceiling Rate would thereby
be exceeded, in which event, to the extent necessary to avoid exceeding the
Ceiling Rate, interest shall be computed on the basis of the actual number of
days elapsed in the applicable calendar year in which accrued.
19. MANDATORY PAYMENTS OF PRINCIPAL AND INTEREST.
(1) Accrued and unpaid interest on the unpaid principal balance of this
note shall be due and payable (i) on March 1, 1997, and (ii) on the first (1st)
day of each succeeding calendar month thereafter before the Maturity Date. In
addition, all accrued and unpaid interest on the unpaid principal balance of
this note shall be due and payable at the Maturity Date.
(2) The principal of this note shall be due and payable in monthly
installments of Five Thousand and No/100 Dollars ($5,000.00) each. The first
installment shall be due and payable on March 1, 1997, and a like installment
shall be due and payable on the first (1st) day of each succeeding calendar
month thereafter until this note shall have been fully paid and satisfied;
PROVIDED, that on the Maturity Date, the entire unpaid principal balance of this
note and all accrued and unpaid interest on the unpaid principal balance of this
note shall be finally due and payable.
(3) All payments hereon made pursuant to this Section shall be applied
first to accrued interest, the balance to principal.
(4) If any payment provided for in this note shall become due on a day
other than a Business Day, such payment may be made on the next succeeding
Business Day (unless the result of such extension of time would be to extend the
date for such payment into another calendar month or beyond the Maturity Date,
and in either such event such payment shall be made on the Business Day
immediately preceding the day on which such payment would otherwise have been
due), and such extension of time shall in such case be included in the
computation of interest on this note.
(5) Notwithstanding anything contained in this note or any of the other
Loan Documents (and without limiting any other provision contained in any of
them for the acceleration of the maturity of this note), beginning with the
fifth (5th) Anniversary Date and with respect to each Anniversary Date occurring
thereafter, Payee, in its sole and absolute discretion, with or without cause,
may elect to accelerate the final stated maturity of this note to any such
Anniversary Date by giving written notice to Maker of such election no later
than thirty (30) days prior to the applicable Anniversary Date.
20. NO USURY INTENDED; SPREADING. Notwithstanding any provision to the
contrary contained in this note or any of the other Loan Documents, it is
expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to
this note or any of the other Loan Documents, which under applicable laws are or
may be deemed to constitute interest upon the indebtedness evidenced by this
note from the date hereof, ever exceed the Ceiling Rate. In this connection,
each Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable usury laws. In
furtherance thereof, none of the terms of this note or any of the other Loan
Documents shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or
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<PAGE>
construed to create a contract to pay, as consideration for the use, forbearance
or detention of money, interest at a rate in excess of the Ceiling Rate. No
Maker or any other parties now or hereafter becoming liable for payment of the
indebtedness evidenced by this note shall ever be liable for interest in excess
of the Ceiling Rate. If, for any reason whatever, the interest paid or received
on this note during its full term produces a rate which exceeds the Ceiling
Rate, the holder of this note shall credit against the principal of this note
(or, if such indebtedness shall have been paid in full, shall refund to the
payor of such interest) such portion of said interest as shall be necessary to
cause the interest paid on this note to produce a rate equal to the Ceiling
Rate. All sums paid or agreed to be paid to the holder of this note for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
in equal parts throughout the full term of this note, so that the interest rate
is uniform throughout the full term of this note. The provisions of this Section
shall control all agreements, whether now or hereafter existing and whether
written or oral, between any Maker and Payee.
21. Financial and Other Information. From the date hereof until the
principal of and interest on this note, the Other Notes and other indebtedness
is paid in full, and the ability, if any, of Makers to obtain loans under the
Line of Credit Note or any of the Other Notes has irrevocably terminated, each
Maker covenants and agrees that it will (or will cause each other Maker to):
(1) SEC REPORTS. Furnish to Payee within five (5) days after the
filing with the Securities and Exchange Commission by any Maker, true,
correct and complete copies of all such filings, of any financial
statements, registration statements, reports and proxy statements.
(2) ANNUAL AUDITED FINANCIAL REPORTS. Furnish to Payee in form
satisfactory to Payee not later than ninety (90) days after the close of
each fiscal year of Makers, a balance sheet as at the close of each such
fiscal year and statements of income and statements of cash flows for each
such fiscal year and for Makers, and such other comments and financial
details as are usually included in similar reports. Such reports shall be
prepared in accordance with GAAP by independent certified public
accountants of recognized standing selected by Makers and acceptable to
Payee and shall contain unqualified opinions as to the fairness of the
statements therein contained.
(3) MAKERS'S MONTHLY FINANCIAL STATEMENTS. Furnish to Payee not later
than twenty (20) days after the close of each month of each fiscal year of
Makers, financial statements containing the balance sheet of Makers as of
the end of each such period, statements of income and statements of cash
flows of Makers up to the end of such period. These statements shall be
prepared on substantially the same accounting basis as the statements
required in SECTION 6(B) of this Agreement and shall be in such detail as
Payee may reasonably require, and the accuracy of the statements shall be
certified by the chief executive or financial officer of Makers.
(4) ADVERSE EVENTS. Promptly inform Payee of the occurrence of any
Event of Default or Default, or of any occurrence which has or could
reasonably be expected to have a materially adverse effect upon any
Maker's business, properties, financial condition or ability to comply
with its obligations hereunder.
(5) OTHER MAKERS' FINANCIAL INFORMATION. Furnish or cause to be
furnished to Payee as soon as available and in any event (a) within 90
days after the end of each calendar year, the current
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and complete financial statement and cash flow statement of each Maker
(other than Makers) prepared on a form approved by Payee and completed in
such detail as Payee shall require and (b) as soon as it has been filed
with the United States Internal Revenue Service, each Maker's federal tax
return for each calendar year.
(6) OTHER INFORMATION AS REQUESTED. Promptly furnish (or cause to be
furnished) to Payee such other information regarding the operations,
business affairs and financial condition of the Makers as Payee may
reasonably request from time to time and permit Payee, its employees,
attorneys and agents, to inspect all of the books, records and properties
of the Makers at any reasonable time.
22. DEFAULT. The occurrence of any of the following events shall
constitute default under this note, whereupon the obligation (if any) of Payee
to make any further advances against this note shall cease and terminate and the
owner or holder hereof may, at its, his or her option, exercise any or all
rights, powers and remedies afforded under any of the Loan Documents and by law,
including the right to declare the unpaid balance of principal and accrued
interest on this note at once mature and payable:
(1) any part of the Debt is not paid when due, whether by lapse of time or
acceleration or otherwise.
(2) any Maker fails to perform, observe or comply with--or defaults
under--any of the terms, covenants, conditions or provisions contained in any
Loan Document.
(3) any representation or warranty made in this note or any of the other
Loan Documents or in any other report or other paper now or hereafter provided
to Payee pursuant or incident to this note or any other Loan Document or the
Debt proves to have been untrue or misleading in any material respect as of the
date made or deemed made.
(4) any Maker: (i) voluntarily suspends transaction of business; (ii)
becomes insolvent or unable to pay its debts as they mature; (iii) commences a
voluntary case in bankruptcy or a voluntary petition seeking reorganization or
to effect a plan or other arrangement with creditors; (iv) makes an assignment
for the benefit of creditors; (v) applies for or consents to the appointment of
any receiver or trustee for any such party or for any substantial portion of its
property; or (vi) make an assignment to an agent authorized to liquidate any
substantial part of its assets.
(5) in respect of any Maker: (i) an involuntary case shall be commenced
with any court or other authority seeking liquidation, reorganization or a
creditor's arrangement of any such party; (ii) an order of any court or other
authority shall be entered appointing any receiver or trustee for any such party
or for any substantial portion of its property; or (iii) a writ or warrant of
attachment or any similar process shall be issued by any court or other
authority against any substantial portion of the property of any such party and
such petition seeking liquidation, reorganization or a creditor's arrangement or
such order appointing a receiver or trustee is not vacated or stayed, or such
writ, warrant of attachment or similar process is not vacated, released or
bonded off within thirty (30) days after its entry or levy.
(6) a conveyance, transfer, assignment or pledge of a controlling interest
in any Maker shall occur, in a single transaction or a series of transactions,
without Payee's prior written consent.
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(7) the death, legal incompetency, dissolution, liquidation or termination
of any Maker.
(8) any action, suit or proceeding shall be commenced against or affecting
any Maker or involving the validity or enforceability of this note or any other
Loan Document, at law or in equity, or before any governmental authority, which
in Payee's judgment, impairs or would impair Payee's ability to collect the Debt
when due or the enforceability of this note or any other Loan Document.
(9) any one or more final judgments for the payment of money shall be
rendered against any Maker and the same shall remain unstayed or undischarged
for a period of thirty (30) days.
(10)any Maker shall be prevented or relieved by any governmental authority
from performing or observing any material term, covenant or condition of this
note or any other Loan Document.
(11)any material adverse change shall occur in the assets, financial
condition, business, operations, affairs or circumstances of any Maker.
(12)any Maker shall fail to pay when due any principal of or interest on
any borrowed money obligation or the holder of such other obligation
declares--or may declare--such obligation due before its stated maturity because
of default.
(13)any Maker shall be in default under or in violation of any law,
statute, ordinance, decree, requirement, order, judgment, rule or regulation (or
interpretation of any of them) of the United States of America, any State of the
United States of America or any political subdivision of any of them, or of any
agency, department, commission, board, bureau or court or other tribunal having
jurisdiction over any such party or any such party's property.
(14)any Maker shall claim--or any court shall find or rule--that Payee
does not have a valid lien on any security which may have been provided by such
Maker.
(15)the sale, encumbrance or abandonment (except as otherwise expressly
agreed to in writing by Payee) of any property now or hereafter covered by any
instrument now or hereafter securing the Debt, the making of any levy, seizure
or attachment of or on any such property or the loss, theft, substantial damage
or destruction of any such property.
(16)any Maker shall have concealed, removed, or permitted to be concealed
or removed, any part of its property, with intent to hinder, delay or defraud
any of its creditors, or made or suffered a transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law, or shall have made any transfer of its property to or for the benefit of a
creditor at a time when other creditors similarly situated have not been paid,
or, while insolvent, shall have suffered or permitted any creditor to obtain a
lien upon any of its property through legal proceedings or distraint which is
not vacated within thirty (30) days from its date.
(17)any Maker fails to pay when due any amount which he or it is liable to
pay to the Pension Benefit Guaranty Corporation ("PBGC") or its successor or to
any plan (a "PLAN") maintained for any of the such Maker's employees subject to
Title IV of the Employee Retirement Benefit Act of 1974, as amended, and
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related regulations ("ERISA"), or notice of intent to terminate any Plan is
filed under ERISA, or PBGC commences proceedings under ERISA to terminate any
Plan or to cause a trustee to be appointed to administer any Plan, or a
proceeding is commenced by any fiduciary of any Plan to enforce Section 515 or
Section 4219(c)(5) of ERISA, or PBGC becomes entitled to obtain a decree
adjudicating that any Plan must be terminated.
(18)a default, an event of default or a similar event (however
denominated) shall occur under the terms and conditions of any other Loan
Document.
(19)Makers shall have a consolidated net loss (determined in accordance
with generally accepted accounting principles) from operations for any fiscal
year of Makers.
(20)Demand for payment shall be made by Payee under the Other Notes or the
Line of Credit Note shall be fully paid and satisfied and the rights of Makers,
if any, to borrow sums under the Other Notes shall be irrevocably terminated,
either voluntarily or involuntary.
23. NO WAIVER BY PAYEE. No delay or omission of Payee or any other holder
hereof to exercise any power, right or remedy accruing to Payee or any other
holder hereof shall impair any such power, right or remedy or shall be construed
to be a waiver of the right to exercise any such power, right or remedy. Payee's
right to accelerate this note for any late payment or any Maker's failure to
timely fulfill its other obligations hereunder or under the other Loan Documents
shall not be waived or deemed waived by Payee by Payee's having accepted a late
payment or late payments in the past or Payee otherwise not accelerating this
note or exercising other remedies for any Maker's failure to timely perform its
obligations hereunder or under the other Loan Documents. Payee shall not be
obligated or be deemed obligated to notify any Maker that it is requiring any
Maker to strictly comply with the terms and provisions of this note and the
other Loan Documents before accelerating this note and exercising its other
remedies hereunder or under the other Loan Documents because of any Maker's
failure to timely perform its obligations under this note and the other Loan
Documents.
24. COSTS AND ATTORNEYS' FEES. If any holder of this note retains an
attorney in connection with any default or to collect, enforce or defend this
note or any of the Loan Documents in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if any Maker sues any holder
in connection with this note or any of the Loan Documents and does not prevail,
then any Maker agrees to pay to each such holder, in addition to principal and
interest, all reasonable costs and expenses incurred by such holder in trying to
collect this note or in any such suit or proceeding, including reasonable
attorneys' fees. To the extent not prohibited by applicable law, Makers, jointly
and severally, will pay all costs and expenses and reimburse Payee for any and
all expenditures of every character incurred or expended from time to time,
regardless of whether or not a default has occurred, in connection with (a) the
preparation, negotiation, documentation, closing, renewal, revision,
modification, increase, review or restructuring of this note or any loan or
credit facility evidenced by or relating to this note, including legal,
accounting, auditing, architectural engineering and inspection services and
disbursements, or in connection with collecting or attempting to enforce or
collect this note or any of the other Loan Documents, (b) Payee's evaluating,
monitoring, administrating and protecting any collateral ("COLLATERAL") now or
hereafter securing payment of any part of this note and (c) Payee's creating,
perfecting and realizing upon Payee's security interests in and liens on any
Collateral, and all costs and expenses relating to Payee's exercising any of its
rights and remedies hereunder or under any other Loan Document or at law,
including, without limitation, all appraisal fees, consulting fees, filing fees,
taxes, brokerage fees and
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commissions, title review and abstract fees, Uniform Commercial Code search
fees, other fees and expenses incident to title searches, reports and security
interests, escrow fees, attorneys' fees, legal expenses, court costs, other fees
and expenses incurred in connection with any complete or partial liquidation of
any Collateral and all fees and expenses for any professional services relating
to the Collateral or any operations conducted in connection with it; PROVIDED,
that no right or option granted by any Maker to Payee or otherwise arising
pursuant to any provision of this or any other instrument shall be deemed to
impose or admit a duty on Payee to supervise, monitor or control any aspect of
the character or condition of the Collateral or any operations conducted in
connection with it for the benefit of any Maker or any other person or entity
other than Payee. Each Maker agrees to indemnify, defend and hold Payee, its
shareholders, directors, officers, agents, attorneys, advisors and employees
(collectively "INDEMNIFIED PARTIES") harmless from and against any and all loss,
liability, obligation, damage, penalty, judgment, claim, deficiency, expense,
action, suit, cost and disbursement of any kind or nature whatsoever (including
interest, penalties, attorneys' fees and amounts paid in settlement), REGARDLESS
OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE
INDEMNIFIED PARTIES, imposed on, incurred by or asserted against the Indemnified
Parties growing out of or resulting from this note, any Loan Document or any
transaction or event contemplated herein or therein (except that such indemnity
shall not be paid to any Indemnified Party to the extent that such loss, etc.
directly results from the gross negligence or willful misconduct of that
Indemnified Party). Any amount to be paid under this Section by Maker to Payee
shall be a demand obligation owing by Maker to Payee and shall bear interest
from the date of expenditure until paid at the Past Due Rate.
25. WAIVERS BY MAKERS AND OTHERS. Except to the extent, if any, that
notice of default is expressly required herein or in any of the other Loan
Documents, each Maker and any and all co-makers, endorsers, guarantors and
sureties severally waive notice (including, but not limited to, notice of intent
to accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability on
or with respect to this note shall not be affected by any release of or change
in any guaranty or security at any time existing or by any failure to perfect or
to maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
26. SECTION HEADINGS. Section headings appearing in this note are for
convenient reference only and shall not be used to interpret or limit the
meaning of any provision of this note.
27. VENUE; CHOICE OF LAW. This note is performable in Dallas County,
Texas, which shall be a proper place of venue for suit on or in respect of this
note. Each Maker hereby irrevocably agrees that any legal proceeding in respect
of this note shall be brought in the district courts of Dallas County, Texas, or
in the United States District Court for the Northern District of Texas, Dallas
Division (collectively, the "SPECIFIED COURTS"). Each Maker hereby irrevocably
submits to the nonexclusive jurisdiction of the state and federal courts of the
State of Texas. Maker hereby irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this note or any
of the Loan Documents brought in any Specified Court, and hereby further
irrevocably waives any claims that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum. Each Maker further
irrevocably consents to the service of process out of
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any of the Specified Courts in any such suit, action or proceeding by the
mailing of copies thereof by certified mail, return receipt requested, postage
prepaid, to each Maker. Nothing herein shall affect the right of Payee to
commence legal proceedings or otherwise proceed against any Maker in any
jurisdiction or to serve process in any manner permitted by applicable law. Any
Maker agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE
UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
28. OFFSET RIGHTS. Payee is hereby authorized at any time and from time to
time, without notice to any person or entity (and each Maker hereby WAIVES any
such notice) to the fullest extent permitted by law, to set-off and apply any
and all monies, securities and other properties of such Maker now or in the
future in the possession, custody or control of Payee, or on deposit with or
otherwise owed to such Maker by Payee--including without limitation all such
monies, securities and other properties held in general, special, time, demand,
provisional or final accounts or for safekeeping or as collateral or otherwise
(but excluding those accounts clearly designated as escrow or trust accounts
held by such Maker for others unaffiliated with such Maker)--against any and all
of such Maker's obligations to Payee now or hereafter existing under this note,
irrespective of whether Payee shall have made any demand under this note. Payee
agrees to use reasonable efforts to promptly notify the applicable Maker after
any such set-off and application made by Payee, PROVIDED that failure to
give--or delay in giving--any such notice shall not affect the validity of such
set-off and application or impose any liability on Payee. Payee's rights under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Payee may have.
29. SUCCESSORS AND ASSIGNS. This note and all the covenants and agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and assigns of each Maker
and Payee.
30. RECORDS OF PAYMENTS. The records of Payee shall be prima facie
evidence of the amounts owing on this note.
31. SEVERABILITY. If any provision of this note is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this note shall not be
affected thereby, and this note shall be liberally construed so as to carry out
the intent of the parties to it. Each waiver in this note is subject to the
overriding and controlling rule that it shall be effective only if and to the
extent that (a) it is not prohibited by applicable law and (b) applicable law
neither provides for nor allows any material sanctions to be imposed against
Payee for having bargained for and obtained it.
32. SALE AND ASSIGNMENT. Payee reserves the right, exercisable in its sole
discretion and without notice to any Maker or any other person, to sell
participations or assign its interest, or both, in all or any part of this note
or any loan evidenced by this note.
33. NOTICES. Any notice, request or other communication required or
permitted to be given hereunder shall be given in writing by delivering it
against receipt for it, by depositing it with an overnight delivery service or
by depositing it in a receptacle maintained by the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the respective parties as follows (and if so given, shall
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<PAGE>
be deemed given when mailed):
If to any Maker: If to Payee:
7135 Ardmore Comerica Bank-Texas
Houston, Texas 77054 1601 Elm Street
Attn: Robert Cone Dallas, Texas 75201
Attention: Gary W. Orr
with a copy to:
Comerica Bank-Texas
P. O. Box 4167
Houston, Texas 77210-4167
Attention: Mark H. Metcalfe
Any Maker's address for notice may be changed at any time and from time to time,
but only after thirty (30) days' advance written notice to Payee and shall be
the most recent such address furnished in writing by such Maker to Payee.
Payee's address for notice may be changed at any time and from time to time, but
only after ten (10) days' advance written notice to Makers and shall be the most
recent such address furnished in writing by Payee to Makers. Actual notice,
however and from whomever given or received, shall always be effective when
received.
34. PREPAYMENT. Makers may at any time pay the full amount or any part of
this note without the payment of any premium or fee. All prepayments hereon
shall be applied first to accrued interest and the balance to the remaining
principal installments in inverse order of their maturity.
35. CAPITAL ADEQUACY. If, after the date of this note, Payee shall have
determined that the adoption or effectiveness of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Payee with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on Payee's capital (or on the capital of any person
or entity owning or holding a participation interest in the indebtedness
evidenced by this note (each a "PARTICIPANT")) as a consequence of its
obligations to any Maker with respect to the loans evidenced or to be evidenced
by this note to a level below that which could have been achieved but for such
adoption, effectiveness, change or compliance (taking into consideration Payee's
policies (or the policies of any applicable Participant) with respect to capital
adequacy) by an amount deemed by Payee to be material, then from time to time,
Makers, jointly and severally, shall pay to Payee such additional amount or
amounts as will compensate Payee (and each applicable Participant) for such
reduction. A certificate of Payee setting forth such amount or amounts as shall
be necessary to compensate Payee (and each applicable Participant) as specified
in this Section shall be delivered as soon as practicable to Makers and shall be
conclusive and binding, absent manifest error. Makers, jointly and severally,
shall pay Payee the amount shown as due on any such certificate within fifteen
(15) days after Payee delivers such certificate. In preparing such certificate,
Payee may employ such assumptions and allocations of costs and expenses as it
shall in good
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faith deem reasonable and may use any reasonable averaging and attribution
method.
36. BUSINESS LOANS. Each Maker warrants and represents to Payee and all
other holders of this note that all loans evidenced by this note are and will be
for business, commercial, investment or other similar purpose and not primarily
for personal, family, household or agricultural use, as such terms are used in
Chapter One.
37. ENTIRE AGREEMENT. This note and the other Loan Documents embody the
entire agreement and understanding between Payee and Makers and other parties
with respect to their subject matter and supersede all prior conflicting or
inconsistent agreements, consents and understandings relating to such subject
matter. Each Maker acknowledges and agrees that there is no oral agreement
between such Maker and Payee which has not been incorporated in this note and
the other Loan Documents.
INDUSTRIAL HOLDINGS, INC., a Texas corporation
By: /s/ ROBERT E. CONE
Robert E. Cone, President
LSS-LONE STAR-HOUSTON, INC.
AMFLOW MASTER ENVIRONMENTAL, INC.
AMERICAN RIVET COMPANY, INC.
LANDRETH ENGINEERING COMPANY
PIPELINE VALVE SPECIALTY, INC.
THE REX GROUP, INC.
REX SUPPLY CORPORATION
REX MACHINERY SALES, INC.
REX MACHINERY MOVERS, INC.
U.S. CRATING, INC.
REX INTERNATIONAL CORPORATION
FIRST TEXAS CREDIT CORPORATION
XTEL CORPORATION
LOSCO, INC.
By: /s/ ROBERT E. CONE
Robert E. Cone,
Chief Executive Officer of each of them
Page 13 of 13 pages
EXHIBIT 10.4
PROMISSORY NOTE
$500,000.00 Houston, Texas February 1, 1997
FOR VALUE RECEIVED, after date, without grace, in the manner, on the dates
and in the amount herein stipulated, INDUSTRIAL HOLDINGS, INC., a Texas
corporation (the "Maker") promises to pay to the order of JUDITH C. JANDL, an
individual (the "Payee"), at the following address: 10907 Sweetspire, The
Woodlands, Texas 77380, or such other place as the Payee shall designate in
writing to the Maker, which at the time of payment is legal tender of the United
States of America for the payment of public and private debts, the principal sum
of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00), together with
interest thereon from and after date hereof until maturity at a fixed rate per
annum which shall from day to day be equal to the lesser of (a) eight percent
(8%) per annum, computed on the basis of a year of 365 or 366 days, as the case
may be, and for the actual number of days elapsed (including the first day but
excluding the last day), or (b) the Maximum Rate (as hereinafter defined). All
past due principal and interest shall bear interest from and after maturity
until paid, regardless of how maturity occurs, at an interest rate which, from
day to day, shall be equal to the lesser of (a) the Maximum Rate, or (b)
eighteen percent (18%) per annum.
The principal and accrued interest of this Note shall be due and payable
in twenty (20) quarter-annual installments of Thirty Thousand Five Hundred
Seventy-four and 86/100 Dollars ($30,574.86) each, payable on the first day of
January, April, July and October of each year, beginning on April 1, 1997 and
continuing regularly thereafter until January 1, 2002, when the entire amount,
principal and interest then remaining unpaid, shall be due and payable. Interest
on this Note will be calculated on the unpaid principal balance to the date of
each installment paid and the payment made credited first to the discharge of
interest accrued and the balance, if any, to reduce principal.
If any payment of principal or interest on this Note shall become due on a
day which is not a Business Day (as hereinafter defined), such payment shall be
made on the next succeeding Business Day and such extension of time shall be
included in the computing of interest in connection with such payment. As used
herein, the term "Business Day" shall mean any day other than a day on which
commercial banks in the State of Texas are authorized to be closed.
The Maker shall have the privilege to prepay at any time, and from time to
time, all or any part of the principal amount of this Note, without notice,
penalty or fee. Such advances or prepayments will be applied, first to the
payment of interest then accrued and unpaid hereon, including the amount of
interest accruing and to accrue on the amount of principal being prepaid, and
the balance, if any, to the payment of the installments of principal.
The Maker expressly agrees that in the event of default in the payment of
any installment of the principal and/or interest of this Note when due, the
Payee may at its option, without demand, notice or presentment, declare the
unpaid principal balance of this Note and all interest then accrued at once due
and payable. All makers, endorsers, sureties and guarantors hereof, as well as
all other parties to become liable on this Note, hereby severally: (i) waive
demand and presentment for payment of this Note, notice of non-payment, protest,
notice of protest, notice of intent to accelerate maturity, notice of
acceleration of
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maturity, filing of suit, diligence in collection or enforcing any of the
security for this Note; (ii) agree that they are and shall be jointly,
severally, directly and primarily liable for the repayment of all sums due and
owing under this Note; (iii) consent to any and all renewals, extensions and
modification in the time of payment and to any other indulgence with respect to
this Note; (iv) agree that the Payee shall not be required first to institute
suit or exhaust its remedies against the Maker or others liable or to become
liable on this Note, or to enforce its rights against them or any security for
this Note; and (v) agree to any release of any party primarily or secondarily
liable on this Note.
Notwithstanding anything in this Note to the contrary, in the event of the
Maker's failure to pay any installment of principal or interest or both when
due, the maturity of this Note may be accelerated by the Payee only after notice
of such default shall have been sent to the Maker and such default shall not
have been cured within ten (10) days following the date such notice is given or
served by the Payee as provided below.
In the event default is made in the prompt payment of this Note when due
or declared due, and the same is placed in the hands of an attorney for
collection, or suit is brought on same, or the same is collected through any
Probate, Bankruptcy Court, or any judicial proceeding whatsoever, then the Maker
agrees and promises to pay the Payee's reasonable attorney's fees.
"Applicable Law" means that law in effect from time to time and applicable
to this Note which permits the charging and collection of the highest
permissible lawful nonusurious rate of interest on this Note, including laws of
the State of Texas and laws of the United States of America. It is intended that
Article 1.04, Title 79, Revised Civil Statutes of Texas, 1925, as amended
(Article 5069-1.04, as amended, Vernon's Texas Civil Statutes) shall be included
in the laws of the State of Texas in determining Applicable Law; and for the
purpose of applying Article 1.04 to this Note, the interest ceiling applicable
to this Note under Article 1.04 shall be the indicated rate ceiling from time to
time in effect.
As used in this Note, the term "Maximum Rate" means the maximum lawful
nonusurious rate of interest (if any) which under Applicable Law the Payee is
permitted to charge the Maker on this Note from time to time.
As permitted by Article 5069-15.10(b), Title 79, Revised Civil Statutes of
Texas, 1925, as amended (Article 5069-15.10(b), as amended, Vernon's Texas Civil
Statutes), the Maker and the Payee have agreed that the provisions of Chapter 15
of Title 79, as amended, shall not be applicable to this Note or any "Account"
or "Arrangement" (as such terms are defined in Article 5069-15.01 of Title 79)
which may exist by virtue of this Note.
The Maker warrants and represents to the Payee, and to all other owners
and holders of any indebtedness evidenced hereby, that the loan evidenced by
this Note is and shall be a "business loan" as such term is used in the
Depository Institutions Deregulation and Monetary Control Act of 1980 as
amended, and that such loan is for business, commercial, investment or other
similar purposes and not primarily for personal, family, household or
agricultural use, as such terms are used in Applicable Law.
This Note has been executed and delivered by the Maker to the Payee as a
deferred portion of the Purchase Price payable to the Payee pursuant to the
terms of that certain Stock Purchase Agreement dated as of February , 1997 by
and between Maker and Payee covering all of the outstanding capital stock of
LSS-
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Lone Star-Houston, Inc., a Texas corporation.
All notices required or permitted under this Note shall be in writing and
shall be deemed to have been sufficiently given or served for all purposes when
presented personally or deposited with the United States Postal Service, postage
prepaid, certified mail, return receipt requested, to the Maker at the address
set forth below, or at such other address of which the Maker shall have notified
the Payee in writing at least thirty (30) days prior to the date of the Payee
giving such notice. Where appropriate, any pertinent noun, verb or pronoun shall
be construed and interpreted to include both the proper number and gender. This
Note shall not be renewed, extended, or modified except by a written instrument
evidencing the same.
THIS PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
MAKER:
Address: INDUSTRIAL HOLDINGS, INC.
7135 Ardmore Street
Houston, Texas 77054 By: /s/ROBERT E. CONE
Robert E. Cone,
President and Chief Executive Officer
Page 3 of 3 pages
