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) APRIL 3, 1998
INDUSTRIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
TEXAS 1-9580 76-0289495
(State of other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
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7135 ARDMORE HOUSTON, TEXAS 77054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 747-1025
____________________________________________________________
(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 3, 1998, Industrial Holdings, Inc. (the "Company") acquired all
of the outstanding Common Stock, no par value of Moores Pump and Supply, Inc.
("Moores"), upon merger of a wholly owned subsidiary of the Company with and
into Moores, with Moores being the surviving corporation (the "Merger"). As a
result, Moores became a wholly owned subsidiary of the Company. Moores, located
in Lafayette, Louisiana, is a supplier and servicer of pumps and packers to the
energy industry, as well as provides fabrication, repair and machine shop
services to its customers. The Company issued 1,600,000 shares of its Common
Stock in connection with the Merger.
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 Moores Pump and Supply, Inc. Therefore, the required
financial statements will be filed as soon as they are available and
in any event within seventy-five days after the consummation of the
Merger.
(b) Proforma Financial Information
At this time, it is impracticable to provide the required pro forma
financial information for Moores Pump and Supply, Inc. Therefore,
the required pro forma financial information will be filed as soon
as they are available and in any event within seventy-five days
after the consummation of the Merger.
(c) Exhibits
Exhibit No.
2 Agreement and Plan of Merger dated as of April 3, 1998 among
Industrial Holdings, Inc., Industrial Holdings Acquisition
One, Inc., Moores Pump and Supply, Inc. and the Shareholders
named herein.
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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
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: April 15, 1998
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EXHIBIT INDEX
Exhibit No.
2 Agreement and Plan of Merger dated as of April 3, 1998 among
Industrial Holdings, Inc., Industrial Holdings Acquisition One,
Inc., Moores Pump and Supply, Inc. and the Shareholders named
herein.
EXHIBIT 2
---------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
INDUSTRIAL HOLDINGS, INC.
INDUSTRIAL HOLDINGS ACQUISITION ONE, INC.
MOORES PUMP AND SUPPLY, INC.
AND THE SHAREHOLDERS NAMED HEREIN
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APRIL 3, 1998
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TABLE OF CONTENTS
PAGE
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ARTICLE I
The Merger and the Surviving Corporation; Conversion of Shares.......1
1.1. The Merger.......................................................1
1.2. Articles of Incorporation and Bylaws of the Surviving
Corporation .....................................................1
1.3. Directors and Officers of the Surviving Corporation..............2
Effective Time of the Merger.....................................2
1.5. Conversion of Company Stock......................................2
1.6. Conversion of Newco Stock.......................................2
ARTICLE II
Representations and Warranties of IHI and Newco.......................3
2.1. Due Organization.................................................3
2.2. Authorization....................................................3
2.3. Capitalization...................................................3
2.4. IHI Shares.......................................................3
2.5. Noncontravention; Approvals......................................4
2.6. Finders and Investment Bankers...................................4
2.7. SEC Filings; Disclosure..........................................4
2.8. Absence of Material Adverse Change...............................5
ARTICLE III
Representations and Warranties of the Company and the Shareholders....5
3.1. Due Organization and Related Matters.............................5
3.2. Authorization....................................................6
3.3. Capitalization...................................................6
3.4. Noncontravention; Approvals......................................6
3.5 Pooling-of-Interests Accounting..................................7
3.6. Financial Statements.............................................7
3.7. Liabilities and Obligations......................................8
3.8. Accounts and Notes Receivable....................................8
3.9. No Violation.....................................................8
3.10. Investigations; Litigation.......................................8
3.11. No Material Adverse Change.......................................9
3.12. Tax Returns and Tax Matters......................................9
3.13. Employee Benefit Plans...........................................9
3.14. Material Contracts and Commitments..............................11
3.15. Licenses and Permits............................................11
3.16. Employee and Labor Relations....................................12
3.17. Employees' Compensation.........................................12
3.18. Questionable Payments...........................................12
3.19. Bank Accounts; Powers of Attorney...............................12
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3.20. Properties and Assets...........................................12
3.21. Insurance.......................................................13
3.22. Proprietary Rights..............................................13
3.23. Absence of Changes..............................................13
3.24 Real Property...................................................14
3.25. Environmental Disclosure........................................15
3.26. Finders and Investment Bankers..................................16
3.27. Competing Lines of Business; Related-Party Transactions.........16
3.28. No Claims Against Company.......................................16
3.29. Accuracy of Representations and Warranties......................16
ARTICLE IV
Transfer Restrictions related to Pooling-of-Interests Accounting
and Intended Tax Treatment..........................................17
4.1. Restrictions on Resale..........................................17
4.2. Tax Free Reorganization.........................................17
ARTICLE V
Investment Representations of the Shareholders.......................17
ARTICLE VI
Deliveries...........................................................19
6.1. Deliveries by IHI and Newco.....................................19
6.2. Deliveries by the Company, the Shareholders and Others..........19
ARTICLE VII
Post-Closing Matters.................................................19
7.1. Future Cooperation; Tax Matters.................................19
7.2. Employee Bonus..................................................19
7.3. Rule 144 Affiliates.............................................20
7.4. Rule 144 Reporting..............................................20
7.5. Release from Shareholder Guarantees.............................20
ARTICLE VIII
Indemnification......................................................21
8.1. Survival of Representations and Warranties......................21
8.2. Indemnification by the Shareholders.............................21
8.3. Indemnification by IHI..........................................21
8.4. Procedure for Indemnification; Third Party Claims...............21
8.5. Procedure for Indemnification; Other Than Third Party Claims....22
8.6. Escrowed Shares and Method of Payment...........................22
8.7. Additional Conditions of Indemnification by the Shareholders....22
8.8. Limitations on Liability of the Shareholders....................23
8.9. Other Rights and Remedies Not Affected..........................24
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ARTICLE IX
Registration of IHI Shares...........................................24
9.1. Registration Obligations........................................24
9.2. Furnish Information.............................................25
9.3. Expenses of Registration........................................25
9.4. Further Assurances..............................................25
ARTICLE X
Noncompetition Covenants.............................................26
10.1. Prohibited Activities...........................................26
10.2. Equitable Relief................................................26
10.3. Reasonable Limitations..........................................27
10.4. Severability; Reformation.......................................27
10.5. Material and Independent Covenant...............................27
ARTICLE XI
Nondisclosure of Confidential Information............................27
11.1. General.........................................................27
11.2. Equitable Relief................................................27
11.3. Survival........................................................28
ARTICLE XII
Miscellaneous........................................................28
12.1. Entire Agreement................................................28
12.2. Notices.........................................................28
12.3. Amendment and Modification......................................29
12.4. Governing Law; Venue............................................29
12.5. Expenses........................................................29
12.6. Assignment......................................................29
12.7. Waiver of Breach................................................29
12.8. Severability....................................................29
12.9. Multiple Counterparts...........................................30
12.10. Construction...................................................30
12.11. Community Interest of Spouses..................................30
CERTIFICATE...........................................................30
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement"), is by and among
Industrial Holdings, Inc., a Texas corporation ("IHI"), Industrial Holdings
Acquisition One, Inc., a Texas corporation and a wholly-owned subsidiary of IHI
("Newco"), Moores Pump and Supply, Inc., a Louisiana corporation (the
"Company"), and Donald P. Carlin ("Carlin"), Alan P. Bernard ("Bernard") Joseph
M. Guillory ("Guillory") and Stephen J. Smith ("Smith") (Carlin, Bernard,
Guillory and Smith individually referred to as a "Shareholder" and collectively
referred to as (the "Shareholders"). The Company and Newco are sometimes
hereafter referred to as the "Constituent Corporations."
WHEREAS, the Boards of Directors of IHI, Newco and the Company have each
approved the merger of Newco with and into the Company (the "Merger") and
adopted this Agreement as a plan of reorganization under Sections 368(a)(1)(A)
and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"),
upon the terms and subject to the conditions set forth herein;
WHEREAS, the Shareholders are the owners of all of the issued and
outstanding shares of capital stock of the Company and have approved the Merger,
upon the terms and conditions and subject to the conditions set forth herein;
and
WHEREAS, the approval of the shareholders of IHI is not required to
effect the Merger and IHI is the sole shareholder of Newco.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER AND THE SURVIVING CORPORATION; CONVERSION OF SHARES
1.1. THE MERGER. In accordance with the provisions of this Agreement, the
Texas Business Corporation Act ("TBCA") and the Louisiana Business Corporation
Law (" LBCL"), as of the Effective Time (as defined in Section 1.4), Newco shall
be merged with and into the Company, and the Company shall be the surviving
corporation (hereinafter sometimes called the "Surviving Corporation") and shall
continue its corporate existence under the laws of the State of Louisiana. At
the Effective Time, the separate existence of Newco shall cease and the
Surviving Corporation shall possess all of the rights, privileges and powers and
all title and interest to all property of the Company and Newco, and all and
every other interest of or belonging to or due to the Company and Newco shall be
taken and deemed to be transferred to and vested in, the Surviving Corporation,
without further act or deed, and without any transfer or assignment having
occurred, but subject to all existing liens thereon. At the Effective Time, all
liabilities and obligations of Newco shall become the liabilities and
obligations of the Surviving Corporation, which shall be the primary obligor
therefor, and all liabilities and obligations of the Company shall remain the
liabilities and obligations of the Surviving Corporation.
1.2. ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION.
As a result of the Merger and at the Effective Time, (i) the Articles of
Incorporation of the Company as in
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effect immediately before the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law; and (ii) the Bylaws of the Company, as in effect immediately before the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law.
1.3. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The officers
and directors of the Company immediately before the Effective Time shall be the
officers and directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation.
1.4. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective when
properly executed Articles of Merger relating to the Merger (the "Merger
Filings"), in the form attached as EXHIBIT A (together with any other documents
required by law to effectuate the Merger), have been filed with the Secretaries
of State of the States of Texas and Louisiana. The Merger Filings shall be made
simultaneously with or as soon as practicable after the execution of this
Agreement and the closing of the transactions contemplated by this Agreement and
in no event no more than 24 hours thereafter. The date and time when the Merger
shall become effective is herein referred to as the "Effective Time."
1.5. CONVERSION OF COMPANY STOCK. By virtue of the Merger and without any
action on the part of the holder of the capital stock of the Company:
(a) Each share of common stock, no par value per share, of the
Company (the "Company Common Stock") issued and outstanding immediately before
the Effective Time (1,198 shares) shall be converted into 1335.5592 shares of
the common stock, par value $0.01 per share, of IHI (the "IHI Shares");
(b) The Company has no treasury shares; and
(c) No fractional shares of IHI shall be issued to any holder of
Company Common Stock in the Merger. To the extent the application of the
conversion rate to all shares of Company Common Stock held by a Shareholder
would result in a fractional share of IHI being issued to such Shareholder in
the Merger, the number of IHI Shares issuable to such Shareholder shall be
rounded to the next whole number of IHI Shares.
1.6. CONVERSION OF NEWCO STOCK. Each share of Newco common stock, no par
value per share (collectively, the "Newco Common Stock"), issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of IHI as the sole holder thereof, be converted
into and exchanged for one fully paid and nonassessable share of common stock,
no par value per share, of the Surviving Corporation (the "Surviving Corporation
Common Stock"). From and after the Effective Time, each outstanding certificate
that previously represented shares of Newco Common Stock shall be deemed for all
purposes to evidence ownership of and to represent the number of shares of
Surviving Corporation Common Stock into which such shares of Newco Common Stock
shall have been converted. Promptly after the Effective Time, the Surviving
Corporation shall issue to IHI a stock certificate or certificates representing
such shares
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of Surviving Corporation Common Stock in exchange for the certificate or
certificates that formerly represented outstanding shares of Newco Common Stock,
which shall be canceled.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF IHI AND NEWCO
In order to induce the Merger, IHI and Newco hereby jointly and severally
represent and warrant to the Company and to the Shareholders as follows:
2.1. DUE ORGANIZATION. Each of IHI and Newco is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and each has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so authorized or qualified would not
have a material adverse effect on its business. IHI has delivered to the Company
accurate and complete copies of the Articles of Incorporation and Bylaws, as
currently in effect, of Newco.
2.2. AUTHORIZATION. Each of IHI and Newco has full legal right, and
authority to execute and deliver this Agreement and the other agreements
contemplated in connection with this Agreement to be executed by IHI, Newco or
the Company (collectively, the "Closing Agreements") and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Closing Agreements have been approved by the Boards of Directors of IHI and
Newco, and no other corporate proceedings on the part of IHI or Newco are
necessary to authorize the execution and delivery of the Closing Agreements or
the consummation of the transactions contemplated thereby. The Closing
Agreements have been duly and validly executed and delivered by each of IHI
and/or Newco, as applicable, and constitute legal, valid and binding agreements
of IHI and Newco, as applicable, enforceable against each of them in accordance
with their respective terms, subject to the laws of general application relating
to bankruptcy, insolvency and relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
2.3. CAPITALIZATION. The authorized capital stock of IHI consists of (i)
50,000,000 shares of common stock, par value $0.01 per share ("IHI Common
Stock") of which 8,322,080 are issued and outstanding as of March 18, 1998, and
(ii) 7,500,000 shares of preferred stock, par value $ 0.01 per share, none of
which are issued and outstanding. The authorized capital stock of Newco consists
of 2,000 shares of Newco Common Stock, of which 1,198 shares are issued and
outstanding and owned by IHI. All issued and outstanding shares of the IHI
Common Stock and Newco Common Stock are validly issued, fully paid and
non-assessable.
2.4. IHI SHARES. The issuance by IHI of the IHI Shares has been duly and
validly authorized by all necessary corporate action on the part of IHI. At the
Effective Time, such shares shall be validly issued, fully paid and
nonassessable and duly listed for trading on the NASDAQ National Market.
2.5. NONCONTRAVENTION; APPROVALS. The execution and delivery of the
Closing Agreements by IHI do not, and the consummation of the transactions
contemplated thereby will not,
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conflict with or result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of a lien, security interest, charge or encumbrance upon any of the
properties or assets of IHI under any of the terms, conditions or provisions of
(i) the Restated Articles of Incorporation or By-laws of IHI; (ii) any statute,
rule, regulation, order or decree of any public body or authority by which IHI
or any of its properties or assets may be bound; or (iii) any note, bond,
mortgage, indenture, license, franchise, permit, agreement or other instrument
or obligation to which IHI is a party, or by which it or its properties or
assets may be bound, excluding from the foregoing clauses (ii) and (iii)
violations, breaches and defaults that, and filings, permits, consents and
approvals the absence of which, either individually or in the aggregate, would
not have a material adverse effect on the business, operations, financial
condition, results of operations or prospects of IHI.
Except for the Merger Filings and such filings as may be required under
federal or state securities laws, no declaration, filing or registration with,
or notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of this
Agreement by IHI or the consummation by IHI of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as the
case may be, would not, in the aggregate, have a material adverse effect on the
business, operations, properties, assets, financial condition results of
operations or prospects of IHI.
2.6. FINDERS AND INVESTMENT BANKERS. Neither IHI nor Newco nor any of
their officers or directors has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
2.7. SEC FILINGS; DISCLOSURE. IHI has filed with the Securities and
Exchange Commission (the "SEC") all material forms, statements, reports and
documents required to be filed by it under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the
"1934 Act") and the respective rules and regulations thereunder, all of which
complied when filed (as amended if applicable) in all material respects with all
applicable requirements of the appropriate Act and the rules and regulations
thereunder. IHI has delivered to the Company a disclosure memorandum, dated
March 25, 1998 (the "IHI Disclosure Memorandum"), containing true and correct
copies of IHI Financial Statements and IHI's Annual Report on Form 10-K for the
year ended December 31, 1997 and IHI's Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30, and September 30, 1997. No representations or
warranties by IHI and Newco in this Agreement and no statement by IHI and Newco
contained herein or in the IHI Disclosure Memorandum, contains any untrue
statement of a material fact or omits any material fact necessary to make the
statements herein or therein not misleading, it being understood that as used in
this section "material" means material to IHI and its subsidiaries (including
Newco) taken as a consolidated whole.
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The audited balance sheet of IHI at December 31, 1997 and the related
statements of income, cash flows and shareholders' equity, together with the
notes thereto, were prepared from the books of account and records of IHI in
accordance with generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved and present
fairly the consolidated financial position of IHI at the dates indicated and the
results of operations, shareholders' equity and cash flows for the periods then
ended.
2.8. ABSENCE OF MATERIAL ADVERSE CHANGE. Except as disclosed in Section
2.8 of the IHI Disclosure Memorandum, since the date of the most recent
financial statements described in Section 2.7. above, there has not been any (i)
material adverse change in the business, operations, properties, assets,
liabilities or condition (financial or otherwise) of IHI, taken as a
consolidated whole with its subsidiaries; (ii) damage or loss, whether covered
by insurance or not, materially or adversely affecting the business, properties
or financial condition of IHI, taken as a consolidated whole with its
subsidiaries, or Newco, (iv) material change by IHI or Newco in accounting
methods or principles used for financial reporting purposes, except as required
by a change in generally accepted accounting principles; or (iv) agreement,
whether in writing or otherwise, to take any action described in this Section
2.8.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
In order to induce the Merger, the Company and the Shareholders hereby
jointly and severally represent and warrant to IHI and Newco as follows:
3.1. DUE ORGANIZATION AND RELATED MATTERS. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Louisiana and has all requisite corporate power and authority necessary
to own, lease and operate its properties and assets and to carry on its
businesses as now being conducted. The Company is duly qualified and in good
standing in every jurisdiction in which it is required by the nature of its
businesses or the ownership or leasing of its properties to so qualify, as shown
in Section 3.1 of the Disclosure Memorandum of the Company, dated April 3, 1998
delivered to IHI (the "Company Disclosure Memorandum"), except to the extent
that any failure to be so qualified or in good standing would not have a
material adverse effect on the business, operations or financial condition of
the Company. Section 3.1 of the Company Disclosure Memorandum also correctly
lists the officers of the Company. The copies of the Articles of Incorporation
and the Bylaws of the Company contained in Section 3.1 of the Company Disclosure
Memorandum are complete and correct copies of such documents as in effect as of
the date of this Agreement. The Company has never conducted business under any
name except the legal name set forth in its certificate or articles of
incorporation. The respective books, records and stock ledgers of the Company
that have been made available to IHI have been properly kept and are up-to-date,
complete and accurate in all material respects, and all registrations and
filings requirements under any applicable federal, state or local law have been
complied with if the failure so to comply would have a material adverse effect
on
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the continued existence, corporate powers or business of such corporation.
Except as disclosed in Section 3.1 of the Company Disclosure Memorandum, the
Company does not (i) own, directly or indirectly, any interest or investment
(whether equity or debt) in any other corporation, partnership, joint venture or
other entity, or (ii) have any outstanding contractual obligations to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any of the foregoing.
3.2. AUTHORIZATION. The Company has full legal right, power and authority
to execute and deliver the Closing Agreements and to consummate the transactions
contemplated thereby. The execution and delivery of the Closing Agreements and
the consummation of the transactions contemplated thereby have been duly and
validly authorized and approved by the Company's Board of Directors and by the
Shareholders. The Shareholders are the owners of all of the issued and
outstanding capital stock of the Company and each Shareholder has the full legal
right, power and authority to execute and deliver the Closing Agreements and to
consummate the transactions contemplated thereby. No other corporate proceedings
on the part of the Company or any of the Shareholders are necessary to authorize
the Closing Agreements and the Merger or the consummation of the transactions
contemplated hereby or thereby. The Closing Agreements have been duly and
validly executed and delivered by the Company and the Shareholders, as
applicable, and constitute legal, valid and binding agreements of the Company
and the Shareholders, as applicable, enforceable against them in accordance with
their respective terms.
Except for the Merger Filings and such filings as may be required under
federal or state securities laws, no declaration, filing or registration with,
or notice to, or authorization, consent, or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of this
Agreement by the Company and the Shareholders or the consummation by the Company
and the Shareholders of the transactions contemplated hereby.
3.3. CAPITALIZATION. The authorized capital stock of the Company consists
of 5,000 shares of Common Stock, of which there are 1,198 shares issued and
outstanding and owned of record and beneficially by the Shareholders in the
respective amounts set forth in Section 3.3 of the Company Disclosure
Memorandum. No shares of Company Common Stock are held in the Company's
treasury. All issued and outstanding shares of Company Common Stock have been
duly authorized and are validly issued, fully paid, and nonassessable and are
owned free and clear of all pre-emptive rights, liens, claims, charges, options
or encumbrances of any kind. No shares of Company Common Stock were issued in
violation of rights of any past or present shareholder. There are no existing
options, warrants, calls, subscriptions, or other rights or other agreements or
commitments obligating the Company to issue, transfer or sell any shares of
capital stock of the Company. The Company has no outstanding bonds, debentures,
notes or other indebtedness having the right to vote (or that is convertible
into securities having the right to vote).
3.4. NONCONTRAVENTION; APPROVALS. The execution and delivery of the
Closing Agreements by the Company and the Shareholders do not, and the
consummation of the transactions contemplated thereby will not, conflict with or
result in a violation or breach of, or constitute a default (or an event that,
with notice or lapse of time or both, would constitute a default) under or
result in any right of termination, cancellation or acceleration under, or in
the creation of a lien, security
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interest, charge or encumbrance upon any of the properties or assets of the
Company or the Shareholders under any of the terms, conditions or provisions of
(i) the Articles of Incorporation or By-laws of the Company; (ii) any statute,
rule, regulation, order or decree of any public body or authority by which the
Company or the Shareholders or any of their respective properties or assets may
be bound; or (iii) except as disclosed in Section 3.4 of the Company Disclosure
Memorandum, any note, bond, mortgage, indenture, lease, license, franchise,
permit, contract, agreement or other instrument or obligation to which the
Company or the Shareholders is a party, or by which either of them or any of
their respective properties or assets may be bound.
3.5 POOLING-OF-INTERESTS ACCOUNTING. The Company has never been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded and, within the past two years, there has not been any sale
or spin-off of a significant amount of assets of the Company or any affiliate of
the Company other than in the ordinary course of business. The Company owns no
capital stock of IHI. The Company has not acquired any of its capital stock
during the past two years. The Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of the Company Common
Stock or any interest therein or to pay any dividend or make any distribution in
respect thereof. Neither the voting stock structure of the Company nor the
relative ownership of shares among any of the Company's shareholders has been
altered or changed within the last two years in contemplation of the Merger.
None of the shares of Company Common Stock was issued pursuant to awards, grants
or bonuses. To the Shareholders' best knowledge, there has been no transaction
or action taken with respect to the equity ownership of the Company in
contemplation of the Merger that would prevent IHI from accounting for the
Merger under the pooling-of-interests method of accounting in accordance with
Opinion No. 16 of the Accounting Principles Board ("Opinion No. 16"). If
required, the Shareholders and the President or Chief Financial Officer of the
Company will execute any documentation reasonably required by IHI's independent
public accountants to enable IHI to account for the Merger as a
pooling-of-interests.
3.6. FINANCIAL STATEMENTS. As part of the Company's Descriptive
Memorandum, dated August 1997, the Company has previously furnished to IHI true
and complete copies of the following (collectively, the "Company Financial
Statements"):
(i) the consolidated balance sheets of the Company as of April 30,
1995, April 30, 1996 and April 30, 1997 and the related statements of income for
the fiscal years then ended, audited by Arthur Andersen LLP; and
(ii) the unaudited balance sheet of the Company at December 31, 1997
(the "Company Balance Sheet," December 31, 1997 being the "Balance Sheet Date")
and the related unaudited statement of income for the eight-month period then
ended.
The Company Balance Sheet is also included in Section 3.6 of the Company
Disclosure Memorandum.
The Company Financial Statements have been prepared from the books and
records of the Company in conformity with generally accepted accounting
principles applied on a basis consistent with preceding years and throughout the
periods involved ("GAAP") and present fairly the financial
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position of the Company at the dates indicated and the results of their
operations for the periods then ended. The books of account of the Company have
been kept accurately in all material respects and the transactions entered into
represent bona fide transactions, and the revenues, expenses, assets and
liabilities of the Company have been properly recorded therein in all material
respects.
3.7. LIABILITIES AND OBLIGATIONS. Except as and to the extent disclosed
and adequately provided for in the Company Financial Statements or in Section
3.7 of the Company Disclosure Memorandum, and except for liabilities and
obligations that have arisen since the Balance Sheet Date in the ordinary course
of business consistent with past practices, the Company has not incurred any
liabilities of a type required by GAAP to be reflected on a balance sheet,
whether accrued, absolute, secured or unsecured, contingent or otherwise.
Section 3.7 of the Company Disclosure Memorandum contains a reasonable estimate
by the Shareholders of the maximum amount which may be payable with respect to
liabilities which are not fixed. For each such liability for which the amount is
not fixed or is contested, the Shareholders have provided to IHI a summary
description of the liability.
3.8. ACCOUNTS AND NOTES RECEIVABLE. Disclosed in Section 3.8 of the
Company Disclosure Memorandum is an accurate list and description of all
accounts and notes receivable owed to the Company at February 28, 1998.
Receivables from and advances to employees, any Shareholder or any entity or
person related to any Shareholder are separately identified in Section 3.8. of
the Company Disclosure Memorandum, and such section also contains an accurate
aging analysis of all accounts as of February 28, 1998, showing amounts due in
30-day aging categories. Except to the extent collected or for which a reserve
is recorded in the Company Balance Sheet, all notes and accounts receivable
reflected on the Company Balance Sheet and in Section 3.8 of the Company
Disclosure Memorandum are, and those accruing from after such date and through
the Effective Time will be, (i) bona fide claims against debtors for sales of
products or deliveries of services or for other charges, (ii) subject to no
known defenses, set-offs or counterclaims, and (iii) collectible in full within
120 days of the date(s) thereof, except to the extent reserved against on the
Company Balance Sheet.
3.9. NO VIOLATION. The businesses of the Company are and have been in
full compliance with all applicable laws, ordinances, regulations, judgments,
decrees, injunctions, orders or statutes, except for violations that,
individually or in the aggregate, do not and are not expected to have a material
adverse effect on the Company's operations, businesses or financial condition.
3.10. INVESTIGATIONS; LITIGATION. Except as disclosed in Section 3.10 of
the Company Disclosure Memorandum, (i) the Company has not received notice of
any investigation or review by any governmental entity with respect to the
Company and no investigation or review by any governmental entity with respect
to the Company is, to the Shareholders' best knowledge, threatened, nor has any
governmental entity indicated to the Company or any Shareholder an intention to
conduct the same, and (ii) there is no action, suit or proceeding pending
(service of process with respect to which has been served on the Company) or, to
the Shareholders' best knowledge, threatened against or affecting the Company at
law or in equity, or before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality. The Company is
not subject to any outstanding order, writ, injunction or decree which
individually or in the aggregate, would have a material adverse effect on the
Company or would prevent or impair its ability to consummate the transactions
contemplated hereby.
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3.11.NO MATERIAL ADVERSE CHANGE. Since the Balance Sheet Date, there has
not been any (i) material adverse change in the business, operations,
properties, assets, liabilities, results of operations or condition (financial
or otherwise) of the Company; (ii) damage or loss, whether covered by insurance
or not, materially or adversely affecting the business, properties or financial
condition of the Company; (iii) material change by the Company in accounting
methods or principles used for financial reporting purposes, except as required
by a change in GAAP or concurred with by the Company's independent public
accountants; or (iv) agreement, whether in writing or otherwise, to take any
action described in this Section 3.11.
3.12.TAX RETURNS AND TAX MATTERS. Except for the review described in
Section 3.7 of the Company Disclosure Memorandum and a revenue agent review for
the tax year ended April 30, 1992, the Company has not been audited or examined
by the IRS. The Company has filed all tax reports and returns required to be
filed by it and has paid all taxes and other charges shown as due on said
reports and returns. The Company is not delinquent in the payment of any tax
assessment or other governmental charge (including, without limitation, any
applicable withholding taxes). The liabilities and accruals for taxes reflected
in the Company Balance Sheet are adequate as of the date thereof and there are
no tax liens upon any property or assets of the Company except liens for current
taxes not yet due and any liens that may exist with regard to state income taxes
that may be due and payable. Neither the Company nor any Shareholder has, with
regard to any assets or property held or acquired, filed a consent to the
application of Section 341(f)(2) of the Code. For the purpose of this Agreement,
the term "tax" shall include all federal, state, local, and foreign taxes,
charges, fees, levies or other assessments, including, without limitations,
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, capital stock and franchise taxes imposed by the United States or
any state, local or foreign government or subdivision or agency thereof
including any interest or penalties applicable thereto.
3.13.EMPLOYEE BENEFIT PLANS.
(a) Section 3.13 of the Company Disclosure Memorandum discloses all
pension, profit-sharing, bonus, incentive, deferred compensation, stock
purchase, stock, stock appreciation right, group insurance, severance pay,
retirement and other employee benefit plans, agreements or arrangements of the
Company or to which the Company is required to contribute and true and correct
copies of the same are included in Section 3.14 of the Company Disclosure
Memorandum. Except for the employee benefit plans, if any, described on Section
3.13 of the Company Disclosure Memorandum, the Company does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor does the Company have any obligation to
contribute to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such as,
for example, and without limitation, any individual retirement account or
annuity, any "excess benefit plan" (within the meaning of Section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on Section 3.13 of the Company Disclosure Memorandum, and is not
required to contribute to any retirement plan pursuant to the
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provisions of any collective bargaining agreement establishing the terms and
conditions or employment of any of the Company's employees.
(b) The Company is not now, and cannot as a result of its past
activities become, liable to the Pension Benefit Guaranty Corporation or to any
multiemployer employee pension benefit plan under the provisions of Title IV of
ERISA. To the Company's and the Shareholders' best knowledge, all employee
benefit plans listed on Section 3.13 and the administration thereof are in
compliance in all material respects with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable federal, state and local statutes, ordinances and regulations.
Except as set forth on Section 3.13 of the Company Disclosure Memorandum, all
accrued contribution obligations of Company with respect to any plan listed on
Section 3.13 of the Company Disclosure Memorandum have either been fulfilled in
their entirety or are fully reflected on the balance sheet of the Company as of
the Balance Sheet Date. All plans listed on Section 3.13 of the Company
Disclosure Memorandum that are intended to qualify (the "Qualified Plans") under
Section 401(a) of the Code are, have been so qualified and have been determined
by the Internal Revenue Service to be so qualified, and copies of the
determination letters relating thereto are included as part of Section 3.13 of
the Company Disclosure Memorandum. Except as disclosed on Section 3.13 of the
Company Disclosure Memorandum all reports and other documents required to be
filed with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or tax
returns) have been timely filed or distributed, and copies of the most recent
provisions thereof are included as part of Section 3.13 of the Company
Disclosure Memorandum. To the Company's and the Shareholders' best knowledge
neither the Shareholders, any plan listed in Section 3.13 of the Company
Disclosure Memorandum nor the Company has engaged in any transaction prohibited
under the provisions of Section 4975 of the Code or Section 406 of ERISA. No
plan listed in Section 3.13 of the Company Disclosure Memorandum has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service or any liability to
the Pension Benefit Guaranty Corporation. There have been no terminations,
partial terminations or discontinuance of contributions to any such Qualified
Plan intended to qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service; no plan listed in Section 3.13 of the
Company Disclosure Memorandum subject to the provisions of Title IV of ERISA has
been terminated; there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Section 3.13; the Company has not incurred liability under Section 4062 of
ERISA; and no circumstances exist pursuant to which the Company could have any
direct or indirect liability whatsoever (including, but not limited to, any
liability to any multi employer plan or the PBGC under Title IV of ERISA or to
the Internal Revenue Service for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other than the
Company that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the Company.
3.14.MATERIAL CONTRACTS AND COMMITMENTS. Except only as to the contracts
and documents contained in Section 3.14 of the Company Disclosure Memorandum,
the Company is not a party to or bound by any written or oral (i) contract not
made in the ordinary course of business; (ii)
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employment contract, (iii) contract with any labor union or association; (iv)
bonus, pension, profit sharing, retirement, stock purchase, hospitalization,
insurance or other plan providing employee benefits; (v) lease with respect to
any property, real or personal, whether as lessor or lessee; (vi) continuing
contract for the future purchase or sale of materials, supplies, equipment or
services; (vii) contract or commitment for capital expenditures; (viii) contract
with any distributor or dealer; (ix) contract continuing over a period of more
than six months from its date (other than those disclosed in the parenthetical
items above); or (x) offer, bid or commitment to enter into any such contract.
Section 3.14 of the Company Disclosure Memorandum sets forth an accurate list of
(i) the top 10 customers in any of the periods covered by the Company Financial
Statements, and (ii) all contracts, commitments, or other similar agreements to
which the Company is currently a party or by which it or any of its properties
is bound, including but not limited to, contracts with customers, leases, loan
agreements, pledge and security agreements, indemnity or guaranty agreements,
bonds, notes, mortgages, joint venture or partnership agreements, options to
purchase real or personal property, and agreement relating to the purchase or
sale by the Company of assets or securities. Section 3.14 of the Company
Disclosure Memorandum contains true, correct and complete copies of all such
agreements.
Except as set forth in Section 3.14 of the Company Disclosure Memorandum,
none of the customer contracts or other material agreements to which the Company
is a party requires notice to, or the consent or approval of, any third party to
any of the transactions contemplated hereby to remain in full force and effect
following such transaction. Except as disclosed in Section 3.14 of the Company
Disclosure Memorandum, none of the Company's customers has cancelled or
substantially reduced or is attempting or threatening to cancel or substantially
reduce its use of the Company's products or services. The Company has complied
in all material respects with all commitments and obligations pertaining to it
under such agreements and to the Shareholders' best knowledge, is not in default
under or in violation of any note, bond, mortgage, indenture, lease, license,
contract or agreement to which the Company is a party or by which any of its
properties or assets may be bound or affected and no notice of default has been
received by the Company and the Shareholders are aware of no basis therefor.
Except as set forth in Section 3.14 of the Company Disclosure Memorandum, the
Company is not now and has not been in the last year a party to any governmental
contracts which by their terms are subject to price redetermination or
renegotiation.
3.15. LICENSES AND PERMITS. Section 3.15 of the Company Disclosure
Memorandum contains an accurate and complete list of all permits, licenses and
authorities as are required in connection with the conduct of its business
operations as now or presently proposed to be conducted (collectively the
"Permits"), except for those that the failure to possess would not have a
material adverse effect on the business, operations, properties, assets,
liabilities or condition (financial or otherwise) of the Company. Each Permit
listed or required to be listed in Section 3.15 is valid and in full force and
effect. The Company is, and at all-times since January 1, 1996 has been, in full
compliance with the terms and provisions of such Permits and, to the
Shareholders' best knowledge, no event has occurred or may be expected to occur
which could result in such non-compliance.
3.16. EMPLOYEE AND LABOR RELATIONS. The Company is not bound by or
subject to any arrangement with any labor union. No employees of the Company are
represented by any labor union or covered by any collective bargaining agreement
nor, to the Shareholders's best knowledge, is there any campaign to establish
such representation in progress. There are no labor controversies
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pending or, to the Company's and the Shareholders' best knowledge, threatened
against the Company. The Company considers its employee relations to be good.
3.17.EMPLOYEES' COMPENSATION. Disclosed in Section 3.17 of the Company
Disclosure Memorandum is a list of the names and annual rates of salary and
other compensation of all the present officers, directors, and salaried
employees of the Company. Section 3.17 of the Company Disclosure Memorandum
discloses the bonuses, profit sharing, percentage compensation and other like
benefits, if any, paid or payable to such officers, directors, and salaried
employees for the fiscal year ended April 30, 1997. Except as disclosed in
Section 3.8 of the Company Disclosure Memorandum, there are no outstanding loans
or advances made by the Company to any director, officer or employee of the
Company.
3.18. QUESTIONABLE PAYMENTS. No Shareholder, officer, director, partner,
employee, agent or other representative of the Company or any person acting on
its behalf has made, directly or indirectly, any bribes, kickbacks or illegal
political contributions with funds of the Company, payments from funds of the
Company not recorded on the books and records of the Company, payments from
funds of the Company that were falsely recorded on the books and records of the
Company, payments from funds of the Company to governmental officials in their
individual capacities, or illegal payments from funds of the Company to obtain
or retain business either within the United States or abroad.
3.19. BANK ACCOUNTS; POWERS OF ATTORNEY. Disclosed in Section 3.19 of the
Company Disclosure Memorandum are (i) the name of each bank, savings and loan or
other financial institution in which the Company has any account or safe deposit
box, the style and number of each such account or safe deposit box and the names
of all persons authorized to draw thereon or have access thereto, and (ii) the
name of each person, corporation, firm, association or business entity or
enterprise holding a general or special power of attorney from the Company and a
description of the terms thereof.
3.20.PROPERTIES AND ASSETS. Contained in Section 3.20 of the Company
Disclosure Memorandum is an accurate list of (i) each item of property included
under "Property and Equipment" on the Company Balance Sheet in excess of $5,000,
and (ii) all leases of personal property, including an indication as to which
assets are currently owned by any Shareholder or an affiliate of any
Shareholder. The Company has good and indefeasible title to all properties and
assets reflected on the Company Balance Sheet as owned by it or acquired after
the date thereof, subject only to (i) statutory liens arising or incurred in the
ordinary course of business with respect to which the underlying obligations are
not delinquent, (ii) with respect to personal property, the rights of suppliers
to and customers of the Company with respect to inventory or work in progress
under orders or contracts entered into by the Company in the ordinary course of
business, (iii) liens for taxes not yet delinquent, or (iv) liens listed in
Section 3.20 of the Company Disclosure Memorandum (including encumbrances to
title or leasehold interest as reflected in the copies of title policies of
insurance attached to the Company Disclosure Memorandum). Except as specifically
identified in Section 3.20 of the Company Disclosure Memorandum, all of the
tangible assets, vehicles and other significant machinery and equipment of the
Company listed in Section 3.20 of the Company Disclosure Memorandum, taken as a
whole, are in reasonably good working order
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and condition, ordinary wear and tear excepted, and have been maintained in
accordance with standard industry practices. All fixed assets used by the
Company that are material to the operation of the Company's business are either
owned by the Company or leased under an agreement identified in Section 3.20 of
the Company Disclosure Memorandum. All leases set forth in Section 3.20 of the
Company Disclosure Memorandum are in full force and effect and, to the knowledge
of the Company and the Shareholders, constitute valid and binding agreements of
the parties thereto in accordance with their respective terms.
3.21. INSURANCE. Section 3.21 of the Company Disclosure Memorandum sets
forth an accurate list of all insurance policies carried by the Company and an
accurate list or all insurance loss runs or workers compensation claims received
for the past three policy years, as well as copies of insurance policies
currently in full force and effect.
3.22. PROPRIETARY RIGHTS. The Company owns, or is licensed under an
effective license to use, all copyrights, trademarks, trade names, patents,
technology, know-how and processes used in or necessary for the conduct of its
businesses as currently conducted. No claim has been asserted by any person with
respect to the use of any material copyright, trademark, trade name, patent,
technology, know-how or process or challenging or questioning the validity or
effectiveness of any such license or agreement, and, to the Company's and the
Shareholders' best knowledge, the use of such material copyrights, trademarks,
trade names, patents, technology, know-how and processes by the Company does not
infringe on the rights of any person.
3.23.ABSENCE OF CHANGES. Since the Balance Sheet Date, the Company has
conducted its operations in the ordinary course and, except as set forth in
Section 3.23 of the Company Disclosure Memorandum, there has not been:
(i) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise) or income of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital stock of the Company or
in its securities outstanding or any change in the Shareholders'
ownership interests or any grant of any options, warrants, calls,
conversion rights or commitments or the declaration or payment of any
dividend or other distribution;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation payable or to become payable by
the Company to any of its officers, directors, Shareholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
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(vi) any work interruptions, labor grievances or claims filed, or
any proposed law, regulation or event or condition of any character
materially adversely affecting the business or future prospects of the
Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, properties or rights of the Company to any person,
including, without limitation, the Shareholders and their affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company;
(ix) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business;
(x) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(xi) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of the Company's business;
(xii) any waiver of any material rights or claims of the Company;
(xiii)any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company
is a party; or
(xiv) any transaction by the Company outside of the ordinary course
of business.
3.24 REAL PROPERTY. Section 3.24 of the Company Disclosure Memorandum
lists by legal description all real property and the ownership thereof that is
owned, leased or used by the Company in its businesses or in which the Company
has an interest (singularly, a "Property," and collectively, the "Properties").
The Company has good and indefeasible fee simple title to all real property
owned by it, free of all easements, restrictions, occupancy agreements, liens,
encumbrances or other matters affecting its title, use or occupancy, except for
(i) liens for nondelinquent ad valorem taxes; and (ii) such easements, liens and
encumbrances as do not materially detract from or interfere with the present use
or reasonably foreseeable use of the Properties subject thereto. The Properties
are fully accessible by public roads and are free from strips, gores and
enclaves. Buildings and improvements on the properties leased by the Company do
not encroach upon any other properties, and there are no encroachments by any
such other buildings and improvements onto any of such leased Properties. The
Properties are served by all necessary utilities, including water, sewage, gas,
waste disposal, electricity, telephone and computer data capabilities sufficient
for the Company's current needs, and the Shareholders are not aware of any
inadequacies with respect to such utilities.
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3.25. ENVIRONMENTAL DISCLOSURE. Included in Section 3.25 of the Company
Disclosure Memorandum are true, correct and complete copies of all environmental
surveys, audits, reports, memoranda, notices and correspondence generated or
received by the Company at any time in the past (i) regarding Hazardous
Materials and Hazardous Materials Activities or (ii) from the Environmental
Protection Agency or any similar federal, state or local environmental
regulatory agency or authority. To the Company's and the Shareholders' best
knowledge, the Company and the Properties are and have been in compliance in all
material respects with all Hazardous Materials Laws, including, but not limited
to, those relating to soil and groundwater contamination. Except as disclosed in
Section 3.25 of the Company Disclosure Memorandum, there are no, nor has there
been any claims or actions pending or, to the Company's and the Shareholders'
best knowledge, threatened against the Company or in respect of any Property by
any governmental entity or agency or any other person or entity under Hazardous
Materials Laws, relating to Hazardous Materials, or otherwise pursuant to
Hazardous Materials Laws, including, without limitation, any claims or actions
relating to the presence of Hazardous Materials on any Property or to any
Hazardous Materials Activities undertaken at any time in the past by the Company
(or, to the Company's and the Shareholder's best knowledge, any predecessor
entity or other person or entity in respect of which the Company may be
obligated by contract or under any Hazardous Materials Laws) whether in
connection with any Property, any real property previously owned or leased by
the Company, or otherwise in connection with the business or operations of the
Company, and whether such claim or action shall be in the nature of an
enforcement, cleanup, removal, warning from a governmental agency, alleged
violation, or other governmental or regulatory action, investigation or proposed
final order, or any private claim or action, or relate to damage, contribution,
cost recovery, compensation, property loss, or personal injury. At no time prior
to the date hereof has the Company, to the Company's and the Shareholders' best
knowledge (or, to the Company's and the Shareholders' best knowledge, any
predecessor entity or other person or entity in respect of which the Company may
be contractually or otherwise obligated), undertaken any Hazardous Materials
Activities in violation of Hazardous Materials Laws that might reasonably be
expected to have a material adverse effect on the business, operations or
financial condition of the Company.
As used in this Section 3.25, the following capitalized terms shall have
the following meanings:
(a) "Hazardous Materials" shall mean flammable explosives,
radioactive materials, oil, asbestos, urea formaldehyde insulation, hazardous
wastes, toxic or contaminated substances or similar materials, to the extent
regulated under laws, rules or regulations relating to pollution or protection
of the environment, including, without limitation, substances defined or
identified as "hazardous substances," "pollutants," "contaminants," "hazardous
materials," or "toxic substances" in any Hazardous Materials Laws.
(b) "Hazardous Materials Activities" shall mean the use, recycling,
reclamation, generation, manufacture, storage, treatment, release, discharge,
handling, disposal or transportation of any Hazardous Materials.
(c) "Hazardous Materials Laws" shall mean all applicable laws,
including without limitation, federal, state or local laws, ordinances, rules,
and regulations in effect as of or prior to
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the date hereof, but not newly promulgated or enacted thereafter, and published
interpretations and orders of courts or administrative agencies or authorities
having jurisdiction over the businesses and operations of a respective entity
relating in any way to pollution or protection of the environment (including,
without limitation, ambient air, surface water, ground water, land surface, and
subsurface strata), including without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended; the
Superfund Amendments and Reauthorization Act of 1987, as amended; the Resource
Conservation and Recovery Act of 1976; as amended; the Hazardous and Solid Waste
Amendments of 1984, as amended; the Hazardous Materials Transportation Act, as
amended; the Water Pollution Control Act of 1972; the Clean Water Act; the Clean
Air Act; the Solid Waste Disposal and Toxic Substances Control Act; the
Insecticide Fungicide and Rodenticide Act; the Occupational Safety and Health
Act of 1970; and other laws relating to pollution or protection of the
environment, or to the manufacture, processing, distribution, use, treatment,
handling, storage, disposal or transportation of Hazardous Materials.
3.26. FINDERS AND INVESTMENT BANKERS. Except for Stephens Inc. and the
fees payable to it as a result of the consummation of the Merger, neither the
Company nor any Shareholder has employed or engaged any broker or finder or
incurred any liability or obligation, contingent or otherwise, for any brokerage
fees, commissions or finders' fees in connection with the transactions
contemplated hereby.
3.27. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in Section 3.27 of the Company Disclosure Memorandum, no Shareholder
or any other affiliate of the Company owns, directly or indirectly, any interest
in, or is an officer, director, employee or consultant of or otherwise receives
remuneration from, any business which is a competitor, lessor, lessee, customer
or supplier of the Company. Except as set forth in Section 3.27 of the Company
Disclosure Memorandum, no officer, director or Shareholder of the Company has,
nor during the period beginning January 1, 1996 through the date hereof, had any
interest in any property, real or personal, tangible or intangible, used in or
pertaining to the Company's business.
3.28. NO CLAIMS AGAINST COMPANY. No Shareholder has any claims, demands,
proceedings or cause of action against the Company, whether in law or at equity.
3.29. ACCURACY OF REPRESENTATIONS AND WARRANTIES. (aNo representation or
warranty by the Company or the Shareholders in this Agreement, nor in any
exhibit or schedule hereto or delivered hereunder, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements therein not misleading. The Company and the Shareholders, by
their execution and delivery of this Agreement, acknowledge that their
representations and warranties, the schedules and the exhibits, and such
statements and certificates have been and will be relied upon by IHI and Newco
in entering into and in performing and observing their obligations pursuant to
this Agreement.
(b) To the extent that any representation or warranty in this Article III
is qualified to the Shareholders' "best knowledge" or "knowledge," it shall mean
the Shareholders' knowledge after reasonable investigation.
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ARTICLE IV
TRANSFER RESTRICTIONS RELATED TO POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
4.1. RESTRICTIONS ON RESALE. IHI has informed the Shareholders that IHI
intends to account for the Merger as a pooling-of-interests under Opinion No.
16. IHI has also informed the Shareholders that its ability to account for the
Merger as a pooling-of-interests was a material factor considered by IHI in
IHI's decision to enter into this Agreement. Therefore, pursuant to Opinion No.
16, prior to the publication and dissemination by IHI of consolidated financial
results which include results of the combined operations of the Company and IHI
for at least 30 days on a consolidated basis following the Effective Time, the
Shareholders shall not sell, offer to sell, or otherwise transfer or dispose of,
any of the IHI Shares received by Shareholders. The certificates evidencing the
IHI Shares to be received by the Shareholders will bear a legend substantially
in the form set forth below.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OF ASSIGNMENT, PRIOR TO AUGUST 17, 1998.
4.2. TAX FREE REORGANIZATION. IHI and the Shareholders are entering into
this Agreement with the intention that the Merger qualify as a tax-free
reorganization for federal income tax purposes and neither the Shareholders nor
IHI will take any actions that disqualify the Merger for such treatment.
ARTICLE V
INVESTMENT REPRESENTATIONS OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants to IHI and Newco as
follows:
(a) He fully understands the nature, scope and duration of
limitations on transfer of the shares of IHI Stock included in this
Agreement.
(b) He has such knowledge and experience in financial and business
matters generally, and in the industry engaged in by IHI specifically, as
to be capable of evaluating the risks and merits of an investment in the
IHI shares.
(c) He has received and reviewed such of the instruments and
documents pertaining to the formation, organization, governance,
operation and business of IHI, including those contained in the IHI
Disclosure Memorandum (collectively, "Documents") as he has deemed
necessary. In making his decision to invest in IHI Shares, he has not
relied upon any oral representation by any representative of IHI or
anyone acting on its behalf.
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(d) He is an "accredited investor," as that term is defined in
Regulation D under the 1933 Act. He acknowledges that he has had an
adequate opportunity to ask questions of the officers and directors of
IHI and receive answers from them concerning the Documents and the
business plan and corporate governance of IHI. He has asked any and all
questions in the nature described in the preceding sentence and has had
all such questions answered to his satisfaction.
(e) He recognizes that the offer and sale by IHI to him of the IHI
Shares has not been and will not be registered under the 1933 Act in
reliance upon the exemptions from registration afforded by Section 4(2)
thereof and the rules and regulations promulgated thereunder, and have
not been and will not be registered under the 1933 Act or any other state
or federal securities or blue sky laws (collectively, the "Securities
Laws") in reliance upon exemptions from the registration requirements
thereof. He is acquiring the IHI Shares solely for his account for
investment purposes and not with a view to, or for offer or resale in
connection with, a distribution thereof in violation of any Securities
Laws. He understands that the effect of such representation and warranty
is that the IHI Shares must be held indefinitely unless the sale or
transfer thereof is subsequently registered under the Securities Laws or
an exemption from such registration is available at the time of any
proposed sale or other transfer thereof. He acknowledges that any resale
of the IHI Shares by him must be made pursuant to an effective
registration statement under the 1933 Act or in compliance with Rule 145
under the 1933 Act. He also understands that IHI is under no obligation
to file a registration statement under the 1933 Act covering the sale or
transfer of any of the IHI Shares except in the circumstances described
in Article IX hereof. He acknowledges that IHI is and will be relying
upon the truth and accuracy of the representations and warranties
contained herein in issuing the IHI Shares to him without first filing a
registration statement with respect thereto under the Securities Laws.
(f) He acknowledges that a legend will be placed on the
certificates representing the IHI Shares in substantially the form set
out below:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
ONLY AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
OR AN OPINION OF COMPANY'S COUNSEL THAT REGISTRATION IS NOT
REQUIRED.
(g) He acknowledges that stop transfer instructions have been or
will be placed with respect to the IHI Shares so as to restrict his
resale or distribution thereof.
(h) He represents that he has no contract, undertaking, agreement
or arrangement, written or oral, with any other person to sell, transfer
or grant participation in any of the IHI Shares to be acquired by him.
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ARTICLE VI
DELIVERIES
6.1. DELIVERIES BY IHI AND NEWCO. Simultaneously with the execution
hereof, (i) Newco has executed and delivered the Articles of Merger attached
hereto as EXHIBIT A; and (ii) IHI has delivered to the Shareholders certificates
representing the IHI Shares.
6.2. DELIVERIES BY THE COMPANY, THE SHAREHOLDERS AND OTHERS.
Simultaneously with the execution hereof, (i) the Company has executed and
delivered the Certificate of Merger attached hereto as EXHIBIT A; (ii) the
Shareholders have executed and delivered to (y) the Escrow Agent, the Escrow
Agreement attached hereto as EXHIBIT B and certificates representing the 160,000
IHI Shares subject to the Escrow Agreement (the "Escrowed Shares"); and (z) IHI,
certificates representing the Company Common Stock; (iii) Guillory has delivered
a check made payable to the Company for all amounts owing to the Company
pursuant to the loans or advances made to him and described in Section 3.8 of
the Company Disclosure Memorandum; (iv) Carlin has delivered to the Company a
promissory note in the original principal amount of $156,591, representing all
amounts owed by him to the Company; (v) the Company, as lessee, has executed and
delivered a Lease Agreement to Crossroads Investments, LLC, as lessor; and (vi)
Bernard has executed and delivered to the Company an Employment Agreement.
ARTICLE VII
POST-CLOSING MATTERS
7.1. FUTURE COOPERATION; TAX MATTERS. The Shareholders and IHI shall each
deliver or cause to be delivered to the other following the Effective Time such
additional instruments as the other may reasonably request for the purpose of
fully carrying out this Agreement. The Shareholders will cooperate and use their
reasonable best efforts to have the present officers, directors and employees of
the Company cooperate with IHI at and after the Effective Time in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Effective Time. IHI will
cooperate with the Shareholders in the preparation of all tax returns covering
the period from the beginning of the Company's current tax year through the
Effective Time. In addition, IHI will provide the Shareholders with access to
such of its books and records as may be reasonably requested by the Shareholders
in connection with federal, state and local tax matters relating to periods
prior to the Effective Time.
7.2. EMPLOYEE BONUS. The parties acknowledge their understanding that the
Company shall pay to the non-shareholder key employees identified in Section 7.2
of the Company Disclosure Memorandum a one-time bonus of up to $275,000 in the
aggregate on or about the date that is 18 months after the Effective Time,
providing those persons are either (i) employed by the Company at such time or
(ii) if not employed by the Company at such time, did not have their employment
terminated (y) as a result of their death or disability, (as such term is
defined in Section 22(c) of the Code); or (z) without cause. For purposes of
this Section 7.2, "cause" shall mean: (a) the employee's failure to perform his
duties in a reasonably satisfactory manner (other than a failure resulting from
incapacity due to physical or mental reasons); (b) the employee's failure to
materially
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comply with the written employee policies of the Surviving Corporation or IHI;
(c) the appropriation (or attempted appropriation) of a material business
opportunity of the Surviving Corporation, including attempting to secure or
securing a personal profit in connection with any transaction entered into on
behalf of the Surviving Corporation; or (d) the employee's fraud or dishonesty
with respect to the business or affairs of the Surviving Corporation or if the
employee is convicted of or pleads nolo contendere or guilty to, any felony
criminal offense or any civil offense involving fraud or moral turpitude, the
equivalent thereof, or any crime with respect to which imprisonment is a
possible punishment.
7.3. RULE 144 AFFILIATES. IHI and the Shareholders agree that immediately
following the Effective Time, no Shareholder will be deemed an "affiliate" of
IHI, as such term is defined for purposes of Rule 144 under the 1933 Act, and
that it is not contemplated that any Shareholder would subsequently be deemed an
affiliate of IHI as a result of his power or authority at IHI or the Surviving
Corporation.
7.4. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of IHI Shares
to the public without registration, IHI agrees to use its commercially
reasonable efforts to:
(a) make and keep public information (as such term is defined in
Rule 144) regarding IHI available;
(b) file with the SEC in a timely manner all reports and other
documents required of IHI under the 1933 Act and the 1934 Act; and
(c) so long as a Shareholder owns any IHI Shares, furnish to such
Shareholder upon written request a written statement by IHI as to its
compliance with the reporting requirements of Rule 144, the 1933 Act and
the 1934 Act, a copy of the most recent annual or quarterly report of
IHI, and such other reports and documents so filed as such Shareholder
may reasonably request in availing itself of any rule or regulation of
the SEC allowing such Shareholder to sell any such shares without
registration.
7.5. RELEASE FROM SHAREHOLDER GUARANTEES. IHI shall use its best efforts
after the Effective Time to have Carlin and Bernard and any other applicable
Shareholder released from personal guarantees of the Company's indebtedness to
First National Bank and to certain vendors of the Company. IHI shall indemnify
and hold harmless the Shareholders from any and all liabilities, obligations and
claims in connection with such guaranties and indebtedness of the Company.
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ARTICLE VIII
INDEMNIFICATION
8.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the parties hereto contained in this Agreement or in any writing
delivered pursuant hereto shall survive the Closing and the consummation of the
transaction contemplated hereby, notwithstanding any investigation by or on
behalf of any party hereto, until the first anniversary of the closing of the
Merger (the "Expiration Date").
8.2. INDEMNIFICATION BY THE SHAREHOLDERS. To the extent provided in this
Article VIII, (and subject in all cases to the provisions of the Escrow
Agreement to the extent an IHI Indemnitee shall elect to recover its Damages
from the Escrowed Shares) the Shareholders shall indemnify and hold harmless
IHI, Newco and the Surviving Corporation, and their respective officers,
directors, employees, shareholders, agents, and representatives (the "IHI
Indemnitees") from and against any liabilities, claims, demands, judgments,
losses, costs, damages or expenses whatsoever (including reasonable attorneys',
consultants' and other professional fees and disbursements of every kind, nature
and description incurred by them in connection therewith) (collectively,
"Damages") that any such indemnified party may sustain, suffer or incur and that
may result from, arise out of or relate to any breach of any representation,
warranty, covenant or agreement of the Company or the Shareholders contained in
this Agreement.
8.3. INDEMNIFICATION BY IHI. To the extent provided in this Article VIII,
IHI shall indemnify and hold harmless the Shareholders from and against any
Damages that the Shareholders may sustain, suffer, or incur and that may result
from, arise out of or relate to any breach of any representation, warranty,
covenant or agreement of IHI contained in this Agreement.
8.4. PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS.
(a) Within 15 days after receipt of notice of commencement of any
action by any third party evidenced by service of process or other legal
pleading, or with reasonable promptness after the assertion in writing of any
claim by a third party, the party entitled to indemnification hereunder
("Indemnified Person") shall give the party obligated to provide indemnification
under Section 8.2 or 8.3 hereof (the "Indemnifying Person") written notice
thereof, together with a copy of such claim, process or other legal pleading.
The failure to so notify the Indemnifying Person within the above time frame
will not relieve the Indemnifying Person of any liability it may have to the
Indemnified Person, except to the extent the Indemnifying Person demonstrates
that the defense of such action is unduly prejudiced by the Indemnified Person's
failure to give such notice. The Indemnifying Person shall have the right to
undertake the defense, settlement, compromise or other disposition thereof at
its own expense and through a legal representative of its own choosing. The
Indemnified Person and its counsel shall have the right to be present at the
negotiation, defense and settlement of such action or claim, and any settlement
or compromise of any such action or claim shall be subject to the approval of
the Indemnified Person, which approval shall not be unreasonably withheld.
(b) If the Indemnifying Person, by the 30th day after receipt of
notice of any such
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claim (or, if earlier, by the 10th day immediately preceding the day on which an
answer or other pleading must be served in order to prevent judgment by default
in favor of the person asserting such claim), has not notified the Indemnified
Person of its election to defend against such claim, the Indemnified Person
shall have the right to undertake the defense, compromise or settlement of such
claim through counsel of its choice on behalf of and for the account and risk of
the Indemnifying Person, at the cost and expense of the Indemnifying Person. In
such event, the Indemnifying Party and its counsel shall have the right to be
present at the negotiation, defense and settlement of such action or claim, and
any settlement or compromise of any such action or claim shall be subject to the
approval of the Indemnifying Party, which approval shall not be unreasonably
withheld.
(c) With regard to claims pursuant to this Section 8.4, any
reasonable fees or expenses of the party undertaking the defense of the claim,
incurred in connection with the defense of such claim, including fees and
expenses of counsel, shall be considered Damages.
8.5. PROCEDURE FOR INDEMNIFICATION; OTHER THAN THIRD PARTY CLAIMS. Any
claim for indemnification for any matter not involving a third-party claim shall
be asserted by written notice to the Indemnifying Person on or before the
Expiration Date.
8.6. ESCROWED SHARES AND METHOD OF PAYMENT. At the Effective Time, IHI
shall issue the Escrowed Shares to the Shareholders and shall deliver the
certificates representing the Escrowed Shares into the Escrow Account maintained
by the Escrow Agent. The Escrow Account shall be subject to the terms of the
Escrow Agreement. All claims by IHI Indemnitees for Damages will be subject to
the additional conditions of Section 8.7 below and the Escrow Agreement and may
be paid either in Escrowed Shares, valued at their closing price on the date of
the closing of the Merger, or in cash, at the option of the Shareholders. All
claims by the Shareholders for Damages shall be paid in cash.
8.7. ADDITIONAL CONDITIONS OF INDEMNIFICATION BY THE SHAREHOLDERS. The
following additional terms and conditions are imposed upon IHI in seeking
indemnification for Damages, whether for a third-party claim or otherwise:
(a) If IHI seeks indemnification for Damages, IHI shall give written
notice of its claim for indemnification (a "Claim Notice") to Bernard, who shall
act as the representative (the "Representative") of the other Shareholders under
this Section 8.7 by the Expiration Date. The Claim Notice shall explain the
basis of the claim in sufficient detail so as to be understandable to a
reasonable person and shall specify the amount of the claim for Damages. If the
amount of a claim is not readily determinable as of the date of the Claim
Notice, IHI shall estimate the amount of the claim for Damages in the Claim
Notice, but also specify therein that the claim has not yet been liquidated (an
"Unliquidated Claim"). If IHI gives a Claim Notice for an Unliquidated Claim,
IHI shall also give to the Representative a second Claim Notice (the "Second
Claim Notice") within 30 days after the amount of the claim becomes finally
determined, and the Second Claim Notice shall specify the amount of the claim.
If the Representative does not object to such claim under Section 8.7(b) below,
then the Representative shall be deemed to have agreed in all respects to IHI's
claim, and shall, five days after the Expiration Date, give written notice to
the Escrow Agent of the
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number of Escrowed Shares to transfer to IHI, which shall have an aggregate
value equal to the amount of such Damages, subject to and net of any offsets,
limitations or adjustments made pursuant to Section 8.8. To the extent that the
value of the Escrowed Shares represented by the certificates so delivered
exceeds the cash value of the Damages, IHI shall promptly deliver to the
Representative certificates issued proportionately to the Shareholders for the
excess balance of the Escrowed Shares. Damages paid to IHI under this Agreement
shall be paid proportionately by the Shareholders according to their
proportionate ownership of the Escrowed Shares.
(b) If the Representative gives IHI written notice of his objections to a
claim of indemnification within 15 days after the later of: (i) the date on
which the Claim Notice for such claim is given under Section 8.7(a); or (ii) the
date on which a Second Claim Notice for such claim is given under Section
8.7(a), the Escrowed Shares shall remain in escrow until the Representative and
IHI have given the Escrow Agent joint written notice of their agreement
regarding the rights of IHI and the Shareholders with respect thereto or until
such rights are determined by binding arbitration in Harris County, Texas, by a
panel of three arbitrators, each of whom shall be a member of the American
Arbitration Association. Either the Representative or IHI may initiate such
arbitration upon 10 days written notice to the other party.
(c) If there is an arbitration, one arbitrator shall be appointed by the
Representative, one arbitrator shall be appointed by IHI and the third
arbitrator shall be selected by the first two arbitrators. Such arbitration
shall take place as soon as practicable after the occurrence of any dispute. In
any such arbitration, each side shall be limited to two depositions and 15
interrogatories, and any hearing shall be limited to a maximum of six weeks,
with the time allocated to each party as the arbitral panel shall determine. If
a decision has not been rendered by the arbitration panel within six months of
the date of the appointment of the panel, either party may cancel the
arbitration and institute other legal proceedings. If such arbitral panel
determines that any or all of the Escrowed Shares are to be transferred to IHI,
the Representative shall, within 20 business days following receipt of a copy of
such determination, join IHI in giving written notice to the Escrow Agent of the
number of Escrowed Shares to transfer to IHI. To the extent that the value of
the Escrowed Shares represented by the certificates so delivered exceeds the
cash value of the Damages, IHI shall promptly deliver to the Representative
certificates issued to the Shareholders for the excess balance of the Escrowed
Shares which shall be held pursuant to this Agreement. All costs of such
arbitration shall be borne equally by IHI and the Shareholders, and each party
shall be responsible for its own costs, including legal fees.
8.8. LIMITATIONS ON LIABILITY OF THE SHAREHOLDERS.
(a) No claim for indemnification shall be made by any IHI Indemnitee
with respect to any matter unless and until the total amount of Damages exceeds
$100,000, and then only for the excess over such amount.
(b) The aggregate liability of the Shareholders in connection with
their indemnification obligations under Section 8.2 shall not exceed the value
of the Escrowed Shares valued as set forth in Section 8.6 hereof.
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(c) No claim for indemnification shall be made hereunder unless
asserted by a written notice given to the Indemnifying Party, on or prior to the
Expiration Date.
(d) Any claim for indemnification for Damages hereunder shall be
offset or reduced by the amount of any tax benefit or insurance proceeds
received by the Indemnified Person as a result of the event giving rise to such
Damages, even though such benefit may arise after the Expiration Date.
(e) The Indemnified Person shall act in good faith and in a
commercially reasonable manner to mitigate any Damages for which it may seek
indemnification under this Article VIII.
8.9. OTHER RIGHTS AND REMEDIES NOT AFFECTED. The foregoing
indemnification provisions are in addition to any statutory, equitable or common
law remedy any party may have for breach of representations, warranties,
covenants or agreements.
ARTICLE IX
REGISTRATION OF IHI SHARES
9.1. REGISTRATION OBLIGATIONS. Within 90 days after the date hereof,
taking into account the restrictions on resale of the IHI Shares pursuant to the
pooling-of-interests rules, IHI shall file a registration statement under any
1933 Act covering the registration of the IHI Shares for resale by the
Shareholders and any initial transferees of the Shareholders. In connection with
such registration statement, IHI shall use its best efforts to cause such
registration statement to become effective and to keep such registration
statement effective until the earlier of (i) the second anniversary date of the
effective date of the registration statement or (ii) the first date on which no
Shareholder or initial transfeee of such Shareholder owns any of the IHI Shares.
In connection with such registration statement, IHI shall, as expeditiously as
reasonably possible:
(a) use its best efforts to prepare and file with the SEC such
amendments and supplements to such registration statement as may be necessary to
comply with the provisions of the 1933 Act;
(b) no less than twenty-four (24) hours prior to filing such
registration statement or prospectus contained therein or any amendment or
supplement thereto, furnish to each Shareholder copies of all documents proposed
to be filed to permit the reasonable and timely review of statements contained
in such documents pertaining to such parties and thereafter furnish to the
Shareholders such number of copies of such registration statement, each
amendment and supplement thereto, such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of the IHI Shares to be received by them pursuant to
this Agreement;
(c) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be
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reasonably requested by the Shareholders, and to keep such registration or
qualification effective during the period such registration statement is to be
kept effective, provided that IHI shall not be required to become subject to
taxation, to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;
(d) use its best efforts to maintain the authorization for quotation
of the securities covered by such registration statement on the Nasdaq National
Market of the Nasdaq Stock Market, Inc.; and
(e) notify each Shareholder, at any time when the Shareholders must
suspend offers or sales of IHI Shares under the registration statement, either
because the prospectus included in such registration statement is required to be
amended for any reason, such as an amendment under the 1933 Act to provide
current information, or because the prospectus includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing. IHI shall use its best efforts to enable the
Shareholders to promptly recommence offers and sales under the registration
statement. Notwithstanding the foregoing and anything to the contrary set forth
in this Section 9.1, each Shareholder acknowledges that there may occasionally
be times when IHI must suspend the use of the prospectus included in such
registrations statement until such time as an amendment to the registration
statement has been filed by IHI and declared effective by the SEC, or until such
time as IHI has filed an appropriate report with the SEC pursuant to the 1934
Act. Each Shareholder hereby covenants that he will not offer or sell any shares
of IHI stock pursuant to such prospectus during the period commencing when IHI
notifies the Shareholders of the suspension of the use of such prospectus and
the reason therefor, and ending when IHI notifies the Shareholder in writing
that he may thereafter effect offers and sales pursuant to such prospectus.
9.2. FURNISH INFORMATION. It is a condition precedent to the obligations
of IHI to take any action pursuant to Section 9.1 hereof with respect to the
registered IHI Shares of any Shareholder that such Shareholder shall furnish to
IHI such information regarding himself, the IHI Shares then held by him and the
intended method of disposition of such securities as shall be required to effect
the registration of such Shareholders' IHI Shares and as may be required from
time to time to keep such registration current.
9.3. EXPENSES OF REGISTRATION. Except as otherwise provided, all expenses
incurred by or on behalf of IHI in connection with registration, filings or
qualifications pursuant to Section 9.1 hereof, including without limitation all
registration, filing and qualification fees, the fees and expenses incurred in
connection with the listing of the IHI Shares to be registered on each security
exchange on which shares of Common Stock of IHI are then listed, printers' and
accounting fees, and fees and disbursements of counsel for IHI, shall be borne
by IHI. In no event shall IHI be obligated to bear underwriting brokerage or
related fees, discounts or commissions or the fees or expenses of counsel to the
Shareholders.
9.4. FURTHER ASSURANCES. Each of IHI and the Shareholders shall agree to
such other reasonable and customary arrangements, undertakings and
indemnifications with respect to the registration of the IHI Shares to be
received by the Shareholders pursuant to the Agreement as may
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be requested by any of them, but shall not be obligated to enter into any
underwriting arrangements. Such indemnifications shall include IHI's indemnity
of Shareholders and their brokers or dealers which may be deemed to be
underwriters as reasonably requested by the Shareholders and their brokers or
dealers against liability, including liability arising under the 1933 Act.
ARTICLE X
NONCOMPETITION COVENANTS
10.1. PROHIBITED ACTIVITIES. (a) The Shareholders will not, for a period
of two years following the Effective Time, directly or indirectly, for
themselves or on behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial or advisory capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business offering products or services in direct
competition with the business conducted by the Company as of the date of
this Agreement both within 100 miles of where the Company conducts
business and specifically, in the Louisiana parishes of Acadia, Allen,
Ascension, Assumption, Avoyelles, Beauregard, Calcasieu, Cameron,
Concordia, East Baton Rouge, East Feliciana, Evangeline, Grant, Iberia,
Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Lasalle,
Livingston, Natchitoches, Plaquemines, Pointe Coupee, Rapides, Sabine,
St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist,
St. Landry, St. Martin, St. Mary, St. Tammany, Tangipahoa, Terrebonne,
Vermilion, Vernon, Washington, West Baton Rouge, West Feliciana and Winn.
(ii) contact any person who is, at that time, an employee of IHI or
any of its subsidiaries for the purpose or with the intent of enticing
such employee to terminate or solicit or induce such employee to
terminate his employment with IHI or any of its subsidiaries; or
(iii) contact, communicate with or solicit any person or entity that
is at that time, or that has been within one year prior to that time, a
customer of IHI or any of its subsidiaries for the purpose of soliciting
or selling services or products in direct competition with IHI or any of
its subsidiaries.
(b) Notwithstanding the above, the foregoing covenant shall not preclude
any Shareholder from acquiring, as a passive investor with no involvement in the
operations of the business, not more than 1% of the capital stock of a business
providing competitive products or services whose stock is publicly traded on a
national securities exchange or over-the-counter.
10.2.EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to IHI as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to IHI for which it
would have no other adequate remedy, each of the Shareholders agrees that IHI
shall be entitled to specific performance, injunctive or other relief in order
to enforce the foregoing covenants.
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10.3. REASONABLE LIMITATIONS. It is agreed by the parties hereto that the
foregoing covenants in this Article X impose contain reasonable limitations on
the Shareholders as to the time, geographical area and scope of the activity to
be restrained, and do not impose a greater restraint than necessary to protect
the goodwill or other legitimate business interest of IHI and the Surviving
Corporation.
10.4. SEVERABILITY; REFORMATION. The covenants in this Article X are
severable and separate, and the unenforceability of any specific covenant shall
not affect the continuing validity and enforceability of any other covenant. If
any court of competent jurisdiction determines that the scope of activity, time
or geographic restrictions set forth in this Article X are unreasonable and
therefore unenforceable, then it is the intention of the parties that such
restrictions shall be considered divisible and may be amended only to such
scope, time and area as are determined to be reasonable by such court.
10.5. MATERIAL AND INDEPENDENT COVENANT. The Shareholders acknowledge
that their agreements with the covenants set forth in this Article X were
material inducements and conditions to IHI's execution and delivery of this
Agreement and to the consummation of the transactions contemplated hereby. All
of the covenants in this Article X shall be construed as an agreement
independent of any other provision in this Agreement.
ARTICLE XI
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1. GENERAL. The Shareholders recognize and acknowledge that they had
in the past, currently have, and in the future will have, access to certain
confidential information of the Company and/or IHI and their businesses, such as
lists of customers and suppliers, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Company and/or IHI.
The Shareholders agree that they will not disclose such confidential information
to any person, firm, corporation, association or other entity for any purpose
whatsoever, except as is required in the course of performing their duties to
the Surviving Corporation and/or IHI, unless (a) such information becomes known
to the public generally through no fault of the Shareholders, or (b) disclosure
is required by law or the order of any governmental authority, provided, that
prior to disclosing any information pursuant to this clause (b) the Shareholders
shall, if possible, give prior written notice thereof to IHI and provide IHI
with the opportunity to contest such disclosure.
11.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which the surviving
corporation and/or IHI would have no other adequate remedy, the Shareholders
agree that the Surviving Corporation and/or IHI shall be entitled to specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the foregoing covenants. Nothing herein shall be construed as
prohibiting IHI from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
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11.3. SURVIVAL. The obligations of the parties under this Article XI
shall survive the termination of this Agreement.
ARTICLE XII
MISCELLANEOUS
12.1. ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto and the agreements and disclosure memorandums expressly
referred to herein, embodies the entire agreement and understanding of the
parties hereto with respect to the subject matter contained herein. There are no
restrictions, promises, representations, warranties, covenants, or undertakings,
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and the understandings between the parties with
respect to such subject matter.
12.2. NOTICES. Any notices permitted or required to be given under the
terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
(a) if to IHI or the Company, to it at:
7135 Ardmore
Houston, Texas 77054
Attention: Christine A. Smith
Telecopier No.: (713) 749-9642
With a copy (which shall not constitute notice) to:
Norton, Jacobs, Kuhn & McTopy, L.L.P.
Texaco Heritage Plaza
1111 Bagby, Suite 2450
Houston, Texas 77002-2546
Attn: Sabrina A. McTopy
Telecopier No.: (713) 659-7341
(b) if to the Shareholders, to their addresses on the signature
pages hereof.
With a copy (which shall not constitute notice) to:
Vinson & Elkins LLP
2800 First City Tower
Houston, Texas 77002-6760
Attn: Robert H. Whilden, Jr.
Telecopier No. (713) 651-5160
28
<PAGE>
The address of any party may be changed by notice given in the manner
provided in this Section 12.2.
12.3. AMENDMENT AND MODIFICATION. This Agreement may be amended, modified
or supplemented only by a written instrument designated as an "amendment" to
this Agreement and signed by the parties hereto, and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only by a written instrument signed
by the person specifically waiving such observance.
12.4. GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED UNDER, ENFORCED AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL
SUBSTANTIVE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS TO BE MADE AND
PERFORMED SOLELY WITHIN SUCH STATE, WITHOUT GIVING EFFECT TO ANY CONFLICTS OR
CHOICE OF LAWS PRINCIPLES WHICH MIGHT OTHERWISE APPLY. EXCEPT WITH RESPECT TO
DISPUTES REGARDING THE ESCROWED SHARES, WHICH THE PARTIES ACKNOWLEDGE SHALL BE
RESOLVED BY ARBITRATION IN ACCORDANCE WITH SECTION 8.7 HEREOF, THE PARTIES AGREE
THAT ANY DISPUTE ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE RESOLVED BY
A COURT OF COMPETENT JURISDICTION IN HARRIS COUNTY, TEXAS.
12.5. EXPENSES. Except as otherwise provided herein, IHI shall pay the
fees and expenses of IHI's representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
the Closing Documents. The Company will pay the fees and expenses of the
Company's representatives, accountants and counsel incurred in connection with
the execution, delivery and performance of this Agreement and the Closing
Documents, including without limitation the fees of Stephens Inc.
12.6. ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; but neither this Agreement nor any
of the rights, interest or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties or by
operation of law, and this Agreement is not intended to confer upon any other
person except the parties (and their successors and permitted assigns) any
rights or remedies hereunder.
12.7. WAIVER OF BREACH. No waiver of any provision of this Agreement
shall constitute a waiver of any other provision of this Agreement, nor shall
such waiver constitute a waiver of any subsequent breach of such provision.
12.8. SEVERABILITY. If any provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
29
<PAGE>
12.9. MULTIPLE COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same instrument.
12.10. CONSTRUCTION. The headings contained in this Agreement are for
reference purposes only and shall not affect this Agreement in any manner
whatsoever. Wherever required by the context, any gender shall include any other
gender, the singular shall include the plural, and the plural shall include the
singular.
12.11. COMMUNITY INTEREST OF SPOUSES. The undersigned spouses of the
Shareholders join in the execution of this Agreement to evidence their knowledge
of its existence and content, to acknowledge that this Agreement is fair,
equitable and in their best interests and to bind their community interest in
the Company Common Stock, and their heirs, beneficiaries, assigns, executors,
and administrators to the representations, covenants and agreements contained in
this Agreement.
CERTIFICATE
Each undersigned secretary hereby certifies that he or she is the
secretary of the indicated corporation that is a party hereto and that this
Agreement has been approved by each party hereto as provided in Section 112 of
the LBCL.
INDUSTRIAL HOLDINGS, INC.
By: /s/ BARBARA SHULER
Barbara Shuler, Secretary
INDUSTRIAL HOLDINGS ACQUISITION ONE, INC.
By: /s/ CHRISTINE A. SMITH
Christine A. Smith, Secretary
MOORES PUMP AND SUPPLY, INC.
By: /s/ ALAN P. BERNARD
Alan P. Bernard, Secretary
30
<PAGE>
IN WITNESS WHEREOF, IHI, Newco and the Company have caused this Agreement
to be signed by their respective duly authorized officers, and the Shareholders
have executed this Agreement, all on April 3, 1998.
INDUSTRIAL HOLDINGS, INC.
By: /s/ ROBERT E. CONE
Robert E. Cone
Chief Executive Officer and President
INDUSTRIAL HOLDINGS ACQUISITION ONE, INC.
By: /s/ ROBERT E. CONE
Robert E. Cone, President
MOORES PUMP AND SUPPLY, INC.
By: /s/ ALAN P. BERNARD
Alan P. Bernard, President
31
<PAGE>
STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
BEFORE ME, the undersigned authority, personally appeared Robert E. Cone,
Chief Executive Officer and President of Industrial Holdings, Inc., known to me
to be the person whose name is subscribed to the foregoing instrument, and being
by me first duly sworn, declared and acknowledged to me that he executed the
same for the purposes and consideration therein expressed and that the
statements contained therein are true and correct.
GIVEN under my hand and seal of office this _____ day of ____________,
1998.
-----------------------------------
Notary Public in and for
the State of T E X A S
-----------------------------------
Printed Name of Notary Public
STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
BEFORE ME, the undersigned authority, personally appeared Robert E. Cone,
President of Industrial Holdings Acquisition One, Inc., known to me to be the
person whose name is subscribed to the foregoing instrument, and being by me
first duly sworn, declared and acknowledged to me that he executed the same for
the purposes and consideration therein expressed and that the statements
contained therein are true and correct.
GIVEN under my hand and seal of office this _____ day of ____________,
1998.
-----------------------------------
Notary Public in and for
the State of T E X A S
-----------------------------------
Printed Name of Notary Public
32
<PAGE>
STATE OF ss.
ss.
COUNTY OF ss.
BEFORE ME, the undersigned authority, personally appeared Alan P.
Bernard, President of Moores Pump and Supply, Inc., known to me to be the person
whose name is subscribed to the foregoing instrument, and being by me first duly
sworn, declared and acknowledged to me that he executed the same for the
purposes and consideration therein expressed and that the statements contained
therein are true and correct.
GIVEN under my hand and seal of office this _____ day of ____________,
1998.
-----------------------------------
Notary Public in and for
the State of T E X A S
-----------------------------------
Printed Name of Notary Public
33
<PAGE>
Address for Notice: THE SHAREHOLDERS
310 Woodbluff /s/DONALD P. CARLIN
Lafayettte, LA 70503 Donald P. Carlin
/s/BONNIE B. CARLIN
Bonnie B. Carlin
212 Old Settlement Road /s/ALAN P. BERNARD
Lafayette, LA 70508 Alan P. Bernard
/s/NANETTE L. BERNARD
Nanette L. Bernard
107 Destiny /s/JOSEPH M. GUILLORY
Lafayette, LA 70506 Joseph M. Guillory
/s/DEBORAH B. GUILLORY
Deborah B. Guillory
808 Bonaire Drive /s/STEPHEN J. SMITH
Lafayette, LA 70506 Stephen J. Smith
/s/SHARON B. SMITH
Sharon B. Smith
34
<PAGE>
ARTICLES OF MERGER
Pursuant to the provisions of article 5.04 of the Texas Business
Corporations Act (the "TBCA"), the undersigned corporations adopt these Articles
of Merger for the purpose of effecting a merger in accordance with the
provisions of article 5.01 of the TBCA.
ARTICLE I
An Agreement and Plan of Merger (the "Plan"), adopted in accordance with
the provisions of article 5.03 of the TBCA, provides for the merger of
Industrial Holdings Acquisition One, Inc. with and into Moores Pump and Supply,
Inc., as the surviving corporation. No amendments or changes shall be made to
the Articles of Incorporation of the surviving corporation. The executed Plan is
on file at the principal place of business of the surviving corporation: 212
Thruway Park Drive, Broussard, Louisiana 70518. A copy of the Plan will be
furnished on written request and without cost, to any shareholder of each
corporation that is a party to the Plan.
ARTICLE II
The name of each of the undersigned corporations and other entities, the
type of such corporation or other entity and the laws of the state under which
it was organized are as follows:
NAME OF CORPORATION OR OTHER ENT TYPE OF ENTITYSTATE
-------------------------------- -------------------
Moores Pump and Supply, Inc. Corporation Louisiana
Industrial Holdings Acquisition One, Inc. Corporation Texas
ARTICLE III
The plan was submitted to the shareholders of each of the undersigned
corporations by their respective Board of Directors. As to each of the
undersigned corporations, the number of shares outstanding, and the designation
and number of outstanding shares of each class entitled to vote as a class on
the Plan, are as follows:
NUMBER OF SHARES
NUMBER OF ENTITLED TO
NAME OF CORPORATION OUTSTANDING SHARES VOTE AS A CLASS
- ------------------- ------------------ ---------------
Moores Pump and Supply, Inc. 1,198 Common 0
Industrial Holdings Acquisition
One, Inc. 1,198 Common 0
<PAGE>
ARTICLE IV
The Plan was approved by the unanimous consent of the shareholders of
each of Moores Pump and Supply, Inc. and Industrial Holdings Acquisition One,
Inc.
ARTICLE V
The Plan and the performance of its terms were duly authorized by all
actions required by laws under which each corporation was incorporated or
organized and by its constituent documents.
ARTICLE VI
The merger will become effective upon the issuance of the certificate of
merger by the Secretary of State, in accordance with the provisions of article
5.05 of the TBCA.
DATED April 3, 1998
SURVIVING CORPORATION:
MOORES PUMP AND SUPPLY, INC.
By:_____________________________________
Alan P. Bernard, President
MERGED CORPORATION:
INDUSTRIAL HOLDINGS ACQUISITION ONE,
INC.
By:______________________________________
Robert E. Cone,
President and Chief Executive Officer
