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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: JUNE 21, 1996
(Date of earliest event reported)
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CONSOLIDATED STAINLESS, INC.
(Exact name of registrant as specified in its charter)
--------------------------------
DELAWARE 00-22690 59-1669166
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation or No.)
organization)
1601 EAST AMELIA STREET, ORLANDO, FLORIDA 32803
(Address of principal executive offices, zip code)
(407) 896-4000
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
On June 21, 1996, the Company acquired Twenty-First Century Metals, Inc.,
an Illinois corporation (a distributor of stainless steel products) (the "New
Subsidiary") by merger (the "Merger") pursuant to an Agreement and Plan of
Merger dated as of May 17, 1996, a copy of which is attached as Exhibit 10.1.
In connection with the acquisition, the Company agreed to guaranty the
obligations of New Subsidiary to make payments of $1,185,312 for inventory
acquired by New Subsidiary from a vendor prior to closing the Merger. A copy of
the applicable agreements with respect to the payment for the inventory and
related guaranty are attached hereto as Exhibits 10.2, 10.3 and 10.4,
respectively.
ITEM 7. EXHIBITS.
10.1 Agreement and Plan of Merger between the Company, Twenty-First
Century Metals, Inc. and related affiliates dated May 17, 1996.
10.2 Agreement between Twenty-First Century Metals, Inc. (subsidiary
of Company) and Innovation Group, Ltd. dated June 21, 1996.
10.3 Amended Security Agreement between Twenty-First Century Metals,
Inc. and Innovation Group, Ltd. dated June 21, 1996.
10.4 Guaranty of Company in favor of Innovation Group, Ltd. dated June
21, 1996.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONSOLIDATED STAINLESS, INC.
(Registrant)
Date: July 31, 1996 By: /s/ Ronald Adams
-- ----------------------------------
Ronald Adams
President and Chief Executive Officer
Steel\8K-3896
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EXHIBIT INDEX
Exhibit 10.1. Agreement on Plan of Merger between the Company, Twenty-First
Century Metals, Inc. and related affiliates dated May 17, 1996.
Exhibit 10.2. Agreement between Twenty-First Century Metals, Inc. (subsidiary
of Company) and Innovation Group, Ltd. dated June 21, 1996.
Exhibit 10.3 Amended Security Agreement between Twenty-First Century Metals,
Inc. and Innovation Group, Ltd. dated June 21, 1996.
Exhibit 10.4. Guaranty of Company in favor of Innovation Group, Ltd. dated June
21, 1996.
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), entered into as of this
17th day of May, 1996, by and among CONSOLIDATED STAINLESS, INC., a Delaware
corporation having offices at 2170 West State Road 434, Suite 330, Longwood,
Florida 32779 ("CSI"); TWENTY-FIRST CENTURY METALS ACQUISITION CORP., an
Illinois corporation, (the "Merger Subsidiary"), having offices at 2170 West
State Road 434, Suite 330, Longwood, Florida 32779; TWENTY-FIRST CENTURY
METALS, INC., an Illinois corporation, having offices at 990 Lunt Avenue, Elk
Grove, Illinois 60007 (the "Company"); and CHARLES KAFENSHTOK, ("Kafenshtok")
having a residence address at 299 Hastings Avenue, Highland Park, Illinois 60035
and STEPHEN AVERY ("Avery"), having a residence address at 3125 Cranston Court,
Wilmette;, Illinois 60091 (Messrs. Kafenshtok and Avery hereinafter referred to
collectively as the "Stockholder").
W I T N E S S E T H:
WHEREAS, the Stockholder is the record and beneficial owner of all of the
issued and outstanding shares of the capital stock of the Company (the "Stock");
and the Company is engaged primarily in the business of marketing, distributing
and selling stainless steel pipe, valves and fittings and related goods and
services; and
WHEREAS, the Merger Subsidiary is the wholly-owned subsidiary of CSI, which
Merger Subsidiary will statutorily merge with and into the Company (such merger
being referred to herein as the "Merger") and thereby vest title in all of the
outstanding shares of the Company in the name of CSI, pursuant to and in
accordance with the terms and conditions of this Agreement; and
WHEREAS, the Board of Directors and the Stockholder of the Company, the
Board of Directors of CSI and the Board of Directors of the Merger Subsidiary
and CSI, as sole stockholder of the Merger Subsidiary, have all authorized and
approved the Merger and the consummation of the other transactions contemplated
by this Agreement, all on the terms and subject to the conditions set forth in
this Agreement;
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NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereby covenant and agree
as follows:
1. THE MERGER.
1.1 THE MERGER. At the time of the Closing on the Closing Date (as
hereinafter defined) and in accordance with the provisions of this Agreement and
the applicable provisions of the corporation laws of the jurisdiction in which
the Merger is to take place (in such instance, "Applicable Law"), the Merger
Subsidiary shall be merged with and into the Company, in accordance with the
terms and conditions of this Agreement and a certificate of merger in
substantially the form of EXHIBIT A annexed hereto, subject to such changes as
to form (but not substance) as may be required by Applicable Law, hereinafter
referred to as the "Articles of Merger". The Company shall be the surviving
corporation of the Merger (the Company, in such capacity, being hereinafter
sometimes referred to as the "Surviving Corporation"). Thereupon, the separate
existence of the Merger Subsidiary shall cease, and the Company, as the
Surviving Corporation, shall continue its corporate existence under Applicable
Law under its current name.
1.2 EFFECTIVENESS OF THE MERGER. As soon as practicable upon or
after the satisfaction or waiver of the conditions precedent set forth in
Sections 8 and 9 of this Agreement, the Merger Subsidiary and the Company will
execute appropriate Articles of Merger, and shall file or cause to be filed such
Articles of Merger with the Secretary of State of the jurisdiction in which the
Merger Subsidiary and Company are incorporated; and the subject Merger shall
become effective as of the date thereof, and the Closing shall be deemed to
occur as of the last such effective date in accordance with Section 10 of this
Agreement.
1.3 EFFECT OF THE MERGER. Upon the effectiveness of the Merger, (a)
the Surviving Corporation shall own and possess all assets and property of every
kind and description, and every interest therein, wherever located, and all
rights, privileges, immunities, powers, franchises and authority of a public as
well as of a private nature, of the Merger Subsidiary and Company (the
"Constituent Corporations"), and all obligations owed to, belonging to or due to
each of the Constituent Corporations, all of which shall be vested in the
Surviving Corporation pursuant to Applicable Law without further act or deed,
and (b) the Surviving Corporation shall be liable for all claims, liabilities
and obligations of the Constituent Corporations, all of which shall
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become and remain the obligations of the Surviving Corporation pursuant to
Applicable Law without further act or deed.
1.4 SURVIVING CORPORATION. Upon the effectiveness of the Merger, the
Articles of Incorporation, By-Laws, directors and officers of the Surviving
Corporation shall be identical to those of the subject Company as in effect
immediately prior to the effectiveness of such Merger, subject, however, to
those resignations tendered in accordance with Section 8.11 of this Agreement
(all of which shall be deemed effective upon the effectiveness of such Merger).
1.5 STATUS AND CONVERSION OF SHARES. Upon the effectiveness of the
Merger:
(a) Each share of capital stock held by the Company as treasury
stock immediately prior to the effectiveness of the Merger shall be canceled
and extinguished, and no payment or issuance of any consideration shall be
payable or shall be made in respect thereof;
(b) Each share of common stock of the Merger Subsidiary
outstanding immediately prior to the effectiveness of the Merger shall be
converted into and shall become one (1) share of common stock of the Surviving
Corporation; and
(c) Each share of capital stock of the Company (the "Company
Stock") issued and outstanding immediately prior to the effectiveness of the
Merger shall be canceled and extinguished and converted into the right to
receive a proportionate amount of the consideration payable in respect of all of
the outstanding shares of such Company Stock pursuant to Section 2 of this
Agreement. Such consideration shall be paid and delivered to the Stockholder,
as the only holder of the outstanding Company Stock, upon surrender to the
Surviving Corporation of the certificates representing such shares of
outstanding Company Stock at the time and place of the Closing as provided in
Section 10 of this Agreement.
1.6 BOOKS AND RECORDS. On the Closing Date, the Stockholder shall
deliver, and shall cause the Company to deliver, to CSI all of the stock books,
records and minute books of the Company, all financial and accounting books and
records of the Company, all tax returns and records of the Company, and all
supplier, client, customer, sales and other business records of the Company.
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2. MERGER CONSIDERATION.
2.1 MERGER CONSIDERATION. In exchange for 100% of the issued and
outstanding shares of capital stock of the Company, the consideration to be
received by the Stockholder in the Merger (the "Merger Consideration") shall
consist of the following:
(a) An amount in cash (the "Cash Consideration") which shall equal
the aggregate sum of One Hundred Thousand Dollars ($100,000.00), and
(b) An aggregate of 30,000 shares (subject to adjustment as
hereinbelow provided) of Common Stock of CSI (the "CSI Stock" or "CSI Shares")
which CSI Stock shall not be registered under the Securities Act of 1933, as
amended. The initial aggregate shares comprising the CSI Stock shall be
adjusted at Closing as follows:
(i) $300,000.00 shall be divided by the Discounted Amount (as
defined in Section 7.1 of this Agreement) the quotient of which shall represent
the adjusted shares, subject to further adjustment as provided hereunder; and
(ii) If the Equity (hereinafter defined) as determined by CSI
based upon the March 31, 1996 Audited Financial Statements (as defined in
Section 6.1 of this Agreement) and such other information as CSI deems
reasonably necessary to make such determination (the "March 31, 1996 Equity") is
less than $250,000.00, then the number of shares of Common Stock included in the
CSI Stock shall be decreased by one share of CSI Common Stock for each $10.00
(which dollar amount is subject to adjustment in accordance with procedures for
determining the Discounted Amount as provided in Section 7.1(a) of this
Agreement) by which the March 31, 1996 Equity is less than $250,000.00; and
PROVIDED FURTHER, that if the difference between the March 31, 1996 Equity and
$250,000.00 is not a dollar amount evenly divisible by the Discounted Amount,
the number of shares by which the CSI Stock shall be decreased shall be rounded
down to the nearest whole number of shares. For illustration purposes only, if
the March 31, 1996 Equity is $235,007.00, then the CSI Stock shall be decreased
by 1,499 shares ($250,000.00 -$235,007.00 = $14,993.00; $14,993.00 DIVIDED BY 10
= 1,499.3; the CSI Stock will be decreased by 1,499 shares), which adjustment
shall be in addition to any adjustment to CSI Stock made under clause (i) above;
and
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(iii) Any accounts receivable of the Company which are more than
90 days old at the Closing Date (whether or not such accounts receivable are
past due) shall be assigned to the Stockholder and the number of shares of CSI
Common Stock included in the CSI Stock shall be reduced by one share of CSI
Common Stock for each $10.00 face value (subject to adjustment as the Discounted
Amount) of Company accounts receivable so assigned (with the number of shares by
which the CSI Stock is reduced being rounded down to the nearest whole number of
shares).
(c) The shares of CSI Stock issued at the Closing shall be subject to the
terms and conditions of the Subscription Agreement in the form of EXHIBIT B
annexed hereto and made a part hereof as concerns, among other things,
Stockholder investment intent and acknowledgment of (i) disclosure made by CSI
and (ii) transfer restrictions on the CSI Stock. The term "Equity" means the
stockholders equity of the Company, as determined in accordance with generally
accepted accounting principles (GAAP). The CSI Stock shall be subject to
adjustment and an escrow as provided in Sections 7.1 and 7.2 of this Agreement.
3. FURTHER ASSURANCES.
From time to time from and after the Closing, the parties shall
execute and deliver, or cause to be executed and delivered, any and all such
further agreements, certificates and other instruments, and shall take or cause
to be taken any and all such further action, as any of the parties may
reasonably deem necessary or desirable in order to carry out the intent and
purposes of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.
Each of Kafenshtok and Avery, jointly and severally hereby represents
and warrants to CSI and the Merger Subsidiary as follows:
4.1 TITLE TO THE STOCK. The Stockholder has good, valid and
marketable title to the Stock in the amounts and proportions as set forth on
SCHEDULE 4.1 annexed hereto, all of which Company Stock has been duly authorized
and validly issued and is fully paid and non-assessable, and is (and on the
Closing Date will be) free and clear of all pledges, liens, claims, charges,
options, calls, encumbrances, restrictions and assessments whatsoever (except
any restrictions which may be created by operation of state or federal
securities laws). The Stockholder is the only record and beneficial owner of
100% of the issued and outstanding shares of Company Stock.
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4.2 VALID AND BINDING AGREEMENT.
(a) The execution, delivery and performance of this Agreement
and the consummation of the Merger and the other transactions contemplated
hereby by the Company have been duly and validly authorized by the Board of
Directors and the stockholders of the Company, and the Company has the full
legal right, power and authority to execute and deliver this Agreement, to
perform its obligations hereunder, and to consummate the transactions
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except to the extent limited by bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights generally, and except
that the remedy of specific performance or similar equitable relief is available
only at the discretion of the court before which enforcement is sought.
(b) The Company and the Stockholder have full legal right, power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement and, when executed and
delivered by the Stockholder, the Non-Competition Agreement (as such term is
hereinafter defined), constitutes and will constitute the legal, valid and
binding obligations of the Company and the Stockholder (as applicable),
enforceable against the Company and the Stockholder (as applicable) in
accordance with their respective terms, except to the extent limited by
bankruptcy, insolvency, reorganization and other laws affecting creditors'
rights generally, and except that the remedy of specific performance or similar
equitable relief is available only at the discretion of the court before which
enforcement is sought.
4.3 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company:
(a) is a corporation duly organized, validly existing and in good standing under
the laws of its state of incorporation; (b) has all necessary corporate power
and authority to carry on its business and to own, lease and operate its
properties; and (c) except as and to the extent set forth in SCHEDULE 4.3
annexed hereto, is qualified to do business as a foreign corporation in each
foreign jurisdiction where such qualification is required by law. True and
complete copies of the Articles of Incorporation and By-Laws of the Company
(including all amendments thereto), and a correct and complete list of the
officers and directors of the Company, are annexed hereto as part of SCHEDULE
4.3.
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4.4 CAPITAL STRUCTURE; STOCK OWNERSHIP.
(a) The authorized capital stock of the Company is as set forth
in its Articles of Incorporation contained in SCHEDULE 4.3, and the Company
Stock constitutes all of the issued and outstanding capital stock of the
Company. The shares of the Stock and the record and beneficial owner thereof is
as set forth on SCHEDULE 4.1, and no other shares of capital stock of the
Company are issued or outstanding.
(b) There are no outstanding subscriptions, options, rights,
warrants, convertible securities or other agreements or calls, demands or
commitments obligating the Company to issue, transfer or purchase any shares of
its capital stock, or obligating any Stockholder to transfer any shares of
Company Stock owned by such Stockholder. No shares of capital stock of the
Company are reserved for issuance pursuant to stock options, warrants,
agreements or other rights to purchase capital stock.
4.5 SUBSIDIARIES AND INVESTMENTS. The Company does not own, directly
or indirectly, any stock or other equity securities of any corporation or
entity, or has any direct or indirect equity or ownership interest in any
person, firm, partnership, corporation, venture or business other than the
business conducted by the Company, except as contained in SCHEDULE 4.5.
4.6 FINANCIAL INFORMATION. SCHEDULE 4.6 annexed hereto contains:
(i) an aging schedule of accounts receivable and accounts payable of the Company
as of March 31, 1996; (ii) a list of the outstanding principal balance of and
approximate accrued interest on all indebtedness including without limitation
accounts payable and loans and/or notes payable of the Company as of March 31,
1996; (iii) a list of all obligations of the Company to any of the stockholders
of the Company and/or any of their respective Affiliates on the date hereof;
(iv) a list of all obligations of the Company guaranteed by any of the
stockholders of the Company on the date hereof, and the terms of such
guarantees; and (v) a list reflecting the nature and amount of all obligations
owed to the Company on the date hereof by any of the stockholders of the Company
and/or any of their respective Affiliates. Wherever used in this Agreement, the
term "Affiliate" means, as respects any person or entity, any other person or
entity that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with the first person or
entity.
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4.7 NO MATERIAL CHANGES. Except as and to the extent described in
SCHEDULE 4.7 annexed hereto (which Schedule may make reference to any other
Schedule hereto), since March 31, 1996, the business of the Company has
continued to be operated only in the ordinary course, and there has not been:
(a) Any material change in the financial condition, operations
or business of the Company from that shown on the Audited Financial Statements
(as hereinafter defined), or any material transaction or commitment effected or
entered into outside of the normal course of the Company's business;
(b) Any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting the business, operations,
assets, properties, financial condition or prospects of the Company;
(c) Any declaration, setting aside or payment of any dividend or
other distribution with respect to the Company Stock, any other payment of any
kind by the Company to any of the stockholders of the Company or any of their
respective Affiliates outside of the ordinary course of business, any
forgiveness of any debt or obligation owed to the Company by any of the
stockholders of the Company or any of their respective Affiliates, or any direct
or indirect redemption, purchase or other acquisition by the Company of any
capital stock of the Company; or
(d) Any other event or condition arising from or out of the
operation of the Company which has or may materially and adversely affect the
business, financial condition, results of operations or prospects of the
Company.
4.8 TAX MATTERS.
(a) TAX RETURNS AND AUDITS.
(i) Except as and to the extent disclosed in SCHEDULE 4.8
annexed hereto: [i] on the date hereof and on the Closing Date, all federal,
state and local tax returns and tax reports required to be filed by the Company
on or before the date of this Agreement or the Closing Date, as the case may be,
have been and will have been timely filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed; [ii] all federal, state and local income, franchise, sales, use,
property, excise and other taxes (including interest and penalties and including
estimated tax installments where required to be filed and paid) due from or
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with respect to the Company as of the date hereof and as of the Closing Date
have been and will have been fully paid, and appropriate accruals shall have
been made on the Company's books for taxes not yet due and payable; [iii] as of
the Closing Date, all taxes and other assessments and levies which the Company
is required by law to withhold or to collect on or before the Closing Date will
have been duly withheld and collected, and will have been paid over to the
proper governmental authorities to the extent due and payable on or before the
Closing Date; and [iv] there are no outstanding or pending claims, deficiencies
or assessments for taxes, interest or penalties with respect to any taxable
period of the Company. At and after the Closing Date, the Company will not have
any liability for any federal, state or local income tax with respect to any
taxable period ending on or before the Closing Date, except as and to the extent
disclosed in SCHEDULE 4.8. Discretionary decisions made by CSI and its
management with respect to filing or amending any tax returns of the Company
concerning periods ended on or prior to the Closing Date, which decisions are
not required under applicable law and which decisions result in additional
liability to the Company other than as disclosed in this Agreement or the
Schedules annexed hereto, shall not result in any breach of representations and
warranties contained in this Section 4.8(a).
(ii) There are no audits pending with respect to any
federal, state or local tax returns of the Company, and no waivers of statutes
of limitations have been given or requested with respect to any tax years or tax
filings of the Company.
(b) SUBCHAPTER S STATUS. Neither the Company nor the
Stockholder has made any disproportionate distributions to Stockholder or taken
any other action that would result in the Company, retroactively from the
Closing Date, being disqualified as an "S Corporation" as such term is defined
in the Internal Revenue Code of 1986, as amended, and regulations promulgated
thereunder.
4.9 PERSONAL PROPERTY; LIENS. The Company has and owns good and
marketable title to all of its personal property, free and clear of all liens,
pledges, claims, security interests and encumbrances whatsoever, except for:
(a) liens securing the Company's indebtedness for money borrowed as reflected in
the Audited Financial Statements, pursuant to the security agreements listed in
SCHEDULE 4.9 annexed hereto; (b) liens securing the deferred purchase price of
machinery, equipment, vehicles and/or other fixed assets, as indicated on
SCHEDULE 4.9; (c) liens for current taxes not yet due and payable or which are
being contested in good faith by appropriate proceedings; and
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(d) liens, pledges, claims, security interests, encumbrances, mortgages,
conditions or restrictions which are not, individually or in the aggregate,
material in character or amount and do not interfere with the use made or
presently proposed to be made of any such property (collectively, "Permitted
Liens"). All material items of machinery, equipment, vehicles and other fixed
assets owned or leased by any Company are listed in SCHEDULE 4.9 annexed hereto,
and, except as and to the extent disclosed in SCHEDULE 4.9, all of such fixed
assets are in good operating condition and repair (reasonable wear and tear
excepted) and are adequate for their use in the subject Company's business as
presently conducted.
4.10 REAL PROPERTY.
(a) The Company does not own or have any interest of any kind
(whether ownership, lease or otherwise) in any real property except to the
extent of the Company's leasehold interest under the lease for its business
premises, and true and complete copies of all real property leases (including
all amendments thereto) to which the Company is a party in any capacity are
annexed hereto as SCHEDULE 4.10 (the "Leases").
(b) The Company (and, to the best of the Stockholder's
knowledge, the landlord thereunder) is presently in compliance with all of its
obligations under the Leases, and the premises leased thereunder are in good
condition (reasonable wear and tear excepted), are adequate for the operation of
the Company's business as presently conducted, and a default, termination, or
modification of currently effective payment or other terms thereunder will not
be effected as a result of consummation of the Merger and the transactions
contemplated by this Agreement.
4.11 ACCOUNTS RECEIVABLE.
(a) All accounts receivable shown on the Audited Financial
Statements, and all accounts receivable thereafter created or acquired by the
Company prior to the Closing Date (the "Accounts"), have arisen or will arise in
the ordinary course of the Company's business.
(b) The Stockholder is not aware of any asserted counterclaims
or set-offs in respect of any of such Accounts, or any state of facts, events or
occurrences which would impair the collection of such Accounts in the ordinary
course of business; PROVIDED that it shall not be a breach of this Section
4.11(b) if the total of all uncollected Accounts does not exceed the greater
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of (i) $10,000.00 or (ii) the amount of the allowance for doubtful accounts of
the Company reflected in the Audited Financial Statements.
4.12 INVENTORIES. All inventories shown on the Audited Financial
Statements, and all inventories thereafter created or acquired by the Company
prior to the Closing Date, have been and will be valued at the lower of average
cost or market according to generally accepted accounting principles ("GAAP"),
and consisted and will consist of items which are of a quality and quantity
which are useable in the ordinary course of the Company's business. All of such
inventories have received all necessary governmental and agency approvals (all
of which approvals are in full force and effect) and comply with all laws and
regulations applicable thereto.
4.13 INSURANCE POLICIES. SCHEDULE 4.13 annexed hereto contains a
true and correct schedule of all insurance coverage held by the Company
concerning its business and properties; and except as set forth on SCHEDULE 4.13
such coverage insures all of the Company's assets for the full replacement cost
thereof (net of reasonable deductibles), and are adequate for the normal
operation of the Company's businesses.
4.14 PERMITS AND LICENSES. Except as set forth in SCHEDULE 4.14
annexed hereto, the Company possesses all required permits, licenses and/or
franchises, from whatever governmental authorities or agencies (domestic and/or
foreign) requiring the same and having jurisdiction over the Company, necessary
in order to operate its business in the manner presently conducted, all of which
permits, licenses and/or franchises are valid, current and in full force and
effect; and none of such permits, licenses or franchises will be voided, revoked
or terminated, or voidable, revocable or terminable, upon and by reason of the
Merger and consummation of the transaction contemplated by this Agreement.
4.15 CONTRACTS AND COMMITMENTS.
(a) SCHEDULE 4.15 annexed hereto lists all material contracts,
leases, commitments, indentures and other agreements to which any Company is a
party (collectively, "Material Contracts"), except that SCHEDULE 4.15 need not
list any such agreement that is listed on any other Schedule hereto, or was
entered into in the ordinary course of the business of the Company and that, in
any case: (i) is for the purchase of supplies or other inventory items in the
ordinary course of business; (ii) is related to the purchase or lease of any
capital asset involving aggregate payments of less than $10,000.00 per annum;
or (iii) may be terminated without penalty, premium or
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liability by the subject Company on not more than thirty (30) days' prior
written notice.
(b) To the best of the Stockholder's knowledge, except as set
forth in SCHEDULE 4.15: (i) all Material Contracts are in full force and
effect; (ii) the Company has received any written notice that any Material
Contract is in material breach or default or is now subject to any condition or
event which has occurred and which, after notice or lapse of time or both, would
constitute a material default by any party under any such contract, lease,
agreement or commitment; and (iii) none of the Material Contracts will be
voided, revoked or terminated, or voidable, revocable or terminable, upon and by
reason of the Merger and the consummation of the transactions contemplated by
this Agreement.
(c) To the best of the Stockholder's knowledge, no purchase
commitment by the Company is in excess of the normal, ordinary and usual
requirements of the business of the Company.
(d) Except for the Leases and otherwise as set forth in SCHEDULE
4.15, the Company does not have any outstanding contracts or commitments that
are not cancelable by the Company without penalty, premium or liability (for
severance or otherwise) on less than thirty (30) days' prior written notice.
(e) There is no outstanding power of attorney granted by the
Company to any person, firm or corporation for any purpose whatsoever.
(f) The Company's lease of its present principal operating
facility at 990 Lunt Avenue, Elk Grove, Illinois 60007, terminates on March 31,
1997.
4.16 CUSTOMERS AND SUPPLIERS. Neither the Stockholder nor, to the
best of the Stockholder's knowledge, the Company, has received any written
notice of any existing, announced or anticipated changes in the policies of any
material suppliers or referral sources which will materially, adversely affect
the business presently being conducted by the Company.
4.17 LABOR, BENEFIT AND EMPLOYMENT AGREEMENT.
(a) Except as set forth in SCHEDULE 4.17 annexed hereto, the
Company is not a party to (i) any collective bargaining agreement or other labor
agreement, or (ii) any agreement with respect to the employment or compensation
of any non-hourly and/or non-union employee(s) which is not terminable
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without penalty by the Company on not more than thirty (30) days' prior written
notice. SCHEDULE 4.17 hereto sets forth the amount of all compensation or
remuneration (including any discretionary bonuses) paid during the 1995 calendar
year or to be paid by the Company during the 1996 calendar year to employees or
consultants who presently receive aggregate compensation or remuneration at an
annual rate in excess of $10,000.00.
(b) No union is now certified or, to the best of the
Stockholder's knowledge, claims to be certified as a collective bargaining agent
to represent any employees of the Company, and there are no labor disputes
existing or, to the best of the Stockholder's knowledge, threatened, involving
strikes, slowdowns, work stoppages, job actions or lockouts of any employees of
the Company.
(c) There are no unfair labor practice charges or petitions for
election pending or being litigated before the National Labor Relations Board or
any other federal or state labor commission relating to any employees of any
Company. Neither the Company nor the Stockholder has received any written
notice of any actual or alleged violation of any law, regulation, order or
contract term affecting the collective bargaining rights of employees, equal
opportunity in employment, or employee health, safety, welfare, or wages and
hours.
(d) With respect to any "multiemployer plan" (as defined in
Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) to which the Company has at any time been required to make
contributions, the Company has not, at any time on or after April 29, 1980,
suffered or caused any "complete withdrawal" or "partial withdrawal" (as such
terms are respectively defined in Sections 4203 and 4205 of ERISA) therefrom on
its part.
(e) Except as disclosed in SCHEDULE 4.17, the Company does not
maintain, or have any liabilities or obligations of any kind with respect to,
any bonus, deferred compensation, pension, profit sharing, retirement or other
such benefit plan, and does not have any potential or contingent liability in
respect of any actions or transactions relating to any such plan other than to
make contributions thereto if, as and when due in respect of periods subsequent
to the date hereof. Without limitation of the foregoing, (i) the Company has
made all required contributions to or in respect of any and all such benefit
plans, (ii) no "accumulated funding deficiency" (as defined in Section 412 of
the Internal Revenue Code of 1986, as amended (the "Code")) has been incurred in
respect of any of such
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benefit plans, and the present value of all vested accrued benefits thereunder
does not, on the date hereof, exceed the assets of any such plan allocable to
the vested accrued benefits thereunder, (iii) there has been no "prohibited
transaction" (as defined in Section 4975 of the Code) with respect to any such
plan, and no transaction which could give rise to any tax or penalty under
Section 4975 of the Code or Section 502 of ERISA, and (iv) there has been no
"reportable event" (within the meaning of Section 4043(b) of ERISA) with respect
to any such plan. All of such plans which constitute, are intended to
constitute, or have been treated by the Company as "employee pension benefit
plans" or other plans within Section 3 of ERISA have been determined by the
Internal Revenue Service to be "qualified" under Section 401(a) of the Code, and
have been administered and are in compliance with ERISA and the Code; and,
except such as might arise by reason of the occurrence of the Merger, the
Stockholder has no knowledge of any state of facts, conditions or occurrences
such as would impair the "qualified" status of any of such plans.
(f) Except for the group insurance programs and any other
insurance listed in SCHEDULE 4.17, the Company does not maintain any medical,
health, life or other employee benefit insurance programs or any welfare plans
(within the meaning of Section 3(1) of ERISA) for the benefit of any current of
former employees, and, except as required by statute or governmental regulation,
the Company does not have any liability, fixed or contingent, for health or
medical benefits to any former employee.
4.18 NO BREACH OF STATUTE, DECREE OR OTHER INSTRUMENT.
(a) Except as set forth in SCHEDULE 4.18 annexed hereto: (i)
neither the execution and delivery of this Agreement by the Company and/or the
Stockholder, nor the performance of or compliance with the terms and provisions
of this Agreement on the part of the Company and/or the Stockholder, will
violate or conflict with any term of the Articles of Incorporation or By-Laws of
the Company or any statute, law, rule or regulation of the governmental
authority affecting the existing business of the Company, or will at the Closing
Date conflict with, result in a breach of, or constitute a default under, any of
the terms, conditions or provisions of any judgment, order, award, injunction,
decree, contract, lease, agreement, indenture or other instrument to which the
Company or the Stockholder is a party or by which the Company or the Stockholder
is bound; (ii) no consent, authorization or approval of or filing with any
governmental authority or agency, or any third party, will be
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required on the part of the Company or the Stockholder in connection with the
consummation of the transactions contemplated hereby; and (iii) the Company will
not be required, whether by law, regulation or administrative practice, to
reapply for or refile to obtain any of the licenses, permits or other
authorizations presently held by the Company and required for the operation of
its business as conducted on the date hereof.
(b) In connection with and as respects the Merger, the Company
and the Stockholder have waived any and all rights which it or he may have (by
way of right of first refusal, right of first offer, or otherwise) to purchase
any of the Company Stock by reason of the proposed disposition thereof by the
other pursuant to the Merger.
4.19 COMPLIANCE WITH LAWS.
(a) The Company is, and has been at all times during the three
(3) year period prior to the date hereof, in compliance with all domestic,
foreign, federal, state, local and municipal laws and ordinances and
governmental rules and regulations, and all requirements of insurance carriers,
applicable to its business, affairs, properties or assets.
(b) Neither the Stockholder or the Company, nor to the best of
the Stockholder's knowledge, any of the Company's directors, officers or
employees, has received any written notice of default or violation, nor is the
Company, or to the best of the Stockholder's knowledge, any of the Company's
directors, officers or employees, in default or violation, with respect to any
judgment, order, writ, injunction, decree, demand or assessment issued by any
court or any federal, state, local, municipal or other governmental agency,
board, commission, bureau, instrumentality or department, domestic or foreign,
relating to any aspect of the Company's business, affairs, properties or assets.
Neither the Stockholder nor the Company, nor to the best of the Stockholders'
knowledge, any of the Company's directors, officers or employees, has received
written notice of, been charged with, or is under investigation with respect to,
any violation of any provision of any federal, state, local, municipal or other
law or administrative rule or regulation, domestic or foreign, relating to any
aspect of the Company's business, affairs, properties or assets, which violation
would have a material adverse effect on the business, financial condition,
results of operations or prospects of the Company.
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(c) SCHEDULE 4.19 sets forth the date(s) of the last known
audits or inspections (if any) of the Company conducted by or on behalf of the
Environmental Protection Agency, the Occupational Safety and Health
Administration, and any other governmental and/or quasi-governmental agency
(federal, state and/or local).
4.20 LITIGATION. Except as disclosed in SCHEDULE 4.20 annexed
hereto, there is no suit, action, arbitration, or legal, administrative or other
proceeding, or governmental investigation pending, or to the best knowledge of
the Stockholder, threatened, by or against the Company or any of its assets or
properties. The Stockholder is not aware of any state of facts, events,
conditions or occurrences which might properly constitute grounds for or the
basis of any suit, action, arbitration, proceeding or investigation against or
with respect to the Company.
4.21 PATENTS, LICENSES AND TRADEMARKS. SCHEDULE 4.21 annexed hereto
correctly sets forth a list and brief description of the nature and ownership
of: (a) all patents, patent applications, copyright registrations and
applications, registered trade names, and trademark registrations and
applications, both domestic and foreign, which are presently owned, filed or
held by the Company and/or the Stockholder or any of the Company's directors,
officers, stockholders or employees and which in any way relate to or are used
in the business of the Company; (b) all licenses, both domestic and foreign,
which are owned or controlled by the Company or the Stockholder and/or any of
the Company's directors, officers, stockholders or employees and which in any
way relate to or are used in the business of the Company; and (c) all
franchises, licenses and/or similar arrangements granted to the Company by
others and/or to others by the Company. None of the patents, patent
applications, copyright registrations or applications, registered trade names,
trademark registrations or applications, franchises, licenses or other
arrangements set forth or required to be set forth in SCHEDULE 4.21 is subject
to any pending challenge known to the Stockholder.
4.22 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
4.22, no material asset employed in the business of the Company is owned by,
leased from or leased to any of the stockholders of the Company, any of their
respective Affiliates, members of their families or any partnership, corporation
or trust for their benefit, or any other officer, director or employee of the
Company or any Affiliate of the Company.
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4.23 BANK ACCOUNTS. Annexed hereto as SCHEDULE 4.23 is a correct and
complete list of all bank accounts and safe deposit boxes maintained by or on
behalf of the Company, with indication of all persons having signatory, access
or other authority with respect thereto.
4.24 SCHEDULES INCORPORATED BY REFERENCE. The making of any
recitation in any Schedule hereto shall be deemed to constitute a representation
and warranty that such recitation is an accurate statement and disclosure of the
information required by the corresponding Section(s) of this Agreement, as, to
the extent, and subject to the qualifications and limitations, set forth in such
corresponding Section(s).
4.25 INVESTMENT. All shares of CSI Stock which the Stockholder shall
acquire pursuant to this Agreement will be acquired by the Stockholder for its
own account, for investment purposes only, and not with a view to the resale or
distribution thereof. The Stockholder hereby acknowledges its receipt and
review of the most recent prospectus, annual report, quarterly report and
current report of CSI as filed with the Securities and Exchange Commission
("SEC"), and acknowledges and confirms that it has had the full and fair
opportunity to obtain such additional and/or updated information regarding CSI
as it has deemed appropriate in connection with the transactions contemplated
hereby. All of the representations, warranties and other information contained
in the Subscription Agreement, a copy of which is annexed hereto as Exhibit B,
when executed by the Stockholder, shall be true and correct.
4.26 DISCLOSURE AND DUTY OF INQUIRY. Neither CSI nor the Merger
Subsidiary will be required to undertake any independent investigation to
determine the truth, accuracy and completeness of the representations and
warranties made by the Stockholder in this Agreement.
4.27 LIABILITIES.
(a) Except as set forth in SCHEDULE 4.27 hereto (and to the extent
not disclosed in other Schedules to this Agreement), the Company has no separate
indebtedness or payable outstanding which individually exceed $5,000.00 or
outstanding indebtedness or payables which in the aggregate exceed $10,000.00.
There are no material contingent or actual liabilities of whatever nature,
except as set forth in SCHEDULE 4.27, that are not disclosed in the Audited
Financial Statements, including but not limited to liabilities for sales and
use taxes, state and local taxes, payroll taxes and FICA payments, other
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mandated fees, fines, or payments of any kind due and payable to any level of
government.
(b) All indebtedness and accounts payable of the Company as of
the date of this Agreement are set forth on SCHEDULE 4.27 hereto (to the
extent not disclosed in other Schedules to this Agreement), which obligations
are identified by current outstanding principal balance and accrued and
unpaid interest, if any, owed to each creditor, together with the name,
address and telephone number of each such creditor.
4.28 NO CONSENTS. No consents to the transaction contemplated in
this Agreement are required other than as set forth in SCHEDULE 4.28, which, in
the absence of such consents, will result in a default under any leases or
contracts (including without limitation loan agreements or other debt
instruments) to which the Company is a party, or will result in an acceleration
of any obligations of the Company.
5. REPRESENTATIONS AND WARRANTIES OF CSI.
CSI hereby represents and warrants to the Stockholder as follows:
5.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION.
(a) CSI is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with all necessary power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby.
(b) The Merger Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, with all necessary power and authority to consummate the Merger
with the Company as contemplated hereby. The Merger Subsidiary is a
wholly-owned subsidiary of CSI, and will have no material assets or liabilities
at the time of the Closing.
5.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby by CSI have been duly and validly authorized by
the Board of Directors of CSI; and CSI has (and, at the time of the Closing, the
Merger Subsidiary will have) the full legal right, power and authority to
execute and deliver this Agreement, to perform their respective obligations
hereunder, and to consummate the
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transactions contemplated hereby. No further corporate authorization is
necessary on the part of CSI to consummate the transactions contemplated hereby.
5.3 VALID AND BINDING AGREEMENT. This Agreement and, when executed
and delivered by CSI, the Non-Competition Agreement, the Kast Guarantee, the
Stockholder Debt Guarantee and the Sublease Guarantee (all as hereinafter
defined), constitute and will constitute the legal, valid and binding
obligations of CSI, enforceable against CSI in accordance with their respective
terms, except to the extent limited by bankruptcy, insolvency, reorganization
and other laws affecting creditors' rights generally, and except that the remedy
of specific performance or similar equitable relief is available only at the
discretion of the court before which enforcement is sought.
5.4 NO BREACH OF STATUTE OR CONTRACT. Neither the execution and
delivery of this Agreement by CSI, nor compliance with the terms and provisions
of this Agreement on the part of CSI, will: (a) violate any statute or
regulation of any governmental authority, domestic or foreign, affecting CSI;
(b) require the issuance of any authorization, license, consent or approval of
any federal or state governmental agency; or (c) conflict with or result in a
breach of any of the terms, conditions or provisions of any judgment, order,
injunction, decree, note, indenture, loan agreement or other agreement or
instrument to which CSI is a party, or by which CSI is bound, or constitute a
default thereunder.
5.5 BUSINESS AND FINANCIAL INFORMATION. The financial statements and
other information contained in the documents and reports referred to in Section
4.25 of this Agreement are correct and complete in all material respects, and
the financial statements included therein present fairly the consolidated
financial position of CSI in conformity with generally accepted accounting
principles consistently applied (subject, in the case of unaudited statements,
to the absence of footnote disclosures and to customary fiscal year-end audit
adjustments which will not, individually or in the aggregate, be material to
the consolidated financial condition of CSI and its subsidiaries). Since the
date of the last of such reports, there has been no material adverse change in
the financial condition or operations of CSI from that reflected in the
financial statements included in such report, except as set forth on SCHEDULE
5.5 hereto.
5.6 CSI SHARES. When transferred or issued to the Stockholder
pursuant to Section 2 above, all shares of common stock of CSI delivered to the
Stockholder shall be duly
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authorized, validly issued and fully paid and non-assessable, and free and clear
of all pledges, liens, claims, charges, options, calls, encumbrances,
restrictions and assessments whatsoever (except any restrictions which may be
created by operation of state or federal securities laws).
5.7 INVESTMENT. CSI will be acquiring ownership of the outstanding
capital stock of the Surviving Corporation for its own account, for investment
purposes only, and not with a view to the resale or distribution thereof.
5.8 DISCLOSURE AND DUTY OF INQUIRY. The Stockholder is not and will
not be required to undertake any independent investigation to determine the
truth, accuracy and completeness of the representations and warranties made by
CSI in this Agreement.
6. THE STOCKHOLDER'S OBLIGATIONS BEFORE THE CLOSING DATE.
The Company and Stockholder jointly and severally covenant and agree
that, from the date hereof until the Closing Date:
6.1 ACCESS TO INFORMATION. The Company and the Stockholder shall
permit CSI and its counsel, accountants and other representatives, to have
reasonable access during normal business hours to all properties, books,
accounts, records, contracts, documents and information relating to such
Company, to permit CSI's regular accountants, BDO Seidman, LLP ("Seidman") (i)
to perform a full audit of the Company's financial statements and to prepare
audit reports covering the Company's financial statements for the fiscal year
ended December 31, 1995, for the three months ended March 31, 1996 and as of the
Closing Date; and (ii) to deliver no less than ten (10) days prior to the
Closing Date unqualified audit reports with attached financial statements, which
are in form reasonably satisfactory to CSI, for the full fiscal year ended
December 31, 1995, (the "December 31, 1995 Audited Financial Statements") and
for the three (3) months ended March 31, 1996 (the "March 31, 1996 Audited
Financial Statements")(altogether the "Pre-Closing Audited Financial
Statements"); AND FURTHER, to deliver no more than thirty (30) days after the
Closing Date unqualified audit reports with attached financial statements which
are in form satisfactory to CSI, updated to the Closing Date (the "Post-Closing
Audited Financial Statements")(both "Pre-Closing Audited Financial Statements"
and "Post-Closing Audited Financial Statements" collectively referred to as the
"Audited Financial Statements"). The Company and Stockholder shall also provide
Seidman with all
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such representation letters, indemnification agreements and other materials as
shall be reasonably requested by Seidman in order to permit Seidman to prepare
the Audited Financial Statements and other financial statements as may be
required under the terms of this Agreement. Such Audited Financial Statements
shall include balance sheets, statements of operations, statements of
stockholders' equity, statements of cash flows and appropriate notes thereto,
and shall be prepared in accordance with Regulation S-X, as promulgated under
the Securities Act of 1933, as amended. The cost of conducting the audit and
the cost of preparing the Audited Financial Statements shall be borne by CSI;
PROVIDED, that in the event that the Audited Financial Statements do not reflect
the minimum Equity of $125,000.00 as at December 31, 1995, the cost of
conducting the audit and the cost of preparing the Audited Financial Statements
shall be borne by the Company, up to a maximum of Ten Thousand ($10,000.00)
Dollars. CSI and its representatives shall also be permitted to freely consult
with the Company's counsel concerning the business of the Company.
6.2 CONDUCT OF BUSINESS IN NORMAL COURSE. The Company shall carry on
its business activities in substantially the same manner as heretofore
conducted, and shall not make or institute any unusual or novel methods of
service, sale, purchase, lease, management, accounting or operation that will
vary materially from those methods used by the Company as of the date hereof,
without in each instance obtaining the prior written consent of CSI.
6.3 PRESERVATION OF BUSINESS AND RELATIONSHIPS. The Company shall,
without making or incurring any unusual commitments or expenditures, use its
best efforts to preserve its business organization intact and to preserve its
present relationships with referral sources, clients, customers, suppliers and
others having business relationships with it.
6.4 MAINTENANCE OF INSURANCE. The Company shall continue to carry
its existing insurance, to the extent obtainable upon reasonable terms.
6.5 CORPORATE MATTERS. The Company shall not, without the prior
written consent of CSI:
(a) amend its Articles of Incorporation or By-Laws;
(b) issue any shares of its capital stock;
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(c) issue or create any warrants, obligations, subscriptions,
options, convertible securities or other commitments under which any additional
shares of its capital stock might be directly or indirectly issued;
(d) amend, cancel or modify any Material Contract or enter into
any material new agreement, commitment or transaction except, in each instance,
in the ordinary course of business;
(e) pay, grant or authorize any salary increases or bonuses
except in the ordinary course of business and consistent with past practice, or
enter into any employment, consulting or management agreements;
(f) modify in any material respect any material agreement to
which it is a party or by which it may be bound, except in the ordinary course
of business;
(g) make any change in its management personnel;
(h) except pursuant to commitments in effect on the date hereof
(to the extent disclosed in this Agreement or in any Schedule hereto), make any
capital expenditure(s) or commitment(s), whether by means of purchase, lease or
otherwise, or any operating lease commitment(s), in excess of $5,000.00 in the
aggregate;
(i) sell, assign or dispose of any capital asset(s) with a net
book value in excess of $5,000.00 as to any one item;
(j) materially change its method of collection of accounts or
notes receivable, accelerate or slow its payment of accounts payable, or prepay
any of its obligations or liabilities, other than prepayments to take advantage
of trade discounts not otherwise inconsistent with or in excess of historical
prepayment practices;
(k) declare, pay, set aside or make any dividend(s) or other
distribution(s) of cash or other property, redeem any outstanding shares of its
capital stock, or purchase any outstanding shares of capital stock of or equity
interest in any other corporation or entity;
(l) incur any liability or indebtedness except, in each
instance, in the ordinary course of business;
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(m) subject any of its assets or properties to any further liens
or encumbrances, other than Permitted Liens;
(n) forgive any liability or indebtedness owed to it by any of
the stockholders of the Company or any of their respective Affiliates; or
(o) agree to do, or take any action in furtherance of, any of
the foregoing.
7. ADDITIONAL AGREEMENTS OF THE PARTIES.
7.1 ESCROW AND ADJUSTMENT OF CSI STOCK.
(a) 5,000 of the shares of CSI Common Stock included in the CSI
Stock shall be held in escrow by Greenberg Traurig, counsel to CSI (the "A/R
Escrow Shares"), subject to one share of the A/R Escrow Shares being returned to
CSI for each $10.00 face value (subject to adjustment) of accounts receivable
retained by the Company and outstanding as of the Closing Date that is not
collected on or prior to 120 days after the Closing Date (with the number of A/R
Escrow Shares to be returned to CSI being rounded down to the nearest whole
number of shares). At the end of such 120 day period, any A/R Escrow Shares not
returned to CSI pursuant to this Section 7.1 or Section 7.2 below, shall be
delivered out of escrow to Avery and Kafenshtok in as nearly equal amounts as
possible, and all accounts receivable for which such deductions have been made
shall be assigned to the Stockholder. The $10.00 face value (the "Discounted
Amount") represents a 20% discount from the $12.50 per share market price of
CSI's common stock on or about March 6, 1996. The Discounted Amount shall be
recalculated at Closing as follows: the Discounted Amount shall be determined by
multiplying 80% times the per share price derived from the average of the daily
closing prices for the five (5) consecutive trading days ending on the trading
day immediately preceding the Closing Date as furnished by NASDAQ. The closing
price for each day shall be the last reported sales price or, in case no such
reported sale takes place on such day, the closing bid price as furnished by
NASDAQ. The form of Escrow Agreement to be executed on the Closing Date by the
Stockholder, CSI and the escrow agent is attached hereto as EXHIBIT C (the
"Escrow Agreement").
(b) At Closing, an additional 5,000 shares of the CSI Stock
shall be deposited into escrow with Greenberg Traurig (the "Additional Escrow
Shares"), and shall be subject to return to CSI as provided in Section 7.2.
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7.2 ESCROW OF FUNDS AND ADJUSTMENT OF PURCHASE PRICE. At the Closing
Date, $50,000.00 of the Cash Consideration payable under Section 2.1(a) and the
Additional Escrow Shares shall be deposited into an escrow with Greenberg
Traurig (the "Escrow Funds").
(a) If the Post-Closing Audited Financial Statements indicate
that the Equity at the Closing Date was less than the March 31, 1996 Equity,
then the difference between the Equity as revealed in the Post-Closing
Audited Financial Statements and the March 31, 1996 Equity (the "Equity
Difference") shall be deducted dollar for dollar from the Escrow Funds and
distributed to CSI.
(b) If such Equity Difference exceeds the sum of $50,000.00,
then the Additional Escrow Shares shall be decreased and returned to CSI by
one share of Additional Escrow Shares for each $10.00 (which dollar amount is
subject to adjustment in accordance with procedures for determining the
Discounted Amount as provided in Section 7.1(a) of this Agreement) of the
Equity Difference that exceeds $50,000.00, with the number of Additional
Escrow Shares to be returned to CSI being rounded down to the nearest whole
number of shares. Any amount of the Escrow Funds or any Additional Escrow
Shares not distributed to CSI in accordance with this Section 7.2 shall be
paid to the order of Avery and Kafenshtok in as nearly equal amounts as
possible. The terms and conditions of the escrow shall be as set forth in
the Escrow Agreement.
(c) If a balance remains of the Equity Difference after deducting
for return to the Company all of the Escrow Funds and all of the Additional
Escrow Shares, then the A/R Escrow Shares shall be decreased and returned to CSI
by one share of A/R Escrow Shares for each $10.00 (which dollar amount is
subject to adjustment in accordance with procedures for determining the
Discounted Amount as provided in Section 7.1(a) of this Agreement) of such
remaining balance, with the number of A/R Escrow Shares to be returned to CSI
being rounded down to the nearest whole number of shares.
(d) Avery and Kafenshtok, jointly and severally, shall
indemnify CSI for and pay over to CSI in accordance with Section 12 of this
Agreement: (i) any remaining balance of the Equity Difference after making
the setoffs provided under Sections 7.2(a), (b) and (c) of this Agreement;
and (ii) if a setoff was made under Section 7.2(c) of this Agreement, then
the dollar amount derived from multiplying $10.00 (subject to adjustment in
accordance with procedures for determining the Discounted Amount
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as provided in Section 7.1(a) of this Agreement) by the number of A/R
Escrow Shares comprising such setoff, which otherwise would have been
distributed to CSI due to uncollected receivables pursuant to Section 7.1(a) of
this Agreement.
7.3 CONFIDENTIALITY. Notwithstanding anything to the contrary
contained in this Agreement, and subject only to any disclosure requirements
which may be imposed upon CSI under applicable state or federal securities or
antitrust laws, it is expressly understood and agreed by CSI, the Company and
the Stockholder that (a) this Agreement, the Schedules hereto, and the
conversations, negotiations and transactions relating hereto and/or contemplated
hereby, and (b) all financial information, business records and other non-public
information concerning the Company or CSI which any of CSI, the Company and the
Stockholder or their respective representatives has received or may hereafter
receive, shall be maintained in the strictest confidence by CSI, the Company and
the Stockholder and their respective representatives, and shall not be disclosed
to any person that is not associated or affiliated with any of CSI, the Company
and the Stockholder and involved in the transactions contemplated hereby,
without the prior written approval of the Stockholder or CSI, as applicable. The
parties hereto shall use their best efforts to avoid disclosure of any of the
foregoing or undue disruption of any of the business operations or personnel of
the Company or CSI. In the event that the transactions contemplated hereby
shall not be consummated for any reason, each of CSI, the Company and the
Stockholder covenants and agrees that neither it nor its representatives shall
retain any documents, lists or other writings which they may have received or
obtained in connection herewith or any documents incorporating any of the
information contained in any of the same (all of which, and all copies thereof
in the possession or control of themselves or their representatives, shall be
returned to the original source of the material at issue). The parties hereto
shall be responsible for any damages sustained by reason of their respective
breaches of this Section 7.3, and this Section 7.3 may be enforced by injunctive
relief.
7.4 DUE DILIGENCE INVESTIGATION. At all times prior to the Closing
Date, CSI and its representatives shall be permitted to conduct during normal
business hours a full and complete due diligence investigation of the assets,
business, properties, financial condition and prospects of the Company, the
results of which due diligence investigation shall be satisfactory to CSI. In
connection with such due diligence investigation, the Company shall furnish to
CSI unaudited statements of income and balance sheets of the Company as at and
for the year ended December 31,
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1994, as well as unaudited statements of income and balance sheets of the
Company as at and for the year ended December 31, 1995 (the "Unaudited Financial
Statements"). The Company and the Stockholder shall, and shall cause the
principal executive officers, legal and financial representatives, agents and
employees of the Company to, fully cooperate to enable CSI and its
representatives to conduct a full due diligence investigation of the Company,
including interviews with personnel and/or contacts with suppliers or
customers. Such due diligence investigation shall include, but shall not
necessarily be limited to, the audit to be performed by CSI's accountants as
contemplated by Section 6.1 above.
7.5 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.
Each of Kafenshtok and Avery, jointly and severally, hereby further represents
and warrants to CSI and the Merger Subsidiary, as follows:
(a) Upon delivery, as provided in accordance with Section 6.1 of
this Agreement, this Agreement shall be automatically amended to annex hereto as
SCHEDULE 7.5 the Audited Financial Statements.
(b) The Audited Financial Statements (i) are complete and
correct in all material respects and present fairly the financial position of
the Company as of the dates thereof and for the periods reflected therein, all
in conformity with generally accepted accounting principles applied on a
consistent basis; (ii) make full and adequate provision, in accordance with
generally accepted accounting principles, for the various assets and liabilities
of the Company, fixed or contingent, and the results of its operations and
transactions in its accounts, as of the dates and for the periods referred to
therein; (iii) reflect only assets and liabilities and results of operations and
transactions of the Company and do not include or reflect any assets,
liabilities or transactions of any corporation or entity except the Company; and
(iv) were prepared from the books and records of the Company, which accurately
and consistently reflect all transactions to which such corporation was and is a
party.
(c) Except as expressly set forth in the Audited Financial
Statements and/or otherwise in the Schedules to this Agreement, or arising in
the normal course of business after the date of the Audited Financial
Statements, there are no liabilities or obligations (including, without
limitation, any tax liabilities or accruals) of the Company, including any
contingent liabilities, that are, in the aggregate, material to the financial
condition or business of the Company.
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7.6 ADDITIONAL AGREEMENTS AND INSTRUMENTS. On or before the Closing
Date, the Stockholder, CSI and the Merger Subsidiary (as appropriate) shall
execute, deliver and file the Articles of Merger and all exhibits, agreements,
certificates, instruments and other documents, not inconsistent with the
provisions of this Agreement, which, in the opinion of counsel to CSI, shall
reasonably be required to be executed, delivered and filed in order to
consummate the Merger and the other transactions contemplated by this Agreement.
7.7 NON-INTERFERENCE. None of the parties shall cause to occur any
act, event or condition which would cause any of their respective
representations and warranties made in this Agreement to be or become untrue or
incorrect in any material respect as of the Closing Date, or would interfere
with, frustrate or render unreasonably expensive the satisfaction by the other
party or parties of any of the conditions precedent set forth in Sections 8 and
9 below.
7.8 PAYMENT OF PAYABLES/STOCKHOLDER DEBT. CSI agrees to cause to be
retired in full within sixty (60) days following the Closing Date the
Payables/Stockholder Debt referenced in Section 9.7 hereof.
7.9 PAYMENT OF LOAN FROM FIRST EAGLE BANK. CSI shall pay at Closing
the Company's indebtedness under the Company's line of credit with First Eagle
Bank, which obligation is in the approximate amount of $350,000.00.
8. CONDITIONS PRECEDENT TO CSI PERFORMANCE.
The obligations of CSI to consummate the transactions contemplated by
this Agreement are further subject to the satisfaction, at or before the Closing
Date, of all the following conditions, any one or more of which may be waived in
writing by CSI:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by the Stockholder in this Agreement, in any Schedule(s)
hereto, and/or in any written statement delivered to CSI under this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as though such representations and warranties were made on and as of that date.
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8.2 PERFORMANCE. The Company and the Stockholder shall have
performed, satisfied and complied with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by them
on or before the Closing Date.
8.3 CERTIFICATION. CSI shall have received a certificate, dated the
Closing Date, signed by the Stockholder, certifying, in such detail as CSI and
its counsel may reasonably request, that the conditions specified in Sections
8.1 and 8.2 above have been fulfilled.
8.4 RESOLUTIONS. CSI shall have received certified resolutions of
the Board of Directors and the stockholders of the Company, in form reasonably
satisfactory to counsel for CSI, authorizing the Company's execution, delivery
and performance of this Agreement and the Mergers, and all actions to be taken
by the Company hereunder (including resolutions which (i) elect such persons as
officers and directors of the Company and (ii) amend the Certificate of
Incorporation and By-laws of the Company, as shall be determined by CSI).
8.5 GOOD STANDING CERTIFICATES. The Stockholder shall have delivered
to CSI a certificate or telegram issued by the Secretary of State of the
jurisdiction of incorporation of the Company, evidencing the good standing of
the Company in its jurisdiction of incorporation as of a date not more than ten
(10) calendar days prior to the Closing Date.
8.6 ABSENCE OF LITIGATION. No action, suit or proceeding by or
before any court or any governmental body or authority, against any Company or
any Stockholder or pertaining to the transactions contemplated by this Agreement
or their consummation, shall have been instituted on or before the Closing Date,
which action, suit or proceeding would, if determined adversely, have a material
adverse effect on the business, financial condition, operations or prospects of
the Company, or impair the ability of any of the stockholders of the Company to
deliver in the Merger all of their common stock of the Company free and clear of
all pledges, liens, claims, charges, options, calls, encumbrances, restrictions
and assessments whatsoever.
8.7 NON-COMPETITION AGREEMENT. On the Closing Date, the Company,
CSI, Kafenshtok and Avery shall execute and deliver to CSI a two-year
non-competition agreement in favor of the Surviving Corporation and CSI wherein,
among other things, Kafenshtok and Avery shall not compete with the business
presently conducted by CSI and Surviving Corporation within a 500
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mile radius of 990 Lunt Avenue, Elk Grove, Illinois, and shall not solicit
orders for any stainless steel products from any present or former customers of
the Company wherever such present or former customers are located (i.e., whether
or not such customers are located within the above-referenced 500 mile radius),
which agreement shall be in the form of EXHIBIT D attached hereto (the
"Non-Competition Agreement").
8.8 CONSENTS. All necessary disclosures to and agreements and
consents of (a) any parties to any Material Contracts and/or any licensing
authorities which are material to the Company's business, (including all
outstanding indebtedness and leases) and (b) any governmental authorities or
agencies to the extent required in connection with the transactions contemplated
by this Agreement, shall have been obtained, shall be in such form as shall be
satisfactory to CSI and true and complete copies thereof shall be delivered to
CSI on or before the Closing Date.
8.9 SETTLEMENT OF ACCOUNTS. All debts, liabilities and other
monetary obligations owed to the Company by any of the stockholders of the
Company and/or any of their Affiliates (including, without limitation, amounts
owed by Stockholder to the Company) on or prior to the Closing Date, shall have
been fully paid to the Company in immediately available funds, such that no such
debts, liabilities or obligations shall be outstanding on and after the Closing
Date.
8.10 CONDITION OF PROPERTY. Between the date of this Agreement and
the Closing Date, assets of the Company having an aggregate fair market value of
$10,000.00 or more shall not have been lost, destroyed or irreparably damaged
by fire, flood, explosion, theft or any other cause, unless covered by
insurance.
8.11 NO MATERIAL ADVERSE CHANGE. On the Closing Date, there shall
not have occurred any event or condition materially and adversely affecting the
financial condition, results of operations or business prospects of the Company
from those reflected in the Audited Financial Statements.
8.12 RESIGNATIONS; BANKING ARRANGEMENTS. The Company and/or the
Stockholder shall have delivered to the Surviving Corporation the written
resignations, dated and effective on the Closing Date, of such of the officers
and directors of the Company as may be requested by CSI. In addition, to the
extent requested by CSI, the Stockholder shall have executed and delivered such
certificates and documents as may be necessary or appropriate to change the
authorized signatories on all bank
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accounts and/or safe deposit boxes maintained by or in the name of the Company.
8.13 SATISFACTORY AUDIT AND DUE DILIGENCE INVESTIGATION.
(a) The audits and unqualified audit opinions contemplated by
Section 6.1 above shall have been completed, and CSI shall be fully satisfied,
in its sole and absolute discretion, with the results of such audits and the
texts of the audit reports. Further, the Pre-Closing Audited Financial
Statements shall reflect earnings before interest and taxes of a minimum of
$140,000.00 for the fiscal year ended December 31, 1995.
(b) CSI, in its sole and absolute discretion, shall be satisfied
with the results of its due diligence investigation of, without limitation,
the Stockholder, the Company, the Company's business and its financial
condition.
8.14 SUBLEASE. The Company shall deliver to CSI on or before the
Closing Date a sublease to be executed by 21st Century, Inc. as sub-lessor and
the Surviving Corporation as sub-lessee, which sublease shall be in form
satisfactory to CSI in its sole and absolute discretion.
8.15 LENDER APPROVAL. The principal lenders to CSI shall have
approved the transaction contemplated by this Agreement in form satisfactory to
CSI.
8.16 EXECUTION AND DELIVERY OF EXHIBITS. On or before the Closing
Date, the Company shall have executed and delivered to the Merger Subsidiary the
appropriate Articles of Merger, and the Stockholder shall have executed and
delivered to the other parties thereto the Subscription Agreement, the
Non-Competition Agreement, and the Escrow Agreement.
8.17 PROCEEDINGS AND INSTRUMENTS SATISFACTORY. All proceedings,
corporate or other, to be taken in connection with the transactions contemplated
by this Agreement, and all documents incidental thereto, shall be reasonably
satisfactory in form and substance to CSI and its counsel. The Stockholder
shall have submitted to CSI or its representatives for examination the originals
or true and correct copies of all records and documents relating to the business
and affairs of the Company which CSI may have requested in connection with said
transactions.
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8.18 IGL OBLIGATION. The Company shall have renegotiated its
Agreement with Innovation Group, Ltd. ("IGL") dated on or about July 12, 1994
(the "IGL Loan Agreement") to the satisfaction of CSI, in CSI's sole and
absolute discretion; or, alternatively, the Company shall have entered into an
agreement with IGL (the "Release Agreement") for the return of IGL inventory to
IGL and the concurrent termination of all of the Company's obligations under the
IGL Loan Agreement, the terms of which Release Agreement shall be satisfactory
to CSI in its sole and absolute discretion. Upon execution of a definitive
renegotiated IGL Loan Agreement or Release Agreement (satisfactory to CSI), this
condition shall be cancelled.
9. CONDITIONS PRECEDENT TO THE COMPANY'S AND THE
STOCKHOLDER'S PERFORMANCE.
The obligations of the Company to consummate the Merger and of the
Stockholder to consummate the transactions contemplated by this Agreement are
further subject to the satisfaction, at or before the Closing Date, of all of
the following conditions, any one or more of which may be waived in writing by
Kafenshtok and Avery:
9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by CSI in this Agreement and/or in any written statement
delivered by CSI under this Agreement shall be true and correct in all material
respects on and as of the Closing Date as though such representations and
warranties were made on and as of that date.
9.2 PERFORMANCE. CSI shall have performed, satisfied and complied
with all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by CSI on or before the Closing Date.
9.3 CERTIFICATION. The Stockholder shall have received a
certificate, dated the Closing Date, signed by CSI certifying, in such detail as
the Stockholder and its counsel may reasonably request, that the conditions
specified in Sections 9.1 and 9.2 above have been fulfilled.
9.4 RESOLUTIONS. The Stockholder shall have received certified
resolutions of the Board of Directors of CSI and the Merger Subsidiary, in form
reasonably satisfactory to counsel for the Stockholder, authorizing the Merger
and CSI's execution, delivery and performance of this Agreement and all actions
to be taken by CSI and the Merger Subsidiary hereunder.
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9.5 EXECUTION AND DELIVERY OF EXHIBITS. The Merger Subsidiary shall
have executed and delivered to the Company the Articles of Merger, and CSI and
the Surviving Corporation (as applicable) shall have executed and delivered to
the Stockholder the Non-Competition Agreement.
9.6 PROCEEDINGS AND INSTRUMENTS SATISFACTORY. All proceedings to be
taken in connection with the transactions contemplated by this Agreement, and
all documents incidental thereto, shall be reasonably satisfactory in form and
substance to the Stockholder and their counsel.
9.7 CSI GUARANTEE OF COMPANY INDEBTEDNESS TO STOCKHOLDER. CSI shall
deliver to the Stockholder on or before the Closing Date CSI's guarantee of the
Company's obligations to Kast Marketing in the amount of $110,000 and the
Company's indebtedness to the Stockholder in the total principal amount of
$69,000.00 plus interest of $250.00 (which respective amounts shall not be
substantially different from those presented in the unaudited December 31, 1995
financial statements delivered to CSI and attached hereto as SCHEDULE 9.7),
which guarantee shall be in the form of EXHIBIT E (the "Kast Guarantee") and
EXHIBIT F (the "Stockholder Debt Guarantee").
9.8 CSI GUARANTEE OF SUBLEASE. CSI shall deliver to the Stockholder
on the Closing Date CSI's guarantee of the Sublease, which guarantee shall be in
the form of EXHIBIT G hereto (the "Sublease Guarantee").
10. CLOSING.
10.1 PLACE AND DATE OF CLOSING. Unless this Agreement shall be
terminated pursuant to Section 11 below, the consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Greenberg Traurig, 111 North Orange Avenue, Suite 2050, Orlando, Florida
32801, or such other location as is agreed to between the parties, at 10:00 A.M.
local time on June 3, 1996, or such later date (not later than June 30, 1996) as
may be reasonably agreeable to all parties (the date of the Closing being
referred to in this Agreement as the "Closing Date").
10.2 ACTIONS AT CLOSING. On the Closing Date, simultaneous with the
Closing, the parties shall file or cause to be filed Articles of Merger with the
Secretary of State of the applicable jurisdiction. At the Closing, the parties
shall make all payments and deliveries stated in this Agreement to be made at
the Closing and/or on or prior to the Closing Date.
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11. TERMINATION OF AGREEMENT.
11.1 GENERAL. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing: (a) by
CSI if the Pre-Closing Audited Financial Statements do not reflect earnings
before interest and taxes of a minimum of $140,000.00 for the fiscal year
ended December 31, 1995; (b) by CSI if it is not satisfied, in its sole and
absolute discretion, with the results of its due diligence investigation; (c) by
the mutual written consent of CSI, the Company and the Stockholder; ( d) by
CSI, or by the Company and the Stockholder, if: (i) a material breach shall
exist with respect to the written representations and warranties made by the
other party or parties, as the case may be, (ii) the other party or parties, as
the case may be, shall take any action prohibited by this Agreement, if such
actions shall or may have a material adverse effect on the Company or on CSI,
and/or the transactions contemplated hereby, (iii) the other party or parties,
as the case may be, shall not have furnished, upon reasonable notice therefor,
such certificates and documents required in connection with the transactions
contemplated hereby and matters incidental thereto as it or they shall have
agreed to furnish, and it is reasonably unlikely that the other party or parties
will be able to furnish such item(s) prior to the Outside Closing Date specified
below, or (iv) any consent of any third party to the transactions contemplated
hereby (whether or not the necessity of which is disclosed herein or in any
Schedule hereto) is reasonably necessary to prevent a default under any
outstanding material obligation of any party hereto and such consent is not
obtainable without material cost or penalty (unless the party or parties not
seeking to terminate this Agreement agrees or agree to pay such cost or
penalty); or (e) by CSI, or by the Company and the Stockholder, at any time on
or after June 30, 1996 (the "Outside Closing Date"), if the transactions
contemplated hereby shall not have been consummated prior thereto, and the party
directing termination shall not then be in breach or default of any obligations
imposed upon such party by this Agreement.
11.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to this Section 11, prompt written notice shall be given by
the terminating party to the other party, and no party to this Agreement shall
have any further liability to the other, except as provided in Section 7.3
above or Section 14, below.
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12. INDEMNIFICATION.
12.1 GENERAL.
(a) Avery and Kafenshtok, jointly and severally (for purposes of
this Section 12, the "Stockholders") shall defend, indemnify and hold harmless
the Surviving Corporation and CSI from, against and in respect of any and all
claims, losses, costs, expenses, obligations, liabilities, damages, recoveries
and deficiencies, including interest, penalties, fines and reasonable attorneys'
fees, that the Surviving Corporation and/or CSI may incur, sustain or suffer
including without limitation any deficiency in Equity as provided in Section 7.2
hereof, and any audit costs incurred by an Internal Revenue Service audit of the
Company which results in a tax deficiency for the tax year(s) audited ("Losses")
as a result of any breach of, or failure by the Stockholders or the Company, to
perform, any of the representations, warranties, covenants or agreements of the
Stockholders or the Company contained in this Agreement or in any Schedule(s)
furnished by or on behalf of the Stockholders or the Company under this
Agreement.
(b) The Surviving Corporation and CSI shall jointly and
severally defend, indemnify and hold harmless the Stockholder from, against and
in respect of any and all claims, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest, penalties
and reasonable attorneys' fees, that such Stockholders may incur, sustain or
suffer as a result of any breach of, or failure by CSI to perform, any of the
representations, warranties, covenants or agreements of CSI contained in this
Agreement.
12.2 LIMITATIONS ON CERTAIN INDEMNITY.
(a) As used in this Section 12.2, "Losses" shall mean and refer
to, collectively, Losses as defined in Section 12.1(a) above.
(b) The Surviving Corporation and CSI shall be entitled to
indemnification by Avery and Kafenshtok, jointly and severally, for Losses
referenced under Section 12.1(a), and the Stockholder shall be entitled to
indemnification by the Surviving Corporation and CSI for losses referenced under
Section 12.1(b), only in respect of claims for which notice of claim shall have
been given on or before the third anniversary of the Closing Date, or, with
respect to Losses relating to a breach of any warranties under Section 4.8
above, the expiration of the final statute of limitations for those tax returns
covered by the
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warranties under Section 4.8 above; PROVIDED, HOWEVER, that none of the
Surviving Corporation, CSI or the Stockholder shall be entitled to
indemnification in the event that the subject claim for indemnification relates
to a third-party claim and the prospective indemnified party (as the case may
be) delayed giving notice thereof to such an extent as to cause material
prejudice to the defense of such third-party claim.
12.3 CLAIMS FOR INDEMNITY. Whenever a claim shall arise for which
any party shall be entitled to indemnification hereunder, the indemnified party
shall notify the indemnifying party in writing within thirty (30) days of the
indemnified party's first receipt of notice of, or the indemnified party's
obtaining actual knowledge of, such claim, and in any event within such shorter
period as may be necessary for the indemnifying party or parties to take
appropriate action to resist such claim. Such notice shall specify all facts
known to the indemnified party giving rise to such indemnity rights and shall
estimate (to the extent reasonably possible) the amount of potential liability
arising therefrom. If the indemnifying party shall be duly notified of such
dispute, the parties shall attempt to settle and compromise the same or may
agree to submit the same to American Arbitration Association arbitration in
Orlando, Florida or, if unable or unwilling to do any of the foregoing, such
dispute shall be settled by appropriate litigation, and any rights of
indemnification established by reason of such settlement, compromise,
arbitration or litigation shall promptly thereafter be satisfied by those
indemnifying parties obligated to make indemnification hereunder in such amount
as shall be necessary to satisfy all applicable Losses determined in accordance
with such settlement and compromise, or by final nonappealable order or judgment
of the applicable judicial or arbitration panel. Losses which take the form of
litigation or arbitration costs and expenses (including reasonable attorneys'
fees) which are not incurred in connection with an action or demand by a third
party against the indemnified party or any of its Affiliates, shall not be paid
on an ongoing basis as incurred, but rather all such costs and expenses incurred
by the prevailing party in any such action shall be paid by the other party
thereto.
12.4 RIGHT TO DEFEND. If the facts giving rise to any claim for
indemnification shall involve any actual or threatened action or demand by any
third party against the indemnified party or any of its Affiliates, the
indemnifying party or parties shall be entitled (without prejudice to the
indemnified party's right to participate at its own expense through counsel of
its own choosing), at their expense and through a single counsel of their
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own choosing, to defend or prosecute such claim in the name of the indemnifying
party or parties, or any of them, or if necessary, in the name of the
indemnified party. All Losses which take the form of claims for litigation
costs and expenses (including reasonable attorneys' fees) shall be paid to the
indemnified party in cash on an ongoing basis as incurred. In any event, the
indemnified party shall give the indemnifying party advance written notice of
any proposed compromise or settlement of any such claim. If the remedy sought
in any such action or demand is solely money damages, the indemnifying party
shall have thirty (30) days after receipt of such notice of settlement to object
to the proposed compromise or settlement, and if it does so object, the
indemnifying party shall be required to undertake, conduct and control, through
counsel of its own choosing and at its sole expense, the settlement or defense
thereof, and the indemnified party shall cooperate with the indemnifying party
in connection therewith.
13. POST-CLOSING EVENTS.
In addition to the post-Closing covenants set forth in Section 3
above, the parties hereby further agree that, from and after the Closing:
13.1 ACCOUNTING COOPERATION. The Stockholder shall cause the
accountants heretofore retained by the Company to cooperate with CSI's
accountants in connection with ongoing audit work relating to periods prior to
the Closing Date, as required by applicable federal and state securities laws,
and other reasonable requirements. Such cooperation shall include, without
limitation, providing such assurances, comfort letters and access to work papers
as may reasonably be requested by CSI and its accountants.
14. COSTS.
14.1 FINDER'S OR BROKER'S FEES. CSI (on the one hand) and the
Stockholder (on the other hand) represents and warrants that neither they nor
any of their respective Affiliates have dealt with any broker or finder in
connection with any of the transactions contemplated by this Agreement, and no
broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions.
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14.2 EXPENSES.
(a) Each party to this Agreement shall be responsible for its
own costs and fees incurred in connection with the negotiation and preparation
of this Agreement and exhibits referenced herein, and the consummation of the
transactions contemplated hereby. Except as otherwise provided herein, CSI,
shall pay all closing expenses; PROVIDED, that all professional fees and costs
for the negotiation and review of this Agreement and for preparation of closing
schedules and financial statements, other than the Audited Financial Statements
(except as described in Section 6.1 above), that are incurred by and on behalf
of the Company and the Stockholder shall be borne by the Stockholder. Anything
elsewhere contained in this Agreement to the contrary notwithstanding, no
expenses of any Stockholder in connection with the transactions contemplated by
this Agreement shall be attributed to or paid by the Company.
(b) (i) Anything contained in Section 14.2(a) above to the
contrary notwithstanding, in the event that the Company and/or the Stockholder
shall terminate this Agreement prior to the Closing for reasons other than
default or non-performance by CSI, then the Company and the Stockholder shall be
jointly and severally liable to CSI for all out-of-pocket expenses incurred by
CSI for the audit work contemplated by Section 6.1 above (without regard to the
$10,000.00 maximum cost set forth therein).
(ii) To the extent subsection 14.2(b)(i) is inapplicable,
in the event of a termination of the Agreement by any party for any other
reason, if the Audited Financial Statements do not reflect a minimum Equity of
$125,000.00 as at December 31, 1995, the cost of preparing the Audited Financial
Statements shall be borne by the Company, up to a maximum of $10,000.00.
15. PARTIES.
15.1 PARTIES IN INTEREST. Nothing in this Agreement, whether
expressed or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the parties to it and their
respective heirs, executors, administrators, personal representatives,
successors and permitted assigns, nor is anything in this Agreement intended to
relieve or discharge the obligations or liability of any third persons to any
party to this Agreement, nor shall any provision give any third persons any
right of subrogation or action over or against any party to this Agreement.
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15.2 NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is to be given, or on the day after the date sent by
recognized overnight courier service with all charges prepaid, or (ii) three (3)
days after being deposited in the United States mail if sent by first class
mail, registered or certified, postage prepaid, and properly addressed as
follows:
(a) If to CSI or the Merger Subsidiary:
CONSOLIDATED STAINLESS, INC.
2170 WEST STATE ROAD 434, SUITE 330
LONGWOOD, FLORIDA 32779
ATTENTION: RONALD ADAMS, PRESIDENT
WITH A COPY TO:
GREENBERG TRAURIG
153 E. 53RD STREET, 35TH FLOOR
NEW YORK, NEW YORK 10022
ATTENTION: PETER W. ROTHBERG, ESQUIRE
AND A COPY TO:
GREENBERG TRAURIG
111 NORTH ORANGE AVENUE, SUITE 2050
ORLANDO, FLORIDA 32801
ATTENTION: SANDRA C. GORDON, ESQUIRE
(b) If to the Company or to Stockholder:
CHARLES KAFENSHTOK
C/O KAST MARKETING, INC.
990 LUNT AVENUE
ELK GROVE, ILLINOIS 60007
and
STEPHEN AVERY
C/O KAST MARKETING, INC.
990 LUNT AVENUE
ELK GROVE, ILLINOIS 60007
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WITH A COPY TO:
SCHWARTZ AND FREEMAN
401 NORTH MICHIGAN AVENUE, SUITE 1900
CHICAGO, ILLINOIS 60611
ATTENTION: STEVEN RANDALL, ESQUIRE
or to such other address as either party shall have specified by notice in
writing given to the other party.
16. MISCELLANEOUS.
16.1 AMENDMENTS AND MODIFICATIONS. No amendment or modification of
this Agreement or any Exhibit or Schedule hereto shall be valid unless made in
writing and signed by the party to be charged therewith.
16.2 NON-ASSIGNABILITY; BINDING EFFECT. Other than the assignment of
rights by CSI to the Merger Subsidiary as and to the extent contemplated by
Section 1 above, neither this Agreement, nor any of the rights or obligations of
the parties hereunder, shall be assignable by any party hereto without the prior
written consent of all other parties hereto. Otherwise, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and permitted assigns.
16.3 SEVERABILITY. In the event that any provision or any portion of
any provision of this Agreement shall be held invalid, illegal or unenforceable
under applicable law, the remainder of this Agreement shall remain valid and
enforceable, unless such invalidity, illegality or unenforceability
substantially diminishes the rights and obligations, taken as a whole, of any
party hereunder.
16.4 ATTORNEYS' FEES. In the event of suit to enforce the terms of
this Agreement, the prevailing party shall be entitled to collect from the
non-prevailing party reasonable attorneys' fees, costs and expenses (including
those incurred through all trial, appellate and post-judgment collection
proceedings).
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16.5 GOVERNING LAW; JURISDICTION. Except to the extent that
Applicable Law shall govern with respect to the Merger, this Agreement shall be
construed and interpreted and the rights granted herein governed in accordance
with the laws of the State of Florida applicable to contracts made and to be
performed wholly within such State.
16.6 EFFECT OF HEADINGS. The Section headings used in this Agreement
and the titles of the Schedules hereto are included for purposes of convenience
only, and shall not affect the construction or interpretation of any of the
provisions hereof or of the information set forth in such Schedules.
16.7 ENTIRE AGREEMENT; WAIVERS. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter hereof, and
supersedes all prior agreements or understandings as to such subject matter. No
party hereto has made any representation or warranty or given any covenant to
the other except as set forth in this Agreement and the Schedules and Exhibits
hereto. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provisions, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
16.8 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
[Balance of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement on and as of
the date first set forth above.
CONSOLIDATED STAINLESS, INC.
By:/s/ Ronald Adams
---------------------------
Name: Ronald Adams
-------------------------
Its: President
TWENTY-FIRST CENTURY METALS ACQUISITION CORP.
By: /s/ Ronald Adams
---------------------------
Name: Ronald Adams
-------------------------
Its: President
TWENTY-FIRST CENTURY METALS, INC.
By: /s/ Charles Kafenshtok
---------------------------
Name: Charles Kafenshtok
-------------------------
Its: President
STOCKHOLDER:
/s/ Charles Kafenshtok
------------------------------
Charles Kafenshtok
/s/ Stephen Avery
------------------------------
Stephen Avery
41
<PAGE>
AGREEMENT
This Agreement ("Agreement") is entered into as of June 21, 1996 between
Innovation Group, Ltd., an Iowa corporation with its principal place of business
at 409 West 76th Street, Davenport, Iowa 52806 ("Seller"), and Twenty-First
Century Metals, Inc., an Illinois corporation with its principal place of
business at 990 Lunt Street, Elk Grove Village, Illinois 60007 ("Buyer").
RECITALS:
1. Seller and Buyer entered into a certain Agreement as of August 1, 1994
(the "August Agreement") in connection with Buyer's purchase of steel pipes and
fittings and other metal products ("Products") from Seller. Buyer plans to
enter into an agreement (the "Merger Agreement") with Consolidated Stainless,
Inc. ("CSI"), under which Buyer will become a wholly-owned subsidiary of CSI.
CSI and Buyer expect to close the Merger Agreement at a closing (the "Closing")
scheduled for June 21, 1996 (the "Closing Date"). In connection with the Merger
Agreement, CSI and Buyer have requested that Seller agree to terminate the
August Agreement effective as of the Closing Date and to enter into this
Agreement in substitution therefor. Seller is amenable to entering into this
Agreement in consideration of certain payment terms contained herein and in
consideration of CSI's guaranty of certain obligations of Buyer to Seller.
2. There are currently outstanding unfilled purchase orders for Products
and Products in transit, all in the aggregate amount of a maximum of
$190,000.00, which Products shall be subject to the terms of this Agreement.
3. There are $1,185,312.45 in principal, interest and other obligations
owed by Buyer to Seller under the August Agreement for goods delivered prior to
the Closing Date, which shall be subject to the terms of this Agreement
("Closing Date Obligation").
4. Buyer and Seller entered into a security agreement on or about August
1, 1994 (the "Security Agreement"), pursuant to which Buyer granted to Seller a
security interest in all of Buyer's assets, including but not limited to
inventory purchased from Seller (the "IGL Inventory"). Buyer and Seller desire
to amend the Security Agreement to change the definition of collateral of Buyer
as to which Seller holds a first lien and security interest.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the parties hereto agree as follows:
<PAGE>
1. PAYMENT TERMS FOR CLOSING DATE OBLIGATION.
(a) Buyer shall pay to Seller at or before the Closing ten percent
(10%) of the Closing Date Obligation due to Seller from Buyer as of the Closing
Date. The Closing Date Obligation shall include Buyer's obligations as to all
Products delivered before the Closing Date, but shall not include the price for
Products ordered but delivered to Buyer on or after the Closing Date. Such
payment will be made by wire transfer to Seller in accordance with Seller's
instructions.
(b) After payment of the ten percent (10%) of the Closing Date
Obligation required by Section 1(a) above, the remaining ninety percent (90%) of
the Closing Date Obligation to Seller will be paid by Buyer to Seller as
follows: one-third of the unpaid balance of the Closing Date Obligation shall
be paid on the date 30 days following the Closing Date; one-half of the
remaining unpaid balance of the Closing Date Obligation shall be paid on the
date 60 days following the Closing Date; and the entire remaining unpaid balance
of the Closing Date Obligation shall be paid on the date 90 days following the
Closing Date. In addition, on each such payment date, Buyer's obligation shall
include payment of accrued interest on the unpaid amount of the Closing Date
Obligation to Seller at the prime rate of Citibank, N.A., New York, New York,
until the Closing Date Obligation is paid in full.
2. PRODUCTS DELIVERED ON AND AFTER CLOSING DATE. Payment for all
Products delivered to Buyer or CSI on and after the Closing Date (including but
not limited to goods in transit as of the Closing Date) shall be due and payable
on terms of net 30 days at prices set forth in the respective purchase orders or
as previously agreed by the parties.
3. SECURITY AGREEMENT. The Security Agreement shall be amended
concurrently herewith to change the definition of the collateral of Buyer as to
which Seller holds a first lien and security interest to reflect Seller's
security interest only in (a) all the inventory of Products of Buyer sold to
Buyer by Seller or all the inventory of Buyer the purchase of which by Buyer was
financed by Seller, but notwithstanding its sale or financing by Seller,
specifically excluding the inventory of Products of Buyer that is physically
delivered to Buyer on and after the Closing Date at Buyer's principal place of
business identified above in this Agreement; and (b) the proceeds of any such
inventory (collectively, the "Collateral"). Inventory of Products sold at any
time by Buyer in the ordinary course of Buyer's business shall be sold free and
clear of Seller's lien and security interest. The Security Agreement between
Buyer and Seller shall be modified in accordance with this Section 3.
<PAGE>
4. FUNDS IN LOCK-BOX. The funds contained in a lockbox pursuant to the
terms of the August Agreement as of the Closing Date, will be distributed to
Buyer's account or Seller's account in the percentages agreed to by the parties
and in effect as of May 31, 1996 and the lockbox shall be closed effective as of
the Closing Date. On and after the Closing Date, all payments by Buyer's
customers for Products shall not be directed to a lockbox account, but shall be
directed as determined by Buyer.
5. GUARANTY. Concurrently herewith, CSI shall enter into a guaranty of
the Closing Date Obligation and the effectiveness of this Agreement is
conditioned upon the execution by CSI of such a guaranty in a form satisfactory
to Seller.
6. TERMINATION OF AUGUST AGREEMENT. Subject to and contingent upon
Buyer's payment as required under Section 1(a) above, the August Agreement shall
terminate effective upon the execution of this Agreement by the parties.
7. COUNTERPARTS. This Agreement may be signed in multiple counterparts,
each of which shall be an original and all of which will constitute one
agreement. Copies of this Agreement, executed by the parties and sent via
facsimile, may be relied upon in the absence or unavailability of signed
originals.
SELLER: BUYER:
INNOVATION GROUP, LTD. TWENTY-FIRST CENTURY
METALS, INC.
By: /s/Bonnie Bryant, VP By: /s/ Ronald Adams
--------------------------- --------------------------
Bonnie Bryant Name: Ronald Adams
Vice-President -------------------------
As: President
----------------------------
<PAGE>
AMENDED SECURITY AGREEMENT
Date: June 21, 1996
Debtor: Twenty-First Century Metals, Inc.,
an Illinois corporation
Debtor's Mailing Address: 990 Lunt Street
Elk Grove Village, Illinois 60007
Secured Party: Innovation Group Ltd.,
an Iowa corporation
Secured Party's Mailing
Address: 409 West 76th Street
Davenport, Iowa 52806
Secured Party and Debtor entered into a certain Security Agreement as of August
1, 1994 ("the Security Agreement"). The parties wish to modify the terms of the
Security Agreement, and to do so enter into this Amended Security Agreement, the
terms of which shall supersede and be substituted for the terms of the Security
Agreement as of August 1, 1994. The parties intend, however, that Secured Party
maintain all its rights to priority as holder of a first lien on the Collateral,
as described below, and for such priority purposes this Amended Security
Agreement is a continuation of the Security Agreement.
"Collateral": All inventory of Debtor sold to Debtor by Secured Party, or the
purchase of which by Debtor was financed by Secured Party, and the proceeds
thereof, but excluding inventory that is physically delivered to Buyer on or
after June 21, 1996, at Debtor's address as set forth above.
"Obligations": All obligations for any amounts under a certain agreement
between Debtor and Secured Party dated as of June 21, 1996, for principal and
--
interest owed with respect to goods delivered to Debtor prior to the date hereof
in the amount of $1,185,312.45.
-------------
Subject to the terms of this Agreement, Debtor grants to Secured Party a
security interest in the Collateral and all its proceeds to secure payment and
performance of Debtor's Obligation and all renewals and extensions of any of the
Obligations. Upon payment in full of all Obligations, Secured Party shall
terminate and release its security interest in the Collateral, and sign and
deliver to Debtor such documents, including a UCC-3 termination statement, as
necessary to do so.
DEBTOR'S WARRANTIES
1. FINANCING STATEMENT. Except for those in favor of Secured Party, no
financing statement covering the Collateral is filed in any public office other
than financing statements with respect to which Debtor holds executed
termination statements which it will file immediately following the date hereof.
<PAGE>
2. OWNERSHIP. Debtor owns the Collateral and has the authority to grant
this security interest. Ownership is free from any setoff, claim, restriction,
lien, security interest, or encumbrance except this security interest.
3. FINANCIAL STATEMENTS. All information about Debtor's financial
condition provided to Secured Party was accurate when submitted, as will be any
information subsequently provided.
4. LOCATION OF COLLATERAL. All of the Collateral described above is
located at Debtor's place of business at 990 Lunt Street, Elk Grove Village,
Illinois 60007.
5. ORGANIZATION. Debtor is duly organized, existing and qualified and in
good standing in all states in which it does business, and the execution,
delivery and performance of this Agreement are within Debtor's powers and have
been duly authorized.
DEBTOR'S COVENANTS
1. INFORMATION AND INSPECTION. At the time and in the form specified by
Secured Party, Debtor will furnish Secured Party any requested information
related to the Collateral, which may include:
a. All information necessary to identify any of the Collateral; and
b. Shipping and delivery receipts evidencing the shipment of goods,
and invoices evidencing receipt of and payment for Collateral.
Debtor will also allow Secured Party to inspect the Collateral at any time and
place and to inspect and copy all records relating to the Collateral and the
Obligations.
2. RECORDS OF COLLATERAL. Debtor will maintain accurate books and
records covering the Collateral and showing the assignment of accounts in
Collateral to Secured Party.
3. DISPOSITION OF COLLATERAL. Debtor will not sell, lease, or otherwise
dispose of any Collateral except in the ordinary course of business without the
prior written consent of Secured Party.
4. PROTECTION OF COLLATERAL. Debtor will defend the Collateral from all
claims and demands adverse to Secured Party's interest in it and will keep it
free from all liens and from all security interests except this one, and junior
liens in favor of SunTrust Bank, and SouthTrust Bank, both of Orlando, Florida.
The Collateral will remain in Debtor's possession or control at all times,
except as otherwise provided in this Agreement. Debtor will maintain the
Collateral in good condition and protect it against misuse, abuse, waste, and
deterioration except for ordinary wear and tear resulting from its intended use.
5. INSURANCE. Debtor will insure the Collateral in accord with Secured
Party's reasonable requirement regarding choice of carrier, casualties insured
against, and amount of
2
<PAGE>
coverage. Policies will be written in favor of Debtor and Secured Party
according to their respective interests or according to Secured Party's other
reasonable requirements. All policies will provide that Secured Party will
receive at least ten days' notice before cancellation, and the policies or
certificates evidencing them will be provided to Secured Party when issued.
Debtor assumes all risk of loss and damage to the Collateral to the extent of
any deficiency in insurance coverage. Debtor irrevocably appoints Secured
Party as attorney-in-fact to collect any refund, unearned premiums, and proceeds
of any insurance on the Collateral and to endorse any draft or check deriving
from the policies and made payable to Debtor.
6. SECURED PARTY'S COSTS. Debtor will pay all reasonable expenses
incurred by Secured Party in obtaining, preserving, perfecting, defending, and
enforcing this security interest and in collecting the Obligations due from
Debtor. Expenses for which Debtor is liable include, but are not limited to,
taxes, assessments, reasonable attorney's fees, and other legal expenses. These
expenses will bear interest from the dates of payments at the highest rate
stated in the separate agreement between Debtor and Secured Party, and Debtor
will pay Secured Party this interest on demand at a time and place reasonably
specified by Secured Party. These expenses and interest will be part of the
Obligations and will be recoverable as such in all respects.
7. ADDITIONAL DOCUMENTS. Debtor will sign any papers that Secured Party
reasonably considers necessary to obtain, maintain, and perfect this security
interest or to comply with any relevant law.
8. NOTICE OF CHANGES. Debtor will immediately notify Secured Party of
any material change in the Collateral; change in Debtor's name, address, or
location; change in any matter warranted or represented in this Agreement;
change that may affect this security interest; and any event of default.
9. USE AND REMOVAL OF COLLATERAL. Debtor will use the Collateral
primarily according to the stated classification unless Secured Party consents
otherwise in writing. Debtor will not permit the Collateral to be affixed to
any real estate, to become an accession to any goods, to be commingled with
other goods, or to become a fixture, accession, or part of a product or mass
with other goods except as expressly provided in this Agreement.
RIGHTS AND REMEDIES OF SECURED PARTY
1. GENERAL. After default Secured Party may exercise any or all of these
rights and remedies:
a. Contact account debtors directly to verify information
furnished by Debtor;
b. Notify obligors on the Collateral to pay Secured Party
directly;
c. As Debtor's agent endorse any documents or chattel paper
that is Collateral or that represented proceeds of Collateral;
3
<PAGE>
d. Demand, sue, and collect any money due on the Collateral
from any third party;
e. Settle, approve, or defend any action or proceeding relating to
the Collateral.
2. LIABILITY. Secured Party has no obligation to collect on any
Collateral and will not be liable for failure to collect any Collateral or for
any act or omission on the part of Secured Party or Secured Party's officers,
agents, or employees, except willful misconduct.
3. INSURANCE. If Debtor fails to maintain insurance as required by this
Agreement or otherwise by Secured Party, then Secured Party may purchase, in
reasonable amount, single-interest insurance coverage that will protect only
Secured Party. If Secured Party purchases this insurance, its premiums will
become part of the Obligations.
EVENTS OF DEFAULT
Each of the following conditions is an event of default:
1. If Debtor defaults in timely payment or performance of any Obligation,
covenant, or liability in any written agreement between Debtor and Secured Party
or in any other transaction secured by this Agreement and within five days after
notification in writing, fails to cure its non-performance;
2. If any warranty, covenant, or representation made to Secured Party by
or on behalf of Debtor proves to have been false in any material respect when
made;
3. If a receiver is appointed for Debtor or any of the Collateral;
4. If the Collateral is assigned for the benefit of creditors or, to the
extent permitted by law, if bankruptcy or insolvency proceedings commence
against or by any of these parties: Debtor; any partnership of which Debtor is
a general partner; and any maker, drawer, acceptor, endorser, guarantor, surety,
accommodation party, or other person liable on or for any part of the
Obligation;
5. If any financing statement regarding the Collateral but not related to
this security interest and not favoring Secured Party is filed without Secured
Party's prior consent, other than financing statements filed by SunTrust Bank or
SouthTrust Bank;
6. If any of the Collateral is lost, stolen, damaged, or destroyed,
unless it is promptly replaced with Collateral of like quality or restored to
its former condition, or such loss is fully covered by insurance, the proceeds
of which are paid to Secured Party up to the amount of the Obligations.
4
<PAGE>
REMEDIES OF SECURED PARTY ON DEFAULT
During the existence of any event of default, Secured Party may declare the
unpaid principal and earned interest of the Obligations immediately due in whole
or part, enforce the Obligations, and exercise any rights and remedies granted
by Chapter 9 of the Uniform Commercial Code or by this Agreement, including the
following:
1. Require Debtor to deliver to Secured Party all books and records
relating to the Collateral;
2. Require Debtor to assemble the Collateral and make it available to
Secured Party at a place reasonably convenient to both parties;
3. Take possession of any of the Collateral and for this purpose enter
any premises where it is located if this can be done without breach of the
peace;
4. Sell, lease, or otherwise dispose of any of the Collateral in accord
with the rights, remedies, and duties of a secured party under Chapters 2 and 9
of the Uniform Commercial Code after giving notice as required by those
chapters; unless the Collateral threatens to decline speedily in value, is
perishable, or would typically be sold on a recognized market, Secured Party
will give Debtor reasonable notice of any public sale of the Collateral or of a
time after which it may otherwise dispose of the Collateral without further
notice of Debtor; in this event, notice will be deemed reasonable if it is
mailed, postage prepaid, to Debtor at the address specified in this Agreement at
least ten days before any public sale or ten days before the time when the
Collateral may be otherwise disposed of without further notice to Debtor;
5. Surrender any insurance policies covering the Collateral and receive
the unearned premium;
6. Apply any proceeds from disposition of the Collateral after default in
the manner specified in Chapter 9 of the Uniform Commercial Code, including
payment of Secured Party's reasonable attorney's fees and court expenses; and
7. If disposition of the Collateral leaves the Obligation unsatisfied,
collect the deficiency from Debtor.
GENERAL PROVISIONS
1. PARTIES BOUND. Secured Party's rights under this Agreement shall
inure to the benefit of its successors and assigns. Secured Party may assign
any of its rights under this Agreement. Debtor's Obligations under this
Agreement shall bind Debtor's representatives, successors, and assigns.
2. WAIVER. Neither delay in exercise nor partial exercise of any of
Secured Party's remedies or rights shall waive further exercise of those
remedies or rights. Secured Party's failure to exercise remedies or rights does
not waive subsequent exercise of those
5
<PAGE>
remedies or rights. Secured Party's waiver of any default does not waive
further default. Secured Party's waiver of any right in this Agreement or of
any default is binding only if it is in writing. Secured Party may remedy any
default without waiving it.
3. REIMBURSEMENT. If Debtor fails to perform any of Debtor's
Obligations, Secured Party may perform those Obligations and be reimbursed by
Debtor on demand at the place where the Obligation is payable for any sums so
paid, including reasonable attorneys' fees and other legal expenses, plus
interest on those sums from the date of payment at the rate stated in the
separate agreement between Debtor and the Secured Party for matured, unpaid
amounts. The sum to be reimbursed shall be secured by this Agreement.
4. MODIFICATIONS. No provisions of this Agreement shall be modified or
limited except by written agreement signed by both parties hereto.
5. SEVERABILITY. The unenforceability of any provision of this Agreement
will not affect the enforceability or validity of any other provision.
6. APPLICABLE LAW. This Agreement will be construed according to laws of
Iowa.
7. FINANCING STATEMENT. A carbon, photographic, or other reproduction of
this Agreement or any financing statement covering the Collateral is sufficient
as a financing statement.
8. PRESUMPTION OF TRUTH AND VALIDITY. If the Collateral is sold after
default, recitals in the bill of sale or transfer will be prima facie evidence
of their truth, and all prerequisites to the sale specified by this Agreement
and by Chapter 9 of the Uniform Commercial Code will be presumed satisfied.
9. PRIORITY OF SECURITY INTEREST. This security interest shall neither
affect nor be affected by any other security for any of the Obligations.
Neither extensions of any of the Obligations nor releases of any of the
Collateral will affect the priority or validity of this security interest.
10. CUMULATIVE REMEDIES. All remedies of Secured Party may be exercised
at the same or different times, and no remedy shall be a defense to any other.
Secured Party's rights and remedies include all those granted by law or
otherwise, in addition to those specified in this Agreement.
11. WAIVER OF JURY. The parties hereto waive trial by jury in any dispute
arising under or related to this Agreement. Each party hereby submits to the
jurisdiction of the state or federal courts located in the State of Iowa.
12. COUNTERPARTS; FACSIMILE. This Agreement may be signed in multiple
counterparts, each of which shall be an original and all of which will
constitute one agreement. Copies of this Agreement, executed by the parties and
sent via facsimile, may be relied upon in the absence or unavailability of
signed originals.
6
<PAGE>
DEBTOR ACKNOWLEDGES RECEIPT OF A FULLY COMPLETED COPY OF THIS AMENDED
SECURITY AGREEMENT.
INNOVATION GROUP LTD. TWENTY-FIRST CENTURY METALS,
INC., an Illinois corporation
By: /s/ Bonnie Bryant, VP By: /s/ Ronald Adams
--------------------------- -----------------------------
Bonnie Bryant Name: Ronald Adams
Vice-President Title: President
<PAGE>
GUARANTY
This GUARANTY, dated June 21, 1996, is made by Consolidated Stainless,
Inc., a Delaware corporation, 2170 West State Road 434, Suite 330, Longwood,
Florida 32779, ("the Guarantor"), in favor of Innovation Group, Ltd., an Iowa
corporation, 409 West 76th Street, Davenport, Iowa 52806 ("IGL").
PRELIMINARY STATEMENTS: IGL and Twenty-First Century Metals, Inc.
("Twenty-First Century") entered into a certain Agreement as of August 1, 1994
(the "August Agreement") in connection with Twenty-First Century's purchase of
steel pipes and fittings and other metal products from IGL. Twenty-First
Century plans to enter into an agreement (the "Merger Agreement") with the
Guarantor, under which Twenty-First Century will become a wholly-owned
subsidiary of the Guarantor. The Guarantor and Twenty-First Century expect to
close the Merger Agreement at a closing ("the Closing") scheduled for June 21,
1996. In connection with the Merger Agreement, the Guarantor and Twenty-First
Century have requested that IGL agree to a new agreement, effective as of the
Closing ("the New Agreement"), which shall terminate the August Agreement. In
order to induce IGL to execute the New Agreement, IGL has requested that
Guarantor guarantee Twenty-First Century's payment of all obligations owing to
IGL under the New Agreement.
In consideration of the premises contained herein, and to induce IGL to
execute the New Agreement, the Guarantor agrees as follows:
SECTION 1. GUARANTY. The Guarantor hereby unconditionally guarantees
Twenty-First Century's punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all obligations of Twenty-First Century to pay any
amounts to IGL now existing or hereafter existing under the New Agreement,
whether for principal, interest, fees, commissions, expenses or otherwise (all
such obligations being the "Obligations"), and agrees to pay any and all
expenses (including reasonable counsel fees and expenses) incurred by IGL in
enforcing any rights under this Guaranty. Without limiting the generality of
the foregoing, the Guarantor's liability shall extend to all amounts, whether
advances or readvances, which constitute part of the Obligations and would be
owed by Twenty-First Century under the New Agreement and/or Obligations but for
the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving Twenty-First Century.
SECTION 2. GUARANTY ABSOLUTE. The Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of the New
Agreement evidencing any such Obligations. The obligations of the Guarantor
under this Guaranty are independent of the Obligations, and a separate action or
actions may be brought and prosecuted against the Guarantor to enforce this
Guaranty, irrespective of whether any action is brought against Twenty-First
Century or whether Twenty-First Century is joined in any such action or actions.
The liability of the Guarantor shall be absolute and unconditional irrespective
of:
(i) any lack of validity or enforceability of the New
Agreement or any instrument evidencing any Obligation or any
other agreement or instrument relating thereto;
<PAGE>
(ii) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations, or
any other amendment or waiver of or any consent to departure
from the New Agreement or any instrument evidencing the
Obligations including, without limitation, any increase in
the Obligations resulting from the extension of additional
credit to Twenty-First Century or otherwise;
(iii) any taking, exchange, release or nonperfection of any
collateral, or any release or amendment or waiver of or
consent to departure from any other guaranty, for all or any
of the Obligations;
(iv) any manner of application of collateral, or proceeds
thereof, to all or any of the Obligations, or any manner of
sale or other disposition of any collateral for all or any
of the Obligations or any other assets of Twenty-First
Century; or
(v) any change, restructuring or termination of the
corporate structure or existence of Twenty-First Century or
any of its subsidiaries.
This Guaranty shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Obligations is rescinded or
must otherwise be returned by IGL upon the insolvency, bankruptcy or
reorganization of Twenty-First Century or otherwise, all as though such payment
had not been made.
SECTION 3. WAIVER. The Guarantor hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Obligations
and this Guaranty and any requirement that IGL protect, secure, perfect or
insure any security interest or lien or any property subject thereto or exhaust
any right or take any action against Twenty-First Century or any other person or
entity or any collateral.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby
represents and warrants as follows:
(a) The execution, delivery and performance by the Guarantor of this
Guaranty do not contravene any law or any contractual restriction binding on or
affecting the Guarantor.
(b) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Guarantor of this Guaranty,
other than the approvals of SunTrust Bank, Orlando, Florida, and SouthTrust
Bank, Orlando, Florida.
(c) This Guaranty is, and when delivered will be, the legal, valid
and binding obligation of the Guarantor enforceable against the Guarantor in
accordance with its
2
<PAGE>
terms, except as such enforcement may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally.
(d) There are no proceedings pending or, so far as the Guarantor
knows, threatened before any court or arbitration panel or before any
governmental body which relates to the transactions contemplated by this
Guaranty or which, in the opinion of the Guarantor, will materially adversely
affect the financial condition or operation of the Guarantor.
SECTION 5. AMENDMENTS. No amendment of any provision of this Guaranty
shall be effective unless the same shall be in writing and signed by IGL and
Guarantor.
SECTION 6. ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed, telecopied, telegraphed, telexed,
cabled or delivered to it, if to the Guarantor, at its address set forth as the
beginning of this Agreement; and if to IGL at 409 West 76th Street, Davenport,
Iowa 52806, or, as to either party, at such other address as shall be designated
by such party in a written notice to the other party. All such notices and
other communications shall, when mailed, telecopied, telegraphed, telexed,
cabled or hand-delivered by messenger or overnight courier, be effective five
days after deposit in the mails, or shall be effective when telecopied,
delivered to the telegraph company, confirmed by telex answerback or delivered
to the cable company, respectively or, if delivered by messenger or overnight
courier, upon delivery.
SECTION 7. EVENTS OF DEFAULT. In the event of the happening of any one or
more of the following events, any one of which shall constitute an event of
default (an "Event of Default"), to wit: (a) the nonpayment of any of the
Obligations; (b) any petition in bankruptcy being filed by the Guarantor, or any
proceedings in bankruptcy, or under any laws or regulations of any jurisdiction
relating to the relief of debtors, being commenced by the Guarantor for the
relief or readjustment of any indebtedness of the Guarantor, either through
reorganization, composition, extension or otherwise; (c) any petition in
bankruptcy being filed against the Guarantor, or any proceedings in bankruptcy
or under any laws or regulations of any jurisdiction relating to the relief of
debtors being commenced against the Guarantor for the relief or readjustment of
any indebtedness of the Guarantor, either through reorganization, composition,
extension or otherwise and the same shall remain undismissed for a period of
sixty (60) days; (d) the making by the Guarantor of an assignment for the
benefit of creditors or the taking advantage of either of the same of any
insolvency law; (e) the appointment of a receiver of any property of the
Guarantor; (f) the Guarantor fails to observe or perform any of the other terms
or provisions of this Guaranty and the same shall continue unremedied for a
period of thirty (30) days after written notice thereof shall have been given by
IGL to the Guarantor; -- then, or at any time after the happening of any such
Event of Default, any or all of the Obligations shall, at IGL's option, become
(for all purposes of this Guaranty) immediately due and payable by the
Guarantor, without demand or notice.
SECTION 8. NO WAIVER; REMEDIES. No failure on the part of IGL to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any
3
<PAGE>
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 9. CONTINUING GUARANTY; ASSIGNMENTS UNDER CREDIT AGREEMENT. This
Guaranty is a continuing guaranty and shall: (i) remain in full force and
effect until the payment in full of the Obligations and all other amounts
payable under the New Agreement; (ii) be binding upon the Guarantor, its
successors and assigns; and (iii) inure to the benefit of, and be enforceable
by, IGL and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), IGL may assign or otherwise transfer
all or any portion of its right and obligations under the Obligations to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to IGL herein or
otherwise.
SECTION 10. GOVERNING LAW; FACSIMILE. This Guaranty shall be governed by,
and construed in accordance with, the laws of the State of Iowa. Copies of this
Guaranty executed by Guarantor and sent via facsimile may be relied upon in the
absence or unavailability of a signed original.
SECTION 11. WAIVER OF JURY TRIAL. The Guarantor and IGL each waive any
right to trial by jury in any action, proceeding, claim or counterclaim arising
out of or relating to this Guaranty.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered as of the date first above written.
CONSOLIDATED STAINLESS, INC.
By: /s/ Ronald Adams
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STATE OF FLORIDA, ORANGE COUNTY, ss.
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On June 21, 1996, before the undersigned Notary Public in and for the State
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of Florida, personally appeared Ronald J. Adams, to me personally known; being
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duly sworn, he stated that he is the President of the corporation executing the
foregoing instrument, that (the seal affixed thereto is the seal of) (no seal
has been procured by) the corporation, and that the instrument was signed (and
sealed) on behalf of the corporation, by authority of its Board of Directors;
and, as such officer, he acknowledged the execution of said instrument to be the
voluntary act and deed of the corporation, voluntarily executed by it and by
him.
[SEAL] /s/ Salesa Miller-Pope
-----------------------------------
Notary Public in and for the
State of Florida
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