<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 00-22690
CONSOLIDATED STAINLESS, INC.
State of Incorporation: Delaware
IRS Employer Identification Number: 59-1669166
1601 East Amelia Street
Orlando, Florida 32803
(407) 896-4000
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
---- ----
As of November 1, 1997, Consolidated Stainless, Inc. had
outstanding 4,610,329 shares of Common Stock, par value $.01 per share.
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TABLE OF CONTENTS
ITEM PAGE(S)
Part I
Financial Information
1. FINANCIAL STATEMENTS
Balance Sheets .............................. 1 - 2
Statements of Operations..................... 3
Statements of Cash Flows..................... 4
Notes to Financial Statements................ 5 - 6
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ......... 7 - 14
Part II
Other Information
6. EXHIBITS AND REPORTS ON FORM 8-K .................. 15 - 16
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PART I
Financial Information
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STAINLESS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
9/30/97
(Unaudited) 12/31/96
------------------------------
ASSETS
<S> <C> <C>
CURRENT:
Cash and cash equivalents $ 489,278 $ 273,914
Accounts Receivable:
Trade, less allowance for possible losses
of $349,978 and $129,000 7,627,580 6,165,794
Other 115,299 145,723
Due from stockholders 151,937 279,895
Inventories 22,654,306 21,321,810
Refundable income taxes - 957,475
Prepaid expenses 105,704 206,840
Deferred income taxes 398,042 292,800
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TOTAL CURRENT ASSETS 31,542,146 29,644,251
PROPERTY AND EQUIPMENT, less
accumulated depreciation and amortization 16,668,454 17,513,878
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization $88,418 and $166,394 509,671 357,245
Goodwill, less accumulated amortization of
$317,640 and $176,916 2,420,950 3,575,587
Other 235,974 161,290
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TOTAL OTHER ASSETS 3,166,595 4,094,122
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TOTAL ASSETS $ 51,377,195 $ 51,252,251
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</TABLE>
See the accompanying notes to the financial statements.
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CONSOLIDATED STAINLESS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
9/30/97
(Unaudited) 12/31/96
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 8,626,222 $ 4,379,114
Book overdrafts 475,550 702,116
Due to stockholders 200,000 563,158
Accrued expenses:
Payroll and related taxes 484,059 528,312
Interest 221,316 228,704
Other 845,054 657,695
Current maturities of long-term debt 1,399,610 4,989,411
Current portion of capital lease obligation 959,358 862,004
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TOTAL CURRENT LIABILITIES 13,211,169 12,910,514
LONG-TERM DEBT, less current maturities 31,658,097 26,772,909
LONG-TERM CAPITAL LEASE OBLIGATIONS,
less current portion 1,266,869 1,957,497
DEFERRED INCOME TAXES 398,042 393,000
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TOTAL LIABILITIES 46,534,177 42,033,920
COMMITMENTS AND CONTIGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock $.01 par - shares authorized
2,000,000; none issued - -
Common stock $.01 par - shares authorized
15,000,000; issued and outstanding 4,610,329
and 4,465,866 46,103 44,659
Additional paid-in capital 8,064,638 7,741,039
Retained earnings (accumulated deficit) (3,267,723) 1,432,633
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,843,018 9,218,331
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 51,377,195 $ 51,252,251
------------ ------------
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</TABLE>
See the accompanying notes to the financial statements.
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CONSOLIDATED STAINLESS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
9/30/97 9/30/96 9/30/97 9/30/96
(UNAUDITED) (UNAUDITED)
---------------------------- -------------------------
<S> <C> <C> <C> <C>
SALES $14,286,222 $12,090,743 $41,663,644 $39,258,332
COST OF SALES 12,940,222 10,489,017 37,192,488 32,277,083
----------- ----------- ------------- -----------
Gross profit 1,346,000 1,601,726 4,471,156 6,981,249
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,980,439 1,415,534 5,559,716 5,077,607
PROVISION FOR LOSS ON SALE OF CERTAIN ASSETS OF FLOW
COMPONENTS' DIVISION 1,013,913 -- 1,013,913 --
----------- ----------- ------------- -----------
Income (loss) from operations (1,648,352) 186,192 (2,102,473) 1,903,642
OTHER INCOME (EXPENSES):
Interest (967,689) (793,876) (2,683,844) (2,181,575)
Other 49,052 36,732 108,100 317,448
----------- ----------- -------------- -----------
Income (loss) before taxes on income (benefit) (2,566,989) (570,952) (4,678,217) 39,515
TAXES ON INCOME (BENEFIT) 697,439 (246,198) 22,139 (2,011)
----------- ----------- ------------- -----------
NET INCOME (LOSS) $(3,264,428) $ (324,754) $(4,700,356) $ 41,526
=========== =========== ============= ===========
EARNINGS (LOSS) PER COMMON SHARE:
Primary $ (0.71) $ (0.07) $ (1.04) $ 0.01
Fully diluted N/A (0.07) N/A 0.01
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND SHARE EQUIVALENTS OUTSTANDING:
Primary 4,610,329 $ 4,438,366 4,517,195 4,703,465
Fully diluted N/A 4,438,366 N/A 4,703,465
</TABLE>
See the accompanying notes to the financial statements.
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CONSOLIDATED STAINLESS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
9/30/97 9/30/96
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (4,700,356) $ 41,526
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 1,221,904 931,349
Amortization 265,207 246,135
Write-down in value of Goodwill 1,013,913 --
Loss (gain) on disposal of property and equipment 14,125 (23,000)
Deferred income taxes (100,200) (55,792)
Cash provided by (used for):
Accounts receivable (1,431,362) 238,018
Insurance proceeds receivable -- 804,366
Due from stockholders (10,159) (28,728)
Inventories (1,332,496) 1,016,620
Refundable income taxes 957,475 (44,407)
Prepaid expenses 101,136 114,041
Accounts payable 4,247,108 (2,652,012)
Due to stockholders 100,000 568,712
Accruals 135,719 (49,381)
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Net cash provided by operating activities 482,014 1,107,447
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (654,515) (3,955,997)
Proceeds from the sale of property and equipment 345,698 23,000
Purchase of Flow Components, Inc. -- (4,093,101)
Purchase of 21st Century, net of cash acquired -- (135,978)
Increase in other assets (132,330) (187,471)
----------- -----------
(441,147) (8,349,547)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in book overdrafts (226,566) (2,578,724)
Net proceeds under revolving lines of credit 5,662,384 4,803,282
Repayments of long-term debt (4,395,008) (4,128,227)
Proceeds from long-term debt -- 10,394,556
Repayments of capital lease obligations (647,051) (1,190,408)
Deferred financing costs (219,262) (176,983)
Proceeds from exercise of stock options -- 142,145
Proceeds from exercise of stock warrants -- 371,898
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Net cash provided by financing activities 174,497 7,637,539
------------ ---------
Net increase in cash and cash equivalents 215,364 395,439
CASH AND CASH EQUIVALENTS, beginning of period 273,914 94,319
------------ ---------
CASH AND CASH EQUIVALENTS, end of period $ 489,278 $ 489,758
============ =========
</TABLE>
See the accompanying notes to the financial statements.
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NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q, and do not include all of the
information and disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the year
ended December 31, 1996. The accompanying financial statements have not been
examined by an independent accountant in accordance with generally accepted
auditing standards, but in the opinion of management, such financial statements
include all adjustments, consisting only of normal recurring adjustments and
accruals, to fairly report the Company's financial position and results of
operations. The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected for the fiscal
year.
NOTE 2 - EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share are based on the weighted average number of
common shares and dilutive common stock equivalents outstanding during the nine
months ended September 30, 1996. Common stock equivalents include warrants and
options and have not been included for the three months and nine months ended
September 30, 1997and the three months ended September 30, 1996 since their
effect would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS
128 establishes new standards for computing and presenting earnings per share
("EPS"). Specifically, SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS, requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, earlier application is not permitted. EPS for
the three and nine months ended September 30, 1997 and September 30, 1996
computed under SFAS 128 would not be materially different than previously
computed.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
The Company incurred long-term debt and capital lease obligations of $81,787 and
$1,019,869 in connection with the purchase of property and equipment and during
the nine months ended September 30, 1997 and 1996, respectively.
On June 26, 1997, the Chief Executive Officer and President elected to convert
$325,043 of subordinated debt which the Company borrowed from them in 1996 into
144,463 shares of common stock based on the closing value at that date ($2.25
per share).
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NOTE 4 - WRITE-DOWN IN VALUE OF GOODWILL
Based on the November 5, 1997 contract, effective November 1, 1997, for the sale
of certain assets of the Flow Components' division, and in accordance with
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
the Company has written-down goodwill on its September 30, 1997 financial
statements by an additional $1,013,913 to provide for the loss on the sale.
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Consolidated Stainless, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The statements contained herein that are not historical facts may be forward
looking statements. The forward looking statements are subject to certain risks
and uncertainties, including without limitation those identified below, which
could cause actual results to differ materially from historical results or those
anticipated. Readers are cautioned not to place undue reliance on these forward
looking statements, which speak only as of their dates.
The following factors could cause actual results to differ materially from
historical results or those anticipated; adverse economic conditions, the impact
of competitive products and pricing, product demand and acceptance risks, raw
material and other increased costs, customer delays or difficulties in the
production of products, and other risks detailed from time to time in
Consolidated Stainless, Inc.'s Securities and Exchange Commission filings.
RESULTS OF OPERATIONS
Sales for the three months ended September 30, 1997 were $14.3 million,
reflecting an 18.2% increase from the comparable period in 1996. Sales for the
nine months ended September 30, 1997 were $41.7 million, resulting in a 6.1%
increase from the nine months of 1996. These increases can be attributed to the
Company's strategic decision to increase market share. These increases would
have been significantly higher if not for a 22% reduction in selling prices for
stainless steel pipe compared with the prior periods.
Gross profit as a percentage of sales for the third quarter of 1997 decreased to
9.4%, as compared to 13.2% for the third quarter of 1996. Similarly, for the
nine months ended September 30, 1997, gross profit as a percentage of sales
decreased to 10.7% from 17.8% in the comparable period in 1996. These
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<PAGE>
decreases are primarily due to downward pressure on selling prices from
oversupply in the U.S. market.
Selling, general and administrative expenses increased 39.9% for the three
months ended September 30, 1997 as compared with the same period in 1996 and
increased 9.5% for the nine months ended September 30, 1997 relative to the
comparable period in 1996. These increases can be primarily attributed to
reduced expenses in the third quarter of 1996, due to the reversal of a $0.4
million accrual for executive officer bonuses in that quarter, and increased
costs in the third quarter of 1997, as a result of an additional provision for
the allowance for doubtful accounts of $0.1 million.
A provision for loss on the sale of certain assets of the Flow Components
division for $1.0 million was recorded for the third quarter of 1997. Based on
the November 5, 1997 contract, effective November 1, 1997, for the sale of
certain assets of this division the Company has written-down goodwill in
accordance with Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". See Item 5 in Part II - Other Information.
Interest expense increased 21.9% for the third quarter of 1997 as compared with
the third quarter in 1996. For the nine months ended
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<PAGE>
September 30, 1997 interest expense increased 23.0% compared with the nine
months ended September 30, 1996. These increases were primarily due to a rise
in the Company's indebtedness incurred throughout 1996 to finance capital
improvement projects such as the buttweld fittings, coil slitting, and
ornamental and structural tubing operations, and the expansion of the Auburndale
manufacturing facility. Additionally, in the third quarter of 1997, the Company
accrued $0.1 million of interest costs relating to the Internal Revenue Service
examination for the tax years ended December 31, 1992, November 30, 1993,
December 31, 1994 and December 31, 1995.
The Company recorded taxes on income of $0.7 million for the three months ended
September 30, 1997 compared with an income tax benefit of $0.2 million for the
comparable period in 1996. Taxes on income for the nine months ended September
30, 1997 was approximately $22,000 as opposed to an income tax benefit of
approximately $2,000 for the nine months ended September 30, 1996. The taxes
on income resulted from a $0.1 million increase in the provision for the
Internal Revenue Service examination and $0.6 million due to the re-evaluation
of the deferred income tax asset account and adjusting the valuation reserve in
accordance with Financial Accounting Standards No.109 "Accounting for Income
Taxes".
As a result of the foregoing factors, the net loss for the three months ended
September 30, 1997 was $3.3 million, as compared with $0.3 million net loss
generated during the third quarter of 1996. The net loss for the nine months
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<PAGE>
ended September 30, 1997 was $4.7 million as compared to net income of
approximately $42,000 for the comparable period in 1996. These decreases are
primarily attributable to narrower gross profit margins resulting from a decline
in stainless steel selling prices, the write-down of goodwill, the re-evaluation
of the deferred tax asset account and higher interest costs.
LIQUIDITY AND CAPITAL RESOURCES
On November 14, 1997, the Company entered into a Letter Agreement (the "Letter
Agreement") amending its Loan and Security Agreement dated March 10, 1997 by and
between Mellon Bank, N.A. ("Mellon") and the Company (the "Loan Agreement").
The Company failed to meet its effective net worth covenant for the periods
ended July 31, 1997, August 31, 1997 and September 30, 1997. Additionally,
certain other financial ratio covenants (i.e., net loss, capital expenditures,
current ratio and senior debt to effective net worth) were not met for the
period ended September 30, 1997. In the Letter Agreement, Mellon waived the
covenant violations along with a payment default on the overadvance and a
cross-default under the Convertible Subordinated Note Purchase Agreement, as
amended. The borrowing base of 85% of the qualified accounts receivable and 65%
of eligible inventory, subject to the amended maximum advance amount, remains
unchanged on this revolving line of credit facility. The interest rate
continues to be a variable margin over either the fluctuating prime rate of
interest or the fluctuating LIBOR Rate. The Loan Agreement, as amended,
continues to contain certain negative covenants to be observed by the
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Company, as well as certain financial ratios which the Company must maintain
until the maturity date of the Loan Agreement on March 10, 2001.
On November 5, 1997, the Company amended ("Third Amendment") its Loan Agreement.
The Third Amendment recognizes Mellon's consent to the sale of Flow Assets (see
Item 5 in Part II - Other Information). As a result of the sale, the maximum
advance amount was reduced to $22.0 million from $25.0 million and the maximum
advance on eligible inventory was reduced to $14.0 million from $15.0 million.
Additionally, the Company agreed to assign the $250,000 promissory note from the
sale to Mellon and to reduce the overadvance to $1.4 million from $2.6 million.
However, the Company will continue to reduce the overadvance monthly by $175,000
until it is reduced to zero.
On August 11, 1997, the Company amended ("Second Amendment") its Loan
Agreement. In addition to the First Amendment to the Loan and Security
Agreement dated as of March 31, 1997, which amended certain financial covenants
contained in the Loan Agreement for the period ended March 31, 1997, the main
purpose of the Second Amendment was to amend certain covenants for the period
June 30, 1997 through December 31, 2000. The Second Amendment also reduced the
maximum advance on eligible inventory from $17.0 million to $16.0 million, with
a further reduction as of October 15, 1997 to $15.0 million.
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Borrowings under the Loan Agreement are secured by all of the assets of the
Company, other than real property and specified equipment already subject to
liens in favor of other lenders, and such borrowings are personally guaranteed
up to $3.0 million in the aggregate by Harvey Adams, Chief Executive Officer,
and Ronald Adams, President.
On November 11, 1997, approximately $19.8 million was outstanding under the line
of credit created pursuant to the Loan Agreement.
On November 14, 1997, the Company amended ("Amendment No. 4") its Convertible
Subordinated Note Purchase Agreement (the "Note Purchase Agreement"), dated
October 18, 1996, by and between the Company, SunTrust Banks, Inc., and Messrs.
Harvey and Ronald Adams. The main purpose of Amendment No. 4 is to amend
certain financial ratios for the period ended September 30, 1997. In addition,
Waiver and Modification Agreement No. 3, dated August 12, 1997, amended certain
financial ratios contained in the Note Purchase Agreement for the period ended
June 30, 1997 and Waiver and Modification Agreement No. 2 amended certain
financial ratios contained in the Note Purchase Agreement for the period ended
March 31, 1997.
As of September 30, 1997, the Company amended ("Equipment Amendment No. 2") its
term loan agreement ("Equipment Loan Agreement"), dated January 22, 1996, by and
between the Company, Flow Components, Inc. ("FCI") and
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SunTrust Bank, Central Florida, N.A. The primary purpose of Equipment Amendment
No. 2 was to amend certain financial ratios for the period ended September 30,
1997.
On August 22, 1997, the Company amended ("Equipment Amendment No. 1") its
Equipment Loan Agreement. The primary purpose of Equipment Amendment No. 1 was
to recognize that FCI had merged into the Company on April 22, 1996, such that
FCI was no longer a separate legal entity, and to reinstate and revise covenants
that became unenforceable due to the change in the Company's major lender on
March 10, 1997.
The Company's ability to service its current debt levels are contingent on an
improvement in its results of operations along with the continued support of its
vendors and major lenders.
The Company has been notified by the Department of Treasury - Internal Revenue
Service ("IRS") that it has concluded an examination of the Company's tax
returns for the tax periods ended December 31, 1992, November 30, 1993, December
31, 1994 and December 31, 1995. The IRS is proposing changes to the tax returns
resulting in additional taxes amounting to $1,210,706 and penalties totaling an
additional $242,140. The issues raised by the IRS relate to a Built-in Gains
Tax for the disposition of inventory and the valuation of inventory
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based upon the tax requirement that certain indirect costs be included in the
value of its inventory which are not required for financial statement purposes.
The Company appealed the proposed findings to the Office of the Regional
Director of Appeals and has requested a hearing to present its position on the
issues raised by the IRS. The Company has substantial arguments, both in the
facts and circumstances and in the law, to refute the arguments of the IRS. The
Company believes that the Built-in Gains Tax does not apply to the years
examined and that it has capitalized sufficient costs to comply with IRS
regulations. However, should the IRS prevail on the capitalization of costs
issue, it would immediately create an additional net operating loss increasing
the amount of available losses to carry forward and offset against future
taxable earnings of the Company.
Should the Appeals Officer find in favor of the IRS, the Company has additional
administrative channels of appeal available to challenge the proposed changes
and intends to vigorously defend its position.
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Consolidated Stainless, Inc.
Part II: Other Information
ITEM 5. OTHER INFORMATION
SALE OF CERTAIN ASSETS OF THE FLOW COMPONENTS DIVISION
The Company entered into an agreement (the "Flow Asset Purchase Agreement") with
Texas Metal Works, Inc., of Beaumont, Texas, a wholly owned subsidiary of
Specialty Piping Components, Inc. ("TMW"), dated November 5, 1997 and effective
November 1, 1997, pursuant to which certain assets (the "Flow Assets") of the
Company's Flow Components Division (the "Division") were sold to TMW. The Flow
Assets include all machinery and equipment, certain intangible assets including
goodwill, rights under contracts for the purchase of inventory, and inventory
used in connection with operation of the business of the Division. The Company
retained all accounts receivable generated by the operation of the business of
the Division, all accounts payable related to the Division's operations, and the
obligation to satisfy all liabilities secured by Flow Assets. As consideration
for its sale of the Flow Assets to TMW, the Company received $5,050,549 (the
"Purchase Price"), $250,000 of which was paid in the form of a promissory note
due on November 5, 1999 and the balance ($4,800,549) was paid in cash at
closing. The Purchase Price for the Flow Assets was based upon the current fair
market value of the tangible assets sold and the current value of the goodwill
for the operations of the Division as recorded on the books and records of the
Company as of October 31, 1997. The Company has used a portion of the proceeds
from the sale of the Flow Assets to pay accounts payable related to Division
operations and indebtedness secured by the Flow Assets.
Pro forma financial information is not required to be presented as a result of
this transaction.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Amendment No. 1 to Loan Agreement dated as of August 22,
1997 with Suntrust Bank, Central Florida, National Association.
10.2 - Second Amendment to Loan Agreement dated as of September 30,
1997 with Suntrust Bank, Central Florida, National Association.
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10.3 - Third Amendment to Loan and Security Agreement dated November
5, 1997 between Consolidated Stainless, Inc. and Mellon
Bank, N.A.
10.4 - Asset Purchase Agreement, dated November 5, 1997, by and
among Consolidated Stainless, Inc. and Texas Metal Works, Inc
10.5 - Waiver and Modification Agreement No.4 to Convertible
Subordinated Note Purchase Agreement Amendment dated
November 14, 1997 with Suntrust Banks, Inc.
10.6 - Letter Agreement to Loan and Security Agreement dated
November 14, 1997 between Consolidated Stainless, Inc. and
Mellon Bank, N.A.
(b) Form 8 - K
The Company filed a Form 8-K dated July 22, 1997 with respect to a 30-day
letter received on April 30, 1997 from the Internal Revenue Service regarding
the tax periods ended December 31, 1992, November 30, 1993, December 31, 1994
and December 31, 1995.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED STAINLESS, INC.
(Registrant)
Date: NOVEMBER 17, 1997 By: /S/BURTON R. CHASNOV
---------------------
Burton R. Chasnov
Executive Vice President
Chief Financial Officer
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EXHIBIT INDEX
Exhibits Description of Items
10.1 - Amendment No. 1 to Loan Agreement dated as of August 22,
1997 with Suntrust Bank, Central Florida, National Association.
10.2 - Second Amendment to Loan Agreement dated as of September 30,
1997 with Suntrust Bank, Central Florida, National Association.
10.3 - Third Amendment to Loan and Security Agreement dated November
5, 1997 between Consolidated Stainless, Inc. and Mellon
Bank, N.A.
10.4 - Asset Purchase Agreement, dated November 5, 1997, by and
among Consolidated Stainless, Inc. and Texas Metal Works, Inc
10.5 - Waiver and Modification Agreement No.4 to Convertible
Subordinated Note Purchase Agreement Amendment dated
November 14, 1997 with Suntrust Banks, Inc.
10.6 - Letter Agreement to Loan and Security Agreement dated
November 14, 1997 between Consolidated Stainless, Inc. and
Mellon Bank, N.A.
<PAGE>
EXHIBIT 10.1
AMENDMENT NO.1 TO LOAN AGREEMENT
This Amendment ("Amendment") dated as of August 22, 1997, is made and
entered into by and among SunTrust Bank, Central Florida, National Association,
having its principal office at 200 South Orange Avenue, Orlando, Florida 32801,
(hereinafter referred to as "Bank"), and Consolidated Stainless, Inc., a
Delaware corporation ("CSI"), of 1601 East Amelia Street, Orlando, Florida
32803, (hereinafter referred to as "Borrower").
WHEREAS the Bank, the Borrower, and Flow Components, Inc. have entered into
a Loan Agreement ("Loan Agreement") dated as of January 22, 1996, whereby the
Bank has provided financing for certain items of equipment, and;
WHEREAS on April 22, 1996 Flow Components, Inc. ("FCI") merged into
Borrower, such that FCI no longer exists as a separate legal entity, and;
WHEREAS Borrower has entered into a loan agreement with Mellon Bank, N.A.,
replacing SunTrust Bank, Central Florida, N.A. as its primary bank, and;
WHEREAS the Bank and the Borrower desire to amend the Loan Agreement to
incorporate certain financial covenants;
Now, therefore, in consideration of the mutual covenants and conditions set
forth herein, the Bank and the Borrower hereby agree as follows:
1. AMENDMENT. The Loan Agreement is hereby amended by adding the contents
of Exhibit A attached hereto as section 8 thereto.
2. PROJECTIONS. Within thirty (30) days after the closing of any sale of
the Components Division, Borrower shall deliver to Bank revised projections
prepared in accordance with the provisions of SECTION 9.2 of the Mellon Bank
Loan Agreement and giving effect to such sale. Upon its receipt and review of
the revised projections, Bank may, in the exercise of its reasonable discretion,
require revisions to the financial covenants set forth in SECTION 8 of the Loan
Agreement. Nothing contained herein shall obligate Bank to make any
modification of the financial covenants.
3. CLOSING CONDITIONS. The effectiveness of this Amendment and the
Bank's obligations hereunder are expressly conditioned upon the execution and
delivery to Bank and compliance with each of the following by Borrower:
(A) Corporate resolutions of the directors of the Borrower
authorizing the execution and delivery by Borrower of this Amendment and all
documents required to be delivered by Borrower hereunder and thereunder.
(B) Any agreements, modification and/or amendments of the
documentation evidencing the Subordinated Indebtedness (as such term is defined
in the Mellon Bank Loan Agreement) necessary to (i) demonstrate any required
consent of the holders of the Subordinated Indebtedness to the terms and
conditions of this Amendment and (ii) modify the terms and conditions of such
documentation to cause Borrower's compliance with all the terms and conditions
thereof.
Page 1 of 4
<PAGE>
(C) Any other agreements, instruments, and/or documents Bank may
reasonably request.
4. OTHER REFERENCES. All references in the Loan Agreement and all the
Loan Documents to the term "LOAN DOCUMENTS" shall mean the Loan Documents as
defined therein, and this Amendment, and any and all other documents executed
and delivered by Borrower pursuant to and in connection herewith.
5. FURTHER AGREEMENTS AND REPRESENTATIONS. Borrower hereby:
(A) Ratifies, confirms and acknowledges that the Loan Agreement, as
amended hereby, and the Loan Documents continue to be valid, binding and in full
force and effect;
(B) Renews, confirms and continues all liens, security interests,
rights and remedies granted to the Bank in the Loan Documents, which liens,
security interests, rights and remedies shall also secure the performance by
Borrower of its obligations hereunder and under the Loan Documents;
(C) Covenants and agrees to perform all of its obligations under the
Loan Agreement, as amended hereby, and the Loan Documents;
(D) Acknowledges and agrees that as of the date hereof, Borrower has
no defense, set-off, counterclaim or challenge against the payment of any sums
under the Loan Agreement or the enforcement of any of the terms of the Loan
Agreement, as amended hereby, or any of the other Loan Documents;
(E) Ratifies and confirms that all representations and warranties of
the Borrower, contained in the Loan Agreement and/or the other Loan Documents,
are true and complete on and as of the date hereof, as if made on and as of the
date hereof.
(F) Represents and warrants that the execution and delivery of this
Amendment by Borrower and all documents and agreements to be executed and
delivered pursuant to the terms hereof;
(I) have been duly authorized by all requisite corporate action by
Borrower;
(II) will not conflict with or result in the breach of or
constitute a default (upon the passage of time, delivery of notice or both)
under Borrower's Certificate of Incorporation or By-Laws or any applicable
statute, law, rule, regulation or ordinance or any indenture, mortgage, loan or
other document or agreement to which Borrower is a party or by which it is bound
or affected; and
(III) will not result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the property or
assets of Borrower, except liens in favor of the Bank or as permitted hereunder
or under the Loan Documents;
(G) Represents and warrants that, after giving effect to this
Amendment, no Event of Default or event, which with the giving of notice,
passage of time or both, would constitute an Event of Default exists and all of
the information described in the foregoing Background is accurate and complete;
and
Page 2 of 4
<PAGE>
(H) Acknowledges and agrees that Borrower's failure to comply with or
perform any of its covenants, agreements or obligations contained in this
Amendment or any other documents executed and delivered by Borrower in
connection herewith will, subject to applicable notice, grace and cure periods,
constitute an Event of Default under the Loan Agreement and each of the Loan
Documents.
6. NO NOVATION. Nothing contained herein and no actions taken pursuant to
the terms hereof are intended to constitute a novation of the Loan Agreement or
any of the Loan Documents and shall not constitute a release, termination or
waiver of any of the liens, security interests, rights or remedies granted to
Bank in the Loan Documents, which liens, security interests, rights or remedies
are hereby ratified, confirmed, extended and continued as security for all Bank
Indebtedness.
7. NO WAIVER. Nothing contained herein constitutes an agreement or
obligation by Bank to grant any further amendments to any of the Loan Documents.
Nothing contained herein constitutes a waiver or release by Bank of any rights
or remedies available to Bank under the Loan Documents, at law or in equity,
except as expressly provided herein.
8. INCONSISTENCIES. To the extent of any inconsistency between the
terms and conditions of, this Amendment and the terms, conditions of the Loan
Agremeent or the Loan Documents, the terms and conditions of this Amendment
shall prevail. All terms and conditions of the Loan Agreement and the Loan
Documents not inconsistent herewith shall remain in full force and effect,
and are hereby ratified and confirmed by Borrower.
9. CONSTRUCTION. All references to the Loan Agreement therein or in any
of the other Loan Documents shall be deemed to be a reference to the Loan
Agreement, as amended hereby.
10. BINDING EFFECT. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
11. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Florida.
12. HEADINGS. The headings of the sections of this Amendment are inserted
for convenience only and shall not be deemed to constitute a part of this
Amendment.
13. ACKNOWLEDGMENT OF CONFESSION OF JUDGMENT PROVISIONS. BORROWER
ACKNOWLEDGES AND AGREES THAT THE NOTE AND THE LOAN DOCUMENTS CONTAIN PROVISIONS
WHEREBY BANK MAY ENTER JUDGMENT BY CONFESSION AGAINST BORROWER. BEING FULLY
AWARE OF ITS RIGHTS TO PRIOR NOTICE AND HEARING ON THE QUESTION OF THE VALIDITY
OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST IT BY BANK UNDER THE NOTES AND LOAN
DOCUMENTS, BEFORE JUDGMENT CAN BE ENTERED, BORROWER HEREBY WAIVES THESE RIGHTS
AND AGREES AND CONSENTS TO BANK ENTERING JUDGMENT AGAINST BORROWER BY CONFESSION
AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT. ANY
PROVISION IN A CONFESSION OF JUDGMENT IN ANY OF THE LOAN DOCUMENTS FOR AN
ATTORNEY'S COLLECTION COMMISSION SHALL IN NO WAY LIMIT BORROWERS'S LIABILITY TO
REIMBURCE BANK FOR ALL LEGAL FEES ACTUALLY INCURRED BY BANK, EVEN IF SUCH FEES
ARE IN EXCESS OF THE ATTORNEY'S COLLECTION COMMISSION PROVIDED FOR IN SUCH
CONFESSION OF JUDGMENT.
Page 3 of 4
<PAGE>
14. WAIVER OF RIGHT TO TRIAL BY JURY. BORROWER AND BANK WAIVE ANY RIGHT TO
TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER
ANY OF THE LOAN DOCUMENTS OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF BORROWER OR BANK WITH RESPECT TO ANY OF THE LOAN
DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER AND BANK AGREE AND CONSENT
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT BORROWER OR BANK MAY FILE AN ORIGINAL COUNTERPART
OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
BORROWER AND BANK TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. BORROWER
ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING
THIS SECTION, THAT IT FULLY UNDERSTANDS ITS TERMS, CONTENT AND EFFECT, AND THAT
IT VOLUNTARILY AND KNOWINGLY AGREES TO THE TERMS OF THIS SECTION.
In witness whereof, the parties hereto have each executed this Amendment
this 18th day of September, 1997, with the provisions hereof effective as of
January 1, 1997.
Bank: Borrower:
SunTrust Bank, Central Florida, N.A. Consolidated Stainless, Inc.
By: /s/ Colby L. Burbank By: /s/ Ronald J. Adams
--------------------------- --------------------------
Colby L. Burbank Ronald J. Adams
First Vice President President
Page 4 of 4
<PAGE>
EXHIBIT A
TO AMENDMENT NO. 1 TO LOAN AGREEMENT
8. FINANCIAL COVENANTS. As follows:
8.1 FINANCIAL COVENANTS. Except with the prior written consent of Bank,
Borrower will comply with the following:
(A) NET INCOME. Borrower shall have Net Income (as measured quarterly on
a fiscal year-to-date basis) of not less than (i) Five Hundred Thousand
Dollars ($500,000.00) as of March 31, 1998, (ii) One Million Dollars
($1,000,000.00) as of June 30, 1998, (iii) One Million Five Hundred
Thousand Dollars ($1,500,000.00) as of September 30, 1998, (iv) Two Million
Dollars ($2,000,000.00) as of December 31, 1998, (v) Five Hundred Thousand
Dollars ($500,000.00) as of March 31, 1999, (vi) One Million Dollars
($1,000,000.00) as of June 30, 1999, (vii) One Million Five Hundred
Thousand Dollars ($1,500,000.00) as of September 30, 1999, (viii) Two
Million Dollars ($2,000,000.00) as of December 31, 1999, (ix) Five Hundred
Thousand Dollars ($500,000.00) as of March 31, 2000, (x) One Million
Dollars ($1,000,000.00) as of June 30, 2000, (xi) One Million Five Hundred
Thousand Dollars ($1,500,000.00) as of September 30, 2000, and (xii) Two
Million Dollars ($2,000,000.00) as of December 31, 2000. In addition,
commencing with the Borrower's fiscal quarter ending March 31, 1998,
Borrower shall have Net Income of not less than One Hundred Fifty Thousand
Dollars ($150,000.00) for each fiscal quarter.
(B) NET LOSS. Borrower shall have a Net Loss (as measured quarterly on a
fiscal year to date basis) of not more than (i) Two Million Nine Hundred
Eleven Thousand Dollars ($2,911,000.00) as of December 31, 1996, (ii) Seven
Hundred Seventy-Eight Thousand Dollars ($778,000.00) as of March 31, 1997,
(iii) One Million Four Hundred Thirty-Six Thousand Dollars ($1,436,000.00)
as of June 30, 1997, (iv) One Million Three Hundred Twenty Six Thousand
Dollars ($1,326,000.00) as of September 30, 1997, and (v) Nine Hundred
Ninety-Seven Thousand Dollars ($997,000.00) as of December 31, 1997.
(C) NET OPERATING LOSS. Borrower's Net Operating Loss for the twelve (12)
month period ended December 31, 1996 shall not be greater than One Million
Five Hundred Two Thousand Dollars ($1,502,000.00).
Page 1 of 4
<PAGE>
(D) EFFECTIVE NET WORTH. Borrower shall have Effective Net Worth of not
less than:
MONTH ENDING EFFECTIVE NET WORTH(IN DOLLARS)
12/31/96 8,353,000
3/31/97 8,093,000
6/30/97 7,415,000
7/31/97 7,397,000
8/31/97 7,473,000
9/30/97 7,619,000
10/31/97 7,777,000
11/30/97 7,933,000
12/31/97 8,072,000
1/31/98 8,277,000
2/28/98 8,482,000
3/31/98 8,686,000
4/30/98 8,891,000
5/31/98 9,096,000
6/30/98 9,300,000
7/31/98 9,505,000
8/31/98 9,710,000
9/30/98 9,914,000
10/31/98 10,119,000
11/30/98 10,324,000
12/31/98 10,528,000
1/31/99 10,711,000
2/28/99 10,894,000
3/31/99 11,076,000
4/30/99 11,259,000
5/31/99 11,442,000
6/30/99 11,624,000
7/31/99 11,807,000
8/31/99 11,990,000
9/30/99 12,172,000
10/31/99 12,355,000
11/30/99 12,538,000
12/31/99 12,720,000
1/31/00 12,903,000
2/29/00 13,086,000
3/31/00 13,268,000
4/30/00 13,451,000
5/31/00 13,634,000
6/30/00 13,816,000
7/31/00 13,999,000
8/31/00 14,182,000
9/30/00 14,364,000
10/31/00 14,547,000
11/30/00 14,730,000
12/31/00 14,912,000
Page 2 of 4
<PAGE>
(e) CAPITAL EXPENDITURES. Borrower shall not cause, suffer or permit to
exist Capital Expenditures in excess of (i) Five Million Four Hundred
Thousand Dollars ($5,400,000.00) for Borrower's fiscal year ended December
31, 1996, (ii) Seven Hundred Thousand Dollars ($700,000.00) for Borrower's
fiscal year ended December 31, 1997, and (iii) Five Hundred Thousand
Dollars ($500,000.00) during any fiscal year of Borrower thereafter. The
foregoing permitted Capital Expenditures shall be non-cumulative as to any
unused portions during any fiscal year and shall be measured as of the end
of each fiscal quarter.
(f) CURRENT RATIO. Borrower shall maintain a ratio of Current Assets to
Current Liabilities of not less than (i) .99 to 1.0 as of December 31,
1996, (ii) .90 to 1.0 as of the end of each month commencing with the month
ending June 30, 1997 through and including the month ending December 31,
1997, (iii) 1.0 to 1.0 as of the end of each month commencing with the
month ending January 31, 1998 through and including the month ending
December 31, 1998, (iv) 1.10 to 1.0 as of the end of each month commencing
with the month ending January 31, 1999 through and including the month
ending December 31, 1999, and (v) 1.20 to 1.0 as of the end of each month
commencing with the month ending January 31, 2000 through and including the
month ending December 31, 2000.
(g) SENIOR INDEBTEDNESS TO EFFECTIVE NET WORTH. Borrower shall maintain a
ratio of Senior Indebtedness to Effective Net Worth of not greater than (i)
4.68 to 1.0 as of December 31, 1996, (ii) 5.78 to 1.0 as of March 31, 1997,
(iii) 6.20 to 1.0 as of June 30, 1997, (iv) 5.92 to 1.0 as of September 30,
1997, (v) 5.40 to 1.0 as of December 31, 1997, (vi) 4.06 to 1.0 as of March
31, 1998, and (vii) 4.00 to 1.0 as of June 30, 1998 and as of the end of
each fiscal quarter of Borrower thereafter.
(h) INVENTORY TURNOVER. Borrower shall maintain an Inventory Turnover
Frequency of not more than (i) one hundred ninety (190) days for the six
(6) month period ending June 30, 1997, (ii) one hundred ninety (190) days
for the nine (9) month period ending September 30, 1997, (iii) one hundred
eighty-five (185) days for the twelve (12) month period ending December 31,
1997, (iv) one hundred eighty-five (185) days for the three (3) month
period ending March 31, 1998, (v) one hundred eighty (180) days for the six
(6) month period ending June 30, 1998, (vi) one hundred seventy-five (175)
days for the nine (9) month period ending September 30, 1998, (vii) one
hundred seventy (170) days for the twelve (12) month period ending December
31, 1998, (viii) one hundred seventy (170) days for the three (3) month
period ending March 31, 1999, (ix) one hundred sixty-five (165) days for
the six (6) month period ending June 30, 1999, (x) one hundred sixty-five
(165) days for the nine (9) month period ending September 30, 1999, (xi)
one hundred sixty (160) days for the twelve (12) month period ending
December 31, 1999, (xii) one hundred sixty (160) days for the three (3)
month period ending March 31, 2000, (xiii) one hundred fifty-five (155)
days for the six (6) month period ending June 30, 2000, (xiv) one hundred
fifty-five (155) days for the nine (9) month period ending September 30,
2000, and (xv) one hundred fifty (150) days for the twelve (12) month
period ending December 31, 2000.
Page 3 of 4
<PAGE>
(I) FIXED CHARGE COVERAGE RATIO. Borrower shall maintain a Fixed Charge
Coverage Ratio of not less than (i) 0.70 to 1.0 for the twelve (12) month
period ending December 31, 1997, (ii) 1.25 to 1.0 for the twelve (12) month
period ending December 31, 1998, (iii) 1.5 to 1.0 for the twelve (12) month
period ending December 31, 1999, and (iv) 1.5 to 1.0 for the twelve (12)
month period ending December 31, 2000."
8.2 COVENANT CERTIFICATION. Borrower shall, within 15 days of the end of
each quarter, provide the Bank with a covenant certification setting forth, for
each covenant (a) through (i), compliance or non-compliance, as the case may be.
Such certification shall include the specific financial data used in each
computation and shall use the definition of terms as to such financial data as
are set forth in the Mellon Bank loan agreement, as such definitions are amended
from time to time, which definitions are incorporated herein by reference.
CONSOLIDATED STAINLESS, INC.
By: /s/ Ronald J. Adams
---------------------------
Ronald J. Adams
President
Page 4 of 4
<PAGE>
EXHIBIT 10.2
[LETTERHEAD OF SUNTRUST]
As of September 30, 1997
Consolidated Stainless, Inc.
1601 E. Amelia Street
Orlando, FL 32803
RE: SECOND AMENDMENT TO LOAN AGREEMENT
Gentlemen:
Reference is made to the Loan Agreement dated as of January 22, 1996 by and
between Consolidated Stainless, Inc. and SunTrust Bank CF N.A., as amended by
Amendment No. 1, dated as of August 22, 1997 ( the "Loan Agreement"). All
capitalized terms used herein without definition have the respective meanings
ascribed to them in the Loan.
This will confirm the agreement of Borrower and Bank to amend certain covenants
contained in the Loan Agreement, as follows:
1. NET LOSS. Section 8.1 (b) (iv) of the Loan Agreement relating to
the Net Loss of Borrower for the nine (9) month period ended
September 30, 1997, is hereby amended so as to provide that the
Borrower shall have a Net Loss for such nine (9) month period
of not greater than four million, seven hundred thousand, three
hundred, and fifty six dollars ($4,700,356).
2. EFFECTIVE NET WORTH. Section 8.1 (d) of the Loan Agreement,
relating to the Effective Net Worth of Borrower as of September
30, 1997, is hereby amended so as to require Borrower to have
an Effective Net Worth of not less than five million, two
hundred and eighty-six thousand, two hundred and eighty-one
dollars ($5,286,281) as of such date.
3. CURRENT RATIO. Section 8.1 (f) (ii) of the Loan Agreement,
relating to the Current Ratio of Borrower as of September 30,
1997, is hereby amended so as to require Borrower to have a
Current Ratio of not less than 0.88 as of such date.
<PAGE>
Consolidated Stainless, Inc.
As of September 30, 1997
Page 2
4. SENIOR DEBT TO EFFECTIVE NET WORTH. Section 8.1 (g) (iv) of the
Loan Agreement relating to the Senior Debt to Effective Net Worth
of Borrower as of September 30, 1997, is hereby amended so as to
require Borrower to have Senior Debt to Effective Net Worth of
not more than 8.26 to 1.0 as of such date.
5. CAPITAL EXPENDITURES. Section 8.1 (e) (ii) of the Loan Agreement
relating to Capital Expenditures of Borrower for the fiscal year
ended December 31, 1997, is hereby amended so as to require
Borrower to have Capital Expenditures of not more than $736,303
for such period.
Except as expressly set forth herein, all of the terms and conditions of the
Loan Agreement shall remain unchanged and in full force and effect, and are
hereby ratified, confirmed and continue.
The amendments set forth herein shall only be applicable for the specific date
and time period stated herein, and shall not be applicable to any other dates or
any other time periods whatsoever.
Furthermore, this amendment shall not be applicable to, and shall not imply
Bank's agreement to grant any amendment, consent or waiver in respect of, any
covenant not specified herein, or for any date or time period not specified
herein, or in any other circumstances (whether of like or unlike nature).
The effectiveness of this amendment is expressly subject to the execution and
delivery by Mellon Bank, N.A. (Mellon), of an amendment agreement with Borrower
relating to certain covenants under the Loan and Security Agreement dated March
10, 1997 (as amended) by and between Borrower and Mellon. Such amendment
agreement must be in form and substance satisfactory to Bank in its sole
discretion.
Bank hereby requests that Borrower acknowledge and confirm its agreement to the
foregoing amendments by countersigning a counterpart copy of this letter. When
signed, this amendment may not be altered or amended except in accordance with
Section 7 (b) of the Loan Agreement.
Very truly yours,
SUNTRUST BANK
By: /s/ Colby Burbank
-------------------------------
Colby L. Burbank
First Vice President
Duly Authorized
<PAGE>
Consolidated Stainless, Inc.
As of September 30, 1997
Page 3
ACKNOWLEDGED AND AGREED TO INTENDING
TO BE LEGALLY BOUND HEREBY:
CONSOLIDATED STAINLESS, INC.
By: /s/ Burton R. Chasnov
----------------------------
Burton R. Chasnov
Chief Financial Officer
Duly Authorized
<PAGE>
EXHIBIT 10.3
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT (the "AMENDMENT") is made effective as of the 5th day
of November, 1997, by and between CONSOLIDATED STAINLESS, INC. (the "BORROWER"),
RONALD J. ADAMS and HARVEY B. ADAMS (collectively, the "GUARANTORS" and each, a
"GUARANTOR"), and MELLON BANK, N.A. (the "BANK"). Borrower and Guarantors are
sometimes collectively referred to herein as the "OBLIGORS".
BACKGROUND
A. Pursuant to a certain Loan and Security Agreement dated March 10, 1997
by and between Borrower and Bank, as amended by a First Amendment dated as of
March 31, 1997, a Second Amendment dated August 11, 1997 and letter agreements
dated April 7, 1997, September 16, 1997 and October 28, 1997 (collectively, the
"LOAN AGREEMENT"), Bank agreed, subject to the terms and conditions stated
therein, to extend to Borrower a $25,000,000.00 line of credit (the "LINE").
B. By that certain Surety Agreement dated March 10, 1997, Guarantors
agreed to guarantee and become sureties for certain obligations of Borrower to
Bank, including those arising under the Loan Documents.
C. Pursuant to an Asset Purchase Agreement dated as of November 5, 1997
(the "ASSET PURCHASE AGREEMENT"), Borrower has agreed to sell to Texas Metal
Works, Inc. certain assets (the "COMPONENTS ASSETS") of Borrower's Flow
Components division (the "COMPONENTS DIVISION"), subject to Bank's consent. The
Asset Purchase Agreement shall be in the form delivered to Bank and executed by
Borrower.
D. Obligors have requested that Bank consent to the sale of the
Components Assets and release its security interests in and liens on the
Components Assets, which Bank is willing to do upon and subject to the terms and
conditions of this Amendment.
E. All capitalized terms not defined herein shall have the meanings set
forth therefor in the Loan Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. CONFIRMATION OF INDEBTEDNESS. Obligors hereby confirm and
acknowledge that as of November 3, 1997, the principal balance outstanding
under the Line is $22,972,846.21, which includes $2,530,119.00 outstanding
under the Permitted Out-of-Formula Advance and $85,000.00 outstanding under
the Temporary Overadvance. Obligors hereby acknowledge and agree that all
sums described in this SECTION 1 are validly and duly owing to Bank.
2. ACKNOWLEDGE OF DEFAULTS. Obligors hereby confirm and acknowledge
that they are in default of their respective obligations under the Loan
Documents as a result, INTER ALIA, of (a) Borrower's failure to meet certain
financial covenants set forth in ARTICLE 8 of the Loan Agreement, and (b) the
existence of defaults under documentation for the Subordinated Indebtedness.
Obligors have also informed Bank that the Borrower's operational results for
the month of September 1997 will create certain other defaults under the
Loan Agreement. Obligors further acknowledge and agree that Bank has certain
rights and remedies available to it as a result of the occurrence of such
defaults, including the right to confess judgment against the Borrower and
each Guarantor. OBLIGORS EXPRESSLY AGREE THAT
1
<PAGE>
NOTHING CONTAINED HEREIN SHALL BE DEEMED TO CONSTITUTE A WAIVER OR RELEASE OF
ANY OF THE EXISTING EVENTS OF DEFAULTS OR OF ANY RIGHTS AND REMEDIES AVAILABLE
TO BANK AS A RESULT THEREOF.
3. CONSENT TO SALE.
(A) CONDITIONS. Bank consents to the sale of the Components Assets
upon and subject to the following conditions, each of which must be satisfied:
(i) The sale of the Components Assets shall be consummated in
accordance with the terms and conditions of the Asset Purchase Agreement;
(ii) A copy of the fully executed Asset Purchase Agreement and
copies of all other documents executed and delivered in connection therewith
shall be delivered to Bank;
(iii) The Loan Agreement shall be amended, effective as of the
date hereof, as follows:
(1) SECTION 1.36 shall be amended to read as follows:
"1.36 "MAXIMUM AMOUNT" means Twenty-Two Million Dollars
($22,000,000.00)."
(2) The last sentence of SECTION 2.1(A) shall be amended to
read as follows:
"Notwithstanding the foregoing, the aggregate maximum amount of advances
against the Value of that portion of Borrower's Eligible Inventory
consisting of work-in-process will at no time exceed Two Million Dollars
($2,000,000.00) and the maximum amount of advances against the Value of all
of Borrower's Eligible Inventory (including, without limitation,
work-in-process) will at no time exceed Fourteen Million Dollars
($14,000,000.00)."
(3) SECTION 2.1(B) shall be deleted in its entirety and no
further advances under the Equipment Purchase Sublimit shall be permitted.
(4) SECTION 9.7 shall be amended to read as follows:
"9.7 INVENTORY BORROWING BASE INFORMATION AND RELATED DOCUMENTS. At least
once every calendar week and, if required by Bank, as a condition of each
advance under the Line, and otherwise as requested by Bank, an inventory
certification in the form of EXHIBIT "C" attached hereto, together with such
additional information and details as may be requested by Bank, including
without limitation identification of all Eligible Inventory, all certified as to
accuracy by (a) the chief financial officer or corporate controller of Borrower
with respect to those delivered monthly or as otherwise specifically requested
by Bank, and (b) any Person identified in writing by Borrower to Bank as being
authorized to do so with respect to all other such reports."
(5) The Temporary Overadvance is terminated and no further
advances shall be permitted thereunder.
2
<PAGE>
(6) The maximum amount of the Permitted Out-of-Formula
Advance is permanently reduced to an amount equal to the current outstanding
principal balance thereof less the sum of all amounts paid to Bank pursuant to
SECTION 3(A)(IV) below and required to be used thereby to permanently reduce the
Permitted Out-of-Formula Overadvance.
(iv) As consideration for Bank's consent to the sale,
Borrower shall deliver, or cause to be delivered to Bank, in immediately
available U.S. Dollars, the greater of (1) the sum of (A) an amount
sufficient to pay down all advances made under the Line against inventory of
the Components Division; plus (B) an amount sufficient to permanently reduce
the outstanding principal balance of the Permitted Out-of-Formula Advance to
One Million Four Hundred Thousand Dollars ($1,400,000.00); plus (C) an amount
sufficient to permanently reduce the Temporary Overadvance to zero (0); plus
(D) all outstanding fees and costs due to Bank (collectively, the "REQUIRED
PAYMENT"), OR (2) the proceeds remaining from the sale of the Components
Assets after payment by Borrower of all transaction and release payments as
approved by Bank.
If the amount paid to the Bank pursuant to this provision exceeds the
Required Payment, the excess shall be applied as follows: (x) first, an amount
not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00) shall be applied
to reduce the then outstanding principal balance of the Line, and (y) then, any
remaining sums shall be used to permanently reduce the Permitted Out-of-Formula
Advance.
Notwithstanding the payments to be made hereunder to permanently reduce the
outstanding principal balance of the Permitted Out-of-Formula Advance, Borrower
shall continue to reduce the outstanding principal balance of the Permitted
Out-of-Formula Advance by an amount equal to One Hundred Seventy-Five Thousand
Dollars ($175,000.00) per month, which amount is due and payable on the tenth
day of each calendar month commencing on December 10, 1997 and continuing until
the Permitted Out-of-Formula Advance is permanently reduced to zero (0).
(b) RELEASE OF LIENS. Upon satisfaction of the foregoing
conditions, as determined by Bank in its sole discretion, Bank shall deliver
to Borrower, in recordable form, UCC-3 Partial Release Statements releasing
Bank's liens encumbering the Components Assets.
4. PROJECTIONS. Within fifteen (15) days after the closing of the sale of
the Components Assets, Borrower shall deliver to Bank revised projections
giving effect to such sale prepared in cooperation with Borrower's
consultant, Executive Sounding Board Associates, Inc., and in accordance with
the provisions of SECTION 9.2 of the Loan Agreement. Upon its receipt and
review of the revised projections, Bank may, in its sole discretion, require
revisions to the financial covenants set forth in ARTICLE 8 of the Loan
Agreement to give effect to the sale of the Components Assets. Nothing
contained herein shall obligate Bank to waive Borrower's compliance with, or
make any modifications to, such financial covenants.
5. CLOSING CONDITIONS. The effectiveness of this Amendment and the Bank's
obligations hereunder are expressly conditioned upon the execution and
delivery to Bank and compliance with each the following by Obligors:
(a) Corporate resolutions of the directors of the Borrower
authorizing the execution and delivery by Obligors of the Asset Purchase
Agreement, this Amendment and all documents required to be delivered by
Obligors thereunder and hereunder.
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<PAGE>
(b) For the purpose of perfecting Bank's security interest in the
purchase money note received by Borrower as part of the consideration given
for the purchase of the Components Assets, Borrower shall deliver to Bank
physical possession of such note, together an assignment of note and the
consent of Texas Metals Works, Inc., as payor under such note, all in form
and content acceptable to Bank.
(b) A landlord's waiver for the new lease executed by Borrower for
its Texas location, which shall be delivered to the Bank within forty-five
(45) following the date hereof.
(c) Any other agreements, instruments, and/or documents Bank may
reasonably request.
6. OTHER REFERENCES. All references in the Loan Agreement and all the
Loan Documents to the term "LOAN DOCUMENTS" shall mean the Loan Documents as
defined therein, and this Amendment, and any and all other documents executed
and delivered by Borrower pursuant to and in connection herewith.
7. FURTHER AGREEMENTS AND REPRESENTATIONS. Obligors hereby:
(a) Ratify, confirm and acknowledge that the Loan Agreement, as
amended hereby, and the other Loan Documents continue to be valid, binding
and in full force and effect;
(b) Except for liens expressly released by Bank in connection with
the sale of the Components Assets, renew, confirm and continues all liens,
security interests, rights and remedies granted to the Bank in the Loan
Documents, which liens, security interests, rights and remedies shall also
secure the performance by Obligors of their respective obligations hereunder
and under the Loan Documents;
(c) Covenant and agree to perform all of their respective
obligations under the Loan Agreement, as amended hereby, and the Loan
Documents;
(d) Acknowledge and agree that as of the date hereof, no Obligor
has any defense, set-off, counterclaim or challenge against the payment of
any sums constituting Bank Indebtedness or the enforcement of any of the
terms of the Loan Agreement, as amended hereby, or any of the other Loan
Documents;
(e) Ratify and confirm that all representations and warranties of
the Obligors, contained in the Loan Agreement and/or the other Loan
Documents, are true and complete on and as of the date hereof, as if made on
and as of the date hereof;
(f) Acknowledge and agree that nothing contained herein shall be
deemed to impair, reduce or release in any manner whatsoever any of the
Obligations of Guarantors under the Surety Agreement;
(g) Represent and warrant that the execution and delivery of this
Amendment by Obligors and all documents and agreements to be executed and
delivered pursuant to the terms hereof;
(i) have been duly authorized by all requisite corporate
action by Borrower;
(ii) will not conflict with or result in the breach of or
constitute a default (upon the passage of time, delivery of notice or both)
under Borrower's Certificate of Incorporation or By-Laws
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<PAGE>
or any applicable statute, law, rule, regulation or ordinance or any indenture,
mortgage, loan or other document or agreement to which any Obligor is a party or
by which any of them is bound or affected; and
(iii) will not result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the property
or assets of any Obligor, except liens in favor of the Bank or as permitted
hereunder or under the Loan Documents;
(h) Represent and warrant that all of the information described in
the foregoing Background is accurate; and
(i) Acknowledge and agree that Obligors' failure to comply with or
perform any of their respective covenants, agreements or obligations
contained in this Amendment or any other documents executed and delivered by
any of them in connection herewith will, subject to applicable notice, grace
and cure periods, constitute an Event of Default under the Loan Agreement and
each of the Loan Documents.
8. RELEASE. Each Obligor acknowledges and agrees that it has no claims,
suits or causes of action against Bank and hereby remises, releases and
forever discharges Bank, its officers, directors, shareholders, employees,
agents, successors and assigns, and any of them (collectively, the "RELEASED
PARTIES"), from any claims, suits or causes of action whatsoever, in law or
at equity, which such Obligor has or may have against any of the Released
Parties arising from any act, omission or otherwise, at any time up to and
including the date of this Amendment.
9. COSTS AND EXPENSES. Borrower agrees to pay all of Bank's out-of-pocket
expenses in connection with the review, preparation, negotiation,
documentation and consummation of the transactions contemplated under this
Amendment including, without limitation, all reasonable attorney's fees.
10. NO NOVATION. Nothing contained herein and no actions taken pursuant
to the terms hereof are intended to constitute a novation of the Loan
Agreement or any of the Loan Documents and shall not constitute a release,
termination or waiver of any of the liens, security interests, rights or
remedies granted to Bank in the Loan Documents.
11. NO FURTHER AMENDMENTS. Nothing contained herein constitutes an
agreement or obligation by Bank to grant any further amendments to any of the
Loan Documents.
12. INCONSISTENCIES. To the extent of any inconsistency between the
terms and conditions of this Amendment and the terms and conditions of the
Loan Agreement or the Loan Documents, the terms and conditions of this
Amendment shall prevail. All terms and conditions of the Loan Agreement and
the Loan Documents not inconsistent herewith shall remain in full force and
effect, and are hereby ratified and confirmed by Borrower.
13. CONSTRUCTION. All references to the Loan Agreement therein or in
any of the other Loan Documents shall be deemed to be a reference to the Loan
Agreement, as amended hereby.
14. BINDING EFFECT. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
15. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
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<PAGE>
16. HEADINGS. The headings of the sections of this Amendment are
inserted for convenience only and shall not be deemed to constitute a part of
this Amendment.
17. COUNTERPARTS. This amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Amendment by signing any
such counterpart.
18. ACKNOWLEDGMENT OF CONFESSION OF JUDGMENT PROVISIONS. OBLIGORS
ACKNOWLEDGE AND AGREE THAT THE NOTE AND THE LOAN DOCUMENTS CONTAIN PROVISIONS
WHEREBY BANK MAY ENTER JUDGMENT BY CONFESSION AGAINST OBLIGORS. BEING FULLY
AWARE OF THEIR RIGHTS TO PRIOR NOTICE AND HEARING ON THE QUESTION OF THE
VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST THEM BY BANK UNDER THE
NOTE AND LOAN DOCUMENTS, BEFORE JUDGMENT CAN BE ENTERED, BORROWER HEREBY
WAIVES THESE RIGHTS AND AGREES AND CONSENTS TO BANK ENTERING JUDGMENT AGAINST
THEM BY CONFESSION AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN
EVENT OF DEFAULT.
19. WAIVER OF RIGHT TO TRIAL BY JURY. OBLIGORS AND BANK WAIVE ANY RIGHT
TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING
UNDER ANY OF THE LOAN DOCUMENTS OR (B) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF OBLIGORS OR BANK WITH RESPECT TO ANY OF THE
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. OBLIGORS AND BANK AGREE
AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY OBLIGOR OR BANK MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF OBLIGORS AND BANK TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY. OBLIGORS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO
CONSULT WITH COUNSEL REGARDING THIS SECTION, THAT THEY FULLY UNDERSTAND ITS
TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO
THE TERMS OF THIS SECTION.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
effective as of the day and year first above written.
CONSOLIDATED STAINLESS, INC.
By: /s/ ILLEGIBLE SIGNATORY
------------------------------
Name/Title: [ILLEGIBLE]
/s/ Ronald J. Adams (SEAL)
----------------------------------
RONALD J. ADAMS
[SIGNATURES CONTINUED ON THE NEXT PAGE]
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[SIGNATURES CONTINUED FROM THE PREVIOUS PAGE]
/S/ Harvey B. Adams
-----------------------------------------(SEAL)
HARVEY B. ADAMS
MELLON BANK, N.A.
By: /s/ John M. Defledge
-----------------------------------------
Name/Title: John M. Defledge, Vice President
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Exhibit 10.4
ASSET PURCHASE AGREEMENT
by and among
TEXAS METAL WORKS, INC.,
and
CONSOLIDATED STAINLESS, INC.
for the purchase of certain assets of its
FLOW COMPONENTS DIVISION
As of November 5, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of November 5,
1997 (the "Execution Date"), is made and entered into by and among TEXAS
METAL WORKS, INC., a Texas corporation ("Purchaser"), and CONSOLIDATED
STAINLESS, INC., a Delaware corporation ("Seller"), Purchaser, and Seller are
each sometimes referred to in this Agreement as a "Party" and collectively
referred to as "Parties."
RECITALS:
1. The Parties desire to enter into this Agreement pursuant to which
Seller proposes to sell to Purchaser, and Purchaser proposes to purchase from
Seller, effective as of 12:01 a.m. local time on November 1, 1997 (the
"Effective Date"), certain assets, properties and facilities of the Flow
Components division (the "Company") of Seller and pursuant to which Seller
proposes to assign certain contract rights to Purchaser and Purchaser
proposes to assume certain obligations of Seller with respect to such
contracts (the "Acquisition").
2. The Company is in the business of manufacturing and distributing
stainless steel flanges and stainless steel fittings (the "Business").
3. The Parties desire to make certain representations, warranties and
agreements in connection with the Acquisition.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements set forth in this Agreement, the Parties agree as follows:
0. PURCHASE AND SALE
0. Agreement to Purchase and Sell. Subject to the terms and conditions of
this Agreement, at the Closing (as defined in Section 7.1) and except as
otherwise specifically provided in this Article 1, Seller will grant, sell,
assign, transfer and deliver to Purchaser, and Purchaser will purchase and
acquire from Seller, in each case effective as of the Effective Date, all of
the following assets, properties and rights of the Company (which assets,
properties and rights are collectively referred to in this Agreement as the
"Assets"), free and clear of all mortgages, liens, pledges, security
interests, charges, claims, restrictions and encumbrances of any nature
whatsoever, except Permitted Liens (as defined in Section 3.5) and Assumed
Liabilities (as defined in Section 1.4(b)).
1. Assets. Except as otherwise expressly set forth in Section 1.3, the
Assets will include, without limitation, the following assets, properties and
rights of the Company as of the Effective Date (as defined in Section 7.1):
<PAGE>
( ) all production equipment (excluding two Fahr Hoang nipple threaders
serial numbers 1636 and 1635 and the Fuji Universal Automatic Chucker
Machines, Serial Numbers 3047 and 1870), tools, furniture and fixtures and
office equipment located at the Company's premises at 5301 Polk Street,
Buildings 8 and 10, Houston, Texas (the "Premises"), including, without
limitation, the production equipment, tools, furniture and fixtures and
office equipment described on Schedule 1.2(a) to this Agreement
(collectively, the "Fixed Assets");
(a) all inventories, including raw materials, work in process and
finished goods, spare parts, stores and supplies, office supplies and other
inventory items related to the Business and located at the Premises on the
Effective Date (the "Inventory");
(b) all right, title and interest of the Company in (i) all outstanding
purchase orders related to the Business, including, without limitation, the
purchase orders described on Schedule 1.2(c) to this Agreement and (ii) the
personal property leases and contracts described on Schedule 3.8 to this
Agreement (collectively, the "Assumed Contracts"); provided, however, that
the Assumed Contracts shall include outstanding purchase orders not disclosed
on Schedule 1.2(c) only to the extent that the Seller's obligations pursuant
to such non-disclosed purchase orders does not exceed $5,000 in the aggregate;
(c) all goodwill, patents, copyrights, methods, know-how, software,
technical documentation, trade secrets, trademarks and trade names, including
the name of the Company (and all rights thereto and applications therefor)
that relate to the Business (the "Intangible Assets");
(d) all rights to causes of action, lawsuits, judgments, claims and
demands of any nature available to or being pursued by the Seller, whether
arising by way of counterclaim or otherwise, to the extent related to the
Assets, including, without limitation, all rights of the Seller to receive
payments of principal and interest with respect to the loans made by the
Seller to employees of the Company as described on Schedule 3.10 and all
rights described on Schedule 1.2(e);
(e) all guarantees, warranties, indemnities and similar rights in favor
of the Seller, to the extent related to the Business or the Assets;
(f) all governmental permits, licenses or similar rights relating to the
Businesses or to the Assets;
(g) all deposits, advances, prepaid expenses and credits related to the
Assumed Contracts, as listed on Schedule 1.2(h);
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<PAGE>
(h) all information, files, correspondence, records, data, plans,
contracts and recorded knowledge, including customer and supplier lists and
all accounting or other books and records of the Seller, to the extent
related to the Business or the Assets;
(i) all unfilled customer orders of the Business and files and records
relating thereto, as of the Effective Date;
(j) the accounts receivable of the Seller related to the Business
generated by or otherwise attributable to the operation of the Business from
and after the Effective Date; and
(k) the cash, cash equivalents and marketable securities of the Seller
generated by or otherwise attributable to the operations of the Business from
and after the Effective Date.
2. Excluded Assets. Notwithstanding anything to the contrary set forth in
this Agreement, the Assets will not include the following assets, properties
and rights of the Company (collectively, the "Excluded Assets"):
( ) any governmental permit, license or similar right that does not
relate to the Business or Assets or that by its terms is not transferable to
Purchaser, which permits, licenses and similar rights are set forth on
Schedule 1.3;
(a) the rights that accrue to Seller under this Agreement;
(b) the rights to any federal, state, local or foreign income tax refunds;
(c) the cash, cash equivalents and marketable securities of the Seller as
of the close of business on October 31, 1997;
(d) any accounts, notes and other receivables, other than those listed on
Schedule 3.10 or Schedule 1.2(e) and those referred to in Section 1.2(k).
(e) the two Fahr Hoang nipple threaders serial numbers 1636 and 1635
located on the Premises and the Fuji Universal Automatic Chucker Machines,
Serial Numbers 3047 and 1870;
(f) any right, title and interest of the Seller in any contract or
agreement other than the Assumed Contracts, including, without limitation,
outstanding purchase orders not disclosed on Schedule 1.2(c) to the extent
that the Seller's obligations pursuant to such non-disclosed purchase orders
exceed $5,000 in the aggregate;
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<PAGE>
(g) all rights to causes of action, lawsuits, judgments, claims and
demands of any nature available to or being pursued by the Seller, whether
arising by way of counterclaim or otherwise, other than to the extent related
to the Assets;
(h) any guarantees, warranties, indemnities and similar rights in favor
of the Company, other than to the extent related to the Assets; and
(i) any deposits, advances, prepaid expenses and credits, other than
those listed on Schedule 1.2(h).
3. Assumption of Assumed Liabilities.
( ) Except to the extent specified in Section 1.4(b), Purchaser will not
assume, in connection with the transactions contemplated by this Agreement,
any liability or obligation of the Seller whatsoever, and the Seller will
retain responsibility for all liabilities and obligations accrued as of or on
the Closing Date and all liabilities and obligations arising from the
Company's operations prior to or on the Closing Date, whether or not accrued
and whether or not disclosed.
(a) As the sole exception to the provisions in Section 1.4(a), effective as
of the close of business on the Closing Date, Purchaser will assume and agree to
pay, discharge or perform, as appropriate, the following liabilities and
obligations of Seller existing as of or on the Closing Date and arising out of
the conduct of the Business prior to or on the Closing Date (collectively, the
"Assumed Liabilities"):
( ) obligations of the Seller under the Assumed Contracts to the
extent such obligations accrue after the Effective Date, are not required to
be performed prior to the Effective Date and are disclosed on the face of
such Assumed Contracts;
(i) obligations of the Seller to refund amounts or issue credits to
customers of the Company with respect to returned or defective products
related to the Business, shipped prior to the Effective Date or discrepancies
in invoices rendered prior to the Effective Date, to the extent that such
obligations do not exceed $5,000 in the aggregate;
(ii) obligations of the Seller under the unfilled customer orders of
the Business as of the Effective Date;
(iii) obligations of Seller with respect to accounts payable with
respect to the Business generated by or otherwise attributable to the
operations of the Business from and after the Effective Date; and
(iv) to the extent set forth in Section 5.8, the obligations of the
Seller with respect to the employees of the Business from and after the
Effective Date.
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<PAGE>
4. Excluded Liabilities. Specifically, and without in any way limiting the
generality of Section 1.4(a), the Assumed Liabilities will not include, and
in no event will Purchaser assume, agree to pay, discharge or perform or
incur any liability or obligation under this Agreement or otherwise become
responsible in respect of, the following (together with all other liabilities
of the Seller that are not Assumed Liabilities, the "Excluded Liabilities"):
( ) any trade accounts payable of Seller, including, without limitation,
outstanding purchase orders not disclosed on Schedule 1.2(c) to the extent
that the Seller's obligations pursuant to such non-disclosed purchase orders
exceed $5,000 in the aggregate, other than the Assumed Contracts;
(a) any liability or obligation of Seller, including, without limitation,
any accounts payable, of or owed to any Affiliate (as defined in Section
3.16) of Seller (other than the Assumed Liabilities);
(b) any liability or obligation of the Seller relating to or arising from
the breach of, default under or failure to comply with, at any time prior to
or on the Closing Date, any Assumed Contract or the failure to timely pay or
perform any other liability or obligation;
(c) any liability or obligation of the Seller arising out of or incurred
in connection with (i) the operation and administration of any employee
benefit plan, policy or program of any kind or description whatsoever
currently or previously maintained or sponsored by the Seller or to which the
Seller was obligated (through collective bargaining or otherwise) to make
contributions, including, without limitation, any plan or contract providing
for deferred compensation or health or death benefits, any multi-employer
plan or any plan subject to Title IV of the Employee Retirement Income
Security Act ("ERISA") or (ii) any contract or agreement relating to any such
employee benefit plan, policy or program;
(d) any liability or obligation arising out of or with respect to any
third party or governmental claim pending on the Effective Date or thereafter
initiated based on or arising out of the operations of the Company or the
Business prior to or on the Effective Date;
(e) any liability or obligation of Seller arising or incurred in
connection with the negotiation, preparation and execution of this Agreement
and the transactions contemplated by this Agreement and any fees and expenses
of counsel, accountants, brokers, financial advisors or other experts of
Seller;
(f) accrued but unpaid vacation time, sick pay, bonuses and other
compensation owed to employees of the Company, to the extent that the Seller
has agreed to pay (or make provision for paying) same pursuant to Section 5.8;
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<PAGE>
(g) accrued and unpaid salaries, wages, commissions, fees and bonuses of
the Company owed to employees of the Company or to sales agents or
manufacturer's representatives of the Company, to the extent that the Seller
has agreed to pay (or make provision for paying) same pursuant to Section 5.8;
(h) obligations under the Company's lease of the Premises; and
(i) any and all other liabilities of the Company or Seller which are not
expressly listed or referred to in this Section 1.5 or that are not expressly
listed in Section 1.4(b) as Assumed Liabilities.
1. PURCHASE PRICE; ALLOCATIONS
0. Purchase Price. The purchase price for the Assets will be, subject to
adjustment pursuant to this Article 2, (i) Five Million Seven Hundred Fifty
Thousand Dollars ($5,750,000) plus (ii) the assumption by Purchaser of the
Assumed Liabilities (collectively, the "Purchase Price"). The Purchase Price
will be payable as provided in Section 2.2.
1. Payment of Purchase Price. The Purchase Price will be paid as follows:
(a) Purchaser will pay for the account of Seller the amounts owed by
Seller to those entities listed on Schedule 2.2(a)(i) to this Agreement and
the demurrage charges for containers in port listed on Schedule 2.2(a)(ii);
(b) Purchaser will pay to Seller on the Closing Date an amount equal to
the difference between (i) Five Million Five Hundred Thousand Dollars
($5,500,000), as adjusted pursuant to Section 2.3, and (ii) the total of the
amounts paid by the Purchaser for the account of Seller pursuant to Section
2.2(a) above, such amount to be paid by wire transfer of immediately
available federal funds to an account to be designated in writing to
Purchaser by Seller at least two business days prior to the Closing Date; and
(c) Purchaser will issue to Seller an unsecured promissory note (the
"Note") payable in the principal amount of Two Hundred Fifty Thousand Dollars
($250,000), substantially in the form attached to this Agreement as Exhibit
2.2(c).
2. Adjustments to Purchase Price
(a) The portion of the Purchase Price specified in Section 2.2(b)(i) will
be adjusted by the following amounts, if any:
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<PAGE>
(i) The difference between $2,540,000 and the "Effective Date
Inventory Valuation", which shall be the book value of the inventory on hand
at the Company at the close of business on the business day prior to the
Effective Date, computed using a "conversion factor" of 49.25%;
(ii) The difference between $1,860,440, which represents the
appraised fair market value of the assets described on Schedule 1.2(a) as set
forth in the July 1, 1997 appraisal of such assets and which includes the
value of the two Fahr Hoang nipple threaders serial numbers 1636 and 1635 and
the Fuji Universal Automatic Chucker Machines, Serial Numbers 3047 and 1870),
and the "Effective Date Fixed Asset Valuation", which shall be the appraised
fair market value of such assets present at the Premises at the close of
business on the business day prior to the Effective Date, but without
deduction for the July 1, 1997 appraised value of such Fahr Hoang nipple
threaders and Fuji Universal Automatic Chucker Machines; and
(iii) An amount equal to the total of the deposits, advances,
prepaid expenses and credits listed on Schedule 1.2(h) and the accounts
receivable related to the loans made by Seller to employees of the Seller as
listed on Schedule 1.2(e).
(b) The Effective Date Inventory Valuation will be determined from the
books and records of the Seller as of the close of business on the business
day prior to the Effective Date. The Effective Date Fixed Asset Valuation
will be determined as of the close of business on the business day prior to
the Effective Date by a physical inventory conducted by the Purchaser. The
Purchaser and Seller shall negotiate in good faith to resolve any
disagreements regarding the inventory by the commencement of business on the
Closing Date; provided, however, that if the Purchaser and the Seller are
unable to resolve any such differences, the Closing Date shall be postponed
by either Party (the "Postponement") for such period of time as may be
necessary to obtain an independent valuation of the Inventory by a public
accounting firm to be selected by Purchaser and Seller, which valuation will
be final and binding on all parties as to the Effective Date Fixed Asset
Valuation. The Parties shall use their best efforts to obtain such valuation
within five business days of the date of the Postponement.
(c) The Purchase Price shall be adjusted with respect to the amounts
computed pursuant to the subparagraphs of Section 2.3(a) as follows: the
Purchase Price shall be (i) increased if the Effective Date Inventory
Valuation exceeds $2,540,000; (ii) decreased if the Effective Date Inventory
Valuation is less than such amount; (iii) increased if the Effective Date
Fixed Asset Valuation exceeds $1,860,440 (without deduction for the July 1,
1997 appraised value of such Fahr Hoang nipple threaders and Fuji Universal
Automatic Chucker Machines); (iv) decreased if the Effective Date Fixed Asset
Valuation is less than $1,860,440 (without deduction for the July 1, 1997
appraised value of such Fahr Hoang nipple threaders and Fuji Universal
Automatic Chucker Machines); and (v) increased by the total of the amounts
identified in subparagraph (iii) of Section 2.3(a). The Purchase Price shall
also be decreased by the amount of
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<PAGE>
any cash, cash equivalents, or marketable securities generated by or
otherwise attributable to the operations of the Business from and after the
Effective Date that is paid to Seller and is not remitted by Seller to
Purchaser.
3. Allocation of Certain Items. With respect to certain expenses incurred in
the operation of the Company, the following allocations will be made between
Purchaser and Seller:
(a) Taxes. All federal, state, local and foreign taxes (other than taxes
levied on the income or receipts of the Seller, as to which the Purchaser
shall have no liability) will be apportioned at the Closing as of the
Effective Date based upon current tax bills if available; and if not
available, such apportionment will be based on the most recent tax bills
available, with appropriate subsequent adjustment when bills for 1997 are
received.
(b) Utilities. Utilities, water, sewer and other service or utility
charges will be apportioned based upon the number of operating days occurring
before and after the Effective Date during the billing period for each such
charge.
(c) Workers' Compensation. Pursuant to the provisions of this Agreement,
Seller will be responsible for and pay any and all workers' compensation and
other similar claims asserted by or with respect to any employee or former
employee of the Company in respect of any injury or other compensable event
or occupational illness or disease which occurred or is attributable to any
event, state of facts or condition which existed or occurred in whole prior
to or on the Effective Date. Purchaser is responsible for and will pay any
and all workers' compensation and other similar claims asserted by or with
respect to any employee of Purchaser in respect of any injury or other
compensable event or occupational illness or disease which occurred or is
attributable to any event, state of facts or condition which existed or
occurred in whole after the Effective Date. If any such injury or other
compensable event or occupational illness or disease of a person who was
employed both by Seller prior to or on the Effective Date and by Purchaser
after the Effective Date is attributable in part to causes occurring prior to
or on the Effective Date and in part to causes occurring subsequent to the
Effective Date and is the basis of a workers' compensation or other similar
claim asserted after the Execution Date, then liability for any such claim
will be determined in accordance with the workers' compensation laws of the
State of Texas.
(d) Insurance. Insurance premiums will be apportioned based on the number
of days occurring before and after the Effective Date during the last premium
period.
Appropriate cash payments by Seller or Purchaser, as the case may
require, will be made under this Agreement from time to time, as soon as
practicable after the facts giving rise to the obligation for such payments
are known to and accepted by Seller and Purchaser, in the amounts necessary
to give effect to the allocations provided for in this Section 2.4.
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2. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
0. Organization. Seller is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and
has all requisite power and authority (corporate and other) to own, lease and
operate its properties and to carry on its business as now being conducted.
Seller is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction where the character of its
activities requires such qualification. Seller has heretofore made available
to Purchaser true, correct and complete copies of its articles or certificate
of incorporation (as the case may be) and bylaws as currently in effect and
its minute books. Schedule 3.1 contains a true and correct list of the
jurisdictions in which Seller is qualified to do business as a foreign
corporation. The Company is not a corporation, partnership or other legal
entity.
1. Authorization. Seller has the full corporate power and authority to
execute and deliver this Agreement and any other certificate, agreement,
document or other instrument to be executed and delivered by it in connection
with the transactions contemplated by this Agreement (collectively, the
"Seller Ancillary Documents") and to perform its obligations under this
Agreement and the Seller Ancillary Documents and to consummate the
transactions contemplated by this Agreement and by the Seller Ancillary
Documents. The execution and delivery of this Agreement and the Seller
Ancillary Documents by Seller and the performance by the Seller of its
obligations under this Agreement and under the Seller Ancillary Documents
and the consummation of the transactions provided for in this Agreement and
in the Seller Ancillary Documents have been duly and validly authorized by
all necessary corporate action on the part of Seller. The board of directors
of Seller have approved the execution, delivery and performance of this
Agreement and Seller Ancillary Documents and the consummation of the
transactions contemplated by this Agreement and by the Seller Ancillary
Documents. No approval of the shareholders of the Seller is required in
connection with the execution, delivery and performance of this Agreement and
the Seller Ancillary Documents and the consummation of the transactions
contemplated by this Agreement and by the Seller Ancillary Documents by the
Seller. This Agreement has been, and the applicable Seller Ancillary
Documents will be as of the Closing Date, duly executed and delivered by
Seller and do or will, as the case may be, constitute the valid and binding
agreements of Seller, enforceable against Seller in accordance with their
respective terms, subject to applicable bankruptcy, insolvency and other
similar laws affecting the enforceability of creditors' rights generally,
general equitable principles and the discretion of courts in granting
equitable remedies.
2. Absence of Restrictions and Conflicts. Except as set forth on Schedule
3.3, the execution, delivery and performance of this Agreement and the Seller
Ancillary Documents, the
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consummation of the transactions contemplated by this Agreement and the
Seller Ancillary Documents and the fulfillment of and compliance with the
terms and conditions of this Agreement and the Seller Ancillary Documents do
not or will not (as the case may be), with the passing of time or the giving
of notice or both, violate or conflict with, constitute a breach of or
default under, result in the loss of any benefit under, or permit the
acceleration of any obligation under, (a) any term or provision of the
articles or certificate of incorporation (as the case may be) or bylaws of
the Seller, (b) any Assumed Contract or any other material contract or
agreement of Seller; (c) any judgment, decree or order of any court or
governmental authority or agency to which the Seller is a party or by which
Seller or any of its properties is bound or (d) any statute, law, rule or
regulation applicable to Seller. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental agency or
public or regulatory unit, agency, body or authority with respect to Seller
is required in connection with the execution, delivery or performance of this
Agreement or the Seller Ancillary Documents by Seller or the consummation of
the transactions contemplated by this Agreement or the Seller Ancillary
Documents by Seller.
3. Ownership of Assets and Related Matters.
( ) Real Property. The Seller does not own any real property that is used
in connection with the Business. Schedule 3.4(a) sets forth a true, correct
and complete list and legal description of all of the real property leased by
the Seller and used with respect to the Business (the "Real Property").
Except as set forth in Schedule 3.4(a), and other than the terms of the lease
of the Premises, the Seller has a good and valid leasehold interest in the
Real Property, free and clear of all liens, pledges, security interests,
charges, claims, tenancies, restrictions and encumbrances of any nature
whatsoever other than (i) liens for taxes not yet due and payable, (ii)
statutory liens of landlords and liens of carriers, warehousemen, mechanics,
materialmen and repairmen incurred in the ordinary course of business and not
yet delinquent, and (iii) zoning, building or other restrictions, variances,
covenants, rights-of-way, encumbrances, easements and other minor
irregularities in title, none of which, individually or in the aggregate, (A)
interfere with the present use or occupancy of any of the Real Property by
the Seller, (B) have more than an insignificant effect on the value of any of
the Real Property or its use or (C) would impair the ability of Purchaser to
sell its leasehold interest in any such Real Property for its present use
(collectively, "Permitted Liens"). The Seller is in possession of all of the
Real Property and all buildings, structures, fixtures and improvements
located on such Real Property, and the Seller has adequate rights of ingress
and egress with respect to such Real Property and the buildings, structures,
fixtures and improvements located on such Real Property. To the knowledge of
the Seller, there are no condemnation or appropriation proceedings pending or
threatened against any of the Real Property or the improvements thereon.
(a) Title to Assets. Except as set forth in Schedule 3.4(b), Seller has
(and will convey to Purchaser at the Closing) good and marketable title to
the Assets, free and clear of all liens, pledges, security interests,
charges, claims, restrictions and encumbrances of any nature
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whatsoever. All equipment and other items of tangible property and assets
included in the Assets are in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, are usable in the
regular and ordinary course of business and conform in all material respects
to all applicable laws, ordinances, codes, rules and regulations applicable
thereto. No entity other than the Seller owns any equipment or other tangible
assets or properties situated on the premises of the Seller used with respect
to the Business which are necessary to the operation of the Business, except
for the leased items that are subject to the personal property leases listed
on Schedule 3.8. Except as set forth in Schedule 3.4(b), since September 11,
1997, the Seller has not sold, transferred or disposed of any assets other
than sales of inventory in the ordinary course of business.
(b) Inventories. The inventories of the Seller with respect to the
Business (i) are sufficient for the operation of the Business in the ordinary
course consistent with past practice, (ii) consist of items which are good
and merchantable within normal trade tolerances, (iii) are of a quality and
quantity presently usable or saleable in the ordinary course of business of
the Company (subject to applicable reserves), (iv) are valued on the books
and records of the Seller at the lower of cost or market, with the cost
determined on an average-cost basis consistent with past practice and (v) are
subject to reserves determined in accordance with GAAP, consistently applied.
To the knowledge of Seller, no previously sold inventory is subject to
returns in excess of those historically experienced by the Seller with
respect to the Business.
(c) No Third Party Options. There are no existing agreements, options,
commitments or rights with, of or to any person to acquire any of the Assets,
or any interest in such Assets other than this Agreement.
(d) Deposits, etc. Schedule 1.2(h) sets forth a true and correct list of
all deposits, advances, prepaid expenses and credits applicable to the
Assets, the Business or any Assumed Contract.
(e) Appraisal. The July 1, 1997 appraisal of the Fixed Assets lists all
such assets currently being used by the Seller in the operation of the
Business and does not include any assets other than assets owned by the
Seller on the date of such appraisal.
4. No Undisclosed Liabilities. Except as disclosed in Schedule 3.5, the
Seller does not have any material liabilities or obligations, contingent or
otherwise, with respect to the Business that are not adequately reflected or
provided for in the balance sheet of the Seller at June 30, 1997, included in
the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997
(the "Interim Balance Sheet"), except liabilities and obligations incurred
since the date of the Interim Balance Sheet in the ordinary course of the
Business. Schedule 3.5 sets forth a true and correct list of all trade
creditors of the Seller with respect to the Business as of the close of
business on October 31, 1997, that are known to Seller (collectively, the
"Trade Creditors") and of all holders of liens, other than Permitted Liens,
secured by the Assets, both as of the Effective Date.
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Schedule 2.2(a)(ii) sets forth a true and correct list of demurrage charges
for containers in port as of the Effective Date. Schedule 1.2(c) sets forth a
true and correct list of all purchase orders of the Seller with respect to
the Business, pursuant to which Seller has committed to acquire goods or
services for an expenditure in excess of $2,000, which purchase orders were
outstanding as of the Effective Date. The amount that Seller is obligated to
expend with respect to purchase orders with respect to the Business that were
outstanding on the Effective Date and that are not listed on Schedule 1.2(c)
will not exceed $5,000 in the aggregate, plus the amount of any such purchase
orders incurred between the Effective Date and the Closing Date in the
ordinary course of business.
5. Legal Proceedings. Except as set forth in Schedule 3.6, there are no
suits, actions, claims, proceedings or investigations pending or threatened
against, relating to or involving the Seller, with respect to the Business,
the Company or the Assets before any court, arbitrator or administrative or
governmental body. None of such suits, actions, claims, proceedings or
investigations, if finally determined adversely, are likely, individually or
in the aggregate, to have a material adverse effect on the assets,
liabilities, results of operations, business or prospects of the Company or
the Business. The Seller is not subject to any judgment, decree, injunction,
rule or order of any court. The Seller is not subject to any governmental
restriction which is likely (a) to have a material adverse effect on the
assets, liabilities, results of operations, business or prospects of the
Company or the Business or (b) to cause a limitation on Purchaser's ability
to operate the Business after the Closing in the same manner as heretofore
conducted by the Company.
6. Compliance with Law. The Seller has all authorizations, approvals,
licenses, permits and orders of and from all governmental and regulatory
officers and bodies necessary to carry on the Business as it is currently
being conducted, to own or hold under lease the properties and assets it owns
or holds under lease with respect to the Business and to perform all of its
obligations under the agreements to which it is a party with respect to the
Business (collectively, the "Licenses"). The Seller is (and has been since
the date of its acquisition of the Business) in compliance with all
applicable laws, regulations and administrative orders relating to the
Business (including, without limitation, laws relating to employment of labor
or use or occupancy of properties or any part thereof) of any country, state
or municipality or of any subdivision thereof to which the Business is
subject. Schedule 3.7 sets forth a true, correct and complete list of all
Licenses. Seller has previously delivered to Purchaser all reports and
filings made or filed by the Seller with respect to the Business pursuant to
the Occupational Safety and Health Act ("OSHA"). Since the date of its
acquisition of the Business, the Seller has not materially violated or
materially failed to comply with, or been the subject of any allegation that
it has materially violated or materially failed to comply with, OSHA with
respect to its operation of the Business.
7. Contracts. Schedule 3.8 sets forth a true, correct and complete list of
all Assumed Contracts (including every amendment, modification or supplement to
the foregoing), other than customer purchase orders entered into in the ordinary
course of business. Schedule 3.8 identifies with an asterisk each Assumed
Contract as to which a consent or notice is required to be obtained
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or given in connection with the Acquisition. True, correct and complete
copies of all Assumed Contracts have been made available to Purchaser. The
Assumed Contracts are valid and enforceable in accordance with their
respective terms with respect to the Seller and each other party to such
Assumed Contracts. There are no existing material defaults of the Seller
under any Assumed Contract or of any of the other parties to such Assumed
Contracts (or events or conditions which with notice or lapse of time or both
would constitute a material default), and, to the knowledge of Seller, there
are no such material defaults with respect to any third party to any Assumed
Contract. Seller has paid all amounts due from it pursuant to the Assumed
Contracts as of the Effective Date.
8. Taxes. Except as disclosed on Schedule 3.9, since January 1, 1992, no tax
deficiencies have been asserted against the Seller as a result of any
examination by the Internal Revenue Service or any other taxing authority.
There are no pending claims asserted for any federal, state, local or foreign
taxes of the Seller, or outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of the Seller for
any period. Except as disclosed on Schedule 3.9, there are no tax liens or
claims against the Assets.
9. Managerial and Other Employees; Sales Agents. Schedule 3.10 contains a
true and complete list of (a) all of the managerial employees of the Seller
employed primarily with respect to the Business specifying their office and
annual rate of compensation; (b) all of the other employees of the Seller
employed primarily with respect to the Business as of the Effective Date
specifying their annual salary or hourly wages, together with an appropriate
notation next to the name of any employee on such list to whom the Seller has
made any verbal commitments which are binding on the Seller; (c) all sales
agents or manufacturer's representatives with whom Seller has agency
relationships with respect to the Business, specifying the amount of fees or
commission paid to each during 1997 and (d) the terms of any loans made by
the Seller to managerial or other employees of the Seller employed primarily
with respect to the Business as of the Effective Date.
10. Benefit Plans.
( ) Seller has furnished to Purchaser a correct, complete and current
copy of each plan, program, policy or arrangement which is set forth in
writing and which provides cash or property or other compensation related
benefits of any kind or description whatsoever to or on behalf of any current
or former employee of the Seller employed primarily with respect to the
Business or any of their dependents and a complete description of any such
plan, program, policy or arrangement which is not set forth in writing
(collectively, the "Benefit Plans"). Each Benefit Plan is listed on Schedule
3.11.
(a) Seller has furnished to Purchaser a correct, complete and current
copy of all employee handbooks currently made available to the Seller's
employees with respect to the
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Business and any other materials which the Seller distributes to such
employees or any of their dependents with respect to each Benefit Plan
described in Section 3.11(a).
(b) The Seller is not a party to any employment related contract or
agreement of any kind whatsoever relating to the Business, any multiemployer
plan (as defined under Section 3(37) of ERISA), which is, or purports to be,
binding in any way whatsoever on Purchaser, and there is no provision in any
employment related contract or agreement or Benefit Plan specifically
imposing any liability on Purchaser.
(c) The Seller has not made a statement or representation of any kind or
description whatsoever to the Company's employees with respect to their
possible employment by Purchaser or, if employed by Purchaser, their possible
compensation or benefit package from Purchaser.
11. Labor Relations. Since January 23, 1996 and, to the knowledge of Seller
(based solely upon inquiry of J. Read Boles and the representations and
warranties made to the Seller in that certain Stock Purchase Agreement, dated as
of September 30, 1995, by and among Seller, Mr. Boles and certain other
individuals), since December 31, 1992, except as set forth in Schedule 3.12, (a)
the employees of the Seller with respect to the Business have not been and are
not represented by a labor organization which was either National Labor
Relations Board ("NLRB") certified or voluntarily recognized; (b) the Seller has
not been and is not a signatory to a collective bargaining agreement with any
labor organization that relates to the Business; (c) no representation election
petition has been filed by employees of the Seller with respect to the Business
or is pending with the NLRB and no union organizing campaign involving employees
of the Seller with respect to the Business has occurred or is in progress; (d)
no NLRB unfair labor practice claims have been filed and/or are presently
pending against the Seller with respect to the Business or any labor
organization representing its employees; (e) no grievance or arbitration demand,
whether or not filed pursuant to a collective bargaining agreement, has been
filed or is pending against the Seller with respect to the Business; (f) no hand
billing, picketing, work stoppage (sympathetic or otherwise), or other
"concerted action" involving the employees of the Business has occurred or is in
progress; (g) no breach of contract and/or denial of fair representation claim
has been filed or is pending against the Seller with respect to the Business
and/or any labor organization representing its employees; (h) no claim for
unpaid wages or overtime or for child labor or record keeping violations has
been filed or is pending under the Fair Labor Standards Act, Davis-Bacon Act,
Walsh-Healey Act, or Service Contract Act or any other federal, state, local or
foreign law, regulation, or ordinance; (i) no discrimination and/or retaliation
claim has been filed or is pending against the Seller with respect to the
Business under the 1866 or 1964 Civil Rights Acts, the Equal Pay Act, the Age
Discrimination in Employment Act, as amended, the Americans with Disabilities
Act, the Family and Medical Leave Act, the Fair Labor Standards Act, ERISA or
any other federal law or any comparable state fair employment practices act or
foreign law regulating discrimination in the workplace; (j) if the Seller is a
federal or state contractor obligated to develop and maintain an affirmative
action plan, no discrimination
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claim, show cause notice, conciliation proceeding, sanctions or debarment
proceeding has been filed or is pending with Office of Federal Contract
Compliance Programs or any other federal agency or any comparable state or
foreign agency or court and no desk audit or on-site review is in progress;
(k) no citation has been issued by OSHA against the Seller with respect to
the Business and no notice of contest or OSHA administrative enforcement
proceeding involving the Seller with respect to the Business has been filed
or is pending; (l) no workers' compensation or retaliation claim has been
filed or is pending against the Seller with respect to the Business; (m) the
Seller is in compliance with the provisions of the Immigration Reform and
Control Act and other federal and foreign immigration laws, to the extent
such laws relate to the Seller's operation of the Business; (n) the Seller
has not been and is not obligated, by any collective bargaining agreement or
other written agreement, to contribute to any multi-employer pension or
welfare benefit plan covering employees with respect to the Business and/or
retirees and their beneficiaries; and (o) the Seller has not taken any action
that would constitute a "mass layoff" or "plant closing" within the meaning
of the Worker Adjustment and Retraining Notification Act (the "WARN Act") or
otherwise trigger notice requirements or liability under any local or state
plant closing notice law. The Seller is in compliance with all federal, state
and local laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, and is not engaged in any unfair
labor or unlawful employment practice.
12. Insurance. The Assets have been and are insured by financially sound and
reputable insurers in such amounts and against such risks as are reasonable
in relation to the Business, and the Seller will maintain such insurance at
least through the Closing Date.
13. Environmental Matters. Except as set forth in Schedule 3.14:
( ) The Seller possesses, and is in full compliance with, all permits,
licenses and government authorizations and has filed all notices that are
required under local, state and federal laws and regulations relating to
protection of the environment, pollution control, product registration and
Hazardous Materials (as defined below in this Section 3.14) ("Environmental
Laws") with respect to the Business, except for such failure to possess or
file and except for such noncompliance as would not result in a material
adverse affect on the Business or Assets; the Seller is in compliance with
all applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained
in those laws or contained in any law, regulation, code, plan, order, decree,
judgment, notice, permit or demand letter issued, entered, promulgated or
approved thereunder, to the extent the same relate to the Business, except
for such noncompliance as would not have a material adverse affect on the
Business or Assets;
(a) The Seller has not received, with respect to the Business, notice of
actual or threatened liability under the Federal Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") or any similar state or
local statute or ordinance from any governmental agency or any third party
and there are no facts or circumstances known to Seller
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with respect to the Business which could form the basis for the assertion of
any claim against the Seller with respect to the Business under any
Environmental Laws including, without limitation, CERCLA or any similar
local, state or foreign law with respect to any on-site or off-site location;
(b) With respect to the Business, the Seller has not entered into or
agreed to nor does it contemplate entering into any consent decree or order,
and is not subject to any judgment, decree or judicial or administrative
order relating to compliance with, or the cleanup of Hazardous Materials
under, any applicable Environmental Laws related to the Business;
(c) The Seller has not received any notice of violation and has not been
subject to any administrative or judicial proceeding alleging violation of
applicable Environmental Laws or regulations related to the Business either
now or any time since its acquisition of the Business;
(d) The Seller is not subject to any claim, obligation, liability, loss,
damage or expense of whatever kind or nature, contingent or otherwise,
incurred or imposed or based upon any provision of any Environmental Law and
arising out of any act or omission of the Seller, its employees, agents or
representatives with respect to the Business or arising out of the ownership,
use, control or operation by the Seller of any plant, facility, site, area or
property relating to the Business (including, without limitation, any plant,
facility, site, area or property currently or previously owned or leased by
the Seller) from which any Hazardous Materials were released into the
environment, except for any claim, obligation, liability, loss, damage or
expense that would not, individually or in the aggregate, have a material
adverse affect on the Business or the Assets (the term "release" meaning any
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the environment, and
the term "environment" meaning any surface or ground water, drinking water
supply, soil, surface or subsurface strata or medium, or the ambient air);
(e) Seller has provided Purchaser with true, correct and complete copies
of all documents of the Seller relating to environmental matters with respect
to the Business (or an opportunity to review such files). The Seller has not
paid any fines, penalties or assessments with respect to the Business for
violations of Environmental Laws since the date of its acquisition of the
Business;
(f) Except as described in Schedule 3.14, neither the Real Property,
improvements nor equipment included within the Assets contain any
asbestos-containing material which is or may be friable (other than floor
tile, roofing material and drywall material), PCBs or underground storage
tanks; and
(g) The Seller has provided Purchaser with copies of all work place or
worker exposure measurements made by or on behalf of the Seller in Seller's
custody or control with respect to the Business, including, without
limitation, all work place or worker exposure measurements for particulates,
OSHA hazardous chemicals and Hazardous Materials. At no time
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since January 23, 1996 and, to the knowledge of Seller (based solely upon
inquiry of J. Read Boles and the representations and warranties made to the
Seller in that certain Stock Purchase Agreement, dated as of September 30,
1995, by and among Seller, Mr. Boles and certain other individuals), since
December 31, 1992, have conditions in the work place with respect to the
Business resulted in an exceedance or a violation of any OSHA permissible
exposure level for workers of the Company or of any similar state or local
statute, ordinance or regulation intended to protect workers, which
exceedance or violation would have a material adverse affect on the Business
or the Assets. Seller has established and is in full compliance with its OSHA
Hazard Communication Program with respect to the Business, except for such
noncompliance as would not result in a material adverse affect on the
Business or the Assets.
As used in this Section 3.14, the term "Hazardous Materials" means any
waste, pollutant, hazardous substance, toxic, ignitable, reactive or
corrosive substance, hazardous waste, special waste, industrial substance,
by-product, process intermediate product or waste, petroleum or
petroleum-derived substance or waste, chemical liquids or solids, liquid or
gaseous products, or any constituent of any such substance or waste, the use,
handling or disposal of which by the Seller is in any way governed by or
subject to any applicable law, rule or regulation of any governmental or
regulatory authority.
14. Patents, Trademarks, Trade Names. Schedule 3.15 sets forth a true and
complete list of: (a) all patents, trademarks, service marks, trade names and
copyrights (including all federal, state and foreign applications and
registrations pertaining thereto) owned by the Seller and relating to the
Business (collectively, the "Proprietary Intellectual Property"); and (b) all
patents, trademarks, trade names, service marks, copyrights, technology and
processes used by the Seller with respect to the Business pursuant to a
license or other right granted by a third party (collectively, the "Licensed
Intellectual Property", and together with the Proprietary Intellectual
Property herein referred to as "Intellectual Property"). The Seller owns, or
has the right to use pursuant to valid and effective agreements set forth in
Schedule 3.15, all Intellectual Property. No claims are pending against the
Seller by any person with respect to the use of any Intellectual Property or
challenging or questioning the validity or effectiveness of any license or
agreement relating to the same, and the current use by the Seller of the
Intellectual Property does not infringe on the rights of any third party.
Schedule 3.15 sets forth a list of all jurisdictions in which the Seller is
operating the Business under a trade name, and each jurisdiction in which any
such trade name is registered. Except as set forth on Schedule 3.15, the
Intellectual Property is not subject to any lien or encumbrance arising
through or created by the Seller, other than Permitted Liens.
15. Transactions with Affiliates. Except as set forth in Schedule 3.16, no
shareholder, officer or director of Seller, or any person with whom any such
shareholder, officer or director has any direct or indirect relation by blood,
marriage or adoption, or any entity in which any such person, owns any
beneficial interest (other than a publicly held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than five percent (5%) of the stock of which is beneficially owned by all
such persons) or any Affiliate of any of the
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foregoing or any current or former Affiliate of the Seller has any interest
in: (a) any contract, arrangement or understanding with, or relating to, the
Business, the Assets or the Assumed Liabilities; (b) any loan, arrangement,
understanding, agreement or contract for or relating to the Business or the
Assets; or (c) any property (real, personal or mixed), tangible or
intangible, used or currently intended to be used by the Company. For
purposes of this Agreement, "Affiliate" of any specified Person means any
other Person directly or indirectly Controlling or Controlled by or under
direct or indirect common Control with such specified Person. For purposes of
this definition, "Control", when used with respect to any specified Person,
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "Controlling" and "Controlled" have
meanings correlative to the foregoing. In addition, for purposes of this
definition, "Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
16. Nondisclosed Payments. Neither Seller nor any of its officers or
directors, nor anyone acting on behalf of any of them, has made or received
any payments not correctly categorized and fully disclosed in the Seller's
books and records in connection with or in any way relating to or affecting
the Assets, the Company or the Business.
17. Brokers, Finders and Investment Bankers. Neither Seller nor any of its
officers, directors or employees, has employed any broker, finder or
investment banker or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' fees in connection with
the transactions contemplated under this Agreement.
18. Disclosure.
( ) No representation, warranty or covenant made by Seller in this
Agreement, the Schedules or the Exhibits attached to this Agreement contains
an untrue statement of a material fact or omits to state a material fact
required to be stated in this Agreement or in the Schedules or Exhibits which
would be necessary to make the statements contained therein not misleading.
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(a) Prior to the execution of this Agreement, Seller has delivered to
Purchaser true and complete copies of the Assumed Contracts, documents
evidencing any of the Intellectual Property, and all security agreements and
other instruments creating or imposing any security interest, encumbrance or
material adverse claim on the Assets, and any other documents or instruments
identified or referred to in the Schedules. Such delivery will not alone
constitute adequate disclosure of those facts required to be disclosed on any
Schedule to this Agreement, and notice of their contents (other than by
express reference on a Schedule) will in no way limit Seller's other
obligations or Purchaser's other rights under this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
0. Organization. Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas with all requisite
power and authority (corporate and other) to own, lease and operate its
properties and to carry on its business as now being conducted.
1. Authorization. Purchaser has the full corporate power and authority to
execute and deliver this Agreement and any other certificate, agreement,
document or other instrument to be executed and delivered by it in connection
with the transactions contemplated by this Agreement (collectively, the
"Purchaser Ancillary Documents"), to perform its obligations under this
Agreement and the Purchaser Ancillary Documents and to consummate the
transactions contemplated by this Agreement and the Purchaser Ancillary
Documents. The execution and delivery of this Agreement and the Purchaser
Ancillary Documents by Purchaser, the performance by Purchaser of its
obligations under this Agreement and the Purchaser Ancillary Documents, and
the consummation of the transactions provided for in this Agreement and the
Purchaser Ancillary Documents have been duly and validly authorized by all
necessary corporate action on the part of Purchaser. This Agreement has been,
and the Purchaser Ancillary Documents will be as of the Closing Date, duly
executed and delivered by Purchaser and do or will, as the case may be,
constitute the valid and binding agreements of Purchaser, enforceable against
Purchaser in accordance with their respective terms, subject to applicable
bankruptcy, insolvency and other similar laws affecting the enforceability of
creditors' rights generally, general equitable principles and the discretion
of courts in granting equitable remedies.
2. Absence of Restrictions and Conflicts. The execution, delivery and
performance of this Agreement and the Purchaser Ancillary Documents, the
consummation of the transactions contemplated by this Agreement and the
Purchaser Ancillary Documents and the fulfillment of and compliance with the
terms and conditions of this Agreement and the Purchaser Ancillary Documents
do not or will not (as the case may be), with the passing of time or the
giving of notice or both, violate or conflict with, constitute a breach of or
default under, result in the loss of
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any benefit under, or permit the acceleration of any obligation under, (a)
any term or provision of the articles of incorporation or bylaws of
Purchaser, (b) any contract to which Purchaser is a party, (c) any judgment,
decree or order of any court or governmental authority or agency to which
Purchaser is a party or by which Purchaser or its properties is bound or (d)
any statute, law, rule or regulation applicable to Purchaser. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any government agency or public or regulatory unit, agency, body or
authority with respect to Purchaser is required in connection with the
execution, delivery or performance of this Agreement and the Purchaser
Ancillary Documents by Purchaser or the consummation of the transactions
contemplated by this Agreement and the Purchaser Ancillary Documents by
Purchaser.
4. CERTAIN COVENANTS AND AGREEMENTS
0. Conduct of Business by the Seller. From the Effective Date until the
Closing Date, the Seller has, and has caused the Company to, except as
required in connection with the transactions contemplated by this Agreement
and except as otherwise consented to in writing by Purchaser:
( ) conducted the Business in the ordinary course on a basis consistent
with past practice and not engage in any new line of business or enter into
any agreement, transaction or activity or make any commitment with respect to
the Business or the Assets except those in the ordinary course of business
and not otherwise prohibited under this Section 5.1;
(a) used its good faith reasonable efforts to preserve intact the
goodwill and business organization of the Company, keep the officers and
employees of the Company available to Purchaser and preserve the
relationships of the Company with customers, suppliers and others having
business relations with the Company;
(b) not amended or modified its articles or certificate of incorporation
(as the case may be) or bylaws in any manner that would have an adverse
effect on its ability to comply with its obligations pursuant to this
Agreement;
(c) not disposed of or permitted to lapse any rights to the use of any
patent, trademark, trade name, license or copyright of the Company,
including, without limitation, any of the Intellectual Property, or disposed
of or disclosed to any person, any trade secret, formula, process, technology
or know-how of the Company not heretofore a matter of public knowledge;
(d) not (i) sold any assets, other than finished goods sold in the ordinary
course of business and the two (2) Fuji Universal Automatic Chucker Machines,
Serial Numbers 3047 and 1870 now located on the Premises, (ii) created, incurred
or assumed any indebtedness secured by the Assets, except in the ordinary course
of business consistent with past practice, (iii) granted, created, incurred or
suffered to exist any liens, charges or encumbrances on the Assets which did
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not exist on the Effective Date, except for Permitted Liens incurred in the
ordinary course of business, (iv) incurred any liability or obligation
(absolute, accrued or contingent) except in the ordinary course of business
consistent with past practice, (v) written-off any guaranteed checks, notes
or accounts receivable except in the ordinary course of business consistent
with past practice, (vi) written-down the value of any asset or investment
(including, without limitation, any of the Assets) on the books or records of
the Seller relating to the Business, except for depreciation and amortization
in the ordinary course of business and consistent with past practice, (vii)
canceled any debt or waive any claims or right relating to or arising out of
the Business, except in the ordinary course of business, consistent with past
practice, (viii) caused or permitted the Company to sell, transfer, assign,
convey, lend, consign or otherwise ship any finished goods from the Company
or related to the Business to Seller, other than items of finished goods
inventory determined by the Purchaser and the Seller to be obsolete; or (ix)
entered into any material contract or agreement relating to the Business
without the written consent of Purchaser;
(e) not entered into, modified or extended in any manner the terms of any
employment, severance or similar agreements with officers or employees nor
granted any material increase (other than any increase that was required by law)
in the compensation of officers or employees of the Seller employed primarily
with respect to the Business, whether now or hereafter payable, including any
such increase pursuant to any option, bonus, stock purchase, pension,
profit-sharing, deferred compensation, retirement or other plan, arrangement,
contract or commitment except with respect to that certain Employment
Termination and Option Agreement between Seller and James Read Boles, which
agreement shall be substantially in the form of Exhibit 5.1(f);
(f) maintained supplies and inventory for the Business at levels that
were in the ordinary course of business and consistent with past practice;
(g) with respect to the Business, continued to extend customers credit,
collect accounts receivable and pay accounts payable and similar obligations
in the ordinary course of business consistent with past practice;
(h) neither amended or modified any Benefit Plan applicable to the
Business nor committed to make any amendment to any such Benefit Plan or
adopted any new Benefit Plan for the benefit of any employees of the Business;
(i) performed in all material respects all of its obligations under all,
and not defaulted or suffered to exist any event or condition which with
notice or lapse of time or both would have constituted a default under any,
Assumed Contracts (except those being contested in good faith) and not
entered into, assumed or amended any contract or commitment that is or would
be an Assumed Contract;
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(j) maintained in full force and effect and in the same amounts policies
of insurance covering the Assets and the business comparable in amount and
scope of coverage to that maintained prior to the Effective Date;
(k) prepared and filed all federal, state, local and foreign returns for
taxes and other tax reports, filings and amendments thereto required to be
filed by it, and allowed Purchaser, at its request, to review all such
returns, reports, filings and amendments at the Seller's offices prior to the
filing thereof;
(l) continued to maintain and service the Assets in the same manner as is
consistent with past practice;
(m) continued to maintain its books and records relating to the Assets,
the Company or the Business in accordance with GAAP, consistently applied (to
the extent applicable), and on a basis consistent with the Seller's past
practice;
(n) continued its cash management practices with respect to the Business
in the ordinary course of business consistent with past practice; and
(o) promptly notified Purchaser of any event or occurrence that has had
or may reasonably be expected to have a material adverse effect on the
assets, liabilities, results of operations, business or prospects of the
Company.
In connection with the continued operation of the Business between the
Effective Date and the Closing Date, Seller conferred in good faith on a
regular and frequent basis with one or more representatives of Purchaser
designated in writing regarding operational matters and the general status of
ongoing operations at the Company. Seller acknowledges that Purchaser did not
and will not waive any rights it may have under this Agreement as a result of
such consultations.
1. Inspection and Access to Information. From the Effective Date to the
Closing Date or until this Agreement is terminated as provided in Article 8,
Seller will (and will cause its officers, directors, employees, auditors and
agents to) provide Purchaser, and its accountants, investment bankers,
counsel, environmental consultants and other authorized representatives full
access, during reasonable hours and under reasonable circumstances, to any
and all of its premises, employees (including executive officers),
properties, contracts, commitments, books, records and other information
(including tax returns filed and those in preparation) regarding the Company
and will cause its officers to furnish to Purchaser, and its authorized
representatives, promptly upon request therefor, any and all financial,
technical and operating data and other information pertaining to the Company
and its business, and otherwise fully corporate with the conduct of due
diligence by Purchaser and its representatives.
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2. Confidentiality. Without the consent of Seller, Purchaser will not
disclose, and will direct its representatives to not disclose, to retain in
full confidence and to not use (except in connection with the evaluation of
the Company and Purchaser's due diligence) any Confidential Information (as
defined below) with respect to the Company which is or has been furnished by
either Seller, the Company or its respective representatives to Purchaser or
its representatives, unless disclosure is otherwise required by law. For
purposes of this subsection, "Confidential Information" means any information
concerning the Company stamped "Confidential" or identified in writing as
such to Purchaser by Seller or the Company promptly following its disclosure,
unless such information is already known to Purchaser or its representatives
or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of Purchaser or its
representatives.
3. No Solicitation of Transactions. Neither Seller nor any of its Affiliates
will directly or indirectly, through any officer, director, agent or
otherwise, initiate, solicit or encourage (including by way of furnishing
non-public information or assistance), or enter into negotiations of any
type, directly or indirectly, or enter into a confidentiality agreement,
letter of intent or purchase agreement, merger agreement or other similar
agreement with any person, firm or corporation other than Purchaser with
respect to a sale of any of the Assets. Seller will notify Purchaser orally
(within one business day) and in writing (as promptly as practicable) of all
relevant terms of any proposals by a third party to do any of the foregoing
which Seller or any of its Affiliates or any of their respective officers,
directors, employees, investment bankers, financial advisors, attorneys,
accounts or other representatives may receive relating to any of such matters
and, if such proposal is in writing, Seller will deliver to Purchaser a copy
of such inquiry or proposal.
4. Reasonable Efforts; Further Assurances; Cooperation. Subject to the other
provisions of this Agreement, the Parties will each use their reasonable,
good faith efforts to perform their obligations in this Agreement and to
take, or cause to be taken, or do, or cause to be done, all things necessary,
proper or advisable under applicable law to obtain all regulatory approvals
and satisfy all conditions to the obligations of the parties under this
Agreement and to cause the transactions contemplated in this Agreement to be
effected on or prior to the Closing Date, in accordance with the terms of
this Agreement and will cooperate fully with each other and their respective
officers, directors, employees, agents, counsel, accountants and other
designees in connection with any steps required to be taken as a part of
their respective obligations under this Agreement, including, without
limitation:
( ) Each of the Parties promptly will make their respective filings and
submissions and will take all actions necessary, proper or advisable under
applicable laws and regulations to obtain any required approval of any
foreign, federal, state or local governmental agency or regulatory body with
jurisdiction over the transactions contemplated by this Agreement. Each of
the Parties will furnish all information required for any application or
other filing to be
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made pursuant to the rules and regulations of any applicable law in
connection with the transactions contemplated by this Agreement;
(a) In the event any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which
questions the validity or legality of the Acquisition or any of the other
transactions contemplated by this Agreement or seeks damages in connection
therewith, the Parties agree to cooperate and use all reasonable efforts to
defend against such claim, action, suit, investigation or other proceeding
and, if an injunction or other order is issued in any such action, suit or
other proceeding, to use all reasonable efforts to have such injunction or
other order lifted, and to cooperate reasonably regarding any other
impediment to the consummation of the transactions contemplated by this
Agreement;
(b) Seller will give any notices to third parties, and use its best
efforts (in consultation with Purchaser) to obtain any third party consents
(A) necessary, proper or advisable to consummate the transactions
contemplated in this Agreement, (B) disclosed or required to be disclosed in
the Schedules to this Agreement, (C) required to avoid a breach of or default
under any Assumed Contracts in connection with the consummation of the
transactions contemplated in this Agreement or (D) required to prevent a
material adverse effect on the assets, liabilities, results of operations,
business or prospects of the Company from occurring prior to or after the
Closing Date;
(c) To the extent that third party consents relating to Assumed Contracts
have not been obtained by Seller as of the Closing, Seller will, during the
remaining term of such Assumed Contracts (the "Non-Assignable Contracts"),
use its best efforts to (i) obtain the consent of the applicable third party,
(ii) make the benefit of such Non-Assignable Contracts available to Purchaser
so long as Purchaser fully cooperates with the Seller and promptly reimburses
the Seller for all payments made by the Seller in connection therewith, and
(iii) enforce at the request of Purchaser and at the expense and for the
account of Purchaser any rights of the Seller arising from such
Non-Assignable Contracts against the other party or parties thereto
(including the right to elect or terminate any such Non-Assignable Contracts
in accordance with the terms thereof); provided, that Seller shall not be
obligated to do so if as a result it would incur any loss or liability
therefrom. The Seller will not take any action or suffer any omission which
would limit or restrict or terminate in any material respect the benefits to
Purchaser of such Non-Assignable Contracts unless, in good faith and after
consultation with and prior written notice to Purchaser, the Seller is
ordered orally or in writing to do so by a governmental authority of
competent jurisdiction or the Seller is otherwise required to do so by law;
provided that if any such order is appealable, the Seller will, at
Purchaser's cost and expense, take such actions as are requested by Purchaser
to file and pursue such appeal and to obtain a stay of such order. With
respect to any such Non-Assignable Contract as to which the necessary
approval or consent for the assignment or transfer to Purchaser is obtained
following the Closing, the Seller will transfer such Non-Assignable Contract
to Purchaser by execution and delivery of an instrument of conveyance
reasonably satisfactory to Purchaser and Seller promptly following receipt of
such approval or consent.
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(d) Seller and Purchaser will give prompt notice to the other of (i) the
occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty of Seller or
Purchaser, as the case may be, contained in this Agreement to be untrue or
inaccurate at any time from the Closing Date to the Closing Date or that will
or may result in the failure to satisfy any of the conditions specified in
Article 6 of this Agreement and (ii) any failure of Seller or Purchaser, as
the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by any of them under this
Agreement. For purposes of Sections 5.5(d) and (e), a notice shall be
promptly given if the party with an obligation to give such notice provides
oral notice to the other party of such event within two business day of
learning of it, which notice shall be confirmed in writing within five
business days.
5. Public Announcements. The timing and content of all announcements
regarding any aspect of this Agreement or the transactions contemplated by
this Agreement to the financial community, government agencies, employees or
the general public will be mutually agreed upon in advance by the Parties
(unless a Party is advised by counsel that any such announcement or other
disclosure not mutually agreed upon in advance is required to be made by law,
applicable stock exchange rule or the National Association of Securities
Dealers, Inc., and then only after making a reasonable attempt to comply with
the provisions of this Section 5.6). Neither party will unreasonably withhold
its approval of the timing or content of an announcement by the other party.
6. Supplements to Schedules. From time to time up to the Closing Date,
Seller will promptly supplement or amend the Schedules which it has delivered
pursuant to this Agreement with respect to any matter first existing or
occurring after the Closing Date which, if existing or occurring at or prior
to the Closing Date, would have been required to be set forth or described in
such Schedules or which is necessary to correct any information in such
Schedules which has been rendered inaccurate thereby. No supplement or
amendment to any Schedule will have any effect for the purpose of determining
satisfaction of the conditions set forth in Section 6.2 of this Agreement
unless such supplement or amendment is accepted by Purchaser in writing in
its absolute and sole discretion.
7. Employees. (a) On the Closing Date, the Seller will, except as provided in
Section 5.8(b), terminate the employment of all of its employees related to
the Business. Further, with respect to all pay periods commencing prior to
the Effective Date, the Seller will, on or before the Closing Date, pay (or
make provisions reasonably satisfactory to the Purchaser for the payment of)
all amounts due to employees of the Company related to the Business for the
portion of such pay periods ending on the Effective Date. The Seller shall
pay (or make provisions reasonably satisfactory to the Purchaser for payment)
pursuant to the previous sentence, without limitation, all accrued but unpaid
vacation time, salaries, wages and bonuses attributable to such portion of
such pay periods. On the Closing Date, the
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Seller shall also pay (or make provision satisfactory to the Purchaser for
the payment of) all commissions or fees and expense reimbursements owed to
sales agents and manufacturer's representatives representing the Company and
related to the Business that are attributable to sales occurring prior to the
Effective Date.
(b) Commencing on the Closing Date, Purchaser will offer employment, on
an at will basis, to all of the employees of the Seller who are actively at
work at the Company with respect to the Business on the Closing Date.
Purchaser will have no obligation of any kind to offer employment or
otherwise with respect to any employee of the Seller who is not actively at
work at the Company with respect to the Business on the Closing Date, and
each such employee will remain an employee of the Seller unless otherwise
agreed in writing by Purchaser. For the purposes of this Section 5.7,
"actively at work" will mean (i) reporting to work a minimum of 30 hours per
week in a permanent position in the last three months prior to the Closing
Date or (ii) being absent on the Closing Date due to the federal Family and
Medical Leave Act or the Seller's maternity leave, jury duty or military
service policies. The time-in-service of the employees of Seller who accept
the Purchaser's offer of employment will be recognized with respect to
vesting in, and the accrual of benefits under, the Purchaser's employee
benefit plans, to the extent applicable.
(c) With respect to all pay periods commencing after the Effective Date,
the Purchaser will pay all amounts due to employees of the Company who are
hired by the Purchaser for the portion of such pay periods occurring after
the Effective Date. The Purchaser shall pay pursuant to the previous
sentence, without limitation, all accrued but unpaid vacation time, sick pay,
salaries, wages and bonuses attributable to such portion of such pay periods.
Purchaser shall pay all commissions or fees and expense reimbursements owed
to sales agents and manufacturer's representatives representing the Company
that are attributable to sales occurring after the Effective Date.
(d) Seller shall be responsible for the payment of severance pay, if any,
pursuant to any applicable employee related contract, agreement or plan
attributable to the termination of employees described in this Section 5.8.
8. Transfer Taxes; Expenses. Any real property transfer or gains taxes,
recording fees or any other taxes payable as a result of the sale of the
Assets or any other action contemplated by this Agreement (other than any
federal, state or local taxes imposed upon Purchaser measured by or based
upon income or gains) will be paid by Seller. Purchaser and Seller will
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and
stamp taxes, any transfer, recording, registration and other fees, and any
similar taxes which become payable in connection with the transactions
contemplated hereby that are required or permitted to be filed on or before
the Closing. Except as provided above, (a) Purchaser will pay its own fees,
costs and expenses incurred in connection with this Agreement and the
transactions
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contemplated by this Agreement, including, the fees, costs and expenses of
its financial advisors, accountants and counsel and (b) Seller will pay the
fees, costs and expenses of Seller incurred in connection with this Agreement
and the transactions contemplated by this Agreement, including, the fees,
costs and expenses of Seller' financial advisors, accountants and counsel.
9. Insurance. Seller shall in good faith cooperate with Purchaser and take
all actions reasonably requested by Purchaser that are necessary or desirable
to permit Purchaser to have available to it following the Closing the
benefits (whether direct or indirect) of the insurance policies, including,
without limitation, the group health insurance policies, maintained by the
Seller with respect to the Business that are currently in force. All costs
relating to the actions described in this Section shall be borne by Purchaser.
10. Returned or Defective Products. Purchaser will ship to Seller, at
Seller's expense, all returned or defective products referred to in Section
1.4(b)(ii) to the extent the Purchaser refunded amounts or issued credits to
customers of the Company in excess of $5,000 in the aggregate and deducted
such refunds or credits from the Purchase Price as provided in the Note. This
Section 5.11 shall survive the Closing and shall remain in force and binding
on the Purchaser until the second anniversary of the Closing Date.
11. Allocation of Purchase Price. Purchaser and Seller acknowledge and agree
that the transactions contemplated by this Agreement must be reported in
accordance with Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"). Purchaser and Seller agree to report the transactions
contemplated hereunder for all purposes in accordance with the Purchase Price
allocation described on Schedule 5.12 annexed hereto. Purchaser and Seller
agree to share information and to cooperate to the extent necessary to permit
the transactions to be properly, timely and consistently reported in
accordance with Section 1060 of the Code and the regulations promulgated
thereunder.
12. Payment of Undisclosed Trade Creditors. Promptly following the Closing
Date, Seller shall satisfy its obligations to any of its trade creditors with
respect to the Business for periods ending on or before the Effective Date
that are not identified in Schedule 2.2(a)(i). This Section 5.13 shall
survive the Closing and shall remain in force and binding on the Seller until
the second anniversary of the Closing Date.
5. CONDITIONS
0. Conditions to Each Party's Obligations. The respective obligations of
each Party to effect the transactions contemplated by this Agreement will be
subject to the fulfillment at or prior to the Closing of each of the
following conditions:
( ) Injunction. As of the Closing, there will be no effective injunction,
writ or preliminary restraining order or any order of any nature issued by a
court or governmental or
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regulatory agency of competent jurisdiction to the effect that the purchase
and sale of the Assets may not be consummated as provided in this Agreement,
no proceeding or lawsuit will have been commenced by any court, governmental
or regulatory agency for the purpose of obtaining any such injunction, writ
or preliminary restraining order and no written notice will have been
received from any such court or agency indicating an intent to restrain,
prevent, materially delay or materially restructure the transactions
contemplated by this Agreement.
(a) Consents. All consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any governmental agency or
public or regulatory unit, agency, body or authority required in connection
with the execution, delivery or performance of this Agreement will have been
obtained or made, except where the failure to have obtained or made any such
consent, approval, order, authorization, declaration or filing would not
have a material adverse effect on the assets, liabilities, results of
operations, business or prospects of Purchaser or the Company prior to or
after the Closing.
1. Conditions to Obligations of Purchaser. The obligations of Purchaser to
consummate the transactions contemplated by this Agreement will be subject to
the fulfillment at or prior to the Closing of each of the following additional
conditions:
( ) Representations and Warranties. The representations and warranties of
Seller set forth in Article 3 of this Agreement that are qualified as to
materiality shall have been true and correct as of the Effective Date and
shall be true and correct as of the Closing Date as though made on and as of
the Closing Date. The representations and warranties of Seller set forth in
Article 3 of this Agreement that are not qualified as to materiality shall
have been true and correct in all material respects as of the Effective Date
and shall be true and correct in all material respects as of the Closing Date
as though made on and as of the Closing Date.
(a) Performance of Obligations of Seller. Seller shall have performed in
all material respects all covenants and agreements required to be performed
by it under this Agreement on or prior to the Closing Date.
(b) No Material Adverse Change. Between the Effective Date and the
Closing Date, there shall not have occurred (nor shall Purchaser have become
aware of) any material adverse change, or any development likely to result in
a material adverse change, in or affecting the Assets, the Assumed
Liabilities or the results of operations, business or prospects of the
Company.
(c) Certificate. Seller shall have delivered to Purchaser a certificate
executed by its Executive Vice President and Chief Financial Officer as to
compliance with the conditions set forth in Sections 6.2(a), (b) and (c).
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(d) Opinion of Seller's Counsel. Purchaser shall have received an opinion
of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, dated the Closing Date,
substantially in the form attached as Exhibit 6.2(e) ("Seller's Counsel
Opinion").
(e) Assumed Contracts. Purchaser shall have received written consents to
the assignment of all Assumed Contracts or written waivers of the provisions
of any Assumed Contracts requiring the consents of third parties as set forth
in Schedule 3.8. All such consents and waivers shall be in full force and
effect.
(f) Release of Liens. Seller shall have delivered to Purchaser reasonably
satisfactory evidence that all liens, pledges, security interests, charges,
claims, restrictions and encumbrances (other than Permitted Liens and those
relating to the Assumed Liabilities) including, without limitation, those set
forth in Schedule 3.4(a) and Schedule 3.4(b), affecting the Assets
(including, without limitation, the Real Property) have been released.
(g) Employment and Non-Competition Agreements. Purchaser shall have
entered into an employment and noncompetition agreement, substantially in the
form attached as Exhibit 6.2(h) to this Agreement, with Mr. James Read Boles.
(h) ISO 9000 Certification. Purchaser shall have received confirmation
from the International Standards Organization that the ISO 9000 Certification
possessed by the Company will continue following the Closing of the
Acquisition.
(i) Termination of Restrictions. Purchaser shall have received
confirmation satisfactory to it that Mr. James Read Boles has been released
from all non-competition and confidentiality covenants made by him in favor
of the Seller to the extent the same would prohibit Mr. Boles from performing
his duties as an executive of Purchaser following the Closing Date.
2. Conditions to Obligations of Seller. The obligations of Seller to
consummate the transactions contemplated by this Agreement will be subject to
the fulfillment at or prior to the Closing of each of the following additional
conditions:
( ) Representations and Warranties. The representations and warranties
of Purchaser set forth in Article 4 of this Agreement that are qualified as
to materiality shall have been true and correct as of the Effective Date and
shall be true and correct as of the Closing Date as though made on and as of
the Closing Date. The representations and warranties of Purchaser set forth
in Article 4 of this Agreement that are not qualified as to materiality shall
have been true and correct in all material respects as of the Effective Date
and shall be true and correct in all material respects as of the Closing Date
as though made on and as of the Closing Date.
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(a) Performance of Obligations by Purchaser. Purchaser shall have
performed in all material respects all covenants and agreements required to
be performed by it under this Agreement on or prior to the Closing Date.
(b) Certificates. Purchaser shall have delivered to Seller a certificate
of its Chief Executive Officer as to compliance with the conditions set forth
in Sections 6.3(a) and (b).
(c) Opinion of Purchaser's Counsel. Seller shall have received an opinion
of King & Spalding, dated the Closing Date, substantially in the form of
Exhibit 6.3(d) ("Purchaser's Counsel Opinion").
(d) Liens. Seller shall have received releases of all liens, charges,
encumbrances and security interests on or with respect to the Assets, other
than Permitted Liens, on terms reasonably satisfactory to Seller.
6. CLOSING
0. The Closing. The consummation of the transactions contemplated by this
Agreement are referred to in this Agreement as the "Closing." The "Closing
Date" will be the date on which the Closing occurs. The Closing will take
place at the offices of King & Spalding, 191 Peachtree Street, Atlanta,
Georgia, or at such other place as Seller and Purchaser will agree.
1. Documents to be Delivered by Seller. At the Closing, Seller will deliver,
or cause to be delivered, to Purchaser the following:
( ) executed deeds, bills of sale, instruments of assignment,
certificates of title and other conveyance documents, dated the Closing Date,
transferring to Purchaser all of Seller's right, title and interest in and to
the Assets together with possession of the Assets;
(a) documents evidencing the assignment of the Assumed Contracts and the
assignment of any assignable permits and licenses;
(b) a copy of resolutions of the board of directors of Seller authorizing
the execution, delivery and performance of this Agreement by Seller and a
certificate of the secretary or assistant secretary of Seller, dated the
Closing Date, that such resolutions were duly adopted and are in full force
and effect;
(c) a certificate, dated the Closing Date, executed by the Executive Vice
President and Chief Financial Officer of Seller certifying to the fulfillment
of the conditions specified in Sections 6.2(a), 6.2(b) and 6.2(c);
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(d) the Seller's Counsel Opinion;
(e) documents sufficient, in the reasonable judgment of the Purchaser,
fully to release all liens, pledges, security interests, charges, claims,
restrictions and encumbrances (other than Permitted Liens and those relating
to the Assumed Liabilities) including, without limitation, those set forth in
Schedule 3.4(a) and Schedule 3.4(b), affecting the Assets (including, without
limitation, the Real Property);
(f) all other documents required to be entered into and delivered by
Seller, pursuant to this Agreement or reasonably requested by Purchaser to
convey the Assets to Purchaser or to otherwise consummate the transactions
contemplated by this Agreement in accordance with the terms hereof; and
(g) checks drawn on Seller in amounts required to pay the Trade Creditors
in full.
2. Documents to be Delivered by Purchaser. At the Closing, Purchaser will
deliver to Seller the following:
( ) documents evidencing the assumption of the Assumed Contracts, the
acceptance of assignable permits and licenses, and the assumption of the
Assumed Liabilities;
(a) a copy of the resolutions of the board of directors of Purchaser and
of the corporate parent of Purchaser authorizing the execution, delivery and
performance of this Agreement by Purchaser, and a certificate of its
secretary or assistant secretary, dated the Closing Date, that such
resolutions were duly adopted and are in full force and effect;
(b) a certificate, dated the Closing Date executed by the Chief Executive
Officer of Purchaser certifying to the fulfillment of the conditions
specified in Section 6.3(a) and 6.3(b);
(c) the Purchaser's Counsel Opinion;
(d) the Note and the Purchase Price; and
(e) all other documents required to be entered into and delivered by
Purchaser at or prior to the Closing pursuant to this Agreement or reasonably
requested by Seller in accordance with the terms hereof or to otherwise
consummate the transactions contemplated by this Agreement in accordance with
the terms hereof.
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7. TERMINATION
0. Termination. This Agreement may be terminated at any time at or prior to
the Closing (the "Termination Date"):
( ) in writing by mutual consent of the Parties;
(a) by written notice from Seller to Purchaser, if Purchaser (i) fails to
perform in any material respect any of its agreements contained in this
Agreement required to be performed by it on or prior to the Closing Date or
(ii) materially breaches any of its representations and warranties contained
in this Agreement, which failure or breach is not cured within ten days after
Seller has notified Purchaser of its intent to terminate this Agreement
pursuant to this subparagraph (b);
(b) by written notice from Purchaser to Seller, if Seller (i) fails to
perform in any material respect any of its agreements contained in this
Agreement required to be performed by it on or prior to the Closing Date or
(ii) materially breaches any of its representations and warranties contained
in this Agreement, which failure or breach is not cured within ten days after
Purchaser has notified Seller of its intent to terminate this Agreement
pursuant to this subparagraph (c); or
(c) by written notice by either Seller to Purchaser or Purchaser to
Seller, as the case may be, if the Closing has not occurred prior to or on
November 14, 1997, for any reason other than delay or nonperformance of the
party seeking such termination (provided that if notice of postponement is
received on November 14th, the Closing may take place as late as November
25th as though it were November 14th for purposes of this provision).
1. Specific Performance and Other Remedies. The Parties each acknowledge
that the rights of each Party to consummate the transactions contemplated by
this Agreement are special, unique and of extraordinary character, and that,
in the event that any Party violates or fails or refuses to perform any
covenant or agreement made by it in this Agreement, the non-breaching Party
may be without an adequate remedy at law. The Parties each agree, therefore,
that in the event that either Party violates or fails or refuses to perform
any covenant or agreement made by such Party in this Agreement, the
non-breaching Party or Parties may, subject to the terms of this Agreement
and in addition to any remedies at law for damages or other relief, institute
and prosecute an action in any court of competent jurisdiction to enforce
specific performance of such covenant or agreement or seek any other
equitable relief.
2. Effect of Termination. In the event of termination of this Agreement
pursuant to this Article 8, this Agreement will forthwith become void and
there will be no liability on the part of any Party or its respective
officers, directors or stockholders, except for obligations under Section 5.5
and this Section, all of which will survive the Termination Date.
Notwithstanding the
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foregoing, nothing contained in this Agreement will relieve any Party from
liability for any breach of this Agreement.
8. INDEMNIFICATION
0. Indemnification Obligations of Seller. Seller will indemnify, defend and
hold harmless Purchaser and its Affiliates, each of their respective
officers, directors, employees, agents and representatives and each of the
heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Purchaser Indemnified Parties") from, against and in
respect of any and all claims, liabilities, obligations, losses, costs,
expenses, penalties, fines and judgments (at equity or at law) and damages
whenever arising or incurred (including, without limitation, amounts paid in
settlement, costs of investigation and reasonable attorneys' fees and
expenses) arising out of or relating to:
( ) any liability or obligation of Seller, including, without
limitation, the Excluded Liabilities, of any nature whatsoever, except the
Assumed Liabilities;
(a) any liability or obligation of Seller of any nature whatsoever
arising from events or circumstances occurring or existing on or prior to the
Effective Date, except for the Assumed Liabilities;
(b) any breach or inaccuracy of any representation or warranty made by
Seller in this Agreement or in any Seller Ancillary Document;
(c) any breach of any covenant, agreement or undertaking made by Seller
in this Agreement or in any Seller Ancillary Document;
(d) any fraud or willful misconduct of Seller in connection with this
Agreement or the Seller Ancillary Documents;
(e) any liability arising following the Closing Date as a result of
either a "plant closing" or a "mass layoff" (within the meaning of the WARN
Act), occurring on or before the Closing Date; and
(f) the environmental condition of, or soil or groundwater contamination
at, the Premises, including any claims of contribution under CERCLA,
resulting from conduct by Seller or originating in connection with the
Seller's operations on the Premises prior to the Effective Date or the
violation of any Environmental Law resulting from conduct by Seller in
connection with the Seller's operations on the Premises prior to the
Effective Date.
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The claims, liabilities, obligations, losses, costs, expenses, penalties,
fines and damages of the Purchaser Indemnified Parties described in this
Section 9.1 as to which the Purchaser Indemnified Parties are entitled to
indemnification are hereinafter collectively referred to as "Purchaser
Losses."
If Purchaser incurs a Purchaser Loss with respect to a purchase order
issued by Seller with respect to the Business that is not an Assumed
Liability or that is required to be listed on Schedule 1.2(c) of this
Agreement, but is not so listed, Purchaser shall, promptly following the
Seller's indemnification of Purchaser for such Purchaser Loss, deliver to
Seller or its designee any products or other materials subject to such
purchase order.
1. Indemnification Obligations of Purchaser. Purchaser will indemnify and
hold harmless Seller and their Affiliates, each of their respective officers,
directors, employees, agents and representatives and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"Seller Indemnified Parties") from, against and in respect of any and all
claims, liabilities, obligations, losses, costs, expenses, penalties, fines
and judgments (at equity or at law) and damages whenever arising or incurred
(including, without limitation, amounts paid in settlement, costs of
investigation and reasonable attorneys' fees and expenses) arising out of or
relating to:
( ) Purchaser's failure to perform, discharge or satisfy the Assumed
Liabilities;
(a) any liability or obligation of any nature whatsoever arising from
events or circumstances occurring or existing subsequent to the Effective
Date and related to Purchaser's operation of the Business;
(b) any breach or inaccuracy of any representation or warranty made by
Purchaser in this Agreement or in any Purchaser Ancillary Documents;
(c) any breach of any covenant, agreement or undertaking made by
Purchaser in this Agreement or in any Purchaser Ancillary Document; and
(d) any fraud or willful misconduct of Purchaser in connection with this
Agreement or the Purchaser Ancillary Documents.
The claims, liabilities, obligations, losses, costs, expenses, penalties,
fines and damages of the Seller Indemnified Parties described in this Section
9.2 as to which the Seller Indemnified Parties are entitled to
indemnification are hereinafter collectively referred to as "Seller Losses."
2. Indemnification Procedure.
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( ) Promptly after receipt by a Purchaser Indemnified Party or a Seller
Indemnified Party (hereinafter collectively referred to as an "Indemnified
Party") of notice by a third party (including any governmental agency) of any
complaint or the commencement of any audit, investigation, action or
proceeding with respect to which such Indemnified Party may be entitled to
receive payment from the other party for any Purchaser Losses or Seller
Losses (as the case may be), such Indemnified Party will notify Purchaser or
Seller, whoever is the appropriate indemnifying party hereunder (the
"Indemnifying Party"), within 10 days of such complaint or of the
commencement of such audit, investigation, action or proceeding; provided,
however, that the failure to so notify the Indemnifying Party will not
relieve the Indemnifying Party from liability for such claim arising
otherwise than under this Agreement and such failure to so notify the
Indemnifying Party will relieve the Indemnifying Party from liability under
this Agreement with respect to such claim only if, and only to the extent
that, such failure to notify the Indemnifying Party results in the forfeiture
by the Indemnifying Party of rights and defenses otherwise available to the
Indemnifying Party with respect to such claim. The Indemnifying Party will
have the right, upon written notice delivered to the Indemnified Party within
20 days thereafter, to assume the defense of such audit, investigation,
action or proceeding, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of the fees and
disbursements of such counsel. In the event, however, that the Indemnifying
Party declines or fails to assume the defense of the audit, investigation,
action or proceeding or to employ counsel reasonably satisfactory to the
Indemnified Party, in either case within such 20-day period, then such
Indemnified Party may employ counsel to represent or defend it in any such
audit, investigation, action or proceeding and the Indemnifying Party will
pay the reasonable fees and disbursements of such counsel as incurred;
provided, however, that the Indemnifying Party will not be required to pay
the fees and disbursements of more than one counsel for all Indemnified
Parties in any jurisdiction in any single audit, investigation, action or
proceeding. In any audit, investigation, action or proceeding with respect to
which indemnification is being sought hereunder, the Indemnified Party or the
Indemnifying Party, whichever is not assuming the defense of such action,
will have the right to participate in such matter and to retain its own
counsel at such party's own expense. The Indemnifying Party or the
Indemnified Party, as the case may be, will at all times use reasonable
efforts to keep the Indemnifying Party or the Indemnified Party, as the case
may be, reasonably apprised of the status of the defense of any matter the
defense of which they are maintaining and to cooperate in good faith with the
other party with respect to the defense of any such matter.
(a) No Indemnified Party may settle or compromise any claim or consent to
the entry of any judgment with respect to which indemnification is being
sought hereunder without the prior written consent of the Indemnifying Party,
unless (i) the Indemnifying Party fails to assume and maintain the defense of
such claim pursuant to Section 9.3(a) or (ii) such settlement, compromise or
consent includes an unconditional release of the Indemnifying Party from all
liability arising out of such claim. An Indemnifying Party may not, without
the prior written consent of the Indemnified Party, settle or compromise any
claim or consent to the entry of any judgment with respect to which
indemnification is being sought hereunder unless such
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settlement, compromise or consent includes an unconditional release of the
Indemnified Party from all liability arising out of such claim and does not
contain any equitable order, judgment or term which in any manner materially
affects, restrains or interferes with the business of the Indemnified Party
or any of the Indemnified Party's affiliates.
(b) In the event an Indemnified Party will claim a right to payment
pursuant to this Agreement, such Indemnified Party will send written notice
of such claim to the appropriate Indemnifying Party. Such notice will specify
the basis for such claim. As promptly as possible after the Indemnified Party
has given such notice, such Indemnified Party and the appropriate
Indemnifying Party will establish the merits and amount of such claim and,
within five business days of the final determination of the merits and amount
of such claim, the Indemnifying Party will pay to the Indemnified Party
immediately available funds in an amount equal to the amount of such claim as
determined in accordance with this subsection (c). The merits and amount of
any such claim may be determined by (i) mutual agreement, (ii) binding
arbitration or (iii) litigation that results in the entry of a final and
non-appealable order by a court of competent jurisdiction.
3. Claims Period. For purposes of this Agreement, a "Claims Period" shall be
the period after the earlier of the Closing Date or the date of any termination
of this Agreement pursuant to Article 8 during which a claim for indemnification
may be asserted under this Agreement by an Indemnified Party. The Claims Periods
under this Agreement shall terminate as follows:
( ) with respect to Purchaser Losses arising under Section 9.1(c) the
Claims Period with respect to any breach or inaccuracy of any representation
or warranty in Section 3.2, the first sentence of Section 3.4(b) and Section
3.18 (collectively, the "Seller Surviving Representations") or under Sections
9.1(a), 9.1(b), 9.1(d), and 9.1(e) (collectively, the "Seller Surviving
Obligations"), the Claims Period shall continue indefinitely, except as
limited by law (including by applicable statutes of limitation) and except
that the claim period for breach of the representation in the first sentence
of Section 3.4(b) shall be limited in all instances to five (5) years; and
(a) with respect to Seller Losses arising under Sections 9.2(a), (b), (d) or
(e), the Claims Period shall continue indefinitely, except as limited by law
(including any applicable statutes of limitation); and
(c) with respect to all other Purchaser Losses or Seller Losses arising
under this Agreement, the Claims Period shall terminate on the date that is
one year after the Closing Date.
Notwithstanding the foregoing, if prior to the close of business on the last
day of the applicable Claims Period, an Indemnifying Party shall have been
properly notified of a claim for indemnity hereunder and such claim shall not
have been finally resolved or disposed of at such date, such
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claim shall continue to survive and shall remain a basis for indemnity
hereunder until such claim is finally resolved or disposed of in accordance
with the terms hereof.
4. Investigations. The respective representations and warranties of
Purchaser and Seller contained in this Agreement or in any certificate or
other document delivered by any Party prior to the Closing and the rights to
indemnification set forth in Section 9 will not be deemed waived or otherwise
affected by any investigation made by a Party to this Agreement.
5. GENERAL. EACH OF THE AGREEMENTS TO INDEMNIFY, DEFEND OR HOLD HARMLESS
CONTAINED IN THIS AGREEMENT SHALL APPLY, IN ACCORDANCE WITH ITS TERMS,
IRRESPECTIVE OF WHETHER THE SUBJECT CLAIM IS BASED ON WHOLE OR IN PART UPON THE
SOLE OR CONTRIBUTORY NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR GROSS), BREACH OF
WARRANTY, STRICT LIABILITY, OR BREACH OR VIOLATION OF ANY DUTY IMPOSED BY ANY
LAW OR REGULATION, ON THE PART OF THE BENEFICIARY OF THE AGREEMENT, EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.
9. NONCOMPETITION
0. Definitions. For the purposes of this Article 10, the following
definitions will apply:
( ) "Activities" will mean the manufacture of forged
stainless steel flanges and forged stainless steel fittings by Seller or its
Affiliates.
(a) "Confidential Information" will mean any data or information of
Seller, other than Trade Secrets, which is valuable to the operation of the
Business and not generally known to competitors.
(b) "Noncompete Period" will mean, with respect to Seller, the period
beginning on the Closing Date and continuing for a period of three years from
the Closing Date.
(c) The term "Territory" as used in this Agreement will mean the United
States of America, the Commonwealth of Canada, the Republic of Mexico and all
other territories currently served by Seller.
(d) "Trade Secrets" will mean information, including, but not limited to,
technical or nontechnical data, a formula, pattern, compilation, program,
including, without limitation, computer software and related source codes,
device, method, technique, drawing, process, financial data, financial plan,
product plan, list of actual or potential customers or suppliers, or other
information similar to any of the foregoing, which derives economic value,
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actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can derive economic value
from its disclosure or use.
1. Trade Secrets. Seller will, and will cause each of its Affiliates to,
hold in confidence at all times after the Effective Date all Trade Secrets of
the Company, and will not, and will not permit any of its Affiliates to,
disclose, publish or make use of Trade Secrets at any time after the
Effective Date without the prior written consent of Purchaser. Nothing in
this Agreement will diminish the rights of Purchaser regarding the protection
of Trade Secrets and other intellectual property pursuant to applicable law.
2. Confidential Information. Seller hereby agree that, for a period of two
years following the Closing Date, Seller will, and will cause its Affiliates
to, hold in confidence all Confidential Information and will not, and will
not permits any of its Affiliates to, disclose, publish or make use of
Confidential Information without the prior written consent of Purchaser.
3. Noncompetition. To induce Purchaser to purchase the Assets and goodwill
of the Business pursuant to this Agreement, Seller acknowledges that the
protection and maintenance of the related Business constitutes a legitimate
interest to be protected by the Purchaser by this covenant not to compete.
Accordingly,
( ) Seller hereby acknowledges that it conducts Activities throughout
the Territory. Seller acknowledges that to protect adequately the interest of
Purchaser in the Business, it is essential that any noncompete covenant with
respect thereto cover all Activities and the entire Territory.
(a) Seller hereby agrees that it will not, and that it will not permit
any of its Affiliates to, during the Noncompete Period, in any manner,
directly or indirectly or by assisting others, engage in, have an equity or
profit interest in, or render services (of an executive, marketing,
manufacturing, research and development, administrative, financial or
consulting nature) to any business that conducts any of the Activities in the
Territory.
4. Nonsolicitation. Seller hereby agrees that, without prior written consent
of Purchaser, it will not and that it will not permit any of its Affiliates
to, prior to the second anniversary of the Closing Date, in any manner,
directly or indirectly or by assisting others, recruit or hire away or
attempt to recruit or hire away, on their behalf or on behalf of any other
person, firm or corporation, any employee of Seller who is hired by Purchaser
pursuant to Section 5.7.
5. Severability. The covenant contained in this Article 10 on the part of
the Seller will be construed as ancillary to and independent of any other
provision of this Agreement. Seller agrees that the limitations contained in
this Article 10 with respect to geographic area, duration and
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scope of activity are reasonable and do not impose a greater restraint on the
Seller than is necessary to protect the goodwill and other business interests
of the Purchaser. If a judicial or arbitral determination is made that any of
the provisions of this Article 10 constitutes an unreasonable or otherwise
unenforceable restriction against Seller or any Affiliate of Seller, this
Article 10 will be rendered void only to the extent that such judicial or
arbitral determination finds such provisions to be unreasonable or otherwise
unenforceable with respect to Seller or such Affiliate. In this regard,
Seller and Purchaser hereby agree that any judicial authority construing this
Agreement will be empowered to reform any portion of the Territory, any
prohibited business activity or any time period from the coverage of this
Article 10 and to enforce the provisions of this Article 10 to the reformed
portion of the Territory, the reformed business activities and the reformed
time period. Moreover, notwithstanding the fact that any provision of this
Article 10 is determined not to be specifically enforceable, Purchaser will
nevertheless be entitled to recover monetary damages as a result of the
breach of such provision by Seller. The time period during which the
prohibitions set forth in this Article 10 will apply will be tolled and
suspended for a period equal to the aggregate time during which Seller
violates such prohibitions in any respect.
6. Injunctive Relief. Seller hereby agrees that any remedy at law for any
breach of the provisions contained this Article 10 will be inadequate and
that Purchaser will be entitled to injunctive relief in addition to any other
remedy Purchaser might have under this Agreement.
10. MISCELLANEOUS PROVISIONS
0. Notices. All notices, communications and deliveries under this
Agreement will be made in writing signed by or on behalf of the Party making
the same, will specify the Section under this Agreement pursuant to which it
is given or being made, and will be delivered personally or by telecopy
transmission or sent by registered or certified mail (return receipt
requested) or by any national overnight courier service (with evidence of
delivery and postage and other fees prepaid) as follows:
To Purchaser: Texas Metal Works, Inc.
937 Pine Street
P.O. Box 3067
Beaumont, Texas 77704
Attn: G. Perry Culp, President
Telecopy No.: (409) 833-9101
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with a copy to: King & Spalding
1100 Louisiana, Suite 3300
Houston, Texas 77002-5219
Attn: Chris LaFollette
Telecopy No.: (713) 751-3290
To Seller: Consolidated Stainless, Inc.
1601 East Amelia Street
Orlando, Florida 32803
Attn: Burton R. Chasnov
Telecopy No.: (407) 895-8811
with a copy to: Greenberg Traurig Hoffman Lipoff Rosen & Quentel
153 E. 53rd Street
New York, NY 10022
Attn: Peter W. Rothberg
Telecopy No.: (212) 223-7161
or to such other representative or at such other address of a Party as such
Party may furnish to the other Parties in writing. Any such notice,
communication or delivery will be deemed given or made (a) on the date of
delivery if delivered in person, (b) on the first business day after
delivery to a national overnight courier service, (c) upon transmission by
facsimile if receipt is confirmed by telephone or (d) on the fifth day after
it is mailed by registered or certified mail.
1. Schedules and Exhibits. The Schedules and Exhibits to this Agreement are
hereby incorporated into this Agreement and are hereby made a part of this
Agreement as if set out in full in this Agreement.
2. Assignment; Successors in Interest. No assignment or transfer by
Purchaser or Seller, of its rights and obligations under this Agreement will
be made except with the prior written consent of the other Parties to this
Agreement; provided that Purchaser will be entitled to assign all or any part
of its rights and obligations under this Agreement to one or more direct or
indirect wholly owned subsidiaries of Purchaser so long as Purchaser remains
directly liable for the performance of its obligations under this Agreement.
This Agreement will be binding upon and will inure to the benefit of the
Parties and their successors and permitted assigns, and any reference to a
Party will also be a reference to a successor or permitted assign.
3. Number; Gender. Whenever the context so requires, the singular number
will include the plural and the plural will include the singular, and the
gender of any pronoun will include the other genders.
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4. Captions. The titles, captions and table of contents contained in this
Agreement are inserted in this Agreement only as a matter of convenience and
for reference and in no way define, limit, extend or describe the scope of
this Agreement or the intent of any provision of this Agreement. Unless
otherwise specified to the contrary, all references to Articles and Sections
are references to Articles and Sections of this Agreement and all references
to Schedules or Exhibits are references to Schedules and Exhibits,
respectively, to this Agreement.
5. Controlling Law; Amendment. This Agreement will be governed by and
construed and enforced in accordance with the internal laws of the State of
Texas without reference to Texas choice of law rules. This Agreement may not
be amended, modified or supplemented except by written agreement of all of
the Parties.
6. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction will not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by law, the Parties waive any provision of law which renders any
such provision prohibited or unenforceable in any respect.
7. Counterparts. This Agreement may be executed in two or more counterparts,
each of which will be deemed an original, and it will not be necessary in
making proof of this Agreement or the terms of this Agreement to produce or
account for more than one of such counterparts.
8. Enforcement of Certain Rights. Nothing expressed or implied in this
Agreement is intended, or will be construed, to confer upon or give any
person, firm or corporation other than the Parties, and their successors or
permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, or result in such person, firm or corporation
being deemed a third party beneficiary of this Agreement.
9. Waiver. Any agreement on the part of a Party to any extension or waiver
of any provision of this Agreement will be valid only if set forth in an
instrument in writing signed on behalf of such Party. A waiver by a Party of
the performance of any covenant, agreement, obligation, condition,
representation or warranty will not be construed as a waiver of any other
covenant, agreement, obligation, condition, representation or warranty. A
waiver by any Party of the performance of any act will not constitute a
waiver of the performance of any other act or an identical act required to be
performed at a later time.
10. Integration. This Agreement and the documents executed pursuant to this
Agreement supersede all negotiations, agreements and understandings among the
Parties with
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respect to the subject matter of this Agreement (including, without
limitation, that certain letter agreement, dated September 11, 1997, between
the Parties) and constitutes the entire agreement among the Parties.
11. Cooperation Following the Closing; Seller Funds Received by Purchaser.
Following the Closing, each of the Parties shall deliver to the other such
further information and documents, shall execute and deliver to the other
such further instruments and agreements as the other Party shall reasonably
request and shall otherwise cooperate with one another in order to consummate
or confirm the transactions provided for in this Agreement, to assist Seller
in collecting accounts receivables, in complying with the covenant set forth
in Section 5.13, filing tax returns and other regulatory returns and reports,
in obtaining audits of financial information related to the Business and
winding up its relationship with the Company, to accomplish the purpose of
this Agreement or to assure to the other Party the benefits of this
Agreement. Such assistance shall be provided to Seller at no cost to Seller;
provided, however, that Seller shall reimburse Purchaser for its reasonable
out-of-pocket expenses incurred in connection with providing such assistance.
Any payment received by the Purchaser after the Closing Date in respect of
the Business or the Assets to which the Seller is entitled shall be remitted
to Seller within five business days of receipt by Purchaser; any payment
received by Seller after the Closing Date in respect to the Business or the
Asset to which the Purchaser is entitled shall be remitted to the Purchaser
within five business days of receipt by Seller.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed, as of the date first above written.
TEXAS METAL WORKS, INC.
By:-----------------------------------
G. Perry Culp, President
CONSOLIDATED STAINLESS, INC.
By:-----------------------------------
Burton R. Chasnov
Executive Vice President
and Chief Financial Officer
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EXHIBIT 10.5
[LETTERHEAD OF CSI CONSOLIDATED STAINLESS INCORPORATED]
November 14, 1997
Sun Trust Equity Partners
303 Peachtree Street, N.E.
Suite 2400
Atlanta, Georgia 30308
Attn: Robert L. Dudiak, Managing Director
Re: WAIVER AND MODIFICATION AGREEMENT NO.4 TO CONVERTIBLE
SUBORDINATED NOTE PURCHASE AGREEMENT
Dear Mr. Dudiak:
Based upon our previous discussions regarding the covenants associated with the
$2,500,000 Subordinated Debentures, we request the following amendments for the
measurement period ended September 30, 1997:
Requested
PER AGREEMENT AMENDMENT
a) Total Liabilities to Tangible
Net Worth 7.00:1 17.25:1
b) Funded Debt to EBITDA 11.00:1 Not measured
c) Senior Funded Debt to
EBITDA 10.00:1 Not measured
d) Net Worth Minimum $9,000,000 Minimum $5,100,000
This request to amend the covenants pertain ONLY to the measurement period ended
September 30, 1997. All other covenants per the agreement, as amended, will
remain in full force and effect.
Approved: SunTrust Banks, Inc.
Very truly yours,
By: /s/ R. Charles Shufeldt
---------------------------
R. Charles Shufeldt
/s/ Burton R. Chasnov Senior Vice President
- ---------------------
Burton R. Chasnov,
Chief Financial Officer Date: NOVEMBER 14, 1997
<PAGE>
Exhibit 10.6
November 14, 1997
Consolidated Stainless, Inc.
1601 East Amelia Street
Orlando, FL 32803
Re: Loan and Security Agreement ("Loan Agreement"), between Mellon Bank,
N.A. ("Bank") and Consolidated Stainless, Inc. ("Borrower"), dated
March 10, 1997
Gentlemen:
This letter shall confirm the agreement by the Bank to waive only those
Events of Default under the Loan Agreement resulting from the following:
1. Failure by Borrower to comply with the financial covenants set forth
in (a) Section 8.1(b) as of September 30, 1997; (b) Section 8.1(d) as of July
31, 1997, August 31, 1997 and September 30, 1997; (c) Section 8.1(e) as of the
quarter ending September 30, 1997; (d) Section 8.1(f) as of the month ending
September 30, 1997; and (e) Section 8.1(g) as of the quarter ending September
30, 1997.
2. Failure by Borrower to reduce the Permitted Out-of -Formula Advance as
required on September 10, 1997; and
3. Defaults under the Subordinated Indebtedness; provided that Borrower
delivers evidence satisfactory to Bank that the holders of the Subordinated
Indebtedness have waived the defaults existing thereunder.
In consideration for Bank's agreement herein, Borrower and Harvey B. Adams
agree that, without the prior written consent of the Bank, no payments of any
nature shall be made on account of the Subordinated Loan (as defined in that
certain letter agreement between Bank, Borrower and Harvey B. Adams dated
September 16, 1997).
The Bank's agreement herein is expressly conditioned upon the execution and
delivery by SunTrust Bank, Central Florida, N.A. of an amendment agreement or
waiver letter with Borrower with respect to defaults by Borrower under that
certain Loan Agreement between Borrower and SunTrust Bank, Central Florida,
N.A., dated January 22, 1996, as amended from time to time. Such amendment
agreement or waiver letter must be in form and content satisfactory to Bank in
its sole discretion.
Except as expressly set forth above, nothing contained herein shall be
deemed a waiver of any other Events of Default, nor shall anything contained
herein be deemed an obligation, agreement or commitment on the part of Bank to
waive any future Events of Default.
<PAGE>
Consolidated Stainless, Inc.
November 14, 1997
Page 2
Except as expressly set forth herein, all of the terms and conditions of
the Loan Agreement and each of the other Loan Documents and all of Bank's rights
and remedies thereunder remain in full force and effect and are hereby ratified,
confirmed and continued.
All capitalized terms used herein and not otherwise defined shall have the
meanings provided therefore in the Loan Agreement.
Very truly yours,
MELLON BANK, N.A.
By: _________________________________
Name/Title: ____________________________
The undersigned, intending to be legally bound hereby, acknowledge and
agree to the foregoing.
CONSOLIDATED STAINLESS, INC.
By: _________________________________
Name/Title: _____________________________
Dated: _________________________________
______________________________________
Harvey B. Adams
Dated: ________________________________
_______________________________________
Ronald J. Adams
Dated: _________________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 1 THROUGH 3 OF THE COMPANY'S
FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 489,278
<SECURITIES> 0
<RECEIVABLES> 7,977,558
<ALLOWANCES> 349,978
<INVENTORY> 22,654,306
<CURRENT-ASSETS> 31,542,146
<PP&E> 22,138,089
<DEPRECIATION> 5,469,635
<TOTAL-ASSETS> 51,377,195
<CURRENT-LIABILITIES> 13,211,169
<BONDS> 32,924,966
0
0
<COMMON> 46,103
<OTHER-SE> 4,796,915
<TOTAL-LIABILITY-AND-EQUITY> 51,377,195
<SALES> 41,663,644
<TOTAL-REVENUES> 41,663,644
<CGS> 37,192,488
<TOTAL-COSTS> 37,192,488
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 229,186
<INTEREST-EXPENSE> 2,683,844
<INCOME-PRETAX> (4,678,217)
<INCOME-TAX> 22,139
<INCOME-CONTINUING> (4,700,356)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,700,356)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
