EXHIBIT 99.1
April 2, 2001
Xxxxxx Xxxx
Chairman, President and Chief Executive Officer
Industrial Holdings, Inc.
0000 Xxxxxxx
Xxxxxxx, XX 00000
RE: LETTER OF INTENT
Dear Xxxxxx:
The purpose of this letter of intent (this "Letter") is to set forth
certain nonbinding understandings and certain binding agreements between
Industrial Holdings, Inc., a Texas corporation ("IHI"), T-3 Energy Services,
Inc., a Delaware corporation ("T-3") and First Reserve Fund VIII, L.P., a
Delaware limited partnership ("Fund VIII"), with respect to the transactions
described on the term sheet attached hereto as Exhibit A (the "Transactions").
Capitalized terms used herein without definition shall have the meanings
ascribed to them in Exhibit A.
1. NON-BINDING AGREEMENTS
The parties hereto will negotiate in good faith to execute definitive
agreements (the "Definitive Agreements") described in, and consummate the
Transactions contemplated by, the terms set forth on Exhibit A.
2. BINDING AGREEMENTS AND UNDERSTANDINGS
Upon execution of counterparts of this Letter by you, the following
lettered paragraphs will constitute the only legally binding and enforceable
agreements between IHI, T-3 and Fund VIII (in recognition of the significant
costs borne by T-3 and Fund VIII in pursuing this transaction and further in
consideration of their mutual undertakings as to the matters described herein).
(a) ACCESS. Subject to the terms set forth in paragraph (f) below
respecting confidentiality and certain other matters, IHI and
T-3 will afford each other's employees, auditors, legal
counsel, and other authorized representatives all reasonable
opportunity and access to perform all necessary due diligence
with respect to the respective companies before closing of the
Merger Agreement, including access to books and records,
plant, property and equipment, and management and employees.
IHI and T-3 will conduct such due diligence in a reasonable
manner during regular business hours or at a time mutually
agreeable to both parties.
(b) CONSENTS. The parties will cooperate with one another and
proceed, as promptly as is reasonably practicable, to seek to
obtain all necessary consents and approvals from lenders and
landlords and to endeavor to comply with all other legal or
contractual requirements for or preconditions to the execution
and consummation of the Definitive Agreements.
(c) BEST EFFORTS; AGREEMENT DEADLINES. IHI, T-3 and Fund VIII will
negotiate in good faith and use their commercially reasonable
best efforts to arrive at a mutually acceptable definitive A&B
Bolt Purchase Agreement for approval, execution, and closing
as soon as practicable and in no event later than 10 calendar
days of the signing of this Letter. IHI, T-3 and Fund VIII
will negotiate in good faith and use their commercially
reasonable best efforts to arrive at a mutually acceptable
definitive Merger Agreement and Equity Commitment for
approval, execution, and delivery as soon as practicable and
in no event later than 30 calendar days of the signing of this
Letter. THIS LETTER SHALL TERMINATE AT THE ELECTION OF T-3 OR
FUND VIII IF ANY OF THE DEFINITIVE AGREEMENTS ARE NOT EXECUTED
WITHIN THE TIME PERIODS PROVIDED ABOVE, UNLESS OTHERWISE
AGREED UPON BY ALL PARTIES (THE DATE OF SUCH TERMINATION BEING
REFERRED TO HEREIN AS THE "LETTER TERMINATION DATE").
(d) COSTS. Subject to paragraph (h), IHI, T-3 and Fund VIII will
each be solely responsible for and bear all of their own
respective expenses, including, without limitation, expenses
of legal counsel, accountants, brokers, and other advisors,
incurred at any time in connection with pursuing or
consummating the Transactions.
(e) PUBLIC DISCLOSURE. Before the closing of the Merger Agreement,
none of IHI, T-3 or Fund VIII will make public any release of
information regarding the matters contemplated herein except
(i) that a joint public release in agreed form may be issued
by IHI, T-3 and Fund VIII as promptly as practicable after the
execution of this letter, (ii) that IHI, T-3 and Fund VIII may
each continue such communications with employees, customers,
suppliers, franchisees, lenders, lessors, shareholders, and
other particular groups as may be legally required or
necessary or appropriate and not inconsistent with the best
interests of the other party or the prompt consummation of the
transactions contemplated by this letter, and (iii) as
required by law, in which case the party making such release
shall afford the other parties a reasonable opportunity to
review and comment on such release. The provision of this
section (e) shall be in addition to and not in substitution of
any applicable provisions of the confidentiality agreement
between T-3 and IHI dated January 11, 2001 (the
"Confidentiality Agreement").
(f) CONFIDENTIALITY. Each party agrees to treat all information
concerning the other party furnished, or to be furnished, by
or on behalf of such other party in accordance with the
provisions of the Confidentiality Agreement.
(g) GOVERNING LAW AND ARBITRATION. THIS LETTER SHALL BE GOVERNED
BY AND INTERPRETED UNDER THE LAWS OF THE STATE OF DELAWARE.
The parties hereto agree to subject any dispute arising
hereunder
to binding, non-appealable, confidential arbitration
administered by the American Arbitration Association ("AAA"),
under its Commercial Arbitration Rules. The Arbitrators shall
conduct the arbitration in Houston, Texas in a manner in
accordance with the Federal Arbitration Act, 9 X.X.X.xx. 1 et
seq. and the rules of the AAA. The parties agree that the
arbitrator is not empowered to award punitive damages and each
party expressly waives rights to such damages. Judgment upon
the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
(h) TERMINATION FEE. In the event IHI terminates negotiations
under this letter, or terminates this letter, in each case
after receipt of an Alternative Proposal (as defined below),
and prior to, concurrently with or within twelve months after
such a termination a Third Party Acquisition Event (as defined
below) occurs, then IHI shall, without prejudice to any other
rights of T-3 and Fund VIII against IHI pay to Fund VIII the
Termination Fee (as defined below) in cash, such payment to be
made promptly, but in no event later than the second business
day following, the later to occur of such termination and such
Third Party Acquisition Event. IHI shall notify T-3 and Fund
VIII orally and in writing within 24 hours of (i) any
Alternative Proposal or any inquiry with respect to or which
could lead to any expression of interest regarding a potential
Alternative Proposal that is received by or communicated to
any officer or director of IHI or any financial advisor,
attorney or other advisor or representative of IHI, (ii) the
material terms of such Alternative Proposal (including a copy
of any written proposal), and (iii) the identity of the person
making any such Alternative Proposal. If IHI intends to
participate in discussions or negotiations with and/or furnish
any person with any information with respect to any inquiry or
Alternative Proposal, IHI shall advise T-3 and Fund VIII
orally and in writing of such intention not less than 48 hours
in advance of providing such information. IHI will keep T-3
and Fund VIII fully informed of the status and details of any
such Alternative Proposal or inquiry.
"ALTERNATIVE PROPOSAL" means any proposal for a
merger, tender offer or other business combination involving
IHI or any of its subsidiaries or any proposal or offer to
acquire in any manner, directly or indirectly, an equity
interest in, any voting securities of, or a substantial
portion of the assets of IHI or any of its subsidiaries, other
than the transactions contemplated by this Letter
"TERMINATION FEE" means $850,000.
A "THIRD PARTY ACQUISITION EVENT" means any of the
following events: (A) any person (other than T-3 or its
affiliates) acquires or becomes the beneficial owner of 20% or
more of the outstanding shares of IHI common stock; (B) any
group (other than a group which includes or may reasonably be
deemed to include T-3 or any of its affiliates) is formed
which, at the time of formation, beneficially owns 20% or more
of the outstanding shares of IHI common stock; (C) IHI enters
into, or announces that it proposes to enter into, an
agreement, including, an agreement in principle, providing for
a merger or other business combination involving IHI or a
"significant subsidiary" (as defined in Rule 1.02(w) of
Regulation S-X as promulgated by the Securities Exchange
Commission) of IHI or the acquisition of a substantial
interest in, or a substantial
portion of the assets, business or operations of, IHI or a
significant subsidiary (other than the transactions
contemplated by this Letter); (D) any person (other than T-3
or its affiliates) is granted any option or right, conditional
or otherwise, to acquire or otherwise become the beneficial
owner of shares of IHI common stock which, together with all
shares of IHI common stock beneficially owned by such person,
results or would result in such person being the beneficial
owner of 20% or more of the outstanding shares of IHI common
stock; or (E) there is a public announcement with respect to a
plan or intention by IHI to effect any of the foregoing
transactions. For purposes of this paragraph (h), the terms
"group" and "beneficial owner" shall be defined by reference
to Section 13(d) of the Securities Exchange Act of 1934.
(i) Except with respect to the provisions of this paragraph and
paragraphs (d), (e), (f) (g) and (h), either party hereto may
terminate this letter and thereafter this letter shall have no
force and effect and the parties shall have no further
obligation hereunder.
We look forward to working with you on this transaction. If you would
like to proceed with this process and believe we have accurately described the
terms, please sign and date this Letter in the spaces provided below as
confirmation of our mutual understandings and agreements. Please return a signed
copy of this letter to us by fax at 000-000-0000. Also, if you have any
questions or comments, please do not hesitate to call us at 000-000-0000. If we
do not receive a signed copy of this Letter by 5:00 pm Houston, Time, April 2,
2001, this Letter shall be of no further force and effect.
Very truly yours,
T-3 Energy Services, Inc.
By:/s/ Xxxxxxx Xxxxxxxxxx
------------------------------------------
Xxxxxxx Xxxxxxxxxx
President and Chief Executive Officer
First Reserve Fund VIII, L.P.
By: First Reserve GP VIII, L.P.
By: First Reserve Corporation
By: /s/ Xxx Xxxxx
-------------------------------
Xxx Xxxxx
President
Acknowledged and agreed to this 2nd day of April, 2001:
Industrial Holdings, Inc.
By: /s/ Xxxxxx X. Xxxx
----------------------------
Name: Xxxxxx X. Xxxx
----------------------------
Title: CEO
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EXHIBIT A TO EXHIBIT 99.1
T-3/IHI
STRATEGIC TRANSACTION
TERM SHEET
OVERALL STRUCTURE T-3, IHI and related parties will enter into
a series of transactions, with the intent that the
stockholders of T-3 would acquire a controlling
amount of the outstanding equity of IHI in a merger
transaction (the "Acquisition").
Prior to the Acquisition, T-3 will purchase all the
equity of A&B Bolt for a purchase price of
$15,000,000 pursuant to the A&B Bolt Purchase
Agreement (defined below).
In connection with the execution of a definitive
merger agreement between T-3 and IHI, Fund VIII will
commit to invest up to $9,600,000 at the closing of
the Acquisition, subject to the terms set forth below
(the "Equity Commitment").
ACQUISITION T-3 and IHI will merge in a tax-free, stock-for-stock
transaction resulting in T-3 stockholders receiving
at least 60% of the fully diluted equity of the
resulting entity (which percentage excludes the
effect of any equity from the Equity Commitment, and
excludes the effect of the purchase of A&B Bolt)
pursuant to a mutually agreeable Agreement and Plan
of Merger (the "Merger Agreement"). The relative
valuations of T-3 and IHI would be set at signing of
the Merger Agreement, and the actual relative
percentage ownership at closing would be adjusted for
changes between signing and closing resulting from
(each an "Equity Adjustment"): (i) the amount of
additional equity invested in IHI (whether pursuant
to the Equity Commitment, or the conversion of St.
Xxxxx debt), (ii) acquisitions or divestitures by IHI
and (iii) acquisitions or divestitures by T-3;
provided, however, that the adjustments relating to
(ii) and (iii) shall made on mutually agreeable terms
determined by the parties at or prior to the closing
of such acquisitions or divestitures. All of the
outstanding equity/debt securities, options, warrants
and convertibles of T-3 will be converted into
similar securities or be assumed by IHI on the same
basis as the conversion of the common equity.
CLOSING CONDITIONS Mutual conditions to close:
o Receipt of regulatory approvals and third
party consents;
o T-3 and IHI shareholder approval;
o Absence of material adverse change in T-3 or
IHI between the execution of the Merger
Agreement and the Closing (including
material adverse changes in working capital
and aggregate net
asset value);
o Absence of any breach of any
representations, warranties or covenants of
T-3 or IHI; and
o Others, including customary conditions as
well as conditions to be determined based on
mutual diligence.
Conditions to T-3's obligations to close:
o Disposition of business units and/or
subsidiaries selected by T-3 on terms
acceptable to T-3 and IHI, with all proceeds
thereof used to pay down at least
$39,400,000 in bank indebtedness and relief
of appropriate accruals;
o Execution of satisfactory employment
agreements with Xxxxxxxxx Xxxxx, Xxxxxx
Xxxxxxx, Xxxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxx
Xxxxxx, Xx Xxxxxx, Xxxxx Xxx, Xxxx Xxxxx,
Xxx Xxxxxx, Xxx Xxxxxx and other individuals
identified through diligence.
REPS AND WARRANTIES o Standard for transactions of this type and
size.
o Mutual representations and warranties would
terminate at Closing.
INTERIM COVENANTS Customary terms, including no corporate transactions,
dividends, repurchases, significant acquisitions or
divestitures, sales of equity or derivative
securities, incurrence of indebtedness, transactions
with affiliates, extraordinary capital expenditures,
salary increases etc.
BOARD COMPOSITION At closing, combined entity would be governed by a
board of eight members, including the CEO of the
combined entity, two (2) members designated by IHI
shareholders, and five (5) members designated by T-3
(including two (2) outside directors).
CREDIT FACILITY T-3 would facilitate the refinancing of existing
indebtedness in conjunction with the closing of the
Acquisition in order to provide a new credit
facility, which would provide for the combined entity
to maintain a debt-to-EBITDA ratio not to exceed
2.5:1. As it relates to the Credit Facility, and the
calculation of the beginning total debt to EBITDA
ratio, EBITDA shall mean earnings before interest,
taxes, depreciation and amortization (excluding
unusual or "one-time" items) for the combined entity
(excluding results of business units and/or
subsidiaries that are divested in connection with the
closing of the Merger Agreement) for the trailing
twelve month period ending the month immediately
preceding closing.
TERMINATION FEE If either party desires to terminate the Merger
Agreement for any reason other than the failure of a
condition to such party's obligations to close, then
such party shall pay a termination fee of $850,000.
EQUITY COMMITMENT In connection with the execution of the Merger
Agreement, Fund VIII ("Equity Investor") would commit
to (and would have the right to) invest up to
$9,600,000 in the equity of the combined entity at a
price
per share of IHI equal to $1.75 per share (the
"Equity Price"). The Equity Price was determined
based on the average of the closing prices on the
Nasdaq National Market over the ten (10) trading days
preceding the announcement of the Acquisition (the
"Average Price"), where if the Average Price was less
than or equal to $1.50, then the Equity Price was to
be $1.50 per share, if the Average Price was greater
than or equal to $2.00, then the Equity Price was to
be $2.00 per share, and in all other cases, the
Equity Price was to be $1.75 per share. THE FUNDING
OF THE EQUITY COMMITMENT WOULD OCCUR, IF AT ALL, AT
THE CLOSING OF THE MERGER.
EFFECT OF MEZZANINE In the event IHI is able to obtain the consent of St.
CONVERSION Xxxxx necessary for all or a portion of mezzanine
debt held by St. Xxxxx to convert into equity at a
price equal to the Equity Price, the amount of the
Equity Commitment would be reduced by the principal
amount of the debt so converted.
EFFECT OF DIVESTITURES To the extent the sale of the selected business
units and/or subsidiaries (listed as a closing
condition to the Merger Agreement) and the
application of the proceeds thereof results in
reduction of bank indebtedness of IHI in excess of
$39,400,000, the amount of the Equity Commitment
would be reduced. To the extent such sale results in
reduction of bank indebtedness of less than
$39,400,000, Equity Commitment will increase at
Equity Investor's sole election immediately prior to
closing of the Merger Agreement.
EFFECT OF EQUITY If and to the extent the Equity Adjustments in the
ADJUSTMENTS Merger Agreement would result in the
shareholders of T-3 owning less than 55% of the fully
diluted ownership of the combined entity following
the Merger, the Equity Commitment will increase at
Equity Investor's sole election immediately prior to
closing of the Merger Agreement.
A&B PURCHASE AGREEMENT The A&B Bolt Purchase Agreement will provide that
T-3 purchase the stock of A&B Bolt for $15,000,000 in
cash. A&B Bolt would have no indebtedness at the time
of purchase, and would have a minimum of $7,500,000
in net working capital (defined as current assets
minus current liabilities (excluding short term
debt)). XXX and A&B Xxxx would receive all necessary
lender authorization for such sale (including the
release of all security interests in the stock and
assets of A&B Bolt, and a waiver of any provision of
a credit agreement that would restrict IHI from using
at least $6,000,000 of the proceeds from the sale for
general working capital purposes). At the time of the
close, A&B Bolt must be performing in line with 2001
projections. The A&B Bolt Purchase Agreement would
contain other standard terms.
