AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1997
REGISTRATION NO. 333-..........
================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INNOVATIVE VALVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 5085, 7699 76-0530346
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION NUMBER)
</TABLE>
14900 WOODHAM DRIVE, SUITE A-125
HOUSTON, TEXAS 77073
(281) 821-9407
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM E. HAYNES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INNOVATIVE VALVE TECHNOLOGIES, INC.
14900 WOODHAM DRIVE, SUITE A-125
HOUSTON, TEXAS 77073
(281) 821-9407
FAX: (281) 821-1123
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JAMES L. LEADER, ESQ. STEPHEN P. FARRELL, ESQ.
BAKER & BOTTS, L.L.P. MORGAN, LEWIS & BOCKIUS LLP
3000 ONE SHELL PLAZA 101 PARK AVENUE
HOUSTON, TEXAS 77002-4995 NEW YORK, NEW YORK 10178-0060
(713) 229-1234 (212) 309-6000
FAX: (713) 229-1522 FAX: (212) 309-6273
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(1) OFFERING PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share(3)........................... -- -- $59,386,400 $17,996
===========================================================================================================================
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Includes the associated rights to purchase preferred stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED JULY 18, 1997
PROSPECTUS
SHARES
[INVATEC LOGO]
Innovative Valve Technologies, Inc.
COMMON STOCK
------------------
Of the shares of common stock, $.001 par value per share ("Common
Stock"), offered hereby, shares are being sold by Innovative Valve
Technologies, Inc. ("Invatec") and shares are being sold by certain
stockholders (the "Selling Stockholders"). See "Principal and Selling
Stockholders." Invatec will not receive any proceeds from the sale of shares by
the Selling Stockholders. No public market for the Common Stock has existed
prior to this offering. It is estimated that the initial public offering price
will be in the range of $ to $ per share. See "Underwriting"
for a discussion of the factors Invatec and the Underwriters will consider in
determining the public offering price. Invatec has applied to have the Common
Stock listed on the New York Stock Exchange under the symbol "IVT."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
Per Share $ $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $ $
================================================================================
(1) For information regarding indemnification of the several Underwriters,
see "Underwriting."
(2) Before deducting expenses estimated at $ payable by Invatec.
(3) Invatec has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If this option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
SMITH BARNEY INC. MONTGOMERY SECURITIES
, 1997
<PAGE>
[graphics -- gatefold, showing map of the United States with Company
locations, valve diagrams, facilities and personnel of the Acquired Businesses]
INVATEC WAS FOUNDED TO CREATE NORTH AMERICA'S LEADING PROVIDER OF
COMPREHENSIVE MAINTENANCE, REPAIR, REPLACEMENT AND VALUE-ADDED DISTRIBUTION
SERVICES FOR INDUSTRIAL VALVES AND RELATED PROCESS-SYSTEM COMPONENTS IN
INDUSTRIAL PROCESS FACILITIES SUCH AS REFINERIES, CHEMICAL AND ELECTRIC POWER
PLANTS AND PULP AND PAPER MILLS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF SHARES OF THE COMMON
STOCK, INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE OFFERING MADE HEREBY (THIS "OFFERING") WILL CLOSE CONCURRENTLY WITH,
AND IS CONDITIONED ON, INVATEC ACQUIRING SOUTHERN VALVE SERVICE, INC. (TOGETHER
WITH A RELATED ENTITY, "SVS") AND INDUSTRIAL CONTROLS & EQUIPMENT, INC.
(TOGETHER WITH THREE RELATED ENTITIES, "ICE/VARCO") AND COMPLETING A MERGER IN
WHICH THE SAFE SEAL COMPANY, INC. ("SSI") WILL BECOME ITS SUBSIDIARY (THE
"SSI MERGER"). DURING 1997 INVATEC HAS PURCHASED STEAM SUPPLY & RUBBER CO.,
INC. (TOGETHER WITH THREE RELATED ENTITIES, "STEAM SUPPLY") (JULY) AND SSI HAS
PURCHASED HARLEY INDUSTRIES, INC. ("HARLEY") (JANUARY), GSV, INC. ("GSV")
(MARCH) AND PLANT SPECIALTIES INC. ("PLANT SPECIALTIES") (JUNE) (COLLECTIVELY
THESE SEVEN ACQUIRED BUSINESSES ARE SOMETIMES REFERRED TO AS THE "ACQUIRED
BUSINESSES"). SSI AND ITS SUBSIDIARIES ARE AFFILIATES OF INVATEC. UNLESS
OTHERWISE INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I) "INVATEC" MEAN
INNOVATIVE VALVE TECHNOLOGIES, INC., (II) THE "COMPANY" MEAN INVATEC AND THE
ACQUIRED BUSINESSES AND (III) A "FISCAL YEAR" MEAN A YEAR ENDED DECEMBER 31
FOR THE COMPANY AND TWO ACQUIRED BUSINESSES, A YEAR ENDED OCTOBER 31 FOR FOUR
ACQUIRED BUSINESSES AND A YEAR ENDED SEPTEMBER 30 FOR ONE ACQUIRED BUSINESS. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED BY THE CONTEXT, THE INFORMATION IN THIS
PROSPECTUS (I) GIVES EFFECT TO THE TRANSACTIONS REFERRED TO ABOVE (THE
"ACQUISITIONS") AND (II) ASSUMES THE UNDERWRITERS DO NOT EXERCISE THEIR
OVER-ALLOTMENT OPTION.
THE COMPANY
Invatec was formed in March 1997 to create the leading provider of
comprehensive maintenance, repair, replacement and value-added distribution
services for industrial valves and related process-system components
(collectively, "repair and distribution services") in North America.
Petrochemical and other chemical plants, petroleum refineries, pulp and paper
mills, electric and other utilities and other industrial process facilities use
industrial valves to direct and regulate the flow of feedstocks, intermediates,
products and fuels in their process systems. The Company intends to be a leader
in the consolidation of the highly fragmented North American repair and
distribution services industry through an aggressive acquisition program. To
achieve this goal, it intends to continue the acquisition program initiated by
SSI and implement a national operating strategy designed to increase internal
growth and profitability. When this Offering closes, Invatec will have combined
seven businesses whose revenues totaled approximately $76.2 million on a pro
forma combined basis during fiscal 1996.
The Company believes it is positioned to meet the growing demand for
outsourced management and maintenance programs for industrial valves and other
process-system components because the combination of its distribution and repair
services capabilities will allow it to become a single-source provider of these
services for many of its targeted customers. The Company also believes this
combination will (i) promote internal economies of scale, (ii) provide the
Company with valuable information that can be used to expand its future repair
services revenue base and (iii) better equip the Company to respond to problems
associated with the repair and upgrading of its customers' process-system valves
and other components.
Many of the Company's customers are large, Fortune 500 industrial
companies. The Company provides them with repair services both for valves and
other process-system components continuing to operate under pressure while the
repair is made (an "on-line" repair) and for valves and other process-system
components that have been temporarily removed from a process system (an
"off-line" repair). The Company believes its approach to making on-line seal
repairs of leaking rising stem valves ("RSVs") that were manufactured with
compressible packing material distinguishes it from other on-line repair
companies and is safer, more effective and more cost-efficient than conventional
on-line repair methods. An important part of the Company's business strategy
will be to roll out its new technology, the proprietary SafeSeal system, through
the operations of the other Acquired Businesses and other businesses acquired in
the future. The Company performs off-line repairs both at the customer's plant
(an "on-site" repair) and in the Company's repair facilities (an "in-shop"
repair). The Company also uses its facilities to (i) assemble new valves,
actuators and other components into packaged systems for sale, rebuild
previously used valves (other than safety valves) to their original
specifications for sale and fabricate other process-system components for sale
and (ii) test and certify new and rebuilt valves and systems as meeting the
specifications of its customers and manufacturers and applicable industry
standards.
3
<PAGE>
Three broad sectors comprise the industrial valve industry: (i)
manufacturing; (ii) distribution; and (iii) repair services. The Company
believes, on the basis of industry studies, that the distribution and repair
sectors of the industrial valve industry represent a current worldwide annual
market in excess of $20.6 billion, of which North America accounts for
approximately $9.2 billion, including approximately $3.7 billion attributable to
repair services and $5.5 billion attributable to distribution and related
services. A recent industry study estimates that over 650 million industrial
valves currently are installed in North America, including more than 140 million
RSVs in various process industries in the United States. This study also
estimates that more than 370 million RSVs are in use worldwide. The Company
believes substantially every RSV experiences at least one leak during its
operational life and estimates that between 4 million and 7 million of the RSVs
installed in the United States are leaking at a rate requiring repair or
replacement at any one point in time.
Process systems consist of discrete units or trains of units which
generally operate continuously under pressure. In many process industries, these
systems handle corrosive substances and are subject to high cycling rates and
extremes of pressure and temperature. Leaks occur as a result, and a principal
source of leaks are valves using rising stems to direct their opening and
closing. Original equipment manufacturers ("OEMs") use various packing
materials to seal the stem area in RSVs, but these seals are vulnerable to the
effects of friction and pressure and, in many cases, normal packing shrinkage
and deterioration. The process systems in the industries the Company serves
generally require emergency work and comprehensive scheduled periodic off-line
repairs (called "turnarounds"). Emergency work is performed, if practicable,
while the affected unit remains in operation and under pressure. On-line repairs
historically have consisted of sealing leaking pipes and flanges with various
enclosures and clamps and repacking leaking valves as interim measures pending
the next scheduled turnaround. Turnarounds typically involve the shutdown of an
entire process unit or trains of process units to permit the disassembly, repair
and/or replacement and reassembly of component parts (including industrial
valves), a process which can take from a few days to several months.
The Company has targeted selected groups of end users in three categories
of process industries in the United States, Canada and Mexico as its initial
primary market for the expansion of its repair and distribution services: (i)
petrochemical and other chemical plants, petroleum refineries and pulp and paper
mills (process manufacturers); (ii) conventional and nuclear electric power
plants and cogenerators and water and wastewater utilities (utilities); and
(iii) crude oil and natural gas producers, gas processing plants and oil, gas
and products pipelines (resource industries). The Company believes these
targeted groups account for substantially all the RSVs currently in service in
the United States and are heavy users of other valves as well, including
pressure safety, relief and safety-relief valves and accessories used to relieve
excess pressure in process equipment, pressure vessels, boilers and pipelines.
These groups also are characterized by severe service applications in their
processes which require valves that can endure corrosive substances, flammable
and explosive materials, high cycling rates and extremes of pressure and
temperature. The Company believes economic conditions (generally and in these
targeted groups), technological developments and health, safety and
environmental concerns drive the markets for repair services and value-added
distribution services in these groups.
The Company's targeted industries use industrial valves currently ranging
in cost from less than $10 to more than $100,000. Historically, the demand for
new industrial valves has been determined by the extent to which general and
specific industry economic conditions or forecasts spurred the construction of
new plants or expansions of existing plant capacities. The Company believes that
(i) for a number of years, many companies in these industries lengthened the
period of time between turnarounds to minimize the economic costs associated
with turnarounds and delayed construction of new plant facilities and outlays of
capital expenditures for improvements of existing facilities, and, as a result,
(ii) they are using a large population of aged valves which will require
increasing levels of repair and replacement. In recent years, various factors
have led companies in these industries to undertake capital expenditure programs
to retool their existing process operations with new or improved labor-, time-
and other cost-reducing devices. The Company believes this trend has
strengthened both the replacement market for industrial valves and the market
for independent, comprehensive repair services. See "The Industrial Valve
Industry -- Market Environment and Trends."
4
<PAGE>
The Company believes significant opportunities are available in the repair
and distribution services sectors of its industry to a well capitalized,
national company employing professionally trained service technicians and
machinists and providing a full complement of on-line, on-site and in-shop
repair services and value-added distribution services. It also believes the
fragmented nature of its industry will provide it with significant opportunities
to consolidate the capabilities and resources of a large number of existing
repair and distribution services businesses.
BUSINESS STRATEGY
The Company intends to become the leading North American provider of
comprehensive repair and distribution services by emphasizing growth through
acquisitions of other repair and distribution services businesses and
implementing a national operating strategy aimed at increasing internal growth,
enhancing profitability and achieving cost efficiencies. The Company's growth
strategy will focus on capitalizing on certain trends in its targeted
industries, including increased outsourcing, increased focus on reducing
economic losses attributable to leaking valves and increased regulatory
requirements applicable to process-system facilities.
GROWTH THROUGH ACQUISITIONS. The Company intends to continue the
aggressive acquisition program initiated by SSI to enter new geographic
markets and expand within its existing markets.
o ENTERING NEW GEOGRAPHIC MARKETS. The Company currently conducts
operations through 32 facilities located in 17 states in the United
States and in Canada. It plans to broaden its base of operations by
seeking acquisitions in new markets throughout North America in order
to expand the Company's repair and distribution services capabilities.
In each new market, the Company initially will target companies with
historically successful operating results, superior operating
management and established customer relationships and brand identities.
The Company will generally seek to establish itself as a provider of
both repair and distribution services in each of its new markets.
o EXPANDING WITHIN EXISTING MARKETS. The Company intends to pursue
acquisitions within its existing markets as a primary means of
expanding its repair and distribution services capabilities within
those markets and as a means for gaining access to new process-industry
customers, specialized services, new products or other strategic
synergies.
IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY. The principal elements of
the Company's operating strategy are:
o INCREASING INTERNAL GROWTH THROUGH TECHNOLOGY ROLL-OUT. The Company
believes the SafeSeal(TM) system represents a significant improvement
over traditional valve packing restoration methods. This technology
offers customers the ability to (i) substantially reduce or eliminate
lost feedstock, product and fuel costs attributable to leaking valve
packing, (ii) safely bring leaking valves into compliance with
applicable emission standards without having to undertake a shutdown
and (iii) establish an effective, on-line means of remediating any
further packing-related leaks. Because of the value-added nature of
this proprietary technology, the Company, through SSI, has been able to
achieve higher gross margins through the provision of this service
compared to most other services it provides. The Company believes the
other Acquired Businesses will serve as a platform to aggressively
market this technology to many of their existing process-industry
customers in their respective markets. The Company's future acquisition
efforts will focus on additional opportunities to expand this service
into new geographic markets and to new segments of the process-industry
market within its existing geographic areas.
o CAPITALIZING ON GEOGRAPHIC DIVERSITY TO DEVELOP NATIONAL AND REGIONAL
CUSTOMER AND OEM RELATIONSHIPS. The Company's customers include many
large petrochemical and other chemical companies, petroleum refiners,
pulp and paper companies and power and other utilities, many of which
operate in numerous locations throughout North America. The Company
believes its ability to provide repair and distribution services on a
comprehensive basis throughout North America will enhance its
relationships with these customers and with OEMs and afford it greater
opportunities for new business. As the Company expands its regional and
North American presence, it will seek to (i) capitalize on its
existing, and establish new, "national account," "blanket approval"
and
5
<PAGE>
"consolidated supply" relationships and (ii) expand existing
"regional" contracts with its large process-system customers.
o CROSS-SELLING REPAIR AND DISTRIBUTION SERVICES. The Acquired
Businesses currently provide their respective customers with differing
levels of repair services and distribution services. For instance,
Plant Specialties provides extensive repair and remanufacturing
services and limited distribution services, while ICE/VARCO provides
extensive distribution services of both valves and related process
equipment and a growing valve repair service. In an effort to become a
single-source provider of repair and distribution services to its
customers, the Company plans to offer a full line of services through
most of its locations. The Company believes that this single-source
capability will allow it to become the repair service provider and
valve and related parts supplier of choice for its current and
prospective customers.
o ACHIEVING COST EFFICIENCIES AND STANDARDIZING AND IMPLEMENTING "BEST
PRACTICES." The Company believes it should be able to reduce the
total operating expenses of the Acquired Businesses and other acquired
businesses by eliminating certain duplicative administrative functions
and operating facilities and consolidating certain functions performed
separately by each business prior to its acquisition. The Company also
believes that it should experience reduced costs (as a percentage of
revenues) in such areas as: purchasing; financing arrangements;
employee benefits; information management; insurance and other risk
management; and inventory control. In addition, the Acquired
Businesses have significant knowledge and experience in operating
industrial valve repair and distribution businesses and providing
products and services ancillary to those operations. They have
continually refined their operating procedures in order to improve
customer service and operating efficiency. The Company intends to
formalize this approach of identifying "best practices" it will
adopt as Company standards and implement throughout its operations.
Management believes the standardization of best practices will enable
the Company to provide superior customer service and be a low-cost
operator in each of its markets.
THIS OFFERING
Common Stock offered by Invatec...... shares
Common Stock offered by Selling shares
Stockholders.......................
Common Stock to be outstanding after
this Offering(1)................... shares
Use of Proceeds by Invatec........... To fund the cash portion of the purchase
price for two Acquired Businesses, to pay
additional consideration in connection
with the acquisition by SSI of one of the
other Acquired Businesses, to redeem
preferred stock of SSI and to repay
outstanding indebtedness of Invatec and
the Acquired Businesses. See "Use of
Proceeds."
Proposed NYSE symbol................. IVT
- ------------
(1) The number of shares to be outstanding when this Offering closes will
include (i) 357,114 shares owned by existing stockholders of Invatec on the
date of this Prospectus, (ii) 618,571 shares to be issued on the conversion
in part of an Invatec convertible note issued in connection with the
organizational financing of Invatec, (iii) shares to be issued
in the SSI Merger and (iv) shares to be issued as consideration in
the SVS Acquisition. This share number does not include (i) shares
reserved for issuance on the conversion of convertible notes issued as part
of the purchase price in two of the Acquisitions or (ii) a total of
1,160,659 shares subject to outstanding stock options. See
"Management -- Option Grants."
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
------------------------
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
The following summary unaudited pro forma combined financial information
represents historical information of the Company, as adjusted to give effect to
(i) the Acquisitions on a historical basis, (ii) the other pro forma adjustments
referred to below and (iii) the closing of this Offering. See "Selected
Financial Information" and the Unaudited Pro Forma Combined Financial
Statements and the Notes thereto included herein.
THREE MONTHS ENDED
MARCH 31
--------------------
FISCAL 1996 1996 1997
----------- --------- ---------
Statement of Operations Information(1):
Revenues........................... $76,234 $ 17,222 $ 20,732
Gross profit....................... 23,177 5,597 6,188
Selling, general and administrative
expenses(2)...................... 18,712 4,602 5,418
Goodwill amortization(3)........... 600 150 150
Income from operations............. 3,865 845 620
Interest, net...................... (450) (112) (112)
Other income (expense), net........ 56 22 (8)
Income from continuing operations
before income taxes.............. 3,471 755 500
Net income(4)...................... $ 1,978 $ 431 $ 285
=========== ========= =========
Net income per common share from
continuing operations............ $ $ $
=========== ========= =========
Shares used in computing pro forma
income per
share from continuing
operations(5)....................
=========== ========= =========
AT MARCH 31, 1997
----------------------------
PRO
FORMA(1) AS ADJUSTED(6)
-------- --------------
Balance Sheet Information:
Working capital (deficit).......... $ (895) $ 18,513
Total assets....................... 66,744 66,404
Total debt, including current
portion........................... 48,932 7,792
Stockholders' equity............... 4,720 48,746
- ------------
(1) The pro forma combined statement of operations information assumes the
Acquisitions and related financings, the issuance of the presently
outstanding Common Stock, the partial conversion of a convertible note into
shares of Common Stock and this Offering all were closed on January 1 of
each period presented. The pro forma balance sheet information assumes those
transactions were closed on March 31, 1997 and also assumes that the
incurrence of indebtedness after that date to pay the costs and expenses of
this Offering occurred on that date. The pro forma combined financial
information (i) is not necessarily indicative of the results the Company
would have obtained had these events actually occurred when assumed or of
the Company's future results, (ii) is based on preliminary estimates,
available information and certain assumptions that management deems
appropriate and (iii) should be read in conjunction with the other financial
statements and notes thereto included herein.
(2) Does not include: (i) salaries and benefits of certain owners and managers
of the Acquired Businesses who will not be employed by the Company or
replaced, as follows: fiscal 1996, $1,674,000; and three months ended March
31, 1996 and 1997, $419,000 and $333,000, respectively; or (ii) a presently
estimated total of $2.0 million of non-cash, non-recurring special
compensation expenses attributable to stock awards made by SSI in the three
months ended March 31, 1997 and sales of Common Stock by Invatec in the six
months ended June 30, 1997.
(3) Reflects amortization of the goodwill to be recorded as a result of the
acquisitions of the Acquired Businesses over a 40-year period.
(4) Assumes an effective tax rate of 43%.
(5) Computed on the basis described in the Notes to the Unaudited Pro Forma
Combined Financial Statements.
(6) Reflects the closing of this Offering, Invatec's application of its net
proceeds therefrom and the use of borrowings under the New Credit Facility
as described under "Use of Proceeds."
7
<PAGE>
SUMMARY FINANCIAL INFORMATION FOR THE ACQUIRED BUSINESSES
(IN THOUSANDS)
The following table presents summary information for each of the Acquired
Businesses for its three most recently completed fiscal years and its most
recently completed interim period and the comparative period of the prior year.
<TABLE>
<CAPTION>
FISCAL INTERIM RESULTS
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HARLEY(1)(5):
Revenues............................ $ 16,621 $ 18,990 $ 21,391 $ 4,245 $ 5,988
Gross profit........................ 4,295 4,965 5,943 999 1,572
Selling, general and administrative
expenses.......................... 4,530 4,384 5,563 1,138 1,858
STEAM SUPPLY(1):
Revenues............................ $ 14,777 $ 15,408 $ 15,079 $ 7,435 $ 7,737
Gross profit........................ 5,074 5,316 5,505 2,780 2,323
Selling, general and administrative
expenses.......................... 5,022 4,826 5,107 2,452 2,275
ICE/VARCO(3):
Revenues............................ $ 7,759 $ 9,128 $ 12,744 $ 5,591 $ 7,104
Gross profit........................ 2,347 2,610 3,291 1,453 1,357
Selling, general and administrative
expenses.......................... 2,190 2,346 2,859 1,344 1,555
GSV(2)(4)(5):
Revenues............................ $ 8,923 $ 8,654 $ 10,227 $ 1,413 $ 1,637
Gross profit........................ 1,732 1,992 2,539 307 379
Selling, general and administrative
expenses.......................... 1,522 1,482 1,276 207 243
PLANT SPECIALTIES(1):
Revenues............................ $ 9,688 $ 11,526 $ 8,501 $ 4,078 $ 5,845
Gross profit........................ 3,259 4,149 2,881 1,385 2,283
Selling, general and administrative
expenses.......................... 2,590 2,991 2,489 1,371 1,428
SVS(1):
Revenues............................ $ 3,859 $ 4,153 $ 4,404 $ 2,541 $ 2,098
Gross profit........................ 1,147 1,373 1,442 1,018 700
Selling, general and administrative
expenses.......................... 1,149 982 1,175 551 581
SSI(4)(5)(6):
Revenues............................ $ 2,547 $ 2,852 $ 3,888 $ 652 $ 6,945
Gross profit........................ 1,276 1,268 1,512 226 2,194
Selling, general and administrative
expenses.......................... 1,268 1,853 1,955 466 3,260
</TABLE>
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(1) Results for fiscal years ended October 31, 1994, 1995 and 1996 and,
excluding Harley, for the six months ended April 30, 1996 and 1997. Interim
results for Harley are for the three months ended January 31, 1996 and 1997.
Results for SVS for fiscal 1994 and 1995 are unaudited.
(2) Interim results include the two months ended February 28, 1996 and 1997. SSI
acquired GSV effective March 1, 1997.
(3) Results for fiscal years ended September 30, 1994, 1995 and 1996. Results
for fiscal 1994 are unaudited.
(4) Results for fiscal years ended December 31, 1994, 1995 and 1996.
(5) The results of Harley and GSV have been included in SSI from their
respective effective dates of acquisition, February 1 and March 1, 1997.
(6) Interim results for SSI include the three months ended March 31, 1996
and 1997. Selling, general and administrative expenses in the three
months ended March 31, 1997 reflect a non-cash, non-recurring special
compensation expense of $1.3 million attributable to stock awards made
by SSI as described under "Management -- Executive Compensation" and
"Certain Transactions -- Financing Arrangements."
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
ANY NUMBER OF FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE
IN THIS PROSPECTUS.
HISTORY OF LOSSES
Invatec, incorporated in Delaware in March 1997, has conducted no
operations to date other than in connection with this Offering and its
acquisitions in separate transactions (the "Acquisitions") of seven businesses
(the "Acquired Businesses"), four of which (The Safe Seal Company, Inc.
("SSI") and its three subsidiaries) are affiliates of Invatec. SSI did not
acquire its subsidiaries until 1997. SSI incurred net losses of $281,000,
$1,505,000 and $415,000 during fiscal 1994, 1995 and 1996, respectively, and a
net loss of $859,000 in the first quarter of fiscal 1997. No assurance can be
given the Company will not continue to incur losses in future periods. In the
second quarter of fiscal 1997, the Company will record a special non-cash,
non-recurring compensation expense (presently estimated at $282,000) as a result
of the sale of 141,000 shares of Common Stock to certain officers of Invatec and
a related party for $141.00. In the quarter in which this Offering closes, the
Company will record $837,000 of financing charges Invatec will pay Allwaste,
Inc. and $330,000 of bonuses Invatec will pay to its chief executive officer
($300,000) and two of its other executive officers ($15,000 each).
ABSENCE OF COMBINED OPERATING HISTORY
Because the Company is consolidating the operations of the Acquired
Businesses and recording the Acquisitions in accordance with the purchase method
of accounting, the pro forma information herein may not be indicative of the
Company's future operating results and financial condition. Until the Company
establishes centralized accounting and other administrative systems, it will
rely primarily on the separate systems of the Acquired Businesses. The success
of the Company will depend, in part, on the extent to which it is able to
centralize these functions and otherwise integrate the Acquired Businesses and
such additional businesses as it may hereafter acquire into a cohesive,
efficient enterprise. The Company's executive officers have only limited
experience working together, and no assurance can be given they will be able to
manage the Company effectively or successfully execute the Company's acquisition
and operating strategies.
DEPENDENCE ON ACQUISITIONS FOR GROWTH
The Company's business strategy for growth focuses primarily on acquiring
additional businesses providing industrial valve and other process-system
component repair and distribution services. The acquisition strategy of the
Company presents risks that, singly or in any combination, could materially
adversely affect its business and financial performance. These risks include (i)
the adverse effects on existing operations which could result from the diversion
of management attention and resources to acquisitions, (ii) the possible loss of
acquired customer or supplier bases and key personnel, including service
technicians and machinists, and (iii) the contingent and latent risks (including
environmental risks) associated with the past operations of and other
unanticipated problems arising in the acquired businesses. The success of the
Company's acquisition strategy will depend on the extent to which the Company is
able to acquire, successfully integrate and profitably manage additional
businesses, and no assurance can be given this strategy will succeed. In this
connection, if competition for acquisition candidates develops, the cost of
acquiring businesses could increase materially. Acquisitions accounted for as
purchases may result in substantial annual noncash amortization charges for
goodwill and other intangible assets in the Company's statements of operations.
CAPITAL REQUIREMENTS
The Company's acquisition strategy will require substantial capital. The
Company intends to finance future acquisitions with future free cash flow and
through issuances of shares of Common Stock or debt securities, including
convertible debt securities. Using internally generated cash or debt to complete
acquisitions could substantially limit the Company's operational and financial
flexibility. The extent to which the Company will be able or willing to use
shares of Common Stock to consummate acquisitions will
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depend on its market value from time to time and the willingness of potential
sellers to accept it as full or partial payment. Using shares of Common Stock
for this purpose may result in significant dilution to then existing
stockholders. The Company currently is pursuing a line of credit of at least $50
million from one or more financial institutions to be used for acquisitions,
working capital and other corporate purposes. No assurance can be given it will
be able to obtain a line of credit of that size on terms it considers acceptable
or otherwise be able to obtain the capital it would need to finance a successful
acquisition program and its other cash needs. If the Company is unable to obtain
additional capital on acceptable terms, it may be required to reduce the scope
of its presently anticipated expansion, which could materially adversely affect
its business and the value of the Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Combined."
FACTORS AFFECTING INTERNAL GROWTH
The factors affecting the Company's ability to generate internal growth
will include the extent to which it is able to: (i) integrate SSI's SafeSeal(TM)
technology into the operations of the other Acquired Businesses and other
businesses it may acquire and otherwise expand the range of repair services
offered by these businesses; (ii) leverage its relationships with customers in
existing markets into work for those customers in other markets where they
currently use the services of competitors; and (iii) reduce overhead costs of
acquired businesses. No assurance can be given the Company will be able to
market its SafeSeal(TM) technology successfully as being safer, more effective
and more cost-efficient than other available on-line valve repair methods.
Factors affecting the Company's ability to expand services will include the
extent to which it is able to attract and retain qualified operating management,
service technicians and machinists in existing and new areas of operation and
train its technicians to use the SafeSeal technology and other new technologies
that become available.
CONCENTRATION OF OWNERSHIP
When this Offering and the pending Acquisitions close, Allwaste, Inc. and
one of its subsidiaries (collectively, "Allwaste") will own approximately %
of the outstanding Common Stock and The Roger L. Miller Family Trust, Roger L.
Miller and Computerized Accounting & Tax Services, Inc. ("CATS"), a
corporation Mr. Miller owns (collectively, the "Miller Interests"), together
will own approximately % of the outstanding Common Stock. If these persons
were to act in concert, they would, as a practical matter, be able to exercise
control over the Company's affairs, including the election of the entire Board
of Directors and (subject to Section 203 of the Delaware General Corporation Law
(the "DGCL")) any matter submitted to a vote of stockholders. See "Principal
and Selling Stockholders."
RELIANCE ON CUSTOMERS IN HISTORICALLY CYCLICAL INDUSTRIES
The businesses of most of the Company's industrial customers, particularly
refineries and chemical, power and pulp and paper plants, tend to be cyclical.
Margins in those industries are highly sensitive to demand cycles, and the
Company's customers in those industries historically have tended to delay large
capital projects, including expensive turnarounds, during down cycles. As a
result, the Company's business and results of operations may reflect the
cyclical nature of the various industries it serves.
OPERATING HAZARDS
The Company performs a significant portion of its repair services in
refineries, chemical plants and other industrial facilities that process,
produce, store, transport or handle potentially hazardous substances, including
highly corrosive, flammable or explosive substances kept at extremes of
temperature and pressure. These services (i) include sealing leaks and repairing
valves on process units operating under pressure, (ii) typically involve a
combination of individuals and machinery operating in restricted work areas and
(iii) are subject to the usual hazards associated with providing on-site
services in these types of facilities, such as pipeline leaks and ruptures,
explosions, fires, oil and chemical spills, discharges or releases of toxic
substances or gases. These hazards can cause personal injury and loss of life,
severe damage to or destruction of property and equipment and environmental
damage and may result in suspension of operations of all or part of the facility
being serviced. If a catastrophic event occurs at a plant to which the Company
provides services, the Company may have to defend itself against large claims.
It maintains insurance coverage in the amounts and against the risks it believes
accord with industry practice,
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but this insurance does not cover all types or amounts of liabilities. No
assurance can be given either (i) this insurance will be adequate to cover all
losses or liabilities the Company may incur in its operations or (ii) the
Company will be able to maintain insurance of the types or at levels it deems
necessary or adequate or at rates it considers reasonable.
COMPETITION
The markets for the Company's repair and distribution services generally
are highly competitive. The Company believes the principal competitive factors
in a distributor's sale of new valves and other process-system components
directly to industries in the distributor's market include price and the ability
of the distributor to offer on a timely basis a wide selection of the new,
better-performing valves and other components the original equipment
manufacturers ("OEMs") have designed to meet the needs of these industries.
Factors affecting delivery time include inventory size and whether, in the case
of pressure safety, relief and safety-relief valves (collectively, "PRVs") and
certain other valves, the OEM or the distributor assembles, sets, tests and
seals, or otherwise customizes, the valve. In the case of repair services, the
Company believes the principal competitive factors are quality and availability
of service (including emergency service and documentation of valve histories),
price, use of OEM-approved replacement parts, familiarity with the OEMs'
products and local brand equity of the repair business.
In its distribution operations, the Company competes with the direct sales
forces and distribution networks of OEMs offering the same or comparable lines
of products. It competes for repair services business with other repair services
businesses, OEMs and customers' in-house maintenance crews. Some of its
competitors may have lower overhead cost structures and, consequently, may be
able to provide their services at lower rates than the Company. The Company's
competitors for on-line leak sealing services include two national competitors
and several regional competitors. See "Business -- Competition."
The Company believes the industrial valve repair and distribution sectors
of the industrial valve industry are subject to consolidation, and that a number
of competitors may attempt to consolidate these sectors. Some of these
competitors may have greater resources than the Company to finance acquisition
and internal growth opportunities and may be willing to pay higher prices than
the Company for the same opportunities. Consequently, the Company may encounter
significant competition in its efforts to achieve its growth objectives,
particularly through its acquisition strategy.
RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGIES
The success of the Company will depend in part on its ability to obtain and
protect patents and other intellectual property rights covering its products and
services. The Company, through subsidiaries, owns three United States patents
and has two United States patent applications pending which relate primarily to
the SafeSeal(TM) system. The process of seeking patent protection can be long
and expensive, and no assurance can be given a patent will issue from the
Company's currently pending applications or future applications or that, if
patents are issued, they will be of sufficient scope or strength to provide
meaningful protection or any commercial advantage to the Company. In addition,
the laws of certain foreign countries may not protect the Company's intellectual
property rights to the same extent as the laws of the United States. Litigation,
which could demand significant financial and management resources, may be
necessary to enforce patents or other intellectual property rights of the
Company. One of the Company's customers has a license to certain of the
Company's technology under certain of its patents pertaining to the SafeSeal(TM)
system. Although, to the knowledge of the Company, that customer has not pursued
the development of technology that would compete with the SafeSeal(TM) system
(and instead has opted to continue outsourcing on-line valve repair service work
to the Company), there can be no assurance it will not elect to do so in the
future. Moreover, there can be no assurance others will not independently
develop substantially equivalent or better technology that would be free of the
Company's patents and other intellectual property rights. See "Business --
Intellectual Property."
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year because of a number of factors, including the
timing of future acquisitions, seasonal fluctuations in the demand for repair
and distribution services (particularly the demand attributable to scheduled
turnarounds in
11
<PAGE>
the power industry, which typically are scheduled for mild-weather months) and
competitive factors. Accordingly, quarterly comparisons of the Company's
revenues and operating results should not be relied on as an indication of
future performance, and the results of any quarterly period may not be
indicative of results to be expected for a full year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
GOVERNMENTAL REGULATION
A wide range of federal, state and local regulations relating to health,
safety and environmental matters applies to the Company's business. The
Company's in-shop reconditioning and remanufacturing of used valves frequently
involves the use, handling, storage and contracting for the disposal or
recycling of a variety of substances or wastes considered hazardous or toxic.
Environmental laws are complex and subject to frequent change. These laws impose
liability in some cases without regard to negligence or fault and expose the
Company to liability for the conduct of or conditions caused by others, or for
acts of the Company which complied with all applicable laws when performed. No
assurance can be given the Company's compliance with amended, new or more
stringent laws or regulations, stricter interpretations of existing laws or the
future discovery of environmental conditions will not require additional,
material expenditures by the Company. Regulations of the Occupational Safety and
Health Administration ("OSHA") also apply to the Company's business, including
requirements the Company's training programs must meet respecting, among other
matters, release detection procedures, appropriate work practices, emergency
procedures and other methods the Company's technicians can use to protect
themselves and the environment. See "Business -- Governmental Regulation and
Environmental Matters." Future acquisitions by the Company also may be subject
to regulation, including antitrust reviews. The Company believes it
substantially complies with all currently applicable laws relating to its
business.
DEPENDENCE ON KEY PERSONNEL
The success of the Company's operations will depend on the continuing
efforts of its executive officers and the senior management of the Acquired
Businesses and likely will depend on the senior management of any significant
businesses the Company acquires in the future. The business or prospects of the
Company could be affected adversely if any of these persons do not continue in
their respective management roles after joining the Company and the Company is
unable to attract and retain qualified replacements. The ability of the Acquired
Businesses (other than SSI) and any additional repair services companies the
Company may acquire to include the SafeSeal(TM) system in their services will
require the training of their service technicians in the use of the technology,
and the success of the Company's growth strategy generally, as well as the
Company's current operations, will depend on the extent to which it is able to
retain, recruit and train qualified sales personnel, service technicians and
machinists who meet the Company's standards of service to customers.
DEPENDENCE ON MANUFACTURERS
The success of the Company as a value-added distributor of new valves and
other process-system components depends on its relationships with the OEMs for
which it distributes products. In these relationships, the Company acts either
as a sales representative on a commission basis for direct sales by the OEM to
the end user or purchases products on a discount basis for resale, generally on
a value-added basis. OEMs typically exercise a great deal of control over their
distributors. An OEM may assign a territory to a distributor on an exclusive or
nonexclusive basis, refuse to assign additional territories to its distributors
and reserve the right to sell directly to customers in an assigned territory.
The distribution agreement typically is terminable at will on relatively short
prior notice and restricts the ability of the distributor to offer similar
products made by another OEM. The Company anticipates its business strategy will
raise issues for some OEMs. Actions taken by OEMs to exploit their bargaining
positions with the Company could materially adversely affect the Company's
ability to implement its growth strategies and maintain its existing
distribution services business. See "Business -- Suppliers -- Relationships
With OEMs."
The success of the Company as a value-added distributor also depends on the
extent to which its OEMs are able to create demand for their products in the
markets the Company serves. Factors affecting this demand include, in addition
to price, product quality and performance (including durability and safety) and
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<PAGE>
delivery time, the relative strengths of the brand names and the marketing
abilities of the OEMs. See "Business -- Competition."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
When this Offering closes, shares of Common Stock will be
outstanding (without giving effect to the potential conversion of convertible
subordinated notes issued in two Acquisitions (the "Convertible Notes") into
up to shares of Common Stock). The shares sold in this
Offering (other than shares purchased by affiliates of the Company) will be
freely tradable. The remaining shares outstanding may be resold publicly only
following their effective registration under the Securities Act of 1933, as
amended (the "Securities Act"), or pursuant to an available exemption from the
registration requirements of the Securities Act, such as provided by Securities
Act Rule 144. Under Rule 144, all those shares will be eligible for Rule 144
sales, subject to certain volume limitations and other requirements, on the day
following the first anniversary of the date this Offering closes. In addition,
the holders of a substantial number of those remaining shares have certain
rights to cause the shares of Common Stock held by or issuable to them to be
registered in connection with certain future offerings pursuant to a
registration statement filed by Invatec with the Securities and Exchange
Commission (the "SEC"). See "Shares Eligible for Future Sale."
When this Offering closes, Invatec also will have outstanding options to
purchase up to a total of 1,160,659 shares of Common Stock, of which options to
purchase shares then will be exercisable. Invatec intends to file
a registration statement on Form S-8 to register 1,015,659 of those shares and
the other shares reserved or to be available for issuance pursuant to its 1997
Incentive Plan (see "Management -- 1997 Incentive Plan"). After that
registration statement becomes effective, the shares registered thereby
generally will become available for sale in the open market by holders who are
not affiliates of the Company and, subject to the volume and other limitations
of Rule 144, by holders who are affiliates of the Company.
Invatec, its directors and executive officers, Allwaste, the Miller
Interests, the Selling Stockholders and the holders of the Convertible Notes
have agreed not to offer or sell any shares for a period of 180 days following
the date of this Prospectus (the "Lockup Period") without the prior written
consent of Smith Barney Inc.; however, Invatec may issue shares of Common Stock
in connection with acquisitions, pursuant to its 1997 Incentive Plan and
pursuant to the conversion of the Convertible Notes and the exercise of options
outstanding when this Offering closes. For information respecting additional
restrictions on sales by Allwaste, the Miller Interests, Invatec's management
and others, see "Shares Eligible for Future Sale."
Invatec intends to register 5,000,000 additional shares of Common Stock
under the Securities Act for its use in connection with future acquisitions.
These shares generally will be freely tradable by persons not affiliated with
Invatec unless Invatec restricts their resale by contract, and sales of these
shares during the Lockup Period would require the prior written consent of Smith
Barney Inc.
The availability for sale, or sale, of the shares of Common Stock eligible
for future sale could adversely affect the market price of the Common Stock
prevailing from time to time.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, no public market for the Common Stock has existed,
and the initial public offering price, which Invatec and representatives of the
Underwriters will negotiate, may not be indicative of the price at which the
Common Stock will trade after this Offering. See "Underwriting" for the
factors to be considered in determining the initial public offering price.
Invatec has applied to have the Common Stock listed on the New York Stock
Exchange, but no assurance can be given an active trading market for the Common
Stock will develop or, if developed, will continue after this Offering. The
market price of the Common Stock after this Offering may fluctuate significantly
from time to time in response to numerous factors, including variations in the
reported financial results of the Company and changing conditions in the economy
in general or in the Company's industry in particular. In addition, the stock
markets experience significant price and volume volatility from time to time
which may affect the market price of the Common Stock for reasons unrelated to
the Company's performance.
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IMMEDIATE, SUBSTANTIAL DILUTION
Purchasers of Common Stock in this Offering (i) will experience immediate,
substantial dilution in the net tangible book value of their stock of $ per
share (see "Dilution") and (ii) may experience further dilution in that value
from issuances of shares of Common Stock in the future.
POTENTIAL ADVERSE EFFECTS OF AUTHORIZED PREFERRED STOCK
Invatec's Certificate of Incorporation (the "Charter") authorizes Invatec
to issue, without stockholder approval, one or more classes or series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends and distributions) as the Board of Directors of Invatec may
determine. See "Description of Capital Stock."
POTENTIAL ANTI-TAKEOVER EFFECTS
Invatec has adopted a stockholder rights plan. This plan and provisions of
the Charter, Invatec's Bylaws and the DGCL may delay, discourage, inhibit,
prevent or render more difficult an attempt to obtain control of Invatec,
whether by means of a tender offer, business combination, proxy contest or
otherwise. These provisions include the authorization of "blank check"
preferred stock, classification of the Board of Directors, a prohibition of
stockholder action by less than unanimous written consent and DGCL restrictions
on business combinations with certain interested parties. See "Description of
Capital Stock."
14
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THE COMPANY
Invatec was formed in March 1997 to create the leading provider of
comprehensive maintenance, repair, replacement and value-added distribution
services for industrial valves and related process-system components
(collectively, "repair and distribution services") in North America.
Petrochemical and other chemical plants, petroleum refineries, pulp and paper
mills, electric and other utilities and other industrial process facilities use
industrial valves to direct and regulate the flow of feedstocks, intermediates,
products and fuels in their process systems. The Company intends to be a leader
in the consolidation of the highly fragmented North American repair and
distribution services industry through an aggressive acquisition program. To
achieve this goal, it intends to continue the acquisition program initiated by
SSI and implement a national operating strategy designed to increase internal
growth and profitability. When this Offering closes, Invatec will have combined
seven businesses whose revenues totaled approximately $76.2 million on a pro
forma combined basis during fiscal 1996. Invatec will conduct its business
through its operating subsidiaries -- Harley Industries, Inc., Steam Supply &
Rubber Co., Inc., Industrial Controls & Equipment, Inc., GSV, Inc., Plant
Specialties, Inc., Southern Valve Service, Inc. and SSI.
Harley Industries, Inc. ("Harley"), the successor to a business founded
in 1937 and acquired by SSI in January 1997, is a leading repair and
distribution services provider to electric utilities, petroleum refineries,
petrochemical and other chemical plants, pulp and paper mills and other process
industries in the markets it serves from its 13 sales and service facilities in
Arkansas, Florida, Georgia, Indiana, Louisiana, Oklahoma, South Carolina, Texas,
Virginia and Washington. Harley has grown both internally and through its
acquisition of regional repair businesses, including the acquisition in June
1996 of five operating locations and related assets from Henze Services, Inc. It
is a leading distributor in its markets of PRVs and accessories used to relieve
excess pressure in process equipment, pressure vessels, boilers and pipelines.
Harley performs most of its repair services at on-site locations in connection
with its customers' scheduled shutdowns and turnarounds, and on-line repair
services have not been a material part of its business in recent years. The
Company intends to use Harley's network of service locations as a platform for
introducing its proprietary on-line valve restoration technology nationally.
During fiscal 1996, Harley's revenues from its continuing operations totaled
approximately $21.4 million.
Steam Supply & Rubber Co., Inc. (together with three affiliated companies
having common ownership and management, "Steam Supply"), the successor to a
business established in 1915 and acquired by Invatec in July 1997, provides
repair and distribution services to petrochemical plants, petroleum refineries,
electric utilities, pulp and paper mills and oil producers from its six
locations in Washington, Oregon, California, Colorado and Alaska. Conducting
business under the names "Steam Supply" and the "Flickinger Company," it is
a leading distributor of PRVs and related instrumentation in the western half of
the continental United States and Alaska. Steam Supply provides a comprehensive
variety of valve repair services for its customers both on-site at the
customer's location during shutdowns and turnarounds and in-house at its
facilities. During fiscal 1996, Steam Supply's combined revenues totaled
approximately $15.1 million.
Industrial Controls & Equipment, Inc. (together with three affiliated
companies having common ownership and management, "ICE/VARCO"), founded in
1981, will be acquired by Invatec when this Offering closes. From its
distribution and assembly and repair service facility in Waverly, West Virginia,
it is a leading provider of repair and distribution services in Pennsylvania and
West Virginia. ICE/VARCO provides value-added industrial valve and engineered
product distribution services and in-house repair services to a customer base
consisting principally of chemical plants. During fiscal 1996, its revenues
totaled $12.7 million.
GSV, Inc. ("GSV"), the successor to a business established in 1921 and
acquired by SSI in March 1997, is a leading provider of repair and distribution
services, principally for high-pressure steam lines, valves, traps and other
equipment, to electric power plants and phosphate chemical plants in the Florida
peninsula. GSV markets its services and products under the names "Southern
Valve Co." and "Gould Machine and Fabrication." Its Southern Valve facility
in Lakeland, Florida distributes a wide variety of valves and valve packages,
including actuated valve packages it assembles, tests and calibrates, and
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provides in-shop and on-site repair services. Its Gould Machine and Fabrication
facility in Tampa, Florida fabricates large process-system equipment for its
customers. During fiscal 1996, GSV's revenues totaled approximately $10.2
million.
Plant Specialties, Inc. ("Plant Specialties"), founded in 1972 and
acquired by SSI in June 1997, is located in Sulphur, Louisiana, a significant
center for petroleum refining and chemical production. Plant Specialties is a
leading provider of comprehensive industrial valve repair services to petroleum
refineries, petrochemical plants and other process industries in southwestern
Louisiana and the Texas Golden Triangle (Beaumont, Orange and Port Arthur).
Plant Specialties operates one of the largest valve repair facilities in its
area and routinely services customer needs at customer locations throughout the
southern United States. It is an innovator in shop automation and
work-in-process control and documentation and an industry leader in quality and
safety processes. Management believes the Company can use many of the quality
control processes and other productivity enhancements developed by Plant
Specialties throughout its operations. The revenues of Plant Specialties totaled
approximately $8.5 million during fiscal 1996.
Southern Valve Service, Inc. (together with an affiliate under common
management, "SVS"), founded in 1984 and located near Mobile, Alabama, will be
acquired by Invatec when this Offering closes. SVS is a leading provider of
comprehensive industrial valve repair services to the pulp and paper,
petrochemical and electric power industries in Alabama, Mississippi and Georgia.
It performs a significant portion of its repair service at on-site locations in
connection with scheduled shutdowns and turnarounds of its customers. During
fiscal 1996, its revenues totaled approximately $4.4 million.
SSI, an on-line repair services company founded in 1991 and engaged in
research and development of new technologies for repairing valves and other
process-system equipment, will become a subsidiary of Invatec when this Offering
closes. SSI provides on-line leak sealing and valve-packing restoration services
for petrochemical plants, refineries and other process industries from service
facilities located along the Texas Gulf Coast (Beaumont, Freeport and LaPorte)
and in Baton Rouge, Louisiana, Pensacola, Florida and Sarnia, Ontario. SSI uses
its proprietary SafeSeal(TM) system to repair leaking rising stem valves
("RSVs") on-line and under pressure by restoring the packing around their stems.
The Company believes this technology, which has proved to be successful in its
limited applications to date, is capable of wide commercialization through an
aggressive marketing program. During fiscal 1996, SSI's revenues totaled
approximately $3.9 million, of which conventional sealing of leaking pipes and
flanges accounted for approximately 92%.
SSI purchased Harley, GSV and Plant Specialties for a total consideration
of $28.8 million, consisting of (i) approximately $24.6 million in cash
(including $3.3 million aggregate principal amount of subordinated notes issued
by Allwaste, Inc.) and assumed debt (including $1.0 million to be paid when this
Offering closes), (ii) $3.3 million aggregate principal amount of SSI's
five-year 5.0% convertible subordinated notes due 2002 (the "SSI Convertible
Notes") and (iii) $0.9 million principal amount of SSI's 9% secured note due
2001 (the "Mortgage Note"), which is secured by a mortgage on a part of Plant
Specialties' plant and land. Invatec has assumed all SSI's obligations with
respect to the SSI Convertible Notes (which are convertible at the holder's
option into shares of Common Stock at a conversion price per share equal to 130%
of the initial price to the public in this Offering) and the Mortgage Note.
Invatec purchased Steam Supply for total consideration of $10.6 million
consisting of $3.0 million in cash, $3.0 million aggregate principal amount of
Invatec's 5.5% convertible subordinated notes due 2004 and the assumption of
$4.6 million of debt and other liabilities. The convertible notes are
convertible at the holder's option into shares of Common Stock at an initial
conversion price per share equal to 130% of the initial price to the public in
this Offering.
Invatec will acquire ICE/VARCO and SVS for a total consideration of $11.1
million consisting of $5.5 million in cash, $4.1 million in assumed debt and
shares of Common Stock having a calculated total value of $1.5 million using the
initial price to the public in this Offering, subject in each case to an
increase contingent on the operating results the Acquired Business achieves in
the first 12 months after its acquisition. The contingent payment for ICE/VARCO
would consist of options to acquire 40,000 shares of Common Stock at an exercise
price per share equal to the initial price to the public in this Offering, while
16
<PAGE>
the contingent payment for SVS would be payable in a combination of Common Stock
and cash in an amount that is not presently determinable.
When this Offering closes, SSI will become a subsidiary of Invatec by means
of a merger (the "SSI Merger") in which the outstanding SSI preferred stock
will be redeemed for approximately $2.0 million in cash and the outstanding SSI
common stock will be converted into 3,557,840 shares of Common Stock. See
"Certain Transactions -- The SSI Merger."
Invatec's executive offices are located at 14900 Woodham Drive, Suite
A-125, Houston, Texas 77073, and its telephone number at that address is (281)
821-9407.
USE OF PROCEEDS
Invatec estimates its net proceeds from this Offering will be approximately
$ million (approximately $ million if the Underwriters exercise their
over-allotment option in full), assuming an initial public offering price of $
per share (the midpoint of the estimated initial public offering price range).
The Company will use these net proceeds, together with borrowings of up to $
million under the credit facility described below, to (i) pay the cash portion
of the purchase price for ICE/VARCO and SVS ($5.5 million), (ii) repay certain
of its existing debt ($31.8 million used to acquire Harley, GSV, Plant
Specialties and Steam Supply), (iii) repay $3.5 million of a convertible note
(the "Allwaste Note"), and redeem $2.0 million of SSI preferred stock, issued to
Allwaste and pay certain finance charges to Allwaste ($0.8 million) and (iv) pay
additional consideration for the acquisition of Harley ($1.0 million). The
Company will not receive any proceeds from the sale of shares of Common Stock in
this Offering by Selling Stockholders. When this Offering closes, Invatec also
will pay bonuses totaling $330,000 to its chief executive officer and two of its
other executive officers.
The Company intends to enter into a new credit facility (the "New Credit
Facility") effective concurrently with the closing of this Offering. It has
initiated discussions with financial institutions to establish the terms of the
New Credit Facility and, on the basis of those discussions, expects the New
Credit Facility will provide an initial credit line of at least $50.0 million.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Combined."
The indebtedness to be repaid from the proceeds of this Offering ($14.8
million of which has been guaranteed by Allwaste) bears interest at rates
ranging from 5.0% to 10.0%. That indebtedness would otherwise mature at various
dates through 2004. .
DIVIDEND POLICY
Invatec currently intends to retain earnings to finance its business
strategy. Any future dividends will be at the discretion of its Board of
Directors after taking into account various factors, including the Company's
financial condition and performance, cash needs and expansion plans, income tax
consequences and the restrictions Delaware and other applicable laws and its
credit facilities then impose. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
17
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and current maturities
of long-term obligations and capitalization as of March 31, 1997 of: (i) the
Company on a pro forma combined basis giving effect to the Acquisitions and the
financings thereof, the incurrence of other indebtedness since March 31, 1997
and the conversion of $0.5 million of the Allwaste Note into 618,571 shares of
Common Stock; and (ii) the Company, on that pro forma basis, as adjusted to give
effect to this Offering, the application of Invatec's estimated net proceeds
therefrom and the use of borrowings under the New Credit Facility. See "Use of
Proceeds" and the Unaudited Pro Forma Financial Statements of the Company and
the Notes thereto included herein.
MARCH 31, 1997
--------------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
Short-term debt and current maturities
of long-term obligations.............. $18,522 $--
========= ===========
Long-term debt, net of current
maturities............................ 24,115 1,497
Convertible subordinated notes.......... 6,295 6,295
SSI redeemable preferred stock, $0.001
par value, 20,000 shares authorized
and outstanding; none, as adjusted.... 2,000 --
Stockholders' equity:
Preferred stock: $0.001 par value,
5,000,000 shares authorized; none
issued or outstanding............. -- --
Common stock: $0.001 par value,
30,000,000 shares authorized;
shares issued and
outstanding, pro forma; and
shares issued and
outstanding, pro forma, as
adjusted(1)....................... -- --
Additional paid-in capital......... 9,108 54,526
Retained earnings (deficit)........ (4,388) (5,780)
--------- -----------
Total stockholders' equity.... 4,720 48,746
--------- -----------
Total capitalization..... $37,130 $56,538
========= ===========
- ------------
(1) Excludes (i) an aggregate of shares of Common Stock issuable on the
conversion of convertible subordinated notes that are convertible at an
initial conversion price equal to 130% of the initial price to the public in
this Offering (a) at the option of the holder in whole at any time and (b)
at the option of Invatec in whole at any time after the closing sale prices
of the Common Stock for a period of 20 consecutive trading days beginning in
1999 exceed 150% of that initial price and (ii) an aggregate of 1,160,659
shares of Common Stock subject to outstanding stock options. See
"Management -- Option Grants."
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was approximately $ , or approximately $ per share, after giving
effect to the Acquisitions, indebtedness incurred since March 31, 1997 and the
partial conversion of the Allwaste Note into shares of Common Stock. The pro
forma net tangible book value per share represents the amount by which the
Company's pro forma net tangible assets exceed the Company's pro forma total
liabilities as of March 31, 1997, divided by the number of shares to be
outstanding after giving effect to the Acquisitions and the partial conversion
of the Allwaste Note into shares of Common Stock. After giving effect to the
sale by Invatec of the shares it is offering hereby and deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma net tangible book value as of
March 31, 1997 would have been approximately $ , or approximately
$ per share, based on an assumed initial public offering price of
$ (the midpoint of the estimated initial public offering price range).
This represents an immediate increase in pro forma net tangible book value of
approximately $ per share to existing stockholders and an immediate
dilution of approximately $ per share to new investors purchasing shares
in this Offering. The following table illustrates this pro forma dilution:
Assumed initial public offering price
per share.......................... $
-----------
Pro forma net tangible book value per
share before this Offering......... $
-----------
Increase in pro forma net tangible
value per share attributable to new
investors..........................
-----------
Pro forma net tangible book value per
share after this Offering..........
-----------
Dilution per share to new
investors.......................... $
===========
The following table sets forth, on a pro forma basis to give effect to the
Acquisitions and the partial conversion of the Allwaste Note into shares of
Common Stock as of March 31, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by existing stockholders and the new
investors purchasing shares from the Company in this Offering (before deducting
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE PER SHARE
-------- ------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders................
New investors........................
</TABLE>
19
<PAGE>
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
SSI has been identified as the "accounting acquiror" for financial
statement presentation purposes. The following selected historical consolidated
financial information of the accounting acquiror has been derived (i) from the
audited financial statements of SSI included herein for the years ended December
31, 1994, 1995 and 1996 and (ii) from unaudited financial statements of SSI for
the years ended December 31, 1992 and 1993 and for the three months ended March
31, 1996 and 1997 which have been prepared on the same basis as the audited
statements and, in the opinion of SSI, reflect all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of that
information. The following summary unaudited pro forma financial information
represents historical information of the Company, as adjusted to give effect to
(i) the acquisitions of the Acquired Businesses on a historical basis, (ii) the
other pro forma adjustments described below and (iii) the closing of this
Offering. See the Unaudited Pro Forma Combined Financial Statements and the
notes thereto included herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS
INFORMATION FOR THE ACCOUNTING
ACQUIROR:
Revenues......................... $ 1,006 $ 1,787 $ 2,547 $ 2,852 $ 3,888 $ 652 $ 6,945
Gross profit..................... 544 959 1,276 1,268 1,512 226 2,194
Selling, general and
administrative expenses(7)..... 384 1,221 1,268 1,853 1,955 466 3,260
Income from operations........... 160 (262) 8 (585) (443) (240) (1,066)
Other income (expense), net...... 2 -- (282) (930) -- (7) --
Interest income (expense), net... -- (1) (7) 10 28 11 (342)
Income (loss) before income
taxes.......................... 162 (263) (281) (1,505) (415) (236) (1,408)
Net income (loss)................ $ 118 $ (263) $ (281) $ (1,505) $ (415) $ (236) $ (859)
========= ========= ========= ========= ========= ========= =========
PRO FORMA(1):
Revenues......................... $ 76,234 $ 17,222 $ 20,732
Gross profit..................... 23,177 5,597 6,188
Selling, general and
administrative expenses(2)..... 18,712 4,602 5,418
Goodwill amortization(3)......... 600 150 150
Income (loss) from operations.... 3,865 845 620
Interest, net.................... (450) (112) (112)
Other income (expense), net...... 56 22 (8)
Income from continuing operations
before income taxes............ 3,471 755 500
Net income(4).................... $ 1,978 $ 431 $ 285
========= ========= =========
Net income per common share from
continuing operations.......... $ $ $
========= ========= =========
Shares used in computing pro
forma net income per share from
continuing operations(5).......
========= ========= =========
MARCH 31, 1997
DECEMBER 31 -----------------------------------
----------------------------------------------------- PRO AS
1992 1993 1994 1995 1996 ACTUAL FORMA(1) ADJUSTED(6)
--------- --------- --------- --------- --------- ------- -------- ------------
BALANCE SHEET INFORMATION:
Working capital (deficit)........ $ 318 $ 163 $ (127) $ 823 $ (13) $ 3,734 $ (895) $ 18,513
Total assets..................... 490 623 812 2,109 2,288 33,893 66,744 66,404
Total debt, including current
portion........................ -- 25 93 -- 589 20,652 48,932 7,792
Stockholders' equity (deficit)... 267 (121) (348) (1,075) (1,394) 3,313 4,720 48,746
</TABLE>
(FOOTNOTES ON NEXT PAGE)
20
<PAGE>
- ------------
(1) The pro forma combined statement of operations information assumes the
Acquisitions and related financings, the issuance of the presently
outstanding Common Stock, the partial conversion of the Allwaste Note into
shares of Common Stock and this Offering all were closed on January 1 of
each period presented. The pro forma balance sheet information assumes those
transactions were closed on March 31, 1997 and also assumes that the
incurrence of indebtedness after that date to pay the costs and expenses of
this Offering occurred on that date. The pro forma combined financial
information (i) is not necessarily indicative of the results the Company
would have obtained had these events actually occurred when assumed or of
the Company's future results, (ii) is based on preliminary estimates,
available information and certain assumptions that management deems
appropriate and (iii) should be read in conjunction with the other financial
statements and notes thereto included herein. All Harley, Steam Supply,
Plant Specialties and SVS fiscal year information is for the fiscal year
ended October 31, and all ICE/VARCO fiscal year information is for the
fiscal year ended September 30.
(2) Does not include: (i) salaries and benefits of certain owners and managers
of the Acquired Businesses who were not or will not be employed by the
Company or replaced, as follows: fiscal 1996, $1,674,000; and three months
ended March 31, 1996 and 1997, $419,000 and $333,000, respectively; or (ii)
a presently estimated total of $2.0 million of non-cash, non-recurring
special compensation expenses attributable to stock awards made by SSI in
fiscal 1996 and in the three months ended March 31, 1997 and sales of
Common Stock by Invatec in the six months ended June 30, 1997.
(3) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period.
(4) Assumes an effective tax rate of 43%.
(5) Computed on the basis described in the Notes to the Unaudited Pro Forma
Combined Financial Statements.
(6) Reflects the closing of this Offering, the application of Invatec's net
proceeds therefrom and the use of borrowings under the New Credit Facility
as described under "Use of Proceeds."
(7) Selling, general and administrative expenses in the three months ended March
31, 1997 reflect a non-cash, non-recurring special compensation expense of
$1.3 million attributable to stock awards made by SSI as described under
"Management -- Executive Compensation" and "Certain Transactions --
Financing Arrangements."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes thereto and "Selected Financial Information"
appearing elsewhere in this Prospectus.
INTRODUCTION
The Company derives its revenues principally from (i) its sales of
industrial valves and other process-system components to its process-industry
customers and commissions paid by the OEMs of these products in connection with
their direct sales of these products and (ii) its performance of comprehensive,
maintenance, repair, replacement and value-added distribution services of
industrial valves and process-system components for these customers. Cost of
operations consists principally of direct costs of valves and components sold
coupled with labor and overhead costs connected with the performance of repair
services. Selling, general and administrative expenses consist principally of
compensation and benefits payable to owners and to sales, management and
administrative personnel and insurance, depreciation and other related expenses.
Invatec, which has conducted no operations to date other than in connection
with this Offering and the Acquisitions, intends to integrate the Acquired
Businesses and their operations and administrative functions over a period of
time. The pro forma combined statements of operations of the Company include
adjustments to selling, general and administrative expenses of $1,674,000 in
fiscal 1996 and $419,000 and $333,000 in the three months ended March 31, 1996
and 1997, respectively. These adjustments reflect the decrease in salaries and
benefits associated with certain owners and managers of the Acquired Businesses
who were not or will not be employed by the Company after the acquisition of
their Acquired Business and will not be replaced. This integration process may
present opportunities to reduce other costs through the elimination of
duplicative functions and operating locations and economies of scale,
particularly as a result of the Company's ability to (i) consolidate insurance
programs, (ii) borrow at lower interest rates than SSI and the Acquired
Businesses, (iii) obtain greater discounts from suppliers and (iv) generate
savings in other general and administrative areas. The Company cannot currently
quantify these anticipated savings and expects these savings will be partially
offset by incremental costs that Invatec expects to incur, but also cannot
currently quantify accurately. These costs include those associated with
corporate management and administration, being a public company, systems
integration and facilities expansions and consolidations. The pro forma
financial information herein reflects neither expected savings nor expected
incremental costs.
SSI has been identified as the "accounting acquiror" for financial
statement presentation purposes.
RESULTS OF OPERATIONS -- COMBINED
The combined results of operations for the periods presented below do not
purport to present those of SSI and the Acquired Businesses on a combined basis
in accordance with generally accepted accounting principles, but merely
represent a summation of the revenues, gross profit and selling, general and
administrative expenses of those individual companies on a historical basis and
exclude the effect of pro forma adjustments. This data will not be comparable to
and may not be indicative of the Company's post-combination results of
operations because (i) SSI and the other Acquired Businesses were not under
common control or management and had different tax structures during the periods
presented, (ii) SSI and the other Acquired Businesses had different fiscal and
interim period ends during the periods presented and (iii) the Company
established a new basis of accounting to record the purchase of the Acquired
Businesses under the purchase method of accounting.
22
<PAGE>
The following table sets forth certain unaudited combined data of SSI and
the other Acquired Businesses on a historical basis and excludes the effects of
pro forma adjustments for the periods indicated (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FIRST FISCAL QUARTER
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 64,174 100% $ 70,711 100% $ 76,234 100% $ 17,222 100%
Gross profit......................... 19,130 30 21,673 31 23,113 30 5,582 32
Selling, general and administrative
expenses........................... 18,271 28 18,864 27 20,386 27 5,021 29
</TABLE>
FIRST FISCAL QUARTER
--------------------
1997
--------------------
Revenues............................. $ 20,732 100%
Gross profit......................... 6,188 30
Selling, general and administrative
expenses........................... 5,794 28
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $3.5 million, or 20%, from $17.2 million in
the first three months of fiscal 1996 to $20.7 million in the first three months
of fiscal 1997. This increase resulted from several factors, which included the
following: (i) a $1.7 million increase in Harley's revenues resulting
principally from the inclusion in fiscal 1997 revenues of the revenues of Henze
Services Inc. ("Henze"), a business engaged in repairing and servicing used
valves and related components which was purchased by Harley in June 1996; (ii) a
$0.8 million increase in Plant Specialties' revenues due to management's
concerted marketing efforts in the first fiscal quarter of 1997 and the
performance of previously deferred turnaround work; and (iii) a $0.6 million
increase in ICE/VARCO's revenues, due to its continued penetration of existing
markets and revenues attributable to a newly acquired business. These increases
were partially offset by a $0.8 million decrease in SVS' revenues attributable
to the deferral by customers of previously scheduled turnarounds.
GROSS PROFIT -- Gross profit increased $0.6 million, or 11%, from $5.6
million in the first three months of fiscal 1996 to $6.2 million in the first
three months of fiscal 1997. As a percentage of revenues, gross profit decreased
from 32% in the first three months of fiscal 1996 to 30% in the first three
months of fiscal 1997. This slight decrease resulted principally from a shift in
the mix of revenues toward slightly lower margin product and service revenues in
fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.8 million, or 16%, from $5.0 million in the
first three months of fiscal 1996 to $5.8 million in the first three months of
fiscal 1997. As a percentage of revenues, these expenses decreased slightly from
29% in the first three months of fiscal 1996 to 28% in the first three months of
fiscal 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES -- Revenues increased approximately $5.5 million, or 8%, from
$70.7 million in fiscal 1995 to $76.2 million in fiscal 1996, principally
because of a $3.6 million increase in revenues of ICE/VARCO which resulted from
its continued penetration of existing markets. In addition, Harley's revenues
increased $2.4 million, principally because of the Henze acquisition in June
1996, while GSV's revenues increased by $1.5 million, principally as a result of
a sole-source contract GSV obtained in fiscal 1996 and sales associated with
several new lines of business. Those increases were partially offset by a $3.0
million decrease in fiscal 1996 revenues at Plant Specialties as a result of the
temporary redirection of senior management's focus in fiscal 1996 on the
internal development of a computer-based work-in-progress control and
documentation system and the deferral by customers of previously scheduled
turnaround work until fiscal 1997.
GROSS PROFIT -- Gross profit increased approximately $1.4 million, or 6%,
from $21.7 million in fiscal 1995 to $23.1 million in fiscal 1996 and remained
relatively consistent as a percentage of revenues at 31% for fiscal 1995 and 30%
for fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $1.5 million, or 8%, from $18.9 million in
fiscal 1995 to $20.4 million in fiscal 1996. As a percentage of revenues, these
expenses were 27% for both fiscal 1995 and 1996.
23
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES -- Revenues increased approximately $6.5 million, or 10%, from
$64.2 million in fiscal 1994 to $70.7 million in fiscal 1995. This increase
resulted principally from: (i) a $2.4 million increase in Harley's revenues
attributable to internal growth and increased sales contracts associated with
broader customer acceptance in fiscal 1995 of a new product line first
introduced in late fiscal 1993; (ii) a $1.8 million increase in Plant
Specialties' revenues attributable to a higher volume of turnaround work than in
the previous fiscal year; and (iii) a $1.4 million increase in ICE/VARCO's
revenues attributable to the further development of existing business
relationships and the expansion of service capabilities.
GROSS PROFIT -- Gross profit increased $2.6 million, or 14%, from $19.1
million in fiscal 1994 to $21.7 million in fiscal 1995 and increased as a
percentage of revenues from 30% in fiscal 1994 to 31% in fiscal 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, or 3%, from $18.3 million in
fiscal 1994 to $18.9 million in fiscal 1995. As a percentage of revenues, these
expenses decreased from 28% in fiscal 1994 to 27% in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
On a combined basis, Invatec and the Acquired Businesses generated $2.5
million of net cash from operating activities during fiscal 1994, 1995 and 1996,
primarily due to net income. For the same period, net cash used in investing
activities (primarily capital expenditures) was $6.6 million on a combined
basis. Net cash provided by financing activities was $4.2 million on a combined
basis and consisted principally of proceeds from borrowings.
Through the first fiscal quarter of 1997, SSI has utilized its credit
facilities with The Chase Manhattan Bank, N.A. (the "Chase Facility") and
Texas Commerce Bank N.A. (the "TCB Facility"), to fund the acquisitions of
Harley and GSV, respectively. The Chase Facility provides borrowing capacity of
approximately $17.5 million, comprised of $7.5 million in fixed term notes, $2.7
million of which are guaranteed by Allwaste, and $10 million under an
asset-based facility secured by accounts receivable and inventories. The TCB
Facility is a $10 million advancing line of credit guaranteed by Allwaste. In
addition, Allwaste has agreed to advance the Company up to $4.0 million prior to
the completion of this Offering for working capital needs. As of June 30, 1997,
Allwaste had advanced approximately $2.1 million under this arrangement, which
is evidenced by the Allwaste Note.
The Company has initiated discussions with several financial institutions
to establish the terms of a new credit facility (the "New Credit Facility"),
proceeds from which will be used to, among other things, refinance the
indebtedness outstanding under the Chase Facility, the TCB Facility, and the
Allwaste Note and a $3.8 million advance Allwaste has made in connection with
the Company's acquisition of Steam Supply. On the basis of these discussions,
the Company expects the New Credit Facility will provide for initial borrowing
availability of at least $50.0 million. There is no assurance, however, that the
New Credit Facility will be available in that amount or on terms acceptable to
the Company.
The Company anticipates that its cash flow from operations will provide
cash in excess of the Company's normal working capital needs, debt service
requirements and planned capital expenditures for property and equipment. On a
combined basis, Invatec and the Acquired Businesses made capital expenditures of
$1.9 million in fiscal 1996.
The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. The Company expects
to fund future acquisitions through the issuance of additional equity as well as
through a combination of working capital, cash flow from operations and
borrowings, including any unborrowed portion of the New Credit Facility.
24
<PAGE>
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may fluctuate significantly from
quarter to quarter or year to year because of a number of factors, including the
timing of future acquisitions, seasonal fluctuations in the demand for repair
and distribution services (particularly the demand attributable to scheduled
turnarounds in the power industry, which typically are scheduled for
mild-weather months) and competitive factors. Accordingly, quarterly comparisons
of the Company's revenues and operating results should not be relied on as an
indication of future performance, and the results of any quarterly period may
not be indicative of results to be expected for a full year.
HARLEY
RESULTS OF OPERATIONS
The following table sets forth for Harley certain selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands). The financial information set forth in the table below does not
include the results of discontinued operations for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31 JANUARY 31
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 16,621 100% $ 18,990 100% $ 21,391 100% $ 4,245 100%
Cost of operations................... 12,326 74 14,025 74 15,448 72 3,246 76
--------- --- --------- --- --------- --- --------- ---
Gross profit......................... 4,295 26 4,965 26 5,943 28 999 24
Selling, general, and administrative
expenses........................... 4,530 27 4,384 23 5,563 26 1,138 27
--------- --- --------- --- --------- --- --------- ---
Income (loss) from operations........ $ (235) (1) $ 581 3 $ 380 2 $ (139) (3)
========= === ========= === ========= === ========= ===
</TABLE>
THREE MONTHS ENDED
JANUARY 31
--------------------
1997
--------------------
Revenues............................. $ 5,988 100%
Cost of operations................... 4,416 74
--------- ---
Gross profit......................... 1,572 26
Selling, general, and administrative
expenses........................... 1,858 31
--------- ---
Income (loss) from operations........ $ (286) (5)
========= ===
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $1.8 million, or 43%, from $4.2 million in
the three months ended January 31, 1996 to $6.0 million in the three months
ended January 31, 1997. The increase in revenues resulted principally from the
inclusion in fiscal 1997 of the results of Henze, which Harley acquired in June
1996, and from strong sales of existing product lines and the introduction of
several new products.
GROSS PROFIT -- Gross profit increased $0.6 million, or 60%, from $1.0
million in the three months ended January 31, 1996 to $1.6 million in the three
months ended January 31, 1997. As a percentage of revenues, gross profit
increased from 24% in the three months ended January 31, 1996 to 26% in the
three months ended January 31, 1997. This increase resulted principally from
improved utilization of the work force associated with the increase in revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.8 million, or 73%, from $1.1 million in the
three months ended January 31, 1996 to $1.9 million in the three months ended
January 31, 1997 and increased as a percentage of revenues from 27% in the three
months ended January 31, 1996 to 31% in the three months ended January 31, 1997.
The increase in these expenses resulted from the inclusion of Henze in fiscal
1997 and from certain non-recurring accounting, legal and other charges incurred
in connection with the sale of Harley to SSI. The remaining increase resulted
from costs incurred to support the increase in revenues.
FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995
REVENUES -- Revenues increased $2.4 million, or 13%, from $19.0 million in
fiscal 1995 to $21.4 million in fiscal 1996. The increase in revenues resulted
principally from the acquisition of Henze in June 1996.
25
<PAGE>
GROSS PROFIT -- Gross profit increased $0.9 million, or 18%, from $5.0
million in fiscal 1995 to $5.9 million in fiscal 1996. As a percentage of
revenues, gross profit increased from 26% in fiscal 1995 to 28% in fiscal 1996
as a result of improved employee and other resource utilization associated with
the increase in the revenue base described above, which was partially offset by
relatively lower margins related to the operations of Henze after its
acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $1.2 million, or 27%, from $4.4 million in
fiscal 1995 to $5.6 million in fiscal 1996 as a result of significant general
and administrative costs related to the operations of Henze. As a percentage of
revenues, these expenses increased from 23% in fiscal 1995 to 26% in fiscal
1996.
FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1994
REVENUES -- Revenues increased $2.4 million, or 14%, from $16.6 million in
fiscal 1994 to $19.0 million in fiscal 1995. This increase was primarily
attributable to internal growth associated with broader customer acceptance in
fiscal 1995 of a new product line first introduced in late fiscal 1993.
GROSS PROFIT -- Gross profit increased $0.7 million, or 16%, from $4.3
million in fiscal 1994 to $5.0 million in fiscal 1995. As a percentage of
revenues, gross profit was 26% in both fiscal years.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased slightly from $4.5 million in fiscal 1994 to
$4.4 million in fiscal 1995 and decreased from 27% of revenues in fiscal 1994 to
23% of revenues in fiscal 1995 as a result of these expenses, which were largely
fixed in nature, being spread over a larger revenue base.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from Harley's
statements of cash flows
(in millions):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED OCTOBER 31 JANUARY 31
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
continuing operating activities.... $ (0.7) $ 0.5 $ 0.3 $ 0.3 $ (0.6)
Net cash (used in) investing
activities......................... (0.5) (0.1) (1.4) -- --
Net cash provided by (used in)
financing activities............... 1.3 (0.1) 0.5 (0.3) 1.3
--------- --------- --------- --------- ---------
Net change in cash from continuing
operations......................... $ 0.1 $ 0.3 $ (0.6) $ -- $ 0.7
========= ========= ========= ========= =========
</TABLE>
For the period from November 1, 1993 through January 31, 1997, Harley used
$0.5 million of cash from continuing operations. For this period, Harley used
$2.0 million for investing activities, $1.4 million of which was used for the
purchase of Henze in fiscal 1996, with the remainder being primarily used for
capital expenditures. Cash provided by financing activities of $3.0 million for
the same period reflected net borrowings under Harley's credit facilities.
26
<PAGE>
STEAM SUPPLY
RESULTS OF OPERATIONS
The following table sets forth for Steam Supply certain selected financial
data and data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31 APRIL 30
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 14,777 100% $ 15,408 100% $ 15,079 100% $ 7,435 100%
Cost of operations................... 9,703 66 10,092 66 9,574 63 4,655 63
--------- --- --------- --- --------- --- --------- ---
Gross profit......................... 5,074 34 5,316 34 5,505 37 2,780 37
Selling, general and administrative
expenses........................... 5,022 34 4,826 31 5,107 34 2,452 33
--------- --- --------- --- --------- --- --------- ---
Income from operations............... $ 52 -- $ 490 3 $ 398 3 $ 328 4
========= === ========= === ========= === ========= ===
</TABLE>
SIX MONTHS ENDED
APRIL 30
--------------------
1997
--------------------
Revenues............................. $ 7,737 100%
Cost of operations................... 5,414 70
--------- ---
Gross profit......................... 2,323 30
Selling, general and administrative
expenses........................... 2,275 29
--------- ---
Income from operations............... $ 48 1
========= ===
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $0.3 million, or 4%, from $7.4 million in
the first six months of fiscal 1996 to $7.7 million in the first six months of
fiscal 1997. This increase resulted principally from increased sales and the
performance of incremental repair work relative to scheduled turnarounds in the
first six months of fiscal 1997 for customers in the pulp and paper industry in
Washington and the petrochemical industry in California.
GROSS PROFIT -- Gross profit decreased $0.5 million, or 18%, from $2.8
million in the first six months of fiscal 1996 to $2.3 million in the first six
months of fiscal 1997. As a percentage of revenues, gross profit decreased from
37% in the first six months of fiscal 1996 to 30% in the first six months of
fiscal 1997. This decrease resulted principally from the required utilization of
higher cost contract labor.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.2 million, or 8%, from $2.5 million in the
first six months of fiscal 1996 to $2.3 million in the first six months of
fiscal 1997. As a percentage of revenues, these expenses decreased from 33% in
the first six months of fiscal 1996 to 29% in the first six months of fiscal
1997 because of management's focus on cost containment programs during fiscal
1997.
FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995
REVENUES -- Revenues decreased $0.3 million, or 2%, from $15.4 million in
fiscal 1995 to $15.1 million in fiscal 1996. This decrease resulted principally
from a marginal reduction in sales in the Company's Alaska distribution
operations.
GROSS PROFIT -- Gross profit increased $0.2 million, or 4%, from $5.3
million in fiscal 1995 to $5.5 million in fiscal 1996. As a percentage of
revenues, gross profit increased from 34% in fiscal 1995 to 37% in fiscal 1996
primarily as a result of an increase in higher margin repair services revenues
as a percentage of revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.3 million, or 6%, from $4.8 million in
fiscal 1995 to $5.1 million in fiscal 1996. As a percentage of revenues, these
expenses increased from 31% in fiscal 1995 to 34% in fiscal 1996, principally as
a result of the addition of sales and administrative personnel to support Steam
Supply's planned expansion of its sales and related marketing efforts.
FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1994
REVENUES -- Revenues increased $0.6 million, or 4%, from $14.8 million in
fiscal 1994 to $15.4 million in fiscal 1995. This increase resulted principally
from significant sales of valves and related parts to a major customer in the
pulp and paper industry for a project in Kentucky and from sales related to the
27
<PAGE>
installation of new valves and related parts and instrumentation in certain
silicon chip manufacturing facilities in Oregon.
GROSS PROFIT -- Gross profit increased $0.2 million, or 4%, from $5.1
million in fiscal 1994 to $5.3 million in fiscal 1995 and represented 34% of
revenues in both fiscal years.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.2 million, or 4%, from $5.0 million in
fiscal 1994 to $4.8 million in fiscal 1995. As a percentage of revenues, these
expenses decreased from 34% in fiscal 1994 to 31% in fiscal 1995, principally
because of the implementation of cost containment and employee reduction
programs in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from Steam Supply's
statements of cash flows (in millions):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31 APRIL 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............... $ 0.1 $ 0.5 $ (0.3) $ (0.1) $ 0.1
Net cash (used in) investing
activities......................... -- (0.2) (0.6) (0.3) --
Net cash provided by (used in)
financing activities............... (0.1) (0.3) 0.9 0.4 (0.1)
--------- --------- --------- --------- ---------
Net change in cash................... $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
</TABLE>
For the period from November 1, 1993 through April 30, 1997, Steam Supply
generated $0.4 million in cash from operations as a result of net income. Over
the same period, Steam Supply used $0.8 million in cash in investing activities,
primarily for capital expenditures. Cash provided by financing activities over
the same period, consisting of proceeds from Steam Supply's net borrowings,
totaled $0.4 million.
ICE/VARCO
RESULTS OF OPERATIONS
The following table sets forth for ICE/VARCO certain selected financial
data and data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30 MARCH 31
------------------------------------------ ------------------------------------------
1995 1996 1996 1997
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 9,128 100% $ 12,744 100% $ 5,591 100% $ 7,104 100%
Cost of operations................... 6,518 71 9,453 74 4,138 74 5,747 81
--------- --- --------- --- --------- --- --------- ---
Gross profit......................... 2,610 29 3,291 26 1,453 26 1,357 19
Selling, general and administrative
expenses........................... 2,346 26 2,859 23 1,344 24 1,555 22
--------- --- --------- --- --------- --- --------- ---
Income (loss) from operations........ $ 264 3 $ 432 3 $ 109 2 $ (198) (3)
========= === ========= === ========= === ========= ===
</TABLE>
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $1.5 million, or 27%, from $5.6 million in
the first six months of fiscal 1996 to $7.1 million in the first six months of
fiscal 1997. This increase resulted principally from the further penetration of
existing markets for distribution and repair services and the inclusion of
approximately $0.9 million of revenues in fiscal 1997 attributable to a business
purchased in August 1996 for $0.2 million. This business ("BAS") provides
engineered product design and electrical panel construction services for
industrial process systems.
28
<PAGE>
GROSS PROFIT -- Gross profit decreased $0.1 million, or 7%, from $1.5
million in the first six months of fiscal 1996 to $1.4 million in the first six
months of fiscal 1997. As a percentage of revenues, gross profit decreased from
26% in the first six months of fiscal 1996 to 19% in the first six months of
fiscal 1997 principally because of the significantly lower margins associated
with the revenues generated by BAS. ICE/VARCO purchased BAS as a turnaround
opportunity and is in the process of restructuring its operations. This
restructuring has included (i) a change in customer focus, to emphasize
higher-margin, integrated product and service offerings and (ii) a significant
realignment of BAS' cost structure, but the anticipated beneficial effects of
this restructuring have not yet been realized. Excluding the results of BAS,
ICE/VARCO's gross margin remained consistent from period to period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.3 million, or 23%, from $1.3 million in the
first six months of fiscal 1996 to $1.6 million in the first six months of
fiscal 1997. As a percentage of revenues, these expenses decreased from 24% to
22% from period to period. The absolute dollar increase in these expenses
resulted principally from the costs incurred to support the increase in sales
and certain costs associated with the integration and restructuring of BAS.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1995
REVENUES -- Revenues increased $3.6 million, or 40%, from $9.1 million in
fiscal 1995 to $12.7 million in fiscal 1996. This increase resulted from an
increase of approximately 45% in distribution services revenues and a 16%
increase in repair service revenues as a result of (i) additional revenues from
existing customers, (ii) the addition of new customers and (iii) the expansion
of repair service capabilities.
GROSS PROFIT -- Gross profit increased $0.7 million, or 27%, from $2.6
million in fiscal 1995 to $3.3 million in fiscal 1996. As a percentage of
revenues, gross profit decreased slightly from 29% in fiscal 1995 to 26% in
fiscal 1996 as a result of ICE/VARCO's efforts to expand its share of local
markets through more attractive pricing.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, or 26%, from $2.3 million in
fiscal 1995 to $2.9 million in fiscal 1996. As a percentage of revenues, these
expenses decreased from 26% in fiscal 1995 to 23% in fiscal 1996. The absolute
dollar increase in these expenses resulted principally from the increase in the
sales and marketing staff to support the increase in revenues experienced over
the same period.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from ICE/VARCO's
statements of cash flows (in millions):
YEAR ENDED SEPTEMBER SIX MONTHS ENDED
30 MARCH 31
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
Net cash provided by (used in)
operating activities............ $ (0.4) $ 0.4 $ (0.2) $ (0.3)
Net cash (used in) investing
activities...................... (0.1) (0.2) (0.2) (0.1)
Net cash provided by (used in)
financing activities............ 0.5 (0.2) 0.4 0.5
--------- --------- --------- ---------
Net change in cash................ $ -- $ -- $ -- $ 0.1
========= ========= ========= =========
From October 1, 1994 through March 31, 1997, ICE/VARCO used $0.3 million in
cash which was attributable to the growth of its business. Over the same period,
net cash used in investing activities of $0.4 million consisted primarily of
capital expenditures. For the same period, cash provided by financing activities
of $0.8 million consisted of proceeds from net borrowings under ICE/VARCO's
credit facilities.
29
<PAGE>
GSV
RESULTS OF OPERATIONS
The following table sets forth for GSV certain selected financial data and
data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEAR ENDED DECEMBER 31 FEBRUARY 28
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 8,923 100% $ 8,654 100% $ 10,227 100% $ 1,413 100%
Cost of operations................... 7,191 81 6,662 77 7,688 75 1,106 78
--------- --- --------- --- --------- --- --------- ---
Gross profit......................... 1,732 19 1,992 23 2,539 25 307 22
Selling, general and administrative
expenses........................... 1,522 17 1,482 17 1,276 13 207 15
--------- --- --------- --- --------- --- --------- ---
Income from operations............... $ 210 2 $ 510 6 $ 1,263 12 $ 100 7
========= === ========= === ========= === ========= ===
</TABLE>
TWO MONTHS ENDED
FEBRUARY 28
--------------------
1997
--------------------
Revenues............................. $ 1,637 100%
Cost of operations................... 1,258 77
--------- ---
Gross profit......................... 379 23
Selling, general and administrative
expenses........................... 243 15
--------- ---
Income from operations............... $ 136 8
========= ===
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $0.2 million, or 14%, from $1.4 million in
the two months ended February 28, 1996 to $1.6 million in the two months ended
February 28, 1997. This increase resulted primarily from continued incremental
growth related to new product lines GSV began selling during fiscal 1996.
GROSS PROFIT -- Gross profit increased $0.1 million, or 33%, from $0.3
million in the two months ended February 28, 1996 to $0.4 million in the two
months ended February 28, 1997. As a percentage of revenues, gross profits
increased from 22% in the two months ended February 28, 1996 to 23% in the two
months ended February 28, 1997. This increase resulted primarily from a shift in
the mix of products sold to products on which GSV realizes higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses were $0.2 million, or 15% of revenues, in both interim
periods.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES -- Revenues increased $1.5 million, or 17%, from $8.7 million in
fiscal 1995 to $10.2 million in fiscal 1996. This increase was primarily
attributable to a sole source contract GSV obtained from a significant customer.
This contract contributed approximately $1.1 million in revenues in fiscal 1996.
In addition, GSV commenced operations in several new lines of business which
incrementally increased revenues in fiscal 1996.
GROSS PROFIT -- Gross profit increased $0.5 million, or 25%, from $2.0
million in fiscal 1995 to $2.5 million in fiscal 1996. As a percentage of
revenues, gross profit increased from 23% in 1995 to 25% in fiscal 1996. This
increase resulted from increases in pricing as competitive conditions permitted.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.2 million, or 13%, from $1.5 million in
fiscal 1995 to $1.3 million in fiscal 1996. As a percentage of revenues, these
expenses decreased from 17% in fiscal 1995 to 13% in fiscal 1996, principally as
a result of the continued implementation of company-wide cost containment
programs.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES -- Revenues decreased approximately $0.2 million, or 2%, from $8.9
million in fiscal 1994 to $8.7 million in fiscal 1995. This decrease primarily
reflected lower sales volumes attributable to the cyclical nature of the
electric power industry GSV serves.
GROSS PROFIT -- Gross profit increased approximately $0.3 million, or 18%,
from $1.7 million in fiscal 1994 to $2.0 million in fiscal 1995. As a percentage
of revenues, gross profit increased from 19% in fiscal
30
<PAGE>
1994 to 23% in fiscal 1995 because of a favorable mix of product sales and an
enhanced focus on cost containment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses were substantially the same in fiscal 1994 and fiscal
1995 and represented 17% of revenues in both fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from GSV's statements
of cash flows (in millions):
<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEAR ENDED DECEMBER 31 FEBRUARY 28
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities......................... $ 0.8 $ 0.5 $ 1.0 $ 0.6 $ 0.3
Net cash (used in) investing
activities......................... (0.6) (0.1) (0.3) -- --
Net cash (used in) financing
activities......................... (0.2) (0.4) (0.7) (0.6) (0.3)
--------- --------- --------- --------- ---------
Net change in cash................... $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
</TABLE>
GSV generated $2.6 million in cash from operating activities from January
1, 1994 through February 28, 1997 as a result of net income. Net cash used
during this period in investing activities was approximately $1.0 million, which
related principally to capital expenditures. For this period, net cash used in
financing activities was $1.6 million and related principally to the payment of
stockholder distributions and the repayment of debt.
PLANT SPECIALTIES
RESULTS OF OPERATIONS
The following table sets forth for Plant Specialties certain selected
financial data and data as a percentage of revenues for the periods indicated
(dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31 APRIL 30
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 9,688 100% $ 11,526 100% $ 8,501 100% $ 4,078 100%
Cost of operations................... 6,429 66 7,377 64 5,620 66 2,693 66
--------- --- --------- --- --------- --- --------- ---
Gross profit......................... 3,259 34 4,149 36 2,881 34 1,385 34
Selling, general and administrative
expenses........................... 2,590 27 2,991 26 2,489 29 1,371 34
--------- --- --------- --- --------- --- --------- ---
Income from operations............... $ 669 7 $ 1,158 10 $ 392 5 $ 14 --
========= === ========= === ========= === ========= ===
</TABLE>
SIX MONTHS ENDED
APRIL 30
--------------------
1997
--------------------
Revenues............................. $ 5,845 100%
Cost of operations................... 3,562 61
--------- ---
Gross profit......................... 2,283 39
Selling, general and administrative
expenses........................... 1,428 24
--------- ---
Income from operations............... $ 855 15
========= ===
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $1.7 million, or 41%, from $4.1 million in
the first six months of fiscal 1996 to $5.8 million in the first six months of
fiscal 1997. This increase resulted principally from a shift in management's
emphasis to more aggressive sales and marketing programs in the first six months
of fiscal 1997 and the performance of previously deferred turnaround work.
GROSS PROFIT -- Gross profit increased $0.9 million, or 64%, from $1.4
million in the first six months of fiscal 1996 to $2.3 million in the first six
months of fiscal 1997. As a percentage of revenues, gross profit increased from
34% in the first six months of fiscal 1996 to 39% in the first six months of
fiscal 1997. This increase resulted principally from the substantial increase in
revenues combined with Plant Specialties' relatively fixed operating cost
structure.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses remained consistent at $1.4 million for both interim
periods. As a percentage of revenues, these expenses
31
<PAGE>
decreased from 34% in the first six months of fiscal 1996 to 24% in the first
six months of fiscal 1997 because of these expenses being spread over a much
larger revenue base.
FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995
REVENUES -- Revenues decreased approximately $3.0 million, or 26%, from
$11.5 million in fiscal 1995 to $8.5 million in fiscal 1996. This decrease
resulted primarily from the temporary redirection in fiscal 1996 of senior
management's focus on the internal development of a computer-based
work-in-progress control and documentation system and the deferral by customers
of previously scheduled turnaround work until fiscal 1997.
GROSS PROFIT -- Gross profit decreased $1.2 million, or 29%, from $4.1
million in fiscal 1995 to $2.9 million in fiscal 1996 and decreased from 36% of
revenues in fiscal 1995 to 34% of revenues in fiscal 1996. This slight gross
margin decrease resulted from less favorable employee utilization associated
with the lower revenue base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased approximately $0.5 million, or 17%, from $3.0
million in fiscal 1995 to $2.5 million in fiscal 1996. This decrease resulted
principally from the implementation of an overall cost reduction program, which
included a significant reduction in the number of employees. Because of the
decrease in revenues, however, these expenses, as a percentage of revenues,
increased from 26% in fiscal 1995 to 29% in fiscal 1996.
FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1994
REVENUES -- Revenues increased $1.8 million, or 19%, from $9.7 million in
fiscal 1994 to $11.5 million in fiscal 1995. This increase resulted from a
significant level of valve maintenance business that occurred in fiscal 1995 as
a result of a higher frequency of plant turnarounds in fiscal 1995 as compared
with fiscal 1994.
GROSS PROFIT -- Gross profit increased $0.8 million, or 24%, from $3.3
million in fiscal 1994 to $4.1 million in fiscal 1995 and increased to 36% of
revenues in fiscal 1995 from 34% of revenues in fiscal 1994. The improvement in
gross margin resulted from improved employee utilization associated with
increased sales activity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.4 million, or 15%, from $2.6 million in
fiscal 1994 to $3.0 million in fiscal 1995. As a percentage of revenues, these
expenses decreased from 27% in fiscal 1994 to 26% in fiscal 1995. The absolute
dollar increase in these expenses resulted from increased salaries and benefits
required to support the higher level of revenues in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from Plant Specialties'
statements of cash flows
(in millions):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED OCTOBER 31 APRIL 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............... $ 0.1 $ 0.7 $ 0.4 $ 0.5 $ (0.3)
Net cash (used in) investing
activities......................... (0.6) (1.0) (0.3) (0.2) (0.1)
Net cash provided by (used in)
financing activities............... 0.5 0.3 (0.1) (0.3) 0.5
--------- --------- --------- --------- ---------
Net change in cash................... $ -- $ -- $ -- $ -- $ 0.1
========= ========= ========= ========= =========
</TABLE>
For the period from November 1, 1994 through April 30, 1997, Plant
Specialties generated $0.9 million in cash from operations and used $2.0 million
in investing activities, primarily for capital
32
<PAGE>
expenditures. For the same period, cash provided by financing activities was
$1.2 million and consisted of proceeds from the utilization of its credit
facilities.
SVS
RESULTS OF OPERATIONS
The following table sets forth for SVS certain selected financial data and
data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30
------------------------------------------
1996 1997
-------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................. $ 2,541 100% $ 2,098 100%
Cost of operations................... 1,523 60 1,398 67
--------- --------- --------- ---------
Gross profit......................... 1,018 40 700 33
Selling, general and administrative
expenses........................... 551 22 581 27
--------- --------- --------- ---------
Income from operations............... $ 467 18 $ 119 6
========= ========= ========= =========
</TABLE>
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues decreased $0.4 million, or 16%, from $2.5 million in
the first six months of fiscal 1996 to $2.1 million in the first six months of
fiscal 1997. This decrease resulted principally from the deferral by customers
of previously scheduled turnarounds until SVS' third quarter of fiscal 1997 (May
through July).
GROSS PROFIT -- Gross profit decreased $0.3 million, or 30%, from $1.0
million in the first six months of fiscal 1996 to $0.7 million in the first six
months of fiscal 1997. As a percentage of revenues, gross profit decreased from
40% in the first six months of fiscal 1996 to 33% in the first six months of
fiscal 1997. Both decreases resulted from less than optimal employee and other
resource utilization attributable to the decrease in revenues between the two
periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses were $0.6 million for both periods. As a percentage of
revenues, these expenses increased from 22% in the first six months of fiscal
1996 to 27% in the first six months of fiscal 1997 because of the reduction in
revenues.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from SVS' statements of
cash flows
(in millions):
SIX MONTHS ENDED
YEAR ENDED APRIL 30
OCTOBER 31, --------------------
1996 1996 1997
----------- --------- ---------
(UNAUDITED)
Net cash provided by (used in)
operating activities............... $ 0.2 $ 0.2 $ (0.4)
Net cash (used in) investing
activities......................... (0.3) (0.1) --
Net cash provided by financing
activities......................... -- -- 0.4
----------- --------- ---------
Net change in cash................... $(0.1) $ 0.1 $ --
=========== ========= =========
From November 1, 1995 through April 30, 1997, SVS used $0.2 million in cash
in its operations due principally to increases in certain assets associated with
the growth of its business. In the same period, SVS used $0.3 million in
investing activities in cash to fund capital expenditures and generated $0.4
million in cash from net borrowings.
33
<PAGE>
SSI
RESULTS OF OPERATIONS
The following table sets forth for SSI certain selected financial data and
data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 2,547 100% $ 2,852 100% $ 3,888 100% $ 652 100%
Cost of operations................... 1,271 50 1,584 56 2,376 61 426 65
--------- --- --------- --- --------- --- --------- ---
Gross profit......................... 1,276 50 1,268 44 1,512 39 226 35
Selling, general and administrative
expenses........................... 1,268 50 1,853 65 1,917 49 466 71
Special compensation expense on
common stock issuance.............. -- -- -- -- 38 1 -- --
--------- --- --------- --- --------- --- --------- ---
Income (loss) from operations........ $ 8 -- $ (585) (21) $ (443) (11) $ (240) (36)
========= === ========= === ========= === ========= ===
</TABLE>
THREE MONTHS ENDED
MARCH 31
--------------------
1997
--------------------
Revenues............................. $ 6,945 100%
Cost of operations................... 4,751 68
--------- ---
Gross profit......................... 2,194 32
Selling, general and administrative
expenses........................... 1,951 28
Special compensation expense on
common stock issuance.............. 1,309 19
--------- ---
Income (loss) from operations........ $ (1,066) (15)
========= ===
UNAUDITED INTERIM RESULTS
REVENUES -- Revenues increased $6.2 million, or 886%, from $0.7 million in
the first three months of fiscal 1996 to $6.9 million in the first three months
of fiscal 1997. This increase resulted from the inclusion of the results of
Harley and GSV from their respective dates of acquisition, February 1 and March
1, 1997.
GROSS PROFIT -- Gross profit increased $2.0 million, or 1,000%, from $0.2
million in the first three months of fiscal 1996 to $2.2 million in the first
three months of fiscal 1997, principally as a result of the incremental revenues
generated by Harley and GSV. As a percentage of revenues, gross profit decreased
from 35% in the first three months of fiscal 1996 to 32% in the first three
months of fiscal 1997. This decrease reflects the transition from the
historically higher gross margins of SSI to the relatively lower gross margins
historically demonstrated by Harley and GSV.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $1.5 million, or 300%, from $0.5 million in
the first three months of fiscal 1996 to $2.0 million in the first three months
of fiscal 1997. As a percentage of revenues, these expenses decreased from 71%
in the first three months of fiscal 1996 to 28% in the first three months of
fiscal 1997. This increase reflects the establishment of an expanded corporate
infrastructure, preparation for becoming a public company and the incremental
selling, general and administrative expenses of Harley and GSV.
SPECIAL COMPENSATION EXPENSE ON COMMON STOCK ISSUANCE -- In connection with
the issuance of common stock to certain members of management, SSI recorded a
$1.3 million non-cash, non-recurring charge in the three months ended March 31,
1997 as described under "Management -- Executive Compensation" and "Certain
Transactions -- Financing Arrangements."
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES -- Revenues increased $1.0 million, or 34%, from $2.9 million in
fiscal 1995 to $3.9 million in fiscal 1996. This increase resulted primarily
from SSI obtaining, in early fiscal 1996, sole-source contracts to provide leak
sealing and related services to two significant petrochemical companies located
in the United States Gulf Coast region. An expansion of SSI's sales force during
fiscal 1996 also contributed to the increase in revenues in fiscal 1996.
GROSS PROFIT -- Gross profit increased $0.2 million, or 15%, from $1.3
million in fiscal 1995 to $1.5 million in fiscal 1996. As a percentage of
revenues, gross profits decreased from 44% in fiscal 1995 to 39% in fiscal 1996,
principally as a result of: (i) aggressive pricing offered by SSI to obtain
significant sole-
34
<PAGE>
source contracts in fiscal 1996; (ii) a marginal increase in the cost of certain
raw materials utilized in the leak sealing process; and (iii) increases in
staffing levels in fiscal 1996 in preparation for higher levels of business
activity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses remained consistent at $1.9 million in both fiscal 1995
and fiscal 1996. As a percentage of revenues, these expenses decreased from 65%
in fiscal 1995 to 49% in fiscal 1996, as a result of being spread over a larger
revenue base.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES -- Revenues increased $0.4 million, or 16%, from $2.5 million in
fiscal 1994 to $2.9 million in fiscal 1995. This increase resulted primarily
from increased volumes of business resulting from an expansion of SSI's customer
base which was generated principally by three facilities opened in new
geographic markets in fiscal 1993.
GROSS PROFIT -- Gross profit remained flat between fiscal 1994 and fiscal
1995, but decreased as a percentage of revenue from 50% in fiscal 1994 to 44% in
fiscal 1995. This decrease resulted from an increase in the cost of raw
materials utilized in the leak sealing process and lower pricing offered by SSI
in an effort to expand its customer base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, or 46%, from $1.3 million in
fiscal 1994 to $1.9 million in fiscal 1995. As a percentage of revenues, these
expenses increased from 50% in fiscal 1994 to 65% in fiscal 1995. This increase
was principally the result of significant legal costs incurred in securing
various patents and related agreements related to the SafeSeal(TM) system.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from SSI's statements
of cash flows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash (used in) operating
activities......................... $ -- $ (1.1) $ (0.9) $ (0.5) $ (1.0)
Net cash (used in) investing
activities......................... -- -- (0.2) -- (10.3)
Net cash provided by (used in)
financing activities............... 0.1 2.5 -- (0.1) 11.3
--------- --------- --------- --------- ---------
Net change in cash................... $ 0.1 $ 1.4 $ (1.1) $ (0.6) $ --
========= ========= ========= ========= =========
</TABLE>
In the period from January 1, 1994 through March 31, 1997, SSI's operations
used $3.0 million of cash as a result of its losses of $3.1 million in that
period. Cash used in investing activities of $10.5 million in the same period
consisted primarily of $10.2 million used to acquire Harley and GSV. Cash
provided from financing activities in the same period of $13.8 million reflects
net borrowings under credit facilities ($7.8 million) and sales of SSI equity
securities to Allwaste in 1995 and the first three months of 1997 ($6.0
million).
35
<PAGE>
THE INDUSTRIAL VALVE INDUSTRY
OVERVIEW
Petrochemical and other chemical plants, petroleum refineries, pulp and
paper mills, electric and other utilities and other industrial process
facilities use industrial valves to direct and regulate the flow of feedstocks,
intermediates, products and fuels in their process systems. Industrial valves,
ranging in diameter from less than 1/2" to over 20 feet, serve as mechanical
control, blocking and pressure-relief devices in piping applications involving a
myriad of liquids, gases, dry materials, slurries and other substances. The
service environments for industrial valves range from relatively benign to
severe, and the useful life of an industrial valve can range from several hours
to 30 years or more depending on the severity of its service and other factors.
These factors include the materials comprising the valve, the quality of its
manufacture and the frequency and quality of its repair. Classified by how they
are powered, industrial valves may be divided into two broad categories: (i)
those powered manually ("standard" valves); and (ii) those operated by
actuators using electric, hydraulic or pneumatic power ("actuated" valves).
Actuated valves include those originally installed as such and standard valves
that have been upgraded. Valves of both types include rising stem valves
("RSVs"), such as globe, gate and diaphragm valves, and pressure safety,
relief and safety-relief valves ("PRVs"). Process industries use PRVs to
relieve excess pressure in process equipment, pressure vessels, boilers and
pipelines and thereby prevent explosions or other system damage. PRVs typically
are designed to contain pressure up to a predetermined level (which is
individually set for each valve) and then to open and relieve excess pressure in
a controlled manner. Standard PRVs are self-operating and typically are spring
loaded, while actuated PRVs typically are operated by a pilot controller that
actuates the valve.
A recent industry study estimates that over 650 million industrial valves
currently are installed in North America, including more than 140 million RSVs
in various process industries in the United States. This study also estimates
that more than 370 million RSVs are in use worldwide. The Company believes
substantially every RSV experiences at least one leak during its operational
life and estimates that between 4 million and 7 million of the RSVs installed in
the United States are leaking at a rate requiring repair or replacement at any
one point in time.
Process systems consist of discrete units or trains of units which
generally operate continuously under pressure. In many process industries, these
systems handle corrosive substances and are subject to high cycling rates and
extremes of pressure and temperature. Leaks occur as a result, and a principal
source of leaks are valves using rising stems to direct their opening and
closing. Manufacturers use various packing materials to seal the stem area in
RSVs, but these seals are vulnerable to the effects of friction and pressure
and, in many cases, normal packing shrinkage and deterioration.
The process systems in the industries the Company serves generally require
emergency work and comprehensive scheduled periodic off-line repairs (called
"turnarounds"). Emergency work is performed, if practicable, while the
affected unit remains in operation and under pressure. On-line repairs
historically have consisted of sealing leaking pipes and flanges with various
enclosures and clamps and repacking leaking valves as interim measures pending
the next scheduled turnaround. Turnarounds typically involve the shutdown of an
entire process unit or trains of process units to permit the disassembly, repair
and/or replacement and reassembly of component parts (including industrial
valves), a process which can take from a few days to several months.
Three broad sectors comprise the industrial valve industry: (i)
manufacturing; (ii) distribution; and (iii) maintenance, repair and replacement
services (collectively, "repair services"). The Company believes, on the basis
of industry studies, that the distribution and repair sectors of the industrial
valve industry represent a current worldwide annual market in excess of $20.6
billion, of which North America accounts for approximately $9.2 billion,
including approximately $3.7 billion attributable to repair services and $5.5
billion attributable to distribution and related services.
36
<PAGE>
MANUFACTURING
Because many types of industrial valves are commodity-like products,
designers and OEMs of these valves generally must offer favorable pricing and a
consistent selection of new, better-performing valves to gain or retain market
share, and many target individual markets, product segments and speciality
niches to obtain brand identity. More than 500 companies design and manufacture
industrial valves in the United States, and this sector is undergoing some
consolidation.
DISTRIBUTION AND REPAIR
OEMs of industrial valves generally sell their products through various
independent distribution channels. The Company believes independent distributors
and independent sales representatives selling directly to small retailers or to
end users account for approximately 75% of new industrial valve sales in the
United States, while direct sales by OEMs account for the balance. The types of
distributors include (i) wholesalers selling commodity-type valves primarily to
retailers, (ii) valve and pipefitting stocking distributors selling standard
RSVs and quarter-turn valves, (iii) speciality flow control distributors selling
actuated valves packaged with other control products as complete systems and
(iv) full-line distributors selling all types of valves. Value-added
distribution services include the assembly, testing, sealing and certification
of PRVs and customizing original equipment to meet the customer's
specifications.
Repair services include "on-line" repairs of valves and other
process-system components that continue to operate under pressure while the
repair is made and "off-line" repairs involving the repair of valves and other
process-system components that have been temporarily removed from a process
system. Off-line repairs are made either at the customer's facility (an
"on-site" repair) or in the repair service's facility (an "in-shop" repair).
In the United States, end users, distributors and repair companies perform
most repair and distribution services, while OEMs generally offer these services
only on a limited basis. The Company believes, on the basis of available market
data, that (i) the independent repair and distribution services sector includes
more than 1,000 companies, consisting predominantly of small businesses
operating in single geographic areas in proximity to their customers, and (ii)
most of these companies have limited access to capital for modernization and
expansion and limited exit strategies for their owners. The Company also
believes that, as part of an overall emphasis on reducing operating costs, many
end users are increasing their outsourcing of various non-revenue-producing
activities, such as plant maintenance (including outsourcing of entire valve
maintenance and management programs).
The Company believes significant opportunities are available in the repair
and distribution services sectors of its industry to a well-capitalized national
company employing professionally trained service technicians and machinists and
providing a full complement of on-line, on-site and in-shop repair services. It
also believes the fragmented nature of its industry will provide it with
significant opportunities to consolidate the capabilities and resources of a
large number of existing repair services businesses.
MARKET ENVIRONMENT AND TRENDS
The Company has targeted selected groups of end users in three categories
of process industries in the United States, Canada and Mexico as its initial
primary market for the expansion of its repair and distribution services: (i)
petrochemical and other chemical plants, petroleum refineries and pulp and paper
mills (process manufacturers); (ii) conventional and nuclear electric power
plants and cogenerators and water and wastewater utilities (utilities); and
(iii) crude oil and natural gas producers, gas processing plants and oil, gas
and products pipelines (resource industries). The Company believes these
targeted groups account for substantially all the approximately 140 million RSVs
the Company believes currently are in service in the United States and are heavy
users of PRVs and other valves. These groups also are characterized by severe
service applications in their processes which require valves that can endure
corrosive substances, flammable and explosive materials, high cycling rates and
extremes of pressure and
37
<PAGE>
temperature. The Company believes economic conditions (generally and in these
targeted groups), technological developments and health, safety and
environmental concerns drive the markets for repair services and value-added
distribution services in these groups.
The Company's targeted industries use industrial valves currently ranging
in cost from less than $10 to more than $100,000. Historically, the demand for
new industrial valves has been determined by the extent to which general and
specific industry economic conditions or forecasts spurred the construction of
new plants or expansions of existing plant capacities. The Company believes that
(i) for a number of years, many companies in these industries lengthened the
period of time between turnarounds to minimize the economic costs associated
with turnarounds and delayed construction of new plant facilities and outlays of
capital expenditures for improvements of existing facilities and, as a result,
(ii) they are using a large population of aged valves which will require
increasing levels of repair and replacement. In recent years, various factors
have led companies in these industries to undertake capital expenditure programs
to retool their existing process operations with new or improved labor-, time-
and other cost-reducing devices. The Company believes this trend has
strengthened both the replacement market for industrial valves and the market
for independent, comprehensive repair services.
Because the Company's targeted industries generally manufacture or produce
commodities, they compete generally on the basis of price with each other and,
in many cases, with foreign companies having lower-cost labor pools or raw
material or other competitive advantages. The downward pressure this competition
places on prices has led to the trend in these industries to attempt to achieve
operating efficiencies as a means of preserving or enhancing operating margins
while remaining competitive in their markets. Also contributing to this trend
are various technological developments that enable these industries to reduce
operating costs on a cost-efficient basis by modernizing existing process
systems and other plant operations or replacing existing process systems with
new, more efficient systems. For example, some industries have developed new
process technologies requiring equipment to operate under higher pressures and
thus entailing the replacement or pressure-resetting of installed PRVs.
Similarly, automation of valve and other process control devices and
computerized information management systems enable these industries to use a
smaller work force to perform essential non-revenue-producing services, while
the emergence of reliable independent service providers using new technologies
in areas such as valve repair service, inventory management and turnaround
planning enables these industries increasingly to outsource these services,
typically at a net savings. The Company believes many companies in these
industries have eliminated or severely reduced the size of their own repair
crews and engineering staffs. In addition, in order to reduce the size of their
purchasing departments and the costs of contract administration, these companies
are trending towards using fewer in-house administrators overseeing a reduced
number of vendors performing an increasing amount of services.
The efforts of the Company's targeted industries to reduce their costs have
led OEMs to design and tool for the manufacture of more energy-efficient and
reliable valves. Because valve design and manufacture is capital intensive and
price is a primary competitive factor in the sale of new valves, the Company
believes that valve OEMs are under pressure to reduce their own costs and
increasingly will evaluate the potential cost savings from outsourcing their
assembly, sales and other functions and reducing the number of distributors they
utilize and are required to monitor.
Another factor driving certain of the Company's targeted industries towards
spending for new valves and related products and new valve repair service
technologies is the mandate of the federal Clean Air Act, as amended in 1990,
that various process industries, including most of those the Company serves, use
the maximum achievable control technology ("MACT") available (i) to minimize
the occurrences of fugitive emissions from their process systems of certain
volatile organic compounds ("VOCs") or other hazardous air pollutants and (ii)
to control the emissions that do occur. Regulations promulgated by the United
States Environmental Protection Agency (the "EPA") currently require the
phase-in (first in newly constructed, reconstructed or modified process systems
and then in existing unmodified systems) of MACT performance standards for all
major source categories of hazardous air pollutants. Under these standards, a
"leak," which formerly was a measured reading of 10,000 parts per million
("ppm") or greater, is being reduced to
38
<PAGE>
a measured reading of 500 ppm or greater. For certain synthetic organic chemical
plants, the change to a 500 ppm leak definition became effective in 1996. Other
industries have later phase-in dates. For example, existing petroleum refineries
must comply with the 500 ppm threshold beginning August 18, 1999. To achieve
compliance with the applicable performance standards, federal and state
regulations require the process industries covered thereby to establish leak
detection and repair programs incorporating specified protocols. For example,
pursuant to these regulations, process plants that contain valves in gas, vapor
or light liquid service generally must use a portable VOC-monitoring instrument
at specified intervals (monthly, quarterly or yearly) to test each valve subject
to the regulations for fugitive VOC emissions. The instrument reading detects a
valve leaking. The regulations generally require the plant to repair any leaking
valve within 15 days, and to make its first attempt at repair within five days,
after the leak is detected, unless the plant can show immediate repair is
technically infeasible without a "process unit shutdown" (as defined) or
otherwise establish that delaying the repair is justified. Pursuant to these
regulations, an unscheduled practice or procedure that stops production from a
process unit or part of a process unit for less than 24 hours while a valve is
removed, repaired on-site and reinstalled is not a process unit shutdown. A
first attempt at repair typically involves tightening various bolts or nuts. The
plant also can use the monitoring instrument to determine whether a valve leak
has been repaired. To encourage plants to reduce their number of leaking valves,
federal and state regulations generally afford those plants that do so with
longer intervals between required monitorings. If businesses fail to adhere to
these requirements, they may be subject to stiff penalties. The Clean Air Act
authorizes civil penalties up to $25,000 per day per violation, administrative
penalties up to $200,000 and field citations up to $5,000 per violation.
The Company believes that increasingly stringent federal and state
regulations and performance standards will increase demand for the Company's
products and services. For example, industries subject to these standards now
can monitor valves to quantify the amount of feedstock, intermediates, products
or fuel which is being lost attributable to leaking valves and quantify the
costs associated with these leaks. The Company believes these industries
increasingly will seek to prevent and remedy leaking valves as efficiently and
expeditiously as possible. The Company believes that, with its SafeSeal(TM)
system and other repair and distribution services it provides on a national
basis, it is well positioned to address these needs. The SafeSeal(TM) system can
provide an efficient and expeditious means to perform on-line valve restoration
and is an attractive alternative to both on-line interim measures and to
off-line repairs because it restores valves on line in conjunction with their
required monitoring, thereby reducing or eliminating shutdown time. The Company
intends to market the SafeSeal(TM) system as the feasible on-line repair
alternative for those leaking RSVs whose immediate repair otherwise would be
technically infeasible.
BUSINESS
GENERAL
Invatec was formed in March 1997 to create the leading provider of
comprehensive maintenance, repair, replacement and value-added distribution
services for industrial valves and related process-system components
(collectively, "repair and distribution services") in North America. The
Company intends to be a leader in the consolidation of the highly fragmented
North American repair and distribution services industry through an aggressive
acquisition program. To achieve this goal, it intends to continue the
acquisition program initiated by SSI and implement a national operating strategy
designed to increase internal growth and profitability. When this Offering
closes, Invatec will have combined seven businesses whose revenues totaled
approximately $76.2 million on a pro forma combined basis during fiscal 1996.
The Company believes it is positioned to meet the growing demand for
outsourced management and maintenance programs for industrial valves and other
process-system components because the combination of its distribution and repair
services capabilities will allow it to become a single-source provider of these
services for many of its targeted customers. The Company also believes this
combination will (i) promote internal economies of scale, (ii) provide the
Company with valuable information that can be used to expand its future repair
services revenue base and (iii) better equip the Company to respond to problems
associated with the repair and upgrading of its customers' process-system valves
and other components.
39
<PAGE>
Many of the Company's customers are large, Fortune 500 industrial
companies. The Company provides them with both on-line and off-line repair
services. It believes its approach to making on-line repairs of leaking RSVs
that were manufactured with compressible packing material distinguishes it from
other on-line repair companies and is safer, more effective and more
cost-efficient than conventional on-line repair methods. An important part of
the Company's business strategy will be to roll out SSI's proprietary
SafeSeal(TM) system through the operations of the other Acquired Businesses and
other businesses acquired in the future. The Company performs both on-site and
in-shop off-line repairs. It also uses its facilities to (i) assemble, set,
test, seal and certify new PRVs, (ii) assemble other new valves, actuators and
other components into packaged systems for sale, rebuild previously used valves
(other than PRVs) to their original specifications for sale and fabricate other
process-system components for sale and (iii) test and certify new and rebuilt
valves and systems as meeting the specifications of its customers and OEMs and
applicable industry standards.
BUSINESS STRATEGY
The Company intends to become the leading North American provider of
comprehensive valve repair and distribution services by emphasizing growth
through acquisitions of other repair and distribution services businesses and
implementing a national operating strategy aimed at increasing internal growth,
enhancing profitability and achieving cost efficiencies. The Company's growth
strategy will focus on capitalizing on certain trends in its targeted
industries, including increased outsourcing, increased focus on reducing
economic losses attributable to leaking valves and increased regulatory
requirements applicable to process-system facilities.
GROWTH THROUGH ACQUISITIONS. The Company intends to implement an
aggressive acquisition program targeting opportunities to enter new geographic
markets and expand within its existing markets.
o ENTERING NEW GEOGRAPHIC MARKETS. The Company currently conducts
operations through 32 facilities located in 17 states in the United
States and in Canada. It plans to broaden its base of operations by
seeking acquisitions in new markets throughout North America in order
to expand the Company's repair and distribution services capabilities.
In each new market, the Company initially will target companies with
historically successful operating results, superior operating
management and established customer relationships and brand
identities. The Company will generally seek to establish itself as a
provider of both repair and distribution services in each of its new
markets.
o EXPANDING WITHIN EXISTING MARKETS. The Company intends to pursue
acquisitions within its existing markets as a primary means of
expanding its repair and distribution services capabilities within
those markets and as a means for gaining access to new
process-industry customers, specialized services, new products or
other strategic synergies.
IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY. The principal elements of
the Company's operating strategy are:
o INCREASING INTERNAL GROWTH THROUGH TECHNOLOGY ROLL-OUT. The Company
believes the SafeSeal(TM) system represents a significant improvement
over traditional valve packing restoration methods. This technology
offers customers the ability to (i) substantially reduce or eliminate
lost feedstock, product and fuel costs attributable to leaking valve
packing, (ii) safely bring leaking valves into compliance with
applicable emission standards without having to endure a shutdown and
(iii) establish an effective, on-line means of remediating any further
packing-related leaks. Because of the value-added nature of this
proprietary technology, the Company, through SSI, has been able to
achieve higher gross margins through the provision of this service
compared to most other services it provides. The Company believes the
other Acquired Businesses will serve as a platform to aggressively
market this technology to many of their existing process-industry
customers in their respective markets. The Company's future
acquisition efforts will focus on additional opportunities to expand
this service into new geographic markets and to new segments of the
process-industry market within its existing geographic areas.
40
<PAGE>
o CAPITALIZING ON GEOGRAPHIC DIVERSITY TO DEVELOP NATIONAL AND REGIONAL
CUSTOMER AND OEM RELATIONSHIPS. The Company's customers include many
large petrochemical and other chemical companies, petroleum refiners,
pulp and paper companies and power and other utilities, many of which
operate in numerous locations throughout North America. The Company
believes its ability to provide repair and distribution services on a
comprehensive basis throughout North America will enhance its
relationships with these customers and with OEMs and afford it greater
opportunities for new business. As the Company expands its regional
and North American presence, it will seek to capitalize on its
existing, and establish new, "national account," "blanket
approval" and "consolidated supply" relationships and expand
existing "regional" contracts with its large process-system
customers.
o CROSS-SELLING REPAIR AND DISTRIBUTION SERVICES. The Acquired
Businesses currently provide their respective customers with differing
levels of repair services and distribution services. For instance,
Plant Specialties provides extensive repair and remanufacturing
services and limited distribution services, while ICE/VARCO provides
extensive distribution services of both valves and related process
equipment and a growing valve repair service. In an effort to become a
single-source provider of repair and distribution services to its
customers, the Company plans to offer a full line of services through
most of its locations. The Company believes that this single-source
capability will allow it to become the repair service provider and
valve and related parts supplier of choice for its current and
prospective customers.
o ACHIEVING COST EFFICIENCIES AND STANDARDIZING AND IMPLEMENTING "BEST
PRACTICES." The Company believes it should be able to reduce the
total operating expenses of the Acquired Businesses and other acquired
businesses by eliminating certain duplicative administrative functions
and operating facilities and consolidating certain functions performed
separately by each business prior to its acquisition. The Company also
believes that, as a large national company, it should experience
reduced costs (as a percentage of revenues) in such areas as:
purchasing, financing arrangements, employee benefits, information
management, insurance and other risk management, and inventory
control. In addition, the Acquired Businesses have significant
knowledge and experience in operating industrial valve repair and
distribution services businesses and providing products and services
ancillary to those operations. They have continually refined their
operating procedures in order to improve customer service and
operating efficiency. The Company intends to formalize this approach
of identifying "best practices" it will adopt as Company standards
and implement throughout its operations. Management believes the
standardization of best practices will enable the Company to provide
superior customer service and be a low-cost operator in each of its
markets.
ACQUISITION STRATEGY
The Company intends to continue the aggressive acquisition program
initiated by SSI to expand into additional markets and enhance its position in
existing markets. Given the large size and fragmentation of the valve repair and
distribution services industry, the Company believes there are numerous
potential acquisition candidates both within the markets currently served by the
Company and in new markets. The Company currently has no binding agreements to
effect any such acquisition (other than the acquisitions of ICE/VARCO and SVS).
The timing, size and success of the Company's acquisition efforts and the
associated potential capital commitments cannot be readily predicted.
The Company's initial strategy will be to acquire well established repair
and distribution services companies in significant centers of its targeted
process industries in North American markets. The Company also intends to make
tuck-in acquisitions that provide access to additional customers, specialized
services, new products or other strategic synergies. The Company presently does
not intend to acquire any valve manufacturing operations.
The Company plans to acquire a leading company in each new geographical
market it enters. Each of the Company's acquisition candidates will be expected
to demonstrate the potential for substantial revenue
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and earnings growth when combined with the Company's existing operations. The
Company will evaluate not only the equipment and facilities of each acquisition
candidate, but also certain subjective characteristics of each acquisition
candidate, including its reputation, customer base, quality of operating
management and technical staff.
An important criterion for the Company's acquisition candidates
(particularly candidates in new markets) will be high-quality operating
management and the desire of those persons to remain in place and continue
running the acquired operations for an extended period of time. The Company will
employ a stock-based compensation program designed to help the Company retain
its operating management personnel and develop a sense of proprietorship of
those persons in the Company and align the interests of those persons with those
of the Company's stockholders generally. See "Management -- 1997 Incentive
Plan."
The Company believes it will be well positioned to implement its
acquisition strategy because of: (i) its ability to provide access to the
SafeSeal(TM) system, which is not otherwise available in the marketplace; (ii)
its decentralized operating strategy; (iii) its increased visibility and access
to financial resources as a public company; and (iv) its ability to provide
acquired companies and their shareholders with both liquidity and the
opportunity to participate in the Company's growth and expansion.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors being historical operating results, the future prospects of the business
to be acquired and the ability of that business to complement the services
offered by the Company. The Company intends to register 5,000,000 additional
shares of Common Stock under the Securities Act for use in connection with
future acquisitions. See "Risk Factors -- Dependence on Acquisitions for
Growth," " -- Capital Requirements" and " -- Potential Effect of Shares
Eligible for Future Sale on Price of Common Stock."
SERVICES PROVIDED
The Company believes that, in looking at potential providers of outsourced
repair services, industrial corporations and plant managers are increasingly
emphasizing the ability of a service provider to implement comprehensive
management and maintenance programs for their valves and other process-system
components. With its recently expanded repair and distribution services
capabilities and as part of its operating strategy, the Company is developing
programs to meet this demand.
REPAIR SERVICES. The Company provides a variety of on-line repair services
and off-line repair services (including both on-site and in-shop repair
services) for valves and other process-system components. These services vary by
industry and by process applications within each industry.
ON-LINE SERVICES. The Company's on-line services include (i) in the case of
RSVs leaking as a result of the deterioration of their stem-packing materials,
using the SafeSeal(TM) system to restore the packing materials generally to
their original performance capabilities, and (ii) using conventional
technologies to seal leaking pipes, flanges and valves as interim measures
pending the affected system's next scheduled shutdown and turnaround.
In SafeSeal(TM) valve restorations, the Company uses a valveless injection
fitting, which is a miniaturized, permanent injection port it attaches to the
leaking valve at or near an emission site, and a combination of specialized
emissionless injection tools to inject the appropriate pliable (or
"nonhardening") compound, usually one of the proprietary compounds the Company
has developed for use in the system, through the port and into the valve's
packing gland. The compound, by acting as a filler and lubricant, supplements
the existing packing to stop the leak and restore the sealing capability of the
packing. The injection port is left on the valve as a maintenance platform for
future servicing of the valve packing. Except in severe operating conditions, a
trained technician using the SafeSeal(TM) system can complete an on-line
restoration in less than one hour. In certain limited cases, two fittings and
injections are required to seal the leak. The Company believes the SafeSeal(TM)
system is safer, more effective and more cost-efficient than conventional
on-line valve-repacking methods. For example, the SafeSeal(TM) system reduces
the risk of emitting hazardous substances during installation, as the so-called
backseating method of repacking does, or
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creating potential additional leak sources that result from the use of valved
injection fittings and hardening injection compounds. In addition, in the case
of a leaking RSV subject to MACT performance standards (see "The Industrial
Valve Industry -- Market Environment and Trends") which can be repaired off
line within 24 hours and is not otherwise eligible for deferred repair, the
SafeSeal(TM) system can be performed in conjunction with the original
leak-detecting monitoring as a quicker, generally less costly alternative.
Because the compounds used in the SafeSeal(TM) system remain pliable, they are
easily removed from valves requiring off-line reconditioning or other repairs,
and their removal does not involve the time and expense associated with removing
a hardened compound. The Company is in the process of expanding the use of the
SafeSeal(TM) system through the operations of the other Acquired Businesses.
The Company believes the following chart provides a useful comparison of
the SafeSeal(TM) system to other on-line valve repacking methods and
conventional off-line repacking:
<TABLE>
<CAPTION>
REPAIR
CONSIDERED REPAIR PERFORMED REPAIR PERFORMED REPAIR INCORPORATED
PROVIDES "PERMANENT" IN A CONTROLLED ON LINE WHILE IN LONG-TERM VALVE
IMMEDIATE REPAIR BY END USERS ENVIRONMENT UNDER PRESSURE MANAGEMENT PROGRAMS
---------------- ------------ ---------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
SafeSeal(TM) system.................. x x x x x
Other on-line methods................ x x
Off-line repacking................... x x x
</TABLE>
In performing interim on-line repairs, the Company designs line enclosures
and flange clamps to meet customer-specific technical and engineering objectives
and applicable industry and regulatory code requirements. SSI, which currently
performs substantially all the Company's on-line repair services, has used
independent contractors to fabricate its enclosures and clamps, and one element
of the Company's growth strategy is to use the existing machining and
fabrication facilities of the other Acquired Businesses as a platform for
increasing on-line repair services on a Company-wide basis. The Company uses
conventional repacking materials and techniques to seal leaking valves (i) that
cannot be restored on-line with the SafeSeal(TM) system or (ii) for which the
customer desires only a temporary on-line repair.
OFF-LINE SERVICES. The Company's off-line services include: diagnosis and
testing of valve performance, including nondestructive examination using dye
penetrants and mag-particle testing; repair, rebuilding and replacement of RSVs,
PRVs and other valves; custom-designing, machining and plating of pressure-
sealed gaskets; repair and upgrading of standard valves of various types; repair
and replacement of actuators and positioners used with actuated valves; and
cleaning of valves used in chlorine, oxygen and other service applications.
Valve repair services include replacing broken stems and other components with
OEMs' parts or equivalent parts that the Company machines and fabricates,
blasting valve interiors with metal shot to remove process residue and corroded
material, welding overlays to refinish valve seats and other worn areas,
upgrading standard valves with actuators and related parts and modifying
existing components to meet OEMs' specifications for repacking with new, pliable
packing materials. In some locations, the Company also reconditions its
customers' used valves, and remanufactures used valves (other than PRVs) it has
purchased, typically at scrap metal value, to equal or exceed the original
manufacturers'specifications. It typically sells its remanufactured valves under
a one-year warranty at a discount from the price of a comparable new valve. The
Company intends to expand those services throughout its operations. As part of
the repair process, the Company uses high-pressure air, steam and liquid lines
and related instrumentation to test and certify the performance capabilities of
the valves and other equipment it repairs.
An important part of the Company's repair services is providing detailed
documentation of the sources and types of the materials and components used to
make repairs, the repair methods applied, the design specifications adhered to
and test results. Customers can use this information in connection with their
planning for future turnarounds and repairs. In addition, customers subject to
federal and state fugitive emissions control regulations are required to
maintain this information in their corrective action files.
DISTRIBUTION SERVICES. The Company currently sells new valves and related
instrumentation and other process-system components directly to its
process-industry customers from 17 of its 32 sales and
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service locations. In addition to purchasing valves from OEMs for resale, the
Company also acts as a sales representative for a number of OEMs. In this
capacity, it typically promotes the sale and distribution of the OEMs' products
in designated territories for direct factory shipment to the customer and is
compensated by the OEMs on a commission basis.
At each sales location, the Company maintains inventories of valves and
other equipment typically used by the process industries it serves from that
location. GSV, for example, offers a complete line of high-and low-pressure
valves and related equipment designed specifically for use in severe service
steam-line applications and remote-controlled electric power generation. Because
customers place many of their orders in connection with new construction or
planned turnarounds, the Company often is able to arrange for just-in-time
deliveries of the original equipment required to fill these orders.
The Company's value-added valve distribution services primarily involve the
assembly, setting, testing and sealing of spring-loaded and pilot-operated PRVs
and also include: assembling other original valves with optional components
supplied by the same or different manufacturers; customizing the original
equipment for installation in the customer's process unit; combining two or more
valves in configurations designed for specific process applications; and testing
and calibrating, as applicable, individual components and accessories and
complete equipment packages. As a part of its standard quality assurance
program, the Company supplements the positive material identification
information the manufacturers furnish to trace all materials they use in making
their valves and other equipment with its own material certifications, testing
certificates and full-assembly and test reports. Compiling this information (i)
enables customers to comply with applicable internal and regulatory
recordkeeping requirements and to demonstrate compliance with applicable
industry and regulatory performance standards, (ii) facilitates the repair or
replacement of component parts, and the reconditioning of entire valve
assemblies, to the original design specifications and (iii) provides the initial
step in a predictive valve maintenance program that uses actual operating
histories to plan turnarounds and, by isolating the reasons for equipment
failures, spurs the use of different or new materials and technologies.
OPERATIONS
The Company intends to operate on a decentralized basis, giving the
management of each operating company or each regional operating group (which
will include "tuck-in" acquisitions) the responsibility for day-to-day
operations, growth and profitability. It will centralize its accounting,
auditing and internal control, cash management, employee benefits, financing,
financial reporting, risk management and business acquisition activities and
coordinate the sharing among its operating locations of financial resources for
improved systems and expansion of services, training programs, financial
controls, purchasing information and operating expertise. The Company's
executive management team will direct the development of the Company's marketing
strategies and programs and be responsible for key national supplier and
customer relationships, and it intends to establish a management information
system to enhance its ability to monitor each local or regional operation,
assimilate acquired businesses through standard reporting mechanisms and
implement performance-based incentive plans keyed to defined operational and
productivity measurements and benchmarks. It currently is reviewing the
operations of the Company and other repair and distribution services businesses
in order to identify the "best practices" the Company will implement
throughout its operations. In order to reduce traditional corporate headquarters
expenses (as a percentage of revenues) and increase efficiencies, the Company
intends to outsource various functions, including various personnel management
and other human resource services, legal and tax services and management
information systems design and implementation.
The Company conducts its repair and distribution services operations
through its local sales and service centers. It typically staffs its service
centers with customer service and order entry personnel, repair coordinators and
inventory, shipping and receiving and office personnel. The Company currently
performs in-shop valve and other equipment assembly, testing and certification
at 17 of its 32 operating facilities. Sixteen of these locations are authorized
by various manufacturers as centers for the assembly, sale and repair of their
valves and other products and maintain various professional certifications by
organizations
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such as the American Society of Mechanical Engineers and the National Board of
Boiler & Professional Vessel Inspectors.
The Company performs most of its on-site repair services on a scheduled
basis in response to the customer's call. The Company also offers 24-hour
emergency on-line and on-site repair services from 30 of its service locations.
The Company operates approximately 28 mobile machine shops which allow its
technicians to perform repair and installation functions at the facilities of
its customers. These shops typically are self-contained trucks or trailers
ranging in size from 10 feet to 48 feet in length which the Company equips with
various combinations of lathes, milling machines, grinders, welding equipment,
drill presses, test stands, work benches and hand tools. The Company maintains
its mobile shops at various locations, and from time to time it will maintain a
shop indefinitely at a customer's facility if the work so warrants.
The Company utilizes its repair and maintenance personnel to remanufacture
valves at times of decreased demand for repair and maintenance activities. This
enables the Company to maintain sufficient staff to meet the high level of
activity associated with turnarounds and to produce a valuable product in times
of decreased activity.
SALES AND MARKETING
The Company employs approximately 111 direct salespersons to conduct its
marketing and sales activities. Most product and service orders are awarded by
plant maintenance managers to a small number of pre-approved vendors, with
little direct bidding for each job. More recently, plant owners have begun
establishing sole-source relationships with large, well-insured vendors with
reputations for efficient response, safe technicians and comprehensive service.
The Company's sales and marketing efforts typically focus on one-on-one
relationships with plant maintenance managers and turnaround planners and
include regular visits to customer plants to ensure client satisfaction. Initial
visits also typically involve demonstration of the Company's technical abilities
at the plant or the Company's shop facilities. The Company regularly advertises
in trade journals, participates in trade shows and conducts customer
appreciation functions. The Company also has an organized national accounts
program which targets large multi-location industrial customers.
Many of the Company's customers are regional and national companies in the
petroleum refining, chemical, pulp and paper and power industries and utilities.
The following is a list (in alphabetical order) of the Company's 10 largest
customers during fiscal 1996, based on pro forma combined revenues:
Advanced Separation Technologies, Inc. Dow Chemical Company
Amoco Corporation E. I. Du Pont de Nemours & Co.
Basis Petroleum, Inc. Florida Power Corporation
Chevron Corporation Florida Power & Light Company
Citgo Petroleum Corporation Union Carbide Corporation
For fiscal 1996, none of the Company's customers accounted for 5% or more
of the Company's pro forma combined revenues. While the Company is not dependent
on any one customer, the loss of one of its significant customers could, at
least on a short-term basis, have an adverse effect on the Company's results of
operations.
The Company generally seeks to enter into national or regional "blanket"
contracts with its large customers. These contracts function to designate the
Company as an approved service provider for a customer and establish certain
standard terms and conditions for providing service to plants or other
facilities owned or operated by that customer. Although these blanket contracts
generally do not establish the Company as an exclusive provider of repair and
distribution services, the Company believes they are an important consideration
for plant managers and other decision makers in the usual process of selecting a
vendor for the services the Company provides.
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In connection with its service offerings involving the SafeSeal(TM) system,
the Company intends to focus on obtaining sole-source contracts for repair
services. The Company has recently been awarded long-term contracts for one
large refinery and seven large chemical plants. This contract expires in May
1998. In April 1996, the Company also obtained a "sole-source" contract for
one of the largest chemical production plants in the United States and one other
facility in Texas. This contract expires in April 1998. In August 1996, the
Company entered into long-term contracts covering nine chemical plants in Texas,
Louisiana, Mississippi and Alabama. This contract continues in effect until
canceled by either party.
SUPPLIERS
VALVES, PARTS AND FITTINGS. The Company purchases substantially all the
new valves and other process-system components it distributes from OEMs. Its
principal suppliers are Crosby Valve & Gauge Co., a unit of FMC Corporation, and
units of Dresser Industries, Inc. Other suppliers of valves and process-system
components to the Company include Anderson, Greenwood & Co. and Penberthy, Inc.
The success of the Company as a provider of value-added distribution services
depends on the extent to which the OEMs with which it has distribution
arrangements are able to create a demand for their products in the territories
they assign the Company. Factors affecting this demand include, in addition to
price, product quality and performance (including durability and safety),
delivery time and the relative strengths of the brand name and marketing ability
of the OEM.
RELATIONSHIPS WITH OEMS. The success of the Company as a value-added
distributor of new valves and other process-system components and as a
factory-authorized repair service provider depends on its relationships with the
OEMs of these products. Except for its distribution agreements with OEMs, the
Company generally has no contractual repair-services contracts with OEMs.
The typical distribution agreement in the Company's industry specifies the
territory or territories in which the distributor has the right and obligation
to sell the OEM's products and the services (sales, assembly or repair) the
distributor is authorized to, or must, perform. An OEM may (i) assign a
territory on an exclusive or a nonexclusive basis, (ii) limit the range of the
OEM's products the distributor may sell or service, (iii) authorize or restrict
sales or services by the distributor outside the assigned territory, (iv) refuse
to assign the distributor additional territories and (v) reserve to itself the
right to deal exclusively with specified customers or classes of customers (for
example, national accounts or engineering and construction companies) in the
assigned territory. The Company believes the current fragmentation of the
distribution sector of its industry reflects the traditional assignment by OEMs
of territories on generally a local basis to distributors operating from a
single facility.
The distribution agreement may limit the distributor's role to that of
sales representative acting on a commission basis or provide for purchases by
the distributor for resales to end users. It also may impose requirements on the
distributor concerning such matters as (i) minimum individual or annual purchase
orders, (ii) maintenance of minimum inventories, (iii) establishment and
maintenance of facilities and equipment to perform specified services and (iv)
training of sales personnel and service technicians. Many OEMs closely monitor
compliance with these requirements. The distribution agreement also typically
(i) grants the distributor the nonexclusive right to use and display the OEM's
trademarks and service marks in the form and manner approved by the OEM and (ii)
prohibits the distributor from offering products that compete with the OEM's
products the distibutor is authorized to sell.
The Company's distribution agreements generally have indefinite terms and
are subject to termination by either party on prior notice generally ranging
from 30 to 90 days.
The Company anticipates that its business strategy will raise issues for
some OEMs. For example, some of the Acquired Businesses offer competitive
product lines of major OEMs in certain areas. The Company believes, however,
that, as a national provider of repair and distribution services, it will offer
attractive benefits to OEMs. For large OEMs, it will offer a cost-effective
distribution alternative that promotes consistent quality and possesses
significant financial and human resources. For small and mid-sized OEMs, it will
offer access to broader markets and expertise in marketing. In addition, the
Company will offer to all OEMs (i) a central source of market and usage data,
including complete life histories of
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<PAGE>
valves and other products, and (ii) a means of reducing their own selling costs
through additional outsourcing of their assembly, testing, repair and
certification services, reducing the number of distributors they are required to
monitor and eliminating transition problems associated with local owner-operated
distributorships. Although no assurance can be given that OEMs will not take
actions that could materially adversely affect the Company's ability to
implement its growth strategies and maintain its existing distribution services
business, the Company believes that the combination of (i) the advantages it
will offer to OEMs and (ii) the desire of end users to reduce the number of
their vendors should result in these issues being resolved on a mutually
satisfactory basis.
HIRING, TRAINING AND SAFETY
The Company will seek to ensure through its hiring procedures and
continuous training programs and the training programs offered by its OEMs that
(i) its product-assembly and service technicians and machinists meet the
performance and safety standards established by the Company and its OEMs,
professional and industry codes and federal, state and local laws and
regulations and possess the required ASME, factory or other certifications and
(ii) its sales personnel are trained thoroughly in the selection, applications
and adaptations and customizations of the products it distributes and types of
repair services it offers.
Because on-line and on-site repair services often are performed in
emergency situations under dangerous circumstances (see "Risk
Factors -- Operating Hazards"), the Company intends to provide its technicians
with extensive classroom and field training and supervision and to establish and
enforce strict safety and competency requirements, including physical exams and
periodic drug testing in some cases. The Company's training programs for its
on-site repair technicians must meet OSHA requirements respecting, among other
matters, release detection procedures, appropriate work practices, emergency
procedures and other measures these technicans can take to protect themselves
and the environment.
COMPETITION
The markets for the Company's repair and distribution services generally
are highly competitive. The Company believes the principal competitive factors
in a distributor's sale of new valves and other process-system parts directly to
industries in the distributor's market include price and the ability of the
distributor to offer on a timely basis a wide selection of the new,
better-performing valves and parts OEMs have designed to meet the needs of these
industries. Factors affecting delivery time include inventory size and
accessibility and whether, in the case of PRVs and certain other valves, the OEM
or the distributor assembles, sets, tests and seals, or otherwise customizes,
the valve. The Company believes its assembly and testing facilities enable it
generally to deliver valves ready for installation faster than the relevant OEM.
In the case of repair services, the Company believes the principal competitive
factors are quality and availability of service (including emergency service),
price, use of OEM-approved replacement parts, familiarity with the OEMs'
products and local brand equity of the repair business.
In its distribution operations, the Company competes with the direct sales
forces and distribution networks of OEMs offering the same or comparable lines
of products. It competes for repair services businesses with other repair
service businesses and, to a lesser extent, with OEMs. Some of its competitors
may have lower overhead cost structures and, consequently, may be able to
provide their services at lower rates than the Company. The Company's
competitors for on-line repairs include two national competitors (the Furmanite
Division of Kaneb Services, Inc. and Team, Inc.) and several regional
competitors. See "Business -- Competition." Competition in the market for
off-line repair services is highly fragmented, although certain competitors may
have dominant positions in some of the local markets they serve.
RESEARCH AND DEVELOPMENT
The Company conducts research and development to improve the quality and
efficiency of its services. Research and development activities include both
in-house and extensive field testing of new technology to be used in conjunction
with the Company's repair service operations, as well as assisting the Company's
sales organization and customers with special projects.
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Through its research and development efforts, the Company is developing an
air-driven friction welding device and related processes which it intends to
market as the SafeWeld(TM) system. This technology is designed to eliminate a
common source of fugitive emissions by making attachments to bodies having
contents under high pressure through a fusion or friction weld. Currently, the
industry standard is to make the attachment by drill and tap or a threaded
fitting. The SafeWeld(TM) system is still in the final stages of development,
and the Company believes it will be available to deliver high-quality fusion
welds of different metals. Although there can be no assurance the SafeWeld(TM)
system will be commercially successful, the Company believes this system will be
a significant enhancement to the SafeSeal(TM) system. The Company also believes
that the SafeWeld(TM) system may have many other potential commercial uses.
In addition to the development of the SafeWeld(TM) system, the Company's
research and development efforts are currently aimed at developing technology
for permanent repair of leaking flanges and developing new leak sealing
compounds.
INTELLECTUAL PROPERTY
The Company, through subsidiaries, owns three United States patents and has
two United States patent applications pending which relate primarily to the
SafeSeal(TM) system. The patents grant the Company the right to exclude others
from making, using, offering for sale and selling the inventions in the United
States. Foreign counterparts to one or more of these patents have issued
providing rights in Australia, Austria, Belgium, Denmark, France, Germany,
Greece, Italy, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, and the
United Kingdom. Additional foreign counterpart patent applications are pending
in Canada, India and Japan. An application is also pending under the Patent
Cooperation Treaty. The process of seeking patent protection can be long and
expensive, and no assurance can be given a patent will issue from the Company's
currently pending applications or future applications or that, if patents are
issued, they will be of sufficient scope or strength to provide meaningful
protection or any commercial advantage to the Company. In addition, the laws of
certain foreign countries may not protect the Company's intellectual property
rights to the same extent as the laws of the United States. Litigation, which
could demand significant financial and management resources, may be necessary to
enforce patents or other intellectual property rights of the Company.
In October 1996, the Company settled litigation with Team Environmental
Services, Inc., one of the Company's competitors, relating to certain of the
Company's patents. One of the Company's customers has a license to certain of
the Company's technology under certain of its patents pertaining to the
SafeSeal(TM) system. Although, to the knowledge of the Company, that customer
has not pursued the development of technology that would compete with the
SafeSeal(TM) system (and instead has opted to continue outsourcing on-line valve
repair service work to the Company), there can be no assurance it will not elect
to do so in the future. Moreover, there can be no assurance others will not
independently develop substantially equivalent or better technology that would
be free of the Company's patents and other intellectual property rights.
Although in the aggregate the Company's patents are material to its
operations, the Company believes its future success will depend more on its
technological capabilities and the application of know-how (rather than on any
particular patent) in the conduct of its business. It enjoys service and product
name recognition, principally through various common law trademarks.
EMPLOYEES
At May 31, 1997, the Company had approximately 750 full-time employees.
Approximately 12 are members of the United Steelworkers of America, AFL/CIO
union. None of the Company's other employees are represented by a union.
Management believes the Company's relations with its employees are satisfactory.
The Company's future success will depend, in part, on its ability to attract,
retain and motivate highly qualified technical, marketing, engineering and
management personnel.
The repair services business is characterized by high turnover rates among
field service technicians. Although the Company believes its turnover rate for
field service technicians is below the industry average, the Company's turnover
rate for these employees is high relative to the Company's other employees. The
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Company seeks to attract and retain qualified service technicians and other
technical field personnel by providing competitive compensation packages. It has
never experienced a prolonged shortage of qualified personnel in any of its
operations (and does not currently anticipate any such shortage), but if demand
for repair services were to increase rapidly, retention of qualified field
personnel might become more difficult without significant increases in
compensation.
FACILITIES
The Company owns or leases 32 sales and service facilities located in 17
states and Canada, as follows.
NO OF NO OF
STATE FACILITIES STATE FACILITIES
----- ---------- ----- ----------
Alabama.................. 1 Oklahoma................. 1
Alaska................... 1 Oregon................... 1
Arkansas................. 1 Pennsylvania............. 1
California............... 2 South Carolina........... 2
Colorado................. 1 Texas.................... 5
Florida.................. 4 Virginia................. 1
Georgia.................. 1 Washington............... 3
Indiana.................. 1 West Virginia............ 2
Louisiana................ 3 Ontario.................. 1
The Company owns seven of these facilities (totaling approximately 195,200
square feet) and leases the remainder (totaling approximately 278,300 square
feet) under leases having terms of up to 25 years on terms the Company believes
to be commercially reasonable. During fiscal 1996, total lease rentals were
approximately $1.1 million. The facilities consist principally of sales and
services, remanufacturing and administrative facilities, and the Company offers
in-house repair or assembly services at 17 of the facilities. Its principal
facilities include (i) an 82,000 square foot assembly, repair and
remanufacturing facility owned by Plant Specialties, (ii) a 46,000 square foot
machining and fabrication facility leased by GSV, (iii) 35,100 and 30,000 square
foot assembly and repair facilities leased by Harley, (iv) a 26,200 square foot
sales, service and administrative facility owned by Steam Supply and (v) a
25,000 square foot repair and remanufacturing facility owned by SVS. The Company
believes its facilities are adequately maintained and sufficient for its planned
operations at each location.
The Company's principal executive and administrative offices are located in
Houston, Texas.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
A wide range of federal, state and local regulations relating to health,
safety and environmental matters applies to the Company's business. The
Company's in-shop reconditioning and remanufacturing of used valves frequently
involves the use, handling, storage and contracting for the disposal or
recycling of a variety of substances or wastes considered hazardous or toxic.
Environmental laws are complex and subject to frequent change. These laws impose
"strict liability" in some cases without regard to negligence or fault.
Sanctions for noncompliance may include revocation of permits, corrective action
orders, administrative or civil penalties and criminal prosecution. Certain
environmental laws provide for joint and several strict liability for
remediation of spills and releases of hazardous substances. In addition,
businesses may be subject to claims alleging personal injury or property damage
as a result of alleged exposure to hazardous substances, as well as damage to
natural resources. These laws and regulations also may expose the Company to
liability for the conduct of or conditions caused by others, or for acts of the
Company which complied with all applicable laws when performed. The Company
conducted Phase I (and, in two cases, Phase II) investigations to assess
environmental conditions on substantially all the real properties owned or
leased by the Acquired Businesses and engaged an independent environmental
consulting firm in that connection. It has not identified any environmental
concerns it believes are likely to have a material adverse effect on the
Company's financial condition or results of operations, although no assurance
can be given material liabilities will not occur. No assurance can be given the
Company's compliance with amended, new or more
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stringent laws or regulations, stricter interpretations of existing laws or the
future discovery of environmental conditions will not require additional,
material expenditures by the Company. OSHA regulations establish requirements
the Company's training programs must meet. See "-- Hiring, Training and
Safety."
The Company believes it has all material permits and licenses required to
conduct its operations and is in substantial compliance with applicable
regulatory requirements relating to its operations. The Company's capital
expenditures relating to environmental matters were not material on a pro forma
combined basis in fiscal 1996. The Company does not currently anticipate any
material adverse effect on its business or financial position as a result of its
future compliance with existing environmental laws and regulations controlling
the discharge of materials into the environment.
LITIGATION AND INSURANCE
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its operations. It currently is
not involved in any litigation it believes will have a material adverse effect
on its financial condition or results of operations.
The Company maintains insurance in such amounts and against such risks as
it deems prudent, although no assurance can be given that such insurance will be
sufficient under all circumstances to protect the Company against significant
claims for damages. The occurrence of a significant event not fully insured
against could materially and adversely affect the Company's financial condition
and results of operations. Moreover, no assurance can be given that the Company
will be able to maintain adequate insurance in the future at commercially
reasonable rates or on acceptable terms.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
When this Offering closes, Invatec's directors, executive officers and key
employees (ages are as of June 30, 1997) will be as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION CLASS
- ------------------------------------ --- ---------------------------------------- --------
<S> <C> <C> <C>
William E. Haynes(1)(2)(3).......... 54 Director, Chairman of the Board, I
President and Chief Executive Officer
Charles F. Schugart................. 37 Senior Vice President -- Chief Financial
Officer, Treasurer and Secretary
Denny A. Rigas...................... 53 Senior Vice President -- Technology and
Marketing
Frank L. Lombard.................... 54 Vice President -- Corporate Development
John L. King........................ 27 Vice President -- Corporate Development
Douglas R. Harrington, Jr........... 32 Vice President and Corporate Controller
Timothy M. LeFevre.................. 35 Vice President -- Corporate Marketing
Programs
Michael A. Baker(4)(5).............. 51 Director (6) III
Robert M. Chiste(1)(2)(5)........... 50 Director (6) III
Arthur L. French(2)(3)(4)........... 57 Director (6) I
Tommy E. Knight(1)(5)............... 58 Director (6) II
Dr. Pierre R. Latour(3)(4).......... 56 Director (6) II
T. Wayne Wren, Jr.(1)............... 48 Director (6) III
Joe Cheatham(7)..................... 40 President and Chief Operating Officer of
Harley
Lee Roy Jordan(7)................... 56 President of SVS
Pliney Olivier(7)................... 51 President of GSV
Ed S. Ries(7)....................... 53 President of Steam Supply
Thomas Santacroce(7)................ 50 President of ICE/VARCO
Kevin M. Stern(7)................... 32 President of SSI
Curry B. Walker(7).................. 61 President of Plant Specialties
</TABLE>
- ------------
(1) Member of Board Executive Committee.
(2) Member of Board Nominating Committee.
(3) Member of Board Technology Committee.
(4) Member of Board Audit Committee.
(5) Member of Board Compensation Committee.
(6) Appointment as a director will become effective when this Offering closes.
(7) Key employee.
WILLIAM E. HAYNES has been Chairman of the Board of Invatec since May 1997
and President and Chief Executive Officer of Invatec since March 1997. He also
has served as President and Chief Executive Officer of SSI since November 1996
and as a director of SSI since May 1997. From 1993 until his retirement in 1995,
Mr. Haynes served as President and Chief Executive Officer of LYONDELL-CITGO
Refining Company Ltd. He served in various executive capacities for Lyondell
Petrochemical Company from 1985 to 1993 and in various technical, management and
executive positions with Atlantic Richfield commencing in 1967. Mr. Haynes is
also a director of Allwaste, Inc., a Houston-based industrial and environmental
services company.
CHARLES F. SCHUGART has been Senior Vice President -- Chief Financial
Officer of Invatec since March 1997 and has served in the same capacity for SSI
since February 1997. Prior to February 1997, he served for over 12 years in a
variety of capacities with Arthur Andersen LLP, including most recently as
Senior Manager. Mr. Schugart is a Certified Public Accountant.
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<PAGE>
DENNY A. RIGAS has been Senior Vice President -- Technology and Marketing
of Invatec since June 1997. From 1993 to May 1997, Mr. Rigas served as an
executive vice president and general manager of the Triconex Corporation, a
manufacturer of integrated safety systems for process system industries. Mr.
Rigas has a total of 30 years of domestic and international experience in the
oil and gas hydrocarbon processing, process, pipeline, power, marine and other
industries. He has served in executive and sales/marketing management positions
in the last 18 years with, among others, Rockwell Automation, Lummus Crest and
Foster Wheeler. Mr. Rigas is a registered professional engineer in the state of
Texas.
FRANK L. LOMBARD has been Vice President -- Corporate Development of
Invatec since March 1997 and has served in the same capacity for SSI since
August 1993. From 1982 until joining SSI in 1993, he served as President of
Westheimer Financial Group, Inc., a privately held investment banking and
corporate finance advisory firm in Houston, Texas.
JOHN L. KING has been Vice President -- Corporate Development of Invatec
since March 1997. Prior to March 1997, he served for over five years in a
variety of capacities with Arthur Andersen LLP, including most recently as an
audit manager. Mr. King is a Certified Public Accountant.
DOUGLAS R. HARRINGTON, JR. has been Vice President and Corporate Controller
of Invatec since March 1997 and has served in the same capacities for SSI since
February 1997. Prior to February 1997, he served in various capacities,
including most recently as Controller of U.S. Operations, for Gundle/SLT
Environmental, Inc. from March 1992 through May 1995 and from January 1996 until
February 1997. From May 1995 through December 1995, Mr. Harrington served as
Senior Manager -- Accounting for BSG Alliance, Inc. Prior to March 1992, he
served for more than five years in a variety of capacities with Arthur Andersen
LLP, including most recently an an audit manager. Mr. Harrington is a Certified
Public Accountant.
TIMOTHY M. LEFEVRE has been Vice President -- Corporate Marketing Programs
of Invatec since June 1997. From 1994 through June 1997, he served as Vice
President -- Corporate Marketing of Triconex Corporation. From 1992 through
1994, Mr. LeFevre served in a variety of technical and marketing capacities for
Allen-Bradley Company, a subsidiary of Rockwell International, Inc.
MICHAEL A. BAKER was a founder of American Medical Response, Inc., a
Boston-based company engaged in the provision of a national ambulance service
network, and served on its board of directors from February 1992 until it was
acquired in February 1997. Mr. Baker is a director of Allwaste, Inc.
ROBERT M. CHISTE has been Vice Chairman of Allwaste, Inc. since May 1997,
President and Chief Executive Officer of Allwaste, Inc. since October 1994 and a
director of Allwaste, Inc. since January 1995. He served as Chief Executive
Officer and President of American National Power, Inc., a successor company of
Transco Energy Ventures Company, from its creation in 1986 until October 1994.
During the same period, he served as Senior Vice President of Transco Energy
Company. Mr. Chiste also serves as a director of Franklin Credit Management
Corp., a New York-based financial services company.
ARTHUR L. FRENCH has served as Chairman of the Board, Chief Executive
Officer and President of Metals USA, Inc. since December 1996. From 1989 through
1996, Mr. French served as Executive Vice President and a director of Keystone
International, Inc. ("Keystone"), a publicly traded manufacturer of industrial
valves and controls, with responsibility for domestic and international
operations. From 1966 to 1989, Mr. French held various positions with Fisher
Controls International, Inc., a control valve and instrumentation manufacturer,
and served as its President and Chief Operating Officer and a director prior to
joining Keystone.
TOMMY E. KNIGHT was President and Chief Executive Officer of Brown & Root,
Inc., a subsidiary of Halliburton Company and one of the largest international
construction firms in the world, from June 1992 until his retirement in
September 1996. Prior to that time and since 1964, he served in a variety of
other capacities with Brown & Root, Inc.
PIERRE R. LATOUR, PH.D. is an independent consulting chemical engineer. Dr.
Latour co-founded Setpoint, Inc. and served as a director and a vice president
of consulting, oil refining, central marketing and business development until he
retired in January 1995. He then served as a vice president of business
development for Dynamic Matrix Control Corp. ("Dynamic") and then Aspen
Technology, Inc. after it
52
<PAGE>
acquired both Setpoint and Dynamic in January 1996. He retired from Aspen
Technology, Inc. in January 1997.
T. WAYNE WREN, JR. has served as Senior Vice President -- Chief Financial
Officer and Treasurer of Allwaste, Inc. since March 1996, having served as its
Vice President -- Chief Financial Officer since November 1995. From January 1994
to November 1995, Mr. Wren was an independent financial consultant. He
previously served as Allwaste's Vice President -- Chief Financial Officer from
August 1991 to December 1993. He also provided financial consulting services to
Allwaste pursuant to a consulting agreement from January 1994 to June 1994.
JOE CHEATHAM has been President and Chief Operating Officer of Harley since
August 1996. Prior to that time and since April 1993, he was Harley's Regional
Manager-Southeast. Mr. Cheatham joined Harley in 1990 as the Manager of its
Columbia, South Carolina operations.
LEE ROY JORDAN has been President of SVS since its inception in 1984. In
addition, Mr. Jordan serves on the board of directors of Cavalier Homes, Inc., a
publicly traded company.
PLINEY OLIVIER has been President of GSV since 1985 and was Chief Executive
Officer of GSV from 1985 until February 1997. Prior to 1985, he held positions
as plant manager with Farmland Industries and as a vice president of marketing
with a subsidiary of the Raytheon Corp.
ED S. RIES has been President of Steam Supply since July 1997. Mr. Ries has
been employed by Steam Supply since 1972 and has served in numerous senior-level
management, marketing and administrative positions with Steam Supply.
THOMAS SANTACROCE will become President of ICE/VARCO when this Offering
closes. Mr. Santacroce has been employed by ICE/VARCO since 1982 and has served
in various management, marketing and administrative positions with ICE/VARCO.
KEVIN M. STERN has been President of SSI since February 1997. Prior to that
time, he served in various management capacities for SSI since 1992.
CURRY B. WALKER has been President of Plant Specialties for over 10 years.
When this Offering closes, the Board of Directors (the "Board") will have
three director classes, each of which, following a transitional period, will
have a three-year term, with one class being elected each year at that year's
annual stockholders' meeting. The initial terms of the Class I directors, the
Class II directors and the Class III directors will expire at the 1998 meeting,
the 1999 meeting and the 2000 meeting, respectively.
DIRECTOR COMPENSATION
Invatec initially will pay each director who is not a Company employee (a
"Nonemployee Director") fees of $1,000 for each Board and each Board committee
meeting attended (except for committee meetings held on the same day as Board
meetings) and will periodically grant Nonemployee Directors options to purchase
shares of Common Stock pursuant to the Company's 1997 Incentive Plan (the
"Incentive Plan"). See " -- 1997 Incentive Plan -- Nonemployee Directors
Awards." It will not pay any additional compensation to its employees for
serving as directors, but will reimburse all directors for out-of-pocket
expenses they incur in connection with attending Board or Board committee
meetings or otherwise in their capacity as directors.
EXECUTIVE COMPENSATION
Invatec anticipates that during 1997 its most highly compensated executive
officers and their annualized base salaries will be: William E.
Haynes -- $200,000; Charles F. Schugart -- $175,000; and Denny A.
Rigas -- $175,000. Each of these executive officers is eligible to earn
additional performance-based incentive compensation for 1997. See " -- 1997
Incentive Plan." The Company did not pay Mr. Haynes any salary from his
employment by SSI in December 1996 through mid-May 1997. When this Offering
closes, the Company will pay him $300,000 as a hiring bonus and for his services
during that period. His base salary began accruing on May 16, 1997. SSI paid a
$50,000 hiring bonus to Mr. Schugart earlier this
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<PAGE>
year. In January 1997, SSI awarded Messrs. Haynes and Schugart 212,348 shares
and 50,000 shares, respectively, of SSI common stock in connection with their
becoming employees of SSI. For federal income tax purposes these awards have
been treated as taxable compensation income to Messrs. Haynes and Schugart in
the amounts of $424,696 and $100,000, respectively.
EMPLOYMENT AGREEMENTS
When this Offering closes, Invatec will assume the employment agreements
SSI presently has with Messrs. Haynes and Schugart. Each of these agreements and
Invatec's employment agreement with Mr. Rigas (i) provides for an annual minimum
base salary, (ii) entitles the employee to participate in all the Company's
compensation plans (as defined) in which executive officers of Invatec
participate and (iii) has a continuous term of three (Mr. Haynes) or two
(Messrs. Schugart and Rigas) years, subject to the right of either party to
terminate the employee's employment at any time. If the employee's employment is
terminated by reason of the employee's death or disability (as defined), by the
Company without cause (as defined) or by the employee for good cause (as
defined), the employee or his estate will be entitled to a lump-sum payment
equal to a multiple (three for Mr. Haynes and two for Messrs. Schugart and
Rigas) of his highest annual salary and incentive bonuses. If a change of
control (as defined) of the Company occurs, the employee may terminate his
employment at any time during the 730-day period following that event and
receive the same lump-sum payment together with such amount as may be necessary
to hold him harmless from the consequences of any resulting excise or other
similar purpose tax relating to "parachute payments" under the Internal
Revenue Code of 1986, as amended (the "Code"). Each agreement contains a
covenant limiting competition with the Company for two years following
termination of employment. Copies of these agreements are included as exhibits
to the Registration Statement of which this Prospectus is a part (the
"Registration Statement").
In accordance with the employment agreements with Messrs. Haynes and
Schugart, the Company will make interest-free loans to Messrs. Haynes and
Schugart in the amounts of $174,338 and $41,050, respectively, to pay the
federal taxes they owe as a result of the awards of SSI stock to them in January
1997. See "-- Executive Compensation." These loans will mature three years
from the initial funding and may be repaid, at the borrower's option, in cash or
shares of Common Stock valued at its then market value. As provided in Mr.
Rigas' employment agreement, Invatec will make a $100,000 interest-free loan to
Mr. Rigas that will mature on May 6, 1999, will pay up to $130,000 of the actual
relocation costs and expenses Mr. Rigas incurs in relocating his household from
California to the Houston metropolitan area and will pay other compensation to
Mr. Rigas in 1997 of up to $30,000.
The Company also has entered into employment agreements with other
executive officers and key employees of the Company.
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<PAGE>
OPTION GRANTS
When this Offering closes, the Company will have outstanding under the
Incentive Plan options to purchase 1,075,659 shares of Common Stock. SSI
originally granted the options with grant dates prior to March 1997, and these
options will convert into Incentive Plan options pursuant to the terms of the
SSI Merger. The following table sets forth certain information concerning the
Incentive Plan options:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES UNDERLYING TOTAL OPTIONS
OPTIONS GRANTED OUTSTANDING OR
NAME DATE OF GRANT OR TO BE GRANTED TO BE GRANTED EXERCISE PRICE
- ---------------------------------------- -------------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
William E. Haynes....................... January 27, 1997 250,000 23.2 % (1)
Charles F. Schugart..................... January 27, 1997 100,000 9.3 (1)
Denny A. Rigas.......................... May 6, 1997 100,000 9.3 (1)
Certain other officers and employees.... January-March 1997 265,000 24.6 (1)
SSI officers and employees.............. January-March 1997 7,700 0.7 $10.00
SSI officers and present or former
employees............................. 1995-1996 70,459 6.6 $10.00
All other officers, employees and
Nonemployee Directors as a group...... June 1997 282,500 26.3 (2)
</TABLE>
- ------------
(1) The exercise price per share for options to purchase 50% of the shares shown
is the initial price to the public in this Offering (the "IPO Price") and
the exercise price per share for the options to purchase 50% of the shares
shown is the lesser of the IPO Price and $9.00.
(2) Includes options to purchase 198,750 shares at the IPO Price, options to
purchase 68,750 shares at the lesser of the IPO Price and $9.00 and an
option to purchase 15,000 shares at $10.00 which will be exchanged for a
warrant granted in 1995.
The Incentive Plan options granted to Messrs. Haynes, Schugart, Rigas and
others to purchase a total of 922,500 shares have terms extending seven years
from the date this Offering closes and will become exercisable in 25% increments
on that date and the first three anniversaries of that date. Options to purchase
a total of 60,000 shares have seven-year terms and will become exercisable in 33
1/3% increments on the first three anniversaries of that date. Options to
purchase 93,159 shares have terms extending until mid-2001 and are fully
exercisable.
Invatec also has granted Allwaste and Roger L. Miller options to purchase
72,000 shares and 13,000 shares of Common Stock, respectively, at the IPO Price.
1997 INCENTIVE PLAN
The following summarizes the principal provisions of the Incentive Plan, a
copy of which is an exhibit to the Registration Statement.
GENERAL. The Incentive Plan, which has been approved by the Board and
Invatec's existing stockholders, aims to (i) attract and retain the services of
key employees and qualified independent directors and contractors and (ii)
encourage and stimulate in those persons the sense of proprietorship and self-
interest in the development and financial success of the Company by making
performance-based awards ("Awards") tied to the growth and performance of the
Company.
Invatec has reserved shares of Common Stock for use under the Plan.
Beginning with the Company's first fiscal quarter after the closing of this
Offering and continuing each fiscal quarter thereafter, the number of shares
available for that use will be the greater of or 15% of the number of
shares of Common Stock outstanding on the last day of the preceding fiscal
quarter. Awarded Shares that are not issued again will become available for
Awards.
Persons eligible for Awards are (i) employees holding positions of
responsibility with the Company or any of its subsidiaries and whose performance
can have a significant effect on the success of the Company as well as
individuals who have agreed to become employees within six months of the date of
grant ("Employees"), (ii) Nonemployee Directors and (iii) nonemployee
consultants and other independent
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<PAGE>
contractors providing, or who will provide, services to the Company or any of
its subsidiaries ("Independent Contractors"). Awards to Employees ("Employee
Awards") and Awards to Independent Contractors ("Independent Contractor
Awards") generally are treated alike under the Incentive Plan, and the
following discussion of Employee Awards applies, except as noted, equally to
Independent Contractor Awards. For purposes of Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which could impose
so-called short-swing trading liabilities on the directors and executive
officers of Invatec in connection with their purchases and sales of Common Stock
within any six-month period, the Incentive Plan is intended to qualify for the
exemptions from that Section which are provided by Exchange Act Rule 16b-3
("Rule 16b-3").
The Compensation Committee of the Board (the "Committee") administers the
Incentive Plan, except as it applies to Nonemployee Directors, and, to the
extent required for the Rule 16b-3 exemptions, the Committee will at all times
consist of at least two Nonemployee Directors. The Committee has the exclusive
power to administer the Incentive Plan and take all actions specifically
contemplated thereby or necessary or appropriate in connection with the
administration thereof. Except insofar as the Incentive Plan relates to
Nonemployee Directors, the Committee also has the exclusive power to interpret
the Incentive Plan and to adopt such rules, regulations and guidelines for
carrying out its purposes as the Committee may deem necessary or proper in
keeping with the objectives thereof. The Committee may, in its discretion,
extend or accelerate the exercisability of, accelerate the vesting of or
eliminate or make less restrictive any restrictions contained in any Employee
Award, waive any restriction or other provision of the Incentive Plan or in any
Employee Award or otherwise amend or modify any Employee Award in any manner
that is either (i) not adverse to that Employee holding the Employee Award or
(ii) consented to by that Employee. The Committee also may delegate to the chief
executive officer and other senior officers of the Company its duties under the
Incentive Plan, except that no such delegation may be made in the case of
actions respecting participants subject to Section 16 of the Exchange Act.
EMPLOYEE AWARDS. Employee Awards may be in the form of (i) rights to
purchase a specified number of shares of Common Stock at a specified price
("Options") which may be denominated in one or both of Common Stock or units
denominated in Common Stock, (ii) rights to receive a payment, in cash or Common
Stock, equal to the fair market value or other specified value of a number of
shares of Common Stock on the rights exercise date over a specified strike price
("SARs"), (iii) restricted or unrestricted grants of Common Stock or units
denominated in Common Stock ("Stock Awards"), (iv) grants denominated in cash
("Cash Awards") and (v) grants denominated in cash, Common Stock, units
denominated in Common Stock or any other property which are made subject to the
attainment of one or more performance goals ("Performance Awards"). Subject to
the limitations described below, the Committee will determine the recipients of
Employee Awards and the terms, conditions and limitations applicable to each
Employee Award, which conditions may, but need not, include continuous service
with the Company, achievement of specific business objectives or goals,
increases in specified indices or other comparable measures of performance. The
Committee may grant Employee Awards (i) singly, (ii) in combination or tandem
with other Employee Awards, (iii) in replacement of or as alternatives to prior
Employee Awards or (iv) in combination or tandem with, in replacement of or as
alternatives to rights under any other employee plan of the Company or any
acquired entity. The exercise price of an Option may be paid with cash or,
according to methods determined by the Committee, with Common Stock or any other
Employee Award the exerciser has owned for at least six months. Performance
Awards may include more than one performance goal, and a performance goal may be
based on one or more business criteria applicable to the grantee, the Company as
a whole or one or more of the Company's business units and may include any of
the following: increased revenue, net income, stock price, market share,
earnings per share, return on equity or assets or decreased costs or other
liabilities.
The Incentive Plan parameters respecting Employee Awards include the
following:
(i) an Option may be either an incentive stock option ("ISO") that
meets, or a nonqualified stock option ("NSO") that does not meet, the
requirements of Section 422 of the Code, and must have an exercise price of
not less than the fair market value of a Common Stock share on the date of
grant;
(ii) the Committee must establish the performance goal or goals for
each Performance Award prior to the earlier to occur of (a) 90 days after
the commencement of the performance measurement
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<PAGE>
period for that Award and (b) the lapse of 25% of that period, and in any
event while it is substantially uncertain whether the goal or goals will be
met; and
(iii) the Committee may not grant any employee: (a) during any
one-year period, (1) Options or SARs covering more than 150,000 shares of
Common Stock or (2) Stock Awards covering or relating to more than 10,000
shares of Common Stock (the limitations referred to in this clause (a)
being the "Stock-based Awards Limitations"); or (b) Cash Awards
(including Performance Awards denominated in cash) having a value
determined on the date of grant in excess of $1 million.
Only the limitations described in clause (i) above apply to Independent
Contractor Awards.
Invatec currently is developing a performance-based annual cash bonus
program under the Incentive Plan the participants in which would be eligible to
earn bonuses equal to specified percentages of their annual base salaries
(actual base salaries for 1997).
NONEMPLOYEE DIRECTOR AWARDS. Nonemployee Director Awards will be granted
either automatically or at the option of Nonemployee Directors in lieu of
director's fees. When this Offering closes, each Nonemployee Director
automatically will be granted NSOs to purchase 10,000 shares of Common Stock. In
addition, on the first business day of the month following the date on which
each annual meeting of the Company's stockholders is held (each an "Annual
Director Award Date"), each Nonemployee Director automatically will be granted
NSOs to purchase 5,000 shares of Common Stock. The Board may increase subsequent
annual Director Awards to not more than 15,000 shares. Any person who first
becomes a Nonemployee Director after the date this Offering closes otherwise
than by election at an annual meeting of stockholders automatically will be
granted, on the date of his or her election, NSOs to purchase the number of
shares of Common Stock equal to the product of (i) 10,000 and (ii) a fraction,
the numerator of which is the number of days between the election of that
Nonemployee Director and the next scheduled Annual Director Award Date (or, if
that date then has not been scheduled, the date that is the first anniversary of
the then immediately preceding Annual Director Award Date, if any) and the
denominator of which is 365. For purposes of any Director Awards granted prior
to the scheduling of the 1998 annual meeting of stockholders, June 1, 1998 will
be deemed the initial Annual Director Award Date. Each NSO granted to
Nonemployee Directors will (i) have a seven-year term, (ii) have an exercise
price per share equal to the fair market value of a Common Stock share on the
date of grant (the initial public offering price in the case of NSOs granted on
the closing of this Offering) which must be paid in full in cash at the time of
exercise to the extent exercised and (iii) become exercisable in increments of
one-third of the total number of shares of Common Stock subject thereto on the
first, second and third anniversaries of the date of grant. If a Nonemployee
Director resigns from the Board without the consent of a majority of the other
directors, his or her NSOs may be exercised only to the extent they were
exercisable on the resignation date.
A Nonemployee Director may make an annual election to receive, in lieu of
all or any portion of the director's fees he or she would otherwise receive in
the next year (including both annual retainer fees, if any, and meeting fees), a
restricted Stock Award covering a number of shares of Common Stock having a fair
market value equal to the quotient obtained by dividing (i) the dollar amount of
fees the Nonemployee Director elects to forego in the next year in exchange for
restricted Stock Awards by (ii) the fair market value of a Common Stock share on
the date of the election.
OTHER PROVISIONS. If the Committee approves, payments in respect of
Employee Awards may be deferred, either in the form of installments or a future
lump-sum payment, by any Employee. At the discretion of the Committee, an
Employee may be offered an election to substitute an Award for another Award or
Awards of the same or different type.
The Company will have the right to deduct applicable taxes from any
Employee Award payment and withhold, at the time of delivery or vesting of cash
or shares of Common Stock under the Incentive Plan, an appropriate amount of
cash or number of shares of Common Stock, or combination thereof, for the
payment of taxes. The Committee may (i) permit withholding to be satisfied by
the transfer to the Company of shares of Common Stock previously owned by the
holder of the Employee Award for which withholding is required and (ii) cause
the Company to make a short-term or demand loan to any Employee or Independent
Contractor to permit the payment of taxes required by law.
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<PAGE>
The Board may amend, modify, suspend or terminate the Incentive Plan for
the purpose of addressing any changes in legal requirements or for any other
lawful purpose, except that (i) no change that would impair the rights of any
holder of an Award with respect to that Award may be made without the consent of
that holder and (ii) no change requiring stockholder approval to maintain the
Rule 16b-3 exemptions will be effective until that approval has been obtained.
If any subdivision, split or consolidation of outstanding shares of Common
Stock, or any declaration of a stock dividend payable in shares of Common Stock,
occurs, the Board will make appropriate adjustments to (i) the number of shares
of Common Stock reserved under the Incentive Plan, (ii) the number of shares of
Common Stock covered by outstanding Awards in the form of Common Stock or units
denominated in Common Stock, (iii) the exercise or other price in respect of
such Awards, (iv) the appropriate fair market value and other price
determinations for Awards in order to reflect such transactions, (v) the number
of shares of Common Stock covered by Options automatically granted to
Nonemployee Directors, (vi) the number of shares covered by restricted Stock
Awards automatically granted to Nonemployee Directors and (vii) the Stock-based
Awards Limitations.
If any recapitalization or capital reorganization of Invatec, any
consolidation or merger of Invatec with another corporation or entity, any
adoption by Invatec of any plan of exchange affecting the Common Stock or any
distribution to holders of Common Stock of securities or property (other than
normal cash dividends) occurs, the Board will make appropriate adjustments to
the amounts or other items referred to in clauses (ii), (iii), (iv), (v), (vi)
and (vii) above to give effect to such transactions, but only to the extent
necessary to maintain the proportionate interest of the holders of the Awards
and to preserve, without exceeding, the value thereof.
TAX IMPLICATIONS OF AWARDS. The following summarizes the United States
federal income tax consequences to Employees, Nonemployee Directors and the
Company as a result of the grant and exercise of Awards under the Incentive
Plan. It does not address the consequences of the Incentive Plan under any other
tax laws.
No grant of any Option or SAR will constitute realized taxable income to
the grantee. Each exerciser of an SAR or NSO will (i) recognize ordinary income
in an amount equal to the excess of (a) the amount of cash and the fair market
value of the Common Stock received over (b) the exercise price (if any) paid
therefor and (ii) generally have a tax basis in any shares of Common Stock
received pursuant to the exercise of an SAR or the cash exercise of an NSO which
equals the fair market value of those shares on the date of exercise.
An Employee will not have taxable income as a result of exercising an ISO,
but the excess of the fair market value of the shares of Common Stock received
on that exercise ("ISO Stock") over the exercise price may cause the Employee
to incur alternative minimum tax ("AMT"). The payment of AMT by an Employee
attributable to an ISO exercise would be allowed as a credit against his regular
tax liability in a later year to the extent his regular tax liability exceeds
his AMT for that year.
On the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Employee generally will
recognize capital gain (or loss) equal to the difference between the amount
received in the disposition and the exercise price paid by the Employee for the
ISO Stock. If an Employee disposes of ISO Stock he has not held for the
requisite holding period (a "disqualifying disposition"), he will (i)
recognize ordinary income to the extent that the fair market value of the ISO
Stock at the time of exercise of the ISO (or, if less, the amount realized in
the case of an arm's-length disqualifying disposition to an unrelated party)
exceeds the exercise price paid by the Employee for such ISO Stock and (ii)
recognize capital gain to the extent the amount realized in the disqualifying
disposition exceeds the fair market value of the ISO Stock on the exercise date.
If the exercise price paid for the ISO Stock exceeds the amount realized in the
disqualifying disposition (in the case of an arm's-length disposition to an
unrelated party), that excess generally would constitute a capital loss.
Under current rulings, if an Option holder uses shares of Common Stock he
already owns (other than ISO Stock he has not held for the requisite holding
period) to pay all or any part of the exercise price of that Option, (i) he will
recognize income respecting the Common Stock he receives as described above,
(ii) no
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additional gain will be recognized as a result of the transfer of shares used as
payment and (iii) shares so received, up to the number of shares so used, will
have a tax basis that equals, and a holding period that includes, the tax basis
and holding period of the shares of Common Stock surrendered in satisfaction of
that exercise price. Any additional shares of Common Stock received on exercise
will have a tax basis that equals the amount of cash (if any) paid by the
exerciser.
When cash is paid or first made available to the recipient of a Cash Award
or Performance Award, that cash will constitute ordinary compensation income to
the recipient which is taxable at that time. When Common Stock is delivered
pursuant to a Stock Award or a Performance Award, or when Common Stock or cash
is delivered pursuant to a Stock Award denominated in units of Common Stock, the
recipient generally will recognize ordinary compensation income at that time
which is equal to the amount received (that amount being, in the case of Common
Stock, its fair market value when received), except that: if an Incentive Plan
participant receives Common Stock pursuant to a Stock Award or Performance Award
and that stock then is both nontransferable and subject to a substantial risk of
forfeiture, the participant may elect to recognize ordinary compensation income
equal to the then fair market value of the stock received or to defer such
recognition until such time, if ever, as the stock received first becomes both
transferable and no longer subject to a substantial risk of forfeiture, at which
time the participant would recognize ordinary compensation income equal to the
fair market value at that time of the stock previously received. If dividends
are paid or accrued on Common Stock included in a Stock Award or Performance
Award prior to the time the recipient of that Award recognizes ordinary
compensation income in respect of that stock, those dividends will be taxable as
compensation income rather than as dividend income. The tax basis of Common
Stock received by an Incentive Plan participant pursuant to a Stock Award or
Performance Award will be the amount the participant recognizes as compensation
income in respect of that stock, and the holding period of that stock will begin
on the date of that recognition.
When an Employee recognizes compensation income from the exercise of an SAR
or NSO or in respect of Common Stock, cash or other property received pursuant
to a Cash Award, Performance Award or Stock Award, he will be subject to
withholding by the Company for federal (and generally for state and local)
income tax at that time.
Subject to the Code limitations described below, the Company (or a
subsidiary) generally will be entitled to a deduction for federal income tax
purposes which corresponds as to amount and timing with the compensation income
realized by Incentive Plan participants in respect of Awards made to them. The
Code limits deductions to amounts constituting both reasonable compensation for
services rendered or to be rendered and ordinary, necessary business expenses.
Code Section 280G, which disallows deductions of amounts constituting excess
parachute payments made or deemed made in connection with a change in control of
an employer, and Code Section 162(m), which generally limits to $1 million the
deductibility of compensation paid to certain employees of the Company in any
one taxable year, could limit the ability of the Company (or a subsidiary) to
deduct amounts taxable as compensation income to Incentive Plan participants. In
the case of performance-based compensation, exceptions to Code Section 162(m)
currently apply if certain requirements are met. The Company intends generally
to satisfy these requirements in connection with the grant and payment of
performance-based Awards (including certain Options and SARs), but no assurance
can be given the Company will be able to satisfy these requirements in all cases
and the Company may, in its sole discretion, determine in one or more cases that
it is in its best interests not to satisfy these requirements even if it is able
to do so.
OTHER PLANS
The Company has adopted or intends to adopt deferred compensation,
supplemental disability, supplemental life and retirement or other benefit or
welfare plans in which executive officers of the Company will be eligible to
participate. Copies of the plans that have been adopted as of the date of this
Prospectus are exhibits to the Registration Statement.
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<PAGE>
CERTAIN TRANSACTIONS
FINANCING ARRANGEMENTS
Invatec was initially capitalized in March 1997 with $216.12 provided by
Messrs. Haynes, Schugart, and Lombard and CATS in exchange for 216,114 shares of
Common Stock. In June 1997, Messrs. Haynes, Schugart, Rigas, Lombard, King and
Harrington and CATS purchased an additional 141,000 shares of Common Stock for a
total purchase price of $141.00. Allwaste has advanced funds to Invatec pursuant
to a $4 million commitment to enable Invatec to pay various expenses incurred in
connection with its efforts to create the Company and effect this Offering. The
Allwaste Note evidences these advances, and $2.1 million was outstanding under
this note on July17, 1997. When this Offering closes, all the interest accrued
on this note and $0.5 million of its principal will convert into 618,571 shares
of Common Stock and Invatec will pay the remaining principal with proceeds from
this Offering. As part of its funding arrangements with Invatec, Allwaste also
has guaranteed the payment of $3.0 million principal amount of Convertible Notes
and agreed to provide up to $3.8 million of cash to pay for Acquisitions.
Beginning in October 1995 and continuing through SSI's acquisition of Plant
Specialties in June 1997, Allwaste advanced funds to SSI, in the form of equity
investments ($7.5 million, including the Allwaste subordinated notes described
below), loans ($2.5 million, of which $0.4 million has been repaid and $2.1
million is now evidenced by the Allwaste Note) and credit support for SSI's bank
borrowings, to pay costs related to the acquisitions of Harley, GSV and Plant
Specialties and this Offering. Invatec will pay to Allwaste a guarantee fee
equal to the following rates per annum on the aggregate principal amount
guaranteed by Allwaste while its guarantees are outstanding: (i) 2.5% on the
aggregate principal amount guaranteed up to $4.7 million; and (ii) 10% on any
additional principal amounts guaranteed.
Allwaste entered into its funding arrangements with Invatec pursuant to a
May 1997 agreement (the "1997 Agreement") among SSI, Allwaste and the Miller
Interests. Mr. Miller, who founded SSI in 1991 and was its President until
December 1996, was then Chairman of the Board of SSI and, as the trustee of the
Miller Trust and the owner of CATS, controlled approximately 47.3% of SSI's
outstanding common stock. In the 1997 Agreement, (i) the parties modified or
superseded prior agreements pursuant to which Allwaste had been providing
financing and credit support for the expansion of SSI's business and (ii) the
Miller Interests agreed to (a) transfer the voting power of their SSI common
stock to a voting trustee (currently Mr. Haynes) pursuant to a voting trust
agreement, (b) cooperate with Invatec and SSI in facilitating the completion of
this Offering and (c) sell in this Offering at least 25% of the shares of Common
Stock they will own immediately following the SSI Merger. As provided in the
1997 Agreement: (i) Mr. Miller will remain a member of the three-member SSI
board of directors until this Offering closes, but has resigned from all other
positions he held with SSI and has ceased to participate in all SSI compensation
and other benefit arrangements; (ii) CATS has terminated all its arrangements
with SSI including a management services agreement under which it would have
been paid $225,000 during the three-year period ending December 31, 1999; and
(iii) SSI has paid $300,000 in cash to CATS in complete satisfaction of all
claims CATS or Mr. Miller had or otherwise might have for any services rendered
or to be rendered for SSI or Invatec.
THE SSI MERGER
Before this Offering closes, Invatec will acquire all the outstanding
capital stock of SSI (consisting of 20,000 shares of preferred stock and
7,115,680 shares of common stock) by means of the SSI Merger and SSI will become
a wholly owned subsidiary of Invatec. As a result of the SSI Merger: (i) each
share of SSI preferred stock will convert into the right to receive cash in an
amount equal to $100 plus dividends accrued since June 30, 1997 at the rate of
$9.50 per annum; and (ii) each share of SSI common stock will convert into the
right to receive 1/2 of a share of Common Stock. In addition, presently
outstanding options and a warrant to purchase SSI common stock will be converted
into 1997 Incentive Plan options. See "Management -- Option Grants."
At the date of this Prospectus, the Miller Interests owned 3,367,470 shares
of SSI common stock (47.3% of the total shares then outstanding), including
345,730 shares awarded to CATS in January 1997
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for services rendered and 21,740 shares purchased by CATS in connection with the
June 1997 exercise of an option granted in 1992 to a former SSI employee to
purchase 100,000 shares of SSI common stock at an exercise price of $2.50 per
share, for which the Miller Interests will receive a total of 1,683,735 shares
of Common Stock as a result of the SSI Merger.
Also at the date of this Prospectus, Allwaste owned all the outstanding SSI
preferred stock (20,000 shares), for which it paid $2 million ($100 per share)
in October 1995, and 2,502,518 shares of SSI common stock, which it acquired as
follows: (i) in October 1995 it purchased 422,000 shares from SSI for $500,000
(approximately $1.19 per share); (ii) in January 1997 it exercised warrants it
had received in October 1995 and July 1996 to purchase 2,002,258 shares; and
(iii) in June 1997 it purchased 78,260 shares in connection with the exercise of
the 1992 employee stock option referred to above. It had purchased the 1995
warrant for $100,000 and guaranteed the repayment of a $2.0 million revolving
line of credit to SSI in exchange for the 1996 warrant. Together, the warrants
entitled Allwaste to purchase at $2.50 per share such number of shares as would
be necessary to afford it ownership, on a fully diluted basis, of 36.5% of the
SSI common stock outstanding after their exercise. To facilitate SSI's
acquisition of Harley, Allwaste and SSI agreed that Allwaste would exercise the
warrants at an exercise price of $2.15 per share. The total exercise price
consisted of (i) $3.3 million aggregate principal amount of subordinated 8%
promissory notes issued by Allwaste and paid as partial consideration in the
Harley acquisition and (ii) approximately $1.0 million in cash.
As a result of the SSI Merger, Allwaste will receive: (i) for the SSI
preferred stock it owns, cash in the amount equal to $2 million plus dividends
accrued on that stock since June 30, 1997 at the rate of $9.50 per share per
annum ($190,000 per annum on all shares); and (ii) for the SSI common stock it
owns, 1,251,259 shares of Common Stock.
Individuals who are or will become directors or executive officers of
Invatec will receive the following number of shares of Common Stock in the SSI
Merger for their shares of SSI common stock: Mr. Haynes -- 106,174; Mr.
Schugart -- 25,000; and Mr. Lombard -- 21,235. In addition, Messrs. Haynes and
Schugart will receive the 1997 Incentive Plan options shown for them in the
table under "Management -- Option Grants," Mr. Lombard will receive a 1997
Incentive Plan option to purchase 38,000 shares of Common Stock at an exercise
price of $10.00 per share and T. Wayne Wren, Jr., who will become a director of
Invatec, will receive a 1997 Incentive Plan option to purchase 15,000 shares of
Common Stock at an exercise price of $10.00 per share in exchange for a warrant
he acquired in 1995 to purchase SSI common stock.
CERTAIN MANAGEMENT FEES
The Company paid management fees of $119,000, $120,000 and $108,000 during
each of the fiscal years ended December 31, 1994, 1995 and 1996, respectively,
to CATS.
CONSULTING AGREEMENT
On March 27, 1997, Invatec entered into a consulting agreement with Wasatch
Capital Corporation, an affiliate of Michael A. Baker, who will become a
director of Invatec when this Offering closes. The consulting agreement, which
will become effective on September 1, 1997, provides for an initial three-year
term (which may be extended for successive one-year periods), during which
acquisition consulting and related services are to be provided by or under the
direction of Mr. Baker. The consulting agreement provides for annual consulting
fees (payable pro rata on a monthly basis) of $100,000 for the first year of the
term, $80,000 for the second year of the term and $60,000 for the third year and
any extension year. The consulting agreement also provides for bonuses that may
be granted at the discretion of Invatec's President (subject to the approval of
the Executive Committee of the Board) and reimbursement of ordinary and
necessary expenses incurred in the performance of the consulting services.
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COMPANY POLICY
In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal, and will, in all cases,
be approved in advance by a majority of the disinterested members of the
Company's Board of Directors.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table shows, as of June 30, 1997, the then "beneficial
owners" (as defined by the SEC) of the outstanding shares of Common Stock. This
table does not include any shares of Common Stock to which the persons named
will become entitled as a result of the SSI Merger.
SHARES BENEFICIALLY
OWNED
--------------------
NAME NUMBER PERCENT
- ------------------------------------- --------- -------
William E. Haynes(1)................. 357,114 100.0%
Computerized Accounting & Tax
Services, Inc.(2).................. 65,705 18.4%
P.O. Box 572843
Houston, Texas 77257
Charles F. Schugart.................. 60,000 16.8%
Denny A. Rigas....................... 50,000 14.0%
John L. King......................... 25,000 7.0%
Douglas R. Harrington, Jr............ 25,000 7.0%
Frank L. Lombard..................... 21,901 6.1%
- ------------
(1) Mr. Haynes owns 109,508 of the shares shown (30.7% of the outstanding
shares) and, pursuant to voting trusts of which he is the voting trustee,
has sole voting power over (but no economic interest in) the remaining
outstanding shares. The trusts will terminate when this Offering closes.
(2) Roger L. Miller owns CATS and is also the beneficial owner of the shares
CATS owns. He and CATS share the same address.
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The following table shows, after giving effect to the pending Acquisitions,
the beneficial ownership of the Common Stock immediately before and immediately
after this Offering closes of: (i) Allwaste; (ii) each executive officer of
Invatec; (iii) each person who will be an Invatec director when this Offering
closes; (iv) all directors and officers of the Company as a group; (v) certain
key employees of the Company as a group; and (vi) the Selling Stockholders. The
table assumes (i) the persons it lists will not acquire shares directly from the
Underwriters in connection with this Offering, except as noted in the footnotes
below, and (ii) no other person will acquire beneficial ownership of more than
5% of the outstanding Common Stock as a result of this Offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED SUBSEQUENT
THIS OFFERING NUMBER OF TO THIS OFFERING
-------------------- SHARES -----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------- --------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Allwaste, Inc.(2)(3)................. 1,869,830 41.0% 1,871,830
William E. Haynes(4)................. 278,182 6.1 278,182
Charles F. Schugart.................. 110,000 2.4 110,000
Denny A. Rigas....................... 75,000 1.7 75,000
Frank L. Lombard..................... 83,286 1.8 83,286
John L. King......................... 37,500 * 37,500
Douglas R. Harrington, Jr............ 37,500 * 37,500
Timothy M. LeFevre................... 10,000 * 10,000
T. Wayne Wren, Jr.................... 15,000 * 15,000
Executive officers and directors as a
group (8 persons).................. 646,468 14.3 646,468
Certain key employees as a group..... 88,845 2.0 88,845
Roger L. Miller(3)(4)................ 1,749,440 38.6
The Roger L. Miller Family
Trust(3)(5)........................ 1,425,000 31.4
Computerized Accounting & Tax
Services, Inc.(3)(4)............... 249,440 5.5
Donald R. Batson..................... 8,000 *
Girlie & Rennie Berry................ 15,000 *
Johnny L. Butler..................... 46,600 1.0
Dana Colquitt........................ 78,000 1.7
Peter Fabry.......................... 21,000 *
Art Hemker........................... 75,000 1.7
Investments Heptagon (Antonio
Marziale).......................... 5,000 *
Robert E. Metzger.................... 8,000 *
Lawrence J. Povse.................... 2,500 *
Roger Read........................... 5,000 *
Gloria Sanschagrin................... 84,000 1.9
Paul Tatum........................... 2,000 *
Richard E. Wakeland.................. 24,000 *
</TABLE>
- ------------
* Less than 1%.
(1) Shares shown include shares subject to options that will be exercisable when
this Offering closes, as follows: Mr. Haynes -- 62,500; Mr. Schugart --
25,000; Mr. Rigas -- 25,000; Mr. Lombard -- 38,000; Mr. King -- 12,500; Mr.
Harrington -- 12,500; Mr. LeFevre -- 10,000; Mr. Wren -- 15,000; all
executive officers and directors as a group -- 200,500; and certain key
employees as a group -- 79,130.
(2) Includes shares Allwaste Environmental Services, Inc., a wholly
owned subsidiary of Allwaste, Inc., owns of record and 618,571 shares into
which the Allwaste Note owned by Allwaste, Inc. will partially convert when
this Offering closes. The address of both companies is 5151 San Felipe,
Suite 1600, Houston, Texas 77056-3609. Robert M. Chiste, the president and
chief executive
(FOOTNOTES CONTINUED ON NEXT PAGE)
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officer of Allwaste, Inc., disclaims "beneficial ownership" of the shares
of which Allwaste, Inc. is the "beneficial owner."
(3) The 1997 Agreement referred to under "Certain Transactions" provides that:
(i) the Miller Interests have the option to increase the number of shares
they collectively offer to sell in this Offering by up to shares
(which would represent their sale of 75% of the shares they now collectively
own); and (ii) Allwaste has the option to purchase all shares the Miller
Interests so offered at a price per share equal to 96.5% of the initial
public offering price in this Offering. The table assumes neither option
will be exercised.
(4) Does not include shares subject to voting trusts of which Mr. Haynes is
voting trustee and which will terminate when this Offering closes.
(5) Mr. Miller, as the trustee of The Miller Trust and the owner of CATS, is the
"beneficial owner" of the shares they own. The address of the Miller
Interests is P.O. Box 572843, Houston, Texas 77257.
Except as otherwise indicated, the address of each person listed in each of
the above tables is c/o Innovative Valve Technologies, Inc., 14900 Woodham
Drive, Suite A-125, Houston, Texas 77073. All persons listed have sole voting
and investment power with respect to their shares unless otherwise indicated.
SHARES ELIGIBLE FOR FUTURE SALE
When this Offering closes, shares of Common Stock will be
outstanding. The shares sold in this Offering (other than to affiliates of the
Company) will be freely tradable by the public. The remaining outstanding shares
of Common Stock (collectively, the "Restricted Shares") have not been
registered under the Securities Act and may be resold publicly only following
their effective registration under that act or pursuant to an available
exemption from the registration requirements of that act (such as Rule 144
thereunder).
Invatec intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Incentive Plan. Shares of Common Stock
issued pursuant to the Incentive Plan after the effective date of that
registration statement generally will be available for sale in the open market
by holders who are not affiliates of the Company and, subject to the volume and
other limitations of Rule 144, by holders who are affiliates of the Company.
In general, under Rule 144 if a minimum of one year has elapsed since the
later of the date of acquisition of the restricted securities from the issuer or
from an affiliate of the issuer, a person (or persons whose shares of Common
Stock are aggregated), including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares of Common Stock that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (I.E., shares immediately on closing
of this Offering) and (ii) the average weekly trading volume during a preceding
period of four calendar weeks. Sales under Rule 144 are also subject to certain
provisions as to the manner of sale, notice requirements and the availability of
current public information about the Company. In addition, under Rule 144(k), if
a period of at least two years has elapsed since the later of the date
restricted securities were acquired from the Company or the date they were
acquired from an affiliate of the Company, a stockholder who is not an affiliate
of the Company at the time of sale and has not been an affiliate for at least
three months prior to the sale would be entitled to sell shares of Common Stock
in the public market immediately without compliance with the foregoing
requirements under Rule 144. Rule 144 does not require the same person to have
held the securities for the applicable periods. The foregoing summary of Rule
144 is not intended to be a complete description thereof. The SEC has proposed
certain amendments to Rule 144 that would, among other things, eliminate the
manner of sale requirements and revise the notice provisions of that rule. The
SEC has also solicited comments on other possible changes to Rule 144, including
possible revisions to the one- and two-year holding periods and the volume
limitations referred to above.
Invatec has agreed not to offer or sell any shares of Common Stock for a
period of 180 days (the "Lockup Period") following the date of this Prospectus
without the prior written consent of Smith Barney Inc., except that Invatec may
issue shares of Common Stock in connection with acquisitions or pursuant to
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the conversion of the Convertible Notes and the exercise of options outstanding
when this Offering closes. Allwaste and the Miller Interests will be
contractually prohibited from selling the shares of Common Stock they own when
this Offering closes for a period of two years following that closing. In
addition, the stockholders of SVS and the directors and executive officers of
Invatec will be contractually prohibited from selling the shares of Common Stock
they own when this Offering closes for a period of one year following that
closing. Invatec has agreed that it will not waive any of those contractual
prohibitions without the prior written consent of Smith Barney Inc.
Invatec has granted "piggyback" registration rights to Allwaste, Messrs.
Haynes, Schugart, Rigas and Wren and the holders of the Convertible Notes, such
that, following the applicable restricted period (generally two years following
the closing of the IPO), they may include any shares of Common Stock owned by
them in certain types of registrations by Invatec under the Securities Act of
any Common Stock for its own account for cash, subject to certain exceptions.
Invatec is generally required to pay the costs associated with any such offering
other than underwriting discounts and commissions and transfer taxes
attributable to the shares sold on behalf of the selling stockholders. The
registration rights agreements provide that the number of shares of Common Stock
that must be registered on behalf of the selling stockholders is subject to
limitation if the managing underwriter or Invatec's financial advisor, as the
case may be, determines that market conditions so require. Invatec will
indemnify the selling stockholders thereunder, and those stockholders will
indemnify Invatec, against certain liabilities in respect of any registration
statement or offering that includes shares pursuant to the registration rights
agreements.
Invatec intends to register 5,000,000 shares of Common Stock under the
Securities Act for its use in connection with future acquisitions. These shares
generally will be freely tradable after their issuance by persons not affiliated
with the Company unless the Company contractually restricts their sale, and
sales of these shares during the Lockup Period would require the prior written
consent of Smith Barney Inc.
DESCRIPTION OF CAPITAL STOCK
Invatec's Charter authorizes Invatec to issue 30,000,000 shares of Common
Stock and 5,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"). At June 30, 1997, 357,114 shares of Common Stock were
issued and outstanding. The Board does not presently intend to seek stockholder
approval prior to any issuance by Invatec of its currently authorized stock,
unless otherwise required by law or the applicable rules of any stock exchange
or market. The following summary is qualified in its entirety by reference to
the Charter, which is an exhibit to the Registration Statement.
COMMON STOCK
Each share of Common Stock (i) has one vote in the election of each
director and on other corporate matters, (ii) affords no cumulative voting or
preemptive rights and (iii) is not convertible, redeemable, assessable or
entitled to the benefits of any sinking fund. Holders of Common Stock are
entitled to dividends in such amounts and at such times as the Board may in its
discretion declare out of funds legally available therefor.
PREFERRED STOCK
The Board may direct Invatec to issue shares of Preferred Stock from time
to time. Subject to certain Charter provisions and applicable law, it may,
without any action by holders of the Common Stock, (i) adopt resolutions to
issue the shares in one or more classes or series, (ii) fix the number of shares
and change the number of shares constituting any class or series and (iii)
provide for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including dividend rights and rates, redemption terms
and prices, repurchase obligations, conversion rights and liquidation
preferences, of the shares constituting any class or series.
The Board could cause Invatec to issue shares of, or rights to purchase,
Preferred Stock, the terms of which might (i) discourage an unsolicited proposal
to acquire the Company, (ii) facilitate a particular
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business combination involving the Company or (iii) adversely affect the voting
power of holders of the Common Stock. Any such action could discourage a
transaction that some or a majority of the stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over its then market price.
STOCKHOLDER RIGHTS PLAN
Each share of Common Stock offered hereby includes one right ("Right") to
purchase from Invatec a unit consisting of one one-hundredth of a share (a
"Fractional Share") of Series A Junior Participating Preferred Stock, par
value $.001 per share of Invatec (the "Junior Participating Preferred Stock"),
at a purchase price of $ per Fractional Share, subject to adjustment in
certain events (the "Purchase Price"). The following summary description of
the Rights is qualified in its entirety by reference to the Rights Agreement
between Invatec and a Rights Agent (the "Rights Agreement"), the form of which
is filed as an exhibit to the Registration Statement.
Initially, the Rights will attach to all certificates representing
outstanding shares of Common Stock, including the shares of Common Stock offered
hereby, and no separate certificates for the Rights ("Rights Certificates")
will be distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will, with certain exceptions, occur on the earlier of (i)
10 days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock (the date of the announcement being the "Stock Acquisition Date")
or (ii) 10 business days following the commencement of a tender offer or
exchange offer that would result in a person's becoming an Acquiring Person.
Notwithstanding the foregoing, so long as the Miller Trust or Allwaste, together
with all respective affiliates and associates thereof, remains the beneficial
owner of 15% or more of the outstanding shares of Common Stock, the Miller
Trust, or Allwaste, as the case may be, shall not be or become an Acquiring
Person unless and until it, together with all affiliates and associates thereof,
becomes the beneficial owner of additional shares of Common Stock constituting
1% or more of the then-outstanding shares of Common Stock or any other person
who is the beneficial owner of at least 1% of the then-outstanding shares of
Common Stock shall become an affiliate or associate of the Miller Trust or
Allwaste, as the case may be. In certain circumstances, the Distribution Date
may be deferred by the Board. Certain inadvertent acquisitions will not result
in a person's becoming an Acquiring Person if the person promptly divests itself
of sufficient Common Stock. Until the Distribution Date, (i) the Rights will be
evidenced by the Common Stock certificates and will be transferred with and only
with those certificates, (ii) Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificate for Common Stock also will constitute the transfer
of the Rights associated with the stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on , 2007, unless earlier redeemed or
exchanged by Invatec as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights. All shares of Common Stock
issued prior to the Distribution Date will be issued with Rights. Shares of
Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon conversion of certain securities will be issued
with Rights. Except as otherwise determined by the Board, no other shares of
Common Stock issued after the Distribution Date will be issued with Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring
Person (except pursuant to a tender or exchange offer for all outstanding shares
of Common Stock at a price and on terms that a majority of the independent
members of the Board determines to be fair to and otherwise in the best
interests of Invatec and its stockholders (a "Permitted Offer")), each holder
of a Right will thereafter have the right to receive, on exercise of that Right,
a number of shares of Common Stock (or, in certain circumstances, cash, property
or other securities of Invatec) having a Current Market Price (as defined in the
Rights Agreement)
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equal to two times the exercise price of the Right. Notwithstanding the
foregoing, following the occurrence of any Triggering Event (as defined below),
all Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by an Acquiring Person (or by certain
related parties) will be null and void in the circumstances set forth in the
Rights Agreement. Rights are not exercisable following the occurrence of any
Flip-In Event until such time as the Rights are no longer redeemable by Invatec
as set forth below.
In the event (a "Flip-Over Event") that, at any time from and after the
time an Acquiring Person becomes such, (i) Invatec is acquired in a merger or
other business combination transaction (other than certain mergers that follow a
Permitted Offer) or (ii) 50% or more of the Company's assets or earning power is
sold or transferred, each holder of a Right (except Rights that previously have
been voided as set forth above) shall thereafter have the right to receive, on
exercise of such Right, a number of shares of common stock of the acquiring
company having a Current Market Price equal to two times the exercise price of
the Right. Flip-In Events and Flip-Over Events are collectively referred to as
"Triggering Events."
The Purchase Price payable, and the number of Fractional Shares of Junior
Participating Preferred Stock or other securities or property issuable, on
exercise of the Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination
or reclassification of, the Junior Participating Preferred Stock, (ii) if
holders of the Junior Participating Preferred Stock are granted certain rights
or warrants to subscribe for Junior Participating Preferred Stock or certain
convertible securities at less than the current market price of the Junior
Participating Preferred Stock or (iii) on the distribution to holders of the
Junior Participating Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares of Junior Participating Preferred Stock that are not
integral multiples of a Fractional Share are required to be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Junior Participating Preferred Stock on the last trading date prior to the date
of exercise. Pursuant to the Rights Agreement, Invatec reserves the right to
require prior to the occurrence of a Triggering Event that, on any exercise of
Rights, a number of Rights be exercised so that only whole shares of Junior
Participating Preferred Stock will be issued.
At any time until 10 days following the first date of public announcement
of the occurrence of a Flip-In Event, Invatec may redeem the Rights in whole,
but not in part, at a price of $.01 per Right, payable, at the option of
Invatec, in cash, shares of the Common Stock or such other consideration as the
Board may determine. Immediately on the effectiveness of the action of the Board
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the $.01 redemption price.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock then
outstanding, Invatec may, at its option, exchange the Rights (other than Rights
owned by an Acquiring Person or an affiliate or an associate of an Acquiring
Person, which will have become void), in whole or in part, at an exchange ratio
of one share of Common Stock, and/or other equity securities deemed to have the
same value as one share of Common Stock, per Right, subject to adjustment.
Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board as long as the Rights are redeemable.
Thereafter, the provisions of the Rights Agreement other than the redemption
price may be amended by the Board only in order to cure any ambiguity, defect or
inconsistency, to make changes that do not materially adversely affect the
interests of holders of Rights (excluding the interests of any Acquiring
Person), or to shorten or lengthen any time period under the Rights Agreement;
provided, however, that no amendment to lengthen the time period governing
redemption shall be made at such time as the Rights are not redeemable. Until a
Right is exercised, the holder
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thereof, as such, will have no rights to vote or receive dividends or any other
rights as a stockholder of Invatec.
The Rights will have certain antitakeover effects. They will cause
substantial dilution to any person or group that attempts to acquire the Company
without the approval of the Board. As a result, the overall effect of the Rights
may be to render more difficult or discourage any attempt to acquire the
Company, even if such acquisition may be favorable to the interests of the
Company's stockholders. Because the Board can redeem the Rights or approve a
Permitted Offer, the Rights should not interfere with a merger or other business
combination approved by the Board. The Rights are being issued to protect
Invatec's stockholders from coercive or abusive takeover tactics, and to afford
the Board more negotiating leverage in dealing with prospective acquirers.
STATUTORY BUSINESS COMBINATION PROVISION
As a Delaware corporation, Invatec is subject to Section 203 of the DGCL.
In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a Delaware corporation's outstanding
voting stock) from engaging in a "business combination" (as defined) with the
corporation for three years following the date such person became an interested
stockholder unless: (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) on consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (iii) following the transaction in which such person became an interested
stockholder, the business combination was approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of 66 2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors, if such extraordinary transaction is approved or
not opposed by a majority of the directors who were directors prior to any
person becoming an interested stockholder during the previous three years or
were recommended for election or elected to succeed such directors by a majority
of such directors.
OTHER MATTERS
Delaware law authorizes Delaware corporations to limit or eliminate the
personal liability of their directors to corporations and their stockholders for
monetary damages for breach of a director's fiduciary duty of care. The duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Delaware law enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Charter limits the
liability of directors of the Company to the Company or its stockholders to the
fullest extent permitted by Delaware law. Specifically, no member of the Board
will be personally liable for monetary damages for breach of the member's
fiduciary duty as a director, except for liability (i) for any breach of the
member's duty of loyalty to Invatec or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL or (iv) for
any transaction from which the member derived an improper personal benefit. This
Charter provision could have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or
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deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited Invatec and its stockholders. The Company's Bylaws (the
"Bylaws") provide indemnification to Invatec's officers and directors and
certain other persons with respect to certain matters, and Invatec has entered
into agreements with each of its directors and executive officers providing for
indemnification with respect to certain matters.
The Charter provides that stockholders may act only at an annual or special
meeting of stockholders and may not act by written consent. The Bylaws provide
that only the Chairman of the Board, the President or a majority of the Board
may call a special meeting of stockholders.
The Charter provides that the Board will consist of three classes of
directors serving for staggered terms, and Invatec currently contemplates that
approximately one-third of the Board will be elected each year. This Charter
provision could prevent a party who acquires control of a majority of the
outstanding voting stock of Invatec from obtaining control of the Board until
the second annual stockholders' meeting following the date that party obtains
that control.
The Charter provides that the number of directors shall be as determined by
the Board from time to time, but shall not be less than three. It also provides
that directors may be removed only for cause, and then only by the affirmative
vote of the holders of at least a majority of all outstanding voting stock
entitled to vote. This provision, in conjunction with the Charter provisions
authorizing the Board to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
STOCKHOLDER PROPOSALS
The Bylaws contain advance-notice and other procedural requirements that
apply to stockholder nominations of persons for election to the Board at any
annual or special meeting of stockholders and to stockholder proposals that any
other action be taken at any annual meeting. In the case of any annual meeting,
a stockholder proposing to nominate a person for election to the Board or
proposing that any other action be taken must give the Secretary of Invatec
written notice of the proposal not less than 90 days before the anniversary date
of the immediately preceding annual meeting (subject to certain exceptions if
the pending annual meeting date differs by more than specified periods from that
anniversary date). If a special meeting is called for the election of directors,
a stockholder proposing to nominate a person for that election must give the
Secretary of Invatec written notice of the proposal no later than the close of
business on the 10th day following the first to occur of (i) the day on which
notice of the date of the special meeting was mailed to stockholders or (ii) the
day public disclosure of the date of the special meeting was made. The Bylaws
prescribe the specific information any advance written stockholder notice must
contain. The foregoing summary is qualified in its entirety by reference to the
Bylaws, which are an exhibit to the Registration Statement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase-Mellon
Shareholder Services LLC.
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UNDERWRITING
Subject to the terms and conditions stated in the Underwriting Agreement,
each Underwriter named below has severally agreed to purchase, and Invatec and
the Selling Stockholders have agreed to sell to such Underwriter, the number of
shares of Common Stock set forth opposite the name of such Underwriter.
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------- ---------
Smith Barney Inc. ......................
Montgomery Securities...................
---------
Total.........................
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Montgomery Securities are
acting as representatives (the "Representatives"), propose to offer part of
the shares of Common Stock directly to the public at the offering price set
forth on the cover page of this Prospectus, and part of the shares to certain
dealers at a price which represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After the initial public offering, the offering price and other
selling terms may be changed by the Representatives. The Representatives of the
Underwriters have advised Invatec that the Underwriters do not intend to confirm
any shares to any accounts over which they exercise discretionary authority.
Invatec has granted to the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to an additional shares
of Common Stock at the price to the public set forth on the cover page of this
Prospectus, minus the underwriting discounts and commissions. The Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, in connection with this Offering. To the extent such option is exercised,
each Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
Invatec, its officers and directors, the Selling Stockholders and certain
other stockholders of the Company designated by the Representatives have agreed
that, for a period of 180 days from the date of this Prospectus, they will not,
without the prior written consent of Smith Barney Inc., offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, Common Stock, except that
Invatec may issue shares of Common Stock (i) in connection with acquisitions and
(ii) pursuant to the conversion of the Convertible Notes and the exercise of
options outstanding as of the closing of this Offering. For information
respecting additional restrictions on sales by Allwaste, the Miller Interests,
Invatec's management and others, see "Shares Eligible for Future Sale."
Prior to this Offering, there has not been any public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock included in this Offering has been determined by negotiations between
Invatec and the Representatives. Among the factors considered in determining
such
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price were the history of and prospects for the Company's business and the
industry in which it competes, an assessment of the Company's management and the
present state of the Company's development, the past and present revenues and
earnings of the Company, the prospects for the growth of the Company's revenues
and earnings, the current state of the economy in the United States and the
current level of economic activity in the industry in which the Company competes
and in related or comparable industries, and currently prevailing conditions in
the securities markets, including current market valuations of publicly traded
companies that are comparable to the Company.
Invatec, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more shares of Common Stock than the
total amount shown on the list of Underwriters and participations which appears
above) and may effect transactions which stabilize, maintain or otherwise affect
the market price of the Common Stock at levels above those which might otherwise
prevail in the open market. Such transactions may include placing bids for the
Common Stock or effecting purchases of the Common Stock for the purpose of
pegging, fixing or maintaining the price of the Common Stock or for the purpose
of reducing a syndicate short position created in connection with this Offering.
A syndicate short position may be covered by exercise of the option described
above in lieu of or in addition to open market purchases. In addition, the
contractual arrangements among the Underwriters include a provision whereby, if
the Representatives purchase shares of Common Stock in the open market for the
account of the underwriting syndicate and the securities purchased can be traced
to a particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the shares of Common Stock in question at the cost price to the
syndicate or may recover from (or decline to pay to) the Underwriter or selling
group member in question the selling concession applicable to the securities in
question. The Underwriters are not required to engage in any of these activities
and any such activities, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the sale of the Common Stock
offered hereby are being passed on for Invatec by Baker & Botts, L.L.P.,
Houston, Texas, and for the Underwriters by Morgan, Lewis & Bockius LLP, New
York, New York.
EXPERTS
The audited financial statements of Invatec and each of the Acquired
Businesses (other than Harley and GSV) included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance on the
authority of said firm as experts in giving said reports.
The consolidated financial statements of Harley as of October 31, 1995 and
1996 and for each of the three years in the period ended October 31, 1996 and
the financial statements of GSV as of December 31, 1995 and 1996 and for each of
the three years in the period ended December 31, 1996 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
Invatec has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. It has filed the Registration
Statement on Form S-1 under the Securities Act with the SEC with respect to this
Offering. This Prospectus does not contain all the information set forth in the
Registration Statement, or the exhibits and schedules thereto, in accordance
with the rules and regulations of
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the SEC, and reference is hereby made to that omitted information. The
statements made in this Prospectus concerning documents filed as exhibits to the
Registration Statement accurately describe the material provisions of those
documents and are qualified in their entirety by reference to those exhibits for
complete statements of their provisions. Interested persons may (i) inspect the
Registration Statement and the exhibits and schedules thereto, without charge,
at the public reference facilities of the SEC at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at its regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New
York 10048 and (ii) obtain copies of all or any portion of the Registration
Statement at prescribed rates from the Public Reference Section of the SEC at
its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. The SEC maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. The address of that site is
http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
PAGE
----
Unaudited Pro Forma Combined Financial Statements
Basis of Presentation .............................................. F-3
Unaudited Pro Forma Combined Balance Sheet as of March 31, 1997 .... F-4
Unaudited Pro Forma Combined Statement of Operations for the
Year Ended December 31, 1996 ...................................... F-5
Unaudited Pro Forma Combined Statement of Operations for the
Three Months Ended March 31, 1996 ................................. F-6
Unaudited Pro Forma Combined Statement of Operations for the
Three Months Ended March 31, 1997 ................................. F-7
The Safe Seal Company's Unaudited Pro Forma Consolidated
Statement of Operations for the Three Months Ended March 31, 1997 . F-8
Notes to Unaudited Pro Forma Combined Financial Statements ......... F-9
Historical Financial Statements
Innovative Valve Technologies, Inc. ................................
Report of Independent Public Accountants ...................... F-13
Balance Sheet ................................................. F-14
Statement of Operations ....................................... F-15
Statement of Stockholders' Deficit ............................ F-16
Statement of Cash Flows ....................................... F-17
Notes to Financial Statements ................................. F-18
Harley Industries, Inc. ............................................
Independent Auditors' Report .................................. F-20
Consolidated Balance Sheets ................................... F-21
Consolidated Statements of Operations ......................... F-22
Consolidated Statements of Stockholders' Equity ............... F-23
Consolidated Statements of Cash Flows ......................... F-24
Notes to Consolidated Financial Statements .................... F-25
Steam Supply Group
Report of Independent Public Accountants ...................... F-34
Combined Balance Sheets ....................................... F-35
Combined Statements of Operations ............................. F-36
Combined Statements of Stockholders' Equity (Deficit) ......... F-37
Combined Statements of Cash Flows ............................. F-38
Notes to Combined Financial Statements ........................ F-39
ICE/VARCO Group
Report of Independent Public Accountants ...................... F-46
Combined Balance Sheets ....................................... F-47
Combined Statements of Operations ............................. F-48
Combined Statements of Stockholders' Equity (Deficit) ......... F-49
Combined Statements of Cash Flows ............................. F-50
Notes to Combined Financial Statements ........................ F-51
F-1
<PAGE>
PAGE
----
GSV, Inc. ..........................................................
Independent Auditors' Report .................................. F-57
Balance Sheets ................................................ F-58
Statements of Operations ...................................... F-59
Statements of Stockholders' Equity ............................ F-60
Statements of Cash Flows ...................................... F-61
Notes to Financial Statements ................................. F-62
Plant Specialties, Inc. ............................................
Report of Independent Public Accountants ...................... F-66
Balance Sheets ................................................ F-67
Statements of Operations ...................................... F-68
Statements of Stockholder's Equity ............................ F-69
Statements of Cash Flows ...................................... F-70
Notes to Financial Statements ................................. F-71
Southern Valve Group
Report of Independent Public Accountants ...................... F-76
Combined Balance Sheets ....................................... F-77
Combined Statements of Operations ............................. F-78
Combined Statements of Stockholders' Equity (Deficit) ......... F-79
Combined Statements of Cash Flows ............................. F-80
Notes to Combined Financial Statements ........................ F-81
The Safe Seal Company, Inc. ........................................
Report of Independent Public Accountants ...................... F-86
Consolidated Balance Sheets ................................... F-87
Consolidated Statements of Operations ......................... F-88
Consolidated Statements of Stockholders' Equity (Deficit) ..... F-89
Consolidated Statements of Cash Flows ......................... F-90
Notes to Consolidated Financial Statements .................... F-91
F-2
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to (i) the formation of Innovative Valve Technologies, Inc. ("Invatec"), (ii)
the merger by means of which The Safe Seal Company, Inc. ("SSI"), which had
previously acquired (a) Harley Industries, Inc. ("Harley"), (b) Plant
Specialties, Inc. ("Plant Specialties"), and (c) GSV, Inc. ("GSV"), will
become a subsidiary of Invatec and (iii) Invatec's acquisition of Steam Supply &
Rubber Co., Inc. (together with three related entities, "Steam Supply"),
Industrial Controls & Equipment, Inc. (together with three related entities,
"ICE/VARCO") and Southern Valve Service, Inc. (together with a related entity,
"SVS") (collectively referred to, together with SSI, Harley, Plant
Specialties, GSV, Steam Supply and ICE/VARCO, as the "Acquired Businesses").
Invatec and the Acquired Businesses are hereinafter referred to as the Company.
The unaudited pro forma combined financial statements also give effect to the
issuance of Common Stock offered hereby. These statements are based on the
historical financial statements of Invatec and the Acquired Businesses included
elsewhere in this Prospectus and the estimates and assumptions set forth below
and in the notes to the unaudited pro forma combined financial statements.
The unaudited pro forma combined balance sheet gives effect to the
acquisition of the Acquired Businesses and the initial public offering by
Invatec of shares of its Common Stock (the "Offering") as if they had occurred
on March 31, 1997. The unaudited pro forma combined statements of operations
gives effect to these transactions as if they had occurred at the beginning of
each period presented.
The pro forma combined statements of operations include preliminary pro
forma adjustments to selling, general and administrative expenses to reflect the
decrease in salaries and benefits associated with certain owners and managers of
the Acquired Businesses who were not or will not be employed by the Company
after the acquisition of their Acquired Businesses and will not be replaced.
This integration process may present opportunities to reduce other costs through
the elimination of duplicative functions and operating locations and economies
of scale, particularly as a result of the Company's ability to (i) consolidate
insurance programs, (ii) borrow at lower interest rates than the Acquired
Businesses, (iii) obtain greater discounts from suppliers and (iv) generate
savings in other general and administrative areas. The Company cannot currently
quantify these anticipated savings and expects these savings will be partially
offset by incremental costs that Invatec expects to incur, but also cannot
currently quantify accurately. These costs include those associated with
corporate management and administration, being a public company, systems
integration and facilities expansions and consolidations. The pro forma
financial information herein reflects neither expected savings nor expected
incremental costs.
SSI has been identified as the "accounting acquiror" for financial
statement presentation purposes.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma adjustments do not reflect amounts related to certain post closing
adjustments, which may affect goodwill and debt. In addition, the pro forma
combined statements of operation do not include adjustments for non-recurring
charges of $282,000 related to shares of Common Stock sold by Invatec in June
1997, $330,000 of bonuses to be paid to three executive officers of Invatec on
completion of this Offering, $300,000 paid to a related party in May 1997 and
$837,000 of financing charges to be paid to Allwaste which will be recorded
subsequent to the Offering. The unaudited pro forma combined financial
statements presented herein do not purport to represent what the Company's
financial position or results of operations would have actually been had such
events occurred at the dates respective of the periods presented, as assumed, or
to project the Company's financial position or results of operations for any
future period or the future results of the Acquired Businesses. The unaudited
pro forma combined financial statements should be read in conjunction with the
historical financial statements of Invatec and the Acquired Businesses and
related notes thereto included elsewhere in this Prospectus.
F-3
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
STEAM ICE/ PLANT PRO FORMA
INVATEC SSI SUPPLY VARCO SPECIALITIES SVS ADJUSTMENTS PRO FORMA
------- ------- ------ ------ ------------ ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $-- $ 454 $-- $ 25 $-- $ 12 $-- $ 491
Accounts receivable, net........... -- 6,998 1,883 2,650 2,114 375 -- 14,020
Inventories........................ -- 3,976 2,060 1,442 1,993 1,613 958 12,042
Other current assets............... -- 1,555 399 -- 61 20 -- 2,035
------- ------- ------ ------ ------------ ------ ----------- ---------
Total current assets............. -- 12,983 4,342 4,117 4,168 2,020 958 28,588
PROPERTY AND EQUIPMENT, net.......... 13 3,768 1,097 887 2,011 1,044 678 9,498
GOODWILL, net........................ -- 13,046 -- 353 -- -- 10,565 23,964
OTHER NONCURRENT ASSETS.............. -- 4,095 838 -- 154 -- (393) 4,694
------- ------- ------ ------ ------------ ------ ----------- ---------
Total assets..................... $ 13 $33,892 $6,277 $5,357 $6,333 $3,064 $11,808 $66,744
======= ======= ====== ====== ============ ====== =========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 25 $ 6,800 $1,298 $1,160 $1,135 $ 368 $(1,022) $ 9,764
Short-term debt.................... -- -- 2,063 1,350 1,274 -- 11,667 16,354
Current maturities of long-term
debt............................. -- 1,322 329 249 122 146 -- 2,168
Other current liabilities.......... 61 1,128 -- -- 8 -- -- 1,197
------- ------- ------ ------ ------------ ------ ----------- ---------
Total current liabilities........ 86 9,250 3,690 2,759 2,539 514 10,645 29,483
LONG-TERM DEBT, net of current
maturities......................... -- 19,330 1,988 377 926 1,887 (393) 24,115
CONVERTIBLE SUBORDINATED NOTES....... -- -- -- -- -- -- 6,295 6,295
OTHER NONCURRENT LIABILITIES......... -- -- -- 2,298 -- -- (2,298) --
DEFERRED INCOME TAXES................ -- -- -- -- 115 16 -- 131
REDEEMABLE PREFERRED STOCK........... -- 2,000 711 -- -- -- (711) 2,000
STOCKHOLDERS' EQUITY
Common stock....................... -- 70 -- -- 9 10 (89) --
Additional paid-in capital......... 432 6,843 18 -- -- 6 1,809 9,108
Retained earnings (deficit)........ (505) (3,601) (130) (77) 2,744 631 (3,450) (4,388)
------- ------- ------ ------ ------------ ------ ----------- ---------
Total stockholders' equity
(deficit)...................... (73) 3,312 (112) (77) 2,753 647 (1,730) 4,720
------- ------- ------ ------ ------------ ------ ----------- ---------
Total liabilities and
stockholders' equity........... $ 13 $33,892 $6,277 $5,357 $6,333 $3,064 $11,808 $66,744
======= ======= ====== ====== ============ ====== =========== =========
</TABLE>
POST
MERGER
ADJUSTMENTS AS ADJUSTED
----------- -----------
ASSETS
CURRENT ASSETS:
Cash............................... $ -- $ 491
Accounts receivable, net........... -- 14,020
Inventories........................ -- 12,042
Other current assets............... (340) 1,695
----------- -----------
Total current assets............. (340) 28,248
PROPERTY AND EQUIPMENT, net.......... -- 9,498
GOODWILL, net........................ -- 23,964
OTHER NONCURRENT ASSETS.............. -- 4,694
----------- -----------
Total assets..................... $ (340) $66,404
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ (226) $ 9,538
Short-term debt.................... (16,354) --
Current maturities of long-term
debt............................. (2,168) --
Other current liabilities.......... (1,000) 197
----------- -----------
Total current liabilities........ (19,748) 9,735
LONG-TERM DEBT, net of current
maturities......................... (22,618) 1,497
CONVERTIBLE SUBORDINATED NOTES....... -- 6,295
OTHER NONCURRENT LIABILITIES......... -- --
DEFERRED INCOME TAXES................ -- 131
REDEEMABLE PREFERRED STOCK........... (2,000) --
STOCKHOLDERS' EQUITY
Common stock....................... -- --
Additional paid-in capital......... 45,418 54,526
Retained earnings (deficit)........ (1,392) (5,780)
----------- -----------
Total stockholders' equity
(deficit)...................... 44,026 48,746
----------- -----------
Total liabilities and
stockholders' equity........... $ (340) $66,404
=========== ===========
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
STEAM ICE/ PLANT
INVATEC SSI HARLEY SUPPLY VARCO GSV SPECIALTIES SVS
------- --------- ------- ------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $-- $ 3,888 $21,391 $15,079 $12,744 $ 10,227 $ 8,501 $ 4,404
COST OF OPERATIONS................... -- 2,376 15,448 9,574 9,453 7,688 5,620 2,962
------- --------- ------- ------- ------- --------- ----------- ---------
Gross profit..................... -- 1,512 5,943 5,505 3,291 2,539 2,881 1,442
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... -- 1,917 5,563 5,107 2,859 1,276 2,489 1,175
SPECIAL COMPENSATION EXPENSE ON
COMMON STOCK ISSUANCE.............. -- 38 -- -- -- -- -- --
------- --------- ------- ------- ------- --------- ----------- ---------
Income (loss) from operations.... -- (443) 380 398 432 1,263 392 267
OTHER INCOME (EXPENSE):
Interest, net.................... -- 28 (527) (303) (112) (78) (188) (177)
Other............................ -- -- -- (10) (14) 6 29 45
------- --------- ------- ------- ------- --------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... -- (415) (147) 85 306 1,191 233 135
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- -- (57) 33 138 -- 124 29
------- --------- ------- ------- ------- --------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... -- $ (415) $ (90) $ 52 $ 168 $ 1,191 $ 109 $ 106
======= ========= ======= ======= ======= ========= =========== =========
PRO FORMA INCOME PER SHARE FROM
CONTINUING
OPERATIONS.........................
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE FROM CONTINUING
OPERATIONS.........................
</TABLE>
PRO FORMA
ADJUSTMENTS PRO FORMA
----------- ---------
REVENUES............................. $-- $76,234
COST OF OPERATIONS................... (64)(aa) 53,057
----------- ---------
Gross profit..................... 64 23,177
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... (1,674)(bb) 19,312
600(cc)
SPECIAL COMPENSATION EXPENSE ON
COMMON STOCK ISSUANCE.............. (38)(ee) --
----------- ---------
Income (loss) from operations.... 1,176 3,865
OTHER INCOME (EXPENSE):
Interest, net.................... 907(dd) (450)
Other............................ -- 56
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... 2,083 3,471
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 1,226(ff) 1,493
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $ 857 $ 1,978
=========== =========
PRO FORMA INCOME PER SHARE FROM
CONTINUING
OPERATIONS......................... $
=========
SHARES USED IN COMPUTING
PRO FORMA INCOME PER
SHARE FROM CONTINUING
OPERATIONS.........................
=========
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
STEAM ICE/ PLANT
INVATEC SSI HARLEY SUPPLY VARCO GSV SPECIALTIES SVS
------- --------- ------- ------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $-- $ 652 $ 4,245 $ 3,687 $2,913 $ 2,359 $ 1,958 $ 1,408
COST OF OPERATIONS................... -- 426 3,246 1,997 2,089 1,752 1,313 817
------- --------- ------- ------- ------- --------- ----------- ---------
Gross profit..................... -- 226 999 1,690 824 607 645 591
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES............ -- 466 1,138 1,475 665 336 724 217
------- --------- ------- ------- ------- --------- ----------- ---------
Income (loss) from operations.... -- (240) (139) 215 159 271 (79) 374
OTHER INCOME (EXPENSE):
Interest, net.................... -- 11 (127) (65) (11) (16) 1 (78)
Other............................ -- (8) -- 20 4 -- 6 --
------- --------- ------- ------- ------- --------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... -- (237) (266) 170 152 255 (72) 296
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- -- (104) 66 25 -- (18) 62
------- --------- ------- ------- ------- --------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $-- $ (237) $ (162) $ 104 $ 127 $ 255 $ (54) $ 234
======= ========= ======= ======= ======= ========= =========== =========
PRO FORMA INCOME PER SHARE FROM
CONTINUING OPERATIONS..............
SHARES USED IN COMPUTING PRO FORMA
INCOME PER SHARE FROM CONTINUING
OPERATIONS.........................
</TABLE>
PRO FORMA
ADJUSTMENTS PRO FORMA
----------- ---------
REVENUES............................. $-- $17,222
COST OF OPERATIONS................... (15)(aa) 11,625
----------- ---------
Gross profit..................... 15 5,597
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES............ (419)(bb) 4,752
150(cc)
----------- ---------
Income (loss) from operations.... 284 845
OTHER INCOME (EXPENSE):
Interest, net.................... 173(dd) (112)
Other............................ -- 22
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... 457 755
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 293(ff) 324
----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... $ 164 $ 431
=========== =========
PRO FORMA INCOME PER SHARE FROM
CONTINUING OPERATIONS.............. $
=========
SHARES USED IN COMPUTING PRO FORMA
INCOME PER SHARE FROM CONTINUING
OPERATIONS.........................
=========
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA STEAM ICE/ PLANT PRO FORMA
INVATEC SSI(1) SUPPLY VARCO SPECIALTIES SVS ADJUSTMENTS PRO FORMA
------- --------- ------- ------- ----------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $ 10,435 $ 3,542 $3,418 $ 2,719 $ 618 $-- $ 20,732
COST OF OPERATIONS................... -- 7,347 2,425 2,659 1,658 455 -- 14,544
------- --------- ------- ------- ----------- ------ ----------- ---------
Gross profit..................... -- 3,088 1,117 759 1,061 163 -- 6,188
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 73 2,834 1,139 760 720 268 (333)(bb) 5,568
107(cc)
SPECIAL COMPENSATION EXPENSE ON
COMMON STOCK ISSUANCE.............. 432 1,309 -- -- -- -- (1,741)(ee) --
------- --------- ------- ------- ----------- ------ ----------- ---------
Income (loss) from operations.... (505) (1,055) (22) (1) 341 (105) 1,967 620
OTHER INCOME (EXPENSE):
Interest, net.................... -- (412) (83) (29) (51) (43) 506(dd) (112)
Other............................ -- (3) (8) -- 3 -- -- (8)
------- --------- ------- ------- ----------- ------ ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES..... (505) (1,470) (113) (30) 293 (148) 2,473 500
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- (619) (44) (13) 114 (31) 808(ff) 215
------- --------- ------- ------- ----------- ------ ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS......................... (505) $ (851) $ (69) $ (17) $ 179 $ (117) $ 1,665 $ 285
======= ========= ======= ======= =========== ====== =========== =========
PRO FORMA INCOME PER SHARE FROM
CONTINUING OPERATIONS.............. $
=========
SHARES USED IN COMPUTING PRO FORMA
INCOME PER SHARE FROM CONTINUING
OPERATIONS.........................
=========
</TABLE>
- ------------
(1) SSI is presented on a pro forma basis on page F-8 to include Harley and GSV
from January 1, 1997 through their dates of acquisition by SSI.
See accompanying notes to unaudited pro forma combined financial statements.
F-7
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
OF THE SAFE SEAL COMPANY, INC.
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HARLEY GSV
JANUARY 1- JANUARY 1- PRO FORMA
SSI JANUARY 31 FEBRUARY 28 SSI
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES................................ $ 6,945 $ 1,853 $ 1,637 $10,435
COST OF OPERATIONS...................... 4,751 1,338 1,258 7,347
--------- ----------- ----------- ---------
Gross Profit....................... 2,194 515 379 3,088
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,951 640 243 2,834
SPECIAL COMPENSATION EXPENSE RELATED TO
ISSUANCE OF STOCK..................... 1,309 -- -- 1,309
--------- ----------- ----------- ---------
Income (loss) from operations...... (1,066) (125) 136 (1,055)
OTHER INCOME (EXPENSE):
Interest, net...................... (343) (52) (17) (412)
Other.............................. -- -- (3) (3)
--------- ----------- ----------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES................... (1,409) (177) 116 (1,470)
PROVISION (BENEFIT) FOR INCOME TAXES.... (550) (69) -- (619)
--------- ----------- ----------- ---------
Net income (loss)....................... $ (859) $ (108) $ 116 $ (851)
========= =========== =========== =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-8
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. INNOVATIVE VALVE TECHNOLOGIES, INC. BACKGROUND:
Invatec was formed to create the leading provider of comprehensive valve
maintenance, repair and distribution services in North America. Before this
Offering closes, Invatec will become the sole stockholder of SSI by means of a
merger in which each outstanding share of SSI common stock will be converted
into 1/2 a share of Invatec common stock.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations of Invatec and the Acquired Businesses and were derived
from the respective financial statements where indicated. SSI and GSV had
December 31 fiscal year-ends, Harley, Plant Specialties, Steam Supply and SVS
had October 31 fiscal year-ends and ICE/VARCO had a September 30 fiscal
year-end.
3. ACQUISITION OF ACQUIRED BUSINESSES:
Invatec and the Acquired Businesses are engaged in the valve repair and
distribution services business. The acquisition of the Acquired Businesses has
been accounted for under the purchase method of accounting with SSI being
treated as the accounting acquiror.
The following table sets forth the consideration paid for each of the
Acquired Businesses (in thousands).
CASH(3) DEBT ISSUED(4) STOCK ISSUED
--------- --------------- -------------
Harley(1)(2).............. $ 13,982 $ -- $ --
Steam Supply.............. 7,610 3,000 --
ICE/VARCO................. 5,250 -- --
GSV....................... 7,272 -- --
Plant Specialties......... 3,361 4,147 --
SVS....................... 4,310 -- 1,500
--------- --------------- -------------
$ 41,785 $ 7,147 $ 1,500
========= =============== =============
- ------------
(1) The cash consideration paid for Harley is net of approximately $3.8 million
in cash and notes received from the sale of Harley Equipment, Inc., which
was reflected as a discontinued operation in the historical Harley financial
statements included elsewhere herein. Additionally, such amount includes the
$1.0 million cash payment due to the former owners of Harley on completion
of the Offering.
(2) Includes $3.3 million aggregate principal amount of notes issued by
Allwaste, Inc.
(3) Cash includes cash paid to owners and debt assumed by Invatec from the
Acquired Businesses.
(4) Includes the issuance of convertible subordinated notes of $3.3 million to
the owners of Plant Specialties and $3.0 million to the owners of Steam
Supply that on completion of the Offering may be converted into Invatec
common stock at 130% of the initial price per share to the public in the
Offering at the option of the note holders.
Of the total purchase price paid and to be paid for the Acquisitions, $26.4
million has been allocated to net assets acquired, and the remaining $24.0
million has been recorded as goodwill. Based on its preliminary analysis,
Invatec management anticipates that the historical carrying value of the
Acquired Businesses' assets and liabilities will approximate fair value, but
this analysis is subject to revision as more information regarding asset and
liability valuations becomes available.
F-9
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
The following descriptions (a) through (i) correspond to the tables set
forth below which summarize the pro forma and post merger adjustments presented
on page F-4.
(a) Records the purchase of Steam Supply, ICE/VARCO, Plant Specialties
and SVS and the related financings.
(b) Records the issuance and sale of 141,000 shares of Common Stock,
$.001 par value, to Invatec management and a related party and the
recording of associated compensation expense of $282,000.
(c) Records the proceeds of $4.0 million of debt from Allwaste, Inc.
("Allwaste") pursuant to Allwaste's commitment to fund this amount
to enable Invatec to pay various expenses incurred in connection with
its efforts to create the Company and effect the Offering.
(d) Records the assumed proceeds to Invatec from the Offering of $51.0
million, net of estimated offering costs of $5.8 million. Offering
costs primarily consist of underwriting discounts and commissions,
accounting and legal fees and printing expenses.
(e) Records the application of the net proceeds of the Offering to repay
outstanding indebtedness.
(f) Records the payment of $1.0 million of additional purchase
consideration to the former owners of Harley pursuant to the terms of
the purchase agreement, which is contingent on the successful
completion of the Offering.
(g) Records the conversion of $0.5 million of and all interest accrued on
the convertible debt owed to Allwaste into 618,571 shares of Common
Stock, the repayment of the remaining principal of that debt ($3.5
million) and the redemption of the SSI preferred stock for $2.0
million.
(h) Records the payment of $330,000 of bonuses to three members of
management contingent on the completion of the Offering. Also records
the cash payment of $300,000 made to a related party in the second
quarter of 1997. See "Certain Transactions -- Financing
Arrangements."
(i) Records the finance charges payable to Allwaste in exchange for
Allwaste's guarantees of certain of the Company's debt.
F-10
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize the unaudited pro forma and post merger
combined balance sheet adjustments (in thousands).
PRO FORMA
(A) (B) (C) ADJUSTMENTS
---------- --------- --------- -----------
Cash.......................... (2,978) $ 2,978 $ 0
Inventories................... 958 958
Property and equipment........ 678 678
Goodwill...................... 10,565 10,565
Other noncurrent assets....... (393) (393)
Accounts payable and accrued
expenses.................... 1,022 1,022
Short-term debt............... (7,667) (4,000) (11,667)
Long-term debt, net of current
maturities.................. 393 393
Convertible subordinated notes (6,295) (6,295)
Other noncurrent liabilities.. 2,298 2,298
Redeemable preferred stock.... 711 711
Common stock.................. 89 89
Additional paid-in capital.... (1,527) (282) (1,809)
Retained earnings (deficit)... 3,168 282 3,450
---------- --------- --------- -----------
$ 0 $ 0 $ 0 $ 0
========== ========= ========= ===========
<TABLE>
<CAPTION>
POST MERGER
(D) (E) (F) (G) (H) (I) ADJUSTMENTS
---------- ---------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash................................. $ 45,241 $ (37,274) $ (1,000) $ (5,500) $ (630) $ (837) $ 0
Other current assets................. (340) (340)
Accounts payable and accrued
expenses........................... 134 17 75 226
Short-term debt...................... 12,354 4,000 16,354
Current maturities of long-term
debt............................... 2,168 2,168
Other current liabilities............ 1,000 1,000
Long-term debt, net of current
maturities......................... 22,618 22,618
Redeemable preferred stock........... 2,000 2,000
Additional paid-in capital........... (44,901) (517) (45,418)
Retained earnings (deficit).......... 630 762 1,392
---------- ---------- --------- --------- --------- --------- -----------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========== ========== ========= ========= ========= ========= ===========
</TABLE>
F-11
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND ACQUIRED BUSINESSES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
(aa) Records the income statement effect of recording inventories on a
FIFO basis, rather than a LIFO basis, at Plant Specialties and Steam
Supply.
(bb) Adjusts selling, general and administrative expenses to reflect the
decrease in salaries and benefits associated with certain owners and
managers of the Acquired Businesses who were not or will not be
employed subsequent to the acquisition of their Acquired Businesses
and who will not be replaced.
(cc) Records pro forma goodwill amortization expense using a 40 year
estimated life.
(dd) Records the elimination of interest expense resultant from the
application of the net proceeds of the Offering to retire
outstanding indebtedness of the Acquired Businesses.
(ee) Records the elimination of the special non-cash, non-recurring
compensation expense attributable to stock awards made by SSI and
sales of Invatec Common Stock. See "Management -- Executive
Compensation" and "Certain Transactions -- Financing
Arrangements."
(ff) Records the incremental provision for federal and state income
taxes relating to S corporation income and other pro forma
adjustments to reflect an effective tax rate of 43%. In its
assumption of the effective tax rate, management has not considered
the utilization of net operating losses previously generated by
certain of the Acquired Businesses.
(gg) The number of shares estimated to be outstanding on completion of
the Offering includes the following, but excludes options to
purchase up to 1,160,659 as the effect of the options is less than
three percent of total shares.
Outstanding.......................... 216,114
Issued in Offering...................
Issued in the SSI merger............. 3,557,840
Conversion of SSI redeemable
preferred stock...................... 618,571
Issued to acquire SVS................
Sold to Invatec management and a
related party after
March 31, 1997..................... 141,000
------------
Shares estimated to be outstanding...
============
F-12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Innovative Valve Technologies, Inc.:
We have audited the accompanying balance sheet of Innovative Valve
Technologies, Inc. (a Delaware corporation), as of March 31, 1997, and the
related statements of operations, stockholders' deficit and cash flows for the
period from inception (March 16, 1997) through March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Innovative Valve
Technologies, Inc., as of March 31, 1997, and the results of its operations and
its cash flows for the period from inception (March 16, 1997) through March 31,
1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
June 25, 1997
F-13
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
BALANCE SHEET -- MARCH 31, 1997
ASSETS
PROPERTY AND EQUIPMENT, net............. $ 13,091
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Payable to The Safe Seal Company... $ 60,786
Accounts payable and accrued
liabilities....................... 25,000
--------------
Total current liabilities..... 85,786
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value,
30,000,000 shares authorized,
216,114 shares issued and
outstanding....................... 216
Additional paid-in capital......... 432,012
Retained deficit................... (504,923)
--------------
Total stockholders' deficit... (72,695)
--------------
$ 13,091
==============
The accompanying notes are an integral part of this financial statement.
F-14
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MARCH 16, 1997)
THROUGH MARCH 31, 1997
REVENUES............................. $ --
COST OF OPERATIONS................... --
--------------
Gross profit.................... --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 72,911
SPECIAL COMPENSATION EXPENSE ON
COMMON STOCK ISSUANCE.............. 432,012
--------------
LOSS BEFORE INCOME TAXES............. (504,923)
PROVISION FOR INCOME TAXES........... --
--------------
NET LOSS............................. $ (504,923)
==============
The accompanying notes are an integral part of this financial statement.
F-15
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (MARCH 16, 1997)
THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, March 16, 1997.............. -- $ -- $ -- $ -- $ --
Issuance of Common Stock........ 216,114 216 432,012 -- 432,228
Net loss........................ -- -- -- (504,923) (504,923)
------- ------- ----------- ----------- -----------
BALANCE, March 31, 1997.............. 216,114 $ 216 $ 432,012 $ (504,923) $ (72,695)
======= ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-16
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 16, 1997)
THROUGH MARCH 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................ $ (504,923)
Special compensation expense on
common stock issuance.......... 432,012
Increase in payable to The Safe
Seal Company................... 60,786
Increase in accounts payable and
accrued expenses............... 25,000
--------------
Net cash provided by
operating activities...... 12,875
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (13,091)
--------------
Net cash used in investing
activities................ (13,091)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of
common stock................... 216
--------------
Net cash provided by
financing activities...... 216
--------------
NET INCREASE IN CASH................. --
CASH, beginning of period............ --
--------------
CASH, end of period.................. $ --
==============
The accompanying notes are an integral part of this financial statement.
F-17
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Innovative Valve Technologies, Inc. (the "Company" or "Invatec"), was
established as a Delaware corporation on March 16, 1997, for the purpose of
creating the leading provider of comprehensive maintenance, repair, replacement
and value-added distribution services for industrial valves and other
process-system components in North America. Pursuant to a May 1997 agreement
among The Safe Seal Company, Inc. ("SSI"), Allwaste, Inc. ("Allwaste") and a
SSI shareholder and his affiliates, voting control of SSI was transferred to a
voting trustee that intends to vote for a reorganization of the capital
structure of SSI and the Company such that Invatec will become the sole
stockholder of SSI by means of a merger (the "SSI Merger") pursuant to which
each outstanding share of SSI common stock will be converted into 1/2 of a share
of Invatec Common Stock (the "Common Stock") and the outstanding shares of SSI
preferred stock will be redeemed for cash totaling approximately $2.0 million.
As discussed in Note 4, Invatec has signed definitive agreements to acquire two
valve distribution and service companies concurrently with the closing of an
initial public offering of its common stock (the "Offering") and, subsequent
to the Offering, continue to acquire similar companies to expand its operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations.
INCOME TAXES
Invatec follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109. Under this
method, deferred income taxes are recorded based upon differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the underlying
assets or liabilities are recovered or settled. Invatec has recorded a full
valuation allowance against all deferred tax assets due to the uncertainty of
ultimate realizability. Accordingly, no income tax benefit has been recorded for
current year losses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. CAPITAL STOCK AND STOCK OPTIONS:
COMMON STOCK
In connection with the organization and initial capitalization of Invatec,
Invatec issued and sold 216,114 shares of Common Stock to certain members of its
management and a related party for $216. For financial statement presentation
purposes, this Common Stock was valued at $2.00 per share, resulting in a
special non-cash compensation expense of $432,012. The overall effect on the
Company's balance sheet as of March 31, 1997, was to increase paid-in capital
and retained deficit by $432,228. There was no net effect on stockholders'
deficit.
F-18
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PREFERRED STOCK
Invatec's charter authorizes the issuance of up to 5,000,000 shares of
preferred stock. As of March 31, 1997, no shares of preferred stock had been
issued.
1997 INCENTIVE PLAN
The Company has adopted the 1997 Incentive Plan (the "Plan") which
provides for the granting or awarding of stock options and other
performance-based awards to key employees, nonemployee directors and independent
contractors of the Company and its subsidiaries. In general, the terms of the
options awards (including vesting schedules) will be established by the
Compensation Committee of the Company's board of directors. As of the Offering
date, the Company anticipates that approximately 1.1 million options for common
stock will be outstanding. Management believes the option price of the options
granted was equal to or exceeded the market value of the date of grant.
4. EVENTS SUBSEQUENT TO AUDITORS' REPORT:
ACQUISITIONS
In July 1997, Invatec acquired Steam Supply Group for total consideration
of $10.6 million, comprised of $3.0 million of cash, $3.0 million aggregate
principal amount of Invatec's seven-year 5.5% convertible subordinated notes and
the assumption of $4.6 million of debt and other liabilities.
The Company has signed definitive agreements to acquire ICE/VARCO and SVS.
The aggregate consideration the Company will pay in these acquisitions is $11.1
million, comprised of $5.5 million in cash, $4.1 million in assumed debt and
$1.5 million in Invatec common stock. The closings of these acquisitions are
conditioned on the closing of the Offering. The total consideration payable in
each acquisition is subject to an increase in total consideration contingent on
the operating results achieved in the first 12 months after the acquisition. The
contingent payment for ICE/VARCO would consist of options to purchase 40,000
shares of Common Stock at an exercise price per share equal to the initial price
to the public in this Offering, while the contingent payment for SVS would be
payable in a combination of Common Stock and cash in an amount that is not
presently determinable.
INITIAL PUBLIC OFFERING
On July 18, 1997, Invatec filed a registration statement on Form S-1 with
the Securities and Exchange Commission for an initial public offering of its
Common Stock. An investment in shares of Common Stock offered by this Prospectus
involves a high degree of risk, including, among other risk factors, history of
losses, absence of combined operating history, risks relating to the Company's
acquisition strategy and financing, reliance on customers in cyclical
industries, operating hazards and dependence on manufacturers. See "Risk
Factors" included elsewhere in this Prospectus.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Harley Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Harley
Industries, Inc. and subsidiaries as of October 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended October 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Harley Industries, Inc. and
subsidiaries as of October 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 2, in December 1996 the Company's stockholders entered
into agreements for the sale of the Company's outstanding common stock.
Deloitte & Touche LLP
Tulsa, Oklahoma
January 17, 1997
(January 31, 1997 as to Notes 2 and 7)
F-20
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31
------------------------------ JANUARY 31
1995 1996 1997
-------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ 21,738 $ 37,250 $ 39,250
Accounts receivable, less allowance
for doubtful accounts of
$100,000, $117,000 and
$172,000......................... 3,394,506 4,391,442 3,487,283
Inventories........................ 3,612,653 3,258,243 3,602,686
Prepaid expenses and other current
assets........................... 40,141 33,358 172,266
Deferred income tax assets......... 151,000 315,000 314,000
-------------- -------------- -----------
Total current assets.......... 7,220,038 8,035,293 7,615,485
NET ASSETS OF DISCONTINUED OPERATIONS... 3,876,294 3,114,979 3,832,303
PROPERTY, PLANT AND EQUIPMENT -- Net.... 1,731,368 2,630,489 2,511,864
OTHER ASSETS............................ 1,710,279 1,825,809 1,823,937
-------------- -------------- -----------
$ 14,537,979 $ 15,606,570 $15,783,589
============== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 1,731,291 $ 2,424,408 $ 1,556,354
Current portion of long-term
debt............................. 445,528 477,309 480,166
Current portion of non-compete
obligations...................... 142,617 151,504 141,650
-------------- -------------- -----------
Total current liabilities..... 2,319,436 3,053,221 2,178,170
LONG-TERM DEBT.......................... 7,653,798 8,245,087 9,597,179
OBLIGATIONS UNDER NON-COMPETE
AGREEMENTS............................ 267,490 112,809 84,969
-------------- -------------- -----------
Total liabilities............. 10,240,724 11,411,117 11,860,318
-------------- -------------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 stated value:
Authorized, 3,000,000 shares;
issued and outstanding,
780,428 shares................ 7,804 7,804 7,804
Additional paid-in capital......... 5,555,273 5,555,273 5,555,273
Accumulated deficit................ (1,265,822) (1,367,624) (1,639,806)
-------------- -------------- -----------
Total stockholders' equity.... 4,297,255 4,195,453 3,923,271
-------------- -------------- -----------
$ 14,537,979 $ 15,606,570 $15,783,589
============== ============== ===========
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31 JANUARY 31
---------------------------------------- ------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 16,621,198 $ 18,990,013 $ 21,391,102 $ 4,245,384 $ 5,987,992
COST OF OPERATIONS...................... 12,325,705 14,024,693 15,447,669 3,246,598 4,415,807
------------ ------------ ------------ ----------- -----------
Gross profit........................ 4,295,493 4,965,320 5,943,433 998,786 1,572,185
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 4,530,176 4,383,840 5,563,334 1,138,037 1,857,531
------------ ------------ ------------ ----------- -----------
Income (loss) from operations....... (234,683) 581,480 380,099 (139,251) (285,346)
INTEREST EXPENSE........................ 408,518 539,215 527,188 127,464 152,660
------------ ------------ ------------ ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES................... (643,201) 42,265 (147,089) (266,715) (438,006)
PROVISION (CREDIT) FOR INCOME TAXES..... (270,000) 15,000 (57,000) (104,000) (170,800)
------------ ------------ ------------ ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................ (373,201) 27,265 (90,089) (162,715) (267,206)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF PROVISION (BENEFIT)
FOR TAXES OF $180,800, $35,000,
$(9,000), $4,145 and $(3,181)......... 265,044 58,719 (11,713) 5,495 (4,976)
------------ ------------ ------------ ----------- -----------
NET INCOME (LOSS)....................... $ (108,157) $ 85,984 $ (101,802) $ (157,220) $ (272,182)
============ ============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1993............ 786,428 $7,864 $ 5,781,034 $ (1,243,649) $ 4,545,249
Purchase and retirement of
treasury stock................ (6,000) (60) (30,761) -- (30,821)
Capital distributions........... -- -- (60,000) -- (60,000)
Net loss........................ -- -- -- (108,157) (108,157)
--------- ------ ------------ -------------- -------------
BALANCE, OCTOBER 31, 1994............ 780,428 7,804 5,690,273 (1,351,806) 4,346,271
Capital distributions........... -- -- (135,000) -- (135,000)
Net income...................... -- -- -- 85,984 85,984
--------- ------ ------------ -------------- -------------
BALANCE, OCTOBER 31, 1995............ 780,428 7,804 5,555,273 (1,265,822) 4,297,255
Net loss........................ -- -- -- (101,802) (101,802)
--------- ------ ------------ -------------- -------------
BALANCE, OCTOBER 31, 1996............ 780,428 7,804 5,555,273 (1,367,624) 4,195,453
Net loss (Unaudited)............ -- -- -- (272,182) (272,182)
--------- ------ ------------ -------------- -------------
BALANCE, JANUARY 31, 1997
(Unaudited)........................ 780,428 $7,804 $ 5,555,273 $ (1,639,806) $ 3,923,271
========= ====== ============ ============== =============
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED OCTOBER 31 JANUARY 31
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
------------ ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................... $ (108,157) $ 85,984 $ (101,802) $ (157,220) $ (272,182)
Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Discontinued operations........... (265,044) (58,719) 11,713 (5,495) 4,976
Depreciation and amortization..... 493,708 519,793 535,212 119,042 156,135
(Gain) loss on sale of property,
plant and equipment............ -- 610 (15,187) -- --
Deferred taxes.................... (214,000) 15,000 (166,000) -- 1,000
Changes in operating assets and
liabilities:
Accounts receivable............ (558,983) (465,426) (996,936) 1,176,760 904,159
Inventories.................... (80,862) 120,375 322,954 182,579 (344,443)
Prepaid expenses and other
current assets............... 35,680 31,060 6,783 (100,565) (138,908)
Other non-current assets....... -- (22,620) 7,870 1,166 (37,961)
Accounts payable and accrued
expenses..................... 44,271 237,673 693,117 (918,162) (868,054)
------------ ------------- ------------- ------------ ------------
Net cash provided by (used
in) operating activities
of:
Continuing operations...... (653,387) 463,730 297,724 298,105 (595,278)
Discontinued operations.... (150,395) (264,084) 669,702 (11,007) (722,301)
------------ ------------- ------------- ------------ ------------
Net cash provided by
(used in) operating
activities............ (803,782) 199,646 967,426 287,098 (1,317,579)
------------ ------------- ------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business................ -- -- (1,382,470) -- --
Capital expenditures................ (488,195) (156,373) (73,694) (6,894) (1,275)
Proceeds from sale of property,
plant, and equipment.............. -- 23,952 26,974 4,871 3,599
------------ ------------- ------------- ------------ ------------
Net cash used in investing
activities................... (488,195) (132,421) (1,429,190) (2,023) 2,324
------------ ------------- ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
revolving credit agreements....... 1,126,050 168,233 1,071,827 (250,000) 1,354,949
Principal payments on other
long-term debt.................... (1,595,682) (363,045) (448,757) -- --
Borrowings under term loan
agreements........................ 1,988,573 400,000 -- -- --
Principal payments on non-compete
obligations....................... (131,001) (138,175) (145,794) (35,656) (37,694)
Purchase and retirement of treasury
stock............................. (30,821) -- -- -- --
Capital distributions............... (60,000) (135,000) -- -- --
------------ ------------- ------------- ------------ ------------
Net cash provided by (used in)
financing activities......... 1,297,119 (67,987) 477,276 (285,656) 1,317,255
------------ ------------- ------------- ------------ ------------
INCREASE (DECREASE) IN CASH............. 5,142 (762) 15,512 (581) 2,000
CASH, BEGINNING OF PERIOD............... 17,358 22,500 21,738 21,738 37,250
------------ ------------- ------------- ------------ ------------
CASH, END OF PERIOD..................... $ 22,500 $ 21,738 $ 37,250 $ 21,157 $ 39,250
============ ============= ============= ============ ============
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1994, 1995, AND 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Harley
Industries, Inc. (the "Company") and its operative divisions, Harley Equipment
and Harley Valve and Instrument Company ("Harley Valve"), and other minor
subsidiaries. All material intercompany profits, transactions and balances have
been eliminated.
DESCRIPTION OF BUSINESS
The Company conducts its business activities through two operating
divisions, Harley Equipment and Harley Valve. Harley Equipment sells, customizes
and repairs engines, industrial vehicles, pumps and related parts. Harley Valve
customizes, repairs, tests and sells valves, gauges, measurement instruments and
related parts. The Company's principal customers are in the aircraft, chemical
manufacturing and power industries located primarily in the midwestern and
southeastern United States. The majority of sales of products and service
billings are made on account to customers based on pre-approved unsecured credit
terms determined by the Company. Allowances for uncollectible accounts are
established based on several factors which include, but are not limited to,
analysis of specific customers, historical trends, current economic conditions
and other information.
BASIS OF PRESENTATION
Due to the transactions described in Note 2, the accompanying consolidated
financial statements reflect the Company's Harley Equipment division as a
discontinued operation.
CASH
Cash consists of cash on hand and on deposit in banks.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories not expected to be sold or utilized within one year are
recorded at estimated net realizable values and are included in the financial
statements as non-current assets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are reported at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method based on
the estimated useful lives of the related assets, which are 15 to 30 years for
buildings, 7 years for machinery and equipment, 3 to 5 years for furniture and
fixtures and 3 years for other assets. During 1996 the Company determined the
estimated useful lives of certain of its buildings should be extended from 15
years to 30 years. The effect of this change in estimate was to decrease
depreciation expense and the net loss for the year ended October 31, 1996 by
approximately $52,000 and $31,200, respectively.
INTANGIBLE ASSETS
Intangible assets are reported at cost, net of accumulated amortization.
The costs of non-compete agreements entered into in connection with acquisitions
of businesses are amortized on the straight-line basis over their ten- and
five-year terms. Other intangible assets consist of the excess of cost over the
fair value of the net assets of acquired businesses, which is amortized on the
straight-line basis over 40 years. Management periodically evaluates the
recoverability of intangible asset carrying values based on projected operations
and other relevant factors of the acquired businesses. No valuation reserves
have been provided as a result of these evaluations. Amortization expense was
$171,720, $179,220, and $172,426 for the years ended October 31, 1994, 1995, and
1996, respectively.
F-25
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING STANDARD
The Company has adopted, effective November 1, 1995, the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Accordingly, in the event that facts and circumstances indicate that property
and equipment, and intangible or other assets, may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is necessary. Adoption of this standard did not have
a material effect on the financial position or results of operations of the
Company.
REVENUE RECOGNITION
Revenue on sales of products is recognized upon shipment to customers.
Revenue on service work is recognized upon completion of the service.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). Under FAS 109, deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss and tax credit carryforwards.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet date and
the reported amounts of revenue and expenses during the reporting period. Actual
results will be determined based on the outcome of future events and could
differ from the estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the three months ended January 31, 1996 and
1997 has not been audited by independent auditors. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from the unaudited interim financial information. In the opinion of management
of the Company, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
2. SUBSEQUENT EVENTS AND DISCONTINUED OPERATIONS
In December 1996, the Company's stockholders entered into agreements with
The Safe Seal Company, Inc. ("Safe Seal") under which Safe Seal acquired 100%
of the outstanding common stock of the Company effective January 31, 1997 for
cash and notes of approximately $8,600,000, including a $1,000,000 cash payment
due upon the successful completion of a public stock offering by Safe Seal or
its successor company. Concurrent with the acquisition, Safe Seal entered into
an agreement to transfer certain assets and certain liabilities into Harley
Equipment and sell the stock of Harley Equipment for cash and notes to an
employee/minority stockholder of the Company. The Company's primary bank debt,
which was recorded on the records of Harley Equipment was transferred to Harley
Valve and refinanced by Safe Seal (Note 7) in conjunction with the sale and
purchase transactions described above. The ultimate Harley Equipment purchase
price, estimated to be $3,100,000 to $3,800,000, will be based on the historical
carrying values of such assets and liabilities as of January 31, 1997 and is
subject to adjustment by the parties. For financial
F-26
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reporting purposes, the net assets, results of operations and cash flows of
Harley Equipment are included in the Company's consolidated financial statements
as discontinued operations. Harley Equipment had revenues of $10,240,000,
$10,318,000, and $11,301,000 for the years ended October 31, 1994, 1995, and
1996, respectively. Net assets of these discontinued operations at October 31,
1995 and 1996 are as follows:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Current assets.......................... $ 3,245,417 $ 3,581,497
Property, plant and equipment -- net.... 630,563 583,052
Other assets............................ 751,241 635,227
------------ ------------
Total assets.................. 4,627,221 4,799,776
Current liabilities..................... 750,927 1,684,797
------------ ------------
Net assets.................... $ 3,876,294 $ 3,114,979
============ ============
This historical financial information may not necessarily be indicative of
the conditions that would have existed if Harley Equipment had been operated as
an unaffiliated entity.
Interest expense has been allocated to discontinued operations based on the
ratio of net assets of discontinued operations to consolidated net assets.
Interest expense of $163,431, $245,057, and $208,491 has been allocated to
discontinued operations in 1994, 1995, and 1996, respectively. Interest payments
for the Company were $552,095, $787,795, and $735,632 in 1994, 1995, and 1996,
respectively. In addition, certain additional compensation of $475,000 (Note
13), which will be paid from the assets of Harley Equipment, has been allocated
to discontinued operations.
The Company's stockholders have indemnified Safe Seal for various
contingencies, including environmental and income tax matters. The stockholders
have also entered into agreements not-to-compete with Safe Seal.
3. PURCHASE OF VALVE BUSINESS
Effective June 4, 1996, the Company acquired certain assets of Henze
Services, Inc. for cash and direct acquisition costs of $1,382,470. The assets
acquired consisted of six branches primarily engaged in repair and servicing of
used valves and related products. Management subsequently consolidated two
locations into the operations of existing Harley Valve facilities. The
acquisition was accounted for using purchase accounting. The purchase price was
allocated to equipment acquired based on independent appraisals. In conjunction
with the acquisition, an escrow fund of $150,000 has been established pending
resolution of certain matters. The escrow fund is included in other noncurrent
assets pending its resolution. The results of operations of the Henze locations
are included in the accompanying consolidated statement of operations from the
acquisition date. The following pro forma information has been prepared assuming
that this acquisition had taken place as of November 1, 1994. The pro forma
information includes adjustments for interest expense that would have been
incurred to finance the purchase, depreciation based on the purchase price
allocation, and related income tax effects. The pro forma financial information
is not necessarily indicative of the results of operations that would have been
reported had the transaction been effected on November 1, 1994 (000's omitted).
YEAR ENDED OCTOBER
31
--------------------
1995 1996
--------- ---------
Revenues................................ $ 33,557 $ 27,382
Loss from continuing operations......... (396) (381)
Net loss................................ (337) (393)
F-27
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consist of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Gauges, valves, measurement instruments
and related parts..................... $ 3,883,361 $ 3,461,662
Work in process......................... -- 98,745
------------ ------------
3,883,361 3,560,407
Less: amount classified as non-current
assets................................ 270,708 302,164
------------ ------------
Inventories classified as current
assets................................ $ 3,612,653 $ 3,258,243
============ ============
Inventories are stated net of valuation reserves of $295,000 and $374,000
at October 31, 1995 and 1996, respectively. Management estimates that
inventories of $270,708 and $302,164 at October 31, 1995 and 1996, respectively,
are in excess of Harley Valve's current sales and service work requirements.
Such inventories include used valves, replacement parts and other items which
are reported as non-current assets. Management has developed programs to reduce
these inventories to desired levels over the near term and believes the carrying
values of such inventories, net of valuation reserves, will ultimately be
recovered.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
OCTOBER 31
------------------------------
1995 1996
-------------- --------------
Land.................................... $ 347,625 $ 347,625
Buildings............................... 1,027,956 1,008,375
Machinery and equipment................. 1,726,616 3,017,651
Furniture and fixtures.................. 361,957 328,169
Other................................... 282,398 282,264
-------------- --------------
3,746,552 4,984,084
Less accumulated depreciation........... (2,015,184) (2,353,595)
-------------- --------------
$ 1,731,368 $ 2,630,489
============== ==============
Depreciation expense was $321,988, $340,573, and $362,786 for the years
ended October 31, 1994, 1995, and 1996, respectively.
F-28
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ASSETS
Other assets consist of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Non-current inventories, net............ $ 270,708 $ 302,164
Non-compete agreements, net of
accumulated amortization of $389,097
and $542,510.......................... 385,918 232,505
Other intangible assets, net of
accumulated amortization of $192,398
and $211,411.......................... 733,033 714,020
Escrow fund............................. -- 150,000
Other non-current assets................ 22,620 47,120
Deferred income tax assets.............. 298,000 380,000
------------ ------------
$ 1,710,279 $ 1,825,809
============ ============
7. DEBT
Debt consists of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Revolving credit agreement.............. $ 5,889,000 $ 6,960,827
Term note agreement; interest at New
York prime rate plus .75% (9% at
October 31, 1996, payable in monthly
installments of $40,821 through April X
1, 2000 when the remaining balance is
due................................... 1,493,806 1,127,719
Term note agreement; interest at New
York prime rate plus .75% (9% at
October 31, 1996), payable in monthly
installments of $7,734 through June 1,
1996 and $5,067 through April 1, 2000
when the remaining balance is due..... 447,566 407,695
Note payable to bank; interest at the
bank's base rate plus 1.5% (9.75% at
October 31, 1996), payable in monthly
installments of $2,020 through October
2000 when the remaining balance is
due; secured by first mortgage on land
and building with a carrying value of
$316,000.............................. 186,380 154,452
Note payable to individual; interest at
9%, payable in monthly installments
through October 2001; secured by real
estate with a carrying value of
$177,000.............................. 82,574 71,703
------------ ------------
8,099,326 8,722,396
Less current portion of long-term
debt.................................. (445,528) (477,309)
------------ ------------
Long-term debt.......................... $ 7,653,798 $ 8,245,087
============ ============
REVOLVING CREDIT AND TERM NOTE AGREEMENT
In May 1995, the Company restructured its borrowing facilities and executed
an amendment to its revolving credit and term note agreement (the "Agreement")
with a bank. The amended Agreement provides for two term notes, original
principal amounts totaling $2,102,356, and borrowings under a revolving facility
to the lesser of $7,000,000 or the Company's borrowing base (as defined) of
qualified accounts receivable and inventories. In July 1996, the Company
increased the borrowings under the revolving facility up to the lesser of
$7,500,000 or the Company's borrowing base. At October 31, 1996, remaining
borrowing capacity under the revolving facility was $539,000. The revolving
facility provides for
F-29
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest at the New York prime rate plus .625% (8.875% at October 31, 1996), and
is due for renewal on March 1, 1997. The assets of the Company and 681,506
shares of Company common stock are pledged as collateral under the Agreement.
The Agreement contains various restrictive financial covenants including
maintaining net worth of $4.1 million, working capital of $3 million, a current
ratio of 1.25 to 1.0, maximum liabilities to tangible net worth of 3.25 to 1.0,
and minimum cash flow, as defined, of 1.4 to 1.0. In addition, the agreement
prohibits dividends, limits salaries and bonuses and requires bank consent on
ownership changes. As of October 31, 1996, the Company was not in compliance
with the working capital, current ratio, liabilities to net worth or cash flow
financial covenants, exceeded the salary and bonus limits and had entered into
agreements for ownership changes as described in Note 2. The bank has
temporarily waived these covenant violations contingent upon the transfer of
ownership.
The borrowings under the Company's revolving credit agreement and term
notes were repaid on January 31, 1997 in conjunction with the transfer of
ownership and replaced with bank debt issued by The Safe Seal Company, Inc. (See
Note 2). The borrowings under the Company's revolving credit agreement and term
notes have been classified based on their original maturities as of October 31,
1996 in the accompanying consolidated financial statements.
Principal payments on long-term debt (based on the original maturities) and
non-compete obligations (Note 8) are as follows:
YEAR ENDING LONG-TERM NON-COMPETE
OCTOBER 31 DEBT OBLIGATIONS TOTAL
- ---------------------------------- ---------- ------------- ------------
1997............................ $ 477,309 $ 151,504 $ 628,813
1998............................ 7,482,904 86,537 7,569,441
1999............................ 366,957 15,255 382,212
2000............................ 379,872 11,017 390,889
2001............................ 15,354 -- 15,354
---------- ------------- ------------
$8,722,396 $ 264,313 $ 8,986,709
========== ============= ============
8. OBLIGATIONS UNDER NON-COMPETE AGREEMENTS
In connection with the acquisitions of businesses, Harley Valve assumed
certain obligations under non-compete agreements and entered into additional
agreements whereby the former owners agreed not to compete with Harley Valve for
a five-year period. The agreements require monthly payments totaling $13,508 at
various maturities through 2000. At October 31, 1995 and 1996, the obligations
consist of the following:
1995 1996
------------ ------------
Total obligations, net of imputed
interest of $22,608 and $13,577
at 6% at October 31, 1995 and 1996,
respectively.......................... $ 410,107 $ 264,313
Current portion......................... (142,617) (151,504)
------------ ------------
Long-term portion....................... $ 267,490 $ 112,809
============ ============
F-30
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision (benefit) for income taxes associated with continuing
operations consists of the following:
YEAR ENDED OCTOBER 31
-----------------------------------
1994 1995 1996
------------ --------- ----------
Current:
Federal............................ $ (42,000) $ -- $ 29,000
State.............................. (14,000) -- 7,000
------------ --------- ----------
(56,000) -- 36,000
Deferred expense (benefit).............. (214,000) 15,000 (93,000)
------------ --------- ----------
Provision (benefit) for income taxes.... $ (270,000) $ 15,000 $ (57,000)
============ ========= ==========
The provisions (benefits) for income taxes vary from federal statutory
rates on earnings before income taxes due to the following:
YEAR ENDED OCTOBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Income tax provision (benefit) at U.S.
Federal statutory rate, considering
surtax exemptions..................... (34.0)% 34.0% (34.0)%
State taxes, net of Federal tax
benefit............................... (5.0)% 5.0% (5.0)%
Amortization of goodwill................ 1.0% -- --
Other, net.............................. (4.0)% (3.5)% --
--------- --------- ---------
Effective tax rate...................... (42.0)% 35.5% (39.0)%
========= ========= =========
The sources of deferred income tax assets consist of available net
operating loss carryforwards and temporary differences between the financial and
tax bases of assets and liabilities, as follows:
OCTOBER 31
----------------------
1995 1996
---------- ----------
Loss carryforwards................... $ 72,000 $ --
Accounts receivable reserves......... 39,000 46,000
Inventories.......................... 100,000 170,000
Property, plant and equipment........ 78,000 80,000
Intangible assets.................... 126,000 155,000
Accrued expenses and other........... 34,000 244,000
---------- ----------
Deferred tax assets.................. $ 449,000 $ 695,000
========== ==========
Classified as:
Current......................... $ 151,000 $ 315,000
Non-current..................... 298,000 380,000
---------- ----------
$ 449,000 $ 695,000
========== ==========
At October 31, 1995 and 1996, there are no material deferred tax
liabilities. Realization of the deferred tax assets is dependent on generating
sufficient taxable income in the future. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
assets will be realized. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced or should tax
authorities disallow tax deductions.
F-31
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company utilized $326,000, $326,000, and $254,000 of net operating loss
carryforwards in 1994, 1995, and 1996, respectively, to reduce taxable income
and current income tax liabilities. Utilization of net operating loss
carryforwards was limited to $326,000 annually due to the purchase of the
Company's preferred stock in 1991. The Company made income tax payments of
$31,840, $3,531, and $16,488 in 1994, 1995, and 1996, respectively.
The Company's 1993 and 1994 Federal income tax returns are currently being
examined by the Internal Revenue Service (the "IRS"). The Company and the IRS
are disputing certain purchase price allocations related to a 1993 acquisition.
The Company believes its positions are sustainable and additional taxes,
penalties or interest, if any, should not be material.
10. STOCKHOLDERS' EQUITY
The Company has authorized 1,950,000 shares of preferred stock, none of
which is issued or outstanding.
Options for the purchase of 20,000 shares of common stock at $4.45 have
been granted to a key employee. As of October 31, 1996, none of these options
have been exercised. The effects of these options are not material. These
options were terminated in conjunction with the transfers of ownership described
in Note 2.
In 1994, the Company purchased 6,000 shares of the Company's common stock
from an officer for approximately $31,000 and retired the shares.
11. RETIREMENT PLAN
The Company has a defined contribution retirement savings plan (the
"Retirement Plan") covering substantially all employees who meet certain
eligibility requirements as to age and length of service. The Retirement Plan
incorporates the salary reduction provisions of Section 401(k) of the Internal
Revenue Code and employees may contribute up to 15% of their compensation. The
Company may elect to match a percentage of the employees' contributions. There
were no Company contributions for the years ended October 31, 1996 and 1994.
Contributions charged to operations were $8,180 for the year ended October 31,
1995.
12. SERVICE AND DISTRIBUTION AGREEMENTS
Harley Valve purchases, sells and services various products under service
and distribution agreements with its major suppliers. The agreement with one key
supplier has a five-year term through April 1998. Approximately 50% of revenues
during each of the years ended October 31, 1994, 1995, and 1996 were derived
from sales of products purchased or services rendered under the agreement with
this supplier. Other agreements with major suppliers are generally cancelable by
the suppliers upon thirty to sixty days' notice. Management does not anticipate
cancellation of these agreements.
13. RELATED PARTY TRANSACTIONS
At October 31, 1995 and 1996, other assets of Harley Equipment include
notes receivable of $150,000 from the Company's president/majority stockholder.
The President's notes bear interest at the statutory rate required by the
Internal Revenue Service and are payable on demand. Interest income on the
President's notes totaled $9,375, $10,200, and $10,200 for the years ended
October 31, 1994, 1995, and 1996, respectively.
In conjunction with the sale of the Company described in Note 2, additional
compensation totaling approximately $475,000 for various employees and fees
related to the sale of $150,000 charged to the Company by a stockholder were
incurred. The additional compensation is to be paid from the assets of Harley
Equipment and has been allocated to discontinued operations. In November 1996,
certain assets of
F-32
<PAGE>
HARLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Harley Equipment were sold to a stockholder for $150,000, which represented
their carrying values at October 31, 1996.
The Company has also entered into a contingent incentive award agreement
with a key Harley Valve employee which provides for a $50,000 payment upon
consummation of the sale of the Company and $50,000 payable ratably over the
following six months. No amounts related to this agreement were recorded by the
Company as of October 31, 1996.
14. LEASES
Harley Valve leases certain equipment and office and warehouse facilities.
Minimum rental commitments for Harley Valve under all operating leases with
noncancelable terms in excess of one year at October 31, 1996 were payable as
follows:
YEAR ENDING OCTOBER 31,
- -----------------------
1997............................... $ 450,564
1998............................... 140,528
1999............................... 56,756
2000............................... 51,286
2001............................... 36,000
----------
$ 735,134
==========
Commencing in the year ended October 31, 1996, Harley Valve subleased
certain of its facilities to a third party under short-term leases.
Total rental expense amounted to approximately $281,000, $216,000, and
$274,000 for the years ended October 31, 1994, 1995, and 1996, respectively.
Sublease income was approximately $44,000 for the year ended October 31, 1996.
15. ENVIRONMENTAL CONTINGENCIES
The Company is investigating various of its facilities for potential
environmental contamination and remediation, including an underground storage
tank at its Norfolk, Virginia location. Based on soil samples completed through
January 10, 1997, minimal contamination is indicated. Management believes costs,
if any, for environmental remediation at the Norfolk or other facilities will
not be material.
* * * * * *
F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Steam Supply Group:
We have audited the accompanying combined balance sheets of Steam Supply
Group (as defined in Note 1) as of October 31, 1995 and 1996, and the related
combined statements of operations, stockholders' equity (deficit) and cash flows
for each of the three years in the period ended October 31, 1996. These
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Steam
Supply Group as of October 31, 1995 and 1996, and the combined results of their
operations and their combined cash flows for each of the three years in the
period ended October 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
June 3, 1997
F-34
<PAGE>
STEAM SUPPLY GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31
-------------------------- APRIL 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ -- $ -- $ 340
Accounts receivable, net of
allowance of $15,000, $9,080 and
$3,422, respectively............. 1,854,097 2,007,558 2,253,470
Inventories........................ 1,843,530 2,083,181 1,992,101
Prepaid expenses................... 241,574 277,174 275,749
Current portion of related-party
notes receivable................. 22,266 25,500 10,037
------------ ------------ -----------
Total current assets.......... 3,961,467 4,393,413 4,531,697
PROPERTY AND EQUIPMENT, net............. 787,592 1,123,146 1,080,285
RELATED-PARTY NOTES RECEIVABLE, net of
current portion....................... 587,731 647,871 597,711
OTHER NONCURRENT ASSETS, net............ 329,465 379,490 232,321
------------ ------------ -----------
$ 5,666,255 $ 6,543,920 $ 6,442,014
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt.................... $ 2,432,000 $ 2,062,683 $ 2,083,292
Current maturities of long-term
debt............................. 148,000 245,400 329,000
Accounts payable and accrued
liabilities...................... 1,409,478 1,341,730 1,484,242
------------ ------------ -----------
Total current liabilities..... 3,989,478 3,649,813 3,896,534
LONG-TERM DEBT, net of current
maturities............................ 916,160 2,131,891 1,926,992
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.............. 710,528 710,528 710,528
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock....................... 173 173 173
Additional paid-in capital......... 17,958 17,958 17,958
Retained earnings (deficit)........ 31,958 33,557 (110,171)
------------ ------------ -----------
Total stockholders' equity
(deficit).................. 50,089 51,688 (92,040)
------------ ------------ -----------
$ 5,666,255 $ 6,543,920 $ 6,442,014
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
STEAM SUPPLY GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED OCTOBER 31 ENDED APRIL 30
---------------------------------------------- --------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 14,777,360 $ 15,407,681 $ 15,078,741 $ 7,434,780 $ 7,737,054
COST OF OPERATIONS................... 9,702,561 10,092,443 9,573,560 4,655,074 5,414,355
-------------- -------------- -------------- ------------ ------------
Gross profit.................... 5,074,799 5,315,238 5,505,181 2,779,706 2,322,699
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,022,066 4,825,535 5,107,379 2,452,285 2,274,857
-------------- -------------- -------------- ------------ ------------
Income from operations.......... 52,733 489,703 397,802 327,421 47,842
OTHER INCOME (EXPENSE):
Interest, net................... (244,611) (282,004) (303,482) (142,121) (166,564)
Other........................... (52,512) 7,121 (9,881) (8,353) (35,360)
-------------- -------------- -------------- ------------ ------------
(297,123) (274,883) (313,363) (150,474) (201,924)
-------------- -------------- -------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES.... (244,390) 214,820 84,439 176,947 (154,082)
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 2,185 97,900 33,100 69,363 (60,091)
-------------- -------------- -------------- ------------ ------------
NET INCOME (LOSS).................... $ (246,575) $ 116,920 $ 51,339 $ 107,584 $ (93,991)
============== ============== ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
STEAM SUPPLY GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS (DEFICIT) TOTAL
------ --------- ------------------- ------------
<S> <C> <C> <C> <C>
BALANCE, October 31, 1993............... $ 173 $ 17,958 $ 261,167 $ 279,298
Preferred dividends................ -- -- (49,817) (49,817)
Net loss........................... -- -- (246,575) (246,575)
------ --------- ------------------- ------------
BALANCE, October 31, 1994............... 173 17,958 (35,225) (17,094)
Preferred dividends................ -- -- (49,737) (49,737)
Net income......................... -- -- 116,920 116,920
------ --------- ------------------- ------------
BALANCE, October 31, 1995............... 173 17,958 31,958 50,089
Preferred dividends................ -- -- (49,740) (49,740)
Net income......................... -- -- 51,339 51,339
------ --------- ------------------- ------------
BALANCE, October 31, 1996............... 173 17,958 33,557 51,688
Preferred dividends (unaudited).... -- -- (49,737) (49,737)
Net loss (unaudited)............... -- -- (93,991) (93,991)
------ --------- ------------------- ------------
BALANCE, April 30, 1997 (unaudited)..... $ 173 $ 17,958 $(110,171) $ (92,040)
====== ========= =================== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
STEAM SUPPLY GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED OCTOBER 31 ENDED APRIL 30
------------------------------------ ----------------------
1994 1995 1996 1996 1997
---------- ------------ ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................ $ (246,575) $ 116,920 $ 51,339 $ 175,651 $ (93,991)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities --
Depreciation and
amortization.............. 278,954 270,111 208,304 73,782 83,599
(Increase) decrease in --
Accounts receivable....... (173,560) (138,995) (153,461) 28,134 (245,912)
Inventories............... 175,605 56,528 (239,651) (99,707) 91,080
Prepaid expenses and other
assets.................. (79,395) 81,422 (85,625) (171,903) 148,594
Accounts payable and accrued
expenses.................. 165,685 123,792 (67,748) (81,761) 142,511
---------- ------------ ---------- ---------- ----------
Net cash provided by
(used in) operating
activities......... 120,714 509,778 (286,842) (75,804) 125,881
---------- ------------ ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment...................... (133,067) (117,445) (543,852) (333,572) (40,738)
Advances on notes receivable..... (16,044) (138,334) (60,000) -- --
Collections on notes
receivable..................... 119,416 24,207 23,221 4,526 65,624
---------- ------------ ---------- ---------- ----------
Net cash provided by
(used in) investing
activities......... (29,695) (231,572) (580,631) (329,046) 24,886
---------- ------------ ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) of short-
and long-term debt............. (28,937) (240,734) 917,213 455,350 (100,690)
Preferred dividends paid......... (49,817) (49,737) (49,740) (49,740) (49,737)
---------- ------------ ---------- ---------- ----------
Net cash provided by
(used in) financing
activities......... (78,754) (290,471) 867,473 405,610 (150,427)
---------- ------------ ---------- ---------- ----------
NET CHANGE IN CASH................... 12,265 (12,265) -- 760 340
CASH, beginning of period............ -- 12,265 -- -- --
---------- ------------ ---------- ---------- ----------
CASH, end of period.................. $ 12,265 $ -- $ -- $ 760 $ 340
========== ============ ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying combined balance sheets and related combined statements of
operations, stockholders' equity and cash flows include Puget Investments, Inc.
("Puget"), Steam Supply & Rubber Co., Inc. ("Steam Supply"), Flickinger
Company and Flickinger-Benicia, Inc. ("Benicia"). Steam Supply and Flickinger
Company are wholly owned subsidiaries of Puget and are consolidated with the
accounts of Puget. As Puget and Benicia (together, "Steam Supply Group" or the
"Company") have common ownership and management, the financial statements of
each entity have been combined for financial reporting reasons. All intercompany
balances and transactions have been eliminated.
Steam Supply Group services, repairs, sells and distributes industrial
valves and instruments. Steam Supply Group's customers primarily are
petrochemical, electric power and pulp and paper industries located in the
western continental United States and Alaska.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH
Cash payments for interest during fiscal 1994, 1995 and 1996 were
approximately $272,878, $312,643 and $336,432, respectively. Cash payments for
taxes during fiscal 1995 and 1996 were approximately $65,286 and $107,310,
respectively. During fiscal 1994, the Company received $86,157 in income tax
refunds.
INVENTORIES
Inventories are valued at the lower of cost or market utilizing the
last-in, first-out method ("LIFO") and primarily consist of industrial valves,
valve parts and instrumentation. The excess of current costs determined using
the first-in, first-out method basis over the carrying values of LIFO
inventories was approximately $559,963 and $614,769 at October 31, 1995 and
1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations.
OTHER NONCURRENT ASSETS
Other noncurrent assets primarily consist of a noncompete covenant with a
former stockholder, which is being amortized on a straight-line basis over 10
years. Accumulated amortization as of October 31, 1995 and 1996, was $130,625
and $159,125, respectively.
REVENUE RECOGNITION
Service revenue is recognized upon performance of the service, and product
sales revenue is recognized as products are shipped or delivered.
INCOME TAXES
Puget files a consolidated income tax return and follows the liability
method of accounting for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109. Under this method, deferred income
taxes are recorded based upon differences between the financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the underlying assets or liabilities are
recovered or settled. Benicia is an S Corporation for federal income tax
purposes and, in accordance with the S Corporation provisions of the Internal
Revenue Code,
F-39
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the earnings of Benicia are included in the personal tax returns of its
stockholders. Accordingly, no federal income tax expense is recorded in the
financial statements relative to Benicia. Benicia does record California state
income tax expense.
STOCKHOLDERS' EQUITY
The common stock ownership of the Company as of October 31, 1995 and 1996
includes the following:
PAR VALUE SHARES SHARES
PER SHARE AUTHORIZED OUTSTANDING
---------- ---------- -----------
Puget................................ $ 1.00 500 173
Benicia.............................. -- 50,000 20,000
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the six months ended April 30, 1996 and 1997
has not been audited by independent accountants. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from the unaudited interim financial information. In the opinion of management
of the Company, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective November 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation of an asset is
required, the estimated future undiscounted cash flows associated with the asset
are compared to the asset's carrying amount to determine if a writedown to
market value or discounted cash flow value is necessary. Adoption of this
standard did not have a material effect on the combined financial position or
results of operations of the Company.
F-40
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
OCTOBER 31
ESTIMATED --------------------------
USEFUL LIVES 1995 1996
------------ ------------ ------------
Land................................. $ 167,095 $ 167,095
Buildings............................ 30 years 609,949 609,949
Office and shop equipment............ 7 years 1,105,165 1,128,581
Computer equipment................... 5 years 338,578 698,583
Vehicles............................. 5 years 301,212 384,970
Furniture and fixtures............... 7 years 185,340 186,572
Leasehold improvements............... 20 years 10,410 50,481
------------ ------------
2,717,749 3,226,231
Less -- Accumulated depreciation..... 1,930,157 2,103,085
------------ ------------
Property and equipment, net.......... $ 787,592 $ 1,123,146
============ ============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts for fiscal 1994,
1995 and 1996 consists of the following:
1994 1995 1996
--------- --------- ---------
Balance at beginning of fiscal
year................................. $ 15,000 $ 15,000 $ 15,000
Amounts charged (credited) to results
of operations...................... -- -- (5,920)
--------- --------- ---------
Balance at end of fiscal year........ $ 15,000 $ 15,000 $ 9,080
========= ========= =========
Accounts payable and accrued liabilities as of October 31, 1995 and 1996
consist of the following:
1995 1996
------------ ------------
Accounts payable..................... $ 1,167,042 $ 1,170,774
Bank overdraft....................... 167,710 106,332
Accrued liabilities.................. 74,726 64,624
------------ ------------
$ 1,409,478 $ 1,341,730
============ ============
F-41
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED-PARTY NOTES RECEIVABLE:
The Company's related-party notes receivable consist of the following:
OCTOBER 31
----------------------
1995 1996
---------- ----------
Unsecured notes receivable from
stockholders, balloon payment,
including accrued interest at prime
(8.25% at October 31, 1996), due
October 1999.......................... $ 306,842 $ 393,440
Note receivable from King-Ries
Partnership ("KRP"), an affiliate
related through common ownership, due
in monthly installments of $2,800
including interest at 12.5%,
collateralized by a second mortgage on
certain real estate, due November
1998.................................. 209,822 202,012
Unsecured note receivable from KRP, due
in monthly installments of $1,370
including interest at prime, due April
2002.................................. 81,876 72,019
Unsecured note receivable from KRP due
in monthly installments of $508
including interest at 6%, due October
1997.................................. 11,457 5,900
---------- ----------
609,997 673,371
Less -- Current portion................. 22,266 25,500
---------- ----------
$ 587,731 $ 647,871
========== ==========
Interest income on these related-party notes totaled $44,000, $54,000 and
$60,000 for fiscal 1994, 1995 and 1996, respectively.
6. PREFERRED STOCK:
Puget has 896 shares of $793 par value cumulative preferred stock
outstanding. The preferred shares yield a 7 percent dividend. The shares are
callable and redeemable at a 10 percent premium over par value. The shares can
be called or redeemed at any time by either Puget or the preferred stockholders.
The preferred shares have no voting rights, except in the event of nonpayment of
dividends for two years, in which case the preferred stock shall vote with the
common stock on a one share, one vote basis.
7. DEBT:
SHORT-TERM DEBT
The Company's short-term debt consists of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Revolving line of credit with Union Bank
of California, N.A. (Union Bank),
bearing interest at prime plus 0.50%
(8.75% at October 31, 1996), $2.2
million facility, collateralized by
substantially all the Company's assets
and guaranteed by stockholders,
expired April 1997 (See Note 11)...... $ 1,532,000 $ 2,062,683
Note payable to Union Bank with interest
payable monthly at prime plus 0.75%
(9.00% at October 31, 1996),
collateralized
by real estate and guaranteed by
stockholders, refinanced as
long-term debt during 1996............ 900,000 --
------------ ------------
$ 2,432,000 $ 2,062,683
============ ============
F-42
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's long-term debt consists of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Note payable to Union Bank in monthly
installments of $9,640 including
interest at prime plus 0.75% (9.00% at
October 31, 1996), collateralized by
real estate and guaranteed by
stockholders, due May 2003............ $ -- $ 1,094,907
Note payable to Union Bank in monthly
installments of $8,860 plus interest
at prime plus 0.75% (9.00% at October
31, 1996), collateralized by computer
equipment and guaranteed by
stockholders, due July 1, 2000........ -- 398,420
Note payable to Union Bank in monthly
installments of $4,200 plus interest
at prime plus 0.50% (8.75% at October
31, 1996), collateralized by
substantially all assets and
guaranteed by stockholders, due April
1998.................................. 124,800 74,400
Note payable to West One Bank, due in
monthly installments of $3,425
including interest at 9.25%,
collateralized by real estate,
refinanced with Union Bank during
1996.................................. 148,204 --
Note payable to former stockholder in
monthly installments of $9,463
including interest at 10%,
collateralized by common stock,
subordinated to notes payable to Union
Bank, due June 2001................... 484,314 416,124
Unsecured notes payable to stockholders,
subordinated to notes payable to Union
Bank, balloon payment including
interest at prime, due October 1999... 306,842 393,440
------------ ------------
1,064,160 2,377,291
Less -- Current portion................. 148,000 245,400
------------ ------------
$ 916,160 $ 2,131,891
============ ============
Maturities of the Company's long-term debt are as follows:
Year ending October 31 --
1997............................... $ 245,400
1998............................... 228,200
1999............................... 607,800
2000............................... 197,840
2001............................... 84,300
Thereafter......................... 1,013,751
------------
$ 2,377,291
============
Interest expense totaled $288,922, $336,041 and $363,030 in fiscal 1994,
1995 and 1996, respectively. Management estimates that the fair value of its
debt obligations approximates the carrying value at October 31, 1996.
At October 31, 1996, the Company's debt with Union Bank was subject to a
credit agreement that included certain restrictive covenants relating to such
matters as dividends and capital expenditures. This credit agreement also
required the Company to maintain minimum levels of profitability, net worth and
working capital ratios. At October 31, 1996, the Company was in compliance with
or had received waivers of noncompliance with respect to all restrictive
covenants.
F-43
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On May 1, 1997, the Company and Union Bank entered into an amended and
restated credit agreement. The amended and restated credit agreement modified
the repayment terms and covenants of the Company's debt. See Note 11 for
additional information respecting the amended and restated credit agreement.
8. INCOME TAXES:
The Company's income tax provision included the following:
YEAR ENDED OCTOBER 31
---------------------------------
1994 1995 1996
---------- ---------- ---------
Federal, current........................ $ -- $ 88,100 $ 25,900
State, current.......................... 2,185 9,800 7,200
---------- ---------- ---------
$ 2,185 $ 97,900 $ 33,100
========== ========== =========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes as follows:
YEAR ENDED OCTOBER 31
------------------------
1994 1995 1996
---- ---- ----
Statutory federal income tax rate....... (34) % 34 % 34 %
Valuation allowance..................... 34 -- --
Effect of federal graduated tax rate.... -- (5) (5)
State and local taxes................... (1) 3 5
Effect of nondeductible meals and
entertainment......................... -- 4 11
Effect of excluding S Corporation....... -- 11 (8)
Other................................... -- (1) 2
---- ---- ----
Effective income tax rate............... (1) % 46 % 39 %
==== ==== ====
Deferred income taxes consist of the following:
OCTOBER 31
----------------------
1995 1996
---------- ----------
Current deferred tax assets.......... $ 24,400 $ 29,600
Noncurrent deferred tax assets....... 36,800 33,800
Valuation allowance.................. (52,200) (52,200)
---------- ----------
Total deferred tax
assets.................. 9,000 11,200
---------- ----------
Current deferred tax liabilities..... -- (3,100)
Noncurrent deferred tax
liabilities.......................... (9,000) (8,100)
---------- ----------
Total deferred tax
liabilities............. (9,000) (11,200)
---------- ----------
Net deferred tax
liabilities............. $ -- $ --
========== ==========
F-44
<PAGE>
STEAM SUPPLY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases warehouse space, office facilities and vehicles under
noncancelable operating leases which expire at various dates. Future minimum
lease payments at October 31, 1996 are as follows:
1997................................. $ 247,200
1998................................. 214,700
1999................................. 121,600
2000................................. 114,000
2001................................. 114,000
Rent expense for fiscal 1994, 1995 and 1996 was $247,600, $240,300 and
$259,200, respectively.
The Company leases certain facilities from stockholders and KRP under
operating leases. Rental expense related to these leases was $138,800 for fiscal
1994 and 1995 and $139,200 for fiscal 1996.
EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) profit-sharing plan covering all eligible
employees. The plan allows employee contributions, whereby eligible employees
may elect to defer a portion of their annual compensation. The Company matches
50% of each employee's contribution up to 4 percent of employee compensation.
Additional contributions by the Company are discretionary. The Company
contributed approximately $50,600, $28,400 and $28,800 for fiscal 1994, 1995 and
1996, respectively.
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal matters. Management does not believe that the outcome of these
legal matters will have a material effect on the Company's combined financial
position or results of operations.
10. DISTRIBUTION AGREEMENTS:
The Company purchases, sells and services various products under service
and distribution agreements with its major suppliers. Approximately 39 percent
of revenues during each of fiscal 1994, 1995 and 1996, was derived from sales of
products purchased or services rendered under the agreement with one supplier.
The agreements with major suppliers are generally cancelable by the suppliers
upon 30 to 60 days' notice. Management does not anticipate cancellation of these
agreements.
11. SUBSEQUENT EVENTS:
DEBT REFINANCING
On May 1, 1997, the Company entered an agreement to amend and restate its
credit agreement with Union Bank. This new credit facility provides a line of
credit due November 1, 1997, which is subject to a borrowing base with maximum
borrowings of $2,500,000. Interest accrues at Union Bank's reference rate. This
new credit facility has certain restrictive covenants similar to the previous
credit facility.
SALE OF COMMON SHARES
In July 1997, the stockholders of the Company sold the entire equity
ownership of the Company to Innovative Valve Technologies, Inc. for total
consideration in excess of the recorded amounts of the Company's net assets.
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ICE/VARCO Group:
We have audited the accompanying combined balance sheets of ICE/VARCO Group
(as defined in Note 1) as of September 30, 1995 and 1996 and the related
combined statements of operations, stockholder's deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of ICE/VARCO
Group as of September 30, 1995 and 1996, and the combined results of their
operations and their combined cash flows for the years then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 9, 1997
(except as discussed
in Note 6, as to which
the date is July 10, 1997)
F-46
<PAGE>
ICE/VARCO GROUP
COMBINED BALANCE SHEETS
SEPTEMBER 30
-------------------------- MARCH 31,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 19,561 $ 46,117 $ 105,571
Accounts receivable, net of
allowance of $40,000, $47,713
and $31,896................... 1,653,485 1,747,859 2,262,063
Inventories..................... 1,062,951 1,275,325 1,282,575
Prepaid expenses and other
current assets.................. 28,336 16,350 21,624
------------ ------------ -----------
Total current assets....... 2,764,333 3,085,651 3,671,833
PROPERTY AND EQUIPMENT, net.......... 850,485 979,926 1,003,053
INTANGIBLES AND OTHER NONCURRENT
ASSETS, net........................ 24,817 238,450 233,964
------------ ------------ -----------
$ 3,639,635 $ 4,304,027 $ 4,908,850
============ ============ ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Short-term debt................. $ 733,440 $ 769,300 $ 1,399,517
Current maturities of long-term
debt............................ 116,155 203,961 162,349
Accounts payable and accrued
expenses........................ 1,577,570 1,695,637 1,202,542
------------ ------------ -----------
Total current
liabilities................ 2,427,165 2,668,898 2,764,408
AMOUNTS DUE TO AFFILIATES, net....... 1,031,958 1,284,288 1,987,594
LONG-TERM DEBT, net of current
maturities......................... 455,355 457,229 389,121
STOCKHOLDER'S DEFICIT................ (274,843) (106,388) (232,273)
------------ ------------ -----------
$ 3,639,635 $ 4,304,027 $ 4,908,850
============ ============ ===========
The accompanying notes are an integral part of these combined financial
statements.
F-47
<PAGE>
ICE/VARCO GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30 ENDED MARCH 31
---------------------------- --------------------------
1995 1996 1996 1997
------------ -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................ $ 9,128,032 $ 12,744,465 $ 5,591,467 $ 7,104,053
COST OF OPERATIONS...................... 6,517,438 9,452,991 4,137,864 5,747,167
------------ -------------- ------------ ------------
Gross profit....................... 2,610,594 3,291,474 1,453,603 1,356,886
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 2,346,117 2,858,694 1,344,432 1,555,136
------------ -------------- ------------ ------------
Income (loss) from operations...... 264,477 432,780 109,171 (198,250)
OTHER INCOME (EXPENSE):
Interest, net...................... (117,886) (112,105) (48,903) (63,160)
Other.............................. 11,123 (13,861) 2,977 32,528
------------ -------------- ------------ ------------
(106,763) (125,966) (45,926) (30,632)
------------ -------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES....... 157,714 306,814 63,245 (228,882)
PROVISION (BENEFIT) FOR INCOME TAXES.... 70,100 138,359 27,828 (102,997)
------------ -------------- ------------ ------------
NET INCOME (LOSS)....................... $ 87,614 $ 168,455 $ 35,417 $ (125,885)
============ ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-48
<PAGE>
ICE/VARCO GROUP
COMBINED STATEMENTS OF STOCKHOLDER'S DEFICIT
BALANCE, September 30, 1994............. $ (362,457)
Net income......................... 87,614
------------
BALANCE, September 30, 1995............. (274,843)
Net income......................... 168,455
------------
BALANCE, September 30, 1996............. (106,388)
Net loss (unaudited)............... (125,885)
------------
BALANCE, March 31, 1997 (unaudited)..... $ (232,273)
============
The accompanying notes are an integral part of these combined financial
statements.
F-49
<PAGE>
ICE/VARCO GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30 ENDED MARCH 31
-------------------------- --------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 87,614 $ 168,455 $ 35,417 $ (125,885)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities --
Depreciation and amortization.... 131,635 147,011 72,102 102,438
(Increase) decrease in --
Accounts receivable........... (376,087) 60,629 407,566 (514,127)
Inventories................... (433,685) (212,374) 82,452 (7,250)
Prepaid expenses and other
assets..................... (29,490) 2,435 (7,323) (7,551)
Increase (decrease) in --
Accounts payable and accrued
expenses................... 446,100 (35,671) (428,137) (493,095)
Amounts due to affiliates,
net........................ (254,719) 259,758 (401,541) 703,306
------------ ------------ ------------ ------------
Net cash provided by (used
in) operating
activities............... (428,632) 390,243 (239,464) (342,164)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment... (99,181) (214,915) (187,545) (118,878)
Business acquisition, net of cash
acquired........................... -- 45,516 -- --
------------ ------------ ------------ ------------
Net cash used in investing
activities............... (99,181) (169,399) (187,545) (118,878)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) of long-term
debt, net.......................... 505,219 (194,288) 443,682 520,496
------------ ------------ ------------ ------------
Net cash provided by (used
in) financing
activities............... 505,219 (194,288) 443,682 520,496
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH......... (22,594) 26,556 (16,673) 59,454
CASH, beginning of period............... 42,155 19,561 19,561 46,117
------------ ------------ ------------ ------------
CASH, end of period..................... $ 19,561 $ 46,117 $ 2,888 $ 105,571
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying combined balance sheets and related combined statements of
operations, stockholder's deficit and cash flows include Industrial Controls &
Equipment, Inc. ("ICE"), Valve Actuation & Repair Company, Inc. ("VARCO"),
and BAS Technical Services Inc. ("BAS"). ICE, VARCO and BAS (collectively,
"ICE/VARCO Group" or the "Company") are wholly owned subsidiaries of
Synergistic Partners Inc. ("SPI"), a Pennsylvania corporation. As ICE/VARCO
Group has common ownership and management, the financial statements of these
entities have been combined for financial reporting purposes. All significant
intercompany transactions and balances have been eliminated in combination.
ICE (a Pennsylvania corporation) and VARCO (a West Virginia corporation)
are principally engaged in the business of repairing, testing and distributing
manual, control and safety relief valves, related parts and instrumentation to
the pulp and paper, chemical, power generation and petrochemical industries in
Pennsylvania and West Virginia. BAS (a West Virginia corporation), acquired in
August 1996 in a purchase transaction, provides value-added electrical and
mechanical engineering services and electrical panel construction, primarily to
the same customer base served by ICE and VARCO.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH
Cash payments for interest during fiscal 1995 and 1996 were approximately
$108,000 and $96,000, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market utilizing the
average-cost method applied on a first-in, first-out ("FIFO") basis and
primarily consist of valves, valve parts and related instrumentation.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations.
INCOME TAXES
The Company was included in SPI's consolidated federal income tax returns
for fiscal 1995 and 1996. The Company follows the liability method of accounting
for income taxes in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Under this method, deferred
income taxes are recorded based upon differences between the financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the underlying assets or liabilities
are recovered or settled.
INTANGIBLES AND OTHER NONCURRENT ASSETS
Intangibles and other noncurrent assets primarily consists of goodwill and
is amortized using the straight-line method over 15 years. Accumulated
amortization at September 30, 1996 was $7,883. There was no accumulated
amortization at September 30, 1995.
REVENUE RECOGNITION
Service revenue is recognized upon performance, and sales revenue is
recognized as products are shipped or delivered.
F-51
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the six months ended March 31, 1996 and 1997
has not been audited by independent accountants. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company, the unaudited interim financial information includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective October 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other noncurrent assets, may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset are compared to the asset's carrying amount to determine if a write-down
to market value or discounted cash flow value is necessary. Adoption of this
standard did not have a material effect on the combined financial position or
results of operations of the Company.
3. ACQUISITION OF BAS:
In August 1996, SPI acquired BAS in a purchase transaction. The financial
results of the acquisition have been included in the combined financial
statements of the Company from the date of acquisition. The pro forma effect of
the acquisition was not material to the results of operations or financial
position of the Company. The fair value of assets acquired is summarized as
follows:
Cash.................................... $ 45,516
Accounts receivable..................... 144,869
Property and equipment.................. 57,593
Intangible assets....................... 223,926
Accounts payable........................ (67,707)
Accrued liabilities..................... (86,031)
Debt assumed............................ (218,166)
------------
Net assets acquired................ 100,000
Less -- Debt issued..................... (100,000)
------------
Cash paid for acquisition.......... $ --
============
F-52
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
SEPTEMBER 30
ESTIMATED --------------------------
USEFUL LIVES 1995 1996
------------ ------------ ------------
Buildings.......................... 31 years $ 193,047 $ 193,047
Vehicles........................... 3-5 years 129,295 162,797
Furniture and fixtures............. 5-7 years 129,573 148,007
Office equipment................... 5-7 years 237,757 344,993
Machinery and equipment............ 5-7 years 299,163 325,798
Leasehold improvements............. 7-31 years 317,456 385,900
------------ ------------
1,306,291 1,560,542
Less -- Accumulated depreciation... (455,806) (580,616)
------------ ------------
Property and equipment, net........ $ 850,485 $ 979,926
============ ============
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts for the years
ended September 30, 1995 and 1996 consists of the following:
1995 1996
--------- ---------
Balance at beginning of year......... $ 17,000 $ 40,000
Additions charged to results of
operations........................... 23,000 7,713
--------- ---------
Balance at end of year............... $ 40,000 $ 47,713
========= =========
Accounts payable and accrued expenses as of September 30, 1995 and 1996
consist of the following:
1995 1996
------------ ------------
Accounts payable..................... $ 1,243,559 $ 1,252,390
Accrued salaries, bonuses and
profit-sharing..................... 297,344 335,292
Income and other taxes payable....... 36,667 107,955
------------ ------------
$ 1,577,570 $ 1,695,637
============ ============
6. SHORT-TERM DEBT:
The Company had three revolving credit arrangements. ICE and VARCO had
revolving credit facilities with a bank which was secured by accounts receivable
and inventory. These facilities bore interest, payable monthly, at a rate of
prime plus 0.50% (9.25% at September 30, 1996). A total of approximately
$733,000 and $594,000 was drawn for the two facilities at September 30, 1995 and
1996, respectively. BAS was party to a $200,000 commercial revolving note
agreement, which was secured by accounts receivable and bore interest, due
monthly, at prime plus 1.50% (9.75% at September 30, 1996). At September 30,
1996, approximately $175,000 was drawn on the line.
In July 1997, SPI refinanced its revolving credit arrangements, including
the Company's revolving facilities. The new facilities have terms similar to the
previous revolving credit agreements. The new facilities mature in July 1999,
bear interest at prime plus 0.25% (8.75% at July 10, 1997) and are secured by
accounts receivable and inventory.
F-53
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consists of the following:
SEPTEMBER 30
--------------------------
1995 1996
------------ ------------
Note payable to former SPI
stockholder, monthly installments
of principal and interest in the
amount of $4,805, bearing interest
at 9.50%, secured by general
Company assets..................... $ 150,000 $ 127,861
Note payable to a bank, monthly
principal installments of $3,300,
bearing interest at 7.75% secured
by general Company assets.......... 192,500 152,900
Note payable to a government agency,
monthly installments of principal
and interest of $1,592, bearing
interest at 5.01% secured by
general Company assets............. 139,702 128,643
Notes payable, due in monthly
installments, bearing interest from
8.00% to 9.50%, secured by certain
vehicles and certain equipment..... 89,308 146,786
Unsecured note payable to
employee-consultant and former
owner of BAS, annual installments
of principal and interest in the
amount of $13,011, bearing interest
at 8.00%........................... -- 75,000
Unsecured note payable to former
employee, noninterest-bearing...... -- 30,000
------------ ------------
571,510 661,190
Less -- Current maturities........... (116,155) (203,961)
------------ ------------
Total long-term debt............ $ 455,355 $ 457,229
============ ============
Management estimates that the fair value of its debt obligations
approximates the historical value at September 30, 1996 and 1995.
Maturities of long-term debt are as follows:
Year ending September 30 --
1997............................ $ 203,961
1998............................ 221,681
1999............................ 82,184
2000............................ 38,409
2001............................ 25,452
Thereafter...................... 89,503
----------
$ 661,190
==========
8. INCOME TAXES:
The Company is included in the consolidated federal income tax return of
SPI. SPI pays the federal income tax liability for all its subsidiaries for any
period in which an amount is due. Each subsidiary, including each company within
ICE/VARCO Group, pays to SPI the amount of federal income tax liability it would
have owed on a stand-alone basis, and SPI pays to each subsidiary the amount of
any federal income tax benefit attributable to each such subsidiary.
F-54
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Federal and state income tax provision (benefit) are as follows:
YEAR ENDED SEPTEMBER 30
----------------------
1995 1996
---------- ----------
Federal --
Current............................ $ 69,500 $ 108,592
Deferred........................... (13,200) 3,157
State --
Current............................ 16,600 26,053
Deferred........................... (2,800) 557
---------- ----------
$ 70,100 $ 138,359
========== ==========
Actual income tax provision differs from income tax provision computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes as follows:
YEAR ENDED
SEPTEMBER 30
--------------------
1995 1996
--------- ---------
Statutory federal income tax rate....... 34% 34%
State and local taxes................... 6 6
Effect of nondeductible meals and
entertainment......................... 4 5
---- ----
Effective income tax rate............... 44% 45%
==== ====
Deferred income taxes consist of the following:
YEAR ENDED SEPTEMBER 30
----------------------
1995 1996
---------- ----------
Current deferred tax assets............. $ 16,000 $ 12,286
Noncurrent deferred tax assets.......... -- --
---------- ----------
Net deferred tax assets............ $ 16,000 $ 12,286
========== ==========
9. COMMITMENTS AND CONTINGENCIES:
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal matters. Management does not believe that the outcome of these
legal matters will have a material effect on the Company's combined financial
position or results of operations.
GUARANTEES OF AFFILIATED COMPANIES' DEBT
The Company's assets are pledged as collateral under certain credit
arrangements entered into by SPI and certain of its other subsidiaries, and the
Company is jointly and severally liable for any defaults under those
arrangements. SPI's new credit facilities include covenants requiring that
certain financial ratios be maintained. Management does not believe, if the
Company were required to perform under such guarantees, any losses from these
agreements would be material. To date, the Company has not been required to
perform under these guarantees. See Note 12 for further discussion.
F-55
<PAGE>
ICE/VARCO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
Aggregate minimum rental commitments under significant noncancelable
operating leases with lease terms in excess of one year as of September 30, 1996
are as follows:
Year ending September 30 --
1997............................... $ 88,818
1998............................... 87,144
1999............................... 87,144
2000............................... 87,144
2001............................... 87,144
Thereafter......................... 429,010
----------
$ 866,404
==========
The Company incurred total rental expense of approximately $132,000 and
$131,000 for fiscal 1995 and 1996, respectively.
EMPLOYEE BENEFITS
The Company participates in a profit sharing plan offered by SPI to all
salaried employees who have met certain length-of-service requirements.
Employees can contribute up to 4 percent of their salary, which is matched 100%
by the Company. For fiscal 1995 and 1996, the Company also made discretionary
contributions. The Company's total contributions for fiscal 1995 and 1996 were
$92,000 and $133,000, respectively.
10. RELATED-PARTY TRANSACTIONS:
As described in Note 1, the Company is a wholly owned part of an affiliated
group of companies owned by SPI operating in the valve repair and distribution
services business. Certain selling, general and administrative expenses incurred
by SPI have been allocated to the Company for fiscal 1995 and 1996 in the
amounts of approximately $228,000 and $263,000, respectively. The Company also
purchases and sells valve and valve repair parts, materials and services from
other subsidiaries of SPI. During fiscal 1996, its total purchases from the
other SPI subsidiaries approximated $311,000 and its total sales by the Company
to the other SPI subsidiaries approximated $1,527,000.
11. SIGNIFICANT CUSTOMER:
During fiscal 1995 and 1996, the Company had one customer that accounted
for approximately 13% and 19%, respectively, of the Company's combined revenues.
12. SUBSEQUENT EVENT:
SALE OF COMMON SHARES
In June 1997, pursuant to a definitive agreement, SPI agreed to sell the
entire equity ownership of the Company to Innovative Valve Technologies, Inc.
(Invatec), for total consideration in excess of the recorded amounts of the
Company's net assets. Among other customary matters, the definitive agreement
provides for the removal of the Company's guarantees of debt obligations of SPI,
its affiliates and subsidiaries. The closing of the transaction is conditioned
on the successful consummation of Invatec's initial public offering.
F-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
GSV, Inc.:
We have audited the accompanying balance sheets of GSV, Inc. (the Company)
as of December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Orlando, Florida
April 11, 1997
F-57
<PAGE>
GSV, INC.
BALANCE SHEETS
DECEMBER 31
-------------------------- FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 11,059 $ 10,084 $ 3,347
Accounts receivable............. 1,509,218 1,612,693 1,345,555
Inventories..................... 833,332 1,079,493 1,472,916
Prepaid expenses and other
current assets................ 27,883 32,213 78,881
------------ ------------ ------------
Total current assets....... 2,381,492 2,734,483 2,900,699
------------ ------------ ------------
PROPERTY AND EQUIPMENT -- Net........ 1,058,170 1,177,044 1,192,977
------------ ------------ ------------
OTHER NONCURRENT ASSETS.............. 43,976 27,869 28,970
------------ ------------ ------------
$ 3,483,638 $ 3,939,396 $ 4,122,646
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank............ $ 362,000 $ 426,000 $ 340,000
Accounts payable................ 615,484 494,688 988,158
Accrued expenses and other
current liabilities........... 402,669 253,444 195,203
Stockholders' distributions
payable....................... -- 200,500 --
Current maturities of long-term
debt.......................... 183,378 193,372 183,340
------------ ------------ ------------
Total current
liabilities................ 1,563,531 1,568,004 1,706,701
------------ ------------ ------------
LONG-TERM DEBT -- Less current
portion.............................. 384,214 267,899 241,905
------------ ------------ ------------
Total liabilities.......... 1,947,745 1,835,903 1,948,606
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value,
5,000,000 shares authorized,
3,865,489 shares issued....... 386,549 386,549 386,549
Additional paid-in capital...... 765,211 765,211 765,211
Retained earnings............... 384,133 951,733 1,042,280
Treasury stock -- at cost,
10,000 shares................. -- -- (20,000)
------------ ------------ ------------
Total stockholders'
equity..................... 1,535,893 2,103,493 2,174,040
------------ ------------ ------------
$ 3,483,638 $ 3,939,396 $ 4,122,646
============ ============ ============
See notes to financial statements.
F-58
<PAGE>
GSV, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEAR ENDED DECEMBER 31 FEBRUARY 28
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
------------ ------------ -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 8,922,688 $ 8,653,737 $ 10,227,117 $ 1,412,628 $ 1,636,716
COST OF OPERATIONS................... 7,190,890 6,661,559 7,688,077 1,105,993 1,258,288
------------ ------------ -------------- ------------ ------------
Gross profit............... 1,731,798 1,992,178 2,539,040 306,635 378,428
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,521,956 1,481,704 1,276,112 206,575 243,132
------------ ------------ -------------- ------------ ------------
INCOME FROM OPERATIONS............... 209,842 510,474 1,262,928 100,060 135,296
OTHER INCOME (EXPENSES):
Interest expense................ (92,558) (98,073) (78,365) (10,194) (17,040)
Other, net...................... 9,740 (31,130) 5,817 192 (3,209)
------------ ------------ -------------- ------------ ------------
Other income (expenses),
net........................ (82,818) (129,203) (72,548) (10,002) (20,249)
------------ ------------ -------------- ------------ ------------
NET INCOME........................... $ 127,024 $ 381,271 $ 1,190,380 $ 90,058 $ 115,047
============ ============ ============== ============ ============
</TABLE>
See notes to financial statements.
F-59
<PAGE>
GSV, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
---------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994................ $ 386,549 $ 765,211 $ 1,162 $ -- $ 1,152,922
Net income......................... -- -- 127,024 -- 127,024
Distributions to stockholders...... -- -- (125,324) -- (125,324)
---------- ---------- ------------ -------- -------------
BALANCE, DECEMBER 31, 1994.............. 386,549 765,211 2,862 -- 1,154,622
Net income......................... -- -- 381,271 -- 381,271
---------- ---------- ------------ -------- -------------
BALANCE, DECEMBER 31, 1995.............. 386,549 765,211 384,133 -- 1,535,893
Net income......................... -- -- 1,190,380 -- 1,190,380
Distributions to stockholders...... -- -- (622,780) -- (622,780)
---------- ---------- ------------ -------- -------------
BALANCE, DECEMBER 31, 1996.............. $ 386,549 $ 765,211 $ 951,733 -- 2,103,493
Net income (unaudited)............. -- -- 115,047 -- 115,047
Distributions to stockholders
(unaudited)...................... -- -- (24,500) -- (24,500)
Purchase of treasury stock
(unaudited)...................... -- -- -- (20,000) (20,000)
---------- ---------- ------------ -------- -------------
BALANCE, FEBRUARY 28, 1997 (unaudited).. $ 386,549 $ 765,211 $ 1,042,280 $(20,000) $ 2,174,040
========== ========== ============ ======== =============
</TABLE>
See notes to financial statements.
F-60
<PAGE>
GSV, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
YEAR ENDED DECEMBER 31 FEBRUARY 28
----------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................... $ 127,024 $ 381,271 $ 1,190,380 $ 90,058 $ 115,047
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................ 419,723 433,441 186,986 30,206 34,106
(Gain) loss on sale of property
and equipment............... 3,504 -- (789) -- 4,873
(Increase) decrease in accounts
receivable.................. (287,517) 136,231 (103,475) 494,271 267,138
(Increase) decrease in
inventories................. 65,160 (58,546) (246,161) (131,860) (393,423)
(Increase) decrease in prepaid
expenses and other current
assets...................... 9,770 10,700 (4,330) 19,184 (46,668)
Increase (decrease) in accounts
payable..................... 422,422 (351,578) (2,539) 78,100 328,227
Increase (decrease) in accrued
expenses and other current
liabilities................. 85,247 (26,427) 68 (6,323) 24,703
---------- ---------- ----------- ---------- ----------
Net cash provided by
operating activities...... 845,333 525,092 1,020,140 573,636 334,003
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment...................... (616,772) (143,234) (292,414) (14,574) (53,003)
Proceeds from sale of property
and equipment.................. 3,596 -- 3,450 -- --
Purchase of intangible assets.... (32,062) -- -- -- (3,010)
---------- ---------- ----------- ---------- ----------
Net cash used in investing
activities................ (645,238) (143,234) (288,964) (14,574) (56,013)
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash
overdrafts..................... (255,355) 232,375 (118,257) (316,907) 165,243
Loan proceeds.................... 463,115 -- 83,704 -- --
Principal payments on long-term
debt........................... (165,263) (201,776) (190,025) (32,794) (36,026)
Payments under covenant
obligations.................... (348,354) (116,118) (149,293) (116,118) (82,944)
Net change in demand note payable
to bank........................ 181,000 (164,000) 64,000 (84,000) (86,000)
Stockholder distributions........ (75,194) (125,324) (422,280) -- (225,000)
Purchase of treasury stock....... -- -- -- -- (20,000)
---------- ---------- ----------- ---------- ----------
Net cash used in financing
activities................ (200,051) (374,843) (732,151) (549,819) (284,727)
---------- ---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH...... 44 7,015 (975) 9,243 (6,737)
CASH, BEGINNING OF PERIOD............ 4,000 4,044 11,059 11,059 10,084
---------- ---------- ----------- ---------- ----------
CASH, END OF PERIOD.................. $ 4,044 $ 11,059 $ 10,084 $ 20,302 $ 3,347
========== ========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- Cash paid during the
period for interest................ $ 87,465 $ 102,711 $ 78,573 $ 10,789 $ 15,008
========== ========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING AND INVESTING
ACTIVITIES -- Accrual of
distributions payable to
stockholders....................... $ 125,324 $ -- $ 200,500 $ -- $ --
========== ========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-61
<PAGE>
GSV, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
GSV, Inc. (the "Company") is incorporated in the State of Florida and is
comprised of three operating divisions: Gould Machine, Southern Valve, and Ash
Tool. Gould Machine provides contract machining, Southern Valve repairs and
sells valves, and Ash Tool sells certain parts primarily associated with the
industries serviced by the other divisions. All interdivisional transactions and
balances have been eliminated from the financial statements. The Company's main
office is located in Tampa, Florida. On April 26, 1994, the Company purchased a
new facility and moved the Southern Valve Division to this facility in September
of 1994. Costs incurred in moving this division were charged to operations and
amounted to $60,931 for the year ended December 31, 1994. Each division's
business activity is primarily in the State of Florida.
ACCOUNTS RECEIVABLE
There is no allowance for doubtful accounts at December 31, 1995 or 1996.
INVENTORIES
Inventories at December 31, 1995 and 1996 consist of the following:
1995 1996
---------- ------------
Raw materials........................... $ 691,950 $ 791,056
Work-in-process......................... 51,792 206,206
Tool division supplies.................. 89,590 82,231
---------- ------------
Total.............................. $ 833,332 $ 1,079,493
========== ============
Inventories are valued at the lower of cost (first-in, first-out) or
market. Work-in-process inventories are comprised of direct materials, direct
labor, and manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
both accelerated and straight-line methods, using useful lives ranging from 3 to
40 years.
CASH OVERDRAFTS
Accounts payable in the accompanying balance sheets are inclusive of cash
overdrafts of approximately $316,900, $198,700 and $363,900 as of December 31,
1995, December 31, 1996 and February 28, 1997, respectively.
REVENUE RECOGNITION
Revenue is recognized as services are performed and products are shipped.
INCOME TAXES
The stockholders of the Company elected in 1990 to be taxed under the
Subchapter S provisions of the Internal Revenue Code. Under this section,
taxable income and applicable tax credits are deemed to flow to the individual
stockholders, and no state or federal income taxes are imposed on the Company.
Accordingly, no provision has been made for income taxes.
Under current tax law, whenever an enterprise converts from a taxable C
corporation status to S status, the enterprise may be subject to a corporate
level tax if certain built-in gains present at the date of conversion are
realized within a ten-year period following the conversion elections. The
built-in gain remaining as of December 31, 1996 from the Company's conversion to
S status was approximately $907,000. Management does not presently anticipate
that the assets subject to built-in gains tax will be sold or disposed of within
the ten-year period.
F-62
<PAGE>
GSV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management of the Company believes that the carrying value of its financial
instruments is a reasonable estimate of their fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information for the two months ended February 28, 1996 and
1997 has not been audited by independent auditors. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from the unaudited interim financial information. In the opinion of management
of the Company, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Accordingly, in the event that
facts and circumstances indicate that property and equipment, and intangible or
other assets, may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undisclosed cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow value is
necessary. Adoption of Statement 121 did not have an effect on the financial
position or results of operations of the Company.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995 and
1996:
1995 1996
-------------- --------------
Land and building.................... $ 384,634 $ 521,918
Machinery and equipment.............. 2,105,916 2,160,202
Vehicles............................. 505,767 536,012
Leasehold improvements............... 349,976 349,976
Office furniture and equipment....... 168,705 175,735
-------------- --------------
Total cost........................... 3,514,998 3,743,843
Less accumulated depreciation........ (2,456,828) (2,566,799)
-------------- --------------
Total........................... $ 1,058,170 $ 1,177,044
============== ==============
Property and equipment depreciation and amortization expense for the years
ended December 31, 1994, 1995 and 1996 amounted to $164,631, $180,311 and
$170,879, respectively.
3. OTHER ASSETS
COVENANTS NOT-TO-COMPETE
On December 19, 1990, the Company entered into four covenants
not-to-compete with four former shareholders, who are also current employees.
Under the terms of the agreements, total noncompete
F-63
<PAGE>
GSV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
payments amounting to $1,161,181 are payable to the employees under a cash
available formula. Each agreement was for a sixty-month period which expired
December 31, 1995. Amortization of the covenants, which is included in selling,
general, and administrative expenses in the statements of operations, is
computed on the straight-line method over the covenant period, and amounted to
$232,236, $232,237 and $-0- for December 31, 1994, 1995 and 1996, respectively.
4. NOTE PAYABLE TO BANK
The Company has available two lines of credit from a financial institution
in the total maximum amount of $600,000, payable on demand and renewable
annually. Draws under the lines are limited to the lesser of 75% of accounts
receivable with balances outstanding less than 90 days or $600,000. The lines
bear interest at the prime rate plus 1% (9.25% at December 31, 1996), with
interest payable monthly. The lines are collateralized by accounts receivable,
inventory, and an unconditional guarantee from the Company's president. The
balances outstanding at December 31, 1995 and 1996 amounted to $362,000 and
$426,000, respectively.
5. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consists of the following:
1995 1996
---------- ----------
Note payable in the original amount
of $535,000, interest at prime plus
.5% (8.75% at December 31, 1996),
collateralized by all equipment,
inventory, a life insurance policy,
and a cross-collateralization which
was secured in favor of the line of
credit, payable in monthly
principal installments of $8,925
plus interest, final principal
payment due in full on or before
February 15, 1999.................. $ 339,150 $ 232,050
Mortgage note payable in the original
amount of $168,000, interest at 7%,
collateralized by land and
buildings with a carrying amount of
approximately $503,000 at December
31, 1996, payable in monthly
installments of principal and
interest of $3,327 through May
1999............................... 120,994 88,516
Installment loans, interest at
varying rates of 7.5% to 11.3%
collateralized by vehicles with a
carrying amount of approximately
$159,000 at December 31, 1996,
payable in monthly installments of
principal and interest totaling
$7,891 through October 2000, when
final payment is due on the last
instalment note.................... 107,448 140,705
---------- ----------
567,592 461,271
Less current maturities.............. 183,378 193,372
---------- ----------
$ 384,214 $ 267,899
========== ==========
Maturities of long-term debt are as
follows:
1997............................ $ 193,372
1998............................ 193,033
1999............................ 64,158
2000............................ 10,708
----------
Total........................... $ 461,271
==========
F-64
<PAGE>
GSV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. OPERATING LEASE COMMITMENTS
The Company is obligated under an operating lease agreement for its
facility in Tampa which expires in June 2001. The Company is obligated on
various equipment leases which expire from 1997 to 2000. At December 31, 1996,
the future minimum rental payments required under the leases are as follows:
YEAR ENDING
DECEMBER 31,
---------------
1997.................................. $ 67,711
1998.................................. 68,028
1999.................................. 69,433
2000.................................. 70,006
2001.................................. 34,000
----------
$ 309,178
==========
Total rent expense charged to operations under these agreements amounted to
$64,172, $61,786 and $62,634 during 1994, 1995 and 1996, respectively.
7. EMPLOYEE BENEFIT PLANS
401(K) SAVINGS PLAN
The Company sponsors a participant directed cash deferred 401(k) plan (the
Plan). Employees who are employed for one full year and complete 1,000 hours of
service may elect to participate in the Plan. The Company elected to match
employee deferrals at a rate of 40% on the first 6% during 1994, 33 1/3% on the
first 6% during 1995 and 50% on the first 6% deferred during 1996, which
amounted to $38,553, $27,046 and $45,288 during 1994, 1995 and 1996,
respectively.
HEALTH INSURANCE PLAN
On November 1, 1995, the Company began providing certain benefits to
employees under a health insurance plan. Prior to November 1, 1995, the Company
provided healthcare benefits under a plan that was primarily self-funded except
for two reinsurance policies. Healthcare expenses incurred under these plans
amounted to $173,254, $234,019 and $116,175 during 1994, 1995 and 1996,
respectively.
8. COMMITMENTS AND CONTINGENCIES
On November 20, 1992, the Company was notified by the EPA of its potential
liability for the generation of potentially hazardous waste under the Bay Drum
Superfund Site. Management believes that the Company is a de micromis potential
responsible party at the site, and any liability of the Company related to this
matter is insignificant. The Company is one of hundreds of parties which have
been identified with the site. The Company received no correspondence from any
parties regarding this matter during 1994, 1995 or 1996.
9. SIGNIFICANT CUSTOMERS
No customers generated greater than 10% of the Company's revenue for the
years ended December 31, 1994 and 1995. Two customers generated revenue to the
Company representing 11% and 10%, respectively, of total revenues for the year
ended December 31, 1996.
10. SUBSEQUENT EVENT
Effective March 1, 1997, the entire equity ownership of the Company was
acquired by The Safe Seal Company for total consideration in excess of the
recorded amounts of the Company's net assets.
* * * * * *
F-65
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Plant Specialties, Inc.:
We have audited the accompanying balance sheets of Plant Specialties, Inc.
(a Louisiana corporation), as of October 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended October 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Plant Specialties, Inc., as
of October 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 5, 1997
F-66
<PAGE>
PLANT SPECIALTIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31
-------------------------- APRIL 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ 6,019 $ 18,811 $ 86,260
Accounts receivable, net of
allowance of $24,924, $21,168 and
$25,182.......................... 2,484,846 2,111,448 2,514,286
Inventories........................ 1,485,546 1,681,887 2,050,263
Prepaid expenses and other current
assets........................... 76,220 87,291 297,067
------------ ------------ -----------
Total current assets.......... 4,052,631 3,899,437 4,947,876
PROPERTY AND EQUIPMENT, net............. 2,102,708 2,003,345 1,943,568
OTHER NONCURRENT ASSETS................. 147,917 160,960 150,000
------------ ------------ -----------
$ 6,303,256 $ 6,063,742 $ 7,041,444
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 1,300,821 $ 1,061,771 $ 1,062,082
Short-term debt.................... 1,809,984 1,428,453 1,910,572
Current maturities of long-term
debt............................. 163,230 112,392 132,522
------------ ------------ -----------
Total current liabilities..... 3,274,035 2,602,616 3,105,176
LONG-TERM DEBT, net of current
maturities............................ 579,149 916,332 901,600
DEFERRED INCOME TAXES................... 102,830 89,233 115,460
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value,
2,000,000 shares authorized,
1,000,000 shares issued and
outstanding...................... 8,500 8,500 8,500
Retained earnings.................. 2,338,742 2,447,061 2,910,708
------------ ------------ -----------
Total stockholders' equity.... 2,347,242 2,455,561 2,919,208
------------ ------------ -----------
$ 6,303,256 $ 6,063,742 $ 7,041,444
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
PLANT SPECIALTIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31 APRIL 30
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 9,687,963 $ 11,526,424 $ 8,500,741 $ 4,077,722 $ 5,844,520
COST OF OPERATIONS...................... 6,429,080 7,377,424 5,620,159 2,692,500 3,561,417
----------- ------------ ----------- ----------- -----------
Gross profit................... 3,258,883 4,149,000 2,880,582 1,385,222 2,283,103
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 2,590,125 2,991,155 2,489,494 1,370,953 1,428,056
----------- ------------ ----------- ----------- -----------
Income from operations......... 668,758 1,157,845 391,088 14,269 855,047
OTHER INCOME (EXPENSE):
Interest income (expense), net...... (149,556) (186,706) (188,116) 2,834 (124,679)
Other............................... 22,010 23,768 29,622 20,611 12,718
----------- ------------ ----------- ----------- -----------
(127,546) (162,938) (158,494) 23,445 (111,961)
----------- ------------ ----------- ----------- -----------
INCOME BEFORE INCOME TAXES.............. 541,212 994,907 232,594 37,714 743,086
PROVISION FOR INCOME TAXES.............. 202,590 374,605 124,275 19,988 279,439
----------- ------------ ----------- ----------- -----------
NET INCOME.............................. $ 338,622 $ 620,302 $ 108,319 $ 17,726 $ 463,647
=========== ============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
PLANT SPECIALTIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ------------
<S> <C> <C> <C> <C>
BALANCE, October 31, 1993............... 1,000 $8,500 $1,379,818 $ 1,388,318
Net income......................... -- -- 338,622 338,622
------ ------ ---------- ------------
BALANCE, October 31, 1994............... 1,000 8,500 1,718,440 1,726,940
Net income......................... -- -- 620,302 620,302
------ ------ ---------- ------------
BALANCE, October 31, 1995............... 1,000 8,500 2,338,742 2,347,242
Net income......................... -- -- 108,319 108,319
------ ------ ---------- ------------
BALANCE, October 31, 1996............... 1,000 8,500 2,447,061 2,455,561
------ ------ ---------- ------------
Net income (unaudited)............. -- -- 463,647 463,647
------ ------ ---------- ------------
BALANCE, April 30, 1997 (unaudited)..... 1,000 $8,500 $2,910,708 $ 2,919,208
====== ====== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
PLANT SPECIALTIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
YEAR ENDED OCTOBER 31 APRIL 30
----------------------------------------- ----------------------
1994 1995 1996 1996 1997
------------ ------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 338,622 $ 620,302 $ 108,319 $ 17,726 $ 463,647
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation and amortization..... 351,000 384,430 412,725 192,214 204,106
(Increase) decrease in --
Accounts receivable, net....... (438,502) (453,231) 373,398 612,247 (402,838)
Inventories.................... 3,142 (222,584) (196,341) (86,504) (368,375)
Prepaid expenses and other
assets....................... (151,791) 141,405 (24,114) 49,349 (198,816)
Increase (decrease) in accounts
payable, accrued expenses and
deferred income taxes.......... (42,259) 190,620 (252,647) (237,398) 26,538
------------ ------------- ------------ ---------- ----------
Net cash provided by (used in)
operating activities......... 60,212 660,942 421,340 547,634 (275,738)
------------ ------------- ------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment... (571,036) (993,985) (313,564) (235,622) (144,979)
------------ ------------- ------------ ---------- ----------
Net cash used in investing
activities................... (571,036) (993,985) (313,564) (235,622) (144,979)
------------ ------------- ------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) of short- and
long-term debt, net................. 509,369 334,061 (94,984) (317,013) 488,166
------------ ------------- ------------ ---------- ----------
Net cash provided by (used in)
financing activities......... 509,369 334,061 (94,984) (317,013) 488,166
------------ ------------- ------------ ---------- ----------
NET INCREASE (DECREASE) IN CASH......... (1,455) 1,018 12,792 (5,001) 67,449
CASH, beginning of period............... 6,456 5,001 6,019 5,001 18,811
------------ ------------- ------------ ---------- ----------
CASH, end of period..................... $ 5,001 $ 6,019 $ 18,811 $ -- $ 86,260
============ ============= ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Plant Specialties, Inc. (the "Company"), was incorporated in the State of
Louisiana in 1972 and is principally engaged in the business of selling new
valves, instrumentation automation, engineering services and repair services for
valves and instrumentation to the petrochemical and oil field industries. The
Company's fiscal year-end is October 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations. The
Company capitalized interest related to construction-in-progress projects which
amounted to approximately $39,000 and $21,000 in fiscal 1995 and 1996,
respectively.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are realized or settled.
REVENUE RECOGNITION
Revenue is recognized as services are completed and products are shipped.
INVENTORIES
Inventories are valued at the lower of cost or market utilizing the
last-in, first-out method and primarily consist of raw materials and finished
goods. If the first-in, first-out method had been used for costing inventories,
the valuation assigned to inventories would have been approximately $1,700,000
and $1,902,000 as of October 31, 1995 and 1996, respectively.
CASH
Cash payments for interest during fiscal 1994, 1995 and 1996 were
approximately $155,000, $231,000 and $208,000, respectively. Cash payments for
taxes during fiscal 1994, 1995 and 1996 were approximately $172,000, $206,000
and $159,000, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM RESULTS
The financial information for the six months ended April 30, 1996 and 1997,
has not been audited by independent accountants. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company,
F-71
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the unaudited interim financial information includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation. Results
of operations for the interim periods are not necessarily indicative of the
results of operations for the respective full fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective November 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
ESTIMATED OCTOBER 31
USEFUL ------------------------------
LIVES 1995 1996
----------- -------------- --------------
Buildings....................... 15-30 years $ 381,056 $ 896,422
Vehicles........................ 5 years 405,073 411,527
Furniture and fixtures.......... 3-5 years 22,957 22,957
Machinery and equipment......... 5 years 1,872,871 2,554,336
Leasehold improvements.......... 20 years 614,615 649,508
Construction in progress........ -- 925,114 --
-------------- --------------
4,221,686 4,534,750
Less -- Accumulated depreciation (2,118,978) (2,531,405)
-------------- --------------
Property and equipment, net..... $ 2,102,708 $ 2,003,345
============== ==============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following:
OCTOBER 31
--------------------------------
1994 1995 1996
--------- ---------- ---------
Balance at beginning of year............ $ 16,022 $ 19,728 $ 24,924
Additions (recovery) charged (credited)
to results of operations.............. 3,706 89,654 (1,019)
Deductions for uncollectible accounts
written off........................... -- (84,458) (2,737)
--------- ---------- ---------
$ 19,728 $ 24,924 $ 21,168
========= ========== =========
Inventories at LIFO consist of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Raw material and work in process........ $ 1,422,617 $ 850,733
Finished goods.......................... 62,929 831,154
------------ ------------
$ 1,485,546 $ 1,681,887
============ ============
F-72
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Accounts payable, trade................. $ 603,877 $ 484,945
Accrued compensation and benefits....... 137,575 69,329
Accrued insurance....................... 49,963 56,463
Income taxes............................ 262,210 195,410
Other accrued expenses.................. 247,196 255,624
------------ ------------
$ 1,300,821 $ 1,061,771
============ ============
5. SHORT- AND LONG-TERM DEBT:
Short-term debt consists of a revolving credit facility with a bank, due
May 20, 1997, with interest due monthly at prime (8.25% at October 31, 1996).
The revolving debt is secured by accounts receivable and inventory. The
available borrowing capacity at October 31, 1996 was $2,000,000.
Long-term debt consists of the following:
OCTOBER 31
--------------------------
1995 1996
------------ ------------
Notes payable, monthly installments of
principal and interest of $34,000,
bearing interest at 7.50% to 11.00%,
collateralized by land, vehicles and
equipment............................. $ 742,379 $ 1,028,724
Less -- Current maturities......... (163,230) (112,392)
------------ ------------
Long-term debt.......................... $ 579,149 $ 916,332
============ ============
Pursuant to the revolving credit facility agreement, the Company is subject
to financial covenants relating to net worth, leverage ratios and debt service
coverage. At October 31, 1995 and 1996, the Company was in compliance with these
covenants.
The aggregate maturities of the long-term debt as of October 31, 1996 are
as follows:
1997................................. $ 112,392
1998................................. 108,358
1999................................. 110,997
2000................................. 86,527
2001................................. 610,450
Thereafter........................... --
------------
$ 1,028,724
============
Interest expense recorded pursuant to these debt agreements totaled
approximately $155,000, $192,000 and $213,000 in fiscal 1994, 1995 and 1996,
respectively. Management estimates that the fair value of its debt obligations
approximates historical value at October 31, 1996.
F-73
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The Company's provision (benefit) for income taxes is as follows:
YEAR ENDED OCTOBER 31
----------------------------------
1994 1995 1996
---------- ---------- ----------
Federal --
Current......................... $ 190,004 $ 362,993 $ 112,912
Deferred........................ (1,810) (15,138) (11,252)
State --
Current......................... 14,534 27,758 23,679
Deferred........................ (138) (1,008) (1,064)
---------- ---------- ----------
$ 202,590 $ 374,605 $ 124,275
========== ========== ==========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
tax as follows:
YEAR ENDED OCTOBER 31
-------------------------------
1994 1995 1996
---- ---- ----
Statutory federal income tax rate.... 34% 34% 34%
State and local taxes................ 3 3 3
Effect of nondeductible meals and
entertainment........................ -- -- 10
Other................................ -- 1 6
--- --- ---
Effective income tax rate............ 37% 38% 53%
=== === ===
Deferred income taxes consist of the following:
OCTOBER 31
---------------------
1995 1996
---------- ---------
Current deferred tax assets............. $ 8,000 $ 6,403
Noncurrent deferred tax assets.......... -- --
---------- ---------
Total deferred tax assets..... 8,000 6,403
---------- ---------
Current deferred tax liabilities........ -- --
Noncurrent deferred tax liabilities..... 102,830 89,233
---------- ---------
Total deferred tax
liabilities................ 102,830 89,233
---------- ---------
Net deferred tax
liabilities................ $ 94,830 $ 82,830
========== =========
7. EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) profit-sharing plan covering all eligible
employees. The plan allows employee contributions under Section 401(k) of the
Internal Revenue Code. Eligible employees may elect to contribute up to 20
percent of eligible compensation on a pretax basis, subject to IRS limits. The
Company provides matching contributions of 50 percent of employee contributions
up to 6 percent of employee compensation. The Company contributed approximately
$36,000, $39,000 and $38,000 for fiscal 1994, 1995 and 1996, respectively.
F-74
<PAGE>
PLANT SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases warehouse, office facilities and vehicles under
operating leases which expire at various dates through 1999. Future minimum
lease payments at October 31, 1996 are as follows:
1997.................................... $ 140,943
1998.................................... 42,535
1999.................................... 24,813
Rent expense for fiscal 1994, 1995 and 1996 was approximately $289,000,
$361,000 and $240,000, respectively.
The Company leases its facilities from its president and majority
stockholder under an operating lease requiring monthly payments of approximately
$16,000 expiring April 30, 1997. The Company is responsible for all taxes,
insurance and maintenance. Rent expense pursuant to this lease for fiscal 1994,
1995 and 1996 was $191,000, $197,000 and $197,000, respectively.
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal matters. Management does not believe that the outcome of these
legal matters will have a material effect on the Company's financial position or
results of operations.
9. RELATED-PARTY TRANSACTIONS:
As of October 31, 1995 and 1996, the Company had a note receivable from the
president and majority stockholder of the Company in the amount of $80,080 and
$82,237, respectively. The note bears interest at 7 percent, payable in monthly
installments of $1,000.
10. REVENUES FROM SIGNIFICANT CUSTOMERS:
During fiscal 1996, five customers accounted for approximately 54 percent
of the Company's revenues. During fiscal 1995, five customers accounted for
approximately 67 percent of the Company's revenues. During fiscal 1994, four
customers accounted for approximately 77 percent of the Company's revenues.
11. SUBSEQUENT EVENT:
SALE OF COMMON SHARES
On June 16, 1997, the stockholders of the Company sold the entire equity
ownership of the Company to Innovative Valve Technologies, Inc. for total
consideration in excess of the recorded amounts of the Company's net assets.
F-75
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern Valve Group:
We have audited the accompanying combined balance sheet of Southern Valve
Group (as defined in Note 1) as of October 31, 1996, and the related combined
statements of operations, stockholders' equity and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Southern
Valve Group as of October 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 18, 1997
F-76
<PAGE>
SOUTHERN VALVE GROUP
COMBINED BALANCE SHEETS
OCTOBER 31, APRIL 30,
1996 1997
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................... $ 21,874 $ 34,601
Accounts receivable, net of
allowance of $11,861 and
$31,087........................... 473,581 1,082,832
Inventories........................ 1,301,987 1,519,798
Notes receivable................... 168,779 49,846
Prepaid expenses and other current
assets............................ 22,362 31,921
----------- -----------
Total current assets.......... 1,988,583 2,718,998
PROPERTY AND EQUIPMENT, net............. 1,055,716 1,003,097
----------- -----------
$ 3,044,299 $ 3,722,095
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt.............................. $ 517,105 $ 515,569
Accounts payable................... 177,383 389,160
Accrued expenses................... 132,187 129,977
Note payable to stockholder........ 76,994 200,000
----------- -----------
Total current liabilities..... 903,669 1,234,706
LONG-TERM DEBT, net of current
maturities............................ 1,363,166 1,675,099
DEFERRED INCOME TAXES................... 12,913 12,913
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10 par value, 1,000
shares authorized, 1,000 shares
issued and outstanding............ 10,000 10,000
Additional paid-in capital......... 5,860 5,860
Retained earnings.................. 748,691 783,517
----------- -----------
Total stockholders' equity.... 764,551 799,377
----------- -----------
$ 3,044,299 $ 3,722,095
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE>
SOUTHERN VALVE GROUP
COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS
YEAR ENDED ENDED APRIL 30
OCTOBER 31, --------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
REVENUES............................. $ 4,404,717 $ 2,541,380 $ 2,098,228
COST OF OPERATIONS................... 2,962,337 1,523,538 1,397,730
------------ ------------ ------------
Gross profit.................... 1,442,380 1,017,842 700,498
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,175,487 551,093 581,738
------------ ------------ ------------
Income from operations.......... 266,893 466,749 118,760
OTHER INCOME (EXPENSE), net:
Interest........................... (177,123) (77,974) (74,677)
Other.............................. 45,571 -- --
------------ ------------ ------------
(131,552) (77,974) (74,677)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES........... 135,341 388,775 44,083
PROVISION FOR INCOME TAXES........... 29,056 81,643 9,257
------------ ------------ ------------
NET INCOME........................... $ 106,285 $ 307,132 $ 34,826
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE>
SOUTHERN VALVE GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, October 31, 1995............ 1,000 $10,000 $5,860 $ 642,406 $ 658,266
Net income...................... -- -- -- 106,285 106,285
------ ------- ---------- --------- ----------
BALANCE, October 31, 1996............ 1,000 10,000 5,860 748,691 764,551
Net income (unaudited).......... -- -- -- 34,826 34,826
------ ------- ---------- --------- ----------
BALANCE, April 30, 1997
(unaudited)........................ 1,000 $10,000 $5,860 $ 783,517 $ 799,377
====== ======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE>
SOUTHERN VALVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
YEAR
ENDED SIX MONTHS
OCTOBER ENDED APRIL 30
31, ------------------------
1996 1996 1997
--------- ------------ ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 106,285 $ 307,132 $ 34,826
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation and amortization.... 155,874 81,752 70,886
Change in deferred income
taxes......................... 2,589 (6,460) --
(Increase) decrease in --
Accounts receivable........... (188,676) (444,082) (609,251)
Inventories................... 60,920 6,640 (217,811)
Notes receivable.............. (10,957) (1,000) 118,933
Prepaid expenses and other
current assets............. 17,094 5,672 (9,559)
Increase (decrease) in --
Accounts payable.............. 44,279 206,575 211,777
Accrued expenses.............. 51,887 22,509 (2,210)
--------- ------------ ----------
Net cash provided by (used in)
operating activities.......... 239,295 178,738 (402,409)
--------- ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment... (308,362) (143,232) (18,267)
--------- ------------ ----------
Net cash used in investing
activities.................... (308,362) (143,232) (18,267)
--------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in net
borrowings......................... (14,121) 21,748 433,403
--------- ------------ ----------
Net cash provided by (used in)
financing activities.......... (14,121) 21,748 433,403
--------- ------------ ----------
NET INCREASE (DECREASE) IN CASH......... (83,188) 57,254 12,727
CASH, beginning of period............... 105,062 105,062 21,874
--------- ------------ ----------
CASH, end of period..................... $ 21,874 $ 162,316 $ 34,601
========= ============ ==========
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The accompanying combined balance sheets and related combined statements of
operations, stockholders' equity and cash flows include Southern Valve Service,
Inc. ("Southern Valve") and 55 Leasing and Sales Company, Inc. ("55
Leasing"). As Southern Valve and 55 Leasing (together, "Southern Valve Group"
or the "Company") have common ownership and management, the financial
statements of each entity have been consolidated for financial reporting
purposes. All intercompany transactions and balances have been eliminated.
Southern Valve was incorporated in the State of Alabama in 1984 and is
principally engaged in the business of repairing, testing and selling manual,
control and safety relief valves to customers in the pulp and paper, chemical,
power generation and petrochemical industries in Alabama, Mississippi and
Georgia.
55 Leasing is an Alabama S Corporation organized in 1995 primarily to lease
equipment to Southern Valve.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment is sold or retired, the cost and related accumulated depreciation is
removed and the resulting gain or loss is included in results of operations.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled. 55 Leasing is an S
Corporation for federal income tax purposes and, in accordance with the S
Corporation provisions of the Internal Revenue Code, the earnings of 55 Leasing
are included in the personal tax returns of its stockholders. Accordingly, no
federal or state income tax expense is recorded in the accompanying consolidated
financial statements for 55 Leasing.
REVENUE RECOGNITION
Service revenue is recognized upon completion of the service, and product
sales revenue is recognized as products are shipped or delivered.
CASH
Cash payments for interest during fiscal 1996 were approximately $178,000.
Cash payments for taxes during fiscal 1996 were approximately $15,000.
INVENTORIES
Inventories are valued at the lower of cost or market utilizing the
first-in, first-out method and primarily consist of valves and valve parts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-81
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
UNAUDITED INTERIM INFORMATION
The financial information for the six months ended April 30, 1996 and 1997,
has not been audited by independent accountants. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company, the unaudited interim financial information includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
NEW ACCOUNTING PRONOUNCEMENT
Effective November 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a writedown to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
ESTIMATED OCTOBER 31,
USEFUL LIVES 1996
------------ -----------
Land.................................... -- $ 171,682
Buildings and improvements.............. 18-40 years 533,015
Vehicles................................ 5 years 433,900
Furniture and fixtures.................. 5-10 years 180,782
Machinery and equipment................. 5-10 years 688,398
-----------
2,007,777
Less -- Accumulated depreciation........ (952,061)
-----------
$ 1,055,716
===========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts for the year
ended October 31, 1996, consists of the following:
Balance at beginning of year....... $ 8,759
Additions charged to results of
operations........................ 3,102
---------
Balance at end of year............. $ 11,861
=========
F-82
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued expenses as of October 31, 1996, consist of the following:
Customer deposits.................. $ 30,943
Accrued employee compensation and
benefits........................... 27,447
Other accrued expenses............. 73,797
----------
$ 132,187
==========
5. DEBT:
As of October 31, 1996, debt consists of the following:
Lines of credit, aggregate borrowing
capacity of $350,000 with a commercial
bank, bearing interest at prime plus
1.00% (9.25% at October 31, 1996),
collateralized by inventory and
accounts receivable................... $ 190,000
Notes payable to banks, monthly
installments of principal and interest
in the amount of $34,264, bearing
interest at 7.00% to 10.00%,
collateralized by accounts receivable,
inventory, land, equipment and
vehicles.............................. 1,690,271
Unsecured demand note, payable to
stockholder, bearing interest at
8.00%................................. 76,994
------------
1,957,265
Less -- Current maturities.............. (594,099)
------------
Total long-term debt, net of
current maturities................ $ 1,363,166
============
In January 1997, the Company refinanced its notes payable to banks. The
refinanced debt is payable to one bank, bearing interest of 8.50% with monthly
installments of principal and interest. There was no significant change in
amount of the debt financed and no gain or loss on debt extinguishment to be
recognized. In addition, the Company's lines of credit have been replaced by a
$300,000 line of credit; as of April 18, 1997, there was no outstanding balance
due under the line of credit.
The aggregate maturities of the refinanced debt and unsecured demand note
are as follows:
For the Year Ending October 31 --
1997............................... $ 105,064
1998............................... 151,856
1999............................... 993,226
2000............................... 92,545
2001............................... 46,637
Thereafter......................... 465,145
------------
$ 1,854,473
============
Interest expense recorded pursuant to these debt agreements totaled
approximately $177,000 in fiscal 1996. Management estimates that the fair value
of its debt obligations approximates the historical value at October 31, 1996.
F-83
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The income tax provision for fiscal 1996 is as follows:
Federal --
Current............................ $ 22,366
Deferred........................... 2,243
State --
Current............................ 4,101
Deferred........................... 346
---------
$ 29,056
=========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes for fiscal 1996, as follows:
Statutory federal income tax rate....... 34%
Effect of federal graduated tax rate.... (12)
State and local taxes................... 3
Effect of S Corporation election........ (7)
Effect of nondeductible meals and
entertainment......................... 2
Other................................... 2
---
Effective income tax rate............... 22%
===
Deferred income taxes as of October 31, 1996, consist of the following:
Current deferred tax assets.......... $ 7,143
----------
Total deferred tax
assets................ 7,143
----------
Noncurrent deferred tax
liabilities.......................... (12,913)
----------
Total deferred tax
liabilities........... (12,913)
----------
Net deferred tax
liabilities........... $ (5,770)
==========
7. COMMITMENTS AND CONTINGENCIES:
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal matters. Management does not believe that the outcome of these
legal matters will have a material effect on the Company's consolidated
financial position or results of operations.
8. RELATED-PARTY TRANSACTIONS:
As of October 31, 1996, the Company had a note receivable from a
stockholder in the amount of $161,279. The note receivable bears interest
equivalent to the short-term federal treasury rate and is payable on demand.
9. SIGNIFICANT CUSTOMERS:
For fiscal 1996, the Company had two customers that comprised approximately
19% and 12%, respectively, of total revenues.
F-84
<PAGE>
SOUTHERN VALVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENT:
SALE OF COMMON SHARES
In June 1997, pursuant to a definitive agreement, the stockholders of the
Company agreed to sell the entire equity ownership of the Company to Innovative
Valve Technologies, Inc. (Invatec), for total consideration in excess of the
recorded amounts of the Company's net assets. The closing of the transaction is
conditioned on the successful consummation of Invatec's initial public offering.
F-85
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Safe Seal Company, Inc.:
We have audited the accompanying consolidated balance sheets of The Safe
Seal Company, Inc. (a Texas corporation) and subsidiaries, as of December 31,
1995 and 1996, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Safe Seal Company, Inc. and subsidiaries, as of December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 14, 1997
F-86
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------ MARCH 31
1995 1996 1997
-------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ 1,458,096 $ 396,637 $ 453,902
Accounts receivable, net of
allowance of $25,000, $25,000 and
$380,000......................... 485,911 535,647 6,998,500
Inventories........................ 17,480 36,140 3,975,716
Prepaid expenses and other current
assets........................... 45,477 111,638 1,555,412
-------------- -------------- -----------
Total current assets..... 2,006,964 1,080,062 12,983,530
PROPERTY AND EQUIPMENT, net............. 32,502 140,449 3,768,267
GOODWILL................................ -- -- 13,045,593
PATENT COSTS, net....................... 56,833 741,611 725,513
OTHER NONCURRENT ASSETS, net............ 12,346 325,993 3,369,902
-------------- -------------- -----------
$ 2,108,645 $ 2,288,115 $33,892,805
============== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term
debt............................. $ -- $ -- $ 1,322,132
Accounts payable and accrued
expenses......................... 1,184,086 1,092,891 6,799,559
Other current liabilities.......... -- -- 1,128,020
-------------- -------------- -----------
Total current
liabilities........... 1,184,086 1,092,891 9,249,711
LONG TERM DEBT, net of current
maturities............................ -- 588,970 19,330,032
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.............. 2,000,000 2,000,000 2,000,000
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value,
10,000,000 shares authorized,
4,215,000 shares, 4,359,024
shares and 7,015,680 issued and
outstanding...................... 42,150 43,590 70,157
Additional paid-in capital......... 969,755 1,256,363 6,843,447
Accumulated deficit................ (2,087,346) (2,693,699) (3,600,542)
-------------- -------------- -----------
Total stockholders'
equity (deficit)...... (1,075,441) (1,393,746) 3,313,062
-------------- -------------- -----------
$ 2,108,645 $ 2,288,115 $33,892,805
============== ============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-87
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 2,547,360 $ 2,852,356 $ 3,887,761 $ 651,573 $ 6,944,997
COST OF OPERATIONS...................... 1,270,788 1,583,940 2,375,245 425,783 4,750,866
----------- ------------ ----------- ----------- ------------
Gross profit................... 1,276,572 1,268,416 1,512,516 225,790 2,194,131
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,267,899 1,852,895 1,917,063 465,813 1,951,357
SPECIAL COMPENSATION EXPENSE ON COMMON
STOCK ISSUANCE........................ -- -- 38,048 -- 1,308,796
----------- ------------ ----------- ----------- ------------
Income (loss) from
operations................... 8,673 (584,479) (442,595) (240,023) (1,066,022)
OTHER INCOME (EXPENSE):
Patent defense costs................ (168,705) (880,068) -- -- --
Interest income (expense), net...... (7,048) 10,181 27,703 10,797 (342,699)
Other............................... (113,635) (50,126) 393 (7,492) (38)
----------- ------------ ----------- ----------- ------------
(289,388) (920,013) 28,096 3,305 (342,737)
----------- ------------ ----------- ----------- ------------
LOSS BEFORE INCOME TAXES................ (280,715) (1,504,492) (414,499) (236,718) (1,408,759)
PROVISION (BENEFIT) FOR INCOME TAXES.... -- -- -- -- (549,416)
----------- ------------ ----------- ----------- ------------
NET LOSS................................ $ (280,715) $ (1,504,492) $ (414,499) $ (236,718) $ (859,343)
=========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 3,623,120 $36,231 $ 257,204 $ (249,016) $ 44,419
Preferred stock dividends....... -- -- -- (12,000) (12,000)
Issuance of common stock........ 91,880 919 22,051 -- 22,970
Conversion of redeemable
preferred stock to common
stock......................... 75,000 750 149,250 -- 150,000
Net loss........................ -- -- -- (280,715) (280,715)
--------- ------- ----------- ------------ --------------
BALANCE, December 31, 1994........... 3,790,000 37,900 428,505 (541,731) (75,326)
Preferred stock dividends....... -- -- -- (41,123) (41,123)
Sale of common stock warrant.... -- -- 100,000 -- 100,000
Issuance of common stock........ 425,000 4,250 441,250 -- 445,500
Net loss........................ -- -- -- (1,504,492) (1,504,492)
--------- ------- ----------- ------------ --------------
BALANCE, December 31, 1995........... 4,215,000 42,150 969,755 (2,087,346) (1,075,441)
Preferred stock dividends....... -- -- -- (191,854) (191,854)
Issuances of common stock....... 179,024 1,790 356,258 -- 358,048
Retirement of stock............. (35,000) (350) (69,650) -- (70,000)
Net loss........................ -- -- -- (414,499) (414,499)
--------- ------- ----------- ------------ --------------
BALANCE, December 31, 1996........... 4,359,024 $43,590 $ 1,256,363 $ (2,693,699) $ (1,393,746)
Preferred stock dividend
(unaudited)................... -- -- -- (47,500) (47,500)
Issuances of common stock
(unaudited)................... 654,398 6,544 1,302,252 -- 1,308,796
Exercise of common stock
warrants (unaudited).......... 2,002,258 20,023 4,284,832 -- 4,304,855
Net loss (unaudited)............ -- -- -- (859,343) (859,343)
========= ======= =========== ============ ==============
BALANCE, March 31, 1997
(unaudited)........................ 7,015,680 $70,157 $ 6,843,447 $ (3,600,542) $ 3,312,062
========= ======= =========== ============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED MARCH 30
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ------------ ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $ (280,715) $ (1,504,492) $ (414,499) $ (236,718) $ (859,343)
Adjustments to reconcile net loss
to net cash
provided by (used in) operating
activities --
Depreciation and
amortization................ 27,179 28,525 31,183 7,796 141,949
Special compensation expense on
issuance of common stock.... -- -- 38,048 -- 1,308,796
(Gain) loss on sale of property
and equipment............... 13,196 (1,879) -- -- --
(Increase) decrease in --
Accounts receivable......... (87,683) (145,835) (49,736) 109,720 (1,837,333)
Inventories................. -- -- (13,660) 17,480 131,026
Prepaid expenses and other
current assets............ (23,767) 35,402 (66,161) 3,691 (838,886)
Other noncurrent assets..... (39,544) -- (324,246) 9,890 (629,916)
Increase (decrease) --
Accounts payable and accrued
expenses.................. 399,318 493,084 (91,195) (455,264) 1,715,124
Other current liabilities... -- -- -- -- (98,599)
----------- ------------ ----------- ----------- ------------
Net cash provided by (used
in) operating
activities.............. 7,984 (1,095,195) (890,266) (543,405) (967,182)
----------- ------------ ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment........................ (28,593) (7,530) (128,309) (13,815) (80,881)
Additions to patent costs.......... (75,570) (3,384) (46,030) --
Proceeds from sale of property and
equipment........................ 40,000 10,500 -- --
Proceeds from sale of
investments...................... 53,107 -- -- --
Business acquisitions, net of cash
acquired of $39,250.............. -- -- -- -- (10,186,417)
----------- ------------ ----------- ----------- ------------
Net cash used in investing
activities.............. (11,056) (414) (174,339) (13,815) (10,267,298)
----------- ------------ ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt....... 100,000 -- -- -- 10,743,245
Principal payments of long-term
debt............................. (41,667) (93,333) -- -- --
Borrowings on revolving line of
credit........................... 10,000 -- 265,000 -- --
Proceeds from sale/exercise of
common stock warrant............. -- 100,000 -- -- 596,000
Proceeds from sale of common
stock............................ -- 445,500 -- -- --
Stock repurchases.................. -- -- (70,000) -- --
Proceeds from sale of redeemable
preferred stock.................. -- 2,000,000 -- -- --
Preferred stock dividends.......... (12,000) -- (191,854) (41,123) (47,500)
----------- ------------ ----------- ----------- ------------
Net cash provided by (used
in) financing activities. 56,333 2,452,167 3,146 (41,123) 11,291,745
----------- ------------ ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH...... 53,261 1,356,558 (1,061,459) (598,343) 57,265
CASH, beginning of period............ 48,277 101,538 1,458,096 1,458,096 396,637
----------- ------------ ----------- ----------- ------------
CASH, end of period.................. $ 101,538 $ 1,458,096 $ 396,637 $ 859,753 $ 453,902
=========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The Safe Seal Company, Inc. (the "Company"), was incorporated in the
State of Texas in January 1991 and is principally engaged in the business of
providing on-line leak sealing and valve maintenance and repair services to
industrial customers in the Gulf Coast area of the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The financial statements include the accounts of the Company and its wholly
owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
The costs of major improvements are capitalized. Expenditures for maintenance,
repairs and minor improvements are expensed as incurred. When property and
equipment are sold or retired, the cost and related accumulated depreciation are
removed and the resulting gain or loss is included in results of operations.
INCOME TAXES
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
REVENUE RECOGNITION
Revenue is recognized as products are sold and as services are performed.
CASH
Cash payments for interest during 1994, 1995 and 1996 were approximately
$7,000, $8,000 and $4,000, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM INFORMATION
The financial information for the interim periods ended March 31, 1996 and
1997 has not been audited by independent accountants. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted from the unaudited interim financial information. In the opinion of
management of the Company, the unaudited interim financial information includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the respective full
fiscal years.
F-91
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets, may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset are
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
3. ACQUISITION OF SPIN SAFE CORPORATION, INC.:
In November 1996, the Company acquired the stock of The Spin Safe
Corporation, Inc. in exchange for 160,000 shares of its common stock, valued at
$2.00 per share, and noninterest-bearing notes payable of $400,000. The notes
are due in four equal annual installments beginning January 15, 1998.
Additionally, the Company entered into an agreement with the former stockholders
of Spin Safe, pursuant to which the Company will make royalty payments to such
stockholders based on the number of times in excess of a specified base the Safe
SealE system process is used by the Company through 2011. The cost of this
acquisition is recorded as patent costs.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31
ESTIMATED ----------------------
USEFUL LIVES 1995 1996
------------ ---------- ----------
Vehicles............................. 5 years $ -- $ 5,904
Furniture and fixtures............... 3-5 years 41,423 126,262
Machinery and equipment.............. 5 years 17,180 54,746
---------- ----------
58,603 186,912
Less -- Accumulated
depreciation.................. (26,101) (46,463)
---------- ----------
Property and equipment, net..... $ 32,502 $ 140,449
========== ==========
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Activity in the Company's allowance for doubtful accounts consists of the
following:
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Balance, at beginning of year........ $ 25,000 $ 25,000 $ 25,000
Additions............................ -- -- --
Deductions........................... -- -- --
--------- --------- ---------
Balance, at end of year.............. $ 25,000 $ 25,000 $ 25,000
========= ========= =========
F-92
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following:
DECEMBER 31
--------------------------
1995 1996
------------ ------------
Accounts payable, trade.............. $ 278,457 $ 287,165
Accrued compensation and benefits.... 74,583 120,567
Accrued legal fees................... 593,311 170,696
Accrued dividends.................... 65,123 47,500
Accrued royalties.................... 56,833 70,117
Due to AllQuest Capital, Inc. ....... -- 287,195
Other accrued expenses............... 115,779 109,651
------------ ------------
$ 1,184,086 $ 1,092,891
============ ============
6. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1996:
Revolving line of credit payable to a
bank, due June 30, 2002, with
interest due monthly at 1.25% over
cost (as defined) (6.75% at
December 31, 1996), secured by
assignment of all assets and a
corporate guaranty of Allwaste,
Inc. ("Allwaste"). The available
borrowing capacity at December 31,
1996 was $1,735,000................ $ 265,000
Notes payable to former stockholders
of Spin Safe, with annual
installments of $100,000 beginning
January 15, 1998, non-interest
bearing, due January 15, 2001,
unsecured.......................... 323,970
----------
$ 588,970
==========
7. INCOME TAXES:
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate to income before income
taxes as follows:
YEAR ENDED DECEMBER 31
-------------------------------------
1994 1995 1996
----------- ----------- -----------
Statutory federal income tax
benefit............................ (34)% (34)% (34)%
Valuation allowance.................. 34 34 34
--- --- ---
Effective income tax rate............ 0% 0% 0%
=== === ===
Net deferred tax assets consist of the following:
DECEMBER 31
--------------------------
1995 1996
------------ ------------
Current deferred tax assets.......... $ 135,741 $ 160,910
Noncurrent deferred tax assets....... 581,536 686,316
Valuation allowance.................. (717,277) (847,226)
------------ ------------
Total deferred tax
assets.................. $ -- $ --
============ ============
The Company records a valuation allowance for deferred tax assets when
management believes it is more likely than not the asset will not be realized.
Because of the Company's history of generating
F-93
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
significant taxable losses, the Company has established a valuation allowance
equal to its deferred tax assets.
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
YEAR ENDED DECEMBER 31
--------------------------------------
1994 1995 1996
---------- ------------ ------------
Depreciation and amortization........ $ (15,235) $ 53,093 $ (2,520)
Net operating loss................... 74,051 304,600 107,301
Accrued expenses not deducted for
tax................................ -- 95,065 25,168
Change in valuation allowance........ (58,816) (452,758) (129,949)
---------- ------------ ------------
$ -- $ -- $ --
========== ============ ============
8. STOCKHOLDERS' EQUITY:
COMMON STOCK
In 1995, the Company implemented an employee benefit award program. Under
this program, the Company awarded 13,900 shares of common stock to employees.
The shares vest 50 percent at December 31, 1996, and become fully vested on
December 31, 1997. The Company records compensation expense, equal to the fair
value of the shares, on the date the shares vest. During 1996, 2,400 shares were
forfeited by employees. In 1996, the Company recorded compensation expense of
$11,500 related to this program, which has been discontinued.
STOCK OPTIONS
In 1996, the Company began a management stock option program that was
discontinued in 1997. Under this program, the Company granted both common stock
and stock options to certain members of management. The options vest monthly and
are exercisable at any time following the six-month period ending June 30 or
December 31 in which the options were earned. The Company has reserved 400,000
shares of common stock for issuance in this program. During 1996, the Company
granted 13,274 shares of common stock and 143,798 options. The options have an
exercise price of $5.00. The options are exercisable through July 1, 2001. In
1996, the Company recorded compensation expense of $26,548 related to this
program. Prior to 1996, management from time to time granted options to key
employees at or above the market value of the Company's common stock. The
options granted had exercise prices ranging from $2.50 to $10.00. All but
100,000 options expired in 1996. The remaining options were exercised in June
1997.
The Company accounts for options by applying APB Opinion No. 25, under
which no compensation expense has been recognized. The Company's pro forma
compensation expense is zero as options were determined to be without value
under SFAS No. 123, "Accounting for Stock-Based Compensation," using the
minimum value method with the following assumptions, as prescribed by SFAS No.
123:
Remaining life.......................... 4.5 years
Exercise price.......................... $5.00/share
Risk-free rate of return................ 7%
F-94
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the stock options at December 31, 1996 and changes during the
three years then ended is presented in the table and narrative below:
WEIGHTED-
SHARES UNDER AVERAGE
OPTION EXERCISE PRICE
------------- ---------------
Balance at December 31, 1993......... 27,000 $ 10.00
Granted......................... 215,000 6.16
-------------
Balance at December 31, 1994......... 242,000 6.59
Granted......................... -- --
Exercised....................... -- --
-------------
Balance at December 31, 1995......... 242,000 6.59
Granted......................... 143,798 5.00
Exercised....................... -- --
Cancelled....................... (142,000) 9.47
-------------
Balance at December 31, 1996......... 243,798 3.97
=============
Available for grant at December 31,
1996................................. 256,202
=============
Shares exercisable at December 31,
1996................................. 243,798 3.97
=============
The options outstanding at December 31, 1996 have exercise prices from
$2.50 to $5.00 per share, with a weighted average exercise price of $3.97 and a
weighted average remaining contractual life of three years. All these options
are exercisable.
WARRANTS
In 1995, the Company sold to Allwaste Environmental Services, Inc.
("AES"), a wholly owned subsidiary of Allwaste, a warrant entitling AES to
purchase newly issued shares of the Company's common stock in such number as
would equal 35 percent of the Company's outstanding common stock, on a fully
diluted basis, at $2.50 per share. During 1996, the Company granted AES a
warrant to purchase additional newly issued shares of the Company's common stock
in such number as would equal 1.5 percent of the Company's outstanding common
stock, on a fully diluted basis, at $2.50 per share. In consideration of
Allwaste's assistance in the acquisition of Harley, the Company agreed to adjust
the warrants' exercise price to $2.15. The warrants were exercisable at AES's
discretion, through January 8, 1999. On January 31, 1997, AES exercised the
warrants.
In 1995, the Company granted a consultant a warrant entitling its holder to
purchase 30,000 shares of Common Stock at $5.00 per share. The warrant is
exercisable, at the option of its holder, through the year 2000. The consultant
subsequently became an officer of Allwaste, Inc., and a director of the Company.
STOCK REPURCHASES
In April and December 1996, the Company purchased 35,000 shares of its
common stock from certain stockholders for total cash consideration of $70,000.
The shares repurchased by the Company were subsequently canceled.
9. REDEEMABLE PREFERRED STOCK:
During 1995, the Company authorized the issuance of 1,000,000 shares of
redeemable preferred stock with a par value of $.01 per share. Of the authorized
shares of redeemable preferred stock, 20,000 shares were designated as Class A
redeemable preferred stock. Holders of Class A redeemable preferred stock are
entitled to receive preferential dividends, in cash or the Company's common
stock (with an agreed value of
F-95
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1.25 per common share), at an annual rate of $9.50 per share of redeemable
preferred stock. The Company is required to redeem the Class A stock at $100 per
share by October 12, 1999. The Company sold those 20,000 shares of Class A
redeemable preferred stock during 1995 for $2,000,000 to AES.
10. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases warehouse space, office facilities and vehicles under
noncancelable leases. Rental expense for 1994, 1995 and 1996 was approximately
$91,700, $90,300 and $162,400, respectively. The following represents future
minimum rental payments under noncancelable operating leases:
Year ending December 31 --
1997............................... $ 133,900
1998............................... 102,300
1999............................... 52,400
2000............................... 28,800
2001............................... 24,000
Thereafter......................... --
----------
$ 341,400
==========
LITIGATION
In the ordinary course of its business, the Company has become involved in
various legal actions. Management does not believe that the outcome of these
legal actions will have a material effect on the Company's financial position or
results of operations.
11. RELATED-PARTY TRANSACTIONS:
The Company has had a management agreement with an entity related by common
ownership. Management fee expense for the years ended December 31, 1994, 1995
and 1996 was approximately $119,000, $120,000 and $108,000, respectively. This
agreement was terminated in 1997.
In 1996, the Company entered into an agreement with Allwaste whereby
Allwaste pays for certain costs, on the Company's behalf, relative to an initial
public offering by the Company or any of its successors (the "Offering").
Additionally, pursuant to this agreement, the Company has agreed to reimburse
Allwaste subsequent to the Offering. At December 31, 1996, $287,195 had been
advanced to the Company by Allwaste and is reflected as a liability of the
Company in the accompanying financial statements. Also, of the amount advanced
by Allwaste, $259,929 represents deferred offering costs that are included in
other noncurrent assets.
12. SUBSEQUENT EVENTS:
ACQUISITIONS
Effective January 31, 1997, the Company acquired all the outstanding stock
of Harley Industries, Inc. ("Harley") in a purchase transaction for cash and
debt, including a $1.0 million cash payment due upon the successful completion
of the Offering. Concurrent with the purchase of Harley, the Company sold a
division of Harley for $1.9 million in cash and a receivable of $1.9 million,
subject to final adjustment. Harley is principally engaged in the repair and
distribution of valves, gauges, measurement instruments and related parts for
chemical manufacturing and power industries located primarily in the midwestern
and southeastern United States.
F-96
<PAGE>
THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective February 28, 1997, SSI acquired all the outstanding stock of GSV,
Inc. ("GSV") in a purchase transaction for cash and debt assumed. GSV
machines, repairs and sells valves and valve parts primarily in Florida.
The acquisitions of Harley and GSV were accounted for using the purchase
method. The following table sets forth the estimated fair value of assets
acquired and liabilities assumed and presented for statement of cash flow
purposes (in 000s):
Fair Value of Assets Acquired........ $ 15,364
Goodwill............................. 13,070
Fair Value of Liabilities Assumed.... (14,910)
Allwaste Notes Assigned to Harley
Stockholders......................... (3,338)
----------
Cash Paid for Harley and GSV......... $ 10,186
==========
Effective May 31, 1997, SSI acquired all the outstanding stock and certain
assets and real estate owned by a former stockholder of Plant Specialties, Inc.
("PSI") in a purchase transaction for $3.6 million in cash and assumed debt,
and the issuance of $3.3 million of convertible notes. PSI sells and repairs
valves and instrumentation and provides engineering services to petrochemical
and oilfield industries in Louisiana and the Gulf Coast area.
On July 18, 1997, the Company's stockholders approved and the Company
entered into an agreement and plan of merger with Innovative Valve Technologies,
Inc. ("Invatec") which provides for a merger in which the Company would become
a wholly owned subsidiary of Invatec, the Company's outstanding preferred stock
would be converted into cash and each share of the Company's outstanding
preferred stock would be converted into the right to receive 1/2 of a share of
Invatec common stock.
F-97
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY STATE TO ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE.
------------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary................... 3
Risk Factors......................... 9
The Company.......................... 15
Use of Proceeds...................... 17
Dividend Policy...................... 17
Capitalization....................... 18
Dilution............................. 19
Selected Financial Information....... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
The Industrial Valve Industry........ 36
Business............................. 39
Management........................... 51
Certain Transactions................. 60
Principal and Selling Stockholders... 62
Shares Eligible for Future Sale...... 64
Description of Capital Stock......... 65
Underwriting......................... 70
Legal Matters........................ 71
Experts.............................. 71
Available Information................ 71
Index to Financial Statements........ F-1
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[INVATEC LOGO]
Innovative Valve Technologies, Inc.
COMMON STOCK
------------------
PROSPECTUS
, 1997
------------------
SMITH BARNEY INC.
MONTGOMERY SECURITIES
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions) in connection with the offering described in this
Registration Statement, all of which shall be paid by Innovative Valve
Technologies, Inc. (the " Company"). All these amounts (except the SEC
Registration Fee, the NASD Filing Fee and the New York Stock Exchange Listing
Fee) are estimated.
SEC Registration Fee................. $ 17,996
NASD Filing Fee...................... 6,439
NYSE Listing Fee..................... *
Blue Sky Fees and Expenses........... *
Printing and Engraving Costs......... *
Legal Fees and Expenses.............. *
Accounting Fees and Expenses......... *
Transfer Agent and Registrar Fees and *
Expenses............................. *
Miscellaneous........................ *
-----------
Total...................... $ *
===========
- -------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
Section 145(a) of the General Corporation Law of the State of Delaware (the
" DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
II-1
<PAGE>
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by a
majority vote of the directors who were not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
CERTIFICATE OF INCORPORATION
The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Restated Certificate of Incorporation by the stockholders of
the Company shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Company existing at
the time of such repeal or modification.
II-2
<PAGE>
BYLAWS
The Bylaws of the Company provide that the Company will indemnify and hold
harmless any director or officer of the Company to the fullest extent permitted
by applicable law, as in effect as of the date of the adoption of the Bylaws or
to such greater extent as applicable law may thereafter permit, from and against
all losses, liabilities, claims, damages, judgments, penalties, fines, amounts
paid in settlement and expenses (including attorneys' fees) whatsoever arising
out of any event or occurrence related to the fact that such person is or was a
director or officer of the Company and further provide that the Company may, but
is not required to, indemnify and hold harmless any employee or agent of the
Company or a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise who
is or was serving in such capacity at the written request of the Company;
provided, however, that the Company is only required to indemnify persons
serving as directors, officers, employees or agents of the Company for the
expenses incurred in a proceeding if such person is a party to and is
successful, on the merits or otherwise, in such proceeding, or if unsuccessful
in the proceeding, but successful as to a matter in such proceeding, the
expenses attributable to such matter and provided further that the Company may,
but is not required to, indemnify such persons who are serving as a director,
officer, employee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise at the written request of the
Company for the expenses incurred in a proceeding if such person is a party to
and is successful, on the merits or otherwise, in such proceeding. The Bylaws
further provide that, in the event of any threatened, or pending action, suit or
proceeding in which any of the persons referred to above is a party or is
involved and that may give rise to a right of indemnification under the Bylaws,
following written request by such person, the Company will promptly pay to such
person amounts to cover expenses reasonably incurred by such person in such
proceeding in advance of its final disposition upon the receipt by the Company
of (i) a written undertaking executed by or on behalf of such person providing
that such person will repay the advance if it is ultimately determined that such
person is not entitled to be indemnified by the Company as provided in the
Bylaws and (ii) satisfactory evidence as to the amount of such expenses.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with each of its
directors and executive officers. The Indemnification Agreements generally are
to the same effect as the Bylaw provisions described above.
The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1997, the Company sold a total of 216,114 shares of its Common
Stock to certain of its executive officers (William E. Haynes, Charles F.
Schugart and Frank L. Lombard) and Computerized Accounting and Tax Services,
Inc. ("CATS"), a related party, for a total purchase price of $216.12. In June
1997, the Company sold a total of 141,000 shares of its Common Stock to its
executive officers (Messrs. Haynes, Schugart, Denny A. Rigas, Lombard, John L.
King and Douglas R. Harrington, Jr.) and CATS for a total purchase price of
$141.00. These sales were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as transactions not involving
any public offering.
The Company has issued its convertible note dated June 9, 1997 and having a
maximum principal amount of $4.0 million to Allwaste, Inc. This note is
automatically convertible into 618,571 shares of the Company's Common Stock when
the offering made by this Registration Statement (the "Offering") closes. The
issuance of this note was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction not involving
any public offering.
In June 1997, The Safe Seal Company, Inc. ("SSI") issued $3.3 million
aggregate principal amount of its 5.0% convertible subordinated notes to the
former owners of Plant Specialties, Inc. ("PSI") as partial payment of the
purchase price for the stock of PSI. When the Offering closes, the Company will
succeed
II-3
<PAGE>
SSI as the obligor on these notes and these notes will be convertible into
shares of the Company's Common Stock at an initial conversion price equal to
130% of the initial price to the public in the Offering (the "IPO Price"). The
sale of these notes (and the underlying rights to shares of the Company's Common
Stock) was exempt, and the Company's succession as the obligor thereon will be
exempt, from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof as transactions not involving any public offering. The
issuance of the Company's Common Stock on conversion of these notes will be
exempt from those requirements pursuant to Section 3(a)(9) of the Securities
Act.
In July 1997, the Company issued $3.0 million aggregate principal amount of
its 5.5% convertible subordinated notes to the former owners of Steam Supply &
Rubber Co., Inc. and affiliated companies ("Steam Supply") as partial payment
of the purchase price for the stock of Steam Supply. When the Offering closes,
these notes will be convertible into shares of the Company's Common Stock at an
initial conversion price equal to 130% of the IPO Price. The sale of these notes
(and the underlying rights to shares of the Company's Common Stock) was exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) thereof as transactions not involving any public offering. The issuance of
the Company's Common Stock on conversion of these notes will be exempt from
those requirements pursuant to Section 3(a)(9) of the Securities Act.
Before the completion of the Offering, the Company will issue shares of its
Common Stock in connection with the merger transaction in which SSI will become
a subsidiary of the Company. Concurrently with the completion of the Offering,
the Company will issue such number of shares of its Common Stock as shall equal
$1,500,000 divided by the IPO Price in connection with its acquisition of
Southern Valve Service, Inc. and an affiliated company. These transactions will
be exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof as not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement.
2.1 -- Stock Purchase Agreement dated as of December 28, 1996 by and among The Safe Seal Company,
Inc. ("SSI"), certain stockholders of Harley Industries, Inc. and Harley Industries,
Inc.
2.2 -- Stock Transfer Agreement dated as of January 24, 1997 by and among SSI, an individual
stockholder of Harley Industries, Inc., Harley Industries, Inc. and Harley Equipment
Corporation.
2.3 -- Stock Purchase Agreement entered into on June 23, 1997 by and among the Company, Puget
Investments, Inc., Flickinger-Benicia Inc. (collectively, "Steam Supply"), and the
stockholders named therein.
2.4 -- Stock Purchase Agreement dated as of July 15, 1997 by and among the Company, Industrial
Controls & Equipment, Inc., Valve Actuation & Repair Co., Rickco Acquisition, Inc., BAS
Technical Employment Placement Company and the stockholders named therein.
2.5 -- Stock Purchase Agreement dated as of February 26, 1997 by and among SSI and the
stockholders of GSV, Inc.
2.6 -- Stock and Real Estate Purchase Agreement dated as of May 22, 1997 by and among SSI, Plant
Specialties, Inc. ("PSI"), and the stockholders named therein.
2.7 -- Agreement and Plan of Reorganization dated as of June 27, 1997 by and among the Company,
SVSI Acquisition, Inc., Southern Valve Service, Inc. and the stockholders named therein.
2.8 -- Stock Redemption and Purchase Agreement dated as of June 27, 1997 by and among the
Company, Lee Roy Jordan, Ralph Buffkin and 55 Leasing and Sales, Inc.
2.9* -- Agreement and Plan of Merger dated as of June 27, 1997 by and among the Company, IVT
Acquisition, Inc. and SSI.
3.1 -- Certificate of Incorporation of the Company.
II-4
<PAGE>
3.2 -- Bylaws of the Company.
4.1* -- Form of Certificate representing Common Stock.
4.2* -- Form of Registration Rights Agreement, among the Company and the stockholders listed on
the signature pages thereto.
4.3 -- Registration Rights Agreement dated as of June 12, 1997 by and among the Company and the
persons listed on the signature pages thereto.
4.4* -- Addendum to Registration Rights Agreement dated as of June , 1997 by and among the
Company and the holders listed on the signature pages thereto.
4.5 -- Form of Convertible Subordinated Promissory Note dated as of June 12, 1997 and issued in
the acquisition of PSI.
4.6 -- Form of Convertible Subordinated Promissory Note dated as of July , 1997 and issued in
the acquisition of Steam Supply.
4.7* -- Loan Agreement dated , 1997, among the Company and The Chase Manhattan Bank
and the other parties designated therein.
4.8* -- Loan Agreement dated , 1997, among the Company and Texas Commerce Bank, N.A.
and the other parties designated therein.
4.9* -- Funding Agreement dated as of June 9, 1997 by and between the Company and Allwaste, Inc.
The Company and certain of its subsidiaries are parties to certain debt instruments under
which the total amount of securities authorized does not exceed 10% of the total assets of
the Company and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A)
of Item 601(b) of Regulation S-K, the Company agrees to furnish a copy of such instruments
to the Commission on request.
5.1* -- Opinion of Baker & Botts, L.L.P.
10.1* -- Innovative Valve Technologies, Inc. 1997 Incentive Plan.
10.2* -- Employment Agreement dated as of January 27, 1997, between SSI and William E. Haynes.
10.3* -- Employment Agreement dated as of January 27, 1997, between SSI and Charles F. Schugart.
10.4* -- Employment Agreement dated as of May 6, 1997, between the Company and Denny A. Rigas.
10.5 -- Consulting Agreement dated as of March 27, 1997 by and between Wasatch Capital Corporation
and the Company.
10.6* -- Form of Indemnification Agreement between the Company and each of its directors and
officers.
23.1* -- Consent of Arthur Andersen LLP.
23.2* -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Baker & Botts, L.L.P. (contained in Exhibit 5.1 hereto).
23.4* -- Consent of Michael A. Baker, as a nominee for directorship.
23.5* -- Consent of Arthur L. French, as a nominee for directorship.
23.6* -- Consent of Tommy E. Knight, as a nominee for directorship.
23.7* -- Consent of Pierre R. Latour, as a nominee for directorship.
23.8* -- Consent of T. Wayne Wren, Jr., as a nominee for directorship.
23.9* -- Consent of Robert M. Chiste, as a nominee for directorship.
24.1* -- Power of Attorney (included on the signature page hereof).
27.1* -- Financial Data Schedule.
</TABLE>
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* To be filed by amendment.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
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<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Purchase Agreement, certificates
representing the shares of Common Stock offered hereby in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as a part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON JULY 18, 1997.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By: /s/ WILLIAM E. HAYNES
WILLIAM E. HAYNES
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS WILLIAM E. HAYNES
AND CHARLES F. SCHUGART, AND BOTH OF THEM, EITHER OF WHOM MAY ACT WITHOUT THE
JOINDER OF THE OTHER, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH
FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE
AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY REGISTRATION
STATEMENT FOR THE SAME OFFERING FILED PURSUANT TO RULE 462 UNDER THE SECURITIES
ACT OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND ALL OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING APPROPRIATE OR NECESSARY TO BE DONE, AS FULLY AND FOR ALL
INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR THEIR SUBSTITUTE OR
SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES CAPACITY IN WHICH SIGNED DATE
- ------------------------- ---------------------------------- ----------------
/s/WILLIAM E. HAYNES Chairman of the Board, July 18, 1997
WILLIAM E. HAYNES President, Chief Executive Officer
and Sole Director (Principal
Executive Officer)
/s/CHARLES F. SCHUGART Senior Vice President -- Chief July 18, 1997
CHARLES F. SCHUGART Financial Officer (Principal
Financial and Accounting Officer)
II-7
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into effective
the 28th day of December, 1996, by and among THE SAFE SEAL COMPANY, INC.
("Purchaser"), a Texas corporation with its chief executive office at 14900
Woodham Drive, Suite A125, Houston, Texas 77073, GENE MAXON ("Mr. Maxon"), an
individual whose address is 3904 E. 64th Place, Tulsa, Oklahoma 74136, KENNETH
GROUNDS ("Mr. Grounds"), an individual whose address is 8804 S. 66th E. Avenue,
Tulsa, Oklahoma 74133, HUB ASSOCIATES, a California general partnership with its
chief executive office at 3 Corporate Plaza, Suite 201, Newport Beach,
California 92660 (Mr. Maxon, Mr. Grounds and Hub Associates being sometimes
hereinafter referred to collectively as the "Sellers" and individually as a
"Seller"), and HARLEY INDUSTRIES, INC. (the "Company"), a California corporation
with its chief executive office and principal place of business at 2250 East
73rd Street, Suite 300, Tulsa, Oklahoma 74136. Purchaser, Sellers and the
Company are sometimes hereinafter referred to collectively as the "Parties" or
individually as a "Party."
W I T N E S S E T H :
WHEREAS, Sellers are the legal and beneficial owners and holders of seven
hundred fifty-six thousand four hundred twenty-eight shares (756,428) shares
(the "Subject Shares") of the Company, the Subject Shares constituting
ninety-six and nine-tenths percent (96.9 %) of the issued and outstanding
capital stock of the Company; and
WHEREAS, Purchaser desires to purchase from Sellers, and Sellers desire to
sell to Purchaser, all of the Subject Shares, on the terms and conditions and
for the consideration set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and confessed, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 ADVERSE CONSEQUENCES. The term "Adverse Consequences" shall mean all
actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in defense, investigation or
settlement, liabilities, obligations, taxes, liens, losses, expenses and fees,
including court costs and attorneys fees.
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<PAGE>
1.2 AFFILIATE. The term "Affiliate" of a person shall mean, with respect
to that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of, that
person. Specifically, and without limiting the definition of the term
"Affiliate," the Sellers are all agreed to be Affiliates of one another. As used
in the definition of Affiliate, the term "control" (including the terms
"controlling," "controlled by," or "under common control with") means the
possession, direct or indirect, of the power to direct, cause the direction of,
or influence the management and policies of a person, whether through the
ownership of voting securities, by contract, through the holding of a position
as a partner, director or officer of such person, as a trustee, or otherwise. As
used in this Section, the term "person" means an individual, a corporation, a
partnership, a limited liability company, an association, a joint stock company,
a trust, an incorporated organization, or a government or political subdivision
thereof, or any other form of entity.
1.3 ASSETS. The term "Assets" shall mean all of the assets, other than the
Leased Assets, owned or used by the Company in the Business, including without
limitation those assets set forth on that certain Schedule of Assets previously
delivered to the Purchaser (subject to nonmaterial diminution thereof in the
ordinary course of business.
1.4 BALANCE SHEET. The term "Balance Sheet" shall mean the August 31, 1996
balance sheet of the Company, including the notes thereto, prepared internally
from the books and records of the Company, without audit, and included in the
Financial Statements attached hereto as SCHEDULE 1.22.
1.5 BALANCE SHEET DATE. The term "Balance Sheet Date" shall mean August
31, 1996.
1.6 BANK OF OKLAHOMA DEBT. The term "Bank of Oklahoma Debt" shall mean the
indebtedness of the Company to Bank of Oklahoma under the Revolving Credit and
Term Loan Agreement dated March 18, 1991, as amended through the Ninth Amendment
to Revolving Credit and Term Loan Agreement dated November 1, 1996.
1.7 BUSINESS. The term "Business" shall mean the current business of the
Company of selling, repairing and servicing valves and equipment.
1.8 CLASS A REPRESENTATIONS. The term "Class A Representations" shall mean
those representations and warranties of Sellers set forth in (i) Sections 3.1,
3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.18, 3.23, 3.25 and 3.28, (ii) Sections 3.12,
3.13 and 3.14 to the extent, but only to the extent, such sections deal with
title issues, and (iii) Section 3.17, except to the extent that such section
deals with Environmental, Health & Safety Laws.
1.9 CLASS B REPRESENTATIONS. The term "Class B Representations" shall mean
all of the representations and warranties of Sellers set forth in Article III of
this Agreement, other than those which are Class A Representations,
Environmental Representations, or Financial Representations.
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<PAGE>
1.10 CLOSING. The term "Closing" shall mean the consummation of the
purchase of the Subject Shares on the Closing Date.
1.11 CLOSING DATE. The term "Closing Date" shall mean the later of (a)
January 31, 1997, or (b) the date that all of the conditions set forth in
Article VI are first met or waived, or such other date as may be otherwise
provided in this Agreement or otherwise established by agreement of the Parties.
1.12 CLOSING FINANCIAL STATEMENTS. The term "Closing Financial Statements"
shall mean a balance sheet and income statement of the Company prepared
internally from the books and records of the Company, without audit, as of the
Measurement Date, and attached hereto as SCHEDULE 1.12.
1.13 CODE. The term "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.14 EMPLOYEE. The term "Employee" shall mean any employee of the Company
who as of the Closing Date is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Company's applicable policies, would be eligible to return to active
status, as set forth on SCHEDULE 3.22 attached hereto.
1.15 EMPLOYEE BENEFIT PLAN. The term "Employee Benefit Plan" means any (a)
nonqualified deferred compensation or retirement plan or arrangement which is an
Employee Pension Benefit Plan, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit
Plan or material fringe benefit plan or program.
1.16 EMPLOYEE PENSION BENEFIT PLAN. The term "Employee Pension Benefit
Plan" has the meaning set forth in ERISA Sec. 3(2).
1.17 EMPLOYEE WELFARE BENEFIT PLAN. The term "Employee Welfare Benefit
Plan" has the meaning set forth In ERISA Sec. 3(l).
1.18 ENVIRONMENTAL, HEALTH & SAFETY LAWS. The term "Environmental, Health
& Safety Laws" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976,
the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, the
Hazardous Materials Transportation Act, the Federal Insecticide, Fungicide and
Rodenticide Act and the Occupational Safety and Health Act of 1970, each as
amended, together with all other laws (including rules and regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments and all agencies thereof
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions,
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<PAGE>
discharges, releases, or threatened releases of any solid, hazardous,
industrial, or toxic pollutants, contaminants, substances or wastes into ambient
air, surface water, ground water, or lands or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of any solid, hazardous, industrial or toxic pollutants,
contaminant, substances or wastes.
1.19 ENVIRONMENTAL REPRESENTATIONS. The term "Environmental
Representations" shall mean all of the representations and warranties of Sellers
set forth in (i) Section 3.30 and (ii) Section 3.17, to the extent that such
section deals with Environmental, Health & Safety Laws.
1.20 ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.21 FINANCIAL REPRESENTATIONS. The term "Financial Representations" shall
mean all of the representations and warranties of Sellers set forth in Section
3.31.
1.22 FINANCIAL STATEMENTS. The term "Financial Statements" shall mean the
August 31, 1996 Financial Statements of the Company attached hereto as SCHEDULE
1.22.
1.23 HARLEY SUBSIDIARIES. The term "Harley Subsidiaries" shall mean (i)
Harley Equipment Company, an Oklahoma corporation, (ii) Harley Industries Inc.
S.A. de CV, a corporation organized and existing under the laws of the Republic
of Mexico (the "Mexican Subsidiary") and (iii) Valve Repair of South Carolina,
Inc.
1.24 INTELLECTUAL PROPERTY. The term "Intellectual Property" shall mean
the following (a) all inventions (whether patentable or unpatentable and whether
or not reduced to practice), all improvements thereto and all patents, patent
applications, and patent disclosures together with all reissuance,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments hereof (in whatever form or medium).
1.25 MEASUREMENT DATE. The term "Measurement Date" shall mean October 31,
1996.
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<PAGE>
1.26 ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of Business"
shall mean the ordinary course of business consistent with past custom and
practice (including with respect to quantity and frequency).
1.27 PBGC. The term "PBGC" shall mean the Pension Benefits Guaranty
Corporation.
1.28 PERMITTED BONUS. The term "Permitted Bonus" shall mean the
distribution by the Company to its shareholders of bonuses in the aggregate
amount not to exceed Six Hundred Twenty Five Thousand and No/100 Dollars
($625,000.00) the proceeds of which will be used to acquire, on or before the
Closing Date, the following nonproducing assets: (i) the stock of the Mexican
Subsidiary whose sole asset is the property located in San Miguel de Allende,
Mexico; (ii) a note receivable owed to the Company by Mr. Maxon in the
outstanding principal amount of $150,000; (iii) the investment securities in
Industrial Equipment Rentals, Inc. and (iv) two automobiles and a country club
membership utilized by Mr. Maxon, all of which as of the Measurement Date had an
aggregate net book value which did not exceed Six Hundred Twenty-Five Thousand
Dollars ($625,000).
ARTICLE II
PURCHASE AND SALE OF SUBJECT SHARES
2.1 PURCHASE AND SALE OF SUBJECT SHARES. Subject to the terms and
conditions set forth in this Agreement, Sellers hereby agree to sell, convey,
transfer, assign and deliver to Purchaser, and Purchaser hereby agrees to
purchase from Sellers, on the Closing Date, the Subject Shares, free and clear
of any restrictions or conditions to transfer or assignment, rights of first
refusal, mortgages, liens, pledges, charges, encumbrances, equities, claims,
covenants, conditions, restrictions, options or agreements, other than the
pledge of the Subject Shares to secure the Bank of Oklahoma Debt.
2.2 PURCHASE PRICE CONSIDERATION. As consideration for the purchase of the
Subject Shares and upon delivery thereof to Purchaser at Closing, Purchaser
shall deliver to Sellers the following (the "Purchase Price"):
(A) in cash or other immediately available funds, the amounts of two
million, three hundred thirty four thousand, four hundred seventy three
dollars ($2,334,473), payable to Mr. Maxon, three hundred thirty five
thousand, two hundred and six dollars ($335,206), payable to Mr. Grounds,
and one million, five hundred fifty-six thousand, three hundred and
thirteen dollars ($1,556,313), payable to Hub Associates, subject to
reduction as set forth in Section 9.2; and
(B) in cash or other immediately available funds, the amounts of
thirty-six thousand, eight hundred eighty-eight dollars ($36,888), payable
to Mr. Maxon, five thousand, two hundred and ninety seven dollars
($5,297), payable to Mr. Grounds, and twenty four thousand, five hundred
and ninety two dollars ($24,592) payable to Hub Associates, all of which
is independent consideration for the execution, delivery and performance
of the
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<PAGE>
Agreements Not to Compete to be entered into at Closing between each
Seller (including the individual partners of Hub Associates) and Purchaser
pursuant and ancillary to this Agreement, in the form attached hereto as
Exhibit A and incorporated herein by reference; and
(C) Three (3) Subordinated Promissory Notes (the "Subordinated Notes"),
executed by Allwaste, Inc., a Delaware corporation ("Allwaste"), and
payable to the order of Purchaser in the original principal amounts of one
million, eight hundred forty-four thousand, three hundred and ninety-one
dollars ($1,844,391), two hundred sixty-four thousand, eight hundred
thirty six dollars ($264,836) and one million two hundred twenty-nine
thousand, five hundred ninety-three dollars ($1,229,593), in the form of
Subordinated Promissory Note attached hereto as Exhibit B and incorporated
herein by reference, to be endorsed and assigned, without recourse, to Mr.
Maxon, Mr. Grounds and Hub Associates, respectively, at Closing; and
(D) The right of Mr. Maxon, Mr. Grounds and Hub Associates each to
receive, respectively five hundred fifty two thousand, four hundred and
eight dollars ($552,408), seventy nine thousand, three hundred and twenty
dollars ($79,320) and three hundred sixty eight thousand, two hundred and
seventy-two dollars ($368,272), an aggregate of one million dollars
($1,000,000), in the event that within four years of the Closing the
Purchaser becomes a "Public Entity". For purposes of this Agreement the
Company shall be deemed to have become a Public Entity if (i) it or any
successor shall have closed the offering to the public of any class of
equity securities of the Purchaser or such successor pursuant to a
registration statement ordered effective under the Securities Act of 1933,
as amended, (ii) the Purchaser or any successor shall merge or consolidate
with, or sell all or substantially all of its assets to, (x) any entity
which has a class of equity securities registered under the Securities Act
of 1934, as amended (the "Exchange Act"), (y) an Affiliate of any such
entity with such a class equity securities registered under the Exchange
Act, or (z) Allwaste or any Affiliate thereof or (iii) 80% or more of the
issued and outstanding voting securities of the Purchaser or any successor
to the Purchaser otherwise becomes owned, directly or indirectly, by an
entity which has a class of equity securities registered under the
Exchange Act.
2.3 TAXES OF SELLERS. Sellers shall pay all income or other taxes arising
out of the transfer of the Subject Shares, or receipt of payments for the
Subject Shares, or any consideration delivered in connection with the purchase
of the Subject Shares, or as independent consideration for the Agreements Not to
Compete payable as contemplated in Section 2.2 hereof. Neither Purchaser nor the
Company shall be responsible for any business, occupation, income, withholding
or similar tax, or any taxes of any kind, of the Sellers.
2.4 ADJUSTMENT OF PURCHASE PRICE. The Company shall as soon as possible
prepare final unaudited financial statements of the Company, dated as of the
Measurement Date. Such unaudited financial statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied,
and in a manner consistent with the Company's historical accounting policies
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<PAGE>
with respect to audited financial statements (including the materiality
threshold previously used by the Company's independent public accountants in
calculating the Company's net worth). At such time as unaudited financial
statements have been delivered, the Purchase Price shall automatically be
reduced without further action by the Parties by an aggregate amount (the
"Initial Deficiency Amount") equal to the amount, if any, by which four million
two hundred fifty thousand dollars ($4,250,000) exceeds the Company's
Stockholders' Equity as of the Measurement Date, as set forth in such unaudited
financial statements, after reducing such Stockholders' Equity to give effect to
the Permitted Bonus.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant, jointly and severally, to Purchaser
that:
3.1 ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing, under the laws of the State of California, has
all necessary corporate powers to own its properties and to operate the Business
as now owned and operated by it, and is qualified to do business in all of the
states in which the Assets or any Leased Assets are located or the nature and
operation of the Business require such qualification. Sellers shall deliver at
Closing certificates (i) issued by the California Secretary of State evidencing
the Company's existence and good standing in such state, and (ii) evidencing the
Company's good standing and authority to do business in all other states in
which the Company is required to qualify to do business. Hub Associates (i) is a
general partnership duly organized and validly existing under the laws of the
State of California, (ii) has all necessary powers to own its properties and to
carry on its business as now owned and operated by it, (iii) is qualified to do
business in all states in which the nature of its business and the operation
thereof requires such qualification, and (iv) consists solely of the following
general partners: Martin G. Hubbard and Michael E. Rakestraw.
3.2 AUTHORITY. Each Seller has the full right, power, legal capacity and
authority to execute, deliver and perform his or its obligations under this
Agreement. The execution, delivery and performance of this Agreement by Hub
Associates has been duly authorized and approved by both of its partners, which
constitutes all of the necessary partnership action for Hub Associates to
consummate the transactions contemplated by this Agreement and to perform its
obligations hereunder.
3.3 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except for the consents
required from the Bank of Oklahoma with respect to the Bank of Oklahoma Debt,
and as set forth on SCHEDULE 3.3(A), no consent, approval or authorization of,
or filing or registration with, any governmental or regulatory authority, or any
other person or entity, is required to be made or obtained by any Seller or by
the Company or any Harley Subsidiary in connection with the execution, delivery
or performance of this Agreement, or the consummation by Sellers of the
transactions contemplated hereby (except that no representation or warranty is
made with respect to the Mexican Subsidiary). Except as set forth on SCHEDULE
3.3(B), neither the execution and
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delivery of this Agreement by Sellers, nor the consummation of the transactions
contemplated herein by Sellers, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency or court to which any Seller,
the Company or any Harley Subsidiary is subject (except that no representation
or warranty is made with respect to the Mexican Subsidiary), or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, promissory note, conditional sales contract, partnership agreement
or other arrangement to which any Seller or the Company is a party or by which
he or it is bound or to which any of his or its assets are subject, or (C)
conflict with or violate the Articles of Incorporation, Bylaws or other charter
document of the Company.
3.4 VALID AND BINDING OBLIGATION. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Sellers,
or any of them, in connection herewith, will constitute the legal, valid, and
binding obligation of each Seller which is a party thereto, enforceable against
each such Seller in accordance with its terms, except as same may be limited by
applicable bankruptcy laws, insolvency laws, and other similar laws affecting
the rights of creditors generally.
3.5 CAPITAL. The authorized capital stock of the Company consists of (i)
three million (3,000,000) shares of common stock, $0.01 par value per share, of
which seven hundred eighty thousand, four hundred twenty-eight (780,428) shares
are issued and outstanding, and (ii) one million nine hundred fifty thousand
shares (1,950,000) shares of preferred stock, none of which is issued or
outstanding. Four hundred seventeen thousand eight hundred fifty-seven (417,857)
Subject Shares are owned by Mr. Maxon, two hundred seventy-eight thousand five
hundred seventy-one (278,571) Subject Shares are owned by Hub Associates, and
sixty thousand (60,000) Subject Shares are owned by Mr. Grounds. All of the
Company's outstanding capital stock, including the Subject Shares, is duly and
validly authorized and issued, fully paid and nonassessable, and none of such
capital stock has been issued in violation of the rights of any stockholder of
the Company. The only outstanding subscriptions, options, rights, warrants,
convertible securities, conversion rights, exchange rights or other agreements
or commitments which obligate the Company to issue or transfer from treasury
additional shares of the Company's common stock are set forth in SCHEDULE 3.5.
There are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company or its capital
stock. There are no voting rights, voting agreements, proxies or other
agreements or understandings with respect to the voting of any capital stock of
the Company. The Subject Shares represent ninety-six and nine-tenths percent
(96.9%) of the issued and outstanding capital stock of the Company, and
represent all of the outstanding capital stock of the Company other than the
twenty-four thousand (24,000) shares owned by Kirk Nellis.
3.6 TITLE TO SUBJECT SHARES. The Sellers have, and shall deliver to
Purchaser on the Closing Date, good, indefeasible and marketable title to the
Subject Shares, free and clear of restrictions or conditions to transfer or
assignment, rights of first refusal, mortgages, liens, pledges,
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charges, encumbrances, equities, claims, covenants, conditions, restrictions,
options or agreements, other than the security interests securing payment of the
Bank of Oklahoma Debt.
3.7 TITLE TO ASSETS. Except for the security interests securing payment of
the Bank of Oklahoma Debt and as set forth on SCHEDULE 3.7, the Company has good
and defensible title to the Assets, free and clear of restrictions or conditions
to transfer or assignment, or mortgages, liens, pledges, charges, encumbrances,
equities, claims, easements, rights-of-way, covenants, conditions or
restrictions, except for items which do not materially interfere with or
restrict the use of the Assets as presently utilized.
3.8 POSSESSION OF ASSETS; LEASED ASSETS. The Company is in possession of
all of the Assets and all of the assets leased to it from others. Au assets
leased to the Company from others, whether real, personal or mixed, are
described in Schedule 3.8 and 1.3 or SCHEDULE 3.17(B) attached hereto (the
"Leased Assets"). The Assets listed in the schedule referenced in Section 1.3,
and the Leased Assets constitute all of the material assets, whether real or
personal property or mixed, tangible or intangible, that are owned or used in
the Business by the Company. The Company does not own legal or equitable title
to any material assets or interests in assets except the Assets and the Leased
Assets. Sellers shall deliver to Purchaser on the Closing Date, possession of
and/or control or dominion over all of the Assets and Leased Assets, including
without limitation all of the Company's cash, accounts receivable, property,
plant and equipment, other personal property, contract rights and general
intangibles, customer and supplier lists, and assumed and trade names. Solely
for purposes of this Section 3.8, the term "material assets" shall refer to
assets having a net book value individually greater than $10,000, or
collectively greater than $150,000.
3.9 CONDITION. Except as expressly set forth on SCHEDULE 3.9, all of the
Assets and Leased Assets are in adequate condition and repair for their intended
use, except for such Assets which are out of service in the ordinary course of
business the aggregate value of which does not exceed $20,000.
3.10 CONTRACTS AND LEASES. All material contracts, leases and agreements,
written or oral, to which the Company is a party or by which the Company or its
assets may be bound (collectively, the "Contracts") are set forth in SCHEDULE
3.10. Except as set forth on SCHEDULE 3.10, all of the Contracts are in full
force and effect, and to the knowledge of Sellers after due inquiry are valid,
and there has not been any default by the Company, or to the knowledge of
Sellers after due inquiry by any third party to any of said Contracts, or any
event, fact or circumstance which with notice or lapse of time or both, would
constitute a default by the Company, or to the knowledge of Sellers after due
inquiry by any other party to any of the Contracts. Neither the Company nor any
of the Sellers has received notice or has actual knowledge that any party to any
of the Contracts intends to cancel or terminate any of the Contracts or exercise
or not exercise any options that such party might have under any of the
Contracts. Solely for purposes of this Section 3.10, the term "material
contracts" shall refer to contracts under which the Company is obligated to
perform in any calendar year, obligations greater than $10,000 greater than
$150,000 in the aggregate.
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3.11 OTHER CONTRACTS. Except as set forth in SCHEDULE 3.11, attached
hereto, the Company is not a party to, nor is any of its property bound by, any
distributor's or manufacturer's representative or agency agreement, any output
or requirements agreement, any agreement not entered into in the Ordinary Course
of Business, or any agreement requiring the performance of any obligation for a
period of time extending beyond one (1) year from the date hereof or calling for
consideration of more than $5,000 per agreement or $50,000 in the aggregate.
Except as set forth on SCHEDULE 3.11, the Company is not a party to, nor is any
of its property bound by, any agreement which is materially adverse to the
businesses, properties or financial condition of the Company. Except as set
forth in SCHEDULE 3.11, neither the Company nor any Harley Subsidiary is a party
to any agreement which: (i) prohibits it from engaging in the business that it
currently conducts, or upon consummation of the transactions contemplated
herein, will prohibit it from engaging in any type of business, or (ii) will,
upon consummation of the transactions contemplated herein, prohibit Purchaser
from engaging in any type of business.
3.12 EQUIPMENT. Except for the security interests securing payment of the
Bank of Oklahoma Debt, all of the equipment owned by the Company (collectively,
the "Equipment") is owned free and clear of any lien, security, claim or
encumbrance, and none of the Equipment is held under any security agreement,
conditional sales contract, or other title retention or security arrangement or
is located other than in the possession of the Company. The Equipment is in
adequate operating condition for its intended use.
3.13 ACCOUNTS RECEIVABLE. All of the accounts receivable of the Company as
set forth in the books and records of the Company (collectively, the
"Accounts"), and all papers and documents relating thereto, are genuine and in
all respects what they purport to be, and each such Account is valid and
subsisting and arises out of a bona fide sale or lease of goods sold or leased
and delivered to, or out of and for services theretofore actually rendered by
the Company to, the account debtor named in such Account. The amount of each
Account represented as owing as of the date indicated is the correct amount
actually and unconditionally owing as of the date indicated, except for normal
cash discounts, and is not subject to any set-offs, credits, disputes, defenses,
deductions or countercharges, except those arising in the Ordinary Course of
Business which do not exceed $10,000 individually nor $150,000 in the aggregate.
Except for the security interests securing payment of the Bank of Oklahoma Debt,
the Company is the owner of each such Account free and clear of any charges,
liens, security interests, adverse claims, and encumbrances of any and every
nature whatsoever.
3.14 INVENTORIES. The inventories of raw materials, work in process and
finished goods (collectively called "Inventories") shown on the Closing
Financial Statements as of the Measurement Date, consist of items of a quality
and quantity useable and saleable in the Ordinary Course of Business by the
Company, except for obsolete and slow moving items and items below standard
quality, all of which have been written down on the books of the Company to
estimated net realizable value or have been provided for by adequate reserves
based upon the advice of the Company's independent accountants. Au items
included in the Inventories are the property of the Company and in its
possession, except for sales made in the Ordinary Course of Business since the
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Measurement Date; for each of these sales either Purchaser has made full payment
(subject to customary discounts, allowances and carrying charges) or Purchaser's
liability to make payment is reflected in the books of the Company. Except for
the security interests securing payment of the Bank of Oklahoma Debt, no items
included in the Inventories have been pledged as collateral or are held on
consignment from others. The Inventories shown on the Financial Statements and
on the Closing Financial Statements are based on quantities determined by
physical count or measurement, taken within the preceding twelve (12) months,
and are valued at the lower of cost (determined on a first-in, first-out basis)
or market value and on a basis consistent with that of prior years.
3.15 LICENSES. All licenses owned by the Company or in which the Company
has any rights, licenses or sublicenses (collectively, the "Licenses"), together
with a brief description of each, are set forth on SCHEDULE 3.15. The Company
has not infringed, and is not now infringing, on any license belonging to any
other person or other entity. The Company owns and holds adequate licenses
necessary for the Business as now conducted by it, and neither the Company nor
any seller has received any claim nor has actual knowledge that such use
conflicts with, infringes on or otherwise violates any rights. of others. The
sale of the Subject Shares contemplated herein will not result in the
termination of any License.
3.16 INTELLECTUAL PROPERTY. Except for the rights of the Company to use
the names of various manufacturers under its distributorship agreements, the
Company does not own any Intellectual Property, nor require any Intellectual
Property to permit the Company to conduct the Business in the manner in which it
is currently conducted without any infringement or conflict with the rights of
others. No adverse claims have been asserted against the Sellers, the Company or
the Business with respect to infringement upon or conflict with the Intellectual
Property rights of others.
3.17 REAL PROPERTY; LEASED REAL PROPERTY. Except as set forth in SCHEDULE
3.17(A) with respect to real property owned by the Company, and SCHEDULE 3.17(B)
with respect to real property leased by the Company (collectively, the "Real
Property"), the Company neither owns nor leases any real property or
improvements or interests therein. Neither the Company nor Sellers have received
any notice, nor does any of them have actual knowledge of any change
contemplated in any applicable laws, ordinances or restrictions, or any judicial
or administrative action, or any action by adjacent landowners, or natural or
artificial conditions upon the Real Property, which would have a material
adverse effect upon the Business, the Assets, or the Leased Assets. There is no
zoning, deed restriction, land use provision or restriction, or other material
adverse fact or condition of any kind or character whatsoever, which adversely
affects the continued use of the Real Property in the manner in which it is
currently used. Except for the facility in Beaumont, Texas, a portion of which
is subleased to the Texas Department of Corrections for use as a storage
facility, there are no parties in possession of any portion of the Real Property
as lessees, tenants at will or at sufferance, trespassers or otherwise, other
than the Company. The improvements included within the Real Property (the
"Improvements") and any renovations thereof have been, or by Closing will be,
substantially completed and installed in compliance with all applicable laws and
in a good and workmanlike manner, and the Company has not received any notice,
and none of the Sellers has actual knowledge, of any structural defects. The
heating, electrical, plumbing and other building
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equipment, as of the Closing, was adequate in quantity and quality for normal
operations of the Business, as presently conducted. To the knowledge of Sellers,
all utilities required for the operation of the Improvements enter the Real
Property through adjoining public streets or, if they pass through an adjoining
private tract, do so in accordance with valid public easements or private
easements which inure to the benefit of and are enforceable by the Company. To
the knowledge of the Sellers, the Real Property has full and free access to and
from public streets and roads and Sellers have no knowledge of any fact or
condition which would result in the termination of such access. To the knowledge
of the Sellers, the Improvements do not encroach upon any adjacent real property
nor any easements or building set-back lines to which the Real Property is
subject, and no improvements upon adjacent real property encroach upon the Real
Property. There is no pending condemnation or similar proceeding affecting the
Real Property or any portion thereof, and neither the Company nor the Sellers
has received any notice, and none of them has actual knowledge, that any such
action is presently contemplated.
3.18 Subsidiaries. Each of the Harley Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Neither Harley Subsidiary has conducted any
business or operations. Neither Harley Subsidiary has violated any federal,
state or local ordinance, statute, law, rule or regulation applicable to it. All
of the issued and outstanding capital stock of each Harley Subsidiary is duly
and validly authorized d issued, fully paid and nonassessable, and the Company
owns good, indefeasible and marketable title to all of such capital stock, free
and clear of restrictions or conditions to transfer or assignment, rights of
first refusal, mortgages, liens, pledges, charges, encumbrances, equities,
claims, covenants, conditions, restrictions, options or agreements. There are no
outstanding subscriptions, options, rights, warrants, convertible securities,
conversion rights, exchange rights or other agreements or commitments which
obligate any Harley Subsidiary to issue or transfer from treasury additional
shares of such Harley Subsidiary's capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to any Harley Subsidiary or the capital stock of any of the
Harley Subsidiaries. There are no voting trusts, voting agreements, proxies or
other agreements or understandings with respect to any capital stock of any
Harley Subsidiary. As of the Balance Sheet Date and through the Closing Date,
neither of the Harley Subsidiaries will have any assets or liabilities or
conduct any business, nor be or become a party to any contract, lease,
instrument or agreement. Neither the Company nor Purchaser will maintain or
incur any debt, liability, obligation or commitment of any nature, whether
accrued, absolute, contingent or otherwise, by, through or under either of the
Harley Subsidiaries, arising out of any event, fact, or circumstance, or any
action taken or not taken, prior to Closing. Except for the Harley Subsidiaries,
the Company does not own, directly or indirectly, any interest or investment
(whether equity or debt) in any corporation, partnership, business, trust, or
other entity.
3.19 INSURANCE. Attached hereto as SCHEDULE 3.19 is a true, complete and
accurate list of all insurance policies maintained by the Company, and the
Company has maintained uninterrupted insurance coverage of such types and in
such amounts for a period of at least four (4)years prior to Closing.
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3.20 BANKING. The names and addresses of all banks or other financial
institutions in which the Company has an account, deposit or safe deposit box,
with the account numbers and other descriptions and names of all persons
authorized to draw on these accounts or deposits or access to these boxes, are
set forth on SCHEDULE 3.20 attached hereto.
3.21 POWERS OF ATTORNEY. No person or other entity holds a general or
special power of attorney from the Company or any of the Harley Subsidiaries.
3.22 PERSONNEL. Attached hereto as SCHEDULE 3.22 is a list of the names,
addresses, hire dates, dates of birth and annual salaries of all Employees of
the Company as of November 4, 1996. Also set forth on SCHEDULE 3.22 is a list of
those Employees who are not actively working in the Business and the reasons
therefor. The Harley Subsidiaries do not have any employees.
3.23 EMPLOYEE BENEFITS.
(A) SCHEDULE 3.23 is a true, correct and complete list of each Employee
Benefit Plan that the Company, or any Harley Subsidiary, maintains, or to which
any of them contribute.
(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-l's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to
each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B
of Title I of ERISA and of Code Sec. 4980B have been met with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan
and all contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee or accrued in
accordance with the past custom and practice of the Company and the Harley
Subsidiaries. All premiums or other payments for all periods ending on or
before the Closing Date have been and will be paid with respect to each
such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Sec.
401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
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(v) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all vested and nonvested
liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(vi) The Sellers have delivered to Purchaser correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue Service,
the most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each
such Employee Benefit Plan.
(B) With respect to each Employee Benefit Plan that the Company or any
Harley Subsidiary maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multi-Employer Plan) has been
completely or partially terminated or been the subject of a
reportable event as to which notices would be required to be filed
with the PBGC. No proceeding by the PBGC to terminate any such
Employee Pension Benefit Plan (other than any Multi-employer Plan)
has been instituted or threatened.
(ii) There have been no prohibited transactions with respect to any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment
of the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending, or, to the best of any Seller's
knowledge, threatened. None of the Sellers has any knowledge of any
basis for any such action, suit, proceeding, hearing, or
investigation.
(iii) Neither the Company nor any of the Harley Subsidiaries has
incurred, and none of the Sellers expect that the Company or any
Harley Subsidiary will incur, any Liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV or ERISA
(including any withdrawal liability) or under the Code with respect
to any such Employee Benefit Plan which is an Employee Pension
Benefit Plan.
(C) Neither the Company nor any Harley Subsidiary contributes to, ever has
contributed to, or ever has been required to contribute to, any Multiemployer
Plan or has any liability (including withdrawal liability) under any
Multiemployer Plan.
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(D) Except as set forth on SCHEDULE 3.23, neither the Company nor any
Harley Subsidiary maintains or has ever maintained or contributes, has ever
contributed, or ever has been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other welfare-type
benefits for retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Sec. 4980B).
3.24 EMPLOYMENT AGREEMENTS. Except as set forth on SCHEDULE 3.24, the
Company is not a party to any employment agreements, consulting agreements,
agreements providing for director or officer indemnification or other agreements
or arrangements providing for employee or other remuneration or benefits (other
than the Plans). Each Employee is terminable in accordance with the terms and
provisions of the Company's Employee Handbook, revised as of March 1989. Except
as set forth on SCHEDULE 3.24, no Employees are represented by any labor
organization, and, as of the date hereof, no labor organization or group of
Employees has made a written demand to the Company for recognition, or filed a
petition with the National Labor Relations Board, or announced its intention to
hold an election of a collective bargaining representative. There is no pending,
or to the best knowledge and reasonable belief of Sellers threatened, labor
dispute, strike or work stoppage affecting or potentially affecting the
Business.
3.25 NO SEVERANCE PAYMENTS. Except for the potential bonus payment to Joe
Cheatham described in the Schedules hereto, the Company will not owe a severance
payment or similar obligation to any of its employees, officers, or directors,
as a result of the transactions contemplated by this Agreement, nor will any of
such persons be entitled to an increase in severance payments or other benefits
as a result of the transactions contemplated hereby, nor in the event of the
subsequent termination of their employment.
3.26 LIABILITIES. The Company does not have, and as of the Closing Date
will not have, any liabilities, obligations or commitments of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due (herein "Liabilities"), except (i) Liabilities which are adequately
disclosed or accrued against in the Financial Statements, (ii) Liabilities which
have been incurred in the Ordinary Course of Business and in accordance with
standard, customary and historical practices and experiences of the Company, and
(iii) Liabilities expressly set forth, as to the nature and amount thereof, on
SCHEDULE 3.26. Neither of the Harley Subsidiaries has any Liabilities. In no
event shall the Company, either Harley Subsidiary or Purchaser be liable for (or
have paid any) legal, accounting or other costs or expenses incurred by the
Company or any Seller in connection with the transfer of the Subject Shares, or
any of the transactions contemplated in this Agreement, except for (i) the
reasonable invoices of the Company's independent accountants in connection with
preparation the audit in contemplation of the transactions described in this
Agreement or (ii) as expressly set forth in a written instrument executed by
Sellers and Purchaser.
3.27 LITIGATION. Except as set forth on SCHEDULE 3.27, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending, and neither the Company nor any Seller has received any
written or oral notice that any is threatened, against or affecting the Company,
its Affiliates, the Assets, the Leased Assets or the Business.
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3.28 TAX MATTERS.
(A) The Company and the Harley Subsidiaries have filed all tax returns
that they were required to file, and all such tax returns were correct and
complete in all respects. All taxes owed by the Company or either of the Harley
Subsidiaries (whether or not shown on any tax return) have been paid. Neither
the Company nor any Harley Subsidiary is the beneficiary of any extension of
time within which to file any tax return. No claim has ever been made by an
authority in a jurisdiction where any of the Company or any Harley Subsidiary
does not file tax returns, that the Company or any Harley Subsidiary is or may
be subject to taxation by that jurisdiction. There are no security interests on
any of the assets of the Company or any Harley Subsidiary that arose in
connection with any failure (or alleged failure) to pay any tax.
(B) Each of the Company and the Harley Subsidiaries has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(C) No Seller or director or officer (or employee responsible for tax
matters) of the Company or any Harley Subsidiary expects any authority to assess
any additional taxes for any period for which tax returns have been filed.
Except as set forth on SCHEDULE 3.28, there is no dispute or claim concerning
any tax liability of the Company or any Harley Subsidiary either (i) claimed or
raised by any authority in writing or (ii) as to which any of the Sellers or the
directors and officers (and employees responsible for tax matters) of the
Company or the Harley Subsidiaries has knowledge based upon personal contact
with any agent of such authority. SCHEDULE 3.28 lists all federal, state, local,
and foreign income tax returns filed with respect to the Company or the Harley
Subsidiaries for taxable periods ended on or after October 31, 1989, indicates
those tax returns that have been audited, and indicates those tax returns that
currently are the subject of audit. The Sellers have delivered to Purchaser
correct and complete copies of all federal income tax returns, examination
reports, and statements of deficiencies assessed against or agreed to by the
Company or any Harley Subsidiary since October 31, 1989.
(D) Neither the Company nor any Harley Subsidiary has waived any statute
of limitations in respect of taxes or a reed to any extension of time with
respect to a tax assessment or deficiency.
3.29 COMPLIANCE WITH LAWS. The Company has complied with, and is not in
violation of, applicable federal, state or local ordinances, statutes, laws,
rules, restrictions and regulations (excluding Environmental, Health & Safety
Laws) that will result, or are likely to result, directly or indirectly, in
Adverse Consequences to the Business, the Assets, the Leased Assets, or the
customers, suppliers or financial prospects of the Company. There are not any
uncured violations of federal, state or local laws, ordinances, statutes,
orders, rules, restrictions, regulations or requirements (excluding
Environmental, Health & Safety Laws) affecting any portion of the Business, the
Real Property, the Assets or the Leased Assets, and neither any of the Assets,
the Leased Assets or the Real Property, nor the operation thereof nor the
conduct of the Business,
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violates any applicable federal, state or municipal laws, ordinances, orders,
regulations or requirements (excluding Environmental, Health & Safety Laws).
3.30 ENVIRONMENTAL, HEALTH & SAFETY LAWS. Except as described on SCHEDULE
3.30 (i) neither the ownership nor the operation of the Business or any Assets
or Leased Assets has violated or violates any Environmental, Health & Safety
Laws, (ii) neither the Real Property, nor any real property previously owned or
occupied by the Company or any of the Harley Subsidiaries, nor to the knowledge
of the Sellers any property adjacent to any of the foregoing, has been used for
the use, manufacture, storage, treatment, generation, transportation,
processing, handling or disposal of any solid, hazardous, industrial or toxic
pollutant, contaminant, substance or waste in violation of any Environmental,
Health & Safety Laws, (iii) neither the Company, nor any of the Harley
Subsidiaries, nor any of the Sellers has received nor has knowledge of any
notice of or any threat of any claim, suit, proceeding, inquiry, investigation,
citation, notice, violation, consent order or judicial or administrative action
arising out of or based upon any Environmental, Health & Safety Laws, (iv) no
solid, hazardous, industrial or toxic pollutant, contaminant, substance or waste
has been disposed of, spilled onto, discharged or released as those terms are
defined in the Environmental, Health and Safety Laws occurred on or within the
Real Property or, to the best of Sellers' knowledge, any property adjacent
thereto, nor any real property previously owned or occupied by the Company or
any of the Harley Subsidiaries, (v) no underground storage tanks, above ground
storage tanks, solid or hazardous waste management units, wells, underground
injection systems, landfills, lagoons, settling ponds or any other impoundment
used to treat, store or dispose of any solid, hazardous or toxic substances,
pollutants, contaminants or wastes regulated by the Environmental Health &
Safety Laws have ever been placed on the Real Property, and if any underground
storage tanks are disclosed in SCHEDULE 3.30, none of such tanks are leaking,
(vi) neither the Company, nor any of the Harley subsidiaries, nor any of the
Sellers have received notice of any past, present or future event, condition,
circumstance, activity, practice, incident or action or plan which may interfere
with or prevent compliance or continued compliance with the Environmental,
Health and Safety Laws or which may give rise to any common laws or legal
liability, or otherwise form the basis of any claim action, demand, lawsuit,
proceeding, hearing, study or investigation, based on, related to, or alleging
any violation of the Environmental Health & Safety Laws and (vii) all wastes
generated by the Company have been treated and/or disposed of at appropriately
licensed recycling, reclamation, reuse, or treatment, storage and disposal
facilities. There is no environmental condition relating to any of the Assets,
the Leased Assets or the Business that may reasonably be expected to have a
materially adverse effect on any of the Assets, the Leased Assets or the
Business or the value thereof. The Company has all permits, licenses,
franchises, operating authorities and other authorizations or documented
exemptions or variances thereto necessary to the conduct of the Business in the
manner and in the areas in which the Business is presently conducted, the
Company is in full compliance with all the terms and conditions thereof and all
such permits, licenses, franchises, and authorizations are valid and in full
force and effect. The Company has not engaged in any activity which could cause
the revocation or suspension of any such permits, licenses, franchises, or other
authorizations, and no actions or proceedings looking to or contemplating
revocation or suspension of any thereof are pending or, to the best knowledge
and reasonable belief of Sellers, threatened.
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3.31 FINANCIAL STATEMENTS. The Financial Statements (i) are true,
complete, and correct in all material respects, (ii) fairly and accurately
present the financial position of the Company as of the periods described
therein, and the results of the operations of the Company for the periods
indicated, and (iii) have been prepared in accordance with generally accepted
accounting principles, consistently applied (except for certain footnote
disclosures normally required by GAAP, the omission of which, in the good faith
opinion of Sellers, will not cause the Financial Statements to be misleading).
The Closing Financial Statements (i) are true, complete, and correct in all
material respects, (ii) fairly and accurately present the financial position of
the Company as of the periods described therein, and the results of the
operations of the Company for the periods indicated, (iii) have been prepared in
accordance with generally accepted accounting principles, consistently applied
(except for certain footnote disclosures normally required by GAAP, the omission
of which, in the good faith opinion of Sellers, will not cause the Closing
Financial Statements to be materially misleading), and (iv) reflect all
necessary eliminating entries and normal adjustments (including without
limitation year-end adjustments). After due inquiry of the Company's management,
Sellers know of no adjustments that will be required by the Company's
independent public accountants in order for such accountants to render an
unqualified report on the Company's financial statements.
3.32 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in SCHEDULE
3.32, since the Balance Sheet Date, there has been no:
(A) material adverse change in the financial condition, liabilities,
assets, business or prospects of the Company;
(B) loss, destruction or damage to any property of the Company,
whether or not insured, exceeding $150,000 in net book value in the
aggregate;
(C) material contract, commitment or obligation entered into or
incurred by the Company outside the Ordinary Course of Business;
(D) labor trouble, pending or threatened, involving the Company, or
change in the personnel of the Company or the terms or conditions of their
employment, other than changes in personnel of the Company below the level
of manager and occurring in the Ordinary Course of Business; or
(E) other event or condition of any character that has or might
reasonably be expected to have an adverse effect on the financial
condition, business, assets, liabilities or prospects of the Company.
3.33 CUSTOMERS. SCHEDULE 3.33 to this Agreement is a correct and current
list of all customers of the Company and/or the Harley Subsidiaries, together
with summaries of the sales made to each customer during the most recent fiscal
year and the immediately preceding fiscal year by each such entity. Except as
indicated in SCHEDULE 3.33, Sellers do not have any information, nor are they
aware of any facts, indicating that any of these customers intend to cease doing
business
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with the Company or the Harley Subsidiaries, or to materially alter the volume
or terms of such business.
3.34 INTERESTS IN CUSTOMERS, SUPPLIERS AND COMPETITORS. None of the
Sellers, and no shareholder, officer, director or manager (nor any former
shareholder, officer, director or manager) of the Company, nor to the best
knowledge and reasonable belief of Sellers any relative of any of them, has any
direct or indirect interest in any supplier or customer of the Company, or any
person or other entity who has done business with the Company in the twenty-four
(24) months preceding the Closing.
3.35 CORPORATE DOCUMENTS. Sellers have furnished to Purchaser for its
examination (i) true and correct copies of the certificates or articles of
incorporation and bylaws of the Company and of each Harley Subsidiary, as
amended to date; (ii) true and correct copies of the contents of the minute
books of the Company and of each Harley Subsidiary (including proceedings of
audit and other committees), each of which contains all records for all
proceedings, consents, actions and meetings of the shareholders, board of
directors and committees, of each of them since their respective dates of
incorporation.
3.36 ADVERSE INFORMATION. After due inquiry of Company management, none of
the Sellers has any information or knowledge of any change contemplated in any
applicable laws, ordinances or restrictions, or any judicial or administrative
action, or any event, fact or circumstance which will, or could be reasonably
expected to, have a material adverse effect on the Company or its condition,
financial or otherwise, the Assets, the Leased Assets or the condition, value or
operation thereof.
3.37 DISCLOSURE. Sellers have provided to Purchaser actual copies of all
Contracts, documents concerning all litigation and administrative proceedings,
employee benefit plans, licenses, insurance policies, lists of suppliers,
customers, and Employees, and corporate and partnership records relating to the
Company and/or the Harley Subsidiaries or their assets and liabilities or the
Business, and such information covers all material commitments and liabilities
of the Company. In addition, (i) Purchaser has been fully informed with respect
to all material developments in the business of the Company since the Balance
Sheet Date, (ii) management of the Company has not made any material commitments
nor taken any material actions of which Purchaser has not been advised, and
(iii) Purchaser and its agents have been granted unlimited access to the books
and records of the Company (whether retained electronically, on discs or on
paper).
3.38 FULL DISCLOSURE. This Agreement, the schedules and exhibits hereto,
and all other documents and written information furnished by the Sellers, the
Company, or their Affiliates on behalf of Sellers, the Company or their
respective Affiliates, to Purchaser or its representatives pursuant hereto or in
connection herewith, are true, complete and correct in all material respects,
and do not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made herein and therein not
misleading. After due inquiry of management of the Company, Sellers are not
aware of any presently existing facts or circumstances relating to the
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Business or the assets, liabilities, prospects, operations or financial
condition of the Company which materially and adversely affects, or in the
reasonable judgment of Sellers is likely to materially and adversely affect, the
Business, the Company, or the assets, liabilities, prospects, operations or
financial condition thereof, or the ability of the Sellers to perform this
Agreement or the obligations of any Seller hereunder.
All of the representations and warranties of Sellers contained in this
Agreement shall be true, complete and correct as of the date of this Agreement
and shall be deemed to have been made again at and as of the Closing Date, and
then shall be true, complete and correct in all respects, and shall survive the
Closing and the execution and delivery of all documents, instruments and
agreements executed in connection therewith. To the extent that a factual
situation is set forth as a disclosure item on such schedule and such factual
situation may under the express terms of this Agreement require disclosure on
another schedule under this Agreement, such factual situation shall be deemed to
have been disclosed on such other schedule to the extent that the factual
description would be sufficient to apprize the reader of the relevant facts
which would otherwise be required to be set forth on such other schedule.
ARTICLE IV
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants that:
4.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Texas, and has all
necessary corporate powers to own its properties and to carry on its business as
now owned and operated by it.
4.2 AUTHORITY. Purchaser has the right, power, legal capacity, and
authority to execute, deliver and perform its obligations under this Agreement.
The execution, delivery and performance of this Agreement by Purchaser has been
duly authorized by Purchaser's Board of Directors, which constitutes all of the
necessary corporate action for Purchaser to consummate the transactions
contemplated by this Agreement and to perform its obligations hereunder.
4.3 CONSENTS AND APPROVALS. Except as set forth on SCHEDULE 4.3, no
consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by Purchaser in connection with the execution, delivery
or performance of this Agreement or the consummation by Purchaser of the
transactions contemplated hereby.
4.4 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Purchaser
in connection herewith will constitute the legal, valid, and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its terms, except
as same may be limited by bankruptcy laws, insolvency laws, and other similar
laws affecting the rights of creditors generally.
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All of the representations and warranties of Purchaser contained in this
Agreement shall be true, complete and correct as of the date of this Agreement
and shall be deemed to have been made again at and as of the Closing Date, and
then shall be true, complete and correct in all respects, and shall survive the
Closing and the execution and delivery of all documents, instruments and
agreements executed in connection therewith.
ARTICLE V
ADDITIONAL WARRANTIES AND
CERTAIN COVENANTS AND AGREEMENTS
5.1 SELLERS' COVENANTS. Sellers jointly and severally represent, warrant,
covenant and agree that from the Balance Sheet Date through the Closing Date,
except for the Permitted Bonus:
(A) the Company, the Harley Subsidiaries and the Sellers have used
and will use their best efforts to preserve the business organization of
the Company and the Harley Subsidiaries intact, to keep available to the
Business the Employees, and to preserve the present relationships of the
Company and the Harley Subsidiaries with their suppliers, customers and
others having business relationships with them;
(B) the Company has maintained and will maintain its existing
insurance as to the Business and the Assets (and as applicable, the Leased
Assets);
(C) the Company has maintained and operated and will maintain and
operate the Business in a good and businesslike manner in accordance with
good and prudent business practices and the Company's historical policies;
(D) the Company has maintained and operated, and will continue to
maintain and operate, the Assets and the Leased Assets, including the Real
Property, in a good and businesslike manner in accordance with good and
prudent business practices and the Company's historical policies, in as
good working order and condition as existed as of September 24, 1996,
ordinary wear and tear excepted;
(E) the Company has not issued or sold, nor directly or indirectly
redeemed or acquired, and will not issue or sell, or directly or
indirectly redeem or acquire, any shares of its capital stock, or any
other of its securities or granted or agreed to grant any options or
rights with respect thereto, and has not changed or agreed to change and
will not change its capital structure;
(F) except with respect to the Permitted Bonus, the Company has not
declared, set aside nor paid and will not declare, set aside or pay a
dividend or other distribution in respect to its capital stock;
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(G) except with respect to the Permitted Bonus, the Company has not
made and will not make any payment of any type to the holders of any
capital stock of the Company or any of their Affiliates, other than
ordinary salary or expenses which have been fully disclosed to Purchaser;
or
(H) the Company has neither waived nor released and will not waive
or release any material right of or material claim held by it, and has not
discounted and will not discount any of its receivables;
(I) the Company has not acquired nor disposed of and will not
acquire or dispose of, any material assets, individually or in the
aggregate, and has not entered into and will not enter into any contract
or arrangement therefor, and has not entered into and will not enter into
any other transaction other than for value in the Ordinary Course of
Business and in accordance with prudent business practices and the
Company's historical policies;
(J) the Company has not revalued and will not revalue any of its
assets or liabilities;
(K) the Company has not, other than in the Ordinary Course of
Business, changed and will not change the salary or other compensation
payable or to become payable by the Company to any of its officers,
directors, employees or agents, and has not declared, made or committed,
and will not declare, make or commit to any kind of payment of a bonus or
other additional salary or compensation to any such person;
(L) the Company has not made and will not make a loan to any person
or entity, and has not guarantied and will not guaranty any loan;
(M) the Company has not amended nor terminated, and will not amend
or terminate, any material contract, agreement, permit or license to which
the Company or either of the Harley Subsidiaries is a party, or by which
the Company, either Harley Subsidiary, or any of the Assets or Leased
Assets are bound;
(N) the Company has maintained and will maintain all debt and lease
instruments, and has not entered into and will not enter into any new or
amended debt or lease instruments, without the prior written approval of
Purchaser;
(O) the Company has not entered into and will not enter into any
agreement or instrument which would constitute an encumbrance, mortgage or
pledge of the Assets, or which would bind Purchaser, the Company or the
Assets after Closing, which have been entered into outside the normal
scope of maintaining and operating the Business and the Assets in the
Ordinary Course of Business;
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(P) the Company has not removed, nor permitted the removal of, and
will not remove nor permit the removal of, any personal property or
fixtures from the Real Property, unless such personal property or fixtures
are replaced with an item of at least equal value that is properly suited
for its intended purpose, other than inventory sold in the Ordinary Course
of Business, or other personal property in an amount which is not
material, either individually or in the aggregate;
(Q) subject to the prior approval of Maxon (which approval will not
be unreasonably withheld), the Company and the Sellers will afford
Purchaser the continuing right to review and inspect the Assets and the
Leased Assets, including the Real Property, at reasonable hours, and any
and all books, records, contracts, and other documents or data pertaining
to the ownership, use, insurance, operation, renovation and maintenance of
the Assets and Leased Assets, including the Real Property, and the
Business;
(R) subject to the prior approval of Maxon (which approval will not
be unreasonably withheld), the Company and the Sellers will afford
Purchaser free and open access to the Employees during regular business
hours, to assist Purchaser in the contemplated due diligence review, and
to allow Purchaser to gather information to make employment decisions to
be effective after Closing;
(S) the Company has performed and will perform all of the Company's
obligations under all contracts and commitments applicable to the Company
or the Assets, and has maintained and will maintain the Company's books of
account and records in the usual, regular and customary manner;
(T) except as otherwise expressly set forth in this Agreement, the
Company has complied and will comply with all statutes, laws, ordinances
and regulations applicable to the Company, the Assets, the Leased Assets
and the conduct of the Business and will provide Purchaser with immediate
notice of any violation of any Environmental, Health and Safety Laws;
(U) the Company has paid and will pay in the ordinary course of
business all bills and other payments due with respect to the ownership,
use, insurance, operation and maintenance of the Business, the Assets, and
the Leased Assets, including the Real Property, except for items being
contested in good faith and for which proper and adequate security has
been given, where required (which contested matters, if adversely resolved
do not aggregate in excess of $15,000) within thirty (30) days after such
bills or other payments were due, and has taken and will take all action
necessary or prudent to prevent liens or other claims for the same from
being filed or asserted against any part of the Assets or the Leased
Assets, including the Real Property, provided however, that the Company
shall not make any expenditures outside the Ordinary Course of Business,
nor any capital expenditures, individually or in the aggregate in excess
of $3,000, without the prior written approval of Purchaser;
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(V) the Company has not made and will not make any material changes
in its management, operations, accounting or business practices or methods
(including without limitation, any change in depreciation or amortization
policies or rates), nor negotiate or pursue the acquisition or the
start-up of any new business or line of business;
(W) all revenues or cash or other receipts from all sources in all
media received by the Company have been deposited and will be deposited in
the Company's account;
(X) the Sellers will cause all of the representations and warranties
set forth in Section 3.32 hereof to be and remain true, complete and
correct as of the Closing;
(Y) to the extent any Seller receives notice, such Seller will
immediately advise Purchaser in writing of any material adverse change in
the financial condition, results of operations, business or prospects of
the Company or any of the Harley Subsidiaries, and any event which could
reasonably be expected to result in such a change; and
(Z) there has been no agreement by the Company to do any of the
things described above in this Section 5.1 which, if such were to occur
between the Balance Sheet Date and the Closing Date, would constitute a
breach of a covenant contained in this Section 5.1.
5.2 THIRD PARTY CONSENTS. Except as set forth in Section 6.1(E), Sellers
shall use their best efforts to obtain the respective consents or approvals of
each third party whose consent or approval is required for the consummation of
the transactions contemplated hereby.
5.3 COMPETING PROPOSALS. Sellers will not initiate, and will not permit
the Company to initiate, directly or indirectly, contact with any person or
entity in an effort to solicit any takeover proposal, nor will any of them
authorize any officer, director or employee of the Company, or any investment
banker, attorney, accountant or any representative, to directly or indirectly
initiate any such contact. As used in this Section 5.3, "takeover proposal"
shall mean any proposal for an acquisition, merger or other business combination
involving the Company or any of the Harley Subsidiaries or for the acquisition
of a substantial equity interest therein or a substantial portion of any of
their assets, other than the transaction contemplated by this Agreement.
Further, the Sellers will not, and will not permit the Company to, directly or
indirectly, cooperate or negotiate with, or furnish or cause to be furnished any
non-public information concerning the Business, properties or assets to, any
person or entity in connection with any takeover proposal. Sellers shall
immediately notify Purchaser orally of, and confirm in writing, all relevant
details relating to any takeover proposal which Sellers or the Company may
receive. Sellers will use their best efforts to consummate the transactions
contemplated in this Agreement on the Closing Date, and will, at or prior to
Closing, take all necessary action to perform their obligations under this
Agreement.
5.4 COOPERATION; SATISFACTION OF CONDITIONS. Sellers shall (a) give
assistance, to the extent within their control (and upon prior notice to
Purchaser of any expense, at Purchaser's
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expense), to Purchaser in preparing any required filings and seeking any
required consents or approvals in any manner reasonably requested, and (b) use
their best efforts to pursue, to the extent within their control, the
satisfaction of all other conditions to the consummation of the transaction's
contemplated herein. Upon the fulfillment of all the conditions precedent to the
obligations of the Parties contained herein, Sellers will forthwith proceed to
Closing.
5.5 REPAYMENT OF LOANS. As of the Balance Sheet Date, the Company did not
owe, and from the Balance Sheet Date through the Closing Date the Company will
not incur, any indebtedness liability or obligation to any Seller, except the
Permitted Bonus and for salary accrued in the Ordinary Course of Business.
Except for the promissory note of Mr. Maxon described in the Financial
Statements as a "Note Receivable from a Related Party" and the Permitted Bonus
as of the Balance Sheet Date no Seller owed, and from the Balance Sheet Date
through the Closing Date no Seller will incur, an indebtedness, liability or
obligation to the Company.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligations of Purchaser
hereunder to consummate the transactions contemplated hereby are subject to the
satisfaction, as of the Closing Date, of the following respective conditions
(any of which may be waived in whole or in part in writing by Purchaser at or
prior to the Closing):
(A) REPRESENTATIONS AND WARRANTIES OF SELLERS TO BE TRUE. The
representations and warranties of Sellers herein contained shall be true,
complete and correct in all material respects at the Closing Date with the same
effect as though made at Closing (except insofar as such representations and
warranties are given as of a particular date) except to the extent waived
hereunder or affected by the transactions contemplated or permitted herein.
(B) PERFORMANCE BY SELLERS. Sellers shall have performed in all material
respects all obligations and complied in all material respects with all
covenants and conditions required by this Agreement to be performed or complied
with by them at or prior to the Closing Date.
(C) NO LEGAL PROCEEDINGS. No injunction shall have been obtained, or no
suit, action or other proceeding shall be pending before any court or
governmental agency, in which it is sought to restrain or prohibit the
consummation of the transactions contemplated hereby, or in which it is sought
to obtain damages in connection therewith, or involving a claim that the
consummation of the transactions contemplated hereby would result in a violation
of any law, decree or regulation of any government or agency thereof having
jurisdiction. There shall not have been enacted, voted or promulgated by any
legislative or administrative body having jurisdiction any legislation, ruling
or decree which in the reasonable judgment of Purchaser would be materially
prejudicial to Purchaser with respect to the transactions contemplated by this
Agreement.
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(D) STATUTORY REQUIREMENTS. All other statutory requirements for the valid
consummation by Purchaser of the transactions contemplated by this Agreement
shall have been fulfilled; all authorizations, consents and approvals of all
federal, state and local governmental agencies and authorities, required to be
obtained in order to permit consummation by Purchaser of the transactions
contemplated by this Agreement and to permit the businesses presently carried on
by Purchaser, the Company and the Harley Subsidiaries to continue unimpaired
immediately following the Closing shall have been obtained and shall be in full
force and effect.
(E) REQUIRED CONSENTS. Sellers shall have obtained the written consent or
approval of each person listed on Schedule 3.3, in form and content reasonably
acceptable to Purchasers, provided that Sellers shall not be required to deliver
the consent of any party to a distributorship agreement which is terminable in
accordance with its terms, by such party for no reason, upon notice given ninety
(90) or fewer days in advance.
(F) RESIGNATIONS OF DIRECTORS AND OFFICERS. There shall have been
delivered to Purchaser the immediately effective written resignations of such
directors and officers of the Company and all of the Harley Subsidiaries as
Purchaser may request.
(G) ENVIRONMENTAL CONDITIONS. The following shall have each occurred at or
prior to the Closing:
(i) NORFOLK, VIRGINIA FACILITY REMEDIATION. (a) All underground storage
tanks at the Company's Norfolk, Virginia facility shall have been removed
and the soil and groundwater shall have been fully remediated; (b) all
containers of hazardous materials which are stored on site, including but
not limited to containers of cyanide and hydrogen chloride, shall be
inventoried, sampled and properly disposed of at appropriate disposal
sites, and there shall be no unremediated impact on soil and groundwater
at the site, (c) all areas evidencing standing oil or stained soil shall
have been evaluated by an appropriate environmental consultant and any
remediated; (d) the appropriate governmental agencies shall have approved
each of the foregoing that shall require such approval; and (e) one or
more qualified environmental consulting firms engaged by the Company and
approved by Purchaser shall have evaluated each of the foregoing and
determined that they have been fully accomplished in accordance with good
environmental consulting and remediation industry practices by qualified
environmental professionals;
(ii) JACKSONVILLE, FLORIDA LOCATION. (a) The above-ground storage tank at
the Company's Jacksonville, Florida locations shall have been removed and
the soil and groundwater shall have been remediated; (b) all containers of
hazardous materials which are stored on site shall be inventoried, sampled
and properly disposed of at appropriate disposal sites, and there shall be
no unremediated impact on soil and groundwater at the site, (c) the
appropriate governmental agencies shall have approved each of the
foregoing that shall require such approval; and (d) one or more qualified
environmental consulting firms engaged by the Company and approved by
Purchaser shall have evaluated each of the foregoing and
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determined that they have been fully accomplished in accordance with good
environmental consulting and remediation industry practices by qualified
environmental professionals;
(iii) ABSENCE OF ADDITIONAL VIOLATIONS OF ENVIRONMENTAL, HEALTH AND SAFETY
LAWS. Purchaser shall have completed such environmental site inspections
or surveys at the Tacoma, and Bellingham Washington facilities of the
Company. There shall be no material violations or any Environmental,
Health and Safety Laws or other potential environmental problems with
respect to such facilities or other material violations of such Laws with
respect to the Company, other than those set forth or contemplated in this
SUBSECTION 6.1(G) which shall have been fully remediated at the Closing;
and
(iv) With respect to all inventories, surveys, inspections, remediation or
any other activity contemplated in this Subsection, Purchaser and its
consultants shall be fully advised, in advance, of such activity and shall
have the right to fully observe, consult and otherwise fully participate
in such activity in order for Purchaser and its consultants to verify the
Company's compliance with the provisions of this Subsection and such
consultants shall be fully satisfied as to the results of such
inventories, surveys, inspections and remediation.
(H) DELIVERY OF AUDITED FINANCIAL STATEMENTS. The audited financial
statements of the Company at the Measurement Date shall have been delivered in
accordance with SECTION 9.2.
(I) NO MATERIAL ADVERSE CHANGE. Except for matters of a general economic
or political nature, no event or series of events shall have occurred between
the Balance Sheet Date and the Closing Date, the effect of which is or may
reasonably be expected to be materially adverse to the business, prospects or
financial condition of the Company and the Harley Subsidiaries, taken as a
whole, other than the information already disclosed to Purchaser by Sellers
pursuant to this Agreement. As of the date of this Agreement, Sellers hereby
represent and warrant that none of them is aware of any such event or series of
events which would represent such a change from the information already
disclosed. Any material change in any disclosure set forth in any of the
Schedules to this Agreement shall for purposes of this condition be deemed to be
a material adverse change.
(J) APPROVAL OF DOCUMENTS. The form and substance of the Closing Financial
Statements and all certificates, instruments, opinions and other documents
delivered to Purchaser under this Agreement shall be satisfactory in all
reasonable respects to Purchaser and its counsel.
Purchaser may waive any or all of the foregoing conditions in whole or in part
only in writing but without prior notice; provided, however, that no such waiver
of a condition shall constitute a waiver by Purchaser of any other conditions or
of its other rights or remedies, at law or in equity, if Sellers shall be in
default of any of their representations, warranties, covenants or agreements
under this Agreement.
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6.2 CONDITIONS TO SELLERS' OBLIGATIONS. The obligations of Sellers'
hereunder to consummate the transactions contemplated hereby are subject to the
satisfaction, as of the Closing Date, of the following respective conditions
(any of which may be waived in whole or in part in writing by Sellers at or
prior to the Closing):
(A) REPRESENTATIONS AND WARRANTIES OF PURCHASER TO BE TRUE. The
representations and warranties of Purchaser herein contained shall be true,
complete and correct in all material respects at the Closing Date with the same
effect as though made at Closing (except insofar as such representations and
warranties are given as of a particular date) except to the extent waived
hereunder or affected by the transactions contemplated or permitted herein.
(B) PERFORMANCE BY PURCHASER. Purchaser shall have performed in all
material respects all obligations and complied in all material respects with all
covenants and conditions required by this Agreement to be performed or complied
with by Purchaser at or prior to the Closing Date.
(C) NO LEGAL PROCEEDINGS. No injunction shall have been obtained, or no
suit, action or other proceeding shall be pending before any court or
governmental agency, in which it is sought to restrain or prohibit the
consummation of the transactions contemplated hereby, or in which it is sought
to obtain damages in connection therewith, or involving, a claim that the
consummation of the transactions contemplated hereby would result in a violation
of any law, decree or regulation of any government or agency thereof having
jurisdiction. There shall not have been enacted, voted or promulgated by any
legislative or administrative body having jurisdiction any legislation, ruling
or decree which in the reasonable judgment of Sellers would be materially
prejudicial to Sellers with respect to the transactions contemplated by this
Agreement.
(D) STATUTORY REQUIREMENTS. All other statutory requirements for the valid
consummation by Sellers of the transactions contemplated by this Agreement shall
have been fulfilled; all authorizations, consents and approvals of all federal,
state and local governmental agencies and authorities required to be obtained in
order to permit consummation by Sellers of the transactions contemplated by this
Agreement shall have been obtained and shall be in full force and effect.
(E) NO MATERIAL ADVERSE CHANGE. Except for matters of a general economic
or political nature, no event or series of events shall have occurred between
August 31, 1996 and the Closing Date, the effect of which is or may reasonably
be expected to be materially adverse to the business, prospects or financial
condition of Purchaser, other than the information already disclosed to Sellers
by Purchaser pursuant to this Agreement. As of the date of this Agreement,
Purchaser hereby represents and warrants that it is not aware of any such event
or series of events which would represent such a change from the information
already disclosed.
(F) APPROVAL OF DOCUMENTS. The form and substance of all certificates,
instruments, opinions and other documents delivered to Sellers under this
Agreement shall be satisfactory in all reasonable respects to Sellers and their
counsel.
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Sellers may waive any or all of the foregoing conditions in whole or in part
only in writing but without prior notice; provided, however, that no such waiver
of a condition shall constitute a waiver by Sellers of any other conditions or
of their other rights or remedies, at law or in equity, if Purchaser shall be in
default of any of its representations, warranties, covenants or agreements under
this Agreement.
ARTICLE VII
THE CLOSING
7.1 TIME AND PLACE. Delivery of the Purchase Price by Purchaser to Sellers
on the Closing Date, and the transfer of the Subject Shares by Sellers to
Purchaser, and the other transactions contemplated hereby (the "Closing") shall
take place at the offices of Texas Commerce Bank-Richmond/Sage, 5177 Richmond
Avenue, Houston, Texas 77056, at or about 10:00 a.m. on the Closing Date.
7.2 SELLERS' DELIVERIES. At or before the Closing, Sellers shall deliver
or cause to be delivered to Purchaser:
(a) All of the stock certificates evidencing the Subject Shares,
together with irrevocable stock powers in form and content acceptable to
Purchaser, duly authorized and executed by the record holder of each such
stock certificate;
(b) An Investor Representation Letter in substantially the form
attached hereto as EXHIBIT C executed by each of the Sellers with respect
to each Seller's acquisition of the Subordinated Notes as part of the
Purchase Price at Closing;
(c) Agreements Not to Compete in substantially the form attached
hereto as EXHIBIT A, duly executed by Mr. Maxon, Mr. Grounds, Martin G.
Hubbard and Michael E. Rakestraw;
(d) An opinion of counsel issued by Rosenstein, Fist & Ringold,
counsel for Sellers, in the form attached hereto as EXHIBIT D and
incorporated herein by reference;
(e) Certificate in form and substance satisfactory to Purchaser,
dated the Closing Date and executed by all of the Sellers, stating that
after due inquiry, each of them has determined that (1) all of the
Sellers' representations and warranties set forth in ARTICLE III of this
Agreement are true, complete and correct as of the Closing Date, (2)
Sellers have performed all of the covenants and agreements to be performed
by Sellers pursuant to ARTICLE V of this Agreement, and (3) all conditions
to Closing set forth in SECTION 6.1 of this Agreement have been satisfied;
(f) Resignations of all officers and directors of the Company;
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(g) Certified resolutions or other certificate of both of the
general partners of Hub Associates, in form and content reasonably
acceptable to Purchaser, authorizing the transactions contemplated herein;
(h) Such consents, waivers, estoppel letters or similar
documentation as Purchaser shall request, in Purchaser's sole discretion,
in connection with the transfer of the Subject Shares (except that the
Company and Sellers shall only be required to use their respective best
efforts to obtain all landlord's waivers); and
(i) All other items required to be delivered hereunder or as may be
reasonably requested which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby.
In addition, Sellers will put Purchaser into full possession and enjoyment of
the Company, the Harley Subsidiaries, the Business, the Assets, and the Leased
Assets, including without limitation the Real Property and all documents, books,
records, agreements, and financial data of any sort relating to the Business,
immediately upon the occurrence of the Closing.
7.3 PURCHASER'S OBLIGATIONS. At the Closing, Purchaser will deliver or
cause to be delivered to Sellers, the following:
(a) Certified checks or wire transfers of funds to Mr. Maxon, Mr.
Grouds and Hub Associates in payment of the cash consideration for the
Subject Shares payable pursuant to SECTION 2.2(A) of this Agreement;
(b) Certified checks or wire transfers of funds to Mr. Maxon, Mr.
Grounds and Hub Associates, in payment of the independent consideration
payable pursuant to Section 2.2(b) of this Agreement;
(c) The Subordinated Notes, duly endorsed and assigned without
recourse to Sellers;
(d) Agreements Not to Compete in substantially the form attached
hereto as EXHIBIT A, duly executed by Purchaser, for execution by Mr.
Maxon, Mr. Grounds, Martin S. Hubbard and Michael E. Rakestraw;
(e) An opinion of counsel issued by (i) Boyer, Ewing & Harris
Incorporated, counsel for Sellers, in the form attached hereto as EXHIBIT
E and incorporated herein by reference and (ii) general counsel of
Allwaste as to the valid issuance of the Subordinated Notes;
(f) Certificate in form and substance satisfactory to Sellers, dated
the Closing Date and executed by Purchaser, stating that after due
inquiry, Purchaser has determined that (1) all of purchaser's
representations and warranties set forth in ARTICLE IV of this Agreement
are true, complete and correct as of the Closing Date, (2) Purchaser has
performed all of the
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covenants and agreements to be performed by Purchaser pursuant to SECTION
5.5 of this Agreement, and (3) all conditions to Closing set forth in
SECTION 6.2 of this Agreement have been satisfied;
(g) Certified resolutions of the Board of Directors of Purchaser, in
form and content reasonably acceptable to Sellers, authorizing the
transactions contemplated herein; and
(h) All other items required to be delivered hereunder or as may be
requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby.
7.5 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. Each Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further stock powers, bills of sale,
assignments and other assurances, documents and instruments of transfer,
reasonably requested by Purchaser, and will take any other action consistent
with the terms of this Agreement that may reasonably be requested by Purchaser,
for the purpose of assigning and confirming to Purchaser, all of the Subject
Shares, or if necessary, any of the Assets.
ARTICLE VIII
TERMINATION OF OBLIGATIONS, WAIVERS
OF CONDITIONS AND PAYMENT OF EXPENSES
8.1 TERMINATION OF AGREEMENT. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated herein may be
terminated at any time prior to Closing, as follows, and in no other manner:
(A) MUTUAL CONSENT. By mutual written consent of Purchaser and Sellers;
(B) EXPIRATION DATE. By either Purchaser or Sellers if Closing shall not
have occurred on or before February 28, 1997 (as same may be extended by mutual
agreement of Purchaser and Sellers), provided, however, that the Party seeking
to terminate shall be in compliance with all of its covenants and obligations
hereunder.
(C) PURCHASER'S OPTION. By the Board of Directors of Purchaser at any time
after the Closing Date (as same may be extended by mutual agreement of Purchaser
and Sellers) if, by that date, the conditions set forth in SECTION 6.1 hereof
have not been met, provided, however, that the failure to meet such conditions
was not caused by the failure of Purchaser to perform any of its covenants or
obligations hereunder.
(D) SELLERS' OPTION. By any Seller at any time after the Closing Date (as
same may be extended by mutual agreement of Purchaser and Sellers) if, by that
date, the conditions set forth in
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SECTION 6.2 hereof have not been met, provided, however, that the failure to
meet such conditions was not caused by the failure of any Seller to perform any
of his or its covenants or obligations hereunder.
8.2 PAYMENT OF EXPENSES; WAIVER OF CONDITIONS. In the event that this
Agreement shall be terminated pursuant to SECTION 8.1, all obligations of the
Parties under this Agreement shall terminate and there shall be no liability of
any Party to another (except by reason of default hereunder which has not been
waived). Absent such default, each Party will pay all costs and expenses
incident to his or its negotiation and preparation of this Agreement and all
documents, instruments and agreements relating to the transactions contemplated
herein, and such Party's performance of and compliance with all agreements and
conditions contained herein or therein on his or its part to be performed or
complied with, including the fees, expenses and disbursements of its counsel,
its auditors and its investment bankers. If any of the conditions specified in
Section 6.1 have not been satisfied, Purchaser may nevertheless elect to waive
such conditions and proceed with the transactions contemplated hereby and, if
any of the conditions specified in Section 6.2 have not been satisfied, Sellers
may nevertheless elect to waive such conditions and proceed with the
transactions contemplated hereby. Any such waiver and election shall be
evidenced by a written instrument executed by the President of Purchaser and all
of the Sellers, setting forth with particularity the condition which has been
waived.
ARTICLE IX
INDEMNIFICATION, ADJUSTMENT TO
PURCHASE PRICE AND OTHER REMEDIES
9.1 INDEMNIFICATION.
A. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Sellers and
Purchaser shall survive the Closing hereunder (notwithstanding any investigation
by or on behalf of Seller or Purchaser) and continue in full force and effect
thereafter subject only to the applicable statute of limitations; PROVIDED,
HOWEVER, that the Class B Representations shall survive the Closing hereunder
and continue in full force and effect for a period of three (3) years
thereafter, the Environmental Representations shall survive the Closing
hereunder and continue in full force and effect for a period of five (5) years
thereafter, and provided further that (i) the Purchaser shall not be indemnified
for breach of any representation, warranty, covenant or agreement to the extent
that Purchaser had actual knowledge of such breach at or prior to the Closing,
(ii) the Purchaser shall for purposes of this Article IX be deemed to have
actual knowledge of all information of which Allwaste had actual knowledge by
reason of any due diligence investigation conducted by Allwaste in contemplation
of this Agreement and (iii) the foregoing shall not be deemed to extend an
indemnity claim with respect to a factual situation with respect to which the
applicable statute of limitations has run without any damage to, or claim
against, the Purchaser, beyond such applicable statute of limitations.
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B. INDEMNIFICATION PROVISIONS FOR BENEFIT OF PURCHASER.
(i) In the event any of the Sellers breaches any of their
representations, warranties and covenants contained herein, and, if there is an
applicable survival period pursuant to SECTION 9.1(A) above, provided that
Purchaser makes a written claim for indemnification against any of the Sellers
within such survival period, then each of the Sellers agrees (subject to SECTION
10.9) to indemnify Purchaser from and against the entirety of any Adverse
Consequences Purchaser may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences Purchaser may suffer after
the end of any applicable period) resulting from, arising out of, relating to,
in the nature of, or caused by the breach; SUBJECT, HOWEVER, to the following
limitations:
(a) the Sellers shall not have any obligation to indemnify Purchaser from
and against any Adverse Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the breach of any Class A
Representations until Purchaser has suffered Adverse Consequences by
reason of all such breaches in excess of a Twenty-Five Thousand Dollar
($25,000) aggregate deductible (after which point the Sellers will be
obligated only to indemnify Purchaser from and against further such
Adverse Consequences);
(b) the Sellers shall not have any obligation to indemnify Purchaser from
and against any Adverse Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the breach of any Class B
Representations until Purchaser has suffered Adverse Consequences by
reason of all such breaches in excess of a Three Hundred Eighty Thousand
Dollar ($380,000) aggregate deductible (after which point the Sellers will
be obligated only to indemnify Purchaser from and against further such
Adverse Consequences) and there will be an aggregate ceiling on the
obligation of the Sellers to indemnify Purchaser from and against Adverse
Consequences resulting from, arising out of, relating to, in the nature
of, or caused by breaches of the Class B Representations, which ceiling
shall equal one-half (1/2) of the sum of the amount of the Purchase Price;
(c) (1) the Sellers shall not have any obligation to indemnify Purchaser
from and against any Adverse Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the breach of any
Environmental Representations until Purchaser has suffered Adverse
Consequences by reason of all such breaches in excess of a Five Hundred
Thousand Dollar ($500,000) aggregate deductible, (2) after Purchaser has
suffered Adverse Consequences in the amount of such deductible, the
Sellers will be obligated to indemnify Purchaser from and against further
such Adverse Consequences up to an aggregate amount of Five Hundred
Thousand Dollars ($500,000), and (3) thereafter, the Sellers will be
obligated to indemnify Purchaser from and against one-half (1/2) of all
further such Adverse Consequences, up to an aggregate ceiling on the
obligation of the Sellers to indemnify Purchaser from and against Adverse
Consequences resulting from, arising out of, relating to, in the nature
of, or caused by breaches of the Environmental Representations, which
ceiling shall equal one-half (1/2) of the sum of the amount of the
Purchase Price; and
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(d) Notwithstanding any other limitation in this SUBSECTION 9.1(B)(I), the
Sellers shall be fully obligated to indemnify Purchaser for any (1)
federal income tax liability, together with any penalties and interest
thereon, to the extent of (a) any assessments occurring at or prior to
Closing, (b) to the extent occurring after Closing, such liability results
from any disallowance of any deductions or amortization with respect to
goodwill of the Company or any Harley Subsidiaries for any tax year of the
Company or such Harley Subsidiaries ended on or prior to December 31,
1996, but only to the extent that such liability and related interest and
penalties have not been accrued in the audited financial statements of the
Company at October 31, 1996, and (c) any corporate tax liability of the
Company for any tax year resulting from the failure of the IRS to allow
any deductions for the Permitted Bonus, and (2) any liability with respect
to Environmental, Health & Safety Laws with respect to the specific
matters set forth in SUBSECTIONS 6.1(G)(I) and (II) irrespective of any
waiver of such conditions at Closing.
(ii) In the event any of the Sellers commits any fraud in connection
with the transactions contemplated herein, or conceals or permits the
concealment of any matters from Purchaser or its representative during the due
diligence process, and Purchaser makes a written claim for indemnification under
this Subsection 9.1(B)(ii), then each of the Sellers agrees to indemnify
Purchaser from and against the entirety of any Adverse Consequences Purchaser
may suffer through and after the date of the claim for indemnification resulting
from, arising out of, relating to, in the nature of, or caused by such fraud or
concealment; PROVIDED, HOWEVER, that the Sellers shall not have any obligation
to indemnify Purchaser from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by such fraud or
concealment until Purchaser has suffered Adverse Consequences by reason of all
such fraud or concealment in excess of a Twenty-Five Thousand Dollar ($25,000)
aggregate deductible (after which point the Sellers will be obligated only to
indemnify Purchaser from and against further such Adverse Consequences).
C. INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. In the
event Purchaser breaches any of its representations, warranties and covenants
contained herein, provided that any of the Sellers makes a written claim for
indemnification against Purchaser prior to the expiration of the applicable
statute of limitations, then Purchaser agrees to indemnify each of the Sellers
from and against the entirety of any Adverse Consequences the Seller may suffer
through after the date of the claim for indemnification resulting from, arising
out of, relating to, in the nature of, or caused by the breach.
D. MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this SECTION 9.1, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; PROVIDED, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying
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Party from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to assume the defense of
the Third Party Claim with counsel of his or its choice reasonably satisfactory
to the Indemnified Party at any time within fifteen (15) days after the
Indemnified Party has given notice of the Third Party Claim; PROVIDED, HOWEVER,
that the Indemnifying Party must conduct the defense of the Third Party Claim
actively and diligently thereafter in order to preserve its rights in this
regard; and PROVIDED FURTHER that the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense of the
Third Party Claim.
(iii) So long as the Indemnifying Party has assumed and is
conducting the defense of the Third Party Claim in accordance with SECTION
9.1(D)(II) above, (a) the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be withheld
unreasonably) unless the judgment or proposed settlement involves only the
payment of money damages by one or more of the Indemnifying Parties and does not
impose an injunction or other equitable relief upon the Indemnified Party, and
(b) the Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably).
(iv) In the event none of the Indemnifying Parties assumes and
conducts the defense of the Third Party Claim in accordance with SECTION
9.1(D)(II) above, or the Third Party Claim involves an injunction or other
equitable relief, however, (a) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner he or it reasonably may deem appropriate
(and the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith) and (b) the Indemnifying Parties
will remain responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by the Third Party Claim to the fullest extent provided in this SECTION 9.1.
E. DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall make
appropriate adjustments for tax consequences and insurance coverage and take
into account the time value of money (using the per annum rate of Eight Percent
(8.0%) as the discount rate) in determining the Adverse Consequences for
purposes of this SECTION 9.1.
F. OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty or covenant; PROVIDED, HOWEVER, that Purchaser acknowledges and agrees
that the foregoing indemnification provisions in this SECTION 9.1 shall be the
exclusive remedy of Purchaser for any breach of the representations and
warranties in Section 3 above. Each of the Sellers hereby agrees that he or it
will not make any claim for indemnification against the Company or either of the
Harley Subsidiaries by reason of the
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fact that he or it was a director, officer, employee or agent of any such entity
or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim is pursuant to any
statute, charter document, bylaw, agreement, or otherwise) with respect to any
action, suit, proceeding, complaint, claim, or demand brought by Purchaser
against such Seller (whether such action, suit, proceeding, complaint, claim, or
demand is pursuant to this Agreement, applicable law, or otherwise).
9.2 ADJUSTMENT TO PURCHASE PRICE AT CLOSING. Sellers have engaged Deloitte
& Touche at the Company's expense to prepare audited financial statements of the
Company, dated as of the Measurement Date. Such audited financial statements
shall be prepared in accordance with Generally accepted accounting principles,
consistently applied, and in a manner consistent with the Company's historical
accounting policies with respect to audited financial statements (including the
materiality threshold previously used by the Company's independent public
accountants in calculating the Company's net worth). The determination of such
accounting firm with respect to any accounting issue shall be final and binding
on the Parties. The Purchase Price shall be reduced by an aggregate amount (the
"Deficiency Amount") equal to (A) the sum of (i) the amount, if any, by which
four million two hundred fifty thousand dollars ($4,250,000) exceeds the
Company's Stockholders' Equity as of the Measurement Date, as set forth in such
audited financial statements, after giving effect to the Permitted Bonus (such
excess being reduced by any prior adjustment of the Purchase Price under Section
2.4), plus (ii) the amount of any Adverse Consequences resulting from, arising
out of, relating to, in the nature of, or caused by any breach of the Financial
Representations, minus (B) eighty thousand dollars ($80,000).
9.3 SPECIFIC PERFORMANCE. Each of the Parties hereby agrees that the
transactions contemplated by this Agreement are unique. Each Party hereby
acknowledges and agrees that it would be impossible to measure the damages which
would result if any Party should default in his or its obligations under this
Agreement; accordingly the Parties hereby agree that each Party shall have, in
addition to any other legal or equitable remedy available to him or it, the
right to enforce this Agreement by decree of specific performance or other
equitable remedy, and each Party hereby irrevocably waives any defense, claim or
assertion that a remedy in damages will be adequate.
9.4 OFFSET; ATTORNEYS' FEES. Subject to the limitations on liability set
forth in SECTION 9.1 hereof, to the extent permitted by applicable law, all
amounts due and owing to any Seller under this Agreement, the Subordinated Notes
or any document, instrument, or agreement executed in connection herewith or
therewith shall be subject to offset by Purchaser or Allwaste to the extent of
any damages incurred as a result of any Seller's breach of this Agreement or any
document, instrument, or agreement executed by any Seller in connection
herewith. Each Seller hereby acknowledges and agrees that but for the right of
offset contained in this SECTION 9.4, Purchaser would not have entered into this
Agreement or any of the transactions contemplated herein. If any legal action or
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Agreement, the successful or prevailing Party or
Parties shall be entitled to recover
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reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it or they may be entitled at law or
equity. The rights and remedies granted herein are cumulative and not exclusive
of any other right or remedy granted herein or provided by law.
9.5 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 CONFIDENTIALITY. Unless and until Closing has occurred, or such
information is or becomes public through no fault of the disclosing Party, each
Party hereby agrees that he or it will not disclose any information of a
confidential or proprietary nature concerning the other Parties or their
respective businesses or operations to any third parties, except for the
following, each of whom shall be informed of the confidential nature of such
information and the necessity to retain it in confidence: (A) Purchaser's and
Sellers' officers, directors, partners, or employees, as applicable, (B) a
limited number of outside legal, accounting and other professional consultants
or key agents, and (a) such other parties to whom such Party is required to
disclose such information under applicable law, pursuant to the advice of legal
counsel for such Party, in which event the disclosing Party shall (i) give prior
written notice to the other Parties of the disclosing Party's legal obligation
to disclose such information, including the person(s) to whom such information
is legally required to be disclosed, and (ii) disclose only the portion of such
information which the disclosing Party reasonably believes, on the advice of
legal counsel, is legally required to be disclosed. Each Party agrees that prior
to Closing, he or it and all of his or its Affiliates will use information
obtained in connection with the transactions contemplated in this Agreement
solely for the purpose of evaluating such transactions, and in no event shall
any Party use any of such confidential or proprietary information for his or its
own benefit or to the detriment of the other Parties. In the event that Closing
does not occur each Party shall, promptly upon request, return all of such
confidential or proprietary information to the appropriate Party, including any
and all copies thereof.
10.2 ANNOUNCEMENTS. No public or private announcement or disclosure shall
be made of the transactions contemplated herein, whether by press release or
filing of a report or disclosure with any securities exchange or governmental
authority, except as expressly contemplated herein, unless and until the Party
proposing such announcement or disclosure shall have supplied the proposed text
of such announcement or disclosure to the other Parties for review and comment
at least twenty-four (24) hours prior to release; provided however, that if in
the good faith opinion of legal counsel to the announcing or disclosing Party,
such announcement or disclosure is required
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under applicable federal or state law to be made sooner, a copy of such
announcement or disclosure shall be made available to all other Parties as soon
as possible, but in any event prior to release.
10.3 BROKERAGE COMMISSIONS AND OTHER FEES. Sellers hereby represent and
warrant that neither the Sellers nor the Company has incurred any liability for,
nor knows of any person or entity entitled to, any commission or finder's fee in
connection with this Agreement or the transactions contemplated herein.
Purchaser hereby represents and warrants that Purchaser has not incurred any
liability for, and does not know of any person or entity entitled to, any
commission or finder's fee in connection with this Agreement or the transactions
contemplated herein. Each Party shall be responsible for all costs, fees and
expenses (including attorney and accountant fees and expenses) paid or incurred
by such Party, and Sellers shall be responsible for all costs, fees and expenses
paid or incurred by the Sellers or the Company, in connection with the
preparation, negotiation, execution, delivery and performance of this Agreement,
or otherwise in connection with the transactions contemplated hereby, except
that the Company shall pay all the reasonable accounting and auditing costs of
its outside accountants necessary to consummate the transactions contemplated
herein, including the costs of the preparation of any financial statements
required to be delivered under the terms of this Agreement and reasonable
expenses for travel, meals, lodging and other reasonable incidental expenses
related to the preparation, negotiation, execution, delivery and performance of
this Agreement.
10.4 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
10.5 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed during regular
business hours during a business day to the appropriate location described in
the preamble to this Agreement, or three (3) business days after posting thereof
by United States first-class, registered or certified mail, return receipt
requested, with postage and fees prepaid and addressed at his or its address set
forth in the preamble to this Agreement, with a copy to legal counsel for such
Party, at the address set forth on the letterhead on which such counsel's legal
opinion was delivered. Any Party may designate a different address for
subsequent notices or communications by furnishing notice to the other Parties
in the manner described above.
10.6 ATTORNEY'S FEES. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing Party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it may be entitled at law or equity.
10.7 FEES AND OTHER EXPENSES. Except as expressly set forth herein to the
contrary, all costs, fees and expenses (including attorney and accountant fees
and expenses) shall be paid by the Party incurring same in connection with the
preparation, negotiation, execution, delivery and
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performance of this Agreement, or otherwise in connection with the transactions
contemplated hereby.
10.8 ADDITIONAL REMEDIES. All rights and remedies of each Party hereunder
are cumulative of every other right or remedy that such Party may otherwise have
at law or in equity or under this Agreement or any other document, instrument or
agreement. The exercise of one or more rights or remedies shall not prejudice or
impair the concurrent or subsequent exercise of other rights or remedies.
10.9 SEVERAL LIABILITY OF SELLERS. All of Sellers' liabilities and
obligations hereunder shall be several and not joint.
10.10 NON-WAIVER. Failure on the part of a Party in any one or more
instances to enforce any of such Party's rights which arise in connection with
this Agreement, or to insist upon the strict performance of any of the terms,
conditions or covenants of this Agreement, shall not be construed as a waiver or
relinquishment for the future of any such rights, terms, conditions or
covenants. No waiver of any condition of this Agreement shall be valid unless it
is in writing, and executed by the Party against whom such waiver is sought to
be enforced. Any valid waiver shall be effective only for the purposes expressly
set forth therein.
10.11 GOVERNING LAW; JURISDICTION; VENUE. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Texas, without regard to conflicts of law principles, and the laws of the
United States applicable in Texas. Venue for any litigation between or among the
Parties with respect to the subject matter of this Agreement shall be Harris
County, Texas. Each Party hereby irrevocably submits to personal jurisdiction in
Texas. Each Party hereby waives all objections to personal jurisdiction in Texas
and venue in Harris County for purposes of such litigation.
10.12 CONSTRUCTION. The Parties and their respective legal counsel have
participated extensively in the preparation, negotiation and drafting of this
Agreement. Accordingly, no presumption will apply in favor of either Sellers or
Purchaser in the interpretation of this Agreement or in the resolution of the
ambiguity of any provision hereof. All words used herein shall be construed to
be as the circumstances require. As used herein the term "this Agreement" shall
mean this Agreement as a whole and as the same may, from time to time hereafter,
be amended, supplemented or modified. The words "herein," "hereof," "hereto,"
"hereunder," "hereinafter," "hereinabove," and "hereinbelow," and other words of
similar import, refer to this Agreement as a whole and not to any particular
article, section, paragraph, clause or other subdivision hereof, unless
otherwise specifically noted. As used herein, the words "include" or "including"
shall mean "including without limitation."
10.13 HEADINGS. The headings and subheadings of the Articles and Sections
contained herein or on any Schedule or Exhibit attached hereto are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement or any provisions hereof. Any reference
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herein to an Article or Section shall be deemed to be a reference to the
corresponding Article or Section of this Agreement unless otherwise stated
herein.
10.14 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective, valid and enforceable
under applicable law, but if any provision of this Agreement shall be prohibited
by, or invalid or unenforceable under, applicable law, then (i) the Parties
agree that they will amend such provisions by the minimal amount necessary to
bring such provisions within the ambit of enforceability, and (ii) any court of
competent jurisdiction may, at the request of either Party, revise, reform or
reconstruct such provisions in a manner sufficient to cause them to be
enforceable. In no event shall any prohibition against, or the invalidity or
unenforceability of, any provision hereof affect the validity or enforceability
of any other provision hereof.
10.15 SCHEDULES AND EXHIBITS. All schedules and exhibits attached to this
Agreement are hereby incorporated into and made a part of this Agreement.
10.16 FURTHER ASSURANCES. Each of the Parties shall perform such actions
and deliver or cause to be delivered any and all such documents, instruments and
agreements as the other Party may reasonably request for the purpose of fully
and effectively carrying out this Agreement and the transactions contemplated
hereby.
10.17 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Parties and their respective successors and assigns.
10.18 ENTIRE AGREEMENT. This Agreement and all of the documents and
agreements executed in connection herewith set forth the entire agreement
between the Parties with respect to the subject matter hereof, and supersede all
prior or contemporaneous oral agreements or understandings, and all prior or
contemporaneous written agreements, with respect thereto.
10.19 MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which together shall constitute but one and the same agreement.
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EXECUTED AND DELIVERED EFFECTIVE as of the date first written above.
PURCHASER:
THE SAFE SEAL COMPANY, INC.
a Texas corporation
By: ________________________________
WILLIAM E. HAYNES, President
and CEO
SELLERS:
____________________________________
GENE MAXON, Individually
____________________________________
KENNETH GROUNDS, Individually
HUB ASSOCIATES
a California General Partnership
By: ________________________________
MARTIN G. HUBBARD,
General Partner
By: ________________________________
MICHAEL E. RAKESTRAW,
General Partner
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<PAGE>
THE COMPANY:
HARLEY INDUSTRIES, INC.
a California corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
The undersigned, the spouses of each of Mr. Maxon and Mr. Grounds, are
fully aware of, understand, and fully consent and agree to the provisions of
this Stock Purchase Agreement, and its binding effect upon any community or
other property interests that they may own, and their awareness, understanding,
consent and agreement are evidenced by their execution hereof. The undersigned
spouses of each of Mr. Maxon and Mr. Grounds additionally join in the execution
hereof in order to sell, assign and transfer unto Purchaser all of their
respective rights, titles and interests, legal or beneficial if any, in the
Subject Shares.
____________________________________
Name: ______________________________
Spouse of Gene Maxon
____________________________________
Name: ______________________________
Spouse of Kenneth Grounds
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Schedule 1.12 - Closing Financial Statements (Unaudited October 31)
Schedule 1.14 - Employees
Schedule 1.22 - Financial Statements (Unaudited August 31)
Schedule 3.3 - (A) Sellers' Consents and Approvals
Schedule 3.3 - (B) Sellers' Breaches and Defaults
Schedule 3.5 - Options, etc.
Schedule 3.7 - Exceptions to Title to Assets
Schedule 3.8 - Leased Assets (Personal Property)
Schedule 3.9 - Condition of Assets and Leased Assets
Schedule 3.10 - Contracts
Schedule 3.11 - Other Contracts
Schedule 3.15 - Licenses
Schedule 3.17 - (A) Real Property Owned
(B) Real Property Leased
Schedule 3.18 - Subsidiaries
Schedule 3.19 - Insurance
Schedule 3.20 - Banking
Schedule 3.22 - Personnel
Schedule 3.23 - Employee Benefits
Schedule 3.24 - Employment Agreements
Schedule 3.26 - Additional Liabilities
Schedule 3.27 - Litigation
Schedule 3.28 - Tax Matters
Schedule 3.30 - Environmental, Health and Safety
Schedule 3.32 - Certain Changes or Events
Schedule 3.33 - Customers
Exhibit A - Form of Agreement Not to Compete
Exhibit B - Form of Allwaste Subordinated Note
Exhibit C - Form of Sellers' Investor Representation Letters
Exhibit D - Seller's Opinion of Counsel
Exhibit E - Purchaser's Opinion of Counsel
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STOCK TRANSFER AGREEMENT
THIS STOCK TRANSFER AGREEMENT (the "Agreement") is entered into effective
the 24th day of January, 1997, by and among THE SAFE SEAL COMPANY, INC.
("PURCHASER"), a Texas corporation with its chief executive office at 14900
Woodham Drive, Suite A125, Houston, Texas 77073, KIRK NELLIS ("SELLER"), an
individual whose address is 3220 E. 67th Street, Tulsa, Oklahoma, HARLEY
INDUSTRIES, INC. (THE "COMPANY"), a California corporation with its chief
executive office and principal place of business at 2250 East 73rd Street, Suite
300, Tulsa Oklahoma 74136, and HARLEY EQUIPMENT CORPORATION (THE "EQUIPMENT
SUBSIDIARY"), an Oklahoma corporation and a wholly-owned subsidiary of the
Company with its chief executive office and principal place of business at 2250
East 73rd Street, Suite 300, Tulsa Oklahoma 74136. Purchaser, Seller, the
Company and the Equipment Subsidiary are sometimes hereinafter referred to
collectively as the "Parties" or individually as a "Party." In addition, DENNIS
NOYES has joined in the execution hereof solely with respect to the Termination
of the Option Agreement and Release hereinafter described.
W I T N E S S E T H :
WHEREAS, Seller is the legal and beneficial owner and holder of
twenty-four thousand (24,000) shares (the "HII Shares") of the Company, the HII
Shares constituting approximately three and one-tenth percent (3.1%) of the
issued and outstanding capital stock of the Company;
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, all of the HII Shares, on the terms and conditions and for
the consideration set forth in this Agreement;
WHEREAS, as a condition to Purchaser's obligation to consummate the
transactions contemplated in this Agreement, Purchaser must contemporaneously
acquire approximately ninety-six and nine-tenths percent (96.9%) of the issued
and outstanding capital stock of the Company; and
WHEREAS, in consideration of the transfer of the HII Shares, the Purchaser
has agreed to cause the Company to transfer (i) certain Assets to the Equipment
Subsidiary, and (ii) all of the issued and outstanding capital stock of the
Equipment Subsidiary (the "HEC Shares") to Seller;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and confessed, the Parties hereby agree as follows:
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 ADVERSE CONSEQUENCES. The term "Adverse Consequences" shall mean all
actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in defense, investigation or
settlement, liabilities, obligations, taxes, liens, losses, expenses and fees,
including court costs and attorneys fees.
1.2 AFFILIATE. The term "Affiliate" of a person shall mean, with respect
to that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of, that
person. Specifically, and without limiting the definition of the term
"Affiliate," Gene Maxon, Kenneth Grounds, Martin Hubbard and Michael Rakestraw
are all agreed to be Affiliates of the Company and of the Seller. As used in the
definition of Affiliate, the term "control" (including the terms "controlling,"
"controlled by," or "under common control with") means the possession, direct or
indirect, of the power to direct, cause the direction of, or influence the
management and policies of a person, whether through the ownership of voting
securities, by contract, through the holding of a position as a partner,
director or officer of such person, as a trustee, or otherwise. As used in this
Section, the term "person" means an individual, a corporation, a partnership, a
limited liability company, an association, a joint stock company, a trust, an
incorporated organization, or a government or political subdivision thereof, or
any other form of entity.
1.3 ASSETS. The term "Assets" shall mean all of the assets, other than the
Leased Assets, owned or used by the Company in the Business, including without
limitation those assets set forth on that certain Schedule of Assets previously
delivered to the Purchaser, subject to non-material diminution thereof in the
Ordinary Course of Business.
1.4 BALANCE SHEET. The term "Balance Sheet" shall mean the August 31, 1996
balance sheet of the Company, including the notes thereto, prepared internally
from the books and records of the Company, without audit, and included in the
Financial Statements attached hereto as SCHEDULE 1.22.
1.5 BALANCE SHEET DATE. The term "Balance Sheet Date" shall mean August
31, 1996.
1.6 BANK OF OKLAHOMA DEBT. The term "Bank of Oklahoma Debt" shall mean the
indebtedness of the Company to Bank of Oklahoma under the Revolving Credit and
Term Loan Agreement dated March 18, 1991, as amended through the Ninth Amendment
to Revolving Credit and Term Loan Agreement dated November 1, 1996.
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1.7 BILL OF SALE. The term "Bill of Sale" shall have the meaning ascribed
thereto in Section 6.3 (b) hereof.
1.8 BUSINESS. The term "Business" shall mean the current business of the
Company of selling, repairing and servicing valves and equipment.
1.9 CLASS A REPRESENTATIONS. The term "Class A Representations" shall mean
those representations and warranties of Seller set forth in (i) SECTIONS 3.1,
3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.18, 3.23, 3.25 AND 3.28, (ii) SECTIONS 3.12,
3.13 AND 3.14 to the extent, but only to the extent, such sections deal with
title issues, and (iii) SECTION 3.17, except to the extent that such section
deals with Environmental, Health & Safety Laws.
1.10 CLASS B REPRESENTATIONS. The term "Class B Representations" shall
mean all of the representations and warranties of Seller set forth in ARTICLE
III of this Agreement, OTHER THAN those which are Class A Representations,
Environmental Representations, or Financial Representations.
1.11 CLOSING. The term "Closing" shall mean the consummation of the
transfer of the HII Shares to Purchaser and the HEC Shares to Seller on the
Closing Date.
1.12 CLOSING DATE. The term "Closing Date" shall mean the date that the
condition set forth in ARTICLE VI has been met or waived by both Parties, or
such other date as may be established by agreement of the Parties.
1.13 CLOSING FINANCIAL STATEMENTS. The term "Closing Financial Statements"
shall mean a balance sheet and income statement of the Company prepared
internally from the books and records of the Company, without audit, as of the
Measurement Date, and attached hereto as SCHEDULE 1.13.
1.14 CODE. The term "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.15 EMPLOYEE. The term "Employee" shall mean any employee of the Company
who as of the Closing Date is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave, layoff or leave of absence, who, in accordance
with the Company's applicable policies, would be eligible to return to active
status, as set forth on SCHEDULE 3.22 attached hereto.
1.16 EMPLOYEE BENEFIT PLAN. The term "Employee Benefit Plan" means any (a)
nonqualified deferred compensation or retirement plan or arrangement which is an
Employee Pension Benefit Plan, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement
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which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or
(d) Employee Welfare Benefit Plan or material fringe benefit plan or program.
1.17 EMPLOYEE PENSION BENEFIT PLAN. The term "Employee Pension Benefit
Plan" has the meaning set forth in ERISA Sec. 3(2).
1.18 EMPLOYEE WELFARE BENEFIT PLAN. The term "Employee Welfare Benefit
Plan" has the meaning set forth in ERISA Sec. 3(1).
1.19 ENVIRONMENTAL, HEALTH & SAFETY LAWS. The term "Environmental, Health
& Safety Laws" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976,
the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, the
Hazardous Materials Transportation Act, the Federal Insecticide, Fungicide and
Rodenticide Act and the Occupational Safety and Health Act of 1970, each as
amended, together with all other laws (including rules and regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments and all agencies thereof
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of any solid, hazardous, industrial, or toxic
pollutants, contaminants, substances or wastes into ambient air, surface water,
ground water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of any
solid, hazardous, industrial or toxic pollutants, contaminant, substances or
wastes.
1.20 ENVIRONMENTAL REPRESENTATIONS. The term "Environmental
Representations" shall mean all of the representations and warranties of Seller
set forth in (i) Section 3.30 and (ii) Section 3.17, to the extent that such
section deals with Environmental, Health & Safety Laws.
1.21 ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.22 FINANCIAL REPRESENTATIONS. The term "Financial Representations" shall
mean all of the representations and warranties of Seller set forth in SECTION
3.31.
1.23 FINANCIAL STATEMENTS. The term "Financial Statements" shall mean the
August 31, 1996 Financial Statements of the Company attached hereto as SCHEDULE
1.23.
1.24 HARLEY SUBSIDIARIES. The term "Harley Subsidiaries" shall mean (i)
the Equipment Subsidiary, (ii) Harley Industries Inc. S.A. de CV, a corporation
organized and existing under the laws of the Republic of Mexico (the "Mexican
Subsidiary"),and (iii) Valve Repair of South Carolina, Inc.
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1.25 INTELLECTUAL PROPERTY. The term "Intellectual Property" shall mean
the following (a) all inventions (whether patentable or unpatentable and whether
or not reduced to practice), all improvements thereto and all patents, patent
applications, and patent disclosures together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments hereof (in whatever form or medium).
1.26 MEASUREMENT DATE. The term "Measurement Date" shall mean October 31,
1996.
1.27 ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of Business"
shall mean the ordinary course of business consistent with past custom and
practice (including with respect to quantity and frequency).
1.28 PBGC. The term "PBGC" shall mean the Pension Benefits Guaranty
Corporation.
1.29 PERMITTED BONUS. The term "Permitted Bonus" shall mean the
distribution by the Company to its shareholders of bonuses in an aggregate
amount not to exceed Six Hundred Twenty-Five Thousand and No/100 Dollars
($625,000.00), the proceeds of which will be used to acquire, on or before the
Closing Date, the following nonproducing assets: (A) (i) the stock of the
Mexican Subsidiary whose sole asset is the real property located in San Miguel
de Allende, Mexico; (ii) a note receivable owed to the Company by Mr. Maxon in
the outstanding principal amount of $150,000; (iii) the investment securities in
Industrial Equipment Rentals, Inc.; and (iv) two automobiles and a country club
membership utilized by Gene Maxon, all of which as of the Measurement Date had
an aggregate net book value which did not exceed Six Hundred TwentyFive Thousand
Dollars ($625,000), and (B) the Assets described in the Bill of Sale.
ARTICLE II
TRANSFER OF SHARES
2.1 TRANSFER OF SHARES. Subject to the terms and conditions set forth in
this Agreement, Seller hereby agrees to sell, convey, transfer, assign and
deliver to Purchaser, and Purchaser hereby agrees to purchase from Seller, on
the Closing Date, the HII Shares, free and clear of any restrictions or
conditions to transfer or assignment, rights of first refusal, mortgages, liens,
pledges, charges, encumbrances, equities, claims, covenants, conditions,
restrictions, options or agreements. For and in consideration of the transfer of
the HII Shares to Purchaser,
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and other good and valuable consideration more particularly described herein,
Purchaser hereby agrees to cause the Company, and the Company hereby agrees, to
sell, convey, transfer, assign and deliver to Seller the HEC Shares.
2.2 TAXES OF SELLER. Seller shall pay all income or other taxes of Seller
or of the Equipment Subsidiary arising out of (i) the transfer of the HII Shares
to Purchaser, (ii) the transfer of the HEC Shares to Seller, (iii) the transfer
of the Assets described in the Bill of Sale to the Equipment Subsidiary, (iv)
the payment or receipt of payment for any of the foregoing, (v) any
consideration delivered in connection with the transfer of any of the foregoing,
or (vi) as independent consideration for the Agreement Not to Compete
hereinafter described. Neither Purchaser nor the Company shall be responsible
for any business, occupation, income, withholding or similar tax, or any taxes
of any kind, of the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
In order to induce Purchaser to acquire the HII Shares, and to
acquire contemporaneously herewith the other ninety-six and nine-tenths percent
(96.9%) of the outstanding capital stock of the Company, Seller hereby
represents and warrants to Purchaser that:
3.1 ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, has all
necessary corporate powers to own its properties and to operate the Business as
now owned and operated by it, and is qualified to do business in all of the
states in which the Assets or any Leased Assets are located or the nature and
operation of the Business require such qualification.
3.2 AUTHORITY. Seller has the full right, power, legal capacity and
authority to execute, deliver and perform his obligations under this Agreement.
3.3 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except for the consents
required from the Bank of Oklahoma with respect to the Bank of Oklahoma Debt,
and as set forth on SCHEDULE 3.3(A), no consent, approval or authorization of,
or filing or registration with, any governmental or regulatory authority, or any
other person or entity, is required to be made or obtained by Seller or by the
Company or any Harley Subsidiary in connection with the execution, delivery or
performance of this Agreement, or the consummation by Seller of the transactions
contemplated hereby (except that no representation or warranty is made with
respect to the Mexican Subsidiary). Except as set forth on SCHEDULE 3.3(B),
neither the execution and delivery of this Agreement by Seller, nor the
consummation of the transactions contemplated herein by Seller, will (A) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency or court to which Seller, the Company or any Harley Subsidiary is subject
(except that no representation or warranty is made with respect to the Mexican
Subsidiary), or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
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accelerate, terminate, modify or cancel, or require any notice under any
agreement, contract, lease, license, instrument, promissory note, conditional
sales contract, partnership agreement or other arrangement to which Seller or
the Company or any Harley Subsidiary is a party or by which he or it is bound or
to which any of his or its assets are subject, or (C) conflict with or violate
the Articles of Incorporation, Bylaws or other charter document of the Company
or of any Harley Subsidiary.
3.4 VALID AND BINDING OBLIGATION. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Seller or
the Equipment Subsidiary in connection herewith, will constitute the legal,
valid, and binding obligation of Seller or the Equipment Subsidiary, as
applicable, enforceable against Seller or the Equipment Subsidiary, as
applicable, in accordance with its terms, except as same may be limited by
applicable bankruptcy laws, insolvency laws, and other similar laws affecting
the rights of creditors generally.
3.5 CAPITAL. The authorized capital stock of the Company consists of (i)
three million (3,000,000) shares of common stock, $0.01 par value per share, of
which seven hundred eighty thousand, four hundred twenty-eight (780,428) shares
are issued and outstanding, and (ii) One Million Nine Hundred Fifty Thousand
(1,950,000) shares of preferred stock, none of which is issued or outstanding.
Seller owns all of the HII Shares. The HII Shares constitute all of the issued
and outstanding capital stock of the Company which are not being acquired
contemporaneously herewith by Purchaser. All of the Company's outstanding
capital stock, including the HII Shares, is duly and validly authorized and
issued, fully paid and nonassessable, and none of such capital stock has been
issued in violation of the rights of any stockholder of the Company. The only
outstanding subscriptions, options, rights, warrants, convertible securities,
conversion rights, exchange rights or other agreements or commitments which
obligate the Company to issue or transfer from treasury additional shares of the
Company's common stock are set forth in SCHEDULE 3.5, and Seller shall cause all
of same to be fully and finally canceled and released, without any further
liability or obligation of the Company with respect thereto, at Closing. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company or its capital
stock. There are no voting rights, voting agreements, proxies or other
agreements or understandings with respect to the voting of any capital stock of
the Company. The HII Shares represent three and one-tenth percent (3.1%) of the
issued and outstanding capital stock of the Company, and represent all of the
outstanding capital stock of the Company other than the Seven Hundred Fifty-six
Thousand, Four Hundred Twenty-eight (756,428) shares to be acquired by Purchaser
from Gene Maxon, Kenneth Grounds and Hub Associates.
3.6 TITLE TO HII SHARES. The Seller has, and shall deliver to Purchaser on
the Closing Date, good, indefeasible and marketable title to the HII Shares,
free and clear of restrictions or conditions to transfer or assignment, rights
of first refusal, mortgages, liens, pledges, charges, encumbrances, equities,
claims, covenants, conditions, restrictions, options or agreements.
3.7 TITLE TO ASSETS. Except for the security interests securing payment of
the Bank of Oklahoma Debt and as set forth on SCHEDULE 3.7, the Company has good
and defensible title to
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the Assets, free and clear of restrictions or conditions to transfer or
assignment, or mortgages, liens, pledges, charges, encumbrances, equities,
claims, easements, rights-of-way, covenants, conditions or restrictions, except
for items which do not materially interfere with or restrict the use of the
Assets as presently utilized.
3.8 POSSESSION OF ASSETS; LEASED ASSETS. The Company is in possession of
all of the Assets and all of the assets leased to it from others. All assets
leased to the Company from others, whether real, personal or mixed, are
described on SCHEDULE 3.8 and SCHEDULE 3.17(B) attached hereto (the "Leased
Assets"). The Assets listed in the Schedule of Assets referenced in SECTION 1.3,
and the Leased Assets constitute all of the material assets, whether real or
personal property or mixed, tangible, or intangible, that are owned or used in
the Business by the Company. The Company does not own legal or equitable title
to any material assets or interests in assets except the Assets and the Leased
Assets. Seller shall deliver to Purchaser on the Closing Date, possession of
and/or control or dominion over all of the Assets and Leased Assets, including
without limitation all of the Company's cash, accounts receivable, property,
plant and equipment, other personal property, contract rights and general
intangibles, customer and supplier lists, and assumed and trade names. Solely
for purposes of this SECTION 3.8, the term "material assets" shall refer to
assets having a net book value individually greater than $10,000, or
collectively greater than $150,000.
3.9 CONDITION. Except as expressly set forth on SCHEDULE 3.9, all of the
Assets and Leased Assets are in adequate condition and repair for their intended
use, except for Assets which are out of service in the Ordinary Course of
Business, the aggregate value of which does not exceed Twenty Thousand Dollars
($20,000).
3.10 CONTRACTS AND LEASES. All material contracts, leases and agreements,
written or oral, to which the Company is a party or by which the Company or its
assets may be bound (collectively, the "Contracts") are set forth in SCHEDULE
3.10. Except as set forth on SCHEDULE 3.10, all of the Contracts are in full
force and effect, and to the knowledge of Seller after due inquiry are valid,
and there has not been any default by the Company, or to the knowledge of Seller
after due inquiry by any third party to any of said Contracts, or any event,
fact or circumstance which with notice or lapse of time or both, would
constitute a default by the Company, or to the knowledge of Seller after due
inquiry by any other party to any of the Contracts. Neither the Company nor the
Seller has received notice or has actual knowledge that any party to any of the
Contracts intends to cancel or terminate any of the Contracts or exercise or not
exercise any options that such party might have under any of the Contracts.
Solely for purposes of this SECTION 3.10, the term "material contracts" shall
refer to contracts under which the Company is obligated to perform in any
calendar year, obligations greater than $10,000 individually or $150,000 in the
aggregate.
3.11 OTHER CONTRACTS. Except as set forth in SCHEDULE 3.11, attached
hereto, the Company is not a party to, nor is any of its property bound by, any
distributor's or manufacturer's representative or agency agreement, any output
or requirements agreement, any agreement not entered into in the Ordinary Course
of Business, or any agreement requiring the performance of
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any obligation for a period of time extending beyond one (l) year from the date
hereof or calling for consideration of more than $5,000 per agreement or $50,000
in the aggregate. Except as set forth on SCHEDULE 3.11, the Company is not a
party to, nor is any of its property bound by, any agreement which is materially
adverse to the businesses, properties or financial condition of the Company.
Except as set forth in SCHEDULE 3.11, neither the Company nor any Harley
Subsidiary is a party to any agreement which: (i) prohibits it from engaging in
the business that it currently conducts, or upon consummation of the
transactions contemplated herein, will prohibit it from engaging in any type of
business, or (ii) will, upon consummation of the transactions contemplated
herein, prohibit Purchaser from engaging in any type of business.
3.12 EQUIPMENT. Except for the security interests securing payment of the
Bank of Oklahoma Debt, all of the equipment owned by the Company (collectively,
the "Equipment") is owned free and clear of any lien, security, claim or
encumbrance, and none of the Equipment is held under any security agreement,
conditional sales contract, or other title retention or security arrangement or
is located other than in the possession of the Company. The Equipment is in
adequate operating condition for its intended use.
3.13 ACCOUNTS RECEIVABLE. All of the accounts receivable of the Company as
set forth in the books and records of the Company (collectively, the
"Accounts"), and all papers and documents relating thereto, are genuine and in
all respects what they purport to be, and each such Account is valid and
subsisting and arises out of a bona fide sale or lease of goods sold or leased
and delivered to, or out of and for services theretofore actually rendered by
the Company to, the account debtor named in such Account. The amount of each
Account represented as owing as of the date indicated is the correct amount
actually and unconditionally owing as of the date indicated, except for normal
cash discounts, and is not subject to any set-offs, credits, disputes, defenses,
deductions or countercharges, except those arising in the Ordinary Course of
Business which do not exceed $10,000 individually nor $150,000 in the aggregate.
Except for the security interests securing payment of the Bank of Oklahoma Debt,
the Company is the owner of each such Account free and clear of any charges,
liens, security interests, adverse claims, and encumbrances of any and every
nature whatsoever.
3.14 INVENTORIES. The inventories of raw materials, work in process and
finished goods (collectively called "Inventories") shown on the Closing
Financial Statements as of the Measurement Date, consist of items of a quality
and quantity useable and saleable in the Ordinary Course of Business by the
Company, except for obsolete and slow moving items and items below standard
quality, all of which have been written down on the books of the Company to
estimated net realizable value or have been provided for by adequate reserves
based upon the advice of the Company's independent accountants. All items
included in the Inventories are the property of the Company and in its
possession, except for sales made in the Ordinary Course of Business since the
Measurement Date; for each of these sales either the purchaser has made full
payment (subject to customary discounts, allowances and carrying charges) or the
purchaser's liability to make payment is reflected in the books of the Company.
Except for the security interests securing payment of the Bank of Oklahoma Debt,
no items included in the Inventories have been pledged as collateral or are held
on consignment from others. The Inventories shown on the Financial
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Statements and on the Closing Financial Statements are based on quantities
determined by physical count or measurement, taken within the preceding twelve
(12) months, and are valued at the lower of cost (determined on a first-in,
first-out basis) or market value and on a basis consistent with that of prior
years.
3.15 LICENSES. All licenses owned by the Company or in which the Company
has any rights, licenses or sublicenses (collectively, the "Licenses"), together
with a brief description of each, are set forth on SCHEDULE 3.15. The Company
has not infringed, and is not now infringing, on any license belonging to any
other person or other entity. The Company owns and holds adequate licenses
necessary for the Business as now conducted by it, and neither the Company nor
Seller has received any claim nor has actual knowledge that such use conflicts
with, infringes on or otherwise violates any rights of others. The sale of the
HII Shares contemplated herein will not result in the termination of any
License.
3.16 INTELLECTUAL PROPERTY. Except for the rights of the Company to use
the names of various manufacturers under its distributorship agreements, the
Company does not own any Intellectual Property, nor require any Intellectual
Property to permit the Company to conduct the Business in the manner in which it
is currently conducted without any infringement or conflict with the rights of
others. No adverse claims have been asserted against the Seller, the Company or
the Business with respect to infringement upon or conflict with the Intellectual
Property rights of others.
3.17 REAL PROPERTY; LEASED REAL PROPERTY. Except as set forth in SCHEDULE
3.17(A) with respect to real property owned by the Company, and SCHEDULE 3.17(B)
with respect to real property leased by the Company (collectively, the "Real
Property"), the Company neither owns nor leases any real property or
improvements or interests therein. Neither the Company nor Seller has received
any notice, nor do either of them have actual knowledge, of any change
contemplated in any applicable laws, ordinances or restrictions, or any judicial
or administrative action, or any action by adjacent landowners, or natural or
artificial conditions upon the Real Property, which would have a material
adverse effect upon the Business, the Assets, or the Leased Assets. There is no
zoning, deed restriction, land use provision or restriction, or other material
adverse fact or condition of any kind or character whatsoever, which adversely
affects the continued use of the Real Property in the manner in which it is
currently used. Except for the facility in Beaumont, Texas, a portion of which
is subleased to the Federal Bureau of Prisons for use as a storage facility,
there are no parties in possession of any portion of the Real Property as
lessees, tenants at will or at sufferance, trespassers or otherwise, other than
the Company. The improvements included within the Real Property (the
"Improvements") and any renovations thereof have been, or by Closing will be,
substantially completed and installed in compliance with all applicable laws and
in a good and workmanlike manner, and the Company has not received any notice,
and Seller has no actual knowledge of any structural defects. The heating,
electrical, plumbing and other building equipment, as of the Closing, will be
adequate in quantity and quality for normal operations of the Business, as
presently conducted. To the knowledge of Seller, all utilities required for the
operation of the Improvements enter the Real Property through adjoining public
streets or, if they pass through an adjoining private tract, do so in accordance
with valid public
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easements or private easements which inure to the benefit of and are enforceable
by the Company. To the knowledge of the Seller, the Real Property has full and
free access to and from public streets and roads and Seller has no knowledge of
any fact or condition which would result in the termination of such access. To
the knowledge of the Seller, the Improvements do not encroach upon any adjacent
real property nor any easements or building set-back lines to which the Real
Property is subject, and no improvements upon adjacent real property encroach
upon the Real Property. There is no pending condemnation or similar proceeding
affecting the Real Property or any portion thereof, and neither the Company nor
the Seller has received any notice, and neither of them has actual knowledge,
that any such action is presently contemplated.
3.18 SUBSIDIARIES. Each of the Harley Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. No Harley Subsidiary has conducted any
business or operations. No Harley Subsidiary has violated any federal, state or
local ordinance, statute, law, rule or regulation applicable to it. All of the
issued and outstanding capital stock of any Harley Subsidiary is duly and
validly authorized and issued, fully paid and nonassessable, and the Company
owns good, indefeasible and marketable title to all of such capital stock, free
and clear of restrictions or conditions to transfer or assignment, rights of
first refusal, mortgages, liens, pledges, charges, encumbrances, equities,
claims, covenants, conditions, restrictions, options or agreements. There are no
outstanding subscriptions, options, rights, warrants, convertible securities,
conversion rights, exchange rights or other agreements or commitments which
obligate any Harley Subsidiary to issue or transfer from treasury additional
shares of such Harley Subsidiary's capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to any Harley Subsidiary or the capital stock of any of the
Harley Subsidiaries. There are no voting trusts, voting agreements, proxies or
other agreements or understandings with respect to any capital stock of any
Harley Subsidiary. As of the Balance Sheet Date and through the Closing Date,
none of the Harley Subsidiaries will have any assets or liabilities or conduct
any business, nor be or become a party to any contract, lease, instrument or
agreement. Neither the Company nor Purchaser will maintain or incur any debt,
liability, obligation or commitment of any nature, whether accrued, absolute,
contingent or otherwise, by, through or under any of the Harley Subsidiaries,
arising out of any event, fact, or circumstance, or any action taken or not
taken, prior to Closing. Except for the Harley Subsidiaries, the Company does
not own, directly or indirectly, any interest or investment (whether equity or
debt) in any corporation, partnership, business, trust, or other entity.
3.19 INSURANCE. Attached hereto as SCHEDULE 3.19 is a true, complete and
accurate list of all insurance policies maintained by the Company, and the
Company has maintained uninterrupted insurance coverage of such types and in
such amounts for a period of at least four (4) years prior to Closing.
3.20 BANKING. The names and addresses of all banks or other financial
institutions in which the Company has an account, deposit or safe deposit box,
with the account numbers and other descriptions and names of all persons
authorized to draw on these accounts or deposits or access to these boxes, are
set forth on SCHEDULE 3.20 attached hereto.
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3.21 POWERS OF ATTORNEY. No person or other entity holds a general or
special power of attorney from the Company or any of the Harley Subsidiaries.
3.22 PERSONNEL. Attached hereto as SCHEDULE 3.22 is a list of the names,
addresses, hire dates, dates of birth and annual salaries of all Employees of
the Company as of November 4, 1996. Also set forth on SCHEDULE 3.22 is a list of
those Employees who are not actively working in the Business and the reasons
therefor. The Harley Subsidiaries do not have any employees.
3.23 EMPLOYEE BENEFITS.
(A) SCHEDULE 3.23 is a true, correct and complete list of each Employee
Benefit Plan that the Company, or any Harley Subsidiary, maintains, or to which
any of them contribute.
(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to
each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B
of Title I of ERISA and of Code Sec. 4980B have been met with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan
and all contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee or accrued in
accordance with the past custom and practice of the Company and the Harley
Subsidiaries. All premiums or other payments for all periods ending on or
before the Closing Date have been and will be paid with respect to each
such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Sec.
401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(v) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all vested and nonvested
liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
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(vi) The Seller has delivered to Purchaser correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue Service,
the most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each
such Employee Benefit Plan.
(B) With respect to each Employee Benefit Plan that the Company or any
Harley Subsidiary maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multi-Employer Plan) has been completely or partially
terminated or been the subject of a reportable event as to which notices
would be required to be filed with the PBGC. No proceeding by the PBGC to
terminate any such Employee Pension Benefit Plan (other than any
Multi-employer Plan) has been instituted or threatened.
(ii) There have been no prohibited transactions with respect to any such
Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of the
assets of any such Employee Benefit Plan (other than routine claims for
benefits) is pending, or, to the best of Seller's knowledge, threatened.
Seller has no knowledge of any basis for any such action, suit,
proceeding, hearing, or investigation.
(iii) Neither the Company nor any of the Harley Subsidiaries has incurred,
and Seller does not expect that the Company or any Harley Subsidiary will
incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV or ERISA (including any withdrawal liability) or
under the Code with respect to any such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
(C) Except as set forth on SCHEDULE 3.23, neither the Company nor any
Harley Subsidiary contributes to, ever has contributed to, or ever has been
required to contribute to, any Multiemployer Plan or has any liability
(including withdrawal liability) under any Multiemployer Plan.
(D) Neither the Company nor any Harley Subsidiary maintains or has ever
maintained or contributes, has ever contributed, or ever has been required to
contribute to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Sec. 4980B).
3.24 EMPLOYMENT AGREEMENTS. Except as set forth on SCHEDULE 3.24, the
Company is not a party to any employment agreements, consulting agreements,
agreements providing for director or officer indemnification or other agreements
or arrangements providing for employee or other remuneration or benefits (other
than the Plans). Each Employee is terminable in
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accordance with the terms and provisions of the Company's Employee Handbook,
revised as of March 1989. Except as set forth on SCHEDULE 3.24, no Employees are
represented by any labor organization, and, as of the date hereof, no labor
organization or group of Employees has made a written demand to the Company for
recognition, or filed a petition with the National Labor Relations Board, or
announced its intention to hold an election of a collective bargaining
representative. There is no pending, or to the best knowledge and reasonable
belief of Seller threatened, labor dispute, strike or work stoppage affecting or
potentially affecting the Business.
3.25 NO SEVERANCE PAYMENTS. Except for the potential bonus payment to Joe
Cheatham described in the schedules hereto, the Company will not owe a severance
payment or similar obligation to any of its employees, officers, or directors,
as a result of the transactions contemplated by this Agreement, nor will any of
such persons be entitled to an increase in severance payments or other benefits
as a result of the transactions contemplated hereby, nor in the event of the
subsequent termination of their employment.
3.26 LIABILITIES. The Company does not have, and as of the Closing Date
will not have, any liabilities, obligations or commitments of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due (herein "Liabilities"), except (i) Liabilities which are adequately
disclosed or accrued against in the Financial Statements, (ii) Liabilities which
have been incurred in the Ordinary Course of Business and in accordance with
standard, customary and historical practices and experiences of the Company, and
(iii) Liabilities expressly set forth, as to the nature and amount thereof, on
SCHEDULE 3.26. Except for Liabilities arising under the Bill of Sale, none of
the Harley Subsidiaries has any Liabilities. In no event shall the Company or
the Purchaser be liable for (or have paid any) legal, accounting or other costs
or expenses incurred by the Company or Seller in connection with the transfer of
the HII Shares or the HEC Shares, or any of the transactions contemplated in
this Agreement, except for (i) the reasonable invoices of the Company's
independent accountants in connection with the preparation of the audit in
contemplation of the transaction described in this Agreement or (ii) as
expressly set forth in a written instrument executed by Seller and Purchaser.
3.27 LITIGATION. Except as set forth on SCHEDULE 3.27, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending, and neither the Company nor Seller has received any
written or oral notice that any is threatened, against or affecting the Company,
its Affiliates, the Assets, the Leased Assets or the Business.
3.28 TAX MATTERS.
(A) The Company and the Harley Subsidiaries have filed all tax returns
that they were required to file, and all such tax returns were correct and
complete in all respects. All taxes owed by the Company or any of the Harley
Subsidiaries (whether or not shown on any tax return) have been paid. Except for
the automatic six-month extension which Harley has received with respect to its
1996 tax return, neither the Company nor any Harley Subsidiary is the
beneficiary of any extension of time within which to file any tax return. No
claim has ever been made by an authority in a jurisdiction where any of the
Company or any Harley Subsidiary does not file tax
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returns, that the Company or any Harley Subsidiary is or may be subject to
taxation by that jurisdiction. There are no security interests on any of the
assets of the Company or any Harley Subsidiary that arose in connection with any
failure (or alleged failure) to pay any tax.
(B) Each of the Company and the Harley Subsidiaries has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(C) Neither Seller, nor any director or officer (or employee responsible
for tax matters) of the Company, nor any Harley Subsidiary expects any authority
to assess any additional taxes for any period for which tax returns have been
filed. Except as set forth on SCHEDULE 3.28, there is no dispute or claim
concerning any tax liability of the Company or any Harley Subsidiary either (i)
claimed or raised by any authority in writing or (ii) as to which any of Seller
or the former directors and former officers (and employees responsible for tax
matters) of the Company or the Harley Subsidiaries has knowledge based upon
personal contact with any agent of such authority. SCHEDULE 3.28 lists all
federal, state, local, and foreign income tax returns filed with respect to the
Company or the Harley Subsidiaries for taxable periods ended on or after October
31, 1989, indicates those tax returns that have been audited, and indicates
those tax returns that currently are the subject of audit. The Seller has
delivered to Purchaser correct and complete copies of all federal income tax
returns, examination reports, and statements of deficiencies assessed against or
agreed to by the Company or any Harley Subsidiary since October 31, 1989.
(D) Neither the Company nor any Harley Subsidiary has waived any statute
of limitations in respect of taxes or agreed to any extension of time with
respect to a tax assessment or deficiency.
3.29 COMPLIANCE WITH LAWS. The Company has complied with, and is not in
violation of, applicable federal, state or local ordinances, statutes, laws,
rules, restrictions and regulations (excluding Environmental, Health & Safety
Laws) that will result, or are likely to result, directly or indirectly, in
Adverse Consequences to the Business, the Assets, the Leased Assets, or the
customers, suppliers or financial prospects of the Company. There are not any
uncured violations of federal, state or local laws, ordinances, statutes,
orders, rules, restrictions, regulations or requirements (excluding
Environmental, Health & Safety Laws) affecting any portion of the Business, the
Real Property, the Assets or the Leased Assets, and neither any of the Assets,
the Leased Assets or the Real Property, nor the operation thereof nor the
conduct of the Business, violates any applicable federal, state or municipal
laws, ordinances, orders, regulations or requirements (excluding Environmental,
Health & Safety Laws).
3.30 ENVIRONMENTAL, HEALTH & SAFETY LAWS. Except as described on SCHEDULE
3.30 (i) neither the ownership nor the operation of the Business or any Assets
or Leased Assets has violated or violates any Environmental, Health & Safety
Laws, (ii) neither the Real Property, nor any real property previously owned or
occupied by the Company or any of the Harley Subsidiaries, nor to the knowledge
of the Seller any property adjacent to any of the foregoing, has
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been used for the use, manufacture, storage, treatment, generation,
transportation, processing, handling or disposal of any solid, hazardous,
industrial or toxic pollutant, contaminant, substance or waste in violation of
any Environmental, Health & Safety Laws, (iii) neither the Company, nor any of
the Harley Subsidiaries, nor the Seller has received nor has knowledge of any
notice of or any threat of any claim, suit, proceeding, inquiry, investigation,
citation, notice, violation, consent order or judicial or administrative action
arising out of or based upon any Environmental, Health & Safety Laws, (iv) no
solid, hazardous, industrial or toxic pollutant, contaminant, substance or waste
has been disposed of, spilled onto, discharged or released as those terms are
defined in the Environmental, Health & Safety Laws occurred on or within the
Real Property or, to the best of Seller's knowledge, any property adjacent
thereto, nor any real property previously owned or occupied by the Company or
any of the Harley Subsidiaries, (v) no underground storage tanks, above ground
storage tanks, solid or hazardous waste management units, wells, underground
injection systems, landfills, lagoons, settling ponds or any other impoundment
used to treat, store or dispose of any solid, hazardous or toxic substances,
pollutants, contaminants or wastes regulated by the Environmental Health &
Safety Laws have ever been placed on the Real Property, and if any underground
storage tanks are disclosed in SCHEDULE 3.30, none of such tanks are leaking,
(vi) neither the Company, nor any of the Harley Subsidiaries, nor the Seller has
received notice of any past, present or future event, condition, circumstance,
activity, practice, incident or action or plan which may interfere with or
prevent compliance or continued compliance with the Environmental, Health and
Safety Laws or which may give rise to any common laws or legal liability, or
otherwise form the basis of any claim action, demand, lawsuit, proceeding,
hearing, study or investigation, based on, related to, or alleging any violation
of the Environmental Health & Safety Laws and (vii) all wastes generated by the
Company have been treated and/or disposed of at appropriately licensed
recycling, reclamation, reuse, or treatment, storage and disposal facilities.
There is no environmental condition relating to any of the Assets, the Leased
Assets or the Business that may reasonably be expected to have a materially
adverse effect on any of the Assets, the Leased Assets or the Business or the
value thereof. The Company has all permits, licenses, franchises, operating
authorities and other authorizations or documented exemptions or variances
thereto necessary to the conduct of the Business in the manner and in the areas
in which the Business is presently conducted, the Company is in full compliance
with all the terms and conditions thereof and all such permits, licenses,
franchises, and authorizations are valid and in full force and effect. The
Company has not engaged in any activity which could cause the revocation or
suspension of any such permits, licenses, franchises, or other authorizations,
and no actions or proceedings looking to or contemplating revocation or
suspension of any thereof are pending or, to the best knowledge and reasonable
belief of Seller, threatened.
3.31 FINANCIAL STATEMENTS. The Financial Statements (i) are true,
complete, and correct in all material respects, (ii) fairly and accurately
present the financial position of the Company as of the periods described
therein, and the results of the operations of the Company for the periods
indicated, and (iii) have been prepared in accordance with generally accepted
accounting principles, consistently applied (except for certain footnote
disclosures normally required by GAAP, the omission of which, in the good faith
opinion of Seller, will not cause the Financial Statements to be misleading).
The Closing Financial Statements (i) are true, complete,
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and correct in all material respects, (ii) fairly and accurately present the
financial position of the Company as of the periods described therein, and the
results of the operations of the Company for the periods indicated, (iii) have
been prepared in accordance with generally accepted accounting principles,
consistently applied (except for certain footnote disclosures normally required
by GAAP, the omission of which, in the good faith opinion of Seller, will not
cause the Closing Financial Statements to be materially misleading), and (iv)
reflect all necessary eliminating entries and normal adjustments (including
without limitation year-end adjustments). After due inquiry of the Company's
management, Seller knows of no adjustments that will be required by the
Company's independent public accountants in order for such accountants to render
an unqualified report on the Company's financial statements.
3.32 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in SCHEDULE
3.32, since the Balance Sheet Date, there has been no:
(A) material adverse change in the financial condition, liabilities,
assets, business or prospects of the Company;
(B) loss, destruction or damage to any property of the Company,
whether or not insured, exceeding $150,000 in net book value in the
aggregate;
(C) material contract, commitment or obligation entered into or
incurred by the Company outside the Ordinary Course of Business;
(D) labor trouble, pending or threatened, involving the Company, or
change in the personnel of the Company or the terms or conditions of their
employment, other than changes in personnel of the Company below the level
of manager and occurring in the Ordinary Course of Business; or
(E) other event or condition of any character that has or might
reasonably be expected to have an adverse effect on the financial
condition, business, assets, liabilities or prospects of the Company.
3.33 CUSTOMERS. SCHEDULE 3.33 to this Agreement is a correct and current
list of all customers of the Company and/or the Harley Subsidiaries, together
with summaries of the sales made to each customer during the most recent fiscal
year and the immediately preceding fiscal year by each such entity. Except as
indicated in SCHEDULE 3.33, Seller does not have any information, nor is he
aware of any facts, indicating that any of these customers intend to cease doing
business with the Company, or to materially alter the volume or terms of such
business.
3.34 INTERESTS IN CUSTOMERS, SUPPLIERS AND COMPETITORS. Neither the
Seller, nor any shareholder, officer, director or manager (nor any former
shareholder, officer, director or manager) of the Company, nor to the best
knowledge and reasonable belief of Seller any relative of any of them, has any
direct or indirect interest in any supplier or customer of the Company, or
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any person or other entity who has done business with the Company in the
twenty-four (24) months preceding the Closing.
3.35 CORPORATE DOCUMENTS. Seller has furnished to Purchaser for its
examination (i) true and correct copies of the certificates or articles of
incorporation and bylaws of the Company and of any Harley Subsidiary, as amended
to date; (ii) true and correct copies of the contents of the minute books of the
Company and of any Harley Subsidiary (including proceedings of audit and other
committees), each of which contains all records for all proceedings, consents,
actions and meetings of the shareholders, board of directors and committees, of
each of them since their respective dates of incorporation.
3.36 ADVERSE INFORMATION. After due inquiry of Company management, Seller
does not have any information or knowledge of any change contemplated in any
applicable laws, ordinances or restrictions, or any judicial or administrative
action, or any event, fact or circumstance which will, or could be reasonably
expected to, have a material adverse effect on the Company or its condition,
financial or otherwise, the Assets, the Leased Assets or the condition, value or
operation thereof.
3.37 DISCLOSURE. Seller has provided to Purchaser actual copies of all
Contracts, documents concerning all litigation and administrative proceedings,
employee benefit plans, Licenses, insurance policies, lists of suppliers,
customers, and Employees, and corporate and partnership records relating to the
Company and/or the Harley Subsidiaries or their assets and liabilities or the
Business, and such information covers all material commitments and liabilities
of the Company. In addition, (i) Purchaser has been fully informed with respect
to all material developments in the business of the Company since the Balance
Sheet Date, (ii) management of the Company has not made any material commitments
nor taken any material actions of which Purchaser has not been advised, and
(iii) Purchaser and its agents have been granted unlimited access to the books
and records of the Company (whether retained electronically, on discs or on
paper).
3.38 FULL DISCLOSURE. This Agreement, the schedules and exhibits hereto,
and all other documents and written information furnished by the Seller, the
Company, or their Affiliates on behalf of Seller, the Company or their
respective Affiliates, to Purchaser or its representatives pursuant hereto or in
connection herewith, are true, complete and correct in all material respects,
and do not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made herein and therein not
misleading. After due inquiry of management of the Company, Seller is not aware
of any presently existing facts or circumstances relating to the Business or the
assets, liabilities, prospects, operations or financial condition of the Company
which materially and adversely affects, or in the reasonable judgment of Seller
is likely to materially and adversely affect, the Business, the Company, or the
assets, liabilities, prospects, operations or financial condition thereof, or
the ability of the Seller to perform this Agreement or the obligations of Seller
hereunder.
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ALL OF THE REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS
AGREEMENT SHALL BE TRUE, COMPLETE AND CORRECT AS OF THE DATE OF THIS AGREEMENT
AND SHALL BE DEEMED TO HAVE BEEN MADE AGAIN AT AND AS OF THE CLOSING DATE, AND
THEN SHALL BE TRUE, COMPLETE AND CORRECT IN ALL RESPECTS, AND SHALL SURVIVE THE
CLOSING AND THE EXECUTION AND DELIVERY OF ALL DOCUMENTS, INSTRUMENTS AND
AGREEMENTS EXECUTED IN CONNECTION THEREWITH.
TO THE EXTENT THAT A FACTUAL SITUATION IS SET FORTH AS A DISCLOSURE ITEM
ON A SCHEDULE AND SUCH FACTUAL SITUATION MAY UNDER THE EXPRESS TERMS OF THIS
AGREEMENT REQUIRE DISCLOSURE ON ANOTHER SCHEDULE UNDER THIS AGREEMENT, SUCH
FACTUAL SITUATION SHALL BE DEEMED TO HAVE BEEN DISCLOSED ON SUCH OTHER SCHEDULE
TO THE EXTENT THAT THE FACTUAL DESCRIPTION WOULD BE SUFFICIENT TO APPRIZE THE
READER OF THE RELEVANT FACTS WHICH WOULD OTHERWISE BE REQUIRED TO BE SET FORTH
ON SUCH OTHER SCHEDULE.
ARTICLE IV
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants that:
4.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Texas, and has all
necessary corporate powers to own its properties and to carry on its business as
now owned and operated by it.
4.2 AUTHORITY. Purchaser has the right, power, legal capacity, and
authority to execute, deliver and perform its obligations under this Agreement.
The execution, delivery and performance of this Agreement by Purchaser has been
duly authorized by Purchaser's Board of Directors, which constitutes all of the
necessary corporate action for Purchaser to consummate the transactions
contemplated by this Agreement and to perform its obligations hereunder.
4.3 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority, or any
other person or entity, is required to be made or obtained by Purchaser in
connection with the execution, delivery or performance of this Agreement or the
consummation by Purchaser of the transactions contemplated hereby.
4.4 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Purchaser
in connection herewith will constitute the legal, valid, and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its terms, except
as same may be limited by bankruptcy laws, insolvency laws, and other similar
laws affecting the rights of creditors generally.
ALL OF THE REPRESENTATIONS AND WARRANTIES OF PURCHASER CONTAINED IN THIS
AGREEMENT SHALL BE TRUE, COMPLETE AND CORRECT AS OF THE DATE OF THIS AGREEMENT
AND SHALL BE DEEMED TO HAVE BEEN MADE AGAIN AT AND AS OF THE CLOSING DATE, AND
THEN SHALL BE TRUE, COMPLETE AND
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CORRECT IN ALL RESPECTS, AND SHALL SURVIVE THE CLOSING AND THE EXECUTION AND
DELIVERY OF ALL DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION
THEREWITH.
ARTICLE V
ADDITIONAL WARRANTIES AND
CERTAIN COVENANTS AND AGREEMENTS
5.1 SELLER'S COVENANTS. Seller represents, warrants, covenants and agrees
that from the Balance Sheet Date through the Closing Date, except for the
Permitted Bonus:
(A) the Company, the Harley Subsidiaries and the Seller have used
and will use their best efforts to preserve the business organization of
the Company and the Harley Subsidiaries intact, to keep available to the
Business the Employees, and to preserve the present relationships of the
Company and the Harley Subsidiaries with their suppliers, customers and
others having business relationships with them;
(B) the Company has maintained and will maintain its existing
insurance as to the Business and the Assets (and as applicable, the Leased
Assets);
(C) the Company has maintained and operated and will maintain and
operate the Business in a good and businesslike manner in accordance with
good and prudent business practices and the Company's historical policies;
(D) the Company has maintained and operated, and will continue to
maintain and operate, the Assets and the Leased Assets, including the Real
Property, in a good and businesslike manner in accordance with good and
prudent business practices and the Company's historical policies, in as
good working order and condition as existed as of September 24, 1996,
ordinary wear and tear excepted;
(E) the Company has not issued or sold, nor directly or indirectly
redeemed or acquired, and will not issue or sell, or directly or
indirectly redeem or acquire, any shares of its capital stock, or any
other of its securities, and has not granted nor agreed to grant any
options or rights with respect thereto, and has not changed nor agreed to
change and will not change its capital structure;
(F) except with respect to the Permitted Bonus, the Company has not
declared, set aside nor paid and will not declare, set aside or pay a
dividend or other distribution in respect to its capital stock;
(G) except with respect to the Permitted Bonus, the Company has not
made and will not make any payment of any type to the holders of any
capital stock
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of the Company or any of their Affiliates, other than ordinary salary or
expenses which have been fully disclosed to Purchaser; or
(H) the Company has neither waived nor released and will not waive
nor release any material right of or material claim held by it, and has
not discounted and will not discount any of its receivables;
(I) the Company has not acquired nor disposed of and will not
acquire or dispose of, any material assets, individually or in the
aggregate, and has not entered into and will not enter into any contract
or arrangement therefor, and has not entered into and will not enter into
any other transaction other than for value in the Ordinary Course of
Business and in accordance with prudent business practices and the
Company's historical policies;
(J) the Company has not revalued and will not revalue any of its
assets or liabilities;
(K) the Company has not, other than in the Ordinary Course of
Business, changed and will not change the salary or other compensation
payable or to become payable by the Company to any of its officers,
directors, employees or agents, and has not declared, made or committed,
and will not declare, make or commit to any kind of payment of a bonus or
other additional salary or compensation to any such person;
(L) the Company has not made and will not make a loan to any person
or entity, and has not guarantied and will not guaranty any loan;
(M) the Company has not amended nor terminated, and will not amend
nor terminate, any material contract, agreement, permit or license to
which the Company or either of the Harley Subsidiaries is a party, or by
which the Company, any Harley Subsidiary, or any of the Assets or Leased
Assets are bound;
(N) the Company has maintained and will maintain all debt and lease
instruments, and has not entered into and will not enter into any new or
amended debt or lease instruments, without the prior written approval of
Purchaser;
(O) the Company has not entered into and will not enter into any
agreement or instrument which would constitute an encumbrance, mortgage or
pledge of the Assets, or which would bind Purchaser, the Company or the
Assets after Closing, which have been entered into outside the normal
scope of maintaining and operating the Business and the Assets in the
Ordinary Course of Business;
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(P) the Company has not removed, nor permitted the removal of, and
will not remove nor permit the removal of, any personal property or
fixtures from the Real Property, unless such personal property or fixtures
are replaced with an item of at least equal value that is properly suited
for its intended purpose, other than inventory sold in the Ordinary Course
of Business, or other personal property in an amount which is not
material, either individually or in the aggregate;
(Q) subject to the approval of Gene Maxon, the Company and the
Seller will afford Purchaser the continuing right to review and inspect
the Assets and the Leased Assets, including the Real Property, at
reasonable hours, and any and all books, records, contracts, and other
documents or data pertaining to the ownership, use, insurance, operation,
renovation and maintenance of the Assets and Leased Assets, including the
Real Property, and the Business;
(R) subject to the prior approval of Gene Maxon, the Company and the
Seller will afford Purchaser free and open access to the Employees during
regular business hours, to assist Purchaser in the contemplated due
diligence review, and to allow Purchaser to gather information to make
employment decisions to be effective after Closing;
(S) the Company has performed and will perform all of the Company's
obligations under all contracts and commitments applicable to the Company
or the Assets, and has maintained and will maintain the Company's books of
account and records in the usual, regular and customary manner;
(T) except as otherwise expressly set forth in this Agreement, the
Company has complied and will comply with all statutes, laws, ordinances
and regulations applicable to the Company, the Assets, the Leased Assets
and the conduct of the Business, and will provide Purchaser with immediate
notice of any violation of any Environmental, Health & Safety Laws;
(U) the Company has paid and will pay in the Ordinary Course of
Business all bills and other payments due with respect to the ownership,
use, insurance, operation and maintenance of the Business, the Assets, and
the Leased Assets, including the Real Property, except for items being
contested in good faith and for which proper and adequate security has
been given, where required (which contested matters, if adversely
resolved, do not aggregate in excess of $15,000) within thirty (30) days
after such bills or other payments were due, and has taken and will take
all action necessary or prudent to prevent liens or other claims for the
same from being filed or asserted against any part of the Assets or the
Leased Assets, including the Real Property, provided however, that the
Company shall not make any expenditures outside the Ordinary Course of
Business, nor any capital
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expenditures, individually or in the aggregate in excess of $3,000,
without the prior written approval of Purchaser;
(V) the Company has not made and will not make any material changes
in its management, operations, accounting or business practices or methods
(including without limitation, any change in depreciation or amortization
policies or rates), nor negotiate or pursue the acquisition or the
start-up of any new business or line of business;
(W) all revenues or cash or other receipts from all sources in all
media received by the Company have been deposited and will be deposited in
the Company's account;
(X) the Seller will cause all of the representations and warranties
set forth in SECTION 3.32 hereof to be and remain true, complete and
correct as of the Closing;
(Y) to the extent Seller receives notice, Seller will immediately
advise Purchaser in writing of any material adverse change in the
financial condition, results of operations, business or prospects of the
Company or any of the Harley Subsidiaries, and any event which could
reasonably be expected to result in such a change; and
(Z) there has been no agreement by the Company to do any of the
things described above in this SECTION 5.1 which, if such were to occur
between the Balance Sheet Date and the Closing Date, would constitute a
breach of a covenant contained in this SECTION 5.1.
5.2 THIRD PARTY CONSENTS. Except as set forth in SECTION 6.1(E), Seller
shall use its best efforts to obtain the respective consents or approvals of
each third party whose consent or approval is required for the consummation of
the transactions contemplated hereby.
5.3 COMPETING PROPOSALS. Seller will not initiate, and will not permit the
Company to initiate, directly or indirectly, contact with any person or entity
in an effort to solicit any takeover proposal, nor will any of them authorize
any officer, director or employee of the Company, or any investment banker,
attorney, accountant or any representative, to directly or indirectly initiate
any such contact. As used in this SECTION 5.3, "takeover proposal" shall mean
any proposal for an acquisition, merger or other business combination involving
the Company or any of the Harley Subsidiaries or for the acquisition of a
substantial equity interest therein or a substantial portion of any of their
assets, other than the transaction contemplated by this Agreement. Further, the
Seller will not, and will not permit the Company to, directly or indirectly,
cooperate or negotiate with, or furnish or cause to be furnished any non-public
information concerning the Business, properties or assets to, any person or
entity in connection
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with any takeover proposal. Seller shall immediately notify Purchaser orally of,
and confirm in writing, all relevant details relating to any takeover proposal
which Seller or the Company may receive. Seller will use its best efforts to
consummate the transactions contemplated in this Agreement on the Closing Date,
and will, at or prior to Closing, take all necessary action to perform its
obligations under this Agreement.
5.4 COOPERATION; SATISFACTION OF CONDITIONS. Seller shall (a) give
assistance, to the extent within his control (and upon prior notice to Purchaser
of any expense, at Purchaser's expense), to Purchaser in preparing any required
filings and seeking any required consents or approvals in any manner reasonably
requested, and (b) use Seller's best efforts to pursue, to the extent within
Seller's control, the satisfaction of all other conditions to the consummation
of the transactions contemplated herein. Upon the fulfillment of the condition
precedent to the obligations of the Parties contained herein, Seller will
forthwith proceed to Closing.
5.5 REPAYMENT OF LOANS. As of the Balance Sheet Date, the Company did not
owe, and from the Balance Sheet Date through the Closing Date the Company will
not incur, any indebtedness, liability or obligation to Seller, except for
salary accrued in the Ordinary Course of Business. As of the Balance Sheet Date
Seller did not owe, and from the Balance Sheet Date through the Closing Date
Seller will not incur, an indebtedness, liability or obligation to the Company.
ARTICLE VI
CONDITION TO CLOSING
6.1 MUTUAL CONDITION TO PARTIES' OBLIGATIONS. The obligations of the
Parties to consummate the transactions contemplated herein are subject only to
(i) the acquisition by Purchaser of the outstanding shares of the Company owned
by Gene Maxon, Kenneth Grounds, and Hub Associates, and (ii) satisfactory review
by Purchaser between the date hereof and the Closing Date of the books, records
and financial information of the Equipment Subsidiary for the first quarter of
the 1997 fiscal year of the Equipment Subsidiary, to determine that the
Equipment Subsidiary has not lost in excess of $150,000 during such quarter, in
Purchaser's reasonable discretion. The Parties may agree to waive this condition
in whole or in part by written instrument signed by all of the Parties;
provided, however, that no such waiver of the condition shall constitute a
waiver by any Party of its other rights or remedies, at law or in equity, if the
other Party shall be in default of any of such Party's representations,
warranties, covenants or agreements under this Agreement. Each Party hereby
agrees to proceed immediately to Closing upon satisfaction of the foregoing
condition.
ARTICLE VII
THE CLOSING
7.1 TIME AND PLACE. On the Closing Date, the transfer of the HII Shares by
Seller to Purchaser, the transfer of the HEC Shares from the Company to the
Seller, and the other
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transactions contemplated hereby (the "Closing") shall take place at the offices
of Texas Commerce Bank--Richmond/Sage, 5177 Richmond Avenue, Houston, Texas
77056, immediately following the satisfaction of the condition outlined in
ARTICLE VI hereof.
7.2 SELLER'S DELIVERIES. At or before the Closing, Seller shall deliver or
cause to be delivered to Purchaser the following, all of which shall be in form
and content acceptable to Purchaser:
(a) Audited Combining Balance Sheet of the Equipment Subsidiary,
dated as of the Measurement Date, and setting forth the assets and
liabilities of the Equipment Subsidiary after giving effect to completion
of the transaction contemplated herein, as if it had occurred as of the
Measurement Date;
(b) Certificate duly executed by Seller, pursuant to which Seller
certifies that the Combining Balance Sheet described above (i) is true,
complete, and correct in all material respects, (ii) fairly and accurately
presents the financial position of the Company as of the date hereof, and
(iii) has been prepared in accordance with generally accepted accounting
principles, consistently applied;
(c) All of the stock certificates evidencing the HII Shares,
together with irrevocable stock powers executed by Seller, as the record
holder of each such stock certificate;
(d) Termination of Option Agreement and Release, duly executed by
Dennis Noyes in substantially the form attached hereto as EXHIBIT A;
(e) Agreement Not to Compete duly executed by Seller and the
Company in substantially the form attached hereto as EXHIBIT B;
(f) Bill of Sale, Assignment, Assumption and Indemnity Agreement
pursuant to which the Company has transferred certain assets to the
Equipment Subsidiary, and the Equipment Subsidiary has agreed to assume
certain liabilities of the Company and to indemnify the Company for same,
in substantially the form attached hereto as EXHIBIT C (the "Bill of
Sale");
(g) cash or other immediately available funds payable to the Company
by the Seller in the amount of (i) sixty percent (60%) of the net book
value of the assets and liabilities of the Equipment Subsidiary, as set
forth in the Audited Combining Balance Sheet referenced above, minus (ii)
Five Hundred Thousand Dollars ($500,000.00);
(h) 8.0% Subordinated Promissory Note, duly executed by Seller in
substantially the form attached hereto as EXHIBIT D, in an original
principal amount
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equal to forty percent (40%) of the net book value of the assets and
liabilities of the Equipment Subsidiary, as set forth in the Audited
Combining Balance Sheet referenced above;
(i) Guaranty of Specific Indebtedness duly executed by the Equipment
Subsidiary with respect to the 8.0% Subordinated Promissory Note described
above in substantially the form attached hereto as EXHIBIT E;
(j) Commercial Security Agreement duly executed by the Equipment
Subsidiary in order to secure payment of the 8.0% Subordinated Promissory
Note described above in substantially the form attached hereto as EXHIBIT
F;
(k) Second Lien Mortgage (With Security Agreement and Assignment of
Rents) duly executed by the Equipment Subsidiary with respect to the real
property acquired by the Equipment Subsidiary from the Company at the
Closing, in order to secure payment of the 8.0% Subordinated Promissory
Note described above in form and content acceptable to Purchaser (together
with any required consent of the holder of the Company's first mortgage);
(l) UCC-1 Financing Statements duly executed by the Equipment
Subsidiary with respect to the property and assets described in the
Commercial Security Agreement and the Second Lien Mortgage described
above, for filing in all appropriate locations;
(m) Landlord Lien Waivers duly executed by the landlords of the
Equipment Subsidiary with respect to its leased locations in Houston,
Dallas and Tulsa, in form and content reasonably acceptable to Purchaser.
(n) Release duly executed by the Bank of Oklahoma, releasing the
Company and all guarantors and all others primarily or secondarily liable
with respect to the indebtedness secured by the existing mortgage of the
Real Property, located in Wichita, Kansas, together with the original
promissory note(s) evidencing such indebtedness marked "Paid;"
(o) Certified resolutions of the Board of Directors of the Equipment
Subsidiary authorizing the execution, delivery and performance of this
Agreement, and each of the documents, instruments and agreements set forth
above, and the performance of such additional actions and the execution,
delivery and performance of such additional documents as may be advisable
or requested by Purchaser;
(p) An opinion of counsel issued by Rosenstein, Fist & Ringold,
counsel for Seller, in form and content reasonably acceptable to
Purchaser;
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(q) Certificate in form and substance satisfactory to Purchaser,
dated the Closing Date and executed by the Seller, stating that after due
inquiry, it has determined that (1) all of the Seller's representations
and warranties set forth in ARTICLE III of this Agreement are true,
complete and correct as of the Closing Date, (2) Seller has performed all
of the covenants and agreements to be performed by Seller pursuant to
ARTICLE V of this Agreement, and (3) all conditions to Closing set forth
in SECTION 6.1 of this Agreement have been satisfied;
(r) Such consents, waivers, estoppel letters or similar
documentation as Purchaser shall request, in Purchaser's sole discretion,
in connection with the transfer of the HII Shares; and
(s) All other items required to be delivered hereunder or as may be
reasonably requested which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby.
In addition, Seller will put Purchaser into full possession and enjoyment of the
Company, the Business, the Assets and the Leased Assets, including without
limitation the Real Property and all documents, books, records, agreements, and
financial data of any sort relating to the Business, immediately upon the
occurrence of the Closing.
7.3 PURCHASER'S OBLIGATIONS. At the Closing, provided that Seller delivers
each and every item outlined above and required to be delivered by Purchaser
shall deliver, or cause to be delivered to Seller, the following, all of which
shall be in form and content acceptable to Seller:
A. Provided that Seller delivers at Closing each and every item
outlined above in Section 7.2, then Purchaser shall deliver, or
cause to be delivered, the following:
(i) All of the stock certificates evidencing the HEC Shares,
together with irrevocable stock powers duly authorized and executed by the
Company, as the record holder of each such stock certificate;
(ii) Special Warranty Deed pursuant to which the Company has
transferred to the Equipment Subsidiary the Real Property owned by the
Company, and located in Wichita, Kansas;
(iii) The Bill of Sale;
(iv) Certified resolutions of the Board of Directors of the
Purchaser authorizing the transactions contemplated herein;
(v) Certified resolutions of the Board of Directors of the Company
authorizing the transactions contemplated herein; and
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(vi) All other items required to be delivered hereunder or as may be
requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby.
B. If Seller fails for any reason (including without limitation Seller's
inability to obtain financing) to provide each and every item outlined in
SECTION 7.2, then Seller nevertheless be obligated and required to deliver the
items described in Subsections 7(c), 7(d), 7(e), 7(p), 7(q) and 7(r), and in
exchange therefor, Purchaser shall deliver to Seller the following:
(i) At Closing, Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00) payable to Seller in cash or other immediately available
funds;
(ii) At Closing, a Subordinated Promissory Note executed by
Allwaste, Inc., a Delaware corporation, and payable to the order of
Purchaser in the original principal amount of One Hundred Ninety-Five
Thousand and No/100 Dollars ($195,000.00), in the form of Subordinated
Promissory Note received by Gene Maxon, Kenneth Grounds and Hub
Associates, to be endorsed and assigned without recourse, to Seller; and
(iii) The right to receive Fifty-Five Thousand and No/100 Dollars in
the event that withing four (4) years of closing the Purchaser becomes a
"Public Entity." For purposes of this Agreement the Purchaser shall be
deemed to have become a Public Entity if (i) it or any successor shall
have closed the offering to the public of any class of equity securities
of the Purchaser or such successor pursuant to a registration statement
ordered effective under the Securities Act of 1933, as amended, (ii) the
Purchaser or any successor shall merge or consolidate with, or sell all or
substantially all of its assets to, (x) any entity which has a class of
equity securities registered under the Securities Act of 1934, as amended
(the "Exchange Act"), (y) an Affiliate of any such entity with such a
class equity securities registered under the Exchange Act, or (z) Allwaste
or any Affiliate thereof, or (iii) 80% or more of the issued and
outstanding voting securities of the Purchaser or any successor to the
Purchaser otherwise becomes owned, directly or indirectly, by an entity
which has a class of equity securities registered under the Exchange Act.
7.4 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. Seller, at any time at or after the Closing, will execute,
acknowledge and deliver any further stock powers, bills of sale, assignments and
other assurances, documents and instruments of transfer, reasonably requested by
Purchaser, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Purchaser, for the purpose of
assigning and confirming to Purchaser, all of the HII Shares, or if necessary,
any of the Assets.
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ARTICLE VIII
TERMINATION OF OBLIGATION
AND PAYMENT OF EXPENSES
8.1 TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated herein shall terminate prior to Closing, only upon the termination
or expiration of that certain Stock Purchase Agreement entered into effective
December 28, 1996, by Purchaser, Gene Maxon, Kenneth Grounds, Hub Associates and
the Company. This Agreement shall not expire and may not be terminated in any
other manner.
8.2 PAYMENT OF EXPENSES. In the event that this Agreement shall be
terminated pursuant to SECTION 8.1, all obligations of the Parties to this
Agreement shall terminate and there shall be no liability of any Party to
another. Each Party will pay all costs and expenses incurred incident to his or
its negotiation and preparation of this Agreement and all documents, instruments
and agreements relating to the transactions contemplated herein, and such
Parties' performance of and compliance with all agreements and conditions
contained herein or therein on his or its part to be performed or complied with,
including the fees, expenses and disbursements of his or its counsel, auditors
and investment bankers.
ARTICLE IX
INDEMNIFICATION, ADJUSTMENT TO
PURCHASE PRICE AND OTHER REMEDIES
9.1 INDEMNIFICATION.
A. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Seller and the
Purchaser shall survive the Closing hereunder (notwithstanding any investigation
by or on behalf of Seller or Purchaser) and continue in full force and effect
thereafter subject only to the applicable statute of limitations; PROVIDED,
HOWEVER, that the Class B Representations shall survive the Closing hereunder
and continue in full force and effect for a period of three (3) years
thereafter, and the Environmental Representations shall survive the Closing
hereunder and continue in full force and effect for a period of five (5) years
thereafter, and provided further that (i) Purchaser shall not be indemnified for
breach of any representation, warranty, covenant or agreement to the extent that
Purchaser had actual knowledge of such breach at or prior to the Closing, (ii)
Purchaser shall for purposes of this ARTICLE IX be deemed to have actual
knowledge of all information of which Allwaste, Inc. had actual knowledge by
reason of any due diligence investigation conducted by Allwaste, Inc. in
contemplation of this Agreement, and (iii) the foregoing shall not be deemed to
extend an indemnity claim with respect to a factual situation with respect to
which the applicable statute of limitations has run without any damage to, or
claim against, the Purchaser, beyond such applicable statute of limitations.
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B. INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE PURCHASER.
(i) In the event Seller breaches any of Seller's representations,
warranties and covenants contained herein, and, if there is an applicable
survival period pursuant to SECTION 9.1(A) above, provided that Purchaser makes
a written claim for indemnification against the Seller within such survival
period, then Seller agrees to indemnify Purchaser from and against the entirety
of any Adverse Consequences Purchaser may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences Purchaser may
suffer after the end of any applicable period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach; SUBJECT, HOWEVER, to the
following limitations:
(a) the Seller shall not have any obligation to indemnify Purchaser from
and against any Adverse Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the breach of any Class A
Representations until Purchaser has suffered Adverse Consequences by
reason of all such breaches in excess of a Twenty-Five Thousand Dollar
($25,000) aggregate deductible (after which point the Seller will be
obligated only to indemnify Purchaser from and against five and one-half
percent (5.5%) of the Adverse Consequences over and above the amount of
such deductible);
(b) the Seller shall not have any obligation to indemnify Purchaser from
and against any Adverse Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the breach of any Class B
Representations until Purchaser has suffered Adverse Consequences by
reason of all such breaches in excess of a Three Hundred Eighty Thousand
Dollar ($380,000) aggregate deductible (after which point the Seller will
be obligated only to indemnify Purchaser from and against five and
one-half percent (5.5%) of such Adverse Consequences over and above the
amount of such deductible) and there will be an aggregate ceiling on the
obligation of the Seller to indemnify Purchaser from and against Adverse
Consequences resulting from, arising out of, relating to, in the nature
of, or caused by breaches of the Class B Representations, which ceiling
shall equal Two Hundred Fifty Thousand Dollars ($250,000.00).
(c) (1) the Seller shall not have any obligation to indemnify Purchaser
from and against any Adverse Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the breach of any
Environmental Representations until Purchaser has suffered Adverse
Consequences by reason of all such breaches in excess of a Five Hundred
Thousand Dollar ($500,000) aggregate deductible, (2) after Purchaser has
suffered Adverse Consequences in the amount of such deductible, the Seller
will be obligated to indemnify Purchaser from and against five and
one-half percent (5.5%) of such Adverse Consequences up to an aggregate
amount of Five Hundred Thousand Dollars ($500,000), and (3) thereafter,
the Seller will be obligated to indemnify Purchaser from and against two
and three-fourths percent (2.75%) of all further such Adverse
Consequences, up to an aggregate ceiling on the obligation of the Seller
to indemnify Purchaser from and against Adverse Consequences resulting
from, arising out of, relating to, in the nature of,
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or caused by breaches of the Environmental Representations, which ceiling
shall equal Two Hundred Fifty Thousand Dollars ($250,000).
(d) Notwithstanding any other limitation in this SUBSECTION 9.1(B)(I), the
Seller shall be fully obligated to indemnify Purchaser for five and
one-half percent (5.5%) of any (1) federal income tax liability, together
with any penalties and interest thereon, to the extent of (a) any
assessments occurring at or prior to Closing, (b) to the extent occurring
after Closing, such liability results from any disallowance of any
deductions or amortization with respect to goodwill of the Company or any
Harley Subsidiaries for any tax year of the Company or such Harley
Subsidiaries ended on or prior to December 31, 1996, but only to the
extent that such liability and related interest and penalties have not
been accrued in the audited financial statements of the Company at October
31, 1996, and (c) any corporate tax liability of the Company for any tax
year resulting from the failure of the IRS to allow any deductions for the
Permitted Bonus, and (2) any liability with respect to Environmental,
Health & Safety Laws with respect to the specific matters set forth in
SUBSECTIONS 6.1(G)(I) and (II) of that certain Stock Purchase Agreement
dated December 29, 1996, executed by Purchaser, Gene Maxon, Kenneth
Grounds, Hub Associates and the Company, irrespective of any waiver of
such conditions at Closing.
(ii) In the event Seller commits any fraud in connection with the
transactions contemplated herein, or conceals or permits the concealment of any
matters from Purchaser or its representatives during the due diligence process,
and Purchaser makes a written claim for indemnification under this SUBSECTION
9.1(B)(II), then Seller agrees to indemnify Purchaser from and against the
entirety of any Adverse Consequences Purchaser may suffer through and after the
date of the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by such fraud or concealment; PROVIDED, HOWEVER,
that the Seller shall not have any obligation to indemnify Purchaser from and
against any Adverse Consequences resulting from, arising out of, relating to, in
the nature of, or caused by such fraud or concealment until Purchaser has
suffered Adverse Consequences by reason of all such fraud or concealment in
excess of a Twenty-Five Thousand Dollar ($25,000) aggregate deductible (after
which point the Seller will be obligated only to indemnify the Purchaser from
and against further such Adverse Consequences).
C. INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER. In the
event Purchaser breaches any of its representations, warranties and covenants
contained herein, provided that Seller makes a written claim for indemnification
against Purchaser prior to the expiration of the applicable statute of
limitations, then Purchaser agrees to indemnify the Seller from and against the
entirety of any Adverse Consequences the Seller may suffer through after the
date of the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by the breach.
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D. MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party ( the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this SECTION 9.1, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; PROVIDED, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to assume the
defense of the Third Party Claim with counsel of his or its choice reasonably
satisfactory to the Indemnified Party at any time within fifteen (15) days after
the Indemnified Party has given notice of the Third Party Claim; PROVIDED,
HOWEVER, that the Indemnifying Party must conduct the defense of the Third Party
Claim actively and diligently thereafter in order to preserve its rights in this
regard; and PROVIDED FURTHER that the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense of the
Third Party Claim.
(iii) So long as the Indemnifying Party has assumed and is
conducting the defense of the Third Party Claim in accordance with SECTION
9.1(D)(II) above, (a) the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be withheld
unreasonably) unless the judgment or proposed settlement involves only the
payment of money damages by one or more of the Indemnifying Parties and does not
impose an injunction or other equitable relief upon the Indemnified Party, and
(b) the Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably).
(iv) In the event none of the Indemnifying Parties assumes and
conducts the defense of the Third Party Claim in accordance with SECTION
9.1(D)(II) above, or the Third Party Claim involves an injunction or other
equitable relief, however, (a) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner he or it reasonably may deem appropriate
(and the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith) and (b) the Indemnifying Parties
will remain responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by the Third Party Claim to the fullest extent provided in this SECTION 9.1.
E. DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall make
appropriate adjustments for tax consequences and insurance coverage and take
into account the time value of money (using the per annum rate of Eight Percent
(8.0%) as the discount rate) in determining the Adverse Consequences for
purposes of this SECTION 9.1.
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F. OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant; PROVIDED, HOWEVER, that Purchaser acknowledges and agrees
that except for the purchase price adjustment contemplated in SECTION 9.2 with
respect to breaches of Financial Representations, the foregoing indemnification
provisions in this SECTION 9.1 shall be the exclusive remedy of the Purchaser
for any breach of the representations and warranties in ARTICLE III above.
Seller hereby agrees that he will not make any claim for indemnification against
the Company or any of the Harley Subsidiaries by reason of the fact that he was
a director, officer, employee or agent of any such entity or was serving at the
request of any such entity as a partner, trustee, director, officer, employee,
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Purchaser against Seller (whether
such action, suit, proceeding, complaint, claim, or demand is pursuant to this
Agreement, applicable law, or otherwise).
9.2
A. ADJUSTMENT TO VALUATION AT CLOSING. Deloitte & Touche are preparing
audited financial statements of the Company, dated as of the Measurement Date.
Such audited financial statements shall be prepared in accordance with generally
accepted accounting principles, consistently applied, and in a manner consistent
with the Company's historical accounting policies with respect to audited
financial statements (including the materiality threshold previously used by the
Company's independent public accountants in calculating the Company's net
worth). The determination of such accounting firm with respect to any accounting
issue shall be final and binding on the Parties. At Closing, the value
attributable to the HII Shares shall be reduced by an aggregate amount (the "HII
Deficiency Amount") equal to five and one-half percent (5.5%) of (A) the sum of
(i) the amount, if any, by which four million two hundred fifty thousand dollars
($4,250,000) exceeds the Company's Stockholders' Equity as of the Measurement
Date, as set forth in such audited financial statements, after giving effect to
the Permitted Bonus, plus (ii) the amount of any Adverse Consequences resulting
from, arising out of, relating to, in the nature of, or caused by any breach of
the Financial Representations, minus (B) eighty thousand dollars ($80,000). In
addition, if the net book value of the assets and liabilities of the Equipment
Subsidiary as set forth in such audited financial statements is greater than or
less than Three Million Fifty-Seven Thousand Five Hundred Fifty Four Dollars
($3,057,554), and such excess or deficiency is at least Fifty Thousand Dollars
($50,000.00), then the value attributable to the HEC Shares shall be increased
or decreased by the amount of such excess or deficiency, respectively (the "HEC
Adjustment Amount"). The original principal amount of the Subordinated Note and
the amount of cash payable at Closing shall be increased or decreased, as
applicable, pro rata, based on the net amount of the HII Deficiency Amount and
the HEC Adjustment Amount.
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B. POST-CLOSING ADJUSTMENT TO PURCHASE PRICE FOR EQUIPMENT SUBSIDIARY.
Within thirty (30) days after the Closing Date, the Purchaser shall deliver to
the Seller an unaudited balance sheet and income statement of the Equipment
Subsidiary, prepared as of the Closing Date, after giving effect to the
transactions contemplated herein (the "Post-Closing Financial Statements").
These Post-Closing Financial Statements shall become final and binding on the
Parties on the 15th day following receipt thereof by the Seller unless the
Seller furnishes written notice of Seller's disagreement ("Notice of
Disagreement") to Purchaser prior to such date. Any Notice of Disagreement shall
specify in detail the nature of any disagreement so asserted. If a Notice of
Disagreement is sent by Seller to Purchaser in accordance with this SECTION
9.2(B), then the Post-Closing Financial Statements shall become final and
binding upon the Parties on the earlier to occur of: (i) the date the Parties
resolve in writing any differences they have with respect to any matter
specified in the Notice of Disagreement, or (ii) the date any disputed matters
are finally resolved in writing by the Accounting Firm (as defined below).
During the 10-day period following the delivery of a Notice of Disagreement, the
Parties shall seek in good faith to resolve in writing any differences which
they may have with respect to any matter specified in the Notice of
Disagreement. If, at the end of such 10-day period (or such longer period of
time as the Parties may agree upon in writing), the Parties have not reached
agreement on such matters, the matters which remain in dispute, together with
copies of this Agreement, the Post-Closing Financial Statements, and the Notice
of Disagreement, shall be submitted, within five (5) days following the
expiration of such 10-day period (or any agreed upon extension thereof), to
Deloitte & Touche for review and resolution, or, if such firm is unable or
unwilling to act, such other nationally recognized independent public accounting
firm as shall be agreed upon by the Parties in writing (in either such event,
the "Accounting Firm"), and all proceedings conducted by the Accounting Firm
shall be conducted at the offices of the Accounting Firm in Tulsa, Oklahoma. The
Accounting Firm shall render a decision resolving the matters in dispute as soon
as practicable following the date of the submission to the Accounting Firm. The
cost of any engaging the Accounting Firm (including the fees and expenses of the
Accounting Firm but excluding the fees and disbursements of each party's
independent auditors and counsel) pursuant to this SECTION 9.2(B) shall be borne
one-half by Purchaser and one-half by Seller. The fees and disbursements of
Seller's independent auditors and counsel incurred in connection with this
SECTION 9.2(B) shall be borne by Seller, and the fees and disbursements of
Purchaser's independent auditors and counsel incurred in connection with this
SECTION 9.2 shall be borne by Purchaser. The PostClosing Financial Statements,
upon becoming final due to lack of objection, written agreement, or decision of
the Accounting Firm, or in any other manner, are referred to herein as the
"Final Post-Closing Financial Statements". To the extent that the net book value
of the Equipment Subsidiary set forth in the Final Post-Closing Financial
Statements is less than or greater than the amount thereof set forth in the
audited combining balance sheet described in SECTION 7.2(A), then the original
principal amount of the 8.0% Subordinated Promissory Note delivered at Closing
(the "Note") shall be reduced or increased, respectively, by the amount of such
difference (the "PostClosing Adjustment Amount"), and the Parties hereby agree
that within five (5) business days after the date on which the Post-Closing
Financial Statements become final (time being of the essence), (i) Seller,
Purchaser and the Equipment Subsidiary will execute a Modification Agreement,
pursuant to which the original principal amount of the 8.0% Subordinated
Promissory Note
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delivered at Closing is increased or reduced, as applicable, by the amount of
the Post-Closing Adjustment Amount, and (ii) the Equipment Subsidiary will
execute such additional agreements as Purchaser may request in order to modify,
renew, extend, ratify and confirm the liens and instruments securing or
guaranteeing payment of such note.
9.3 SPECIFIC PERFORMANCE. Each of the Parties hereby agrees that the
transactions contemplated by this Agreement are unique. Each Party hereby
acknowledges and agrees that it would be impossible to measure the damages which
would result if any Party should default in his or its obligations under this
Agreement; accordingly the Parties hereby agree that each Party shall have, in
addition to any other legal or equitable remedy available to him or it, the
right to enforce this Agreement by decree of specific performance or other
equitable remedy, and each Party hereby irrevocably waives any defense, claim or
assertion that a remedy in damages will be adequate.
9.4 OFFSET; ATTORNEYS' FEES. Subject to the limitations on liability set
forth in SECTION 9.1 hereof, to the extent permitted by applicable law, all
amounts due and owing to Seller under this Agreement or any document,
instrument, or agreement executed in connection herewith or therewith shall be
subject to offset by the Purchaser to the extent of any damages incurred as a
result of Seller's breach of this Agreement or any document, instrument, or
agreement executed by Seller in connection herewith. Seller hereby acknowledges
and agrees that but for the right of offset contained in this SECTION 9.4, the
Purchaser would not have entered into this Agreement or any of the transactions
contemplated herein. If any legal action or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it or they may be entitled at law or
equity. The rights and remedies granted herein are cumulative and not exclusive
of any other right or remedy granted herein or provided by law.
9.5 RIGHTS AND LIABILITIES OF PARTIES. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
ARTICLE X
ASSETS TRANSFERRED TO EQUIPMENT SUBSIDIARY
SELLER AND EQUIPMENT SUBSIDIARY HEREBY ACKNOWLEDGE THAT PURCHASER HAS
CAUSED THE COMPANY TO TRANSFER CERTAIN OF THE ASSETS TO THE EQUIPMENT SUBSIDIARY
CONTEMPORANEOUSLY WITH THE ACQUISITION BY PURCHASER OF THE OUTSTANDING CAPITAL
STOCK OF THE
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COMPANY, AND THAT SELLER WAS, THROUGH THE DATE HEREOF, AN OFFICER, DIRECTOR AND
SHAREHOLDER OF THE COMPANY. AS A RESULT, SELLER IS MUCH MORE FAMILIAR WITH THE
ASSETS (INCLUDING THE REAL PROPERTY) BEING TRANSFERRED TO THE EQUIPMENT
SUBSIDIARY, AND THE CONDITION OF THOSE ASSETS, THAN IS THE PURCHASER. SELLER AND
THE EQUIPMENT SUBSIDIARY HEREBY ACKNOWLEDGE AND AGREE THAT IT WOULD BE
UNCONSCIONABLE TO HOLD THE COMPANY OR THE PURCHASER RESPONSIBLE TO THE EQUIPMENT
SUBSIDIARY OR THE SELLER AS A RESULT OF THE CONDITION OF ANY OF THE ASSETS
(INCLUDING THE REAL PROPERTY) OR ANY DEFECT THEREIN.
SELLER AND THE EQUIPMENT SUBSIDIARY HEREBY ACKNOWLEDGE AND AGREE THAT
NEITHER THE PURCHASER NOR THE COMPANY NOR ANY OF THEIR EMPLOYEES OR AGENTS HAVE
MADE ANY REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, WITH
RESPECT TO ANY OF THE ASSETS (INCLUDING THE REAL PROPERTY), OR THE CONDITION,
FITNESS, MARKETABILITY, SUITABILITY OR HABITABILITY THEREOF. IN NO EVENT SHALL
THE PURCHASER OR THE COMPANY BE LIABLE FOR ANY DEFECTS IN ANY OF THE ASSETS
(INCLUDING THE REAL PROPERTY) OR FOR ANY LIMITATION ON THE USE OF THE ASSETS
(INCLUDING THE REAL PROPERTY) OR ANY PORTION THEREOF. NEITHER THE PURCHASER NOR
THE COMPANY SHALL BE RESPONSIBLE TO THE SELLER OR THE EQUIPMENT SUBSIDIARY FOR
ANY LATENT DEFECT IN ANY OF THE ASSETS (INCLUDING THE REAL PROPERTY), NOR THE
EXISTENCE WITH RESPECT THERETO OF ANY VIOLATIONS OF LAW OR REGULATIONS OF ANY
GOVERNMENTAL AUTHORITY. THE EXECUTION OF THIS AGREEMENT BY SELLER AND THE
EQUIPMENT SUBSIDIARY SHALL BE CONCLUSIVE EVIDENCE THAT SELLER AND THE EQUIPMENT
SUBSIDIARY ACCEPT THE ASSETS CONVEYED TO THE EQUIPMENT SUBSIDIARY AS IS, WHERE
IS, WITH ALL FAULTS, AND WITHOUT REPRESENTATION OR WARRANTY AS TO THE CONDITION,
FITNESS, MARKETABILITY, SUITABILITY OR HABITABILITY THEREOF.
ARTICLE XI
MISCELLANEOUS
11.1 CONFIDENTIALITY. Unless and until Closing has occurred, or such
information is or becomes public through no fault of the disclosing Party, each
Party hereby agrees that he or it will not disclose any information of a
confidential or proprietary nature concerning the other Parties or their
respective businesses or operations to any third parties, except for the
following, each of whom shall be informed of the confidential nature of such
information and the necessity to retain it in confidence: (A) Purchaser's
officers, directors, partners, or employees, (B) a limited number of outside
legal, accounting and other professional consultants or key agents, and (a) such
other parties to whom such Party is required to disclose such information under
applicable law, pursuant
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to the advice of legal counsel for such Party, in which event the disclosing
Party shall (i) give prior written notice to the other Parties of the disclosing
Party's legal obligation to disclose such information, including the person(s)
to whom such information is legally required to be disclosed, and (ii) disclose
only the portion of such information which the disclosing Party reasonably
believes, on the advice of legal counsel, is legally required to be disclosed.
Each Party agrees that prior to Closing, he or it and all of his or its
Affiliates will use information obtained in connection with the transactions
contemplated in this Agreement solely for the purpose of evaluating such
transactions, and in no event shall any Party use any of such confidential or
proprietary information for his or its own benefit or to the detriment of the
other Parties. In the event that Closing does not occur each Party shall,
promptly upon request, return all of such confidential or proprietary
information to the appropriate Party, including any and all copies thereof.
11.2 ANNOUNCEMENTS. No public or private announcement or disclosure shall
be made of the transactions contemplated herein, whether by press release or
filing of a report or disclosure with any securities exchange or governmental
authority, except as expressly contemplated herein, unless and until the Party
proposing such announcement or disclosure shall have supplied the proposed text
of such announcement or disclosure to the other Parties for review and comment
at least twenty-four (24) hours prior to release; provided however, that if in
the good faith opinion of legal counsel to the announcing or disclosing Party,
such announcement or disclosure is required under applicable federal or state
law to be made sooner, a copy of such announcement or disclosure shall be made
available to all other Parties as soon as possible, but in any event prior to
release.
11.3 BROKERAGE COMMISSIONS AND OTHER FEES. Seller hereby represents and
warrants that neither the Seller nor the Company has incurred any liability for,
nor knows of any person or entity entitled to, any commission or finder's fee in
connection with this Agreement or the transactions contemplated herein.
Purchaser hereby represents and warrants that Purchaser has not incurred any
liability for, and does not know of any person or entity entitled to, any
commission or finder's fee in connection with this Agreement or the transactions
contemplated herein. Each Party shall be responsible for all costs, fees and
expenses (including attorney and accountant fees and expenses) paid or incurred
by such Party, and Seller shall be responsible for all costs, fees and expenses
paid or incurred by the Seller or the Company, in connection with the
preparation, negotiation, execution, delivery and performance of this Agreement,
or otherwise in connection with the transactions contemplated hereby, except
that the Company shall pay all the reasonable accounting and auditing costs of
its outside accountants necessary to consummate the transactions contemplated
herein, including the costs of the preparation of any financial statements
required to be delivered under the terms of this Agreement.
11.4 MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
11.5 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when
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delivered personally or telefaxed during regular business hours during a
business day to the appropriate location described in the preamble to this
Agreement, or three (3) business days after posting thereof by United States
first-class, registered or certified mail, return receipt requested, with
postage and fees prepaid and addressed at his or its address set forth in the
preamble to this Agreement, with a copy to legal counsel for such Party, at the
address set forth on the letterhead on which such counsel's legal opinion was
delivered. Any Party may designate a different address for subsequent notices or
communications by furnishing notice to the other Parties in the manner described
above.
11.6 ATTORNEYS' FEES. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing Party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it may be entitled at law or equity.
11.7 FEES AND OTHER EXPENSES. Except as expressly set forth herein to the
contrary, all costs, fees and expenses (including attorney and accountant fees
and expenses) shall be paid by the Party incurring same in connection with the
preparation, negotiation, execution, delivery and performance of this Agreement,
or otherwise in connection with the transactions contemplated hereby.
11.8 ADDITIONAL REMEDIES. All rights and remedies of each Party hereunder
are cumulative of every other right or remedy that such Party may otherwise have
at law or in equity or under this Agreement or any other document, instrument or
agreement. The exercise of one or more rights or remedies shall not prejudice or
impair the concurrent or subsequent exercise of other rights or remedies.
11.9 NON-WAIVER. Failure on the part of a Party in any one or more
instances to enforce any of such Party's rights which arise in connection with
this Agreement, or to insist upon the strict performance of any of the terms,
conditions or covenants of this Agreement, shall not be construed as a waiver or
relinquishment for the future of any such rights, terms, conditions or
covenants. No waiver of any condition of this Agreement shall be valid unless it
is in writing, and executed by the Party against whom such waiver is sought to
be enforced. Any valid waiver shall be effective only for the purposes expressly
set forth therein.
11.10 GOVERNING LAW; JURISDICTION; VENUE. This Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Texas, without regard to conflicts of law principles, and the laws of the
United States applicable in Texas. Venue for any litigation between or among the
Parties with respect to the subject matter of this Agreement shall be Harris
County, Texas. Each Party hereby irrevocably submits to personal jurisdiction in
Texas. Each Party hereby waives all objections to personal jurisdiction in Texas
and venue in Harris County for purposes of such litigation.
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11.11 CONSTRUCTION. The Parties and their respective legal counsel have
participated extensively in the preparation, negotiation and drafting of this
Agreement. Accordingly, no presumption will apply in favor of either Seller or
Purchaser in the interpretation of this Agreement or in the resolution of the
ambiguity of any provision hereof. All words used herein shall be construed to
be of such gender or number as the circumstances require. As used herein the
term "this Agreement" shall mean this Agreement as a whole and as the same may,
from time to time hereafter, be amended, supplemented or modified. The words
"herein," "hereof," "hereto," "hereunder," "hereinafter," "hereinabove," and
"hereinbelow," and other words of similar import, refer to this Agreement as a
whole and not to any particular article, section, paragraph, clause or other
subdivision hereof, unless otherwise specifically noted. As used herein, the
words "include" or "including" shall mean "including without limitation."
11.12 HEADINGS. The headings and subheadings of the Articles and Sections
contained herein or on any Schedule or Exhibit attached hereto are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement or any provisions hereof. Any reference herein to an Article
or Section shall be deemed to be a reference to the corresponding Article or
Section of this Agreement unless otherwise stated herein.
11.13 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective, valid and enforceable
under applicable law, but if any provision of this Agreement shall be prohibited
by, or invalid or unenforceable under, applicable law, then (i) the Parties
agree that they will amend such provisions by the minimal amount necessary to
bring such provisions within the ambit of enforceability, and (ii) any court of
competent jurisdiction may, at the request of either Party, revise, reform or
reconstruct such provisions in a manner sufficient to cause them to be
enforceable. In no event shall any prohibition against, or the invalidity or
unenforceability of, any provision hereof affect the validity or enforceability
of any other provision hereof.
11.14 SCHEDULES AND EXHIBITS. All schedules and exhibits attached to this
Agreement are hereby incorporated into and made a part of this Agreement.
11.15 FURTHER ASSURANCES. Each of the Parties shall perform such actions
and deliver or cause to be delivered any and all such documents, instruments and
agreements as the other Party may reasonably request for the purpose of fully
and effectively carrying out this Agreement and the transactions contemplated
hereby.
11.16 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Parties and their respective successors and assigns.
11.17 ENTIRE AGREEMENT. This Agreement and all of the documents and
agreements executed in connection herewith set forth the entire agreement
between the Parties with respect to the subject matter hereof, and supersede all
prior or contemporaneous oral agreements or understandings, and all prior or
contemporaneous written agreements, with respect thereto.
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11.18 MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which together shall constitute but one and the same agreement.
EXECUTED AND DELIVERED EFFECTIVE as of the date first written above.
PURCHASER:
THE SAFE SEAL COMPANY, INC.
a Texas corporation
By:
WILLIAM E. HAYNES
President & CEO
SELLER:
KIRK NELLIS, Individually
THE COMPANY:
HARLEY INDUSTRIES, INC.
a California corporation
By:
Name:___________________________
Title:____________________________
THE EQUIPMENT SUBSIDIARY:
HARLEY EQUIPMENT CORPORATION
an Oklahoma corporation
By:
Name:___________________________
Title:____________________________
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The undersigned spouse of Seller is fully aware of, understands, and fully
consents and agrees to the provisions of this Stock Transfer Agreement, and its
binding effect upon any community or other property interests that she may own,
and her awareness, understanding, consent and agreement are evidenced by her
execution hereof. The undersigned spouse of Seller additionally joins in the
execution hereof in order to sell, assign and transfer unto Purchaser all of her
respective rights, titles and interests, legal or beneficial, if any, in the HII
Shares.
---------------------------------------
NAME:________________________________,
SPOUSE OF KIRK NELLIS
The undersigned hereby joins in the execution of this Stock Transfer
Agreement in order (i) to induce the Purchaser to execute this Agreement, and
(ii) to acknowledge his agreement to execute and deliver at Closing the
Termination of Option Agreement and Release in substantially the form of EXHIBIT
A attached hereto and incorporated herein by reference.
--------------------------------------
DENNIS NOYES
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Schedule 1.12 - Closing Financial Statements (Unaudited October 31)
Schedule 1.14 - Employees
Schedule 1.22 - Financial Statements (Unaudited August 31)
Schedule 3.3 - (A) Seller's Consents and Approvals
Schedule 3.3 - (B) Seller's Breaches and Defaults
Schedule 3.5 - Options, etc.
Schedule 3.7 - Exceptions to Title to Assets
Schedule 3.8 - Leased Assets (Personal Property)
Schedule 3.9 - Condition of Assets and Leased Assets
Schedule 3.10 - Contracts
Schedule 3.11 - Other Contracts
Schedule 3.15 - Licenses
Schedule 3.17 - (A) Real Property Owned
(B) Real Property Leased
Schedule 3.18 - Subsidiaries
Schedule 3.19 - Insurance
Schedule 3.20 - Banking
Schedule 3.22 - Personnel
Schedule 3.23 - Employee Benefits
Schedule 3.24 - Employment Agreements
Schedule 3.26 - Additional Liabilities
Schedule 3.27 - Litigation
Schedule 3.28 - Tax Matters
Schedule 3.30 - Environmental, Health and Safety
Schedule 3.32 - Certain Changes or Events
Schedule 3.33 - Customers
EXHIBITS
Exhibit A - Termination of Option Agreement and Release
Exhibit B - Agreement Not to Compete
Exhibit C - Bill of Sale
Exhibit D - 8.0% Subordinated Promissory Note
Exhibit E - Guaranty of Equipment Subsidiary
Exhibit F - Security Agreement of Equipment Subsidiary
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EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into the day of
July, 1997, by and among INNOVATIVE VALVE TECHNOLOGIES, INC.
("INVATEC"), a Delaware corporation, D. BOWEN KING, an individual ("Mr. King"),
E.S. RIES, an individual ("Mr. Ries"), (Mr. King and Mr. Ries being sometimes
hereinafter referred to collectively as the "Stockholders" and individually as a
"Stockholder"), PUGET INVESTMENTS, INC., a Washington corporation ("PII"), and
FLICKINGER-BENICIA INC., a Washington corporation ("FBI") (PII and FBI being
hereinafter referred to individually and collectively as the "Company").
INVATEC, Stockholders and the Company are sometimes hereinafter referred to
collectively as the "Parties" or individually as a "Party."
PRELIMINARY STATEMENT
WHEREAS, Stockholders are the legal and beneficial owners and holders of
one hundred seventy-three (173) shares of the Common Stock of PII, and twenty
thousand (20,000) shares of the Common Stock of FBI (the "Subject Shares"), the
Subject Shares constituting all of the issued and outstanding common stock of
the Company; and
WHEREAS, INVATEC desires to acquire from Stockholders, and Stockholders
desire to sell to INVATEC, all of the Subject Shares, on the terms and
conditions and for the consideration set forth in this Agreement (the
"Acquisition");
WHEREAS, the Parties understand that INVATEC may enter into other
agreements similar to this Agreement (the "Other Agreements") for the
acquisition by INVATEC of other entities (collectively, the "Other Acquired
Businesses," and each of those entities, individually, an "Other Acquired
Business"), which Other Agreements will be among those entities and their equity
owners, INVATEC and/or subsidiaries of INVATEC.
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and confessed, the Parties hereby agree as follows:
Paragraph 1. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Paragraph 1.
Capitalized terms used in this Agreement and not defined below in this Paragraph
1 have the meanings assigned to them in the preamble of this Agreement, the
Preliminary Statement or Article IX of the Standard Provisions, as the case may
be.
"ACCOUNTING FIRM" means KPMG Peat Marwick in Seattle, Washington.
"ACQUIRED BUSINESS" means the business conducted by the Company
and/or Subsidiaries.
<PAGE>
"ACQUISITION CONSIDERATION" has the meaning specified in Paragraph
2.
"CEILING AMOUNT" means $4,500,000.
"CLOSING" has the meaning specified in Paragraph 3.
"CLOSING DATE" means the effective date of the Escrow Agreement.
"COMPANY" has the meaning set forth in the preamble of this
Agreement.
"COMPANY CAPITAL STOCK" means the Common Stock, par value $1.00 per
share, of PII, and the Common Stock, no par value, of FBI.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Lasher
Holzapfel Sperry & Ebberson PLLC, of Seattle, Washington.
"COUNSEL FOR INVATEC" means Boyer, Ewing & Harris Incorporated, of
Houston, Texas.
"CURRENT BALANCE SHEET" means the balance sheet of the Company as of
March 31, 1997.
"CURRENT BALANCE SHEET DATE" means March 31, 1997.
"DISCLOSURE STATEMENT" means the written statement executed by the
Company and each of the Stockholders and delivered to INVATEC prior to the
execution and delivery of this Agreement by INVATEC in which either (a)
exceptions are taken to any of certain of the representations and
warranties made by the Company and the Stockholders herein or (b) it is
confirmed that no exception is taken to that representation and warranty.
"EFFECTIVE DATE" means the date of this Agreement.
"EFFECTIVE TIME" means 12:01 a.m. on the Effective Date.
"ESCROW AGREEMENT" means that certain Option to Purchase and Escrow
Agreement executed in connection herewith by INVATEC, the Stockholders and
the Company.
"INITIAL FINANCIAL STATEMENTS" means (a) the balance sheets of the
Company as of October 31, 1995 and 1996, and the related statements of
operations and retained earnings for each of the Company's fiscal years in
the three-year period ended October 31, 1996, and (b) the Current Balance
Sheet and the related statement of operations for the five (5) months
ended on the Current Balance Sheet Date, which the Company has delivered
to INVATEC
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"LONG BEACH FACILITY" means the property on which Steam Supply &
Rubber Co., Inc. currently conducts its business, located at 2910
California Avenue, Long Beach, California 90806.
"NOTE REDUCTION SUM" means the sum of (i) the amount, if any, by
which the total Indebtedness of the Company and the Subsidiaries at the
Effective Time, after giving effect to the payment of the net indebtedness of
the Stockholders to the Company and/or the Subsidiaries (but exclusive of any
prepayment penalties resulting from or arising out of the prepayment of such
indebtedness in connection with or as a result of this transaction, all of which
shall be paid by PII on behalf of the Stockholders), exceeds $3,899,000, plus
(ii)the amount of the redemption premium paid or to be paid by PII in connection
with the redemption of the preferred stock of PII described in Subparagraph 2(E)
hereof, plus (iii) the amount of any prepayment penalties paid or payable by PII
on behalf of the Stockholders, as contemplated in clause (i) above. The Note
Reduction Sum is to be applied to each Convertible Note in accordance with the
Pro Rata Share of the Stockholder to whom such Convertible Note was issued.
"PORTLAND LEASE" has the meaning specified in Paragraph 3.
"SEATTLE FACILITY" means the property on which Steam Supply & Rubber
Co., Inc. currently conducts its business, located at 615 South Alaska,
Seattle, Washington.
"PRO RATA SHARE" of a Stockholder means: (a) 65.2% in the case of
Mr. King; and (b) 34.8 % in the case of Mr. Ries.
"REGISTRATION RIGHTS AGREEMENT" has the meaning specified in
Paragraph 3.
"RESPONSIBLE OFFICER" means Mr. Ries.
"RIES EMPLOYMENT AGREEMENT" has the meaning specified in Paragraph
3.
"SUBSIDIARIES" means all of the Company Subsidiaries set forth in
Section 2.01 of the Disclosure Statement.
"THRESHOLD AMOUNT" means 2.0% of the Ceiling Amount.
"UNIFORM PROVISIONS" has the meaning specified in Paragraph 4.
"WORKING CAPITAL" means current assets minus current liabilities of
the Company and the Subsidiaries, on a consolidated basis determined in
accordance with GAAP (except for certain footnote items normally required
by GAAP, the omission of which does not render the calculation materially
inaccurate or misleading). Current liabilities shall include (i) all
accrued and unpaid tax liability (other than as expressly set forth
below), (ii) accruals for taxes on operations of FBI through the Effective
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<PAGE>
Time, and (iii) current maturities of long term debt . Current liabilities
shall not include (i) accruals for the real estate excise taxes imposed on
the Company as a result of the Acquisition, for which the Company has
agreed to indemnify Stockholders pursuant to Subparagraph 2(B) hereof, nor
(ii) the Company's liability for payment of transaction expenses as
contemplated in Subparagraph 2(B), nor (iii) the liability to the
Stockholders for a $44,000 loan to pay 1996 income taxes relative to FBI,
which has been or will be repaid to the Stockholders at or prior to
Closing, nor (iv) the liability of the Company for up to $15,000 of
environmental liability, as contemplated in Paragraph 9(A) hereof.
PARAGRAPH 2.PURCHASE AND SALE OF SUBJECT SHARES; REDEMPTION OF PREFERRED
SHARES. (A) Subject to the term and conditions set forth in this Agreement, the
Stockholders hereby agree to sell, convey, transfer, assign and deliver to
INVATEC, and INVATEC hereby agrees to purchase, as of the Effective Time, the
Subject Shares, free and clear of any restrictions or conditions to transfer or
assignment, rights of first refusal, mortgages, liens, pledges, charges,
encumbrances, equities, claims, covenants, conditions, restrictions, options or
agreements. As consideration for the purchase of the Subject Shares and upon
delivery thereof to INVATEC as of the Effective Time, INVATEC shall deliver to
each Stockholder his Pro Rata Share of the following (the "Acquisition
Consideration"):
(i) in cash or other immediately available funds, the aggregate
amount of Three Million and No/100 Dollars ($3,000,000.00) (inclusive of
the $2,000,000 Option Price under the Escrow Agreement) ; and
(ii) Convertible Subordinated Promissory Notes (the "Convertible
Notes") in form and content acceptable to the Parties, in the aggregate
principal amount of Three Million and No/100 Dollars ($3,000,000.00), less
the Note Reduction Sum.
(B) INCOME AND OTHER TAXES; TRANSACTION EXPENSES. Stockholders shall pay
all income, documentary, transfer, stamp, revenue or other taxes arising out of
the transfer of the Subject Shares or receipt of payments therefor, or any
consideration delivered in connection therewith. Except as hereinafter expressly
set forth in SUBPARAGRAPH 2(C), neither INVATEC nor the Company shall be
responsible for any business, occupation, income, withholding or similar tax, or
any taxes of any kind, of the Stockholders; however, the Company hereby agrees
to indemnify Stockholders for any real estate excise transfer tax imposed on the
Company as a result of the Acquisition. INVATEC, on the one hand, and the
Stockholders, on the other hand, will each pay their respective legal,
accounting, tax, broker's or other advisors expenses incurred in pursuing and
consummating the Acquisition; however, the Stockholders may pass one-half (1/2)
of such costs, up to an aggregate maximum of thirty thousand dollars ($30,000),
on to the Company and the Subsidiaries for payment (the liability for which
shall not reduce the Working Capital for purposes of Paragraph 5 below).
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<PAGE>
(C) SECTION 338 ELECTION. At INVATEC's option, Stockholders will join with
INVATEC in making an election under Section 338(h)(10) of the Internal Revenue
Code (and any corresponding elections under state or local tax law) with respect
to the purchase and sale of the Company. The Stockholders will have the
opportunity to review any election forms prior to filing. To the extent that by
reason of such election the Stockholders will realize any tax liability that
would not have been realized but for such election, the Company shall pay such
tax (the liability for which shall not reduce the Working Capital for purposes
of Paragraph 5 below).
(D) COMPANY DEBT LIMITATION. The Stockholders shall cause the total
Indebtedness of the Company and the Subsidiaries to be, immediately prior to the
Effective Time, equal to or less than three million eight hundred ninety-nine
thousand dollars ($3,899,000), after giving effect to the repayment to the
Company and/or Subsidiaries of the net Indebtedness owed by the Stockholders and
the King-Ries Partnership to the Company and/or Subsidiaries, but exclusive of
any prepayment penalties resulting from or arising out of the prepayment of such
indebtedness in connection with or as a result of the Acquisition, all of which
are to be paid by Stockholders. At the Effective Time there will not be any
indebtedness owed by the Company or either Subsidiary to any Stockholder (other
than salary accrued in the ordinary course of business), and each Stockholder
shall repay to the Company or either Subsidiary at Closing, the indebtedness
owed by him to the Company or such Subsidiary.
(E) PREFERRED SHARES. If the Stockholders are able to negotiate
successfully a discount in the applicable redemption premium, then the
Stockholders shall cause PII to redeem, as of the Effective Time, all of the
outstanding shares of preferred stock issued by PII, in accordance with the
terms thereof, for aggregate consideration equal to seven hundred ten thousand
five hundred twenty-eight dollars ($710,528), plus accrued dividends, as set
forth in the Company's financial statements through the dates thereof, plus the
redemption premium included in Note Reduction Sum. If the Stockholders are
unable to negotiate successfully a discount in the redemption premium, then such
preferred stock shall not be redeemed, and the entire amount of the redemption
premium payable in accordance with the terms of the preferred stock shall be
included in the Note Reduction Sum.
PARAGRAPH 3. THE CLOSING. (A) Delivery of the items set forth below shall
be made to Counsel for the Company and the Stockholders, as Escrow Agent, under
the Escrow Agreement, on the Closing Date.
(B) STOCKHOLDERS' DELIVERIES. At or before the Closing, Stockholders shall
deliver or cause to be delivered to counsel for Company and the Stockholders, as
Escrow Agent under the Escrow Agreement, the following, in form and content
acceptable to INVATEC:
(i) The Disclosure Statement;
(ii) All of the stock certificates evidencing the Subject Shares,
with all necessary transfer tax and other revenue stamps acquired and
attached at the expense of the holder of such certificate, together with
irrevocable stock powers in form and
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<PAGE>
content acceptable to INVATEC, duly authorized and executed by the record
holder of each such stock certificate;
(iii) An Investor Representation Letter in form and content
acceptable to the Parties, executed by each of the Stockholders with
respect to each Stockholder's acquisition of a Convertible Note as part of
the Acquisition Consideration as of Effective Time;
(iv) Resignations of all directors and officers of the Company and
the Subsidiaries, effective as of the Effective Time;
(v) Employment Agreement in form and content acceptable to INVATEC
and Mr. Ries, duly executed by Mr. Ries (the "Ries Employment Agreement");
(vi) Registration Rights Agreement in form and content acceptable to
the Parties, duly executed by the Stockholders (the "Registration Rights
Agreement");
(vii) All original promissory notes or other debt instruments
executed by the Company or either Subsidiary to any Stockholder, marked
"Paid in Full;"
(viii) Payment of any outstanding amounts owed by any Stockholder to
the Company or either Subsidiary, as expressly set forth in Subparagraph
2(D) hereof;
(ix) Such subordination or other agreements as INVATEC's lender may
require with respect to payment of the Convertible Notes, in form and
content acceptable to the Parties and such lender (which obligation shall
include the obligation to execute hereafter from time to time any
subordination agreements requested by a holder of Senior Indebtedness, as
such term is defined in the Convertible Notes, provided any such
subordination agreement is substantially in the form attached hereto as
Exhibit A);
(x) All of the stock certificates evidencing the preferred stock of
PII, with all necessary transfer tax and other revenue stamps acquired and
attached at the expense of the holder of such certificate, together with
irrevocable stock powers in form and content acceptable to INVATEC, duly
executed by the record holder of each such stock certificate in connection
with the redemption of the preferred stock contemplated in Subparagraph
2(E);
(xi) Lease Agreement in form and content acceptable to the Parties,
covering the business premises of the Company located at 2550 NW 25th
Place, Portland, Oregon 97210 (the "Portland Lease"), duly executed by the
King-Ries Limited Partnership, as lessor ("Lessor"), and Steam Supply &
Rubber Co., Inc., as lessee ("Lessee");
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<PAGE>
(xii) An opinion of counsel issued by Counsel for the Company and
the Stockholders, in form and content reasonably satisfactory to INVATEC
and INVATEC's counsel;
(xiii)Certified resolutions of the Boards of Directors of the
Company, in form and content reasonably acceptable to INVATEC, authorizing the
transactions contemplated herein; and
(xiv) All other items required to be delivered hereunder or as may
be reasonably requested which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Stockholders' representations and warranties set forth
herein.
(C) INVATEC'S OBLIGATIONS. At the Closing, INVATEC will deliver or cause
to be delivered to Counsel for the Company and the Stockholders, as Escrow
Agent, the following in form and content acceptable to the Stockholders:
(i) Certified checks or wire transfers of funds in the aggregate
amount of Two Million and No/100 Dollars ($2,000,000.00), as payment of
the Option Payment under the Escrow Agreement (the unpaid balance of the
Acquisition Consideration in the amount of $1,000,000, subject to
adjustment pursuant to Paragraph 2D hereof, being payable as contemplated
in the Escrow Agreement);
(ii) The Convertible Notes (subject to substitution at the Effective
Time for adjustments to the principal amounts thereof pursuant to the terms of
this Agreement);
(iii) Guaranty in form and content acceptable to the Parties, duly
executed by Allwaste, Inc., a Delaware corporation and a significant
shareholder of INVATEC, guaranteeing repayment of the Convertible Notes;
(iv) The Ries Employment Agreement, duly executed by INVATEC;
(v) The Portland Lease, duly executed by Lessor and Lessee;
(vi) The Registration Rights Agreement, duly executed by INVATEC;
(vii) An opinion of counsel issued by Counsel for INVATEC, in form
and content reasonably satisfactory to Stockholders and Counsel for the
Company and the Stockholders;
(viii)Certified resolutions of the Board of Directors of INVATEC, in
form and content reasonably acceptable to Stockholders, authorizing the
transactions contemplated herein; and
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<PAGE>
(ix) All other items required to be delivered hereunder or as may be
requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of INVATEC's representations and warranties set forth herein.
(D) FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby, including any subordination agreements requested by any
holder of Senior Indebtedness, as such term is defined in the Convertible Notes,
provided any such subordination agreement is substantially in the form attached
hereto as Exhibit A. Each Stockholder, at any time at or after the Closing, will
execute, acknowledge and deliver any further stock powers, deeds, bills of sale,
assignments and other assurances, documents and instruments of transfer,
reasonably requested by INVATEC, and will take any other action consistent with
the terms of this Agreement that may reasonably be requested by INVATEC, for the
purpose of assigning and confirming to INVATEC, all of the Subject Shares, or if
necessary, any of the assets of the Company or either Subsidiary.
(E) DRESSER INDUSTRIES. The Parties acknowledge that Dresser Industries,
Inc. ("Dresser") has not consented to the Acquisition, nor waived any of its
rights with respect to any breach or default under, or violation of, any
agreement of Dresser with the Company or either of the Subsidiaries (hereafter,
a "Dresser Agreement"), caused by the failure to obtain the consent of Dresser
in accordance with the terms of any Dresser Agreement; however, the
Stockholders, the Company and the Subsidiaries hereby represent and warrant that
as of the Effective Time (i) each Dresser Agreement is in full force and effect,
is valid and enforceable, and has not been altered, modified or amended in any
manner, except as described in the Disclosure Statement, and (ii) neither
Dresser nor such Company or Subsidiary is in default under the terms of any
Dresser Agreement (except for any default caused by the failure to obtain the
consent of Dresser to the Acquisition in accordance with the terms of a Dresser
Agreement). The Stockholders hereby covenant and agree to use their best
efforts, as reasonably requested by the Company, at the Company's expense, for
one hundred twenty (120) days after the Closing Date (i) to obtain the consent
of Dresser to the Acquisition, and (ii) to convince Dresser not to terminate or
modify any Dresser Agreement.
PARAGRAPH 4. INCORPORATION OF UNIFORM PROVISIONS. (A) The Uniform
Provisions for Business Combinations attached hereto as Annex 1 (the "Uniform
Provisions"), are hereby incorporated in this Agreement by this reference and
constitute a part of this Agreement with the same force and effect as if set
forth at length herein, subject to the following revisions:
(i) The Table of Contents of the Uniform Provisions is hereby
amended by deleting therefrom all references to "and Newco".
(ii) The first paragraph of each of Article I and Article II is
hereby amended by deleting therefrom the phrase "date of this Agreement,
and will be, as amended or supplemented pursuant to Section 4.07, on the
Closing Date and immediately prior to".
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<PAGE>
(iii) Sections 2.03(d) and 3.02(d) are hereby amended by deleting
therefrom the phrase "Except for (i) the filing of the Certificates of
Merger, if any, with the applicable Governmental Authorities, (ii) filings
of the Registration Statement under the Securities Act and the SEC order
declaring the Registration Statement effective under the Securities Act
and (iii) as may be required by the HSR ACT or the applicable state
securities or blue sky laws".
(iv) Subsection 2.14(a)(i) is hereby deleted in its entirety and
substituted therefor is the following:
(i) The Company's Financial Statements prepared as of the
Company's fiscal years ending in 1994, 1995, and 1996, each year-end
and as of March 31, 1997 (including in each case the related
schedules and notes) present fairly, in all material respects, the
financial position of the Acquired Business at the respective dates
of the balance sheets included therein and the results of operations
and cash flows of the Acquired Business and stockholders' or other
owners' equity for the respective periods set forth therein and have
been prepared in accordance with GAAP. As of the date of any balance
sheet included in those Financial Statements, neither the Company
nor any Company Subsidiary then had any outstanding Indebtedness to
any Person or any liabilities of any kind (including contingent
obligations, tax assessments or unusual forward or long-term
commitments), or any unrealized or anticipated loss, which in the
aggregate then were Material to the Acquired Business and required
to be reflected in such Financial Statements or in the notes related
thereto in accordance with GAAP which were not so reflected. All of
the other Financial Statements of the Company (including in each
case any related schedules or notes) delivered to INVATEC present
fairly, in all material respects, the financial position of the
Acquired Business at the respective dates of the balance sheets
included therein and the results of operations and cash flows of the
Acquired Business and stockholders' or other owners' equity for the
respective periods set forth therein and have been prepared in
accordance with GAAP (except for certain footnote disclosures
normally required by GAAP, the omission of which did not cause such
Financial Statements to be materially misleading). As of the date of
any balance sheet included in those Financial Statements, neither
the Company nor any Company Subsidiary then had any outstanding
Indebtedness to any Person or any liabilities of any kind (including
contingent obligations, tax assessments or unusual forward or
long-term commitments), or any unrealized or anticipated loss, which
in the aggregate then were Material to the Acquired Business and
required to be reflected in such Financial Statements which were not
so reflected (except for certain footnote disclosures normally
required by GAAP, the omission of which did not cause such Financial
Statements to be materially misleading).
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<PAGE>
(v) The phrase "To the knowledge of the Stockholders" is hereby
inserted in the following locations:
(A) Before the word "except" in the third line of Subsection
2.19(d);
(B) Before the word "Except" at the beginning of Subsection 2.20(b);
(C) Before the word "Except" at the beginning of the first and third
sentences of Section 2.21; and
(D) At the beginning of each of the last two sentences of Section
2.23;
(vi) The fourth line of Subsection 2.25 is hereby amended by
inserting the phrase "and the Stockholders" after the phrase "knowledge of
the Company".
(vii) Section 2.26 is hereby amended by deleting therefrom the
phrase "the IPO Closing Date" and substituting therefor the phrase "the
Effective Time."
(viii) The last sentence of Section 2.27(b) is hereby deleted.
(ix) Article III, Section 7.03 and Section 10.04 are hereby amended
by deleting therefrom the phrases "each of INVATEC and Newco", "Either of
INVATEC or Newco", "INVATEC and Newco" and "INVATEC or Newco", and
substituting therefor the word "INVATEC".
(x) The first paragraph of Article III is hereby amended by deleting
therefrom the phrases "jointly and severally" and "the date of this
Agreement, and will be on the Closing Date and immediately prior to".
(xi) Section 3.02(c) is hereby amended by deleting therefrom the
phrase "negative pledge covenants of INVATEC respecting its assets" and
substituting therefor the phrase "those in favor of INVATEC's third party
lender".
(xii) Section 3.04 is hereby deleted in its entirety and substituted
therefor is the following:
Section 3.04 CAPITAL STOCK OF INVATEC. (a) At the Effective Time,
(i) the authorized Capital Stock of INVATEC is comprised of (A)
30,000,000 shares of INVATEC Common Stock, $.001 par value per
share, and (B) 5,000,000 shares of preferred stock, $.001 par value
per share, and (ii) there are (A) Three Hundred Fifty-Seven Thousand
One Hundred Fourteen (357,114) shares of INVATEC Common Stock,
issued and outstanding and (B) no shares of INVATEC preferred stock
issued and outstanding.
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(b) All shares of INVATEC Common Stock to be issued pursuant
to the Convertible Notes, when issued (i) will have been duly
authorized and validly issued in accordance with the DGCL and
INVATEC's Charter Documents and (ii) will be fully paid and
nonassessable. None of the shares of INVATEC Common Stock to be
issued pursuant to the Convertible Notes will, when issued, have
been issued in breach or violation of (i) any applicable statutory
or contractual preemptive rights, or any other rights of any kind
(including any rights of first offer or refusal), of any Person or
(ii) the terms of any of its Derivative Securities then outstanding.
(xiii)Section 3.05 is hereby deleted in its entirety and substituted
therefor is the following:
Section 3.05 SUBSIDIARIES. (a) At the Effective Time, INVATEC will
have no subsidiaries.
(xiv) Article III is hereby amended by inserting the following:
Section 3.08. DUE DILIGENCE. Prior to the Closing Date, INVATEC
investigated and reviewed such of the books, records and operations of the
Acquired Business as INVATEC considered necessary to satisfy itself as to
the condition of the Acquired Business as of the Closing Date. INVATEC has
notified the Stockholders of any ACTUAL knowledge it has obtained that any
of the Stockholders' representations or warranties contained herein are
untrue or materially misleading as of the Closing Date. To the extent that
INVATEC has ACTUAL knowledge that any of the Stockholders' representations
or warranties contained herein are untrue or materially misleading as of
the Closing Date, the applicable representation or warranty KNOWN to be
untrue or misleading shall be unenforceable, with respect and to the
extent of such knowledge; however, based on the investigation and review
conducted by Invatec, it has no actual knowledge as of the Closing Date
that any of the Stockholders' representation or warranties are untrue as
of the Closing Date. IN ALL OTHER RESPECTS THE REPRESENTATIONS AND
WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS SHALL REMAIN UNAFFECTED BY
THE PROVISIONS OF THIS SECTION 3.08.
Section 3.09. FUTURE PERFORMANCE. INVATEC acknowledges that it has
had the opportunity to inspect the business and properties of the Company
and the Subsidiaries, and understands that irrespective of the provision
to INVATEC of financial forecasts, future budgets and other future looking
documents, that no representations or warranties as to the future
performance of the business of the Company or the Subsidiaries have been
or are being made by the Stockholders or the Company.
(xv) Articles IV, V and XI are hereby deleted in their entirety.
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(xvi) Sections 6.01, 6.03 and 6.04 are hereby deleted in their
entirety, and substituted therefor is the following:
Section 6.04 REMOVAL OF GUARANTIES. INVATEC will cause (a) the
Stockholder Guaranties in favor of the Union Bank of California,
listed in Section 6.04 of the Disclosure Statement, to be terminated
in conjunction with the release of the documents from escrow, and
(b) all other Stockholder Guaranties listed in Section 6.04 of the
Disclosure Statement to be terminated as promptly as practicable
thereafter.
(xvii) Subsection 7.02(a)(iii) is hereby deleted in its entirety,
and substituted therefor is the following:
(iii) any liability under the Securities Act, the Exchange Act or
other applicable Governmental Requirement which arises out of or is
based on (A) any untrue statement or alleged untrue statement of a
material fact relating to the Company and the Company Subsidiaries,
or any of them, which is (1) provided to INVATEC or its counsel by
the Company prior to the Effective Time or by the Stockholders and
(2) contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or
any amendment thereof or supplement thereto, or (B) any omission or
alleged omission to state therein a material fact relating to the
Company and the Company Subsidiaries, or any of them, for the period
prior to the Effective Time, required to be stated therein or
necessary to make the statements therein not misleading, and not
provided to INVATEC or its counsel by the Company or the
Stockholders after the Company and the Stockholders have been given
a reasonable opportunity to review such preliminary prospectus or or
other documentation or furnish such information (each Third Party
Claim described in Section 7.02(a) and each Third Party Claim
described in 7.02(b) being an "INVATEC Indemnified Loss").
(xviii) Section 7.06 is hereby amended by adding Subsection (c) as
follows:
(C) To the extent the Indemnifying Party indemnifies the Indemnified
Party for claims upon which third parties, including insurance
companies, may be liable, the Indemnifying Party shall be fully
subrogated to all of the rights and remedies of the Indemnified
Party with respect to such claims.
(xix) With respect to Mr. Ries only, Section 8.01 is hereby amended
by (i) deleting from the third line thereof the phrase "third anniversary"
and substituting therefor the phrase "second anniversary".
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(xx) The last sentence of Section 10.12 is hereby deleted in its
entirety, and substituted therefor is the following:
This Section 10.12 shall not affect the indemnification, subrogation
or other contractual rights of the Stockholders under this Agreement
or any other Transaction Document.
(xxi) Subsection 10.05(b) is hereby amended by inserting at the
commencement thereof the phrase "except as set forth in Subparagraphs 2(B)
and 2 (C) of the Agreement".
(xxii) Section 10.07 is hereby deleted in its entirety, and
substituted therefore is the following:
SECTION 10.07. JURISDICTION AND VENUE. THE PARTIES AGREE THAT AS TO
ANY DISPUTE HEREUNDER WHICH RESULTS IN LITIGATION, JURISDICTION AND
VENUE WILL BE IN BOTH THE FEDERAL AND STATE COURTS LOCATED IN HARRIS
COUNTY, TEXAS , AND THE FEDERAL AND STATE COURTS LOCATED IN KING
COUNTY, WASHINGTON.
PARAGRAPH 5.POST-CLOSING ADJUSTMENT TO PURCHASE PRICE. Within forty-five
(45) days after the Effective Time, the Stockholders shall deliver to INVATEC an
unaudited balance sheet and income statement of the Business, prepared as of
11:59 p.m. on the day preceding the Effective Date (the "Post-Closing Financial
Statements"), which shall be true, complete and correct in all respects and
prepared in accordance with generally accepted accounting principles,
consistently applied, (except for certain footnote disclosures normally required
by GAAP, the omission of which will not cause the Post-Closing Financial
Statements to be materially misleading), and certified as true, complete and
correct by Stockholders. These Post-Closing Financial Statements shall become
final and binding on the Parties on the 15th day following receipt thereof by
INVATEC unless INVATEC furnishes written notice of INVATEC's disagreement
("Notice of Disagreement") to Mr. Ries prior to such date. Any Notice of
Disagreement shall specify in detail the nature of any disagreement so asserted.
If a Notice of Disagreement is sent by INVATEC to Mr. Ries in accordance with
this Paragraph 5, then the Post-Closing Financial Statements shall become final
and binding upon the Parties on the earlier to occur of: (i) the date the
Parties resolve in writing any differences they have with respect to any matter
specified in the Notice of Disagreement, or (ii) the date any disputed matters
are finally resolved in writing by the Accounting Firm. During the 10-day period
following the delivery of a Notice of Disagreement, the Parties shall seek in
good faith to resolve in writing any differences which they may have with
respect to any matter specified in the Notice of Disagreement. If, at the end of
such 10-day period (or such longer period of time as the Parties may agree upon
in writing), the Parties have not reached agreement on such matters, the matters
which remain in dispute, together with copies of this Agreement, the
Post-Closing Financial Statements, and the Notice of Disagreement, shall be
submitted, within five (5) days following the expiration of such 10- day period
(or any agreed upon extension thereof), to the Accounting Firm for review and
resolution. All proceedings conducted by the Accounting Firm shall be conducted
at the offices of the Accounting Firm in Seattle, Washington. The Accounting
Firm shall render a decision resolving the matters in dispute as soon as
practicable following the date of the submission to the Accounting Firm.
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The cost of any proceeding (including the fees of the Accounting Firm but
excluding the fees and disbursements of each party's independent auditors and
counsel) pursuant to this Paragraph 5 shall be borne one-half by INVATEC and
one-half by Stockholders. The fees and disbursements of Stockholders'
independent auditors and counsel incurred in connection with this Paragraph 5
shall be borne by Stockholders, and the fees and disbursements of INVATEC's
independent auditors and counsel incurred in connection with this Paragraph 5
shall be borne by INVATEC. The final determination as described in the
procedures set forth hereinabove shall constitute the "Final PostClosing
Financial Statements." To the extent that the Working Capital of the Company, as
set forth in the Final Post-Closing Financial Statements, is less than or
greater than five hundred seventy-four thousand dollars ($574,000), the
deficiency will be paid in cash by Stockholders to INVATEC, or the excess will
be paid in cash by INVATEC to the Stockholders, as applicable, within five
business days of delivery of the Final Post-Closing Financial Statements to
INVATEC and to Mr. Ries. The Purchase Price shall also be decreased by the
amount of the Note Reduction Sum, to the extent of any adjustments to the
principal amounts of the Convertible Notes which were not made previously, which
decrease shall be effected by reducing the original principal amount of each
Convertible Note, according to the Pro Rata Share of the Stockholder to whom
such Convertible Note was issued, and each Stockholder hereby covenants and
agrees to execute and deliver to INVATEC, within three (3) business days after
receipt of an execution counterpart thereof from INVATEC, a note modification
agreement reflecting this modification of the Acquisition Consideration and of
the original principal amount of such Stockholder's Convertible Note.
PARAGRAPH 6.OFFSET; ATTORNEYS' FEES. To the extent permitted by applicable
law, all amounts due and owing to a Stockholder under this Agreement or a
Convertible Note shall be subject to offset by the INVATEC to the extent of any
damages incurred as a result of any Stockholder's breach of this Agreement or
any document, instrument, or agreement executed by any Stockholder in connection
herewith after thirty (30) days prior written notice to the Stockholders of the
alleged breach, and the failure of the Stockholders to cure same within such
30-day period. Any offset against a Convertible Note shall be against (i) the
payments next coming due under such Convertible Note, or (ii) the then
outstanding principal balance of the Note, at the election of INVATEC. Each
Stockholder hereby acknowledges and agrees that but for the right of offset
contained in this Paragraph 6, INVATEC would not have entered into this
Agreement or any of the transactions contemplated herein. If any legal action or
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Agreement, the successful or prevailing Party or
Parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding in addition to any other remedies to which
such Party or Parties may be entitled at law or equity. The rights and remedies
granted herein are cumulative and not exclusive of any other right or remedy
granted herein or provided by law.
PARAGRAPH 7. NOTICES. For purposes of Section 10.06, notices shall be
addressed to the Stockholders and the Company, as follows:
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(A) if to a Stockholder, addressed to him at:
Mr. D. Bowen King
8291 Seaview Avenue
Indianola, WA 98342; or
Mr. E.S. Ries
15108 168th Avenue NE
Woodinville, WA 98072;
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Mr. George Holzapfel
Lasher Holzapfel Sperry & Ebberson PLLC
2600 Two Union Square
601 Union Street
Seattle, Washington 98101-4000
PARAGRAPH 8.IPO HOLDBACK. Each Stockholder hereby covenants and agrees
that (i) he will not dispose of any of the INVATEC's common stock issued upon
conversion of the Convertible Notes for a period of two (2) years after the IPO
Closing Date without the prior written consent of the Company, and (ii) he will
execute such agreements as may be required by the Company in order to evidence
this covenant and agreement.
PARAGRAPH 9. ENVIRONMENTAL INDEMNITY.
A. SEATTLE FACILITY. The Parties acknowledge that there has occurred
surface staining of the soil within a certain area which is approximately ten
feet (10') by twenty-five feet (25') at the Seattle Facility, and agree that it
is in the best interests of the Parties to remove the stained soil. The Parties
contemplate that (i) the stained soil will be removed based on a visual
inspection, to depths of up to six (6) or eight (8) feet in certain areas, (ii)
testing will be done to confirm the removal of all contaminated soil, and (iii)
the area will be backfilled with appropriate materials. In addition to any other
liabilities and obligations of the Stockholders hereunder, and without regard to
any Threshold Amount except as expressly set forth in this Paragraph 9,
Stockholders hereby agree to indemnify, defend and hold harmless INVATEC, the
Company and the Subsidiaries from and against any loss, cost, expense, liability
or damages caused by, arising out of or resulting from any clean-up costs or
remedial work relating to the foregoing, to the extent, but only to the extent,
that such losses, costs, expenses, liabilities and damages exceed Fifteen
Thousand Dollars ($15,000) in the aggregate.
B. LONG BEACH FACILITY. In addition to any other liabilities and
obligations of the Stockholders hereunder, and without regard to any Threshold
Amount, Stockholders hereby agree to indemnify, defend and hold harmless
INVATEC, the Company and the Subsidiaries from and against any loss, cost,
expense, liability or damages caused by, arising out of or resulting from (a)
any release (as defined in the Environmental Laws) at, from, in or on the Long
Beach Facility which occurred at any
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<PAGE>
time prior to the Effective Time (including the time prior to the date on which
Steam Supply & Rubber Co., Inc. took possession of the Long Beach Facility)
which, if all relevant facts were known to the relevant Governmental
Authorities, reasonably could be expected to require remediation to avoid deed
record notices, restrictions, liabilities or other consequences that would not
be applicable if that release had not occurred; (b) the presence of any Solid
Wastes, Hazardous Wastes or Hazardous Substances in, on or about the Long Beach
Facility as of the Effective Time; (c) any storage tanks on or under the Long
Beach Facility, and any materials released into the surrounding environment
therefrom; and (d) any clean-up costs, remedial work, damage to natural
resources, personal injury or property damage, including any claim under CERCLA,
relating to any of the foregoing. To the extent the Stockholders indemnify
Invatec, Flickinger Co. or their respective Affiliates for claims under this
Paragraph 9, Stockholders shall be subrogated to all of the rights and remedies
of Invatec, Flickinger Co. and their respective Affiliates with respect thereto.
PARAGRAPH 10. MEDIATION AND ARBITRATION OF DISPUTES. Except for disputes
to be resolved by the Accounting Firm as contemplated in Paragraph 5 hereof, in
the event that any disputes arise regarding the interpretation or enforcement of
this Agreement, such disputes shall be resolved as follows:
The Parties shall first attempt to resolve them by good faith
negotiations. If any disputes cannot be resolved by direct negotiations within
fifteen (15) days or such longer time as is mutually agreed by the Parties, then
the Parties shall submit such disputes to mediation, which shall focus on the
needs of all concerned Parties and seek to solve problems cooperatively, with an
emphasis on dialogue and accommodation. The goal of the mediation shall be to
fairly resolve each dispute in a manner which preserves and enhances the
Parties' relationships. Any Party desiring mediation may begin the process by
giving the other Parties a written request to mediate which describes the issues
involved and invites such other Parties to join in naming a mutually agreeable
mediator and setting a time frame for the mediation meeting. The Parties and
mediator may adopt any procedural format that seems appropriate for the
particular dispute. The contents of all discussions during the mediation shall
be confidential and non-discoverable in subsequent arbitration or litigation, if
any. If the Parties can agree upon a mutually acceptable resolution to the
disagreement, it shall be reduced to writing, signed by the Parties, and the
dispute shall be deemed resolved. The costs of mediation shall be divided
equally among the Parties to the dispute.
If any dispute cannot be resolved through mediation, or if any Party
refuses to mediate or to name a mutually acceptable mediator or establish a time
frame for mediation within a period of time that is reasonable considering the
urgency of the disputed matter, or fails to agree to procedures for the
mediation, then any Party who desires dispute resolution shall seek binding
arbitration as hereinafter provided.
All disputes among the Parties arising out of or related to this Agreement
which have not been settled by mediation shall be resolved by binding
arbitration within the State of Washington. Within twenty (20) days of receiving
written demand for arbitration, the Parties involved in the dispute shall
attempt to reach agreement upon the selection of a qualified impartial
arbitrator. If
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the Parties cannot agree upon an arbitrator within twenty (20) days from the
date written demand for arbitration is served, the Party demanding arbitration
may commence an action for the limited purpose of obtaining appointment of an
arbitrator by the Presiding Judge of the Superior Court of the State of
Washington for King County. Any arbitration shall be conducted in accordance
with the rules of the American Arbitration Association then in effect, although
the arbitration need not be conducted under the auspices of the Association. Any
arbitration award may be enforced by judgment entered in the Superior Court of
the State of Washington for King County.
PARAGRAPH 11. MULTIPLE COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement
may be executed in multiple counterparts, each of which shall have the force and
effect of an original, and all of which together shall constitute but one and
the same agreement. For purposes of the Agreement and all documents, instruments
and agreements executed in connection herewith other than the Convertible Notes,
facsimile signatures shall be deemed to be original signatures. In addition, if
any Party executes facsimile copies of this Agreement or any documents ,
instruments of agreements executed in connection herewith other than the
Convertible Notes, such copies shall be deemed originals.
EXECUTED AND DELIVERED EFFECTIVE as of the date first written above.
INVATEC:
INNOVATIVE VALVE TECHNOLOGIES,
INC., a Delaware corporation
By:
CHARLES F. SCHUGART
Senior Vice President
STOCKHOLDERS:
D. BOWEN KING, Individually
E.S. RIES, Individually
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The undersigned, the spouses of each of Mr. King and Mr. Ries, are
fully aware of, understand, and fully consent and agree to the provisions of
this Stock Purchase Agreement, and its binding effect upon any community or
other property interests that they may own in the Subject Shares, and their
awareness, understanding, consent and agreement are evidenced by their execution
hereof. The undersigned spouses of each of Mr. King and Mr. Ries additionally
join in the execution hereof in order to sell, assign and transfer unto INVATEC
all of their respective rights, titles and interests, legal or beneficial, if
any, in the Subject Shares.
---------------------------------------
NAME: BETSE KING,
SPOUSE OF D. BOWEN KING
---------------------------------------
NAME: MONIKA A. RIES
SPOUSE OF E.S. RIES
THE COMPANY:
PUGET INVESTMENTS, INC.
a Washington corporation
By:
Name:
Title:
FLICKINGER-BENICIA INC.
a Washington corporation
By:
Name:
Title:
Exhibit A -- Form of Subordination Agreement
Annex 1 - Uniform Provisions
-18-
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
DATED AS OF JULY 15, 1997
BY AND AMONG
INNOVATIVE VALVE TECHNOLOGIES, INC.,
AND
INDUSTRIAL CONTROLS & EQUIPMENT, INC.,
VALVE ACTUATION & REPAIR CO.,
RICKCO ACQUISITION, INC.,
BAS TECHNICAL EMPLOYMENT PLACEMENT COMPANY
AND
SYNERGISTIC PARTNERS, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into
effective the 15th day of July, 1997, by and among INNOVATIVE VALVE
TECHNOLOGIES, INC. ("INVATEC"), a Delaware corporation, SYNERGISTIC PARTNERS,
INC., a Pennsylvania corporation, ("Synergistic Partners"), SYNERGISTIC
ENTERPRISES, INC., a Delaware corporation ("Synergistic Enterprises"), THOMAS
SANTACROCE, an individual ("Mr. Santacroce"), (Synergistic Enterprises and Mr.
Santacroce being sometimes hereinafter referred to collectively as the
"Stockholders" and individually as a "Stockholder"), INDUSTRIAL CONTROLS &
EQUIPMENT, INC., a Pennsylvania corporation ("ICE"), VALVE ACTUATION & REPAIR
CO., a West Virginia corporation ("VARCO"), RICKCO ACQUISITION, INC., a West
Virginia corporation d/b/a BAS Technical Services ("BTS"), and BAS TECHNICAL
EMPLOYMENT PLACEMENT COMPANY, a West Virginia corporation ("BTEP") (ICE, VARCO,
BTS and BTEP being hereinafter referred to individually and collectively as the
"Company"). INVATEC, Synergistic Partners, Stockholders and the Company are
sometimes hereinafter referred to collectively as the "Parties" or individually
as a "Party."
PRELIMINARY STATEMENT
WHEREAS, (a) Synergistic Enterprises is the legal and beneficial owner
and holder of (i) two thousand (2,000) shares of the Common Stock of ICE, (ii)
one hundred (100) shares of the Common Stock of VARCO, (iii) five hundred (500)
shares of the Common Stock of BTS, and (iv) seventy-five (75) shares of the
Common Stock of BTEP, and (b) Mr. Santacroce is the legal and beneficial owner
and holder of twenty-five (25) shares of the Common Stock of BTEP (collectively,
the "Subject Shares"), the Subject Shares constituting all of the issued and
outstanding common stock of the Company; and
WHEREAS, INVATEC desires to acquire from Stockholders, and Stockholders
desire to sell to INVATEC, all of the Subject Shares, on the terms and
conditions and for the consideration set forth in this Agreement (the
"Acquisition"), which Acquisition will be consummated substantially concurrently
with a public offering of shares of common stock of INVATEC; and
WHEREAS, the Parties understand that INVATEC may enter into other
agreements similar to this Agreement (the "Other Agreements") for the
acquisition by INVATEC of other entities (collectively, the "Other Acquired
Businesses," and each of those entities, individually, an "Other Acquired
Business"), which Other Agreements will be among those entities and their equity
owners, INVATEC and subsidiaries of INVATEC; and
WHEREAS, the respective boards of directors of INVATEC, Synergistic
Partners, Synergistic Enterprises and the Company, and the sole shareholder of
Synergistic Enterprises, have approved and adopted this Agreement;
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NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the Parties
hereby agree as follows:
Paragraph 1. CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms have the meanings assigned to them below in this Paragraph
1. Capitalized terms used in this Agreement and not defined below in this
Paragraph 1 have the meanings assigned to them in the Preliminary Statement or
Article IX of the Standard Provisions, as the case may be.
"ACCOUNTING FIRM" means KPMG Peat Marwick LLP, in Pittsburgh,
Pennsylvania.
"ACQUIRED BUSINESS" means the business conducted by the Company.
"ACQUISITION CONSIDERATION" has the meaning specified in
Paragraph 2.
"CANON CONSULTING AGREEMENT" means the Consulting and
Noncompetition Agreement to be entered into as of the IPO Closing Date
between INVATEC and Mr. Canon in the form attached hereto as Exhibit A.
"CEILING AMOUNT" means, (i) for Synergistic Enterprises, an
amount equal to the aggregate of (a) the amount of the Acquisition
Consideration, as same may be adjusted after Closing pursuant to
Paragraph 5, plus (b) the net Intercompany Indebtedness as of the IPO
Pricing Date paid by the Company under Paragraph 2D, or minus (c) the
Net Stockholder Indebtedness paid to the Company under Paragraph 2D, and
(ii) for Mr. Santacroce, an amount equal to the amount of the
Acquisition Consideration, as same may be adjusted after Closing
pursuant to Paragraph 5.
"CHARLESTON FACILITY LEASE AMENDMENT" means the lease amendment
contemplated by Paragraph 6(E).
"CLOSING" has the meaning specified in Paragraph 3.
"CLOSING DATE" means the IPO Pricing Date or such other date as
to which INVATEC and the Stockholders may agree.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by INVATEC for the Closing under this Agreement in which are
included the forms of Santacroce Employment Agreement, Canon Consulting
Agreement, Computer System Lease, Lawrence Facility Sublease, Charleston
Facility Lease Amendment, Confidentiality and Non-Competition
Agreements, Guaranty of Performance, certificates of officers, opinions
of counsel and certain other documents to be delivered at the Closing as
provided in Article V, each of which shall be in the form attached
hereto as an Exhibit or, if not so attached, in the form mutually agreed
upon by the parties thereto.
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"COMPANY" has the meaning specified in the preamble of this
Agreement.
"COMPANY CAPITAL STOCK" means (i) the Common Stock, par value
$1.00 per share, of ICE, (ii) the Common Stock, par value $1.00 per
share, of VARCO, (iii) the Common Stock, par value $100.00 per share, of
BTS, and (iv) the Common Stock, par value $10.00 per share, of BTEP.
"COMPUTER SYSTEM LEASE" means the lease contemplated by
Paragraph 6(F).
"CONFIDENTIALITY AND NON-COMPETITION AGREEMENTS" means the
Confidentiality and Non-Competition Agreements to be entered into as of
the IPO Closing Date between (a) the Company and Synergistic Partners,
in the form thereof attached hereto as Exhibit B-1, (b) the Company and
Synergistic Enterprises, in the form thereof attached hereto as Exhibit
B-2, and (c) the Company and Dennis Petronko, in the form thereof
attached hereto as Exhibit B- 3.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Houston
Harbaugh, a Professional Corporation of Pittsburgh, Pennsylvania.
"COUNSEL FOR INVATEC" means Boyer, Ewing & Harris Incorporated
of Houston, Texas.
"CURRENT BALANCE SHEET" means the combined balance sheet of the
Company as of March 31, 1997.
"CURRENT BALANCE SHEET DATE" means March 31, 1997.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to INVATEC prior
to the execution and delivery of this Agreement by INVATEC in which
either (a) exceptions are taken to any of certain of the representations
and warranties made by the Company, Synergistic Partners and the
Stockholders herein or (b) it is confirmed that no exception is taken to
that representation and warranty.
"EBITDA" means the Company's combined earnings before interest,
income taxes, depreciation, amortization and extraordinary items, as
determined in accordance with GAAP at the time EBITDA is to be
determined; provided, however, that EBITDA is to be calculated only with
respect to the business lines engaged in by the Company immediately
prior to the IPO Closing Date to the extent it is generated by the
Acquired Business, as it exists as of the Effective Time,
notwithstanding the fact that the Company may, after the Acquisition,
from time to time in the future, be modified or changed through the
addition of other businesses through merger, reorganization,
restructuring or otherwise.
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"EFFECTIVE DATE" means the IPO Closing Date.
"EFFECTIVE TIME" has the meaning specified in Paragraph 2.
"GUARANTY OF PERFORMANCE" means the Guaranty of Performance to be
executed and delivered as of the IPO Closing Date by Synergistic
Partners, in the form thereof attached hereto as Exhibit C.
"INDEBTEDNESS" means all items, except for items of capital
stock, surplus, general contingency, Intercompany Indebtedness or
deferred tax liabilities, which in accordance with GAAP would be
included on the liability side of the balance sheet of the Company at
such time other than accounts payable, accrued expenses and other trade
payables. The Indebtedness of the Company at the Current Balance Sheet
Date is $1,950,987, determined as provided in Schedule I hereto.
"INITIAL FINANCIAL STATEMENTS" means (a) the combined balance
sheets of the Company as of September 30, 1995 and 1996 and the related
combined statements of operations and retained earnings for each of the
Company's fiscal years in the three-year period ended September 30,
1996, and (b) the Current Balance Sheet and the related combined
statements of operations for the six (6) months ended on the Current
Balance Sheet Date, which the Company has delivered to INVATEC. The
Company's financial statements for the six-month period ended March 31,
1997, and the one-year periods ended September 30, 1995 and September
30, 1996, are attached hereto as Exhibit D.
"INTERCOMPANY INDEBTEDNESS" means indebtedness of the Company to
Synergistic Partners or any of its partially or wholly-owned
subsidiaries (other than any Entity comprising the Company), which is to
be paid contemporaneously with the Acquisition Consideration pursuant to
Paragraph 2(D). As of the Current Balance Sheet Date, the net
Intercompany Indebtedness is $1,987,594, determined as provided in
Schedule II hereto.
"LAWRENCE FACILITY SUBLEASE" means the sublease contemplated by
Paragraph 6(G).
"NET STOCKHOLDER INDEBTEDNESS" has the meaning specified in
Paragraph 2.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of the
Company's business consistent with past customs and practice (including
with respect to quantity and frequency).
"PRO RATA SHARE" of a Stockholder means: 99.968% in the case of
Synergistic Enterprises, and .032% in the case of Mr. Santacroce.
"RESPONSIBLE OFFICER" means (i) Mr. Canon for ICE, (ii) Mr.
Canon for VARCO, (iii) Dennis A. Petronko for BTS, (iv) Mr. Santacroce
for BTEP, (v) Mr. Canon for Synergistic Enterprises, and (vi) Mr. Canon
for Synergistic Partners.
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<PAGE>
"SANTACROCE EMPLOYMENT AGREEMENT" means the Employment Agreement
to be entered into as of the IPO Closing Date between INVATEC and Mr.
Santacroce, in the form thereof attached hereto as Exhibit E.
"THRESHOLD AMOUNT" means two percent (2%) of the Ceiling Amount
as same may be adjusted after Closing pursuant to Paragraph 5.
"UNIFORM PROVISIONS" has the meaning specified in Paragraph 4.
"WORKING CAPITAL" means the current assets minus the current
liabilities of the Company, determined in accordance with GAAP,
excluding outstanding Indebtedness and Intercompany Indebtedness
(calculated as provided in Schedule III attached hereto). The Working
Capital of the Company at the Current Balance Sheet Date is $2,469,291,
determined as provided in Schedule III attached hereto.
Paragraph 2. STOCK PURCHASE. (A) Subject to the terms and
conditions hereof, on the IPO Closing Date, the Stockholders collectively will
sell, assign and transfer to INVATEC, and INVATEC will purchase and acquire from
the Stockholders collectively, all the outstanding Company Capital Stock.
(B) DELIVERY, EXCHANGE AND PAYMENT. On the IPO Closing Date, each
Stockholder, as the holder of certificates representing all the outstanding
Company Capital Stock he or it owns, will, on surrender of those certificates to
INVATEC (or any agent that may be appointed by INVATEC for purposes of this
Paragraph 2(B)), receive, subject to the provisions of this Paragraph 2, as
payment for that Company Capital Stock, his or its Pro Rata Share of an amount
of cash or other immediately available funds (the "Acquisition Consideration")
equal to (i) Five Million Two Hundred Fifty Thousand and No/100 Dollars
($5,250,000.00), minus (ii) the aggregate amount of (a) the Company's
outstanding Indebtedness as of the IPO Pricing Date, plus (b) the outstanding
net Intercompany Indebtedness as of the IPO Pricing Date. The time of such
surrender and receipt is the "Effective Time." Schedule IV attached hereto sets
forth the Acquisition Consideration which would have been paid if the Effective
Time had occurred on the Current Balance Sheet Date.
(C) DELIVERY OF STOCK CERTIFICATES, ETC. Each Stockholder will
deliver, and Synergistic Partners will cause Synergistic Enterprises to deliver,
to INVATEC (or any agent that may be appointed by INVATEC for purposes of this
Paragraph 2(C)), on or before the IPO Closing Date, the certificates
representing all the Company Capital Stock owned by that Stockholder, duly
endorsed in blank, or accompanied by stock powers in blank duly executed by that
Stockholder, and with all necessary transfer tax and other revenue stamps,
acquired at that Person's expense, affixed and canceled. Each Stockholder shall
cure, and Synergistic Partners will cause Synergistic Enterprises to cure, any
deficiencies in the endorsement of the certificates or other documents of
conveyance respecting, or in the stock powers accompanying, the certificates
representing Company Capital Stock delivered by such Stockholder.
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(D) INTERCOMPANY INDEBTEDNESS; DEBTS OF STOCKHOLDERS.
Contemporaneously with the payment of the Acquisition Consideration, but subject
to the limitation set forth below, INVATEC shall cause the Company to pay all
Intercompany Indebtedness, and each Stockholder shall repay, and Synergistic
Partners and Synergistic Enterprises shall cause each of their Affiliates (other
than any Entity comprising the Company) to repay, to the Company any
indebtedness owed by such Stockholder or any such Affiliate to the Company.
Synergistic Partners shall act as agent for all holders of Intercompany
Indebtedness and for each Stockholder and Affiliate of a Stockholder in
connection with the payments to be made under this Paragraph 2(D), and shall, as
applicable, receive in trust from the Company an amount equal to the net
Intercompany Indebtedness, or pay to the Company the amount by which the
indebtedness to the Company exceeds the Intercompany Indebtedness (the "Net
Stockholder Indebtedness"), provided that the net Intercompany Indebtedness
payable by the Company shall not exceed $5,250,000 minus the outstanding
Indebtedness. Synergistic Partners hereby indemnifies, defends and holds
harmless INVATEC and the Company, without regard to the Threshold Amount, with
respect to any claims by any Affiliate of Synergistic Partners relating to or
arising out of payments received by Synergistic Partners under this Paragraph
2(D).
Paragraph 3. THE CLOSING AND CERTAIN IPO CLOSING DATE ACTIONS.
(A) On or before the IPO Pricing Date, the Parties will take all actions
necessary, and Synergistic Partners will take all actions necessary to cause
Synergistic Enterprises, to (i) effect the Stock Purchase, (ii) verify the
existence and ownership of the certificates evidencing Company Capital Stock to
be transferred to INVATEC at the Effective Time, and (iii) satisfy the document
delivery requirements on which the obligations of the Parties to effect the
Stock Purchase and the other transactions contemplated hereby are conditioned by
the provisions of Article V (except for those actions which are not required to
be completed until the IPO Closing Date) (all those actions collectively being
the "Closing"). The Closing will take place at the offices of Boyer, Ewing &
Harris Incorporated, Nine Greenway Plaza, Suite 3100, Houston, Texas 77046 at
10:00 a.m., local time, or at such later time on the Closing Date as INVATEC
shall specify by written notice to Stockholders. The actions taken at the
Closing will not include the delivery of the Subject Shares to INVATEC or the
payment of the Acquisition Consideration to the Stockholders. Instead, on the
IPO Closing Date, the Subject Shares will be surrendered in exchange for the
Acquisition Consideration (which shall be paid by wire transfer pursuant to
instructions delivered to INVATEC by the Stockholders prior to Closing or, in
the absence of such instructions, an INVATEC company check), and all
transactions contemplated by this Agreement to be closed or completed on or
before the IPO Closing Date, including execution of the Santacroce Employment
Agreement, the Canon Consulting Agreement, the Computer System Lease, the
Lawrence Facility Sublease, the Charleston Facility Lease Amendment, the
Confidentiality and Non-Competition Agreements, and the Guaranty of Performance
shall be completed.
Paragraph 4. INCORPORATION OF UNIFORM PROVISIONS. The Uniform
Provisions for Business Combinations attached hereto as Annex 1 (the "Uniform
Provisions"), hereby are incorporated in this Agreement by this reference and
constitute a part of this Agreement with the same force and effect as if set
forth at length herein, subject to the following revisions:
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(A) The Table of Contents of the Uniform Provisions is hereby
amended by deleting therefrom all references to "and Newco".
(B) The first sentence of Section 1.03 is hereby amended by
inserting at the beginning thereof the phrase "Except as set forth in
Section 1.03 of the Disclosure Statement,".
(C) Subsection 2.03(c)(ii) is hereby amended by inserting at the
beginning thereof the phrase "Except as set forth in Section 2.03 of the
Disclosure Statement,".
(D) Subsection 2.14(a)(ii) is hereby amended by inserting at the
beginning thereof the phrase "Except as set forth in Section 2.14 of the
Disclosure Statement,".
(E) Article III, Article IV, Article V, Section 7.03 and Section
10.04 are hereby amended by deleting therefrom the phrases "each of
INVATEC and Newco", "Either of INVATEC or Newco", "INVATEC and Newco"
and "INVATEC or Newco", and substituting therefor the word "INVATEC".
(F) The first paragraph of Article III is hereby amended by
deleting therefrom the phrase "jointly and severally."
(G) Subsections 3.04(b) and 3.04(c) are hereby deleted in their
entirety.
(H) Section 4.10 is hereby amended by deleting the words "prior
to" from the last line thereof, and substituting therefor the words "as
of".
(I) Section 5.02 is hereby amended by adding a subsection (b)
thereto as follows:
(b) The obligations of the Company and the Stockholders with
respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of (i) all the
conditions set forth in Section 5.01(b), if any, and (ii) the
condition that all the representations and warranties of INVATEC
in Article III shall be true and correct as of the IPO Closing
Date as though made on that date.
(J) Section 5.03(a)(B)(1) of the Uniform Provisions is hereby
amended to read in its entirety as follows:
(1) Officer's Certificates for the Company, Synergistic Partners
and Synergistic Enterprises, signed by a Responsible Officer,
respecting (i) the truth, completeness and accuracy as of the IPO
Pricing Date of the representations and warranties of the
Stockholders, Synergistic Partners and the Company in Articles I
and II, (ii) compliance with the covenants of the Stockholders,
Synergistic
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Partners and the Company in Article IV, and (iii) aggregate
revenues for the period beginning May 1, 1997, and ending on the
IPO Pricing Date, in material conformity with the budgets and
projections for such period attached hereto as Schedule V
(provided that the Officer's Certificates for Synergistic
Partners and Synergistic Enterprises shall be limited, with
respect to clauses (i) and (ii) above, to the representations,
warranties and covenants of Synergistic Partners, the Company and
Synergistic Enterprises);
(K) Section 5.02(B)(4) of the Uniform Provisions is hereby
amended to read in its entirety as follows:
(4) (i) the Santacroce Employment Agreement duly executed and
delivered by INVATEC, (ii) the Canon Consulting Agreement duly
executed and delivered by INVATEC, (iii) Computer System Lease,
duly executed and delivered by the Company, (iv) Lawrence
Facility Sublease, duly executed and delivered by ICE, (v)
Charleston Facility Lease Amendment, duly executed and delivered
by BAS, and (vi) the Confidentiality and Non-Competition
Agreements, duly executed and delivered by INVATEC, all of which
shall be substantially in the forms thereof attached as exhibits
to this Agreement or as exhibits to the Closing Memorandum.
(L) Section 5.03(a)(B)(3) is hereby amended by deleting therefrom
all references to "of the Company," and substituting therefor "of each
Company, of Synergistic Enterprises and of Synergistic Partners".
(M) Section 5.03(a)(B)(5) of the Uniform Provisions is hereby
amended to read in its entirety as follows:
(5) From (i) each officer and director of each Company a notice
of resignation, (ii) Mr. Santacroce, the Santacroce Employment
Agreement, duly executed and delivered by Mr. Santacroce, (iii)
Mr. Canon, the Canon Consulting Agreement, duly executed and
delivered by Mr. Canon, (iv) Synergistic Partners, the Computer
System Lease, duly executed and delivered by Synergistic
Partners, (v) Synergistic Partners, the Lawrence Facility
Sublease, duly executed and delivered by Synergistic Partners and
Buckanon Enterprises, (vi) BAS Enterprises, LLC, the Charleston
Facility Lease Amendment, duly executed and delivered by BAS
Enterprises, LLC, (vii) Synergistic Partners, the Confidentiality
and Non-Competition Agreements, duly executed and delivered by
Synergistic Partners, Synergistic Enterprises and Dennis
Petronko, as applicable, and (vii)
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Synergistic Partners, the Guaranty of Performance duly executed
and delivered by Synergistic Partners, all of which shall be in
the forms attached as exhibits to this Agreement or to the
Closing Memorandum; and
(N) Section 6.04 of the Uniform Provisions is hereby deleted in
its entirety, and substituted therefor is the following:
Section 6.04. TERMINATION OF GUARANTEES; PAYMENTS TO CERTAIN
THIRD PARTIES. As of the date of execution hereof:
A. CITY NATIONAL BANK OF CHARLESTON. BTS is indebted to The City
National Bank of Charleston pursuant to the terms of a $200,000
revolving line of credit note and a $34,000 term promissory note
secured by the assets of BTS, repayment of which has been
guarantied by Synergistic Partners. Through the Effective Time,
Synergistic Partners, Synergistic Enterprises and BTS will (i)
administer these loans in the Ordinary Course of Business, (ii)
cause same to be renewed, extended or refinanced, as necessary,
and (iii) use and allow BTS to use the proceeds of these loans
solely in the Ordinary Course of Business of BTS. INVATEC will
cause Synergistic Partners to be released from its guaranty of
this Indebtedness as of the Effective Time. There is no penalty
or finance charge associated with prepayment of the line of
credit; however, any finance charge or prepayment penalty payable
in connection with the term loan shall be paid by Synergistic
Partners.
B. WEST VIRGINIA ECONOMIC DEVELOPMENT AUTHORITY. VARCO is
indebted to West Virginia Economic Development Authority
("WVEDA") pursuant to the terms of a negotiable promissory note
secured by (i) certain fixtures and equipment of VARCO, and (ii)
a letter of credit issued at the request of Synergistic Partners
by Integra Bank/South or any other lender in favor of WVEDA.
INVATEC will cause WVEDA to release the letter of credit of
Synergistic Partners securing the Indebtedness to WVEDA as of the
Effective Time. There is no penalty or finance charge associated
with prepayment of the Indebtedness to WVEDA.
C. INTEGRA BANK/SOUTH. Synergistic Partners, Equipment &
Controls, Inc. ("ECI"), Electronic Instruments & Controls, Inc.
("EIC"), ICE, VARCO and Field Foam Incorporated are indebted to
Integra Bank/South ("Integra") pursuant to the terms of the
existing revolving credit facility note, secured in part by
assets of the Company (such
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facility, and any successor or replacement facility, being
hereinafter referred to as the "SPI Affiliate Revolving Credit
Facility"). In addition, ECI and EIC are indebted to Integra
pursuant to the terms of a $300,000 term loan secured by a pledge
of their assets, repayment of which has been guarantied by, among
others, ICE and VARCO (such term loan, and any additional,
successor or replacement term loans, being hereinafter referred
to collectively as the "Integra Term Loan"). Through the
Effective Time, Synergistic Partners and Synergistic Enterprises
will (i) administer these loans in the Ordinary Course of
Business, (ii) cause same to be renewed, extended or refinanced,
as necessary, and (iii) use and allow the borrowers under the SPI
Affiliate Revolving Credit Facility to use the proceeds thereof
solely in the Ordinary Course of Business. As of the Current
Balance Sheet Date, there is Indebtedness under the SPI Affiliate
Revolving Credit Facility attributable to the operations of (i)
ICE in the amount of $1,046,643, and (ii) VARCO in the amount of
$177,936 (such amounts, together with any amounts incurred by ICE
or VARCO in the Ordinary Course of Business, either as additional
term debt or under the SPI Affiliate Revolving Credit Facility,
through the Effective Time being hereinafter referred to
collectively as the "Integra-Company Debt"). As of the Effective
Time, (i) the Company will pay the Integra-Company Debt, and (ii)
Synergistic Partners and Synergistic Enterprises will cause the
Company to be released from any and all guaranties, and the
assets of the Company to be released from any security interest
or encumbrance securing payment of, (a) the Integra-Company Debt,
and (b) the SPI Affiliate Revolving Credit Facility. Any finance
charge or prepayment penalty payable in connection with the SPI
Affiliate Revolving Credit Facility or the Integra-Company Debt
shall be paid by Synergistic Partners. In addition, to the extent
that any letters of credit have been issued or are issued prior
to the Effective Time in the Ordinary Course of Business, solely
for the benefit of operations of the Company, the Company will
replace such letters of credit, provided that such letters of
credit are designated by Synergistic Partners or Synergistic
Enterprises in writing as promptly as practicable, and at least
ten (10) business days prior to the Effective Time.
D. BAS LEASE; MCCOY PROMISSORY NOTE AND CONSULTANT AGREEMENT.
Synergistic Partners has guaranteed the performance of BAS under
a Lease Agreement dated August 7, 1996, executed by BAS
Enterprises, L.L.C., as landlord, and BAS, as Tenant, covering
the premises located at 117 1st Avenue, South Charleston, West
Virginia 25303. _Synergistic Partners has guaranteed the
performance of BAS
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under (i) a Promissory Note dated August 27, 1996, payable to
Becky McCoy in the original principal amount of $75,000, and (ii)
a Consultant Agreement dated August 27, 1996, executed by BAS, as
Employer, and Becky McCoy, as Consultant. INVATEC will use its
reasonable efforts (including substitution of its own guaranty)
to ensure that as of the Effective Time, or within 90 days after
the Effective Time, these three guaranties are terminated;
provided, however, that (i) if Synergistic Partners arranges for
the termination of such guaranties as of the Effective Time,
solely by INVATEC substituting its own guaranties, on
substantially the same terms as the existing guaranties, then
INVATEC will execute and deliver such substitute guaranties as of
the Effective Time, and (ii) if INVATEC is unable to effect the
termination of any of these guaranties, INVATEC will indemnify
and hold harmless Synergistic Partners from and against any
liabilities, claims, demands, judgments, losses, costs, damages
or expenses whatsoever (including reasonable attorneys' fees)
that Synergistic Partners may sustain, suffer or incur, that
result from or arise out of these guaranties, or the obligations
of BAS under the Lease Agreement, the Promissory Note or the
Consultant Agreement.
E. John Canon. As of the Effective Time, the Company will pay to
John Canon the then unpaid balance of the indebtedness owing to
him and reflected in the "Long-Term Debt" on the Current Balance
Sheet as a "Note to Stockholder," provided that all payments due
and owing to Mr. Canon through the Effective Time are made prior
to the Effective Time.
(F) Synergistic Partners and Synergistic Enterprises hereby
covenant, represent and warrant that except as described above in
this Section 6.04, as of the Effective Time the Company will not
be liable for, nor will the assets of the Company be pledged to
secure payment of, any Indebtedness for borrowed money, nor any
obligations or Indebtedness of SPI or any of its Affiliates.
(O) Article VI of the Uniform Provisions is hereby amended by
adding thereto the following Section, which will be and read in its
entirety as follows:
Section 6.07. STOCK OPTIONS BASED ON EBITDA. Subject to the
consummation of the Acquisition, in the event that the Company
achieves combined EBITDA of One Million Dollars ($1,000,000) for
the twelve (12) month period beginning on the first day of the
first full calendar month following the IPO Closing Date, then
INVATEC
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will grant an option to Synergistic Enterprises or its designees
to purchase forty thousand (40,000) unregistered shares of
INVATEC Common Stock at the IPO Price (as the number of shares
and price per share may be adjusted after the IPO Closing Date to
reflect stock splits, stock dividends, share exchanges upon
merger and similar capital changes), pursuant to the terms of a
Stock Option Agreement in a form to be mutually agreed upon by
Synergistic Enterprises and INVATEC prior to the Closing Date and
attached to the Closing Memorandum. Such options will expire if
they are not exercised on or before the expiration of seven (7)
years after the IPO Closing Date. INVATEC will provide to
officers of Synergistic Enterprises and to the attorneys and
certified public accountants of Synergistic Enterprises
reasonable access to the books and records of the Company in
order to allow them to verify the calculation of EBITDA for this
twelve (12) month period.
(P) Section 7.05 of the Uniform Provisions is hereby deleted in
its entirety.
(Q) Article VIII of the Uniform Provisions is hereby deleted in
its entirety. In lieu thereof, the Stockholders, Synergistic Partners,
John Canon and Dennis Petronko have agreed to execute as of the
Effective Time the Santacroce Employment Agreement, the Confidentiality
and Noncompetition Agreements and the Canon Consulting Agreement, which
the parties agree are a material and substantial part of the
transactions contemplated hereby.
(R) The second sentence of Section 10.01(a) of the Uniform
Provisions is hereby amended by adding to the end thereof the following
", or (iv) is Confidential Information as of the Effective Time with
respect to both the Company and one of the wholly-owned or partially
owned subsidiaries of Synergistic Partners."
(S) The penultimate sentence of Section 10.01(a) of the Uniform
Provisions is hereby amended by deleting therefrom the reference to
"this Section 11.01," and substituting therefor a reference to "this
Section 10.01".
(T) Section 10.01(c) of the Uniform Provisions is hereby amended
by adding to the end thereof a sentence which reads as follows:
"Notwithstanding any provision hereof to the contrary, the restrictions
of this Article 10.01 shall terminate and be of no further force or
effect with respect to the Confidential Information of the Company and
the Company Subsidiaries if this Agreement is terminated without
consummation of the Acquisition."
(U) Section 10.03 of the Uniform Provisions is hereby amended by
deleting therefrom the phrase "of the Stockholders" and substituting
therefor the phrase "and successors of the Stockholders and Synergistic
Partners".
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(V) Section 10.11 of the Uniform Provisions is hereby amended by
inserting at the beginning thereof the phrase "Subject to the
limitations on Damage Claims and Indemnification set forth in Sections
6.06 and 7.06 hereof, and in Paragraph 9,"
(W) Section 10.13 is hereby amended by deleting therefrom the
date "December 31, 1997," and substituting therefor the date "November
15, 1997."
(X) Section 11.01(b)(i) of the Uniform Provisions is hereby
amended by adding to the end thereof "(INVATEC hereby agrees to give
prompt notice to Company of any such termination of the Underwriting
Agreement)"
(Y) Section 11.02 of the Uniform Provisions is hereby amended by
adding to the end thereof "Notwithstanding the foregoing or any
provision of the Agreement or these Uniform Provisions to the contrary,
INVATEC shall reimburse the Stockholders for one-half of their
out-of-pocket costs and expenses reasonably incurred by them in pursuing
the Acquisition, up to an aggregate maximum of Twenty-Five Thousand
Dollars ($25,000), in the event of (i) a termination by Stockholders
under Section 11.01(a)(ii), or (ii) a termination under Section
11.01(b).
Paragraph 5. POST-CLOSING ADJUSTMENT TO PURCHASE PRICE. Within
forty-five (45) days after the Closing Date, Synergistic Enterprises and
Synergistic Partners shall deliver to INVATEC an unaudited balance sheet and
income statement of the Acquired Business, prepared as of the Closing Date (the
"Post-Closing Financial Statements"), which shall be true, complete and correct
in all respects and prepared in accordance with generally accepted accounting
principles, consistently applied, and certified as true, complete and correct by
Synergistic Enterprises and Synergistic Partners. These Post-Closing Financial
Statements shall become final and binding on the Parties on the 15th day
following receipt thereof by INVATEC unless INVATEC furnishes written notice of
INVATEC's disagreement ("Notice of Disagreement") to Synergistic Enterprises
prior to such date. Any Notice of Disagreement shall specify in detail the
nature of any disagreement so asserted. If a Notice of Disagreement is sent by
INVATEC to Synergistic Enterprises in accordance with this Paragraph 5, then the
Post-Closing Financial Statements shall become final and binding upon the
Parties on the earlier to occur of: (i) the date the Parties resolve in writing
any differences they have with respect to any matter specified in the Notice of
Disagreement, or (ii) the date any disputed matters are finally resolved in
writing by the Accounting Firm. During the 10-day period following the delivery
of a Notice of Disagreement, the Parties shall seek in good faith to resolve in
writing any differences which they may have with respect to any matter specified
in the Notice of Disagreement. If, at the end of such 10-day period (or such
longer period of time as the Parties may agree upon in writing), the Parties
have not reached agreement on such matters, the matters which remain in dispute,
together with copies of this Agreement, the Post-Closing Financial Statements,
and the Notice of Disagreement, shall be submitted, within five (5) days
following the expiration of such 10-day period (or any agreed upon extension
thereof), to the Accounting Firm for review and resolution. All proceedings
conducted by the Accounting Firm shall be conducted at the offices of the
Accounting Firm in Pittsburgh, Pennsylvania. The Accounting Firm shall render a
decision
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resolving the matters in dispute as soon as practicable following the date of
the submission to the Accounting Firm. The cost of any proceeding (including the
fees of the Accounting Firm but excluding the fees and disbursements of each
Party's independent auditors and counsel) pursuant to this Paragraph 5 shall be
borne one-half by INVATEC and one-half, jointly and severally, by Synergistic
Enterprises and Synergistic Partners. The fees and disbursements of
Stockholders' and Synergistic Partners' independent auditors and counsel
incurred in connection with this Paragraph 5 shall be borne by Stockholders and
Synergistic Partners, and the fees and disbursements of INVATEC's independent
auditors and counsel incurred in connection with this Paragraph 5 shall be borne
by INVATEC. The final determination as described in the procedures set forth
hereinabove shall constitute the "Final Post-Closing Financial Statements."
Synergistic Enterprises and Synergistic Partners hereby agree, jointly and
severally, to pay to INVATEC within five business days of delivery of the Final
Post-Closing Financial Statements to INVATEC and to Stockholders, an aggregate
amount equal to the amount, if any, by which Two Million Four Hundred Sixty-Nine
Thousand Two Hundred Ninety-One Dollars ($2,469,291) exceeds the Working Capital
of the Company, as set forth in the Final Post-Closing Financial Statements.
Conversely, INVATEC hereby agrees to pay to each Stockholder, within five
business days of delivery of the Final Post-Closing Financial Statements to
INVATEC and to Stockholders, an amount equal to his or its Pro Rata Share of the
amount, if any, by which the Working Capital of the Company exceeds Two Million
Four Hundred Sixty-Nine Thousand Two Hundred Ninety-One Dollars ($2,469,291), as
set forth in the Final Post-Closing Financial Statements. Determinations
hereunder shall be consistent with the methodology reflected in Schedules I, II,
III and IV.
Paragraph 6. COOPERATION DURING TRANSITION. The Parties (other
than Santacroce) hereby agree as follows, and further agree to incorporate the
following terms, and such other terms as the Parties find mutually agreeable,
into such agreements as the Parties may agree upon:
(A) CONSOLIDATED SUPPLY AGREEMENTS. The Parties acknowledge and
agree that historically the Company and/or certain Affiliates of Synergistic
Partners have acted as "consolidated suppliers" of various products and services
relating to the Acquired Business. Certain of these agreements have been
executed by the Company on behalf of the "consolidated group," and certain other
agreements have been executed by Affiliates on behalf of the "consolidated
group." In the past, each Entity providing a product or service under a
consolidated supply arrangement has received all revenues attributable to the
products or services provided by it, the amount of such revenues being equal to
the price charged to the customer for such products or services. If such Entity
was not a party to the consolidated supply agreement, it nevertheless received
these revenues on a "pass-through" basis, without deduction or charge by the
Entity executing the agreement with the customer. In the event of receipt of
only partial payment under a consolidated supply arrangement, the payment shall
be divided pro rata (based on allocable gross revenues billed) among the members
of the consolidated group, if none of them is at fault; however, if the partial
payment is due or allegedly due to the fault of any member of the consolidated
group, such member shall bear the consequences of any failure to pay in full, as
well as the responsibility to cure any related customer complaints. The Parties
acknowledge and agree that it is in their best interests, and they hereby agree,
to continue to perform the existing contracts in the manner in which same have
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historically been performed, and to distribute revenue among the consolidated
supply Entities as it has historically been distributed. In addition, the
Parties agree that where feasible, they will proceed promptly and in good faith
after the Effective Time in executing new agreements with the parties to the
existing supply agreements in order to clarify the rights and responsibilities
of the Company and the Affiliates with respect thereto, and to otherwise
continue the existing arrangement for so long as delivery of products and
services under the existing "consolidated group" supply agreements continues.
As of the Effective Time, the three (3) employees currently working in
the consolidated supply department will be transferred to the payroll of VARCO.
VARCO will operate the consolidated supply department, and the Parties will
cooperate, and cause their Affiliates to cooperate, with one another in good
faith, to support all consolidated supply agreements for the mutual benefit of
the Parties and their Affiliates. Synergistic Partners will pay VARCO $7,000 per
month for its services in operating the consolidated supply department.
(B) VARCO FIELD SERVICES GROUP. There are currently three (3)
technicians on the Company's payroll who perform the vast majority of their
services on behalf of VARCO. As of the Effective Time, these three (3)
technicians will be transferred to the payroll of an Affiliate of Synergistic
Partners; however, Synergistic Partners and Synergistic Enterprises hereby
jointly and severally covenant and agree that for the two (2) year period
following the Effective Time, (i) they will cause this Affiliate to lease these
three (3) technicians, or their successors (provided such successors are fully
trained, similarly experienced field service technicians), and cause them to be
available as needed to the Company as needed at a rate equal to the pro rata
portion of the salaries and other direct out-of-pocket costs of such technicians
allocable to the work performed for the Company (which pro rata portion shall be
based on the gross revenues generated by such technicians for the Company versus
those generated for Synergistic Partners and its Affiliates), and (ii) they
will, and they will cause their Affiliates to, direct to the Company all work of
the types previously directed to these employees by Synergistic Partners and its
Affiliates, which the Company shall perform and bill on its own behalf,
retaining all revenues and profits generated thereby, and (iii) they will, and
they will cause their Affiliates to, use reasonable efforts to cause these three
(3) technicians to assist as reasonably required in the training of the
replacements of these three (3) technicians prior to the end of this two (2)
year period.
(C) PERSONNEL. The Parties acknowledge and agree that the Company
will need to hire certain administrative and accounting personnel who are
currently employed by Synergistic Partners or its Affiliates, and who the
Parties shall mutually identify in the Closing Memorandum, in order to service
the operations of the Company. Synergistic Partners hereby agrees to provide
reasonable assistance to the Company with respect to this process, and further
agrees, that it will not, and that it will not permit any of its Affiliates,
without the prior written consent of the INVATEC, for a period of at least
eighteen (18) months after the Effective Time, to call on any employee of the
Company with a purpose or intent of attracting that person from the employ of
the Company .
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(D) ONGOING COOPERATIOn. The Parties hereby acknowledge and agree
that the Company has previously been operated as an integrated part of the
ongoing business of Synergistic Partners and its Affiliates. Synergistic
Partners and Synergistic Enterprises hereby agree that they will, and that they
will cause their Affiliates to, cooperate with the Company after the Effective
Time in converting accounting, employee benefit plan, administrative, human
resources and other service systems, to independent service systems operated by
and for the benefit of the Company. Further, Synergistic Partners and
Synergistic Enterprises agree that they will, and they will cause their
Affiliates to, provide to the Company and its agents, accountants, attorneys and
employees, access to the properties, books and records. financial, tax,
operating data and other information relating to the business and properties of
the Company and the Acquired Business as INVATEC or the Company may from time to
time reasonably request for a period of at least three (3) years following the
Effective Time, or until the applicable statute of limitations has run with
respect to any income tax issues which may arise. Similarly, INVATEC agrees that
it will, and it will cause its Affiliates to, provide to Synergistic Partners
and its agents, accountants, attorneys and employees, access to the properties,
books and records, financial, tax, operating data and other information relating
to the business and properties of the Company and the Acquired Business for the
period ending at the Effective Time as Synergistic Partners may from time to
time reasonably request for a period of at least three (3) years following the
Effective Time, or until the applicable statute of limitations has run with
respect to any income tax issues which may arise.
(E) CHARLESTON FACILITY LEASE AMENDMENT. On the Closing Date but
effective as of the Effective Time, Synergistic Partners will cause the lease
for the Company's Charleston facility to be amended to (i) lease (for a period
coterminous with the rest of the lease and the renewal options hereinafter
described) certain additional parking space for $650 per month through the end
of the original lease, commencing upon completion of construction of that space,
and (ii) provide the Company with two (2) renewal options of five (5) years each
with respect to the Charleston facility and the additional parking space
contemplated above at fair market rates (with a methodology for determining same
if the parties thereto are unable to agree) and on such other terms and
conditions as the parties to the lease may agree .
(F) COMPUTER SYSTEM LEASE. Synergistic Partners now owns the
software and hardware (exclusive of the terminals owned by the Company) used in
the operation of the Company's integrated accounting and reporting system. On
the Closing Date but effective as of the Effective Time, Synergistic Partners
and the Company will enter into a computer lease whereby Synergistic Partners
makes available to the Company, on a nonexclusive basis, the continued use of
such system by providing access to and use of all system hardware and software
and by providing all maintenance, service and support, and upgrades incident to
such hardware and software, Synergistic Partners shall also provide assistance
to INVATEC in converting its data to the system, training to Company personnel
in the use of the system, and assistance to the Company in converting its data
to another system upon termination of the lease. The lease will provide for a
payment to Synergistic Partners of $5,000 per month and will continue for a
period of three (3) years after the Effective Time unless sooner terminated upon
thirty (30) days notice by the Company. The Parties recognize that use of the
system will provide each of them with access to the other's confidential
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information. With respect to the confidential information of INVATEC and the
Company, the provisions of Section 10.01 of the Uniform Provisions shall apply,
and with respect to the confidential information of Synergistic Partners and its
Affiliates, INVATEC and the Company shall keep confidential all such information
and not disclose such information, subject to the same provisions contained in
Section 10.01, substituting "INVATEC and the Company" for "Stockholder," and
"Synergistic Partners and its Affiliates" for "INVATEC," and with such other
changes as may be necessary to give effect to the intent of this provision.
(G) LAWRENCE FACILITY SUBLEASE. On the Closing Date but effective
as of the Effective Time, Synergistic Partners shall enter into a sublease of
its 108 Commerce Boulevard office space for a term coterminous with the
Company's lease of the balance of that building. Under the sublease, the Company
will lease one-half of the space currently occupied by Synergistic Partners
(Suite E3) for one year for $1550 per month and shall have the option to lease
the entire space thereafter for $3083 per month, in each case plus taxes,
utilities, insurance and other costs imposed on the lessee under the lease.
Synergistic Partners will provide the landlord's consent to the sublease upon
execution thereof.
The payments among the Parties and their Affiliates as contemplated in
this Paragraph 6 are outlined on Schedule VI attached hereto.
Paragraph 7. NOTICES. For purposes of Section 10.06, notices shall be
addressed to the Stockholders and the Company, as follows:
(A) if to a Stockholder, addressed to it or him as follows:
Synergistic Enterprises
c/o Synergistic Partners, Inc.
P.O. Box 12895
Pittsburgh, Pennsylvania 15241
Attn: Mr. Dennis A. Petronko
Mr. Thomas Santacroce
Synergistic Partners, Inc.
P.O. Box 12709
Pittsburgh, PA 15241
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with copies (which shall not constitute notice for purposes of this
Agreement) to:
Houston Harbaugh
Two Chatham Center, Twelfth Floor
Pittsburgh, Pennsylvania 15219-3463
Fax No.: (412) 281-4499
Attn: Ms. Susan Rockman
Paragraph 8. REPRESENTATIONS, WARRANTIES, COVENANTS, RELEASE AND
GUARANTY OF SYNERGISTIC PARTNERS. In order to induce INVATEC to enter into the
Transaction Documents and consummate the Acquisition, Synergistic Partners
hereby represents and warrants to INVATEC that (i) all of the representations
and warranties of Synergistic Enterprises in Articles I and II of the Uniform
Provisions are true, complete and correct, and (ii) all of the representations
and warranties in Articles I and II of the Uniform Provisions are true, complete
and correct, as to Synergistic Partners, as if Synergistic Partners were a
"Stockholder" thereunder (except to the extent the context makes them
inapplicable, if any). Synergistic Partners further hereby agrees to comply with
and be bound as a Stockholder under, and to cause Synergistic Enterprises to
comply with, the terms of Articles IV, VI, VIII, IX and X of the Uniform
Provisions. Synergistic Partners also hereby unconditionally releases and
forever discharges, effective as of and forever after the Effective Time, to the
fullest extent permitted by applicable law, the Released Parties from any and
all Pre-Acquisition Claims (INCLUDING ANY ACT OR FAILURE TO ACT THAT CONSTITUTES
ORDINARY OR GROSS NEGLIGENCE OR RECKLESS OR WILLFUL, WANTON MISCONDUCT) against
the Company, or any of them, that arises out of or is based on any
Pre-Acquisition Matters, as contemplated in Section 10.12 of the Uniform
Provisions. Synergistic Enterprises and Synergistic Partners hereby agree that
they shall be jointly and severally liable for each and every respective
obligation incurred by either or both of them hereunder; provided, however, that
in no event shall their aggregate liability hereunder, and under the Guaranty of
Performance executed in connection herewith, exceed an amount equal to the
amount to which the liability of Synergistic Enterprises for Damage Claims and
Indemnification is limited in Sections 6.06 and 7.06 of the Uniform Provisions.
Paragraph 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF MR.
SANTACROCE. Notwithstanding the foregoing or any provision of this Agreement or
the Uniform Provisions to the contrary, it is hereby acknowledged and agreed
that (i) except for the representations and warranties of Mr. Santacroce made by
him in Article I of the Uniform Provisions, the representations, warranties,
covenants and agreements of Mr. Santacroce, as a Stockholder, in the Uniform
Provisions are made only with respect to BTEP, and (ii) Mr. Santacroce shall not
be liable for any Damage Claims or any INVATEC Indemnified Losses other than
those relating to BTEP. The provisions of this Paragraph 9 however, shall in no
manner diminish or negate any liability Synergistic Partners or Synergistic
Enterprises may have under this Agreement for actions taken by Mr. Santacroce as
an officer, director or shareholder of either of them.
Paragraph 10. MULTIPLE COUNTERPARTS; FACSIMILE SIGNATURES. This
Agreement may be executed in multiple counterparts, each of which will be an
original, but all of which together will
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constitute one and the same instrument. For purposes of the Agreement and all
documents, instruments and agreements executed in connection herewith, facsimile
signatures shall be deemed to be original signatures. In addition, if any Party
executes facsimile copies of this Agreement or any documents , instruments of
agreements executed in connection, such copies shall be deemed originals.
Paragraph 11. THIRD PARTY CONSENTS. Except for consents of
lenders necessary to implement the provisions of Section 6.04 of the Uniform
Provisions, as amended above, INVATEC agrees that the Company and the
Stockholders need not obtain the consent of any party to the contracts described
in Section 2.03 of Disclosure Statement prior to the Closing or as a condition
of the consummation of the transaction on the IPO Closing Date. However,
Synergistic Enterprises and Synergistic Partners shall cooperate with INVATEC in
obtaining such consents after the Effective Time, or, to the extent the Company
agrees that such consents are necessary and can be solicited prior to the
Effective Time without adversely affecting its ongoing business relationships,
prior to the Effective Time.
Paragraph 12. SHORT PERIOD TAX RETURN._The Parties hereby agree
that the short period tax returns for the Company through the Effective Time
shall be prepared at the sole cost and expense of the Stockholders and
Synergistic Partners, and shall be subject to review and comment by INVATEC and
its certified public accountants for at least ten (10) days prior to filing.
Paragraph 13. CANON FEE ON CERTAIN FUTURE ACQUISITIONS. INVATEC
hereby agrees to pay John Canon, or his designees or assigns, a success fee upon
the Closing of the acquisition of any of the following companies: (i) Burns
Cascade (or affiliated Burns company) of Syracuse, New York, (ii) Lawrence-Angus
Controls, Inc. of Syracuse, New York, (iii) VARCO New York, of Syracuse, New
York, (iv) A. Blair Powell Company of Pittsburgh, Pennsylvania, or (v) Powell
Process Technologies of Pittsburgh, Pennsylvania. The success fee shall be in an
amount equal to one quarter of one percent (0.25%) of the purchase price of each
such company, as reported on INVATEC's financial statements as of the closing of
each such acquisition. Such success fee shall be paid in cash within ten (10)
days after the closing of each such acquisition, and shall not be due or payable
in the event that any such acquisition is not closed, regardless of how far such
acquisition has progressed or the reason closing does not occur. Notwithstanding
any provision hereof to the contrary, this compensation arrangement shall
terminate and this Paragraph 13 shall be void and of no force and effect, thirty
(30) days after the date that the Canon Consulting Agreement expires or is
terminated for any reason; provided, however, that termination of this
arrangement shall not affect any fee earned by Mr. Canon through the date of
termination.
Paragraph 14. PARTIAL TERMINATION PLAN. Synergistic Partners
acknowledges that the sale of the Subject Shares may result in a partial
termination of the Synergistic Partners, Inc. Employee Stock Savings Plan (the
"Plan"). For purposes of this Agreement, a partial termination shall be deemed
to have occurred if the termination percentage of the Plan is equal to or
greater than 20%. The termination percentage of the Plan shall be determined by
dividing (a) the number of participants in the Plan whose employment with
Synergistic Partners' controlled group of
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corporations is terminated as a result of the sale of the Subject Shares (the
"Sale Terminees"), by (b) the total number of participants in the Plan as of the
Effective Time, or as otherwise required by applicable law. If a partial
termination occurs, Synergistic Partners agrees to take, and to cause the
Trustees of the Plan to take, whatever action may be required under the terms of
the Plan and under applicable law by reason of such partial termination
(including the full vesting of the account balances of all the Sale Terminees
under the Plan).
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the date first above written.
INVATEC:
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
SYNERGISTIC PARTNERS:
SYNERGISTIC PARTNERS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
STOCKHOLDERS:
SYNERGISTIC ENTERPRISES, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
____________________________________
THOMAS SANTACROCE
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THE COMPANY:
INDUSTRIAL CONTROLS & EQUIPMENT, INC
By:_________________________________
Name:_______________________________
Title:______________________________
VALVE ACTUATION & REPAIR CO.
By:_________________________________
Name:_______________________________
Title:______________________________
RICKCO ACQUISITION INC.
By:_________________________________
Name:_______________________________
Title:______________________________
BAS TECHNICAL EMPLOYMENT PLACEMENT
COMPANY
By:_________________________________
Name:_______________________________
Title:______________________________
The undersigned, the spouse of Mr. Santacroce, joins in the
execution hereof for the sole purposes of (i) confirming that she has no right,
title or interest, legal or beneficial, in the shares of BTEP standing in the
name of Mr. Santacroce, and (ii) consenting to the transfer of such shares to
INVATEC pursuant to the Stock Purchase Agreement.
By:_________________________________
Name:_______________________________
SPOUSE OF THOMAS SANTACROCE
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Schedule I - Indebtedness
Schedule II - Intercompany Indebtedness
Schedule III - Working Capital Formula
Schedule IV - Acquisition Consideration at March 31, 1997
Schedule V - Budgets & Projections
Schedule VI - Payments Under Paragraph 6
Exhibit A - Canon Consulting Agreement
Exhibit B-1 - SPI Confidentiality and Noncompetition Agreement
Exhibit B-2 - SEI Confidentiality and Noncompetition Agreement
Exhibit B-3 - Petronko Confidentiality and Noncompetition Agreement
Exhibit C - SPI Guaranty of Performance
Exhibit D - Financial Statements
Exhibit E - Santacroce Employment Agreement
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SCHEDULE I
CALCULATION OF INDEBTEDNESS AT MARCH 31, 1997
Short-Term Debt (Line of Credit) $ 1,399,517
Current Portion of Long-Term Debt 162,349
Long-Term Debt 389,121
$ 1,950,987
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SCHEDULE II
SCHEDULE OF NET INTERCOMPANY INDEBTEDNESS AS OF MARCH 31, 1997
Due to Equipment & Controls, Inc. $ 3,226,938
Due from EIC (1,207,240)
Due from Lawrence - Angus Controls, Inc. (56,967)
Due to Synergistic Partners, Inc. 25,464
Due from Varco - New York (601)
$ 1,987,594
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SCHEDULE III
CALCULATION OF WORKING CAPITAL AT MARCH 31, 1997
Current Assets $ 3,671,833
Less: Current Liabilities (2,764,408)
Outstanding Current Indebtedness (1) 1,561,866
WORKING CAPITAL $ 2,469,291
(1) Short-Term Debt (Line of Credit) $ 1,399,517
Current Portion of Long-Term Debt 162,349
TOTAL CURRENT INDEBTEDNESS $ 1,561,866
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SCHEDULE IV
ACQUISITION CONSIDERATION AT MARCH 31, 1997
Total Consideration $ 5,250,000
Less: Indebtedness (a) (1,950,987)
Less: Net Intercompany Indebtedness (b) (1,987,594)
---------------
Cash payable to Synergistic Enterprises $ 1,310,999.35
Cash payable to Thomas Santacroce 419.65
(a) Indebtedness to be assumed or repaid by INVATEC at Closing.
(b) Pursuant to Paragraph 2(D) of this Stock Purchase Agreement, the Company
will pay this amount in cash to Synergistic Partners, as agent for all
holders of Intercompany Indebtedness.
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SCHEDULE V
BUDGETS AND PROJECTIONS OF COMPANY REVENUES
(IN THOUSANDS)
<TABLE>
<CAPTION>
May June July August September October November
(Actual)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues 1,193 1,203 1,208 1,239 1,268 1,151 1,151
</TABLE>
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SCHEDULE VI
PAYMENTS UNDER PARAGRAPH 6
Payments to the Company relative to consolidated supply $ 7,000
Payments by the Company for the expansion of the Lawrence facility (a) (1,550)
Payments by the Company for the computer lease (5,000)
Payments by the Company for the parking lot rent (BAS) (b) (650)
---------
$ (200)
(a) Pursuant to Section 6(G), such payment may increase to $3,083 per month
(b) Pursuant to Section 6(E), such payment will be payable upon the
commencement of use of the new parking lot.
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EXHIBIT A
CONSULTING AND NONCOMPETITION AGREEMENT
This Consulting and Noncompetition Agreement dated as of ______________,
1997, is entered into by and between Innovative Valve Technologies, Inc., a
Delaware corporation ("Invatec") and J. John Canon, an individual residing in
the State of Pennsylvania ("Consultant").
WITNESSETH:
WHEREAS, Consultant is an officer, director and/or employee of Synergistic
Partners, Inc. ("SPI"), and one or more of its subsidiaries Industrial Controls
and Equipment, Inc. ("ICE"), Valve Actuation & Repair Co. ("VARC"), RICKCO
Acquisition, Inc. ("BTS"), and BAS Technical Employment Placement Company
("BTEP")(ICE, VARC, BTS and BETP are hereinafter collectively referred to as the
"Companies");
WHEREAS, as a result of such positions, Consultant has substantial knowledge
and experience and valuable contacts in the businesses operated by the
Companies; and
WHEREAS, Invatec has entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") providing for the purchase of all the outstanding stock of
the Companies and has requested Consultant, and Consultant has agreed, to
provide Invatec with the benefit of his substantial knowledge and experience, to
use his contacts to advance the successful development of the businesses of the
Companies and Invatec and not to engage in certain competitive activities during
and for a period of time after the term of this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, Invatec and Consultant hereby agree as
follows:
1. TERM. Invatec hereby engages the Consultant for a period beginning on the
date of execution of this Agreement and ending two years thereafter. The
Consultant accepts such engagement and agrees to perform the services specified
herein, all upon the terms and conditions hereinafter stated.
2. DUTIES. During the term of this Agreement, Consultant agrees to make
himself available to Invatec to perform such reasonable duties, consistent with
the knowledge and experience of Consultant, as are from time to time assigned to
the Consultant by the President of Invatec or any designee of the President
(collectively the "Management"). Such duties shall include, but not be limited
to, advising Management regarding the successful operation of the businesses of
Invatec and making all suggestions and recommendations which he feels will be of
benefit to Invatec; strategic planning for the development of the businesses of
Invatec; identifying potential acquisitions and
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introducing Management to representatives of such entities; attending meetings
between Management and present or prospective dealers, manufacturers, customers
and suppliers; assisting with employee relations and personnel decisions at
Invatec; and such other acts which Consultant, with the prior approval of
Management, may determine to pursue to further the business interests and
enhance the reputation and goodwill of the Companies and Invatec. Invatec shall
give reasonable notice to Consultant of the need for his services, and, in the
event that travel is required in the performance of those services, such notice
shall be in writing. Consultant shall serve as an independent contractor and not
as an employee of Invatec, and therefore will not be eligible for or entitled to
receive any benefits such as medical or life insurance, unemployment
compensation or retirement benefits. In the performance of his duties hereunder
Consultant shall obey all laws, governmental rules and regulations and the
Companies' reasonable rules, regulations and special instructions applicable to
him, and will be loyal and faithful to Invatec at all times, constantly
endeavoring to increase the value of the Companies and the business to Invatec.
Invatec agrees, however, that Consultant will not be required to engage in any
activities that conflict with his fiduciary and other obligations to SPI and its
affiliates and that, subject to compliance with Section 5 and 6, actions taken
by him consistent with such obligations shall not be considered a breach of this
Agreement.
3. EXTENT OF SERVICE. The consulting services to be rendered by Consultant
shall be initiated by Invatec and shall not, without his consent, exceed forty
(40) days per year in each of the two years of this Agreement, exclusive,
however, of occasional and reasonably brief incidental telephone or in person
consultation at Consultant's office at SPI or at the Companies' offices at 108
Commerce Boulevard, Lawrence, Pennsylvania ("incidental services"). When more
than incidental services are rendered by Consultant at his office or at the
Companies' Lawrence, Pennsylvania office, Consultant shall maintain time
records, with each eight (8) hours of service constituting a day. When services
are rendered at other locations, each day in which services are rendered
(including travel time) shall be counted as a day or, if less than four hours
are expended, as a half day. Throughout the term of this Agreement, Consultant
shall be permitted to engage in any other business activity, except as
restricted by the further provisions of this Agreement.
4. COMPENSATION. Consultant has agreed to render the services and make the
covenants described herein for the consideration hereinafter described. If
Consultant is requested and consents to render more than forty (40) days of
service in any year of this Agreement, he shall be compensated at the rate of
One Thousand Five Hundred Dollars ($1,500) per day. In addition, Invatec agrees
to reimburse Consultant for all out-of-pocket expenses reasonably incurred for
travel, meals, entertainment and similar items in performing his duties
authorized by Management hereunder, upon submission by him to Invatec within
thirty (30) days of the expenditures, of an appropriate statement documenting
such expenses together with appropriate supporting documentation as required by
the Internal Revenue Code, as amended from time to time. Such expenses shall be
customary and reasonable in accordance with the policies of Invatec, except that
first class air travel shall be permissible for trips in excess of an hour and a
half duration.
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5. CONFIDENTIAL INFORMATION. The Consultant acknowledges that in the course
of his consulting for Invatec he will receive certain trade secrets and other
confidential, nonpublic and/or proprietary information, including information
derived from reports, investigations, research, work in progress, codes,
marketing and sales programs, capital expenditure projects, cost summaries,
pricing formulae, contract analyses, financial information, projections,
confidential filings with governmental entities and other confidential,
nonpublic concepts, methods of doing business, ideas, materials or information
prepared or performed for, by or on behalf of Invatec (collectively the
"Confidential Information"), and which has great value to Invatec and is a
substantial basis and foundation upon which the business of Invatec is
predicated. Consultant acknowledges that but for the consulting arrangement with
Invatec he would not have access to such information. Consultant agrees that any
and all Confidential Information which may be obtained by or disclosed to him
during the term of this Agreement will be held inviolate by him, that he will
conceal the same from any and all other persons, including but not limited to
any Competing Business (as hereinafter defined), he will not use the
Confidential Information in competing with any of the Companies or in any other
manner to his benefit or to the detriment of the Companies or Invatec, and he
will not impart the Confidential Information to anyone for a period of one year
following the expiration of the term of this Agreement and all renewals thereof,
but in no event for less than three years from the date hereof. This obligation
shall not apply to Confidential Information which, at the time of disclosure, is
in the public domain by virtue of publication or disclosure by third parties.
6. COVENANT NOT TO COMPETE. The Consultant recognizes that Invatec, the
Companies and subsidiaries of Invatec (for purposes of this Section 6
collectively referred to as "Invatec") have business good will and other
legitimate business interests which must be protected in addition to the
Confidential Information, and therefore, in exchange for the payment of One
Hundred Twenty Thousand Dollars ($120,000) to Consultant, payable in equal
monthly amounts in arrears over the two year term of this agreement, Consultant
agrees that, for a period of one year following the expiration of the term of
this Consulting Agreement but in no event for less than three years from the
date hereof, Consultant will not, without the prior written consent of Invatec,
directly or indirectly, engage in, continue in or carry on any Competing
Business, including:
(i) owning, controlling, participating in, joining, operating, or managing
or being an employee, officer, director, partner, stockholder or other
equity interest owner of any Competing Business; provided, however, that
Consultant may own securities of corporations listed on a national
securities exchange or traded in the national over-the-counter market in an
amount which shall not exceed 1.0% of the outstanding shares of any such
corporation;
(ii) consulting with, advising or assisting in any way, whether or not for
consideration, any corporation, partnership, firm or other business
organization which at the time of such consultation, advice or assistance is
or to Consultant's knowledge proposes to become a Competing Business (other
than one of the Permitted Businesses, as hereinafter defined), including
advertising or otherwise endorsing the products or services of any such
competitor;
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(iii) soliciting clients or customers of Invatec (or persons or entities
from which Invatec has solicited orders for the sale of any business
products or services within the twenty-four months immediately preceding
such expiration date) for the purpose of selling products or services of a
Competing Business or otherwise serving as an intermediary for any such
Competing Business;
(iv) loaning money or rendering any other form of financial assistance to
any such Competing Business; or
(v) inducing or attempting to induce any director, officer, employee, agent,
customer, client, vendor, supplier, or lessor of any of the Companies to
terminate such position or relationship with, or to take action adverse to,
the Companies;
provided that any actions taken in furtherance of the interest of SPI or any of
its affiliates to terminate or modify any relationship they or any of them may
have with the Company or enforce any rights or otherwise act in their own best
interest with respect thereto, shall not be deemed to violate the provisions of
this clause. As used herein, "Competing Business" means a business that is
engaged in the sale and/or repair of industrial valves and related services.
Invatec consents, however, to Consultant's involvement with and participation in
the businesses of SPI and the following affiliates of SPI as those businesses
exist in the geographic trade areas on the date hereof: Equipment & Controls,
Inc., Electronic Instruments & Controls, Inc., Advanced Integration Group, Inc.,
RTOLA, Inc., Lawrence-Angus Controls, Inc., the Process Protection Group, Inc.
subsidiary Varco New York, Inc., and, if sales and/or service of safety relief
valves are included in the Fisher-Rosemount representative contract after the
date hereof, then the products and services included in the Fisher-Rosemount
contract with SPI or its affiliates (collectively, the "Permitted Businesses").
Invatec acknowledges that Consultant lacks complete control over the
businesses of SPI and its affiliates, and that such businesses may, through
acquisition or merger of existing vendor lines, or by a vendor's addition of
products to its representative contracts or otherwise, extend into lines of
business or geographic trade areas that would constitute a Competing Business in
which Consultant's participation would be disallowed by this Agreement, but over
which Consultant would not have control. Consultant covenants and agrees (i) not
to use his position with SPI to promote or encourage (but in his capacity as an
officer or director may approve) the development of the businesses of SPI or any
of its affiliates into a Competing Business (other than one of the Permitted
Businesses), whether by acquisition or merger of existing vendor lines or any
other means, and (ii) that if the businesses of SPI or any of its affiliates
develop, by a means other than acquisition or merger of existing vendor lines or
a vendor's addition of products to its representative contracts, into lines of
business or geographical trade areas that would constitute a Competing Business
(other than one of the Permitted Businesses), Consultant will not participate on
a day-to-day basis in such developed businesses.
It is expressly understood and agreed that Invatec and the Consultant
consider the restrictions contained in Section 5 and this Section 6 to be
reasonable and necessary for the purposes of
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preserving and protecting the business and goodwill of the Companies and other
legitimate business interests of the Companies and Invatec. Nevertheless, if any
of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to the scope of activity to be restrained,
geographic area or time, or otherwise unenforceable, the parties intend for the
restrictions therein set forth to be modified by such court in the minimal
amount necessary so as to be reasonable and enforceable and, as so modified by
the court, to be fully enforced.
The parties acknowledge that the remedies at law for breach of Consultant's
covenants contained in Section 5 and this Section 6 are inadequate, and they
agree that Invatec shall be entitled, at its election, to injunctive relief
(without the necessity of posting bond against such breach or attempted breach),
and to specific performance of said covenants, in addition to any other remedies
at law or equity that may be available to Invatec.
7. BUSINESS OPPORTUNITIES. For the term of this Agreement, Consultant agrees
that with respect to any future business opportunity or other proposal which is
offered to or comes to the attention of Consultant and which is similar or
complementary to the products or services provided by the Companies or Invatec,
Invatec shall have the right to take advantage of such business opportunity or
proposal for its own benefit. Consultant agrees to promptly deliver notice to
Management in writing of the existence of such opportunity or proposal, and
Consultant may take advantage of such opportunity only if Invatec notifies
Consultant in writing that it does not elect to exercise its prior right and if
the pursuit thereof does not otherwise violate any provision of this Agreement.
Invatec agrees, however, that Consultant will not be required to notify
Management of such business opportunity if it conflicts with his fiduciary and
other obligations to SPI and its affiliates.
8. ASSIGNABILITY. The obligations of Consultant hereunder are personal and
may not be assigned or delegated by Consultant or transferred in any manner
whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. Invatec shall have the right to assign this Agreement
and to delegate all rights, duties and obligations hereunder, either in whole or
in part, to any parent, affiliate, successor or subsidiary of Invatec, provided
that Invatec shall remain liable for all amounts due Consultant hereunder. This
Agreement shall be binding upon all successors and assigns.
9. AMENDMENT AND WAIVER. This instrument contains the entire agreement of
the parties and may not be changed orally but only by written documents signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought. The waiver by any party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any subsequent breach thereof, nor of any breach of any other term or
provision of this Agreement.
10. NOTICE. Any notice required or permitted to be given hereunder shall be
sent by certified or registered mail; in the case of Invatec, to its principal
office address, and in the case of
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Consultant, to Consultant's residence address as shown below or may be given by
personal delivery thereof.
11. SEVERABILITY. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be valid and enforceable under applicable
law, but if any provision of this Agreement shall be invalid, unenforceable or
prohibited by applicable law, but if any provision of this Agreement shall be
invalid, unenforceable, to the extent permitted by law (a) the parties agree
that they will amend such provision to the minimal extent necessary to bring
such provision within the ambit of enforceability, and (b) any court of
competent jurisdiction may, at the request of either party, revise, reconstruct
or reform such provision in a manner sufficient to cause it to be valid and
enforceable.
12. AUTHORITY TO CONTRACT. Invatec represents and warrants that it has full
authority to enter into this Agreement and that this Agreement is not in
conflict with any other Agreement to which Invatec is a party or by which it is
bound. Upon the execution hereof by its duly authorized officer, this Agreement
will be the binding obligation of Invatec enforceable against it in accordance
with its terms. Consultant represents and warrants to Invatec that, except as
disclosed to Invatec in writing, he is not a party to or bound by any employment
agreement, order, decree or other document which would conflict with, render
unenforceable or otherwise impair the benefits intended by, any provision of
this Agreement.
13. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas.
14. ARBITRATION. Any and all disputes or controversies whether of law or
fact and of any nature whatsoever arising from or respecting this Agreement
shall be decided by arbitration by the American Arbitration Association in
accordance with its Commercial Rules except as modified herein.
(a) The arbitrator shall be elected as follows: in the event Invatec and the
Consultant agree on one arbitrator, the arbitration shall be conducted by
such arbitrator. In the event Invatec and the Consultant do not so agree,
Invatec and the Consultant shall each select one independent, qualified
arbitrator and the two arbitrators so selected shall select the third
arbitrator (the arbitrator(s) are herein referred to as the "Panel").
Invatec reserves the right to object to any individual arbitrator who shall
be employed by or affiliated with a competing organization.
(b) Arbitration shall take place at Pittsburgh, Pennsylvania, or any other
location mutually agreeable to the parties. At the request of either party,
arbitration proceedings will be conducted in the utmost secrecy; in such
case all documents, testimony and records shall be received, heard and
maintained by the Panel in secrecy, available for inspection only by Invatec
or the Consultant and their respective attorneys and their respective
experts who shall agree in advance and in writing to receive all such
information in secrecy until such information shall become generally known.
The Panel shall be able to award any and all relief, including relief
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of an equitable nature, provided that punitive damages shall not be awarded.
The award rendered by the Panel may be enforceable in any court having
jurisdiction thereof.
(c) Reasonable notice of the time and place of arbitration shall be given to
all parties and any interested persons as shall be required by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
INNOVATIVE VALVE TECHNOLOGIES,
INC.
By:_______________________
Name:____________________
Title:_____________________
CONSULTANT:
__________________________
J. John Canon
Address:________________________
_______________________
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EXHIBIT C
GUARANTY OF PERFORMANCE
THIS GUARANTY OF PERFORMANCE ("the Guaranty") is executed effective the ___
day of __________, 1997, by SYNERGISTIC PARTNERS, INC., a Pennsylvania
corporation ("the Guarantor"), pursuant to the terms of that certain Stock
Purchase Agreement (the "Agreement") entered into effective as of the ___ day of
__________, 1997, by and among Innovative Valve Technologies, Inc., a Delaware
corporation ("Purchaser"), Synergistic Enterprises, Inc., a Delaware corporation
and a wholly-owned subsidiary of Guarantor ("Seller"), Industrial Controls &
Equipment, Inc. ("ICE"), Valve Actuation & Repair Co.("VARCO"), Rickco
Acquisition, Inc. ("BAS") (each of ICE, VARCO and BAS being a wholly-owned
subsidiary of Seller, and therefore an indirectly wholly-owned subsidiary of
Guarantor) BAS Technical Employment Placement Company ("BTEP") (BTEP being
primarily owned by Seller, and therefore indirectly primarily owned by
Guarantor), Thomas Santacroce and Guarantor. All defined terms contained herein
shall have the meanings ascribed thereto in the Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Agreement, Purchaser has agreed to
purchase from Seller, and Seller has agreed to sell to Purchaser, the
outstanding capital stock of ICE, VARCO and BAS;
WHEREAS, also pursuant to the terms of the Agreement, Purchaser has agreed
to purchase from Seller and Mr. Santacroce, and Seller and Mr. Santacroce have
agreed to sell to Purchaser, the outstanding capital stock of BTEP;
WHEREAS, Guarantor acknowledges that it is receiving numerous and
substantial benefits from the consummation of the transactions contemplated in
the Agreement, and that it is willing to execute this Guaranty for and in
consideration of such benefits, and in order to induce Purchaser to enter into
the Agreement and consummate the transactions contemplated therein; and
WHEREAS, Purchaser would not have executed and consummated the transactions
described in the Agreement but for the agreement of Guarantor to execute and
deliver to Purchaser this Guaranty;
NOW, THEREFORE, for and in consideration of the terms and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Guarantor, and in order to
induce Purchaser to enter into the Agreement and consummate the transactions
contemplated therein, the Guarantor hereby covenants and agrees as follows:
1. Guarantor hereby absolutely, unconditionally and irrevocably guarantees
the full and punctual payment and performance by Seller of all of the
obligations, duties, covenants, agreements and conditions provided in the
Agreement to be paid or performed by Seller thereunder, including without
limitation all indemnification obligations of Seller set forth in Article 7 of
the Uniform Provisions.
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2. This Guaranty is unconditional and the liability of Guarantor shall be
primary and absolute, in the same manner as if Guarantor were named in and had
signed the Agreement individually as the Seller thereunder. Guarantor agrees
that neither bankruptcy, insolvency, lack of capacity nor any other disability
or impediment against enforcement of the liability of Seller shall in any manner
impair or affect Guarantor's liabilities and obligations hereunder.
3. It shall not be necessary or required in order to maintain and enforce
Guarantor's liability hereunder that demand be made upon Seller or that action
be commenced or prosecuted against Seller or that any effort be made to enforce
the liability or responsibility of Seller for performance of Seller's
obligations or duties under or in connection with the Agreement, and it shall
not be required that Seller or any other party liable on the Agreement be joined
in any action brought against Guarantor for enforcement of Guarantor's liability
and responsibility under this Guaranty, or that judgment have theretofore been
obtained against Seller or any other party liable therefor or in connection with
any such claim.
4. Guarantor agrees that no waiver by Purchaser or forbearance or delay by
Purchaser in asserting or enforcing any rights or remedies of Purchaser or with
respect to Seller or any other party who may be or become responsible for
performance of any of Seller's obligations or duties shall in any wise affect,
impair, or release Guarantor's liability hereunder.
5. Guarantor expressly waives and agrees that no notice of default by Seller
or other notice or demand need be given by Purchaser to Guarantor as a condition
of maintaining or enforcing Guarantor's liabilities and obligations under this
Guaranty. Likewise, Guarantor agrees that Purchaser's release or subordination
of, or failure or delay to enforce or seek to realize upon, any security now or
hereafter held or acquired by Purchaser for performance of any of the
obligations or duties of the Seller under or in connection with the Agreement,
or any other action which Purchaser may take or fail to take with respect to or
against the Seller, shall not impair, affect, or release Guarantor's liability
hereunder.
6. In the event default is made in the prompt payment of amounts due, or
performance of obligations due, under this Guaranty, and the same is placed in
the hands of an attorney for collection or enforcement, or suit is brought on
same, and the same is collected or enforced through any judicial proceeding
whatsoever, then Guarantor agrees and promises to pay all of the attorneys' and
collection fees, costs and expenses incurred by Purchaser in enforcing its
rights hereunder.
7. The obligations of Guarantor shall continue in full force and effect
against Guarantor until all of the obligations guaranteed hereunder have been
paid in full, and fully and finally performed. This Guaranty covers any and all
of such obligations, whether presently outstanding or arising subsequent to the
date hereof. This Guaranty is valid and binding upon and enforceable against
Guarantor and the successors and assigns of Guarantor.
8. All rights of Purchaser hereunder or otherwise arising under any
documents executed in connection with or as security for the obligations
guaranteed hereby, are separate and cumulative and may be pursued separately,
successively, or concurrently.
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9. Notwithstanding any provision of this Guaranty to the contrary, the
liability of Guarantor hereunder shall not exceed the liability which Guarantor
would have under the Agreement if it had signed the Agreement as the Seller
thereunder.
10. This instrument may be amended or modified only by written instrument
signed by Guarantor and Purchaser.
11. This instrument sets forth the entire agreement and understanding
between Guarantor and Purchaser with respect to the subject matter hereof, and
may be executed in multiple counterparts, each of which shall have the force and
effect of an original, and all of which together shall constitute one and the
same agreement.
THE UNDERSIGNED ACKNOWLEDGES THAT THE EXECUTION OF THIS GUARANTY RESULTS IN
LIABILITY ON THE PART OF THE UNDERSIGNED FOR THE REPAYMENT OF THE DEBTS AND
THE PERFORMANCE OF THE OBLIGATIONS HEREIN DESCRIBED, AND COULD RESULT IN THE
ATTACHMENT OF THE UNDERSIGNED'S ASSETS. THE UNDERSIGNED ACKNOWLEDGES HAVING
RECEIVED THE ADVICE OF LEGAL COUNSEL PRIOR TO EXECUTION OF THIS DOCUMENT.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty of
Performance effective as of ______________, 1997.
SYNERGISTIC PARTNERS, INC.
By:_____________________________
Name:___________________________
Title:__________________________
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EXHIBIT E
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") between INNOVATIVE VALVE
TECHNOLOGIES, INC., a Delaware corporation ("Invatec"), and THOMAS SANTACROCE
("Executive"), effective as of and contingent upon the closing of the initial
public offering of Invatec (the "IPO"). Invatec and the Executive are
hereinafter sometimes referred to collectively as the "Parties" and individually
as a "Party."
W I T N E S S E T H:
WHEREAS, Executive is an officer of Industrial Controls and Equipment,
Inc. ("ICE") and a shareholder of BAS Technical Employment Placement Company
("BTEP")(ICE and BTEP, together with Valve Actuation & Repair Co., Inc.
("VARC"), and RICKCO Acquisition, Inc. ("BTS"), are hereinafter collectively
referred to as the "Companies");
WHEREAS, Executive has entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") providing for the sale of all of his interest in the
outstanding stock in BTEP to Invatec;
WHEREAS, as an essential condition to Invatec's obligations to enter
into and pay the consideration provided for under the Stock Purchase Agreement,
Invatec desires to employ Executive, and Executive has agreed to accept such
employment, on the terms hereinafter set forth; and
WHEREAS, in the course of such employment, Invatec will disclose to the
Executive confidential and proprietary information regarding the business of
Invatec, and the trade secrets and other confidential business or professional
information relating thereto, and the Executive will be encouraged to expand his
relationships with, among others, the clients, customers, subcontractors
vendors, suppliers, employees and other agents of Invatec, and Executive and
Invatec recognize and acknowledge (i) the detrimental effect on the business of
Invatec and its legitimate business interests which would result if Executive
were to disclose or use any of Invatec's trade secrets or confidential
information other than in connection with the Executive's employment with
Invatec, (ii) the detrimental effect on the business of Invatec and its
legitimate business interests which would result if Executive were to enter into
competition with Invatec within an unreasonably brief period of time after the
termination of Executive's employment with Invatec, (iii) that the agreements
and covenants in this Agreement are essential to protect the business and
goodwill to be acquired by Invatec, and other legitimate business interests of
Invatec, and (iv) that Invatec would not have entered into the Stock Purchase
Agreement but for the covenants and agreements contained in this Agreement and
the protection afforded to Invatec hereby;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein and in the Stock Purchase Agreement,
and as an inducement to Invatec
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to consummate the purchase of the Companies pursuant to the Stock Purchase
Agreement, Invatec and Executive hereby agree as follows:
i. EMPLOYMENT. Invatec hereby employs Executive, and Executive hereby
accepts employment by Invatec, on the terms and conditions hereinafter set
forth.
ii. EXECUTIVE'S DUTIES. Executive will serve as President of each of the
Companies which, upon consummation of the acquisitions pursuant to the Stock
Purchase Agreement, will become subsidiaries of Invatec (the "Subsidiaries").
Executive's duties shall include those which are designated or assigned to him
by the President of Invatec, provided those duties are of the type customarily
discharged by a person holding the same or similar offices in a company similar
in size and operation to the Subsidiaries. Executive shall devote his entire
time, attention and energy to the business of Invatec and the Subsidiaries and
shall diligently pursue their best interests. Nothing in this Section 2,
however, will prevent the Executive from engaging in additional activities in
connection with personal investments and community affairs not inconsistent with
this Agreement.
iii. TERM OF EMPLOYMENT. Subject to the provisions for termination
hereof, the original term of this Agreement shall commence as of the date hereof
and shall continue for a term of two years. Section 6(d), (g) - (i), and 7
through 12 of this Agreement shall survive termination of this Agreement for any
reason whatsoever.
iv. COMPENSATION. For all services rendered by Executive hereunder on
behalf of Invatec, and the covenants and agreements of the Executive set forth
herein, Invatec agrees to pay to Executive, and Executive agrees to accept, the
following compensation:
(a) salary in the aggregate amount of One Hundred Fifty-five
Thousand Dollars ($155,000) per annum, payable in accordance with the
standard payroll policies of Invatec;
(b) for any year other than 1997, a bonus in the amount of
$50,000 per year for any year in which the Companies' combined EBITDA
(as defined in the Stock Purchase Agreement) equals or exceeds the
amount of EBITDA set forth in the Business Plan for the Companies for
that fiscal year, such bonus to be payable within 75 days after fiscal
year end; for 1997, a bonus in the amount of $12,500, if the Companies'
Combined EBITDA (as defined in the Stock Purchase Agreement) equals or
exceeds the amount of EBITDA set forth in the Business Plan for the
Companies for the last six (6) months of 1997. Except for 1997, any
bonus covering a period of less than twelve months shall be computed
based on the pro rata portion of the year represented by that period,
and shall be payable within 50 days after the end of such period. The
bonus described in this subsection (b) shall be in lieu of an annual
incentive award payable in accordance with the Annual Incentive Plan of
Invatec to be established by the Compensation Committee of the Board of
Directors, or other plan that may be substituted for that plan;
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(c) an incentive stock option to purchase 20,000 shares of Invatec's
common stock (i) at the price at which shares are offered to the public in the
IPO, (ii) 25% of which shall be exercisable at the closing of the IPO, with the
remainder exercisable in three equal annual installments on each anniversary of
the closing of the IPO, (iii) which option will expire seven years from the
closing of the IPO, and (iv) which will otherwise be subject to the terms and
conditions of the Company's 1997 Incentive Plan; and
(d) prompt reimbursement of all reasonable expenses incurred by
him in the performance of his duties during the term of this Agreement,
subject to the presenting of appropriate vouchers and receipts in
accordance with Invatec's policies.
v. ADDITIONAL BENEFITS; RELOCATION Executive shall be entitled to
participate in or receive benefits under all benefit plans or programs,
including life insurance, generally available to executives of Invatec to the
extent that his position, tenure, salary, age, health and other qualifications
make him eligible to participate, subject to the rules and regulations
applicable thereto. Specifically, Executive shall receive an automobile expense
allowance equal to $800 per month; $3,000 per year for the payment of country
club dues, but payable in equal monthly payments; and three weeks of vacation
per year and one additional day of vacation per year for each year in which the
Executive is employed by Invatec. Invatec shall not require Executive to
relocate more than 50 miles from Pittsburgh, Pennsylvania without his consent.
6. COVENANTS OF EXECUTIVE. For and in consideration of the employment
herein contemplated and the consideration paid or promised to be paid by
Invatec, Executive does hereby covenant, agree and promise that during the term
hereof, and thereafter to the extent specifically provided in Section 10 of this
Agreement:
(a) Executive will not actively engage, directly or indirectly,
in any other business except at the direction or approval of Invatec;
(b) Executive will not engage, directly or indirectly, in the
ownership, management, operation or control of, or employment by, any
business of the type and character engaged in by Invatec.
Notwithstanding the foregoing, Executive may make or maintain an
investment not to exceed one percent of the capital stock of any
publicly traded company;
(c) Executive will truthfully and accurately make, maintain and
preserve all records and reports that Invatec may from time to time
request or require;
(d) Executive will fully account for all money, records, goods,
wares and merchandise or other property belonging to Invatec of which
Executive has custody, and will pay over and deliver same promptly
whenever and however he may be reasonably directed to do so;
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(e) Executive will obey all rules, regulations and special
instructions applicable to him, and will be loyal and faithful to
Invatec at all times, constantly endeavoring to improve his ability and
knowledge of the business in an effort to increase the value of his
services to the mutual benefit of the Parties;
(f) Executive will make available to Invatec any and all of the
information of which he has knowledge relating to the business of
Invatec, and will make all suggestions and recommendations which he
feels will be of benefit to Invatec;
(g) Executive recognizes that during the course of his
employment, Executive has and will have access to, and that there has
been and will be disclosed to him, information of a proprietary nature
owned by Invatec, including but not limited to records, customer and
supplier lists and information, pricing information, data, formulae,
design information and specifications, inventions, processes and
methods, which is of a confidential or trade secret nature, and which
has great value to Invatec and is a substantial basis and foundation
upon which Invatec's business is predicated. Executive acknowledges that
except for his employment and the fulfillment of the duties assigned to
him, he would not have access to such information, and Executive agrees
that any and all confidential knowledge or information which may be
obtained by or disclosed to him in the course of his employment,
including but not limited to the information hereinabove set forth
(collectively, the "Information"), will be held inviolate by him, that
he will conceal the same from any and all other persons, including but
not limited to competitors of Invatec, and that he will not impart the
Information or any such knowledge acquired by him as an officer,
director or employee of Invatec to anyone, either during his employment
by Invatec or thereafter. Executive further agrees that during the term
of this Agreement and thereafter, he will not use the Information in
competing with Invatec, or in any other manner to his benefit or to the
detriment of Invatec;
(h) Executive agrees that upon termination of his employment
hereunder he will immediately surrender and turn over to Invatec all
books, records, forms, specifications, formulae, data, processes, papers
and writings related to the business of Invatec and all other property
belonging to Invatec, together with all copies of the foregoing, it
being understood and agreed that the same are the sole property of
Invatec; and
(i) Executive agrees that all ideas, concepts, processes,
discoveries, devices, machines, tools, materials, designs, improvements,
inventions and other things of value (hereinafter collectively referred
to as "intangible rights"), whether patentable or not, which are
conceived, made, invented or suggested either by him alone or in
collaboration with others during the term of his employment, and whether
or not during regular working hours, shall be promptly disclosed in
writing to Invatec and shall be the sole and exclusive property of
Invatec. Executive hereby assigns all of his right, title and interest
in and to all such intangible rights to Invatec, and its successors or
assigns. In the event that any of said intangible rights shall be deemed
by Invatec to be patentable or otherwise registerable under
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any federal, state or foreign law, Executive further agrees that at the
expense of Invatec, he will execute all documents and do all things
necessary, advisable or proper to obtain patents therefor or
registration thereof, and to vest in Invatec full title thereto.
7. TERMINATION OF EMPLOYMENT FOR CAUSE. Invatec may terminate the
employment of Executive if the President and Chief Executive Officer determines,
in his reasonable discretion, that the Executive has:
(a) materially breached or habitually neglected the duties which
he was required to perform under any provision of this Agreement after
notice and a reasonable opportunity to cure such breach or neglect;
(b) misappropriated funds or property of Invatec or otherwise
engaged in acts of dishonesty, fraud, misrepresentation or other acts of
moral turpitude, even if not in connection with the performance of his
duties hereunder, which would result in serious prejudice to the
interests of Invatec if he were retained as an employee;
(c) secured any personal profit not thoroughly disclosed to and
approved by Invatec in connection with any transaction entered into on
behalf of or with Invatec or any affiliate of Invatec; or
(d) died, or become and remained incapacitated (either
physically, mentally or otherwise) for a period of ninety consecutive
days.
In the event of termination of his employment for cause, Executive shall be
entitled to receive his salary due or accrued on a pro rata basis to the date of
termination, any bonus earned for fiscal periods ending before his termination
date but unpaid, and reimbursement of expenses properly incurred but not yet
reimbursed.
8. TERMINATION WITHOUT CAUSE. Invatec may terminate the employment of
Executive with fourteen days' written notice for any reason other than those
enumerated in Section 7 hereof, in which event such termination shall be deemed
a termination without cause. In the event of a termination without cause,
Invatec shall, in exchange for a general release by the Executive of claims in
form and content acceptable to Invatec, make a lump sum cash payment to
Executive in an amount equal to the salary of Executive for six months, which
payment shall constitute the full and total amount of compensation that
Executive shall be entitled to receive. In the event that Executive contests his
termination by filing or threatening to file a lawsuit or pursuing any other
remedy or proceeding against Invatec or any of its officers, directors,
shareholders, employees, agents or affiliates, Executive shall forfeit his right
to such payment, and shall immediately return to Invatec all or any portion of
such payment made to him. Upon the full return of such payment, the general
release of Executive shall, at the option of Executive, be null and void.
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9. TERMINATION OF EMPLOYMENT BY EXECUTIVE. In the event Invatec
materially breaches this Agreement and fails to cure within 15 days after
receiving the Executive's notice of Invatec's breach or assigns Executive
without his consent to a position of materially lesser status or degree of
responsibility than is provided for herein, then Executive may terminate this
agreement and receive, on the date of termination, the same payment as that
provided under Section 8 above. The Executive may also terminate this Agreement
for any other reason upon thirty days' prior written notice to Invatec, in which
event Invatec shall be relieved of all of its obligations under this Agreement,
except that Invatec shall pay to the Executive his standard compensation through
the date upon which the thirty day severance period ends. The Executive agrees,
in the event of termination pursuant to this Section 9, and if so requested by
Invatec, to assist Invatec in training Executive's replacement during the thirty
day severance period.
10. COVENANT NOT TO COMPETE. The Executive recognizes that Invatec and
the Companies and subsidiaries of Invatec (for purposes of this Section 10
collectively referred to as "Invatec") have business good will and other
legitimate business interests which must be protected in connection with and in
addition to the Information. In consideration for access to the Information, the
acquisition by Invatec of the Companies and the performance of its covenants
under the Stock Purchase Agreement, the specialized training and instruction
which Invatec will provide, Invatec's agreement to employ the Executive on the
terms and conditions set forth herein, and the promotion and advertisement by
Invatec of Executive's skill, ability and value in Invatec's business, the
Executive agrees that, upon the receipt of notice from Invatec of the exercise
of its option to enforce this Section 10 covenant and agreement to pay to the
Executive Sixty-five Thousand Dollars ($65,000.00), in equal monthly amounts in
arrears over the eighteen month term of this covenant, the Executive will not,
during the term ending eighteen (18) months after the date Executive's
employment is terminated, without the prior written consent of Invatec, engage,
directly or indirectly, in any business that is engaged in the sale and/or
repair of industrial valves and related services within a 100 mile radius of any
office in which Invatec does business (determined as of such termination).
Invatec's notice of the exercise of its option to enforce this Section 10
covenant and agreement to pay Executive the amount specified above shall be
given no less than thirty (30) days after the effective date of termination of
Executive's employment.
It is mutually understood and agreed that if any of the provisions
relating to the scope, time or territory in this Section 10 are more extensive
than is enforceable under applicable laws or are broader than necessary to
protect the good will and legitimate business interests of Invatec, then the
Parties agree that they will reduce the degree and extent of such provisions by
whatever minimal amount is necessary to bring such provisions within the ambit
of enforceability under applicable law.
The Parties acknowledge that the remedies at law for breach of
Executive's covenants contained in Sections 6 and 12 of the Agreement are
inadequate, and they agree that Invatec shall be entitled, at its election, to
injunctive relief (without the necessity of posting bond against such breach or
attempted breach), and to specific performance of said covenants in addition to
any other remedies at law or equity that may be available to Invatec.
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11. BUSINESS OPPORTUNITIES. For as long as the Executive shall be
employed by Invatec and thereafter with respect to any business opportunities
learned about during the time of Executive's employment by Invatec, the
Executive agrees that with respect to any future business opportunity or other
new and future business proposal which is offered to, or comes to the attention
of, the Executive and which is in any way related to or connected with, the
business of Invatec or its affiliates, Invatec shall have the right to take
advantage of such business opportunity or other business proposal for its own
benefit. The Executive agrees to promptly deliver notice to the Chief Executive
Officer or Chairman of the Board of Directors in writing of the existence of
such opportunity or proposal, and the Executive may take advantage of such
opportunity only if Invatec does not elect to exercise its right to take
advantage of such opportunity and if the pursuit thereof would not otherwise
violate any provision of this Agreement.
12. RIGHT OF OFFSET. To the extent permitted by applicable law, all
amounts due and owing to Executive hereunder shall be subject to offset by
Invatec to the extent of any damages incurred by Executive's breach of this
Agreement. Executive acknowledges and agrees that but for the right of offset
contained in this Agreement, Invatec would not have hired Executive nor entered
into this Employment Agreement.
13. ASSIGNABILITY. The obligations of Executive hereunder are personal
and may not be assigned or delegated by Executive or transferred in any manner
whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. Invatec shall have the right to assign this Agreement
and to delegate all rights, duties and obligations hereunder, either in whole or
in part, to any parent, affiliate, successor or subsidiary of Invatec. This
Agreement shall be binding upon all successors and assigns.
14. AMENDMENT AND WAIVER. This instrument and the Stock Purchase
Agreement contain the entire agreement of the Parties and supersede and replace
any prior employment agreements between Invatec or any affiliate and Executive,
which prior employment agreements (if any) are hereby terminated, effective as
of the commencement date of this Agreement, by mutual agreement of the Parties.
This Agreement may not be changed orally but only by written documents signed by
the Party against whom enforcement of any waiver, change, modification,
extension or discharge is sought; however, the amount of compensation to be paid
to Executive for services to be performed for Invatec hereunder may be changed
from time to time by the Parties by written agreement without in any other way
modifying, changing or affecting this Agreement or the performance by Executive
of any of the duties of his employment with Invatec. Any such written agreement
shall be, and shall be conclusively deemed to be, a ratification and
confirmation of this Agreement, except as expressly set forth in such written
amendment. The waiver by any Party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any subsequent
breach thereof, nor of any breach of any other term or provision of this
Agreement.
15. NOTICE. Any notice required or permitted to be given hereunder shall
be sent by certified or registered mail; in the case of Invatec, to its
principal office address, and in the case of
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Executive, to Executive's residence address as shown on the records of Invatec,
or may be given by personal delivery thereof.
16. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement shall be invalid,
unenforceable or prohibited by applicable law, then in lieu of declaring such
provision invalid or unenforceable, to the extent permitted by law (a) the
Parties agree that they will amend such provision to the minimal extent
necessary to bring such provision within the ambit of enforceability, and (b)
any court of competent jurisdiction may, at the request of either party, revise,
reconstruct or reform such provision in a manner sufficient to cause it to be
valid and enforceable.
17. FORCE MAJEURE. Neither of the Parties shall be liable to the other
for any delay or failure to perform hereunder, which delay or failure is due to
causes beyond the control of said Party, including, but not limited to: acts of
God; acts of the public enemy; acts of the United States of America or any
state, territory or political subdivision thereof or of the District of
Columbia; fires; floods; epidemics, quarantine restrictions; strike or freight
embargoes. Notwithstanding the foregoing provisions of this Section 17, in every
case the delay or failure to perform must be beyond the control and without the
fault or negligence of the Party claiming excusable delay.
18. AUTHORITY TO CONTRACT. Invatec warrants and represents that it has
full authority to enter into this Agreement and to consummate the transactions
contemplated hereby and that this Agreement is not in conflict with any other
agreement to which Invatec is a party or by which it may be bound. Invatec
hereto further warrants and represents that the individuals executing this
Agreement on behalf of Invatec have the full power and authority to bind Invatec
to the terms hereof and have been authorized to do so in accordance with
Invatec's corporate organization.
19. ARBITRATION. Any and all disputes or controversies whether of law or
fact and of any nature whatsoever arising from or respecting this Agreement
shall be decided by arbitration by the American Arbitration Association in
accordance with its Commercial Rules except as modified herein.
(a) The arbitrator shall be elected as follows: in the event
Invatec and the Executive agree on one arbitrator, the arbitration shall
be conducted by such arbitrator. In the event Invatec and the Executive
do not so agree, Invatec and the Executive shall each select one
independent, qualified arbitrator and the two arbitrators so selected
shall select the third arbitrator (the arbitrator(s) are herein referred
to as the "Panel"). Invatec reserves the right to object to any
individual arbitrator who shall be employed by or affiliated with a
competing organization.
(b) Arbitration shall take place at Pittsburgh, Pennsylvania or
any other location mutually agreeable to the Parties. At the request of
either Party, arbitration proceedings will be conducted in the utmost
secrecy; in such case all documents, testimony and records shall
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be received, heard and maintained by the arbitrators in secrecy,
available for inspection only by Invatec or the Executive and their
respective attorneys and their respective experts who shall agree in
advance and in writing to receive all such information in secrecy until
such information shall become generally known. The Panel shall be able
to award any and all relief, including relief of an equitable nature,
provided that punitive damages shall not be awarded. The award rendered
by the Panel may be enforceable in any court having jurisdiction
thereof.
(c) Reasonable notice of the time and place of arbitration shall
be given to all Parties and any interested persons as shall be required
by law.
20. GOVERNING LAW. This Agreement and the rights and obligations of the
Parties shall be governed by and construed and enforced in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the
Commonwealth of Pennsylvania.
21. MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts each of which shall be deemed to be an original but all of which
together shall constitute but one instrument.
22. PRIOR EMPLOYMENT AGREEMENTS. The Executive represents and warrants
to Invatec that he has fulfilled all of the terms and conditions of all prior
employment agreements to which he may be or have been a party, and at the time
of execution of this Agreement is not a party to any other employment agreement
except as disclosed in the Stock Purchase Agreement.
EXECUTED as of the day and year first above set forth.
INVATEC:
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
EXECUTIVE:
____________________________________
THOMAS SANTACROCE
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EXHIBIT 2.5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into effective
the 26th day of February, 1997, by and among THE SAFE SEAL COMPANY, INC.
("PURCHASER"), a Texas corporation with its chief executive office at 14900
Woodham Drive, Suite A125, Houston, Texas 77073, PLINY L. OLIVIER ("MR.
OLIVIER"), an individual whose address is 2912 Knights Avenue, Tampa, Florida
33611, DAVID A. SIEGEL ("MR. SIEGEL"), an individual whose address is
________________________, BETTIE SIEGEL ("MRS. SIEGEL"), an individual whose
address is ________________________, and PHILIP C. GRACE, TRUSTEE FOR THE DAVID
A. SIEGEL - GSV VOTING TRUST (THE "TRUST") under that certain Voting Trust
Agreement dated December 19, 1990, whose address for all purposes hereunder is
________________________ (Mr. Olivier, Mr. Siegel, Mrs. Siegel and the Trust
being sometimes hereinafter referred to collectively as the "SELLERS" and
individually as a "SELLER"). Purchaser and Sellers are sometimes hereinafter
referred to collectively as the "Parties" or individually as a "Party."
W I T N E S S E T H :
WHEREAS, Sellers are the legal and beneficial owners and holders of Three
Million Eight Hundred Fifty-Five Thousand Four Hundred Eighty-Nine (3,855,489)
shares (the "Subject Shares") of GSV, INC., a Florida corporation (THE
"COMPANY"), with its chief executive office and principal place of business at
1301 King Road, Tampa, Florida 33605, the Subject Shares constituting all of the
issued and outstanding capital stock of the Company, except for Ten Thousand
(10,000) shares which are outstanding which have been issued to Raymond H.
Royster; and
WHEREAS, Purchaser desires to acquire from Sellers, and Sellers desire to
sell to Purchaser, all of the Subject Shares, on the terms and conditions and
for the consideration set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and confessed, the Parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1. ACCOUNTS. The term "Accounts " shall have the meaning ascribed
thereto in 3.13.
1.2. ADVERSE CONSEQUENCES. The term "Adverse Consequences" shall mean all
actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands,
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injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, amounts paid in defense, investigation or settlement, liabilities,
obligations, taxes, liens, losses, expenses and fees, including court costs and
attorneys fees.
1.3. AFFILIATE. The term "Affiliate" of a person shall mean, with respect
to that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of, that
person. The Sellers are all agreed to be Affiliates of one another and of the
Company. As used in the definition of Affiliate, the term "control" (including
the terms "controlling," "controlled by," or "under common control with") means
the possession, direct or indirect, of the power to direct, cause the direction
of, or influence the management and policies of a person, whether through the
ownership of voting securities, by contract, through the holding of a position
as a partner, director or officer of such person, as a trustee, or otherwise. As
used in this SECTION 1.3, the term "person" means an individual, a corporation,
a partnership, a limited liability company, an association, a joint stock
company, a trust, an incorporated organization, or a government or political
subdivision thereof, or any other form of entity.
1.4. ASSETS. The term "Assets" shall mean all of the assets, other than
the Leased Assets, used by the Company in the Business, including without
limitation those assets set forth on SCHEDULE 1.4 attached hereto and
incorporated herein by reference.
1.5. AUDITED FINANCIAL STATEMENTS. The term "Audited Financial Statements"
shall mean the balance sheet and income statement of the Company as of December
31, 1996, attached hereto as SCHEDULE 1.5.
1.6. BALANCE SHEET. The term "Balance Sheet" shall mean the December 31,
1996 balance sheet of the Company included in the Audited Financial Statements
attached hereto as SCHEDULE 1.5.
1.7. BALANCE SHEET DATE. The term "Balance Sheet Date" shall mean December
31, 1996.
1.8. BANK DEBT. The term "Bank Debt" shall mean the term loan and
revolving line of credit loan facility of the Company with First Union National
Bank of Florida.
1.9. BUSINESS. The term "Business" shall mean the current business of the
Company of valve repair and sales, machining and fabrication, and retail sales
of cutting tools.
1.10. CLASS A REPRESENTATIONS. The term "Class A Representations" shall
mean those representations and warranties of Sellers set forth Sections 3.23,
3.25 and 3.28.
1.11. CLASS B REPRESENTATIONS. The term "Class B Representations" shall
mean the representations and warranties of Sellers set forth in (i) Sections
3.2, 3.4, 3.5, 3.6 and 3.30, and
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(ii) Sections 3.17 and 3.29, to the extent that such sections deal with
Environmental Health & Safety Laws.
1.12. CLASS C REPRESENTATIONS. The term "Class C Representations" shall
mean all of the representations and warranties of Sellers set forth in ARTICLE
III of this Agreement, OTHER THAN those which are Class A Representations or
Class B Representations.
1.13. CLOSING. The term "Closing" shall have the meaning ascribed thereto
in SECTION 7.1 hereof.
1.14. CLOSING DATE. The term "Closing Date" shall mean March 4, 1997, or
at the option of Purchaser any later date on or before March 7, 1997, or such
other date as may be otherwise provided in this Agreement or otherwise
established by agreement of the Parties.
1.15. CLOSING FINANCIAL STATEMENTS. The term "Closing Financial
Statements" shall mean the most recent available unaudited interim balance sheet
and income statement of the Company existing prior to Closing, and in any event
dated no earlier than January 31, 1997, which balance sheet shall be certified
at Closing by Mr. Olivier by execution and delivery of the Closing Financial
Statements Certificate.
1.16. CLOSING FINANCIAL STATEMENTS CERTIFICATE. The term "Closing
Financial Statements Certificate" shall mean the certificate to be executed and
delivered by Mr. Olivier at Closing, certifying that the Audited Financial
Statements and the Closing Financial Statements (i) are true, complete, and
correct in all material respects, (ii) fairly and accurately present the
financial position of the Company as of the periods described therein, and the
results of the operations of the Company for the periods indicated, (iii) have
been prepared in accordance with generally accepted accounting principles,
consistently applied (except for certain footnote disclosures normally required
by GAAP, the omission of which, in the good faith opinion of Sellers, do not
cause the Financial Statements to be materially misleading), and (iv) reflect
all necessary eliminating entries and normal adjustments.
1.17. CODE. The term "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.18. CONTRACTS. The term "Contracts" shall have the meaning ascribed
thereto in SECTION 3.10.
1.19. DEFICIENCY AMOUNT. The term "Deficiency Amount" shall have the
meaning ascribed thereto in SECTION 9.2.
1.20. EMPLOYEE. The term "Employee" shall mean any employee of the Company
who as of the Closing Date is employed or otherwise performs work or provides
services in connection with the operation of the Business, including those, if
any, on disability, sick leave,
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layoff or leave of absence, who, in accordance with the Company's applicable
policies, would be eligible to return to active status, as set forth on SCHEDULE
3.22 attached hereto.
1.21. EMPLOYEE BENEFIT PLAN. The term "Employee Benefit Plan" means any
(a) nonqualified deferred compensation or retirement plan or arrangement which
is an Employee Pension Benefit Plan, (b) qualified defined contribution
retirement plan or arrangement which is an Employee Pension Benefit Plan, (c)
qualified defined benefit retirement plan or arrangement which is an Employee
Pension Benefit Plan (including any Multiemployer Plan), (d) Employee Welfare
Benefit Plan, or (e) material fringe benefit plan or program.
1.22. EMPLOYEE PENSION BENEFIT PLAN. The term "Employee Pension Benefit
Plan" has the meaning set forth in ERISA Sec. 3(2).
1.23. EMPLOYEE WELFARE BENEFIT PLAN. The term "Employee Welfare Benefit
Plan" has the meaning set forth in ERISA Sec. 3(1).
1.24. EMPLOYMENT AGREEMENT. The term "Employment Agreements" shall have
the meaning ascribed thereto in SECTION 3.24.
1.25. ENVIRONMENTAL, HEALTH & SAFETY LAWS. The term "Environmental, Health
& Safety Laws" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976,
the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, the
Hazardous Materials Transportation Act, the Federal Insecticide, Fungicide and
Rodenticide Act and the Occupational Safety and Health Act of 1970, each as
amended, together with all other laws (including rules and regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments and all agencies thereof
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of any solid, hazardous, industrial, or toxic
pollutants, contaminants, substances or wastes into ambient air, surface water,
ground water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of any
solid, hazardous, industrial or toxic pollutants, contaminant, substances or
wastes.
1.26. EQUIPMENT. The term "Equipment" shall have the meaning ascribed
thereto in SECTION 3.12.
1.27. FINAL POST-CLOSING FINANCIAL STATEMENTS. The term "Final
Post-Closing Financial Statements" shall have the meaning ascribed thereto in
SECTION 9.2.
1.28. FINANCIAL STATEMENTS. The term "Financial Statements" shall mean the
Audited Financial Statements and the Closing Financial Statements.
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1.29. IMPROVEMENTS. The term "Improvements" shall have the meaning
ascribed thereto in SECTION 3.17.
1.30. INTELLECTUAL PROPERTY. The term "Intellectual Property" shall mean
the following (a) inventions (whether patentable or unpatentable and whether or
not reduced to practice), improvements thereto and patents, patent applications,
and patent disclosures together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
trademarks, service marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information and business and marketing plans
and proposals), (d) all computer software (including data and related
documentation), (e) all other proprietary rights, and (f) all copies and
tangible embodiments thereof (in whatever form or medium).
1.31. INVENTORIES. The term "Inventories" shall have the meaning ascribed
thereto in SECTION 3.14.
1.32. LEASED ASSETS. The term "Leased Assets" shall have the meaning
ascribed thereto in SECTION 3.8.
1.33. LIABILITIES. The term "Liabilities" shall have the meaning ascribed
thereto in SECTION 3.26.
1.34. LICENSES. The term "Licenses" shall have the meaning ascribed
thereto in SECTION 3.15.
1.35. NOTICE OF DISAGREEMENT. The term "Notice of Disagreement" shall have
the meaning ascribed thereto in SECTION 9.2.
1.36. OLIVIER EMPLOYMENT AGREEMENT. The term "Olivier Employment
Agreement" shall have the meaning ascribed thereto in SECTION 7.2.
1.37. ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of Business"
shall mean the ordinary course of the Company's business consistent with past
custom and practice (including with respect to quantity and frequency).
1.38. PBGC. The term "PBGC" shall mean the Pension Benefits Guaranty
Corporation.
1.39. PERMITTED DISTRIBUTIONS. The term "Permitted Distributions" shall
mean the distributions by the Company to the Sellers, prior to Closing, (i) of
Two Hundred Thousand
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Five Hundred and No/100 Dollars ($200,500.00), in order to enable Sellers to pay
their anticipated 1996 federal income tax liability associated with their
ownership of the Subject Shares and (ii) of Twenty-Five Thousand and No/100
Dollars ($25,000.00) to Sellers, in order to enable Sellers to pay their 1997
federal income tax liability associated with their ownership of the Subject
Shares.
1.40. POST-CLOSING FINANCIAL STATEMENTS. The term "Post-Closing Financial
Statements" shall have the meaning ascribed thereto in SECTION 9.2.
1.41. REAL PROPERTY. The term "Real Property" shall have the meaning
ascribed thereto in SECTION 3.17.
ARTICLE II
PURCHASE AND SALE
OF SUBJECT SHARES
2.1. PURCHASE AND SALE OF SUBJECT SHARES. Subject to the terms and
conditions set forth in this Agreement, Sellers hereby agree to sell, convey,
transfer, assign and deliver to Purchaser, and Purchaser hereby agrees to
purchase from Sellers, on the Closing Date, the Subject Shares, free and clear
of any restrictions or conditions to transfer or assignment, rights of first
refusal, mortgages, liens, pledges, charges, encumbrances, equities, claims,
covenants, conditions, restrictions, options or agreements.
2.2. PURCHASE PRICE CONSIDERATION. As consideration for the purchase of
the Subject Shares and upon delivery thereof to Purchaser at Closing, Purchaser
shall deliver to Sellers, in cash or other immediately available funds, the
aggregate amount (the "Purchase Price") of Six Million Six Hundred Eighty-Five
Thousand Five Hundred Seventy-Seven Dollars ($6,685,577.00). The Purchase Price
shall be payable to Sellers pro rata in accordance with their respective
percentages of ownership of the Subject Shares, as set forth by Sellers on
SCHEDULE 2.2 attached hereto.
2.3. TAXES OF SELLERS. Sellers shall pay all income, documentary,
transfer, stamp or other taxes or arising out of the transfer of the Subject
Shares, or receipt of payments therefor, or any consideration delivered in
connection therewith, subject to the provisions of SECTION 9.6.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Mr. Olivier hereby represents and warrants to Purchaser that, and
the remaining Sellers represent and warrant to Purchaser that to their actual
knowledge without duty of inquiry:
3.1. ORGANIZATION; QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida, has all necessary corporate powers to own its properties and to operate
the Business as now owned and operated
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by it. The Company is not required to be qualified to do business as a foreign
corporation in any state. Sellers shall deliver at Closing a certificate issued
by the Florida Secretary of State evidencing the Company's existence and good
standing in the State of Florida.
3.2. AUTHORITY. Each Seller has the full right, power, legal capacity and
authority to execute, deliver and perform such Seller's obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Trust have been duly authorized by the Trustee thereof, David A. Siegel and
Bettie Siegel (the record holders of the Trust Certificates issued thereunder
and the beneficial owners of the Subject Shares owned of record by the Trust),
which constitutes all of the necessary action for the Trust to consummate the
transactions contemplated by this Agreement and to perform its obligations
hereunder.
3.3. CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except as set forth on
SCHEDULE 3.3(A), no consent, approval or authorization of, or filing or
registration with, any governmental or regulatory authority, or any other person
or entity, is required to be made or obtained by any Seller or by the Company in
connection with the execution, delivery or performance of this Agreement, or the
consummation by Sellers of the transactions contemplated hereby. Except as set
forth on SCHEDULE 3.3(B), neither the execution and delivery of this Agreement
by Sellers, nor the consummation of the transactions contemplated herein by
Sellers, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency or court to which any Seller or the Company is
subject, or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under any
agreement, contract, lease, license, instrument, promissory note, conditional
sales contract, partnership agreement or other arrangement to which any Seller
or the Company is a party, or by which any Seller or the Company is bound, or to
which any of their assets are subject, (C) conflict with or violate the Articles
of Incorporation, Bylaws or other charter document of the Company, or (D)
conflict with, violate, result in a breach of, or constitute a default under any
document, instrument or agreement under which the Trust is organized or to which
the Trust or its assets are subject.
3.4. VALID AND BINDING OBLIGATION. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Sellers,
or any of them, in connection herewith, will constitute the legal, valid, and
binding obligation of each Seller which is a party thereto, enforceable against
each such Seller in accordance with its terms, except as same may be limited by
applicable bankruptcy laws, insolvency laws, or other similar laws affecting the
rights of creditors generally.
3.5. CAPITAL; ASSUMED NAMES. The authorized capital stock of the Company
consists of five million (5,000,000) shares of common stock, ten cents $0.10 par
value per share, of which three million eight hundred sixty-five thousand four
hundred eighty-nine (3,865,489) shares are issued and outstanding. The Company
has neither authorized nor issued any preferred stock. The Subject Shares have
been duly and validly authorized and issued, and are fully paid and
nonassessable and constitute all of the issued and outstanding shares of the
Company, other than
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the Ten Thousand (10,000) shares issued to Raymond H. Royster. None of such
capital stock has been issued in violation of the rights of any present or
former stockholder of the Company. The only outstanding subscriptions, options,
rights, warrants, convertible securities, conversion rights, exchange rights or
other agreements or commitments which obligate the Company to issue or transfer
from treasury additional shares of the Company's common stock are set forth in
SCHEDULE 3.5. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to the Company or
its capital stock. There are no voting rights, voting agreements, proxies or
other agreements or understandings with respect to the voting of any capital
stock of the Company, other than the Trust. Within the past five (5) years, the
Business has not been conducted under any corporate, trade or fictitious name
other than those names set forth on SCHEDULE 3.5.
3.6. TITLE TO SUBJECT SHARES. The Sellers have, and shall deliver to
Purchaser at Closing, good, indefeasible and marketable title to the Subject
Shares, free and clear of restrictions or conditions to transfer or assignment,
rights of first refusal, mortgages, liens, pledges, charges, encumbrances,
equities, claims, covenants, conditions, restrictions, options or agreements.
3.7. TITLE TO ASSETS. Except as set forth on SCHEDULE 3.7, the Company
has good, indefeasible and marketable title to the Assets, free and clear of
restrictions or conditions to transfer or assignment, or mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights-of-way,
covenants, conditions or restrictions.
3.8. POSSESSION OF ASSETS; LEASED ASSETS. The Company is in possession of
all of the Assets and all of the assets leased to the Company from others. All
assets leased to the Company from others, whether real, personal or mixed, are
described on SCHEDULE 3.8 and SCHEDULE 3.17(B) attached hereto (the "Leased
Assets"). The Assets and the Leased Assets constitute all of the property,
whether real, personal, mixed, tangible, or intangible, that is owned or used in
the Business by the Company. The Company does not own legal or equitable title
to any assets or interests in assets except the Assets and the Leased Assets.
Sellers shall deliver to Purchaser on the Closing Date, control or dominion over
the Company, which shall have possession of and/or control as dominion over all
of the Assets, including without limitation all of the Company's cash, accounts
receivable, property, plant and equipment, other personal property, contract
rights and general intangibles, customer and supplier lists, and assumed and
trade names.
3.9. CONDITION. All of the Assets and the Leased Assets (including all
fixtures and improvements) are in reasonable operating condition, subject to
repairs consistent with the Company's past practices, and are useable in a
manner consistent with the manner in which they have been used in the preceding
twelve months, and are fit for their intended use.
3.10. CONTRACTS AND LEASES. All of the contracts, leases, documents,
instruments, agreements, and other written or oral arrangements to which the
Company is a party or by which the Company or its assets may be bound which
endure for more than one (1) year after Closing or cannot be terminated on sixty
(60) days notice or less (collectively, the "Contracts") are set
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forth on SCHEDULE 3.10. Except as set forth on SCHEDULE 3.10, all of the
Contracts are valid and in full force and effect, and there has not been any
default by the Company or any third party to any of said Contracts, or any
event, fact or circumstance which with notice or lapse of time or both, would
constitute a default by the Company or any other party to any of the Contracts.
Neither the Company nor any of the Sellers has received notice that any party to
any of the Contracts intends to cancel or terminate any of the Contracts or
exercise or not exercise any options that such party might have under any of the
Contracts.
3.11. OTHER CONTRACTS. Except as set forth in SCHEDULE 3.11, the Company
is not a party to, nor is any of its property bound by, any distributor's or
manufacturer's representative or agency agreement, any output or requirements
agreement, nor any agreement not entered into in the Ordinary Course of
Business. The Company is not a party to, nor is any of its property bound by,
any agreement which is materially adverse to the businesses, properties or
financial condition of the Company. Except as set forth in SCHEDULE 3.11, the
Company is not a party to any agreement which: (i) prohibits it from engaging in
the business that it currently conducts, or (ii) upon consummation of the
transactions contemplated herein, will prohibit it or the Purchaser from
engaging in any type of business.
3.12. EQUIPMENT. Except as set forth on SCHEDULE 3.12, all of the
equipment owned by the Company (collectively, the "Equipment") is owned free and
clear of any lien, security, claim or encumbrance, and none of the Equipment is
held under any security agreement, conditional sales contract, or other title
retention or security arrangement or is located other than in the possession of
the Company.
3.13. ACCOUNTS RECEIVABLE. All of the accounts receivable of the Company
as set forth in the books and records of the Company (collectively, the
"Accounts"), and all papers and documents relating thereto, are genuine and in
all respects what they purport to be. Each Account is valid and subsisting and
arises out of a bona fide sale or lease of goods sold or leased and delivered
to, or out of and for services theretofore actually rendered by the Company to,
the account debtor named in such Account. The amount of each Account represented
as owing as of the date indicated (i) is the correct amount actually and
unconditionally owing as of the date indicated, (ii) is not subject to any
set-offs, credits, disputes, defenses, deductions or countercharges, and (iii)
to the best knowledge of each Seller, is owed by an account debtor who is
solvent, and will be paid in the Ordinary Course of Business. The Company is the
owner of each such Account free and clear of any charges, liens, security
interests, adverse claims, and encumbrances of any and every nature whatsoever,
other than the security interests securing payment of the Bank Debt.
3.14. INVENTORIES. The inventories of raw materials, work in process and
finished goods (collectively, the "Inventories") shown on the Financial
Statements, consisted of items of a quality and quantity useable and saleable in
the Ordinary Course of Business by the Company, except for obsolete and slow
moving items and items below standard quality, all of which have been written
down on the books of the Company to estimated net realizable value or have been
provided for by adequate reserves. All items included in the Inventories are the
property of the
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Company and in its possession, except for sales made in the Ordinary Course of
Business since December 31, 1996; for each of these sales either the purchaser
has made full payment or the purchaser's liability to make payment is reflected
in the books of the Company. No items included in the Inventories have been
pledged as collateral or are held on consignment from others, except for the
pledge thereof securing repayment of the Bank Debt. The Inventories shown on the
Balance Sheet are based on quantities determined by physical count or
measurement, taken within the preceding twelve (12) months, and are valued at
the lower of cost (determined on a first-in, first-out basis) or market value
and on a basis consistent with that of prior years.
3.15. LICENSES. All licenses owned by the Company or in which the Company
has any rights, licenses or sublicenses (collectively, the "Licenses"), together
with a brief description of each, are set forth on SCHEDULE 3.15. The Company
has not infringed, and is not now infringing, on any license belonging to any
other person or other entity. The Company owns and holds adequate licenses
necessary for the Business as now conducted by it, and that use does not, and
will not, conflict with, infringe on or otherwise violate any rights of others.
3.16. INTELLECTUAL PROPERTY. No Intellectual Property is necessary in
order to lawfully conduct the Business without any infringement or conflict with
the rights of others. No aspect of the operation of the Business infringes upon
any patents, trade or assumed names, trademarks, service marks, or copyrights
belonging to any other person or other entity. Except as expressly set forth in
SCHEDULE 3.15 the Company is not a party to any license, agreement, or
arrangement, whether as licensor, licensee, or otherwise, with respect to any
Intellectual Property. The Company does not have a license or a right to use any
patents, service marks, trademarks, trade or assumed names, trade secrets,
royalty rights or other proprietary intangibles which is not set forth on
SCHEDULE 3.16.
3.17. REAL PROPERTY; LEASED REAL PROPERTY. Except as set forth in SCHEDULE
3.17(A) with respect to real property owned by the Company, and SCHEDULE 3.17(B)
with respect to real property leased by the Company (such owned and leased real
property being hereinafter referred to collectively as the "Real Property"), the
Company neither owns nor leases any real property or improvements or interests
therein. Sellers have no information or knowledge of any change contemplated in
any applicable laws, ordinances or restrictions, or any judicial or
administrative action, or any action by adjacent landowners, or natural or
artificial conditions upon the Real Property, which would have a material
adverse effect upon the Real Property, the Business, the Assets, the Leased
Assets or their respective values. There is no zoning, deed restriction, land
use provision or restriction, or other material adverse fact or condition of any
kind or character whatsoever, which adversely affects the continued use of the
Real Property in the manner in which it is currently used. Except for the
Company, and as set forth in SCHEDULE 3.17(C), there are no parties in
possession of any portion of the Real Property as lessees, tenants at will or at
sufferance, trespassers or otherwise. The heating, electrical, plumbing and
other building equipment, as of the Closing, will be adequate in quantity and
quality for normal operations of the Business, as presently conducted. All
utilities required for the operation of the Improvements enter the Real Property
through adjoining public streets or, if they pass through an adjoining
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private tract, do so in accordance with valid public easements or private
easements which inure to the benefit of and are enforceable by the Company. The
Real Property has full and free access to and from public streets and roads and
Sellers have no knowledge of any fact or condition which would result in the
termination of such access. The Improvements do not encroach upon any adjacent
real property nor any easements or building set-back lines to which the Real
Property is subject, and no improvements upon adjacent real property encroach
upon the Real Property. There is no pending condemnation or similar proceeding
affecting the Real Property or any portion thereof, and Sellers have no
information or knowledge that any such action is presently contemplated.
3.18. SUBSIDIARIES. Since January 1, 1986, the Company has not owned,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, business, trust, or other entity, other than those
which have been merged into the Company.
3.19. INSURANCE. Attached hereto as SCHEDULE 3.19 is a true, complete and
correct list of all insurance policies maintained by the Company. The Company
maintains (i) insurance on the Assets (and as applicable, the Leased Assets),
the Business and the Company's operations of such types and in such amounts as
are customarily insured by similar companies in the same industry, covering
property damage and loss of income by fire or other casualty, and (ii) adequate
insurance protection against all liabilities, claims and risks against which it
is customary to insure, including but not limited to product liability
insurance.
3.20. BANKING. The names and addresses of all banks or other financial
institutions in which the Company has an account, deposit or safe deposit box,
with the names of all persons authorized to draw on these accounts or deposits
or access to these boxes, are set forth on SCHEDULE 3.20 attached hereto.
3.21. POWERS OF ATTORNEY. Except as set forth in the documents evidencing
the Bank Debt, no person or other entity holds a general or special power of
attorney from the Company.
3.22. PERSONNEL. Attached hereto as SCHEDULE 3.22 is a list of the names,
addresses, hire dates, dates of birth and job descriptions of all Employees of
the Company, stating their rates of compensation including, if determined,
bonuses payable to each. Also set forth on SCHEDULE 3.22 is a list of those
Employees who are not actively working in the Business and the reasons therefor.
3.23. EMPLOYEE BENEFITS.
(A) SCHEDULE 3.23 is a true, correct and complete list of each Employee
Benefit Plan that the Company maintains, or to which the Company contributes.
Except as set forth in SCHEDULE 3.23:
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(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to
each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B
of Title I of ERISA and of Code Sec. 4980B have been met with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan
and all contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee Pension Benefit
Plan or accrued in accordance with the past custom and practice of the
Company. All premiums or other payments for all periods ending on or
before the Closing Date have been and will be paid with respect to each
such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Sec.
401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(v) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all vested and nonvested
liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(vi) The Sellers have delivered to the Purchaser correct and
complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(B) With respect to each Employee Benefit Plan that the Company maintains
or ever has maintained or to which the Company contributes, ever has
contributed, or ever has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multi-Employer Plan) has been completely or
partially terminated or been the subject of a reportable event as to which
notices would be required to be filed with
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the PBGC. No proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multi-employer Plan) has been instituted or
threatened.
(ii) There have been no prohibited transactions with respect to any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of the
assets of any such Employee Benefit Plan (other than routine claims for
benefits) is pending, or, to the best of any Seller's knowledge,
threatened. None of the Sellers has any knowledge of any basis for any
such action, suit, proceeding, hearing, or investigation.
(iii) The Company has not incurred, and none of the Sellers expects
that the Company will incur, any Liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV or ERISA (including any
withdrawal liability) or under the Code with respect to any such Employee
Benefit Plan which is an Employee Pension Benefit Plan.
(C) The Company does not contribute to, and has never contributed to, and
has never been required to contribute to, any Multiemployer Plan, and the
Company does not have, and has never had, any liability (including withdrawal
liability) under any Multiemployer Plan.
(D) The Company does not maintain nor contribute to, and has never
maintained nor contributed to, and has never been required to contribute to, any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Sec. 4980B).
3.24. EMPLOYMENT AGREEMENTS. SCHEDULE 3.24 is a list of all employment
agreements, consulting agreements, collective bargaining agreements, and
agreements providing for director and officer indemnification or other
agreements or arrangements providing for employee or other remuneration or
benefits (other than the Plans) to which the Company or any of its Affiliates is
a party or by which the Company or any of its Affiliates is bound (collectively,
the "Employment Agreements"). All of the Employment Agreements are in full force
and effect, and neither the Company nor any other party is in default under any
of them. There have been no claims of default, and to the best knowledge and
reasonable belief of Sellers there are no facts or conditions which if
continued, or on notice, will result in a default, under any of the Employment
Agreements. The Company is in compliance with, and upon the closing of the
transactions set forth or contemplated herein will remain in compliance with,
all of its obligations under such Employment Agreements. Except as set forth on
SCHEDULE 3.24, no Employees are represented by any labor organization, and, as
of the date hereof, no labor organization or group of Employees has made a
written demand to the Company for recognition, or to the knowledge of Sellers,
filed a petition with the National Labor Relations Board, or announced its
intention to hold an election of a collective bargaining representative. There
is no pending, or to the best knowledge and reasonable belief of Sellers
threatened, labor dispute, strike or work stoppage affecting or potentially
affecting the Business.
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3.25. NO SEVERANCE PAYMENTS. As of the Closing Date, the Company will not
owe a severance payment or similar obligation to any of its employees, officers,
or directors, as a result of the transactions contemplated by this Agreement,
nor will any of such persons be entitled to an increase in severance payments or
other benefits as a result of the transactions contemplated hereby. The Company
has not entered into any agreement that would entitle employees to receive
severance pay in the event of the subsequent termination of their employment.
3.26. LIABILITIES. The Company does not have, and as of the Closing Date
will not have, any liabilities, obligations or commitments of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due (herein "Liabilities"), except (i) Liabilities which are adequately
disclosed or accrued against in the Financial Statements, (ii) Liabilities which
have been incurred in the Ordinary Course of the Business and in accordance with
standard, customary and historical practices and experiences of the Company, and
(iii) Liabilities expressly set forth, as to the nature and amount thereof, on
SCHEDULE 3.26. As of the Closing Date, except as otherwise contemplated by this
Agreement, neither the Company nor the Purchaser shall be liable for (or have
paid any) legal, accounting or other costs or expenses (other than employee
overtime expense) incurred by the Company or any Seller in connection with the
transfer of the Subject Shares, or any of the transactions contemplated in this
Agreement.
3.27. LITIGATION. Except as set forth on SCHEDULE 3.27, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending, or to the knowledge of Sellers or any officer of the
Company threatened, against or affecting the Company, its Affiliates, the
Assets, the Leased Assets or the Business.
3.28. TAX MATTERS.
(A) The Company has filed all tax returns that the Company was required to
file, and all such tax returns were correct and complete in all respects. All
taxes owed by the Company (whether or not shown on any tax return) have been
paid. The Company is not the beneficiary of any extension of time within which
to file any tax return. Since January 1, 1989, no claim has been made by an
authority in a jurisdiction where the Company does not file tax returns, that
the Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any tax.
(B) Since January 1, 1987, the Company has withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other third
party.
(C) No Seller or director or officer (or employee responsible for tax
matters) of the Company has reason to believe that any authority might assess
any additional taxes for any period for which tax returns have been filed. There
is no dispute or claim concerning any tax liability of the Company either (i)
claimed or raised by any authority in writing or (ii) as to which any of the
Sellers or the directors and officers (and employees responsible for tax
matters) of the
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Company has knowledge. SCHEDULE 3.28 lists all federal, state, local, and
foreign income tax returns filed with respect to the Company for taxable periods
ended on or after December 31, 1989, indicates those tax returns that have been
audited, and indicates those tax returns that currently are the subject of
audit. The Sellers have delivered to the Purchaser correct and complete copies
of all federal income tax returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company since December 31,
1989.
(D) The Company has not waived any statute of limitations in respect of
taxes or agreed to any extension of time with respect to a tax assessment or
deficiency.
(E) There will be no adverse effect on the Company by reason of the
pending state sales tax audit with respect to Ash Tools.
3.29. COMPLIANCE WITH LAWS. The Company has complied with, and is not in
violation of, applicable federal, state or local ordinances, statutes, laws,
rules, restrictions and regulations (including, without limitation, any
applicable building, zoning, Environmental, Health & Safety Laws or other law,
ordinance or regulation) that affects, or is likely to affect, directly or
indirectly, the Business, the Assets, the Leased Assets, the Real Property or
the customers, suppliers or financial prospects of the Company. There are not
any uncured violations of federal, state or local laws, ordinances, statutes,
orders, rules, restrictions, regulations or requirements affecting any portion
of the Business, the Real Property, the Assets or the Leased Assets, and neither
any of the Assets, the Leased Assets or the Real Property, nor the operation
thereof nor the conduct of the Business, violates any applicable federal, state
or municipal laws, ordinances, orders, regulations or requirements.
3.30. ENVIRONMENTAL, HEALTH & SAFETY LAWS. Except as described on SCHEDULE
3.30 (i) neither the ownership nor the operation of the Business, the Assets,
the Leased Assets or the Real Property has violated or violates any
Environmental, Health & Safety Laws, (ii) neither the Real Property, nor any
real property previously owned or occupied by the Company, nor to the knowledge
of the Sellers any property adjacent to any of the foregoing, has been used for
the use, manufacture, storage, treatment, generation, transportation,
processing, handling or disposal of any solid, hazardous, industrial or toxic
pollutant, contaminant, substance or waste in violation of any Environmental,
Health & Safety Laws, (iii) neither the Company nor any of the Sellers has
received nor has knowledge of any notice of or any threat of any claim, suit,
proceeding, inquiry, investigation, citation, notice, violation, consent order
or judicial or administrative action arising out of or based upon any
Environmental, Health & Safety Laws, (iv) no solid, hazardous, industrial or
toxic pollutant, contaminant, substance or waste has been disposed of, spilled
onto, discharged or released (as those terms are defined in the Environmental,
Health & Safety Laws) on or within the Real Property or, to the best of Sellers'
knowledge, any property adjacent thereto, nor any real property previously owned
or occupied by the Company, (v) no underground storage tanks, above ground
storage tanks, solid or hazardous waste management units, wells, underground
injection systems, landfills, lagoons, settling ponds or any other impoundment
used to treat, store or dispose of any solid, hazardous or toxic substances,
pollutants, contaminants or wastes regulated by the Environmental Health &
Safety Laws have ever been placed on the Real
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Property, and if any underground storage tanks are disclosed in SCHEDULE
3.30, none of such tanks are leaking, (vi) neither the Company nor any of the
Sellers have received notice of any past, present or future event, condition,
circumstance, activity, practice, incident or action or plan which may interfere
with or prevent compliance or continued compliance with the Environmental,
Health & Safety Laws or which may give rise to any common law or legal
liability, or otherwise form the basis of any claim, action, demand, lawsuit,
proceeding, hearing, study or investigation, based on, related to, or alleging
any violation of the Environmental Health & Safety Laws, and (vii) all wastes
generated by the Company have been treated and/or disposed of at appropriately
licensed recycling, reclamation, reuse, or treatment, storage and disposal
facilities. There is no environmental condition relating to any of the Assets,
the Leased Assets, the Real Property or the Business that may reasonably be
expected to have a materially adverse effect on any of the Assets, the Leased
Assets, the Real Property or the Business or the value thereof. The Company has
all permits, licenses, franchises, operating authorities and other
authorizations or documented exemptions or variances thereto necessary to the
conduct of the Business in the manner and in the areas in which the Business is
presently conducted, and all such permits, licenses, franchises, and
authorizations are valid and in full force and effect. The Company is in full
compliance with all the terms and conditions of such permits, licenses,
franchises, or other authorizations, and has not engaged in any activity which
could cause the revocation or suspension of any such permits, licenses,
franchises, or other authorizations. No actions or proceedings looking to or
contemplating revocation or suspension of any thereof are pending or, to the
best knowledge and reasonable belief of Sellers, threatened.
3.31. FINANCIAL STATEMENTS. The Financial Statements (i) are true,
complete, and correct in all material respects, (ii) fairly and accurately
present the financial position of the Company as of the periods described
therein, and the results of the operations of the Company for the periods
indicated, (iii) have been prepared in accordance with generally accepted
accounting principles, consistently applied (except that the Closing Financial
Statements may omit certain footnote disclosures normally required by GAAP, the
omission of which, in the good faith opinion of Sellers, will not cause the
Closing Financial Statements to be materially misleading), and (iv) reflect all
necessary eliminating entries and normal adjustments (including without
limitation, year-end adjustments).
3.32. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
SCHEDULE 3.32, since the Balance Sheet Date, there has been no:
(A) material adverse change in the financial condition, liabilities,
business or prospects of the Company;
(B) loss, destruction or damage to any property of the Company,
whether or not insured;
(C) acquisition or disposition of any material assets, individually
or in the aggregate, nor any material contract, commitment or obligation
entered into or incurred by the Company, nor any other transaction by the
Company, other
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than for value in the Ordinary Course of Business and in accordance with
prudent business practices;
(D) labor trouble, pending or threatened, involving the Company, or
change in the personnel of the Company or the terms or conditions of their
employment; or
(E) other event or condition of any character that has or might
reasonably be expected to have an adverse effect on the financial
condition, business, liabilities or prospects of the Company.
3.33. CUSTOMERS. SCHEDULE 3.33 to this Agreement is a correct and current
list of all customers of the Company, together with summaries of the sales made
to each customer during the two most recent fiscal years of the Company. Except
as indicated in SCHEDULE 3.33, Sellers do not have any information, nor are they
aware of any facts, indicating that any of these customers intend to cease doing
business with the Company, or to materially alter the volume or terms of such
business.
3.34. INTERESTS IN CUSTOMERS, SUPPLIERS AND COMPETITORS. Except as set
forth on SCHEDULE 3.34, none of the Sellers, and to the best knowledge of
Sellers, no shareholder, officer, director or employee (nor any former
shareholder, officer, director or employee) of the Company, nor to the best
knowledge and reasonable belief of Sellers any relative of any of them, has any
direct or indirect interest in any competitor, supplier or customer of the
Company, or any person or other entity who has done business with the Company in
the twenty- four (24) months preceding the Closing.
3.35. CORPORATE AND TRUST DOCUMENTS. Sellers have furnished to Purchaser
for its examination (i) true, complete and correct copies of the certificates or
articles of incorporation and bylaws of the Company, as amended to date; (ii)
true, complete and correct copies of the contents of the minute books of the
Company (including proceedings of audit and other committees), each of which
contains all records for all proceedings, consents, actions and meetings of the
shareholders, board of directors and committees, of the Company since its date
of incorporation; (iii) a true, complete and correct copy of the agreement
pursuant to which the Trust was organized, as amended to date; and (iv) a true,
complete and correct copy of the agreement pursuant to which the trustee of the
Trust is to be compensated, as amended to date.
3.36. ADVERSE INFORMATION. Neither the Company nor any of the Sellers has
any information or knowledge of any change contemplated in any applicable laws,
ordinances or restrictions, or any judicial or administrative action, or any
event, fact or circumstance which will, or could be reasonably expected to, have
a material adverse effect on the Company or its condition, financial or
otherwise, the Assets, the Leased Assets, or the condition, value or operation
thereof.
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3.37. DISCLOSURE. Sellers have provided to Purchaser copies of all
material Contracts, documents concerning all litigation and administrative
proceedings, employee benefit plans, Licenses, insurance policies, lists of
suppliers, customers, and Employees, and corporate and partnership records
relating to the Company or its assets and liabilities, and the Business, and
such information covers all material commitments and liabilities of the Company.
In addition, (i) Purchaser has been kept fully informed with respect to all
material developments in the business of the Company since the Balance Sheet
Date, (ii) management of the Company has not made any material business
decisions, nor taken any material actions, since the Balance Sheet Date of which
Purchaser has not been advised, and (iii) Purchaser and its agents have been,
and through Closing or the earlier termination or expiration of this Agreement
will continue to be, granted unlimited access to the books and records of the
Company (whether retained electronically, on disc or on paper).
ALL OF THE REPRESENTATIONS AND WARRANTIES OF SELLERS CONTAINED IN THIS
AGREEMENT SHALL BE TRUE, COMPLETE AND CORRECT AS OF THE DATE OF THIS AGREEMENT
AND SHALL BE DEEMED TO HAVE BEEN MADE AGAIN AT AND AS OF THE CLOSING DATE, AND
THEN SHALL BE TRUE, COMPLETE AND CORRECT IN ALL RESPECTS, AND SHALL SURVIVE THE
CLOSING AND THE EXECUTION AND DELIVERY OF ALL DOCUMENTS, INSTRUMENTS AND
AGREEMENTS EXECUTED IN CONNECTION THEREWITH.
DISCLOSURE OF SPECIFIC FACTS OR CIRCUMSTANCES IN ANY SCHEDULE SHALL BE
DEEMED DISCLOSURE OF THE SAME SPECIFIC FACTS OR CIRCUMSTANCES FOR EVERY SCHEDULE
WHERE SUCH DISCLOSURE IS APPROPRIATE NOTWITHSTANDING THE LACK OF A SPECIFIC
CROSS-REFERENCE TO SUCH FACTS OR CIRCUMSTANCES.
ARTICLE IV
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants that:
4.1. ORGANIZATION. Purchaser is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Texas, and has all
necessary corporate powers to own its properties and to carry on its business as
now owned and operated by it.
4.2. AUTHORITY. Purchaser has the right, power, legal capacity, and
authority to execute, deliver and perform its obligations under this Agreement.
The execution, delivery and performance of this Agreement by the Purchaser have
been duly authorized by the Purchaser's Board of Directors, which constitutes
all of the necessary action for the Purchaser to consummate the transactions
contemplated by this Agreement and to perform its obligations hereunder.
4.3. CONSENTS AND APPROVALS. Except as set forth on SCHEDULE 4.3, no
consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by Purchaser in connection with the execution, delivery
or performance of this Agreement or the consummation by Purchaser of the
transactions contemplated hereby.
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4.4. VALID AND BINDING OBLIGATIONS. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Purchaser
in connection herewith will constitute the legal, valid, and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its terms, except
as same may be limited by bankruptcy laws, insolvency laws, and other similar
laws affecting the rights of creditors generally.
4.5. INVESTMENT INTENT. Purchaser is acquiring the Subject Shares for
investment only and not with a view to a distribution thereof. No further
transfer of the Subject Shares shall be made except (i) pursuant to an effective
registration statement, or an exemption from applicable securities law
registration requirements; and (ii) in accordance with applicable state
securities or blue sky laws.
ALL OF THE REPRESENTATIONS AND WARRANTIES OF PURCHASER CONTAINED IN THIS
AGREEMENT SHALL BE TRUE, COMPLETE AND CORRECT AS OF THE DATE OF THIS AGREEMENT
AND SHALL BE DEEMED TO HAVE BEEN MADE AGAIN AT AND AS OF THE CLOSING DATE, AND
THEN SHALL BE TRUE, COMPLETE AND CORRECT IN ALL RESPECTS, AND SHALL SURVIVE THE
CLOSING AND THE EXECUTION AND DELIVERY OF ALL DOCUMENTS, INSTRUMENTS AND
AGREEMENTS EXECUTED IN CONNECTION THEREWITH.
ARTICLE V
ADDITIONAL WARRANTIES AND
CERTAIN COVENANTS AND AGREEMENTS
5.1. SELLERS' COVENANTS. Mr. Olivier represents, warrants, covenants and
agrees that, and the remaining Sellers represent, warrant, covenant and agree
that to their actual knowledge without duty of inquiry, from the Balance Sheet
Date through the Closing Date:
(A) the Company and the Sellers have used and will use their best
efforts to preserve the business organization of the Company intact, to
keep available to the Business the Employees, and to preserve the present
relationships of the Company with its suppliers, customers and others
having business relationships with it;
(B) the Company has maintained and will maintain its existing
insurance as to the Business and the Assets (and as applicable, the Leased
Assets);
(C) the Company has maintained and operated and will maintain and
operate the Business in a good and businesslike manner in accordance with
good and prudent business practices and the Company's historical policies;
(D) the Company has maintained and operated, and will continue to
maintain and operate, the Assets and the Leased Assets, including the Real
Property, in a good and businesslike manner in accordance with good and
prudent business practices and the Company's historical policies, in as
good working order
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and condition as existed as of the Balance Sheet Date, ordinary wear and
tear excepted;
(E) the Company has not issued or sold, nor directly or indirectly
redeemed or acquired, and will not issue or sell, nor directly or
indirectly redeem or acquire, any shares of its capital stock, or any
other of its securities, or granted or agreed to grant any options or
rights with respect thereto, and has not changed nor agreed to change and
will not change nor agree to change its capital structure;
(F) except for the Permitted Distributions, the Company has not
declared, set aside nor paid and will not declare, set aside nor pay a
dividend or other distribution with respect to its capital stock;
(G) except for the Permitted Distributions, the Company has not made
and will not make any payment of any type to the holders of any capital
stock of the Company or any of their Affiliates, other than compensation
payable in accordance with established formulas or expenses which have
been fully disclosed to Purchaser;
(H) other than customary trade discounts for early payments, the
Company has neither waived nor released and will not waive nor release any
material right of or material claim held by it, has not discounted and
will not discount any of its receivables and has not provided and will not
provide services at a discount;
(I) the Company has not acquired nor disposed of, and will not
acquire nor dispose of, any material assets, individually or in the
aggregate, and has not entered into and will not enter into any contract
or arrangement therefor, and has not entered into and will not enter into
any other transaction other than for value in the Ordinary Course of
Business and in accordance with prudent business practices;
(J) the Company has not revalued and will not revalue any of its
assets or liabilities;
(K) the Company has not changed and will not change the salary or
other compensation payable or to become payable by the Company to any of
its officers, directors, employees, agents or other personnel, and has not
declared, made nor committed, and will not declare, make nor commit to any
kind of payment of a bonus or other additional salary or compensation to
any such person;
(L) the Company has not made and will not make a loan to any person
or entity, and has not guarantied and will not guaranty any loan;
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(M) the Company has not amended nor terminated, and will not amend
nor terminate, any material contract, agreement, permit or license to
which the Company is a party, or by which the Company or any of the Assets
or Leased Assets are bound;
(N) the Company has maintained and will maintain all debt and lease
instruments, and has not entered into and will not enter into any new or
amended debt or lease instruments, without the prior written approval of
Purchaser;
(O) the Company has not entered into and will not enter into any
agreement or instrument which would constitute an encumbrance, mortgage or
pledge of the Assets, or which would bind Purchaser, the Company or the
Assets after Closing, which have been entered into outside the normal
scope of maintaining and operating the Business and the Assets in the
Ordinary Course of Business;
(P) the Company has not removed, nor permitted the removal of, and
will not remove nor permit the removal of, any personal property or
fixtures from the Real Property, unless such personal property or fixtures
are replaced with an item of at least equal value that is properly suited
for its intended purpose, other than inventory sold in the Ordinary Course
of Business, or other personal property in an amount which is not
material, either individually or in the aggregate;
(Q) the Company and the Sellers will afford Purchaser the continuing
right to review and inspect the Assets and the Leased Assets, including
the Real Property, at reasonable hours, and any and all books, records,
contracts, and other documents or data pertaining to the ownership, use,
insurance, operation, renovation and maintenance of the Assets and Leased
Assets, including the Real Property, and the Business;
(R) the Company and the Sellers will afford Purchaser free and open
access to the Employees during regular business hours, to assist Purchaser
in the contemplated due diligence review, and to allow Purchaser to gather
information to make employment decisions to be effective after Closing;
(S) the Company has performed and will perform all of the Company's
obligations under all contracts and commitments applicable to the Company,
the Assets and the Leased Assets, and has maintained and will maintain the
Company's books of account and records in the usual, regular and customary
manner;
(T) except as otherwise expressly set forth in this Agreement, the
Company has complied and will comply with all statutes, laws, ordinances
and regulations applicable to the Company, the Assets, the Leased Assets,
and the
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conduct of the Business and will provide Purchaser with immediate notice
of any violation of any Environmental, Health & Safety Laws;
(U) the Company has paid and will pay in the Ordinary Course of
Business all bills and other payments due with respect to the ownership,
use, insurance, operation and maintenance of the Business, the Assets and
the Leased Assets, as and when such bills or other payments were or become
due, and has taken and will take all action necessary or prudent to
prevent liens or other claims for the same from being filed or asserted
against any part of the Assets or the Leased Assets, provided however,
that except as disclosed in SCHEDULE 3.32 the Company shall not make any
expenditures outside the Ordinary Course of Business, nor any capital
expenditures, individually or in the aggregate in excess of $3,000,
without the prior written approval of Purchaser;
(V) the Company has not made and will not make any material changes
in its management, operations, accounting or business practices or methods
(including without limitation, any change in depreciation or amortization
policies or rates), nor negotiate or pursue the acquisition or the
start-up of any new business or line of business;
(W) all revenues or cash or other receipts from all sources in all
media received by the Company have been deposited and will be deposited in
the Company's account;
(X) the Sellers will cause all of the representations and warranties
set forth in SECTION 3.32 hereof to be and remain true, complete and
correct as of the Closing;
(Y) Sellers will immediately advise Purchaser in writing of any
material adverse change in the financial condition, results of operations,
business or prospects of the Company, and any event which could reasonably
be expected to result in such a change; and
(Z) there has been no agreement by the Company to do any of the
things described above in this SECTION 5.1 which, if such were to occur
between the Balance Sheet Date and the Closing Date, would constitute a
breach of a covenant contained in this SECTION 5.1.
5.2. THIRD PARTY CONSENTS. Sellers shall cooperate with Purchaser in its
efforts to obtain the respective consents or approvals of each third party whose
consent or approval is required for the consummation of the transactions
contemplated hereby, provided that the consents and approvals set forth on
SCHEDULE 3.3 shall be the responsibility of Purchaser.
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5.3. COMPETING PROPOSALS. In consideration of the time and money that
Purchaser has spent and will spend in connection with the preparation of this
Agreement and other agreements required to complete the transactions
contemplated herein and in performing its due diligence with respect thereto,
each of the Sellers and the Company agrees that until the earlier of the Closing
Date or March 31, 1997, each will not initiate, and will not permit the Company
to initiate, directly or indirectly, contact with any person or entity in an
effort to solicit any takeover proposal, nor will any of them authorize any
officer, director or employee of the Company, or any investment banker,
attorney, accountant or any representative, to directly or indirectly initiate
any such contact. As used in this SECTION 5.3, "takeover proposal" shall mean
any proposal for an acquisition, merger or other business combination involving
the Company or for the acquisition of a substantial equity interest therein or a
substantial portion of any of their assets, other than the transaction
contemplated by this Agreement. Further, prior to the earlier of the Closing
Date or March 31, 1997, the Sellers will not, and will not permit the Company
to, directly or indirectly, cooperate or negotiate with, or furnish or cause to
be furnished any non-public information concerning the Business, properties or
assets to, any person or entity in connection with any takeover proposal.
Sellers shall immediately notify Purchaser orally of, and confirm in writing,
all relevant details relating to any takeover proposal which Sellers or the
Company may receive. Sellers will use their best efforts to consummate the
transactions contemplated in this Agreement on the Closing Date, and will, at or
prior to Closing, take all necessary action to perform their obligations under
this Agreement.
5.4. DUE DILIGENCE; COOPERATION; SATISFACTION OF CONDITIONS. From the date
hereof through the Closing, expiration or earlier termination hereof, Sellers
and the Company will afford the Purchaser full and free access to the Company
and its management, employees, properties, contracts, books and records and all
other documents and data. Such access shall include the completion of review by
Purchaser and its management, agents, lenders, investment bankers, underwriters,
accountants and attorneys of the financial condition, business, prospects,
operations, property and plant and equipment of the Company and any of its
Affiliates. Sellers shall (a) give assistance to Purchaser in preparing any
required filings and seeking any required consents or approvals in any manner
reasonably requested, and (b) pursue the satisfaction of all other conditions to
the consummation of the transactions contemplated herein. Upon the fulfillment
of all the conditions precedent to the obligations of the Parties contained
herein, Sellers will forthwith proceed to Closing.
5.5. COMPANY'S INDEBTEDNESS; SELLER LOANS. Following the Closing, and in
no event more than ninety (90) days after the Closing Date, Purchaser will have
the Sellers released from any and all guarantees of the indebtedness of the
Company. At Closing there will be no indebtedness to the Company from the
Sellers, nor to the Sellers from the Company.
5.6. DUE DILIGENCE INVESTIGATION; LACK OF CONSENTS. Buyer acknowledges
that it has conducted a due diligence investigation of the Company and that
nothing has come to the Buyer's attention that would give rise for a basis of
indemnification under SECTION 9.1; provided, however, that the foregoing
statement shall not be deemed to preclude the Buyer from raising a claim for
indemnification. Notwithstanding the foregoing or elsewhere herein, Purchaser
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acknowledges and agrees that Sellers shall have no liability for any loss of the
Dresser Green Tag franchise and/or the Dresser Mason Eilan sales representative
agreement, or any other lease, contract, agreement or document requiring the
consent of a third party which has been disclosed to Purchaser on SCHEDULE 3.3
attached hereto, which loss is caused by or based upon the failure to obtain
such consent.
ARTICLE VI
CONDITIONS TO CLOSING
6.1. CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligations of Purchaser
hereunder to consummate the transactions contemplated hereby are subject to the
satisfaction, as of the Closing Date, of the following respective conditions
(any of which may be waived in whole or in part in writing by Purchaser at or
prior to the Closing); provided, however, that in the event that any or all of
such conditions are waived in writing, such waiver shall be for all purposes and
not only for purposes of closing the transaction contemplated hereby, and the
conditions so waived shall not serve as a basis for indemnification under
SECTION 9.1.
(A) REPRESENTATIONS AND WARRANTIES OF SELLERS TO BE TRUE. The
representations and warranties of Sellers herein contained shall be true,
complete and correct in all material respects at the Closing Date with the same
effect as though made at Closing (except insofar as such representations and
warranties are given as of a particular date) except to the extent waived
hereunder or affected by the transactions contemplated or permitted herein.
(B) PERFORMANCE BY SELLERS. Sellers shall have performed in all material
respects all obligations and complied in all material respects with all
covenants and conditions required by this Agreement to be performed or complied
with by them at or prior to the Closing Date.
(C) NO LEGAL PROCEEDINGS. No injunction shall have been obtained, and no
suit, action or other proceeding shall be pending before any court or
governmental agency, in which it is sought to restrain or prohibit the
consummation of the transactions contemplated hereby, or in which it is sought
to obtain damages in connection therewith, or involving a claim that the
consummation of the transactions contemplated hereby would result in a violation
of any law, decree or regulation of any government or agency thereof having
jurisdiction. There shall not have been enacted, voted or promulgated by any
legislative or administrative body having jurisdiction any legislation, ruling
or decree which in the reasonable judgment of Purchaser would be materially
prejudicial to Purchaser with respect to the transactions contemplated by this
Agreement.
(D) FULL EXECUTION; SCHEDULES. This Agreement shall be fully executed by
all of the Parties, and the Agreement for Termination of Voting Trust in the
form attached hereto as EXHIBIT A (the "Trust Termination Agreement") shall have
been executed by all of the parties thereto, and fully executed counterparts
hereof and thereof shall have been delivered to Purchaser, on or before March 3,
1997. Further, Purchaser shall have until March 3, 1997, to review and approve
the Schedules attached hereto.
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(E) STATUTORY REQUIREMENTS. All other statutory requirements for the valid
consummation by Purchaser of the transactions contemplated by this Agreement
shall have been fulfilled; all authorizations, consents and approvals of all
federal, state and local governmental agencies and authorities required to be
obtained in order to permit consummation by Purchaser of the transactions
contemplated by this Agreement and to permit the businesses presently carried on
by the Purchaser and the Company to continue unimpaired immediately following
the Closing, shall have been obtained and shall be in full force and effect.
(F) ENVIRONMENTAL, HEALTH AND SAFETY DUE DILIGENCE. Purchaser shall have
completed, to the satisfaction of Purchaser and its officers, directors,
attorneys, accountants and other representatives, reasonable due diligence
regarding the environmental practices and procedures of the Company, including
without limitation compliance by the Company with Environmental, Health & Safety
Laws, and the existence of any solid, hazardous, industrial, or toxic
pollutants, contaminants, substances or wastes on any of the Real Property, and
determined that there exist no material actual or probable violations,
compliance problems, required capital expenditures or other substantive
environmental, health or safety concerns.
(G) NO MATERIAL ADVERSE CHANGE. Except for matters of a general economic
or political nature, no event or series of events shall have occurred between
the Balance Sheet Date and the Closing Date, the effect of which is or may
reasonably be expected to be materially adverse to the business, prospects,
financial condition or results of operation of the Company, other than the
information already disclosed to Purchaser by Sellers pursuant to this
Agreement. As of the date of this Agreement, Sellers hereby represent and
warrant that none of them is aware of any such event or series of events which
would represent such a change from the information already disclosed. Any
material change in any disclosure set forth in any of the Schedules to the
Agreement shall for purposes of this condition be deemed to be a material
adverse change.
(H) APPROVAL OF DOCUMENTS. The form and substance of the Audited Financial
Statements, all interim financial statements, including the Closing Financial
Statements, and all certificates, instruments, opinions and other documents
delivered or to be delivered to Purchaser under this Agreement shall be
satisfactory in all reasonable respects to Purchaser and its counsel.
Purchaser may waive any or all of the foregoing conditions in whole or in part
only in writing but without prior notice; provided, however, that no such waiver
of a condition shall constitute a waiver by Purchaser of any other conditions or
of its other rights or remedies, at law or in equity, if Sellers shall be in
default of any of their representations, warranties, covenants or agreements
under this Agreement.
6.2. CONDITIONS TO SELLERS' OBLIGATIONS. The obligations of Sellers'
hereunder to consummate the transactions contemplated hereby are subject to the
satisfaction, as of the Closing Date, of the following respective conditions
(any of which may be waived in whole or in part in writing by Sellers at or
prior to the Closing); provided, however, that in the event that any or all of
such conditions are waived in writing, such waiver shall be for all purposes and
not only for
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purposes of closing the transaction contemplated hereby, and the conditions so
waived shall not serve as a basis for indemnification under SECTION 9.1.
(A) REPRESENTATIONS AND WARRANTIES OF PURCHASER TO BE TRUE. The
representations and warranties of Purchaser herein contained shall be true,
complete and correct in all material respects at the Closing Date with the same
effect as though made at Closing (except insofar as such representations and
warranties are given as of a particular date) except to the extent waived
hereunder or affected by the transactions contemplated or permitted herein.
(B) PERFORMANCE BY PURCHASER. Purchaser shall have performed in all
material respects all obligations and complied in all material respects with all
covenants and conditions required by this Agreement to be performed or complied
with by Purchaser at or prior to the Closing Date.
(C) NO LEGAL PROCEEDINGS. No injunction shall have been obtained, and no
suit, action or other proceeding shall be pending before any court or
governmental agency, in which it is sought to restrain or prohibit the
consummation of the transactions contemplated hereby, or in which it is sought
to obtain damages in connection therewith, or involving a claim that the
consummation of the transactions contemplated hereby would result in a violation
of any law, decree or regulation of any government or agency thereof having
jurisdiction. There shall not have been enacted, voted or promulgated by any
legislative or administrative body having jurisdiction any legislation, ruling
or decree which in the reasonable judgment of Sellers would be materially
prejudicial to Sellers with respect to the transactions contemplated by this
Agreement.
(D) STATUTORY REQUIREMENTS. All other statutory requirements for the valid
consummation by Sellers of the transactions contemplated by this Agreement shall
have been fulfilled; all authorizations, consents and approvals of all federal,
state and local governmental agencies and authorities required to be obtained in
order to permit consummation by Sellers of the transactions contemplated by this
Agreement shall have been obtained and shall be in full force and effect.
(E) APPROVAL OF DOCUMENTS. The form and substance of all certificates,
instruments, opinions and other documents delivered or to be delivered to
Sellers under this Agreement shall be satisfactory in all reasonable respects to
Sellers and their counsel.
Sellers may waive any or all of the foregoing conditions in whole or in part
only in writing but without prior notice; provided, however, that no such waiver
of a condition shall constitute a waiver by Sellers of any other conditions or
of their other rights or remedies, at law or in equity, if Purchaser shall be in
default of any of its representations, warranties, covenants or agreements under
this Agreement.
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ARTICLE VII
THE CLOSING
7.1. TIME AND PLACE. Delivery of the Purchase Price by Purchaser to
Sellers, and the transfer of the Subject Shares by Sellers to Purchaser, and the
other transactions contemplated hereby (the "Closing") shall take place at the
offices of Fouts & Moore in Houston, Texas, at or about 10:00 a.m. on the
Closing Date, or at such other location as Purchaser and Mr. Olivier may agree.
7.2. SELLERS' DELIVERIES. At or before the Closing, Sellers shall deliver
or cause to be delivered to Purchaser:
(a) All of the stock certificates evidencing the Subject Shares,
together with irrevocable stock powers in form and content acceptable to
Purchaser, duly authorized and executed by the record holder of each such
stock certificate;
(b) Employment Agreement in form mutually acceptable to the Company
and Mr. Olivier, duly executed by Mr. Olivier (the "Olivier Employment
Agreement");
(c) An opinion of counsel issued by Foley & Lardner, counsel for
Sellers, in form and content reasonably satisfactory to Purchaser and
Purchaser's counsel;
(d) Certificate in form and substance satisfactory to Purchaser,
dated the Closing Date and executed by all of the Sellers, stating that
after due inquiry, each of them has determined that (1) all of the Sellers
representations and warranties set forth in ARTICLE III of this Agreement
are true, complete and correct as of the Closing Date, (2) Sellers have
performed all of the covenants and agreements to be performed by Sellers
pursuant to ARTICLE V of this Agreement, and (3) all conditions to Closing
set forth in SECTION 6.1 of this Agreement have been satisfied;
(e) Copies of all agreements under which the Trust is organized, and
pursuant to which the Trustee receives compensation, certified by the
Trustee as being true complete and correct, together with such consents,
approvals and authorizations as may be required thereunder;
(f) Trust Termination Agreement, duly executed by the parties
thereto, if not delivered previously, together with copies of the canceled
Voting Trust certificates;
(g) Resignations of all officers and directors of the Company;
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(h) The certificates of existence, good standing and authority of
the Company as contemplated in SECTION 3.1 of this Agreement;
(i) Such consents, waivers, estoppel letters, lien releases or
similar documentation as Purchaser shall request, in Purchaser's sole
discretion, in connection with the transfer of the Subject Shares; and
(j) All other items required to be delivered hereunder or as may be
reasonably requested which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Sellers' representations and warranties set forth herein.
In addition, Sellers will put Purchaser into full possession and enjoyment of
the Company and the Business, and the Company shall be in full possession of the
Assets, the Leased Assets and all documents, books, records, agreements, and
financial data of any sort relating to the Business, immediately upon the
occurrence of the Closing.
7.3. PURCHASER'S OBLIGATIONS. At the Closing, Purchaser will deliver or
cause to be delivered to Sellers, the following:
(a) Wire Transfers of funds in the aggregate amount of the Purchase
Price, in accordance with written instructions to be delivered at least
twenty-four (24) hours prior to Closing;
(b) The Olivier Employment Agreement, duly executed by the Company;
(c) An opinion of counsel issued by Boyer, Ewing & Harris
Incorporated, counsel for Purchaser, in form and content reasonably
satisfactory to Sellers and Sellers' legal counsel;
(d) Certificate in form and substance satisfactory to Sellers, dated
the Closing Date and executed by Purchaser, stating that after due
inquiry, Purchaser has determined that (1) all of Purchaser's
representations and warranties set forth in ARTICLE IV of this Agreement
are true, complete and correct as of the Closing Date, and (2) all
conditions to Closing set forth in SECTION 6.2 of this Agreement have been
satisfied;
(e) Certified resolutions of the Board of Directors of Purchaser, in
form and content reasonably acceptable to Sellers, authorizing the
transactions contemplated herein; and
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(f) All other items required to be delivered hereunder or as may be
requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Purchaser's representations and warranties set forth
herein.
7.4. FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. Each Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further stock powers, deeds, bills of sale,
assignments and other assurances, documents and instruments of transfer,
reasonably requested by Purchaser, and will take any other action consistent
with the terms of this Agreement that may reasonably be requested by Purchaser,
for the purpose of assigning and confirming to Purchaser all of the Subject
Shares, or if necessary, any of the Assets.
ARTICLE VIII
TERMINATION OF OBLIGATIONS, WAIVERS
OF CONDITIONS AND PAYMENT OF EXPENSES
8.1. TERMINATION OF AGREEMENT. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated herein may be
terminated at any time prior to Closing, as follows, and in no other manner:
(A) MUTUAL CONSENT. By mutual written consent of Purchaser and Sellers;
(B) EXPIRATION DATE. By either Purchaser or Sellers if Closing shall not
have occurred on or before March 31, 1997 (as same may be extended by mutual
agreement of the Purchaser and Sellers), provided, however, that the Party
seeking to terminate shall be in compliance with all of such Party's covenants
and obligations hereunder.
(C) PURCHASER'S OPTION. By the Board of Directors of Purchaser at any time
after the Closing Date (as same may be extended by mutual agreement of the
Purchaser and Sellers) if, by that date, the conditions set forth in SECTION 6.1
hereof have not been met, provided, however, that the failure to meet such
conditions was not caused by the failure of Purchaser to perform any of its
covenants or obligations hereunder.
(D) SELLERS' OPTION. By any Seller at any time after the Closing Date (as
same may be extended by mutual agreement of the Purchaser and Sellers) if, by
that date, the conditions set forth in SECTION 6.2 hereof have not been met,
provided, however, that the failure to meet such conditions was not caused by
the failure of any Seller to perform any of his or its covenants or obligations
hereunder.
8.2. PAYMENT OF EXPENSES; WAIVER OF CONDITIONS. In the event that this
Agreement shall be terminated pursuant to SECTION 8.1, all obligations of the
Parties under this Agreement
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shall terminate and there shall be no liability of any Party to another (except
by reason of default hereunder which has not been waived). Absent such default,
each Party will pay all costs and expenses incident to such Party's negotiation
and preparation of this Agreement and all documents, instruments and agreements
relating to the transactions contemplated herein, and such Party's performance
of and compliance with all agreements and conditions contained herein or therein
on such Party's part to be performed or complied with, including the fees,
expenses and disbursements of such Party's counsel, auditors and investment
bankers. If any of the conditions specified in SECTION 6.1 have not been
satisfied, Purchaser may nevertheless elect to waive such conditions and proceed
with the transactions contemplated hereby and, if any of the conditions
specified in SECTION 6.2 have not been satisfied, Sellers may nevertheless elect
to waive such conditions and proceed with the transactions contemplated hereby.
Any such waiver and election shall be evidenced by a written instrument executed
by the President of Purchaser and all of the Sellers, setting forth with
particularity the condition which has been waived.
ARTICLE IX
INDEMNIFICATION, ADJUSTMENT TO
PURCHASE PRICE AND OTHER REMEDIES
9.1. INDEMNIFICATION.
A. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Sellers and
Purchaser shall survive the Closing hereunder (notwithstanding any investigation
by or on behalf of Seller or Purchaser) and continue in full force and effect
thereafter subject only to the applicable statute of limitations; provided,
however, that the Class B Representations shall survive the Closing hereunder
and continue in full force and effect for a period of three (3) years
thereafter, and the Class C Representations shall survive the Closing hereunder
and continue in full force and effect for a period of one (1) year thereafter.
B. INDEMNIFICATION PROVISIONS FOR BENEFIT OF PURCHASER.
(i) In the event of any breach by any Seller of any of his, her or
its representations, warranties or covenants contained herein, and, if there is
an applicable survival period pursuant to SECTION 9.1(A) above, provided that
Purchaser makes a written claim for indemnification against any of the Sellers
within such survival period, then each of the Sellers agrees to indemnify
Purchaser from and against the entirety of any Adverse Consequences Purchaser
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences Purchaser may suffer after the end of any
applicable period) resulting from, arising out of, relating to, in the nature
of, or caused by the breach, regardless of whether such Seller also breached
his, her or its representations, warranties or covenants; subject, however, to
the following limitations: (a) the Sellers shall not have any obligation to
indemnify Purchaser from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by the breach until
Purchaser has suffered Adverse Consequences by reason of all such breaches in
excess of a One Hundred Thousand Dollars ($100,000) aggregate deductible,
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and (b) after Purchaser has suffered Adverse Consequences in the amount of such
deductible, the Sellers will be obligated to indemnify Purchaser from and
against further such Adverse Consequences up to an aggregate amount of One
Million Dollars ($1,000,000). The Parties hereby acknowledge and agree that
Purchaser may only bring a claim for Adverse Consequences under SECTION
9.1(B)(i)(b) if such claim is, individually, in an amount equal to at least Five
Thousand Dollars ($5,000).
(ii) Notwithstanding the foregoing or any provision hereof to the
contrary, (a) Mr. Siegel and Mrs. Siegel shall be jointly and severally liable
with respect to their collective liability for any breach of any representation
or warranty by Mr. Olivier hereunder, and (b) the indemnification liability of
the Sellers hereunder shall (except between the Siegels themselves) be several,
and not joint and several, and the amount of the indemnification liability of
each of the Sellers shall be that percentage of the total amount of the
indemnification liability of all the Sellers as follows:
Mr. Olivier 20%
Mr. Siegel and Mrs. Siegel
(jointly and severally) 80%
Trustee 0%
C. INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. In the
event Purchaser breaches any of its representations, warranties and covenants
contained herein, provided that any of the Sellers makes a written claim for
indemnification against Purchaser prior to the expiration of the applicable
statute of limitations, then Purchaser agrees to indemnify each of the Sellers
from and against the entirety of any Adverse Consequences the Seller may suffer
through after the date of the claim for indemnification resulting from, arising
out of, relating to, in the nature of, or caused by the breach.
D. MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party ( the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this SECTION 9.1, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to assume the
defense of the Third Party Claim with counsel of his or its choice reasonably
satisfactory to the Indemnified Party at any time within fifteen (15) days after
the Indemnified Party has given notice of the Third Party Claim; provided,
however, that the Indemnifying Party must conduct the defense of the Third Party
Claim actively and diligently thereafter in order to preserve its rights in this
regard; and
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provided further that the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third Party
Claim.
(iii) So long as the Indemnifying Party has assumed and is
conducting the defense of the Third Party Claim in accordance with SECTION
9.1(D)(ii) above, (a) the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be withheld
unreasonably) unless the judgment or proposed settlement involves only the
payment of money damages by one or more of the Indemnifying Parties and does not
impose an injunction or other equitable relief upon the Indemnified Party, and
(b) the Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably).
(iv) In the event none of the Indemnifying Parties assumes and
conducts the defense of the Third Party Claim in accordance with SECTION
9.1(D)(ii) above, or the Third Party Claim involves an injunction or other
equitable relief, however, (a) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner he or it reasonably may deem appropriate
(and the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith) and (b) the Indemnifying Parties
will remain responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by the Third Party Claim to the fullest extent provided in this SECTION 9.1.
E. DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall make
appropriate adjustments for tax consequences and insurance coverage and take
into account the time value of money (using the per annum rate of Eight Percent
(8.0%) as the discount rate) in determining the Adverse Consequences for
purposes of this SECTION 9.1.
F. OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant; provided, however, that Purchaser acknowledges and agrees
that the foregoing indemnification provisions in this SECTION 9.1 shall be the
exclusive remedy of Purchaser for any breach of the representations and
warranties in SECTION 3 above. Each of the Sellers hereby agrees that he or it
will not make any claim for indemnification against the Company by reason of the
fact that he or it was a director, officer, employee or agent of any such entity
or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim is pursuant to any
statute, charter document, bylaw, agreement, or otherwise) with respect to any
action, suit, proceeding, complaint, claim, or demand brought by Purchaser
against such Seller (whether such action, suit, proceeding, complaint, claim, or
demand is pursuant to this Agreement, applicable law, or otherwise).
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G. THIRD PARTY CLAIMS. The provisions of this SECTION 9.1 are not
limited to matters asserted by the Parties, but cover costs, losses,
liabilities, damages, lawsuits, claims and expenses incurred in connection with
third party claims. The indemnity hereunder is in addition to any and all rights
and remedies of the Parties in connection herewith.
9.2. POST-CLOSING ADJUSTMENT TO PURCHASE PRICE. Within thirty (30) days
after the Closing Date, Mr. Olivier shall deliver to Purchaser an unaudited
balance sheet and income statement of the Business, prepared as of February 28,
1997 (the "Post-Closing Financial Statements"), which shall be true, complete
and correct in all respects and prepared in accordance with generally accepted
accounting principles, consistently applied, and certified as true, complete and
correct by Sellers. These Post-Closing Financial Statements shall become final
and binding on the Parties on the 15th day following receipt thereof by
Purchaser unless Purchaser furnishes written notice of Purchaser's disagreement
("Notice of Disagreement") to Mr. Olivier prior to such date. Any Notice of
Disagreement shall specify in detail the nature of any disagreement so asserted.
If a Notice of Disagreement is sent by Purchaser to Mr. Olivier in accordance
with this SECTION 9.2, then the Post-Closing Financial Statements shall become
final and binding upon the Parties on the earlier to occur of: (i) the date the
Parties resolve in writing any differences they have with respect to any matter
specified in the Notice of Disagreement, or (ii) the date any disputed matters
are finally resolved in writing by the Accounting Firm (as defined below).
During the 10-day period following the delivery of a Notice of Disagreement, the
Parties shall seek in good faith to resolve in writing any differences which
they may have with respect to any matter specified in the Notice of
Disagreement. If, at the end of such 10-day period (or such longer period of
time as the Parties may agree upon in writing), the Parties have not reached
agreement on such matters, the matters which remain in dispute, together with
copies of this Agreement, the Post-Closing Financial Statements, and the Notice
of Disagreement, shall be submitted, within five (5) days following the
expiration of such 10-day period (or any agreed upon extension thereof), to
Deloitte & Touche, or, if such firm is unable or unwilling to act, such other
nationally recognized independent public accounting firm as shall be agreed upon
by the Parties in writing (the "Accounting Firm") for review and resolution. All
proceedings conducted by the Accounting Firm shall be conducted at the offices
of the Accounting Firm in Orlando, Florida. The Accounting Firm shall render a
decision resolving the matters in dispute as soon as practicable following the
date of the submission to the Accounting Firm. The cost of any review or
resolution (including the fees of the Accounting Firm but excluding the fees and
disbursements of each party's independent auditors and counsel) pursuant to this
SECTION 9.2 shall be borne one-half by Purchaser and one-half by Sellers. The
fees and disbursements of Sellers' independent auditors and counsel incurred in
connection with this SECTION 9.2 shall be borne by Sellers, and the fees and
disbursements of Purchaser's independent auditors and counsel incurred in
connection with this SECTION 9.2 shall be borne by Purchaser. The Post-Closing
Financial Statements, upon becoming final due to lack of objection, written
agreement, or arbitration, or in any other manner, are referred to herein as the
"Final Post-Closing Financial Statements". To the extent that the net book value
of the Company set forth in the Final Post-Closing Financial Statements (after
giving effect to the Permitted Distributions) is less than Two Million Dollars
($2,000,000), then the Purchase Price shall be reduced by the amount of such
deficiency (the "Deficiency Amount"), and Sellers hereby jointly and severally
agree to deliver to Purchaser,
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within three (3) business days after the date on which the Post-Closing
Financial Statements become final (time being of the essence), cash or other
immediately available funds in an amount equal to the Deficiency Amount.
9.3. SPECIFIC PERFORMANCE. Each of the Parties hereby acknowledges and
agrees that the transactions contemplated by this Agreement are unique, and that
it would be impossible to measure the damages which would result if any Party
should default in such Party's obligations under this Agreement; accordingly the
Parties hereby agree that each Party shall have, in addition to any other legal
or equitable remedy available to such Party, the right to enforce this Agreement
by decree of specific performance or other equitable remedy, and each Party
hereby irrevocably waives any defense, claim or assertion that a remedy in
damages will be adequate.
9.4. OFFSET; ATTORNEYS' FEES. To the extent permitted by applicable law,
all amounts due and owing to any Seller under this Agreement or any document,
instrument, or agreement executed in connection herewith or therewith shall be
subject to offset by the Purchaser to the extent of any damages incurred as a
result of any Seller's breach of this Agreement or any document, instrument, or
agreement executed by any Seller in connection herewith. Each Seller hereby
acknowledges and agrees that but for the right of offset contained in this
SECTION 9.4, the Purchaser would not have entered into this Agreement or any of
the transactions contemplated herein. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing Party or Parties shall be entitled
to recover reasonable attorneys' fees and other costs incurred in that action or
proceeding in addition to any other remedies to which such Party or Parties may
be entitled at law or equity. The rights and remedies granted herein are
cumulative and not exclusive of any other right or remedy granted herein or
provided by law.
9.5. RIGHTS AND LIABILITIES OF PARTIES. Except as set forth in SECTION 9.1
with respect to certain indemnified third parties, nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the Parties and their
respective successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
Party to this Agreement, nor shall any provision give any third person any right
of subrogation or action over against any Party to this Agreement.
9.6. SECTION 338(h)(10) ELECTION. At the request of Purchaser, the
Sellers shall consent to a Section 338(h)(10) election under the Code, and shall
join with Purchaser in making such election; provided that, as a condition to
such consent, Purchaser shall deliver to Sellers in exchange for any required
forms executed by Sellers, cash in an amount sufficient to pay the Sellers' Tax
Differential (as defined below). Sellers shall have no liability for the failure
of any shareholders of the Company, other than the Sellers, to consent to such
election, and shall return to Purchaser immediately any payment of the Sellers'
Tax Differential if Purchaser ultimately does not make the election. Purchaser
acknowledges that (i) the Company elected to be taxed as an S corporation under
the Code in 1990, and prior to such time was taxed as a C corporation,
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and (ii) the Company has a built-in gain of approximately $907,000. The
Purchaser agrees that the Sellers shall not be liable for income taxes with
respect to such built-in gain and Purchaser will indemnify, reimburse and defend
Sellers with respect to any such taxes.
For purposes of this Section, Sellers' Tax Differential shall be
determined as follows:
(a) Sellers' tax liability with respect to the sale of stock
pursuant to this Agreement shall be determined (the "Stock Sale Taxes").
(b) Sellers' tax liability as a result of the Section 338(h)(10)
election shall be determined (the "Asset Sale Taxes").
(c) The excess of Asset Sale Taxes over the Stock Sale Taxes shall
be "grossed up" so that Sellers shall not incur any additional tax
liability, and the aggregate grossed up amount shall be paid to Sellers as
contemplated above.
The amount of the Sellers' Tax Differential shall be calculated based on the
provisions of the Code applicable on the date of Sellers' consent. The Sellers'
Tax Differential shall be redetermined and paid to the appropriate Party if the
provisions of the Code are modified and any Party suffers a tax consequence as a
result of such modification. By way of example, but not of limitation, the
amount shall be redetermined and any difference paid to the appropriate Party if
the Code is revised with respect to capital gains tax treatment.
The Sellers' Tax Differential shall be determined by a cut-off as of the
Closing Date.
9.7. POST-CLOSING TAX MATTERS. The Purchaser shall cause the Company's
1996 and 1997 tax returns to be prepared and filed and the required Form K-1
statements to be furnished to the Sellers at no cost or expense to Sellers.
Except as required by applicable law, the Purchaser shall not without the
consent of the Sellers, and the Sellers shall not without the consent of the
Purchaser, (i) cause or permit the amendment of any of the Company's tax returns
with respect to any periods ended on or before the Closing Date, nor (ii) take
any other action which would reopen any such tax returns or tax periods. In
addition, Purchaesr shall not cause or permit the Company to extend the time for
any audit or examination of any such tax returns or tax periods without the
consent of the Sellers. In the event that the Permitted Distribution in clause
(ii) of Section 1.39 is not sufficient to enable the Sellers to pay their 1997
federal income tax liability associated with their ownership of the Subject
Shares, the Purchaser shall pay or cause the Company to pay the insufficiency to
the Sellers, and if excessive, the Sellers shall repay the excess to the
Company. The "tax matters person" for the beneficial owners of the shares of the
Company prior to Closing is David A. Siegel, or in the alternative, Bettie
Siegel, until changed in accordance with the provision of the Code.
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ARTICLE X
MISCELLANEOUS
10.1. CONFIDENTIALITY. Unless and until Closing has occurred, or such
information is or becomes public through no fault of the disclosing Party, each
Party hereby agrees that he or it will not disclose any information of a
confidential or proprietary nature concerning the other Parties or their
respective businesses or operations to any third parties, except for the
following, each of whom shall be informed of the confidential nature of such
information and the necessity to retain it in confidence: (A) Purchaser's
officers, directors, and employees, (B) a limited number of outside legal,
accounting and other professional consultants or key agents, (C) the bank
lenders of the Company and the Purchaser, (D) Purchaser's investment bankers and
underwriters, and their respective attorneys and advisors, and (E) such other
parties to whom such Party is required to disclose such information under
applicable law, pursuant to the advice of legal counsel for such Party, in which
event the disclosing Party shall (i) give prior written notice to the other
Parties of the disclosing Party's legal obligation to disclose such information,
including the person(s) to whom such information is legally required to be
disclosed, and (ii) disclose only the portion of such information which the
disclosing Party reasonably believes, on the advice of legal counsel, is legally
required to be disclosed. Each Party agrees that prior to Closing, he or it and
all of his or its Affiliates will use information obtained in connection with
the transactions contemplated in this Agreement solely for the purpose of
evaluating such transactions, and in no event shall any Party use any of such
confidential or proprietary information for his or its own benefit or to the
detriment of the other Parties. In the event that Closing does not occur each
Party shall, promptly upon request, return all of such confidential or
proprietary information to the appropriate Party, including any and all copies
thereof.
10.2. ANNOUNCEMENTS. Except as contemplated in SECTION 10.1, no public or
private announcement or disclosure shall be made by the Company or the Sellers
of the transactions contemplated herein without the prior written consent of the
Purchaser. None of the Parties nor their respective Affiliates shall publicly
disclose (whether by press release or filing of a report or disclosure with any
securities exchange or governmental authority) the matters contemplated hereby,
except as expressly contemplated herein, unless and until the Party proposing
such announcement or disclosure shall have supplied the proposed text of such
announcement or disclosure to the other Parties for review and comment at least
twenty-four (24) hours prior to release; provided however, that if in the good
faith opinion of legal counsel to the announcing or disclosing Party, such
announcement or disclosure is required under applicable federal or state law to
be made sooner, a copy of such announcement or disclosure shall be made
available to all other Parties as soon as possible, but in any event prior to
release.
10.3. BROKERAGE COMMISSIONS AND OTHER FEES. Sellers hereby represent and
warrant that neither the Sellers nor the Company has incurred any liability for,
nor knows of any person or entity entitled to, any commission or finder's fee in
connection with this Agreement or the transactions contemplated herein.
Purchaser hereby represents and warrants that Purchaser has not incurred any
liability for, and does not know of any person or entity entitled to, any
commission or finder's fee in connection with this Agreement or the transactions
contemplated
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herein. Each Party shall be responsible for all costs, fees and expenses
(including attorney and accountant fees and expenses) paid or incurred by such
Party, and Sellers shall be responsible for all costs, fees and expenses paid or
incurred by the Sellers or the Company, in connection with the preparation,
negotiation, execution, delivery and performance of this Agreement, or otherwise
in connection with the transactions contemplated hereby.
10.4. ATTORNEYS' FEES. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing Party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it may be entitled at law or equity.
10.5. MODIFICATION OF AGREEMENT. This Agreement may be amended or modified
only in writing signed by all of the Parties.
10.6. NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed during regular
business hours during a business day to the appropriate location described in
the preamble to this Agreement, or three (3) business days after posting thereof
by United States first-class, registered or certified mail, return receipt
requested, with postage and fees prepaid and addressed the appropriate Party's
address set forth in the preamble to this Agreement, with a copy to legal
counsel for such Party, at the address set forth on the letterhead on which such
counsel's legal opinion was delivered. Any Party may designate a different
address for subsequent notices or communications by furnishing notice to the
other Parties in the manner described above.
10.7. ADDITIONAL REMEDIES. All rights and remedies of each Party hereunder
are cumulative of every other right or remedy that such Party may otherwise have
at law or in equity or under this Agreement or any other document, instrument or
agreement. The exercise of one or more rights or remedies shall not prejudice or
impair the concurrent or subsequent exercise of other rights or remedies.
10.8. NON-WAIVER. Failure on the part of a Party in any one or more
instances to enforce any of such Party's rights which arise in connection with
this Agreement, or to insist upon the strict performance of any of the terms,
conditions or covenants of this Agreement, shall not be construed as a waiver or
relinquishment for the future of any such rights, terms, conditions or
covenants. No waiver of any condition of this Agreement shall be valid unless it
is in writing, and executed by the Party against whom such waiver is sought to
be enforced. Any valid waiver shall be effective only for the purposes expressly
set forth therein.
10.9. GOVERNING LAW; JURISDICTION; VENUE; SERVICE OF PROCESS. This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Florida, without regard to conflicts of law principles, and
the laws of the United States applicable
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in Florida. Venue for any litigation between or among the Parties with respect
to the subject matter of this Agreement shall be Orange County, Florida (and if
it has or can acquire jurisdiction, in the United States District Court for the
Middle District of Florida). Each Party hereby irrevocably submits to personal
jurisdiction in Florida, and irrevocably waives all objections to personal
jurisdiction in Florida and venue in Orange County for purposes of such
litigation. Process in any action or proceeding referred to in this section may
be served on any Party anywhere in the world.
10.10. CONSTRUCTION. The Parties and their respective legal counsel have
participated extensively in the preparation, negotiation and drafting of this
Agreement. Accordingly, no presumption will apply in favor of any Sellers or
Purchaser in the interpretation of this Agreement or in the resolution of the
ambiguity of any provision hereof. All words used herein shall be construed to
be of such gender or number as the circumstances require. As used herein the
term "this Agreement" shall mean this Agreement as a whole and as the same may,
from time to time hereafter, be amended, supplemented or modified. The words
"herein," "hereof," "hereto," "hereunder," "hereinafter," "hereinabove," and
"hereinbelow," and other words of similar import, refer to this Agreement as a
whole and not to any particular article, section, paragraph, clause or other
subdivision hereof, unless otherwise specifically noted. As used herein, the
words "include" or "including" shall mean "including without limitation."
10.11. HEADINGS. The headings and subheadings of the Articles and Sections
contained herein or on any Schedule or Exhibit attached hereto are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement or any provisions hereof. Any reference herein to an Article
or Section shall be deemed to be a reference to the corresponding Article or
Section of this Agreement unless otherwise stated herein.
10.12. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective, valid and enforceable
under applicable law, but if any provision of this Agreement shall be prohibited
by, or invalid or unenforceable under, applicable law, then (i) the Parties
agree that they will amend such provisions by the minimal amount necessary to
bring such provisions within the ambit of enforceability, and (ii) any court of
competent jurisdiction may, at the request of either Party, revise, reform or
reconstruct such provisions in a manner sufficient to cause them to be
enforceable. In no event shall any prohibition against, or the invalidity or
unenforceability of, any provision hereof affect the validity or enforceability
of any other provision hereof.
10.13. SCHEDULES AND EXHIBITS. All schedules and exhibits attached to this
Agreement are hereby incorporated into and made a part of this Agreement.
10.14. FURTHER ASSURANCES. Each of the Parties shall perform such actions
and deliver or cause to be delivered any and all such documents, instruments and
agreements as the other Party may reasonably request for the purpose of fully
and effectively carrying out this Agreement and the transactions contemplated
hereby.
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10.15. SUCCESSORS AND ASSIGNS. None of the Parties may assign their
rights, duties or obligations under this Agreement to any third party without
the written consent of the other Parties; provided, however, that Purchaser may
assign any or all of its rights, duties and obligations under this Agreement to
any corporation, whether now existing or formed hereafter, that is wholly owned
by Purchaser, for the purpose of reincorporating or reorganizing Purchaser. This
Agreement shall inure to the benefit of and be binding upon the Parties and
their respective successors and assigns.
10.16. ENTIRE AGREEMENT. This Agreement and all of the documents and
agreements executed in connection herewith set forth the entire agreement
between and among the Parties with respect to the subject matter hereof, and
supersede all prior or contemporaneous oral agreements or understandings, and
all prior written agreements, with respect thereto. There are no oral agreements
between or among the Parties.
10.17. MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which together shall constitute but one and the same agreement.
10.18. FULL EXECUTION. This Agreement shall not be binding on any Party
until this Agreement has been fully executed by the Parties, and the Trust
Termination Agreement has been fully executed by all of the parties thereto.
EXECUTED AND DELIVERED EFFECTIVE as of the date first written above.
PURCHASER:
THE SAFE SEAL COMPANY, INC.
a Texas corporation
By: ___________________________
ROGER L. MILLER,
Chairman of the Board
SELLERS:
_______________________________
PLINY L. OLIVIER, Individually
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_______________________________
DAVID A. SIEGEL, Individually
_______________________________
BETTIE SIEGEL, Individually
THE DAVID A. SIEGEL - GSV VOTING TRUST
By: ___________________________
Philip C. Grace, Trustee
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EXHIBIT A
Agreement for Termination of Voting Trust
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SCHEDULES
Schedule 1.4 - Assets
Schedule 1.5 - Audited Financial Statements
Schedule 2.2 - Sellers' Respective Ownership Interests
Schedule 3.3 - (A) Sellers' Consents and Approvals
Schedule 3.3 - (B) Sellers' Breaches and Defaults
Schedule 3.5 - Options, etc; Assumed Names
Schedule 3.7 - Exceptions to Title to Assets
Schedule 3.8 - Leased Assets (Personal Property)
Schedule 3.9 - Condition of Assets and Leased Assets
Schedule 3.10 - Contracts
Schedule 3.11 - Other Contracts
Schedule 3.12 - Exceptions to Title to Equipment
Schedule 3.15 - Licenses
Schedule 3.16 - Intellectual Property
Schedule 3.17 - (A) Real Property Owned
Schedule 3.17 - (B) Real Property Leased
Schedule 3.17 - (C) Parties in Possession
Schedule 3.19 - Insurance
Schedule 3.20 - Banking
Schedule 3.22 - Personnel
Schedule 3.23 - Employee Benefits
Schedule 3.24 - Employment Agreements
Schedule 3.26 - Additional Liabilities
Schedule 3.27 - Litigation
Schedule 3.28 - Tax Returns
Schedule 3.30 - Environmental, Health and Safety
Schedule 3.32 - Certain Changes or Events
Schedule 3.33 - Customers
Schedule 4.3 - Purchaser's Consents
42
EXHIBIT 2.6
STOCK AND REAL ESTATE PURCHASE AGREEMENT
THIS STOCK AND REAL ESTATE PURCHASE AGREEMENT (the "Agreement") is
entered into effective the 22nd day of May 1997, by and among THE SAFE SEAL
COMPANY, INC. ("Purchaser"), a Texas corporation with its chief executive office
at 14900 Woodham Drive, Suite A125, Houston, Texas 77073, CURRY B. WALKER ("MR.
WALKER"), an individual whose address is 2185 Leonard Road, Sulphur, Louisiana
70663, NOLLIE J. WALKER ("MS. WALKER"), an individual whose address is 2185
Leonard Road, Sulphur, Louisiana 70663, DEBORAH ELAINE RENFROE ("MS. RENFROE"),
an individual whose address is 3398 Miller Loop, Sulphur, Louisiana 70663, CURRY
B. WALKER III ("MR. WALKER III"), an individual whose address is 4781 Madrid
Drive, Sulphur, Louisiana 70663, CHERYL LYNN MOUTON ("MS. MOUTON"), an
individual whose address is 2023 Louise Street, Sulphur, Louisiana 70663, LAURA
ANN THOMAS ("MS. THOMAS"), an individual whose address is 7021 Barnacle,
Sulphur, Louisiana 70663, (Mr. Walker, Ms. Walker, Ms. Renfroe, Mr. Walker III,
Ms. Mouton and Ms. Thomas being sometimes hereinafter referred to collectively
as the "SELLERS" and individually as a "SELLER") and PLANT SPECIALTIES, INC., a
Louisiana corporation (THE "COMPANY"), with its chief executive office and
principal place of business at 215 N. Beglis Parkway, Sulphur, Louisiana 70663.
Purchaser, Sellers and the Company are sometimes hereinafter referred to
collectively as the "Parties" or individually as a "Party."
W I T N E S S E T H :
WHEREAS, Sellers are the legal and beneficial owners and holders of One
Million (1,000,000) shares (the "Subject Shares") of the Company, the Subject
Shares constituting all of the issued and outstanding capital stock of the
Company; and
WHEREAS, Purchaser desires to acquire from Sellers, and Sellers desire
to sell to Purchaser, all of the Subject Shares, on the terms and conditions and
for the consideration set forth in this Agreement;
WHEREAS, Purchaser desires to acquire from Mr. Walker and Ms. Walker,
and Mr. Walker and Ms. Walker desire to sell to Purchaser, or at the option of
Purchaser upon acquisition of the Subject Shares, to the Company, the Walker
Real Property, as hereinafter defined, on the terms and conditions and for the
consideration set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants,
agreements, representations and warranties contained in this Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and confessed, the Parties hereby agree as follows:
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ARTICLE I
CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 ACCOUNTS. The term "Accounts " shall have the meaning ascribed
thereto in SECTION 3.14.
1.2 ADDITIONAL ACQUISITIONS. The term "Additional Acquisitions" shall
mean the acquisition by Purchaser or one or more Affiliates of several
additional companies prior to the IPO.
1.3 AFFILIATE. The term "Affiliate" of a person shall mean, with respect
to that person, a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or is acting as agent on behalf of, or as an officer or director of, that
person. The Sellers and their spouses are all agreed to be Affiliates of one
another and of the Company. As used in the definition of Affiliate, the term
"control" (including the terms "controlling," "controlled by," or "under common
control with") means the possession, direct or indirect, of the power to direct,
cause the direction of, or influence the management and policies of a person,
whether through the ownership of voting securities, by contract, through the
holding of a position as a partner, director or officer of such person, as a
trustee, or otherwise. As used in this SECTION 1.1, the term "person" means an
individual, a corporation, a partnership, a limited liability company, an
association, a joint stock company, a trust, an incorporated organization, or a
government or political subdivision thereof, or any other form of entity.
1.4 ARBITRATOR. The term "Arbitrator" shall have the meaning ascribed
thereto in SECTION 9.2.
1.5 ASSETS. The term "Assets" shall mean all of the assets, other than
the Leased Assets and the Walker Real Property, used by the Company in the
Business, including without limitation (i) those assets set forth on SCHEDULE
1.5 attached hereto and incorporated herein by reference, and (ii) the
buildings, structures, improvements, fixtures and fittings owned by the Company
and located at the address of the Company set forth in the preamble to this
Agreement.
1.6 AUDITED FINANCIAL STATEMENTS. The term "Audited Financial
Statements" shall mean an audited balance sheet and income statement of the
Company, and all notes thereto, prepared by the Company's outside accountants as
of October 31, 1996.
1.7 BALANCE SHEET DATE. The term "Balance Sheet Date" shall mean October
31, 1996.
1.8 BANK DEBT. The term "Bank Debt" shall mean the indebtedness of the
Company to Bank One, evidenced by the documents, instruments and agreements
referenced in SCHEDULE 3.17.
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1.9 BUSINESS. The term "Business" shall mean the current business of the
Company of (i) selling new valves, instrumentation and engineering and repair
services for valves and instrumentation, and (ii) designing, manufacturing, and
remanufacturing valves, instruments, mounting hardware and engineered products.
1.10 CLOSING. The term "Closing" shall have the meaning ascribed thereto
in SECTION 7.1 hereof.
1.11 CLOSING DATE. The term "Closing Date" shall mean the earliest of
the (i) fifteenth business day following the date of full execution of this
Agreement, (ii) the fifth business day following approval by Philip
Environmental Inc. (as evidenced by a certificate of a duly authorized officer
thereof delivered to the Purchaser) of Allwaste , Inc., a Delaware corporation
and a significant shareholder of Purchaser("Allwaste"), entering into the
obligations of Allwaste set forth in this Agreement or any other agreement to be
entered into by Allwaste or the Company in connection with this Agreement, or
(iii) such other date as may be otherwise provided in this Agreement or
otherwise established by agreement of the Parties.
1.12 CLOSING FINANCIAL STATEMENTS. The term "Closing Financial
Statements" shall mean the most recent available unaudited interim balance sheet
and income statement of the Company existing prior to Closing, and in any event
dated no earlier than March 31, 1997, which balance sheet shall be certified at
Closing by all of the Sellers by execution and delivery of the Closing Financial
Statements Certificates.
1.13 CLOSING FINANCIAL STATEMENTS CERTIFICATE. The term "Closing
Financial Statements Certificate" shall mean the certificate to be executed and
delivered by Sellers at Closing, certifying that the Closing Financial
Statements (i) are true, complete, and correct in all material respects, (ii)
fairly and accurately present the financial position of the Company as of the
periods described therein, and the results of the operations of the Company for
the periods indicated, (iii) have been prepared in accordance with generally
accepted accounting principles, consistently applied (except for certain
footnote disclosures normally required by GAAP, the omission of which, in the
good faith opinion of Sellers, do not cause the Closing Financial Statements to
be materially misleading), and (iv) reflect all necessary eliminating entries
and normal adjustments.
1.14 CODE. The term "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.15 CONTRACTS. The term "Contracts" shall have the meaning ascribed
thereto in SECTION 3.11.
1.16 CONVERTIBLE NOTES. The term "Convertible Notes" shall have the
meaning ascribed thereto in SECTION 2.2(B) hereof.
1.17 DAMAGES. The term "Damages" shall have the meaning ascribed thereto
in SECTION 9.1(A).
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1.18 EBIT. The term "EBIT" shall mean the Company's earnings before
interest and taxes, determined in accordance with GAAP.
1.19 EMPLOYEE. The term "Employee" shall mean any employee of the
Company who as of the Closing Date is employed or otherwise performs work or
provides services in connection with the operation of the Business, including
those, if any, on disability, sick leave, layoff or leave of absence, who, in
accordance with the Company's applicable policies, would be eligible to return
to active status, as set forth on SCHEDULE 3.23 attached hereto.
1.20 EMPLOYEE BENEFIT PLAN. The term "Employee Benefit Plan" means any
(a) nonqualified deferred compensation or retirement plan or arrangement which
is an Employee Pension Benefit Plan, (b) qualified defined contribution
retirement plan or arrangement which is an Employee Pension Benefit Plan, (c)
qualified defined benefit retirement plan or arrangement which is an Employee
Pension Benefit Plan (including any Multiemployer Plan), (d) Employee Welfare
Benefit Plan, or (e) material fringe benefit plan or program.
1.21 EMPLOYEE PENSION BENEFIT PLAN. The term "Employee Pension Benefit
Plan" has the meaning set forth in ERISA Sec. 3(2).
1.22 EMPLOYEE WELFARE BENEFIT PLAN. The term "Employee Welfare Benefit
Plan" has the meaning set forth in ERISA Sec. 3(1).
1.23 EMPLOYMENT AGREEMENT. The term "Employment Agreement" shall have
the meaning ascribed thereto in SECTION 3.25.
1.24 ENVIRONMENTAL, HEALTH & SAFETY LAWS The term "Environmental, Health
& Safety Laws" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976,
the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, the
Hazardous Materials Transportation Act, the Federal Insecticide, Fungicide and
Rodenticide Act and the Occupational Safety and Health Act of 1970, each as
amended, together with all other laws (including rules and regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments and all agencies thereof
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of any solid, hazardous, industrial, or toxic
pollutants, contaminants, substances or wastes into ambient air, surface water,
ground water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of any
solid, hazardous, industrial or toxic pollutants, contaminant, substances or
wastes.
1.25 EQUIPMENT. The term "Equipment" shall have the meaning ascribed
thereto in SECTION 3.13.
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1.26 EXCESS INVENTORY AND EQUIPMENT. The term "Excess Inventory and
Equipment" shall mean all inventory and equipment owned by the Company as of the
Closing which (i) was not used in the Company's fiscal year ended October 31,
1996, to produce the Company's EBIT set forth in the Audited Financial
Statements, and (ii) is not and will not be reasonably necessary or useful to
produce comparable EBIT in fiscal 1997. The Parties hereby acknowledge and agree
that the "Excess Inventory and Equipment" consists principally of equipment
purchased for a potential Baton Rouge location, and the inventory of valves
which have been remanufactured by the company.
1.27 EXCESS INVENTORY AND EQUIPMENT VALUE. The term "Excess Inventory
and Equipment Value" shall mean One Million One Hundred Seventy-Two Thousand and
No/100 Dollars ($1,172,000.00).
1.28 FINAL POST-CLOSING FINANCIAL STATEMENTS. The term "Final
Post-Closing Financial Statements" shall have the meaning ascribed thereto in
SECTION 9.2.
1.29 FTC. The term "FTC" shall have the meaning ascribed thereto in
SECTION 6.1.
1.30 IMPROVEMENTS. The term "Improvements" shall have the meaning
ascribed thereto in SECTION 3.18.
1.31 INTELLECTUAL PROPERTY. The term "Intellectual Property" shall mean
the following assets of the Company (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto
and all patents, patent applications, and patent disclosures together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (d) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information and business and marketing plans and proposals), (e) all computer
software (including data and related documentation), (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
1.32 INVENTORIES. The term "Inventories" shall have the meaning ascribed
thereto in SECTION 3.15.
1.33 IPO. The term "IPO" shall mean an underwritten public offering of
the common stock of Invatec, Inc., an affiliate of the Purchaser, after the
consummation of the transactions contemplated herein.
1.34 LEASED ASSETS. The term "Leased Assets" shall have the meaning
ascribed thereto in SECTION 3.9.
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1.35 LIABILITIES. The term "Liabilities" shall have the meaning ascribed
thereto in SECTION 3.27.
1.36 LICENSES. The term "Licenses" shall have the meaning ascribed
thereto in SECTION 3.16.
1.37 MORTGAGE NOTE. The term "Mortgage Note" shall have the meaning
ascribed thereto in SECTION 2.4 hereof.
1.38 NOTICE OF DISAGREEMENT. The term "Notice of Disagreement" shall
have the meaning ascribed thereto in SECTION 9.2.
1.39 ORDINARY COURSE OF BUSINESS. The term "Ordinary Course of Business"
shall mean the ordinary course of the Company's business consistent with past
custom and practice (including with respect to quantity and frequency).
1.40 PERMITTED EXCEPTIONS. The term "Permitted Exceptions" shall have
the meaning ascribed thereto in SECTION 5.4 hereof.
1.41 PBGC. The term "PBGC" shall mean the Pension Benefits Guaranty
Compensation.
1.42 POST-CLOSING FINANCIAL STATEMENTS. The term "Post-Closing Financial
Statements" shall have the meaning ascribed thereto in SECTION 9.2.
1.43 PREMERGER ACT. The term "Premerger Act" shall have the meaning
ascribed thereto in SECTION 6.1.
1.44 REAL PROPERTY. The term "Real Property" shall have the meaning
ascribed thereto in SECTION 3.18.
1.45 REGISTRATION RIGHTS AGREEMENT. The term "Registration Rights
Agreement" shall have the meaning ascribed thereto in SECTION 7.2.
1.46 SITE ASSESSMENT. The term "Site Assessment" shall have the meaning
ascribed thereto in SECTION 5.6.
1.47 SURVEY. The term "Survey" shall have the meaning ascribed thereto
in SECTION 5.5.
1.48 TITLE COMMITMENT. The term "Title Commitment" shall have the
meaning ascribed thereto in SECTION 5.3.
1.49 TITLE COMPANY. The term "Title Company" shall have the meaning
ascribed thereto in SECTION 5.3.
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1.50 TITLE POLICY. The term "Title Policy" shall have the meaning
ascribed thereto in SECTION 5.4.
1.51 WALKER EMPLOYMENT AGREEMENT. The term "Walker Employment Agreement"
shall have the meaning ascribed thereto in SECTION 7.2.
1.52 WALKER NONCOMPETE AGREEMENT. The term "Walker Noncompete Agreement"
shall have the meaning ascribed thereto in SECTION 7.2.
1.53 WALKER REAL PROPERTY. The term "Walker Real Property" shall mean
those certain tracts or parcels of land being in the aggregate 17.55 acres, more
or less, in Sulphur, Calcasieu Parish, Louisiana, owned by Mr. Walker and Ms.
Walker, individually, and more particularly described on EXHIBIT A, attached
hereto and incorporated herein by reference, a portion of which is more commonly
referred to as 215 N. Beglis Parkway, and all lots, strips, tracts and parcels
adjacent thereto, together with the buildings, structures, improvements,
fixtures, and fittings owned by Mr. Walker and Ms. Walker on any of the
foregoing, and all of Mr. and Ms. Walker's right, title and interest in and to
all oil, gas, coal and other minerals in, on or under such tracts or parcels,
and all rights and appurtenances pertaining to any of the foregoing. The Walker
Real Property does not include the buildings, structures, improvements, fixtures
or fittings owned by the Company which are located on the 17.55 acre tract
referenced above.
1.54 WALKER REAL PROPERTY VALUE. The term "Walker Real Property Value"
shall mean Eight Hundred and Fifty -Two Thousand Five Hundred and Thirty-Six and
NO/100 ($852,536.00).
ARTICLE II
PURCHASE AND SALE OF
SUBJECT SHARES AND WALKER REAL PROPERTY
2.1 PURCHASE AND SALE OF SUBJECT SHARES. Subject to the term and
conditions set forth in this Agreement, Sellers hereby agree to sell, convey,
transfer, assign and deliver to Purchaser, and Purchaser hereby agrees to
purchase, on the Closing Date, the Subject Shares, free and clear of any
restrictions or conditions to transfer or assignment, rights of first refusal,
mortgages, liens, pledges, charges, encumbrances, equities, claims, covenants,
conditions, restrictions, options or agreements.
2.2 STOCK PURCHASE PRICE CONSIDERATION. As consideration for the
purchase of the Subject Shares and upon delivery thereof to Purchaser at Closing
(except for the Cash Down Payment described in Subsection 2.2(A), which shall be
delivered immediately following execution of this Agreement by all of the
Parties), Purchaser shall deliver to Sellers the following (the "Stock Purchase
Price"), which shall be payable to Sellers pro rata in accordance with their
respective percentages of ownership of the Subject Shares as set forth by
Sellers on SCHEDULE 2.2 attached hereto:
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(A) in cash or other immediately available funds, the aggregate amount
(such amount being sometimes hereinafter referred to as the "Cash Down
Payment") of Two Hundred Ninety Six Thousand Eight Hundred and No/100
Dollars ($296,800.00); and
(B) Five (5) Convertible Subordinated Promissory Notes (the "Convertible
Notes") in the aggregate principal amount of Three Million Two Hundred
and Ninety Five Thousand One Hundred and Twenty Five and No/100 Dollars
($3,295,125.00) in the form of the Convertible Subordinated Promissory
Note attached hereto as EXHIBIT B and incorporated herein by reference,
convertible into the stock of Invatec, Inc., which is or will be the
parent of the Purchaser..
In addition, Purchaser shall pay to Mr. Walker at Closing, in cash or
other immediately available funds, the amount of Ten Thousand and No/100 Dollars
($10,000.00), all of which is independent consideration for the execution,
delivery and performance of the Confidentiality and Noncompetition Agreement to
be entered into at Closing between Purchaser and Mr. Walker, pursuant and
ancillary to this Agreement, in the form attached hereto as EXHIBIT C. The
parties acknowledge that the cash portion of the Purchase Price has been reduced
by $3,200 to cover Purchaser with respect to the lien in like amount filed by
"Plant Specialists" with respect to the Real Property. Upon termination or
expiration of such lien, the Purchaser shall promptly remit to the Sellers such
amount less all amounts, if any, required to obtain the release or termination
of such lien, including any ancillary legal fees, filing fees or other third
party costs paid or incurred by Purchaser related to such lien.
2.3 PURCHASE AND SALE OF WALKER REAL PROPERTY. Subject to the terms and
conditions set forth in this Agreement, Mr. Walker and Ms. Walker hereby agree
to sell, convey, transfer, assign and deliver to Purchaser, or at the request of
Purchaser upon acquisition of the Subject Shares, to the Company, and Purchaser
hereby agrees to purchase, or upon acquisition of the Subject Shares, to cause
the Company to purchase, from Mr. Walker and Ms. Walker, on the Closing Date,
the Walker Real Property, free and clear of any restrictions or conditions to
transfer or assignment, rights of first refusal, mortgages, liens, pledges,
charges, encumbrances, equities, claims, covenants, restrictions, easements,
conditions, restrictions, options, agreements or other exceptions to title,
other than the Permitted Exceptions.
2.4 MORTGAGE NOTE; APPRAISAL. As consideration for the purchase of the
Walker Real Property, Purchaser shall deliver to Mr. Walker and Ms. Walker at
Closing a Promissory Note (the "Mortgage Note") in an original principal amount
equal to the sum of (i) the Walker Real Property Value and (ii) $650 which $650
amount represents (x) half of the $4,000 of the cost of the third appraisal
(which half the Company has agreed to bear), (y) minus $1,350 which constitutes
half of the cost of the Title Policy (as such term is defined in Section 5.4),
in the form of the Promissory Note attached hereto as EXHIBIT D and incorporated
herein by reference. The Mortgage Note shall be executed by the grantee of the
Walker Real Property, provided that if the Grantee is the Company, the Purchaser
shall join in the execution of the Mortgage Note as a guarantor.
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2.5 TAXES OF SELLERS. Sellers, Mr. Walker and Ms. Walker shall pay all
income, documentary, transfer, stamp or other taxes or arising out of the
transfer of the Subject Shares or the Walker Real Property, respectively, or
receipt of payments therefor, or any consideration delivered in connection
therewith (including any payments received in connection with the
Confidentiality and Noncompetition Agreement , and any taxes, fees or
assessments relating to the mortgage securing payment of the Mortgage Note).
Neither Purchaser nor the Company shall be responsible for any business,
occupation, income, withholding or similar tax, or any taxes of any kind, of the
Sellers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant, jointly and severally, to
Purchaser that:
3.1 ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Louisiana, has all
necessary corporate powers to own its properties and to operate the Business as
now owned and operated by it, and is qualified to do business in all of the
states in which the Assets or Leased Assets are located or the nature and
operation of the Business require such qualification. Sellers shall deliver at
Closing certificates (i) issued by the Louisiana Secretary of State evidencing
the Company's existence and good standing in the State of Louisiana, and (ii)
issued by the appropriate public authorities evidencing the Company's good
standing and authority to do business in all other states in which the Company
is required to qualify to do business.
3.2 AUTHORITY. Each Seller has the full right, power, legal capacity and
authority to execute, deliver and perform such Seller's obligations under this
Agreement.
3.3 CONSENTS AND APPROVALS; NO BREACH OR DEFAULT. Except as set forth on
SCHEDULE 3.3(A), no consent, approval or authorization of, or filing or
registration with, any governmental or regulatory authority, or any other person
or entity, is required to be made or obtained by any Seller or by the Company in
connection with the execution, delivery or performance of this Agreement, or the
consummation by Sellers of the transactions contemplated hereby. Except as set
forth on SCHEDULE 3.3(B), neither the execution and delivery of this Agreement
by Sellers, nor the consummation of the transactions contemplated herein by
Sellers, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency or court to which any Seller or the Company is
subject, or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under any
agreement, contract, lease, license, instrument, promissory note, conditional
sales contract, partnership agreement or other arrangement to which any Seller
or the Company is a party, or by which any Seller or the Company is bound, or to
which any of their assets are subject, or (C) conflict with or violate the
Articles of Incorporation, Bylaws or other charter document of the Company.
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3.4 VALID AND BINDING OBLIGATION. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Sellers,
or any of them, in connection herewith, will constitute the legal, valid, and
binding obligation of each Seller which is a party thereto, enforceable against
each such Seller in accordance with its terms, except as same may be limited by
applicable bankruptcy laws, insolvency laws, or other similar laws affecting the
rights of creditors generally.
3.5 CAPITAL. The authorized capital stock of the Company consists of two
million (2,000,000) shares of voting common stock, no par value, of which one
million (1,000,000) shares are issued and outstanding, and one million
(1,000,000) shares of non-voting common stock, no par value, none of which is
issued or outstanding. The Company has neither authorized nor issued any
preferred stock. The Subject Shares constitute all of the Company's outstanding
capital stock, and have been duly and validly authorized and issued, and are
fully paid and nonassessable. None of such capital stock has been issued in
violation of the rights of any present or former stockholder of the Company. The
only outstanding subscriptions, options, rights, warrants, convertible
securities, conversion rights, exchange rights or other agreements or
commitments which obligate the Company to issue or transfer from treasury
additional shares of the Company's common stock are set forth in SCHEDULE 3.5.
There are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company or its capital
stock. There are no voting rights, voting agreements, proxies or other
agreements or understandings with respect to the voting of any capital stock of
the Company.
3.6 TITLE TO SUBJECT SHARES. The Sellers have, and shall deliver to
Purchaser at Closing, good, indefeasible and marketable title to the Subject
Shares, free and clear of restrictions or conditions to transfer or assignment,
rights of first refusal, mortgages, liens, pledges, charges, encumbrances,
equities, claims, covenants, conditions, restrictions, options or agreements.
3.7 TITLE TO ASSETS. Except as set forth on SCHEDULE 3.7, the Company
has good, indefeasible and marketable title to the Assets, free and clear of
restrictions or conditions to transfer or assignment, or mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights-of-way,
covenants, conditions or restrictions.
3.8 TITLE TO WALKER REAL PROPERTY. Except as set forth on SCHEDULE 3.8,
Mr. Walker and Ms. Walker have , and shall deliver to Purchaser (or at the
option of Purchaser upon acquisition of the Subject Shares to the Company) at
Closing, good, indefeasible and marketable title to the Walker Real Property,
free and clear of restrictions or conditions to transfer or assignment, rights
of first refusal, or mortgages, liens, pledges, charges, encumbrances, equities,
claims, easements, rights-of-way, covenants, conditions or restrictions.
3.9 POSSESSION OF ASSETS; LEASED ASSETS. The Company is in possession of
all of the Assets, the Walker Real Property and all of the assets leased to the
Company from others. All assets leased to the Company from others, whether real,
personal or mixed, are described on SCHEDULE 3.9 and SCHEDULE 3.18(B) attached
hereto (the "Leased Assets"). The Assets, the Leased Assets and the Walker Real
Property constitute all of the property, whether real, personal, mixed,
tangible, or
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intangible, that is owned or used in the Business by the Company. The Company
does not own legal or equitable title to any assets or interests in assets
except the Assets and the Leased Assets. Sellers shall deliver to Purchaser on
the Closing Date, possession of and/or control or dominion over all of the
Assets, the Walker Real Property and the Leased Assets, including without
limitation all of the Company's cash, accounts receivable, property, plant and
equipment, other personal property, contract rights and general intangibles,
customer and supplier lists, and assumed and trade names.
3.10 CONDITION. Except as expressly set forth on SCHEDULE 3.10, all of
the Assets , the Walker Real Property and the Leased Assets are in good
operating condition and repair, ordinary wear and tear excepted, and, as
applicable, good working order. The Walker Real Property and the buildings,
fixtures, and improvements owned or leased by the Company, including but not
limited to the parking areas, roofs, foundations, plumbing, electrical, air
conditioning, heating and ventilating systems, doors, building exteriors,
landscaping, and interior areas, are in good condition, ordinary wear and tear
excepted, and, as applicable, good working order.
3.11 CONTRACTS AND LEASES. All of the contracts, leases, documents,
instruments, agreements, and other written or oral arrangements to which the
Company is a party or by which the Company or its assets or the Walker Real
Property may be bound (collectively, the "Contracts") are set forth on SCHEDULE
3.11. Except as set forth on SCHEDULE 3.11, all of the Contracts are valid and
in full force and effect, and there has not been any default by the Company or
any third party to any of said Contracts, or any event, fact or circumstance
which with notice or lapse of time or both, would constitute a default by the
Company or any other party to any of the Contracts. Neither the Company nor any
of the Sellers has received notice that any party to any of the Contracts
intends to cancel or terminate any of the Contracts or exercise or not exercise
any options that such party might have under any of the Contracts.
3.12 OTHER CONTRACTS. Except as set forth in SCHEDULE 3.12, the Company
is not a party to, nor is any of its property bound by, any distributor's or
manufacturer's representative or agency agreement, any output or requirements
agreement, any agreement not entered into in the Ordinary Course of Business, or
any agreement requiring the performance of any obligation for a period of time
extending beyond one (l) year from the date hereof or calling for consideration
of more than $3,000 per agreement or $10,000 in the aggregate. The Company is
not a party to, nor is any of its property bound by, any agreement which is
materially adverse to the businesses, properties or financial condition of the
Company. Except as set forth in SCHEDULE 3.12, the Company is not a party to any
agreement which: (i) prohibits it from engaging in the business that it
currently conducts, or upon consummation of the transactions contemplated
herein, will prohibit it from engaging in any type of business, or (ii) will,
upon consummation of the transactions contemplated herein, prohibit Purchaser
from engaging in any type of business.
3.13 EQUIPMENT. Except as set forth on SCHEDULE 3.13, all of the
equipment owned by the Company (collectively, the "Equipment") is owned free and
clear of any lien, security, claim or encumbrance, and none of the Equipment is
held under any security agreement, conditional sales contract, or other title
retention or security arrangement or is located other than in the possession of
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the Company. The Equipment is in good operating condition and repair, ordinary
wear and tear excepted.
3.14 ACCOUNTS RECEIVABLE. All of the accounts receivable of the Company
as set forth in the books and records of the Company (collectively, the
"Accounts"), and all papers and documents relating thereto, are genuine and in
all respects what they purport to be, and each such Account is valid and
subsisting and arises out of a bona fide sale or lease of goods sold or leased
and delivered to, or out of and for services theretofore actually rendered by
the Company to, the account debtor named in such Account. The amount of each
Account represented as owing as of the date indicated (i) is the correct amount
actually and unconditionally owing as of the date indicated, except for normal
cash discounts, (ii) is not subject to any set-offs, credits, disputes,
defenses, deductions or countercharges, and (iii) to the best knowledge of each
Seller, will be paid in the Ordinary Course of Business. The Company is the
owner of each such Account free and clear of any charges, liens, security
interests, adverse claims, and encumbrances of any and every nature whatsoever,
other than the security interests securing payment of the Bank Debt.
3.15 INVENTORIES. The inventories of raw materials, work in process and
finished goods (collectively, the "Inventories") shown on the Audited Financial
Statements, consisted of items of a quality and quantity useable and saleable in
the Ordinary Course of Business by the Company, except for obsolete and slow
moving items and items below standard quality, all of which have been written
down on the books of the Company to estimated net realizable value or have been
provided for by adequate reserves. All items included in the Inventories are the
property of the Company and in its possession, except for sales made in the
Ordinary Course of Business since October 31, 1996; for each of these sales
either the purchaser has made full payment or the purchaser's liability to make
payment is reflected in the books of the Company. No items included in the
Inventories have been pledged as collateral or are held on consignment from
others, except for the pledge thereof securing repayment of the Bank Debt. The
Inventories shown on the Audited Financial Statements or any other balance sheet
or income statement are based on quantities determined by physical count or
measurement, taken within the preceding twelve (12) months, and are valued at
the lower of cost (determined in almost all instances on a last-in, first-out
basis) or market value and on a basis consistent with that of prior years.
3.16 LICENSES. All licenses owned by the Company or in which the Company
has any rights, licenses or sublicenses (collectively, the "Licenses"), together
with a brief description of each, are set forth on SCHEDULE 3.16. The Company
has not infringed, and is not now infringing, on any license belonging to any
other person or other entity. The Company owns and holds adequate licenses
necessary for the Business as now conducted by it, and that use does not, and
will not, conflict with, infringe on or otherwise violate any rights of others.
The Company will continue to enjoy the use and benefit of all of such Licenses,
notwithstanding the sale of the Subject Shares and the Walker Real Property
contemplated herein.
3.17 INTELLECTUAL PROPERTY. All of the Intellectual Property of the
Company is set forth on SCHEDULE 3.17, and except as set forth on SCHEDULE 3.17,
the Company is the sole owner of all of the Intellectual Property, free and
clear of any liens, encumbrances, restrictions, or legal or equitable
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claims of others. The Company has registered the Intellectual Property in all
jurisdictions necessary to evidence and protect its ownership thereof, and to
permit the Company to conduct the Business in the manner in which it is
currently conducted, and has all rights or licenses necessary to use the same.
The Intellectual Property constitutes all of the intellectual property necessary
to the lawful conduct of the Business without any infringement or conflict with
the rights of others, and no adverse claims have been asserted against the
Intellectual Property, the Sellers, the Company or the Business with respect
thereto. All of the patents of the Company are valid and in full force and
effect and are not subject to any taxes, maintenance fees, or actions which have
not been currently paid. None of the Intellectual Property infringes upon any
patents, trade or assumed names, trademarks, service marks, or copyrights
belonging to any other person or other entity. Except as expressly set forth in
SCHEDULE 3.17, the Company is not a party to any license, agreement, or
arrangement, whether as licensor, licensee, or otherwise, with respect to any of
the Intellectual Property. The Company does not have a license or a right to use
any other patents, service marks, trademarks, trade or assumed names, trade
secrets, royalty rights or other proprietary intangibles which is not set forth
on SCHEDULE 3.17.
3.18 REAL PROPERTY; LEASED REAL PROPERTY. Except as set forth in
SCHEDULE 3.18(A) with respect to real property owned by the Company, and
SCHEDULE 3.18(B) with respect to real property leased by the Company (such real
property, including the Walker Real Property, being hereinafter referred to
collectively as the "Real Property"), the Company neither owns nor leases any
real property or improvements or interests therein. Sellers have no information
or knowledge of any change contemplated in any applicable laws, ordinances or
restrictions, or any judicial or administrative action, or any action by
adjacent landowners, or natural or artificial conditions upon the Real Property,
which would have a material adverse effect upon the Real Property, the Business,
the Assets, the Leased Assets or their respective values. There is no zoning,
deed restriction, land use provision or restriction, or other material adverse
fact or condition of any kind or character whatsoever, which adversely affects
the continued use of the Real Property in the manner in which it is currently
used. Except for the Company, there are no parties in possession of any portion
of the Real Property as lessees, tenants at will or at sufferance, trespassers
or otherwise. The improvements included within the Real Property (the
"Improvements") and any renovations thereof have been, or by Closing will be,
substantially completed and installed in compliance with all applicable laws and
in a good and workmanlike manner, and will have no structural defects. The
heating, electrical, plumbing and other building equipment, as of the Closing,
will be adequate in quantity and quality for normal operations of the Business,
as presently conducted. All utilities required for the operation of the
Improvements enter the Real Property through adjoining public streets or, if
they pass through an adjoining private tract, do so in accordance with valid
public easements or private easements which inure to the benefit of and are
enforceable by the Company. The Real Property has full and free access to and
from public streets and roads and Sellers have no knowledge of any fact or
condition which would result in the termination of such access. The Improvements
do not encroach upon any adjacent real property nor any easements or building
set-back lines to which the Real Property is subject, and no improvements upon
adjacent real property encroach upon the Real Property. There is no pending
condemnation or similar proceeding affecting the Real Property or any portion
thereof, and Sellers have no information or knowledge that any such action is
presently contemplated.
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3.19 SUBSIDIARIES. Except as set forth on SCHEDULE 3.19, the Company
does not own, and has never previously owned, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, or other entity.
3.20 INSURANCE. Attached hereto as SCHEDULE 3.20 is a true, complete and
accurate list of all insurance policies maintained by (i) the Company, or (ii)
with respect to Walker Real Property, by Mr. Walker or Ms. Walker (the owner of
each policy being as set forth in SCHEDULE 3.20). The Company maintains (i)
insurance on the Assets (and as applicable, the Leased Assets), the Business and
the Company's operations of such types and in such amounts as are customarily
insured by similar companies in the same industry, covering property damage and
loss of income by fire or other casualty, and (ii) adequate insurance protection
against all liabilities, claims and risks against which it is customary to
insure, including but not limited to product liability insurance.
3.21 BANKING. The names and addresses of all banks or other financial
institutions in which the Company has an account, deposit or safe deposit box,
with the names of all persons authorized to draw on these accounts or deposits
or access to these boxes, are set forth on SCHEDULE 3.21 attached hereto.
3.22 POWERS OF ATTORNEY. Except as set forth on SCHEDULE 3.22, no person
or other entity holds a general or special power of attorney from the Company.
Each person set forth on SCHEDULE 3.22 holds only a special power of attorney,
pursuant to which his or her authority is limited to representation of the
Company before the Internal Revenue Service.
3.23 PERSONNEL. Attached hereto as SCHEDULE 3.23 is a list of the names,
addresses, hire dates, dates of birth and job descriptions of all Employees of
the Company, stating their rates of compensation including, if determined,
bonuses payable to each. Also set forth on SCHEDULE 3.23 is a list of those
Employees who are not actively working in the Business and the reasons therefor.
3.24 EMPLOYEE BENEFITS.
(A) SCHEDULE 3.24 is a true, correct and complete list of each Employee
Benefit Plan that the Company maintains, or to which the Company contributes.
(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect
to each such Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with
respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
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(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before the
Closing Date which are not yet due have been paid to each such Employee
or accrued in accordance with the past custom and practice of the
Company. All premiums or other payments for all periods ending on or
before the Closing Date have been and will be paid with respect to each
such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
Sec. 401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(v) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested liabilities thereunder determined in accordance with PBGC
methods, factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(vi) The Sellers have delivered to the Purchaser correct and
complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(B) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which the Company contributes, ever has
contributed, or ever has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multi-Employer Plan) has been completely or
partially terminated or been the subject of a reportable event as to
which notices would be required to be filed with the PBGC. No proceeding
by the PBGC to terminate any such Employee Pension Benefit Plan (other
than any Multi-employer Plan) has been instituted or threatened.
(ii) There have been no prohibited transactions with respect to any such
Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine claims
for benefits) is pending, or, to the best of any Seller's knowledge,
threatened. None of the Sellers has any knowledge of any basis for any
such action, suit, proceeding, hearing, or investigation.
(iii) The Company has not incurred, and none of the Sellers expects that
the Company will incur, any Liability to the PBGC (other than PBGC
premium payments) or otherwise under
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Title IV or ERISA (including any withdrawal liability) or under the Code
with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(C) The Company does not contribute to, and has never contributed to,
and has never been required to contribute to, any Multiemployer Plan, and the
Company does not have, and has never had, any liability (including withdrawal
liability) under any Multiemployer Plan.
(D) The Company does not maintain nor contribute to, and has never
maintained nor contributed to, and has never been required to contribute to, any
Employee Welfare Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Sec.
4980B).
3.25 EMPLOYMENT AGREEMENTS. SCHEDULE 3.25 is a list of all employment
agreements, consulting agreements, collective bargaining agreements, and
agreements providing for director and officer indemnification or other
agreements or arrangements providing for employee or other remuneration or
benefits (other than the Plans) to which the Company or any of its Affiliates is
a party or by which the Company or any of its Affiliates is bound (collectively,
the "Employment Agreements"). All of the Employment Agreements are in full force
and effect, and neither the Company nor any other party is in default under any
of them. There have been no claims of default, and to the best knowledge and
reasonable belief of Sellers there are no facts or conditions which if
continued, or on notice, will result in a default, under any of the Employment
Agreements. The Company is in compliance with, and upon the closing of the
transactions set forth or contemplated herein will remain in compliance with,
all of its obligations under such Employment Agreements. Except as set forth on
SCHEDULE 3.25, no Employees are represented by any labor organization, and, as
of the date hereof, no labor organization or group of Employees has made a
written demand to the Company for recognition, or filed a petition with the
National Labor Relations Board, or announced its intention to hold an election
of a collective bargaining representative. There is no pending, or to the best
knowledge and reasonable belief of Sellers threatened, labor dispute, strike or
work stoppage affecting or potentially affecting the Business.
3.26 NO SEVERANCE PAYMENTS. The Company will not owe a severance payment
or similar obligation to any of its employees, officers, or directors, as a
result of the transactions contemplated by this Agreement, nor will any of such
persons be entitled to an increase in severance payments or other benefits as a
result of the transactions contemplated hereby, nor in the event of the
subsequent termination of their employment.
3.27 LIABILITIES. The Company does not have, and as of the Closing Date
will not have, any liabilities, obligations or commitments of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due (herein "Liabilities"), except (i) Liabilities which are adequately
disclosed or accrued against in the Audited Financial Statements, (ii)
Liabilities which have been incurred in the Ordinary Course of the Business and
in accordance with standard, customary and historical practices and experiences
of the Company, and (iii) Liabilities expressly set forth, as to the nature and
amount thereof, on SCHEDULE 3.27. In no event shall the Company or the
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Purchaser be liable for (or have paid any) legal, accounting or other costs or
expenses incurred by the Company or any Seller in connection with the transfer
of the Subject Shares or the Walker Real Property, or any of the transactions
contemplated in this Agreement.
3.28 LITIGATION. Except as set forth on SCHEDULE 3.28, there is no suit,
action, arbitration or legal, administrative or other proceeding or governmental
investigation pending or threatened against or affecting the Company, its
Affiliates, the Assets, the Leased Assets, the Walker Real Property or the
Business.
3.29 TAX MATTERS.
(A) The Company has filed all tax returns that the Company was required
to file, and all such tax returns were correct and complete in all respects. All
taxes owed by the Company (whether or not shown on any tax return) have been
paid. Except for an extension through July 15, 1997, which the Company has
obtained with respect to the filing of its 1996 federal income tax return and
the extension of its Louisiana income tax return, both of which returns will be
filed prior to the Closing, the Company is not the beneficiary of any extension
of time within which to file any tax return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file tax returns, that
the Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any tax.
(B) The Company has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(C) No Seller or director or officer (or employee responsible for tax
matters) of the Company has reason to believe that any authority might assess
any additional taxes for any period for which tax returns have been filed. There
is no dispute or claim concerning any tax liability of the Company either (i)
claimed or raised by any authority in writing or (ii) as to which any of the
Sellers or the directors and officers (and employees responsible for tax
matters) of the Company has knowledge. SCHEDULE 3.29 lists all federal, state,
local, and foreign income tax returns filed with respect to the Company for
taxable periods ended on or after December 31, 1989, indicates those tax returns
that have been audited, and indicates those tax returns that currently are the
subject of audit. The Sellers have delivered to the Purchaser correct and
complete copies of all federal income tax returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company since
December 31, 1989.
(D) The Company has not waived any statute of limitations in respect of
taxes or agreed to any extension of time with respect to a tax assessment or
deficiency.
3.30 COMPLIANCE WITH LAWS. Except as to matters pertaining to
Environmental, Health & Safety Laws specifically described in SCHEDULE 3.31, the
Company has complied with, and is not
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in violation of, applicable federal, state or local ordinances, statutes, laws,
rules, restrictions and regulations (including, without limitation, any
applicable building, zoning, Environmental, Health & Safety Laws or other law,
ordinance or regulation) that affects, or is likely to affect, directly or
indirectly, the Business, the Assets, the Leased Assets, the Real Property or
the customers, suppliers or financial prospects of the Company. Except as to
matters pertaining to Environmental, Health & Safety Laws specifically described
in SCHEDULE 3.31, there are not any uncured violations of federal, state or
local laws, ordinances, statutes, orders, rules, restrictions, regulations or
requirements affecting any portion of the Business, the Real Property, the
Assets or the Leased Assets, and neither any of the Assets, the Leased Assets or
the Real Property, nor the operation thereof nor the conduct of the Business,
violates any applicable federal, state or municipal laws, ordinances, orders,
regulations or requirements.
3.31 ENVIRONMENTAL, HEALTH & SAFETY LAWS. Except as described on
SCHEDULE 3.31 (i) neither the ownership nor the operation of the Business, the
Assets, the Leased Assets or the Real Property has violated or violates any
Environmental, Health & Safety Laws, (ii) neither the Real Property, nor any
real property previously owned or occupied by the Company, nor to the knowledge
of the Sellers any property adjacent to any of the foregoing, has been used for
the use, manufacture, storage, treatment, generation, transportation,
processing, handling or disposal of any solid, hazardous, industrial or toxic
pollutant, contaminant, substance or waste in violation of any Environmental,
Health & Safety Laws, (iii) neither the Company nor any of the Sellers has
received nor has knowledge of any notice of or any threat of any claim, suit,
proceeding, inquiry, investigation, citation, notice, violation, consent order
or judicial or administrative action arising out of or based upon any
Environmental, Health & Safety Laws, (iv) no solid, hazardous, industrial or
toxic pollutant, contaminant, substance or waste has been disposed of, spilled
onto, discharged or released (as those terms are defined in the Environmental,
Health & Safety Laws) on or within the Real Property or, to the best of Sellers'
knowledge, any property adjacent thereto, nor any real property previously owned
or occupied by the Company, (v) no underground storage tanks, above ground
storage tanks, solid or hazardous waste management units, wells, underground
injection systems, landfills, lagoons, settling ponds or any other impoundment
used to treat, store or dispose of any solid, hazardous or toxic substances,
pollutants, contaminants or wastes regulated by the Environmental Health &
Safety Laws have ever been placed on the Real Property, and if any underground
storage tanks are disclosed in SCHEDULE 3.31, none of such tanks are leaking,
(vi) neither the Company nor any of the Sellers have received notice of any
past, present or future event, condition, circumstance, activity, practice,
incident or action or plan which may interfere with or prevent compliance or
continued compliance with the Environmental, Health & Safety Laws or which may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, demand, lawsuit, proceeding, hearing, study or investigation,
based on, related to, or alleging any violation of the Environmental Health &
Safety Laws, and (vii) all wastes generated by the Company have been treated
and/or disposed of at appropriately licensed recycling, reclamation, reuse, or
treatment, storage and disposal facilities. Except as to matters pertaining to
Environmental, Health & Safety Laws specifically described in SCHEDULE 3.31,
there is no environmental condition relating to any of the Assets, the Leased
Assets, the Real Property or the Business that may reasonably be expected to
have a materially adverse effect on any of the Assets, the Leased Assets, the
Real Property or the Business or the value thereof.
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Except as to matters pertaining to Environmental, Health & Safety Laws
specifically described in SCHEDULE 3.31, the Company has all permits, licenses,
franchises, operating authorities and other authorizations or documented
exemptions or variances thereto necessary to the conduct of the Business in the
manner and in the areas in which the Business is presently conducted, and all
such permits, licenses, franchises, and authorizations are valid and in full
force and effect. The Company is in full compliance with all the terms and
conditions of such permits, licenses, franchises, or other authorizations, and
has not engaged in any activity which could cause the revocation or suspension
of any such permits, licenses, franchises, or other authorizations. No actions
or proceedings looking to or contemplating revocation or suspension of any
thereof are pending or, to the best knowledge and reasonable belief of Sellers,
threatened.
3.32 FINANCIAL STATEMENTS. The Audited Financial Statements (I) are
true, complete, and correct in all material respects, (ii) fairly and accurately
present the financial position of the Company as of the periods described
therein, and the results of the operations of the Company for the periods
indicated, and (iii) have been prepared in accordance with generally accepted
accounting principles, consistently applied. Sellers shall also furnish to
Purchaser, immediately when available and in any event at least fifteen (15)
business days prior to the Closing Date, all available interim financial
statements and balance sheets of the Company (and in any event through at least
through March 31, 1997), and including the Closing Financial Statements, all of
which shall (i) be true, complete, and correct in all material respects, (ii)
fairly and accurately present the financial position of the Company as of the
periods described therein, and the results of the operations of the Company for
the periods indicated, and (iii) have been prepared in accordance with generally
accepted accounting principles, consistently applied (except that the interim
financial statements, including the Closing Financial Statements, may omit
certain footnote disclosures normally required by GAAP, the omission of which,
in the good faith opinion of Sellers, will not cause such financial statements
to be materially misleading), and (iv) reflect all necessary eliminating entries
and normal adjustments.
3.33 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
SCHEDULE 3.33, since the Balance Sheet Date, there has been no:
(A) material adverse change in the financial condition,
liabilities, business or prospects of the Company, nor in the Walker
Real Property;
(B) loss, destruction or damage to any property of the Company
or the Walker Real Property, whether or not insured;
(C) acquisition or disposition of any material assets,
individually or in the aggregate, nor any material contract, commitment
or obligation entered into or incurred by the Company, nor any other
transaction by the Company, other than for value in the Ordinary Course
of Business and in accordance with prudent business practices;
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(D) labor trouble, pending or threatened, involving the Company,
or change in the personnel of the Company or the terms or conditions of
their employment;
(E) other event or condition of any character that has or might
reasonably be expected to have an adverse effect on the financial
condition, business, liabilities or prospects of the Company, or the
Walker Real Property.
3.34 CUSTOMERS. SCHEDULE 3.34 to this Agreement is a correct and current
list of all customers of the Company, together with summaries of the sales made
to each customer during the two most recent fiscal years of the Company. Except
as indicated in SCHEDULE 3.34, Sellers do not have any information, nor are they
aware of any facts, indicating that any of these customers intend to cease doing
business with the Company, or to materially alter the volume or terms of such
business.
3.35 INTERESTS IN CUSTOMERS, SUPPLIERS AND COMPETITORS. None of the
Sellers, and no shareholder, officer, director or employee (nor any former
shareholder, officer, director or employee) of the Company, nor to the best
knowledge and reasonable belief of Sellers any relative of any of them, has any
direct or indirect interest in any competitor, supplier or customer of the
Company, or any person or other entity who has done business with the Company in
the twenty-four (24) months preceding the Closing.
3.36 CORPORATE DOCUMENTS. Sellers have furnished to Purchaser for its
examination (i) true, complete and correct copies of the certificates or
articles of incorporation and bylaws of the Company, as amended to date; (ii)
true, complete and correct copies of the contents of the minute books of the
Company (including proceedings of audit and other committees), each of which
contains all records for all proceedings, consents, actions and meetings of the
shareholders, board of directors and committees, of the Company since its date
of incorporation.
3.37 ADVERSE INFORMATION. Neither the Company nor any of the Sellers has
any information or knowledge of any change contemplated in any applicable laws,
ordinances or restrictions, or any judicial or administrative action, or any
event, fact or circumstance which will, or could be reasonably expected to, have
a material adverse effect on the Company or its condition, financial or
otherwise, the Assets, the Leased Assets, the Walker Real Property or the
condition, value or operation thereof.
3.38 DISCLOSURE. Sellers have provided to Purchaser actual copies of all
Contracts, documents concerning all litigation and administrative proceedings,
employee benefit plans, Licenses, insurance policies, lists of suppliers,
customers, and Employees, and corporate and partnership records relating to the
Company or its assets and liabilities, the Business and the Walker Real
Property, and such information covers all material commitments and liabilities
of the Company. In addition, (i) Purchaser has been kept fully informed with
respect to all material developments in the business of the Company since the
Balance Sheet Date, (ii) management of the Company has not made any material
business decisions, nor taken any material actions, since the Balance Sheet Date
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of which Purchaser has not been advised, and (iii) Purchaser and its agents have
been granted unlimited access to the books and records of the Company (whether
retained electronically, on disc or on paper).
3.39 FULL DISCLOSURE. This Agreement, the schedules and exhibits hereto,
and all other documents and written information furnished by the Sellers, the
Company, or their Affiliates on behalf of Sellers, the Company or their
respective Affiliates, to Purchaser or its representatives pursuant hereto or in
connection herewith, are true, complete and correct, and do not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements made herein and therein not misleading. There are no
facts or circumstances relating to the Business or the Company's liabilities,
prospects, operations or financial condition, or the Walker Real Property, which
materially and adversely affect or, so far as the Sellers can now reasonably
foresee, will materially and adversely affect, the Business, the Company or the
assets, liabilities, prospects, operations or financial condition thereof, the
Walker Real Property, or the ability of the Sellers to perform this Agreement or
the obligations of any Seller hereunder.
ALL OF THE REPRESENTATIONS AND WARRANTIES OF SELLERS CONTAINED IN THIS
AGREEMENT SHALL BE TRUE, COMPLETE AND CORRECT AS OF THE DATE OF THIS AGREEMENT
AND SHALL BE DEEMED TO HAVE BEEN MADE AGAIN AT AND AS OF THE CLOSING DATE, AND
THEN SHALL BE TRUE, COMPLETE AND CORRECT IN ALL RESPECTS, AND SHALL SURVIVE THE
CLOSING AND THE EXECUTION AND DELIVERY OF ALL DOCUMENTS, INSTRUMENTS AND
AGREEMENTS EXECUTED IN CONNECTION THEREWITH.
ARTICLE IV
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants that:
4.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Texas, and has all
necessary corporate powers to own its properties and to carry on its business as
now owned and operated by it.
4.2 AUTHORITY. Purchaser has the right, power, legal capacity, and
authority to execute, deliver and perform its obligations under this Agreement.
The execution, delivery and performance of this Agreement by Purchaser has been
duly authorized by Purchaser's Board of Directors, which constitutes all of the
necessary corporate action for Purchaser to consummate the transactions
contemplated by this Agreement and to perform its obligations hereunder.
4.3 CONSENTS AND APPROVALS. Except as set forth on SCHEDULE 4.3, no
consent, approval or authorization of, or filing or registration with, any
governmental or regulatory authority, or any other person or entity, is required
to be made or obtained by Purchaser in connection with the execution, delivery
or performance of this Agreement or the consummation by Purchaser of the
transactions contemplated hereby.
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4.4 VALID AND BINDING OBLIGATIONS. Upon execution and delivery, this
Agreement and each document, instrument or agreement to be executed by Purchaser
in connection herewith will constitute the legal, valid, and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its terms, except
as same may be limited by bankruptcy laws, insolvency laws, and other similar
laws affecting the rights of creditors generally.
ALL OF THE REPRESENTATIONS AND WARRANTIES OF PURCHASER CONTAINED IN THIS
AGREEMENT SHALL BE TRUE, COMPLETE AND CORRECT AS OF THE DATE OF THIS AGREEMENT
AND SHALL BE DEEMED TO HAVE BEEN MADE AGAIN AT AND AS OF THE CLOSING DATE, AND
THEN SHALL BE TRUE, COMPLETE AND CORRECT IN ALL RESPECTS, AND SHALL SURVIVE THE
CLOSING AND THE EXECUTION AND DELIVERY OF ALL DOCUMENTS, INSTRUMENTS AND
AGREEMENTS EXECUTED IN CONNECTION THEREWITH.
ARTICLE V
ADDITIONAL WARRANTIES AND
CERTAIN COVENANTS AND AGREEMENTS
5.1 SELLERS' COVENANTS. Sellers jointly and severally represent,
warrant, covenant and agree that from the Balance Sheet Date through the Closing
Date:
(A) the Company and the Sellers have used and will use their best
efforts to preserve the business organization of the Company intact, to
keep available to the Business the Employees, and to preserve the
present relationships of the Company with its suppliers, customers and
others having business relationships with it;
(B) the Company has maintained and will maintain its existing
insurance as to the Business and the Assets (and as applicable, the
Leased Assets);
(C) Mr. Walker has maintained and will maintain the existing
insurance as to the Walker Real Property;
(D) the Company has maintained and operated and will maintain and
operate the Business in a good and businesslike manner in accordance
with good and prudent business practices and the Company's historical
policies;
(E) the Company has maintained and operated, and will continue to
maintain and operate, the Assets and the Leased Assets, including the
Real Property, in a good and businesslike manner in accordance with good
and prudent business practices and the Company's historical policies, in
as good working order and condition as existed as of the Balance Sheet
Date, ordinary wear and tear excepted;
(F) the Company has not issued or sold, nor directly or
indirectly redeemed or acquired, and will not issue or sell, nor
directly or indirectly redeem or acquire, any shares of its capital
stock, or any other of its securities, or granted or agreed to grant
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any options or rights with respect thereto, and has not changed nor
agreed to change and will not change nor agree to change its capital
structure;
(G) the Company has not declared, set aside nor paid and will not
declare, set aside nor pay a dividend or other distribution with respect
to its capital stock;
(H) the Company has not made and will not make any payment of any
type to the holders of any capital stock of the Company or any of their
Affiliates, other than ordinary salary or expenses which have been fully
disclosed to Purchaser; or
(I) the Company has neither waived nor released and will not
waive nor release any material right of or material claim held by it,
and has not discounted and will not discount any of its receivables;
(J) the Company has not acquired nor disposed of and will not
acquire nor dispose of, any material assets, individually or in the
aggregate, and has not entered into and will not enter into any contract
or arrangement therefor, and has not entered into and will not enter
into any other transaction other than for value in the Ordinary Course
of Business and in accordance with prudent business practices;
(K) the Company has not revalued and will not revalue any of its
assets or liabilities;
(L) the Company has not changed and will not change the salary or
other compensation payable or to become payable by the Company to any of
its officers, directors, employees, agents or other personnel, and has
not declared, made or committed, and will not declare, make or commit to
any kind of payment of a bonus or other additional salary or
compensation to any such person, except for customary bonuses (not to
exceed an aggregate of $52,000) paid to various Walker family members
employed by the Company, for the purpose of paying life insurance
premiums;
(M) the Company has not made and will not make a loan to any
person or entity, and has not guarantied and will not guaranty any loan;
(N) the Company has not amended nor terminated, and will not
amend nor terminate, any material contract, agreement, permit or license
to which the Company is a party, or by which the Company or any of the
Assets or Leased Assets are bound;
(O) Neither Mr. Walker nor Ms. Walker has amended or terminated,
and neither will amend or terminate, any material contract, agreement,
permit or license to which he or she is a party, or by which he, she or
the Walker Real Property is bound;
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(P) the Company has maintained and will maintain all debt and
lease instruments, and has not entered into and will not enter into any
new or amended debt or lease instruments, without the prior written
approval of Purchaser;
(Q) the Company has not entered into and will not enter into any
agreement or instrument which would constitute an encumbrance, mortgage
or pledge of the Assets, or which would bind Purchaser, the Company or
the Assets after Closing, which have been entered into outside the
normal scope of maintaining and operating the Business and the Assets in
the Ordinary Course of Business;
(R) Neither Mr. Walker nor Ms. Walker has entered into, and
neither of them will not enter into, any agreement or instrument which
would constitute an encumbrance, mortgage or pledge of the Walker Real
Property, or which would bind Purchaser or the Walker Real Property
after Closing;
(S) the Company has not removed, nor permitted the removal of,
and will not remove nor permit the removal of, any personal property or
fixtures from the Real Property, unless such personal property or
fixtures are replaced with an item of at least equal value that is
properly suited for its intended purpose, other than inventory sold in
the Ordinary Course of Business, or other personal property in an amount
which is not material, either individually or in the aggregate;
(T) the Company and the Sellers will afford Purchaser the
continuing right to review and inspect the Assets and the Leased Assets,
including the Real Property, at reasonable hours, and any and all books,
records, contracts, and other documents or data pertaining to the
ownership, use, insurance, operation, renovation and maintenance of the
Assets and Leased Assets, including the Real Property, and the Business;
(U) the Company and the Sellers will afford Purchaser free and
open access to the Employees during regular business hours, to assist
Purchaser in the contemplated due diligence review, and to allow
Purchaser to gather information to make employment decisions to be
effective after Closing;
(V) the Company has performed and will perform all of the
Company's obligations under all contracts and commitments applicable to
the Company, the Assets and the Leased Assets, and has maintained and
will maintain the Company's books of account and records in the usual,
regular and customary manner;
(W) except as otherwise expressly set forth in this Agreement,
the Company has complied and will comply with all statutes, laws,
ordinances and regulations applicable to the Company, the Assets, the
Leased Assets, the Walker Real Property
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and the conduct of the Business and will provide Purchaser with
immediate notice of any violation of any Environmental, Health & Safety
Laws;
(X) the Company has paid and will pay in the Ordinary Course of
Business all bills and other payments due with respect to the ownership,
use, insurance, operation and maintenance of the Business, the Assets,
the Leased Assets and the Walker Real Property, as and when such bills
or other payments were due, and has taken and will take all action
necessary or prudent to prevent liens or other claims for the same from
being filed or asserted against any part of the Assets, the Leased
Assets, or the Walker Real Property, provided however, that the Company
shall not make any expenditures outside the Ordinary Course of Business,
nor any capital expenditures, individually or in the aggregate in excess
of $3,000, without the prior written approval of Purchaser;
(Y) the Company has not made and will not make any material
changes in its management, operations, accounting or business practices
or methods (including without limitation, any change in depreciation or
amortization policies or rates), nor negotiate or pursue the acquisition
or the start-up of any new business or line of business;
(Z) all revenues or cash or other receipts from all sources in
all media received by the Company have been deposited and will be
deposited in the Company's account;
(AA) the Sellers will cause all of the representations and
warranties set forth in SECTION 3.33 hereof to be and remain true,
complete and correct as of the Closing;
(BB) to the extent any Seller receives notice, such Seller will
immediately advise Purchaser in writing of any material adverse change
in the financial condition, results of operations, business or prospects
of the Company, and any material adverse change in the Walker Real
Property, and any event which could reasonably be expected to result in
such a change; and
(CC) there has been no agreement by the Company to do any of the
things described above in this SECTION 5.1 which, if such were to occur
between the Balance Sheet Date and the Closing Date, would constitute a
breach of a covenant contained in this SECTION 5.1.
5.2 THIRD PARTY CONSENTS. Sellers shall use their best efforts to obtain
the respective consents or approvals of each third party whose consent or
approval is required for the consummation of the transactions contemplated
hereby.
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5.3 TITLE COMMITMENT. Within ten (10) business days from the date of
execution hereof, Mr. Walker shall cause Commonwealth Land Title Insurance
Company (the "Title Company") to deliver to Purchaser and Purchaser's attorney
an up-to-date and complete Commitment for Title Insurance (herein called "Title
Commitment") issued by the Title Company and covering the Walker Real Property,
together with legible copies of all documents and instruments referenced therein
showing the title of Mr. Walker and Ms. Walker to the Walker Real Property to be
good, marketable, indefeasible and insurable in accordance with the terms
hereof. Mr. Walker shall cause the Title Company to continually update and renew
the Title Commitment prior to its contractual expiration and the Closing, and
deliver same to Purchaser and Purchaser's attorney together with legible copies
of all documents and instruments relating to any new matters reflected thereon.
Mr. Walker is hereby obligated, at Mr. Walker's sole cost and expense, to remove
or cure at or before Closing (i) all mortgages, deeds of trust, judgments,
liens, mechanics' and materialmen's liens, and all other liens against the
Walker Real Property, whether or not Purchaser objects to such liens prior to
Closing, as well (ii) any other easements, rights of ways, covenants, set-back
lines, restrictions or other matters set forth in the Title Commitment to which
Purchaser objects. Mr. Walker shall have until the Closing Date to cure any of
the foregoing, and to deliver notice thereof to Purchaser and Purchaser's
attorney, together with written or other evidence, acceptable to Purchaser, that
the same have been cured. Mr. Walker must exercise due diligence and exert his
best efforts to cure Purchaser's objections.
5.4 TITLE INSURANCE. Mr. Walker shall cause the Title Company to issue
through its underwriter and deliver to Purchaser or the Company, as applicable,
at Closing, or within a reasonable time thereafter (provided that an updated
Title Commitment is delivered at Closing), an Owner's Policy of Title Insurance
(herein called "Title Policy"), insuring title to the Walker Real Property in an
amount equal to the Walker Real Property Value, naming Purchaser or the Company,
as applicable, their successors or assigns, as the insured, and subject only to
those matters to which Purchaser consents in writing (collectively, the
"Permitted Exceptions"). Mr. Walker and the Company shall evenly divide the cost
and expense associated with obtaining the Title Policy.
5.5 CURRENT SURVEY. Within ten (10) business days from the date of
execution hereof, Mr. Walker, at Mr. Walker's sole cost and expense, shall
deliver to Purchaser five (5) certified copies and one (1) reproducible copy of
a current on-the-ground survey (herein called "Survey") and five (5) copies of
the metes and bounds description of the Walker Real Property prepared by a duly
licensed land surveyor acceptable to Purchaser and the Title Company. Review of,
objection to and cure of objectionable matters reflected on the Survey shall be
handled in the same manner and within the same time periods as provided in
SECTION 5.3 above for review of, objection to and cure of objectionable matters
reflected in the Title Commitment. The survey shall (a) reflect all matters
deemed Permitted Exceptions hereunder and all exceptions to title reflected in
the Real Property Records of Calcasieu Parish, Louisiana, and the recording data
identifying same; (b) locate all improvements on the Walker Real Property
including, without limitation, any signs, fences and walkways and the distance
between them and all boundaries and building setback lines; any easements under,
over or across the Walker Real Property, whether for utilities or otherwise; any
rights-of-way, streets, alleys or roadways adjacent to, passing across or giving
access to or from the Walker Real Property, whether publicly or privately
dedicated; any encroachments, buffer zones or uses upon the Walker Real Property
or
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between the Walker Real Property and adjacent property, and the size and
dimensions thereof; any ponds, creeks, rivers or other bodies of water on the
Walker Real Property to the high bank thereof; any portion of the Walker Real
Property within a flood plain or flood prone area designated as such by the
Federal Flood Insurance Administration of the Department of Housing and Urban
Development, or other governmental authority, whether federal, state or local;
all building setback lines, whether created by instruments of public record or a
governmental entity with authority to do so; and any other physical items
observed by the surveyor either on or affecting the Walker Real Property; (c)
contain the surveyor's registered number and seal, the date of the survey, and a
certificate which shall be addressed to Purchaser and the Company, , and their
respective successors and assigns, the Title Company and other interested
parties, and shall state that the survey is true and correct; that the survey
reflects all conditions affecting the Walker Real Property set forth in the
Title Commitment, or of record in the appropriate real property records, or
observed by the surveyor; that the Walker Real Property has unlimited access to
and from the publicly dedicated rights-of way shown thereon and that no gaps or
strips of land exist between the boundaries of the Walker Real Property and
those rights-of-way; that no portion of the Walker Real Property lies within a
flood plain or flood prone area; and (d) otherwise be in form and content
acceptable to Purchaser.
5.6 ENVIRONMENTAL SITE ASSESSMENT. Purchaser may, at Purchaser's sole
cost and expense, arrange for a complete Phase I environmental site assessment
or such other environmental due diligence as Purchaser may elect (in any event,
the "Site Assessment") on the Real Property for the purpose of determining
whether there exists on the Real Property any environmental condition that could
result in any liability, cost or expense to the owner, occupier, or operator of
such property arising under any applicable law. The Site Assessment may be
performed at any time or any times, upon reasonable notice, and under reasonable
conditions established by Mr. Walker that do not impede the performance of the
Site Assessment, and Purchaser and its agents and environmental consultants are
hereby authorized (a) to enter upon the Real Property for such purposes, (b) to
perform both above and below the ground testing for environmental damage or the
presence of hazardous substances, solid wastes, or other substances known or
suspected to pose a threat to health or the environment on the Real Property,
and (c) to conduct such other tests on the Real Property as may be necessary to
conduct the Site Assessment in the reasonable opinion of Purchaser, its agents
or consultants. Mr. Walker and Sellers will supply to Purchaser, its agents and
consultants such historical and operational information regarding the Real
Property as may be reasonably requested to facilitate the Site Assessment and
will make available for meetings appropriate personnel having knowledge of such
matters. In the event that the results of the Site Assessment are unsatisfactory
in the good faith reasonable business judgment of Purchaser, then Purchaser may
terminate this Agreement.
5.7 COMPETING PROPOSALS. In consideration of the time and money that
Purchaser has spent and will spend in connection with the preparation of this
Agreement and other agreements required to complete the transactions
contemplated herein and in performing its due diligence with respect thereto,
each of the Sellers and the Company Agrees that until June 15, 1997, each will
not initiate, and will not permit the Company to initiate, directly or
indirectly, contact with any person or entity in an effort to solicit any
takeover proposal, nor will any of them authorize any officer, director or
employee of the Company, or any investment banker, attorney, accountant or any
representative,
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to directly or indirectly initiate any such contact. As used in this SECTION
5.7, "takeover proposal" shall mean any proposal for an acquisition, merger or
other business combination involving the Company or for the acquisition of a
substantial equity interest therein or a substantial portion of any of their
assets, other than the transaction contemplated by this Agreement. Further,
prior to June 15, 1997, the Sellers will not, and will not permit the Company
to, directly or indirectly, cooperate or negotiate with, or furnish or cause to
be furnished any non-public information concerning the Business, properties or
assets to, any person or entity in connection with any takeover proposal.
Sellers shall immediately notify Purchaser orally of, and confirm in writing,
all relevant details relating to any takeover proposal which Sellers or the
Company may receive. Sellers will use their best efforts to consummate the
transactions contemplated in this Agreement on the Closing Date, and will, at or
prior to Closing, take all necessary action to perform their obligations under
this Agreement.
5.8 DUE DILIGENCE; COOPERATION; SATISFACTION OF CONDITIONS. From the
date hereof through the Closing, expiration or other termination hereof, Sellers
and the Company will afford the Purchaser full and free access to the Company
and its management, employees, properties, contracts, books and records and all
other documents and data. Such access shall include the completion of review by
the Purchaser and its management, agents, lenders, investment bankers,
accountants and attorneys of the financial condition, business, prospects,
operations, property and plant and equipment of the Company and any of its
Affiliates. Sellers shall (a) give assistance, to the extent within their
control, to Purchaser in preparing any required filings and seeking any required
consents or approvals in any manner reasonably requested, and (b) use their best
efforts to pursue, to the extent within their control, the satisfaction of all
other conditions to the consummation of the transactions contemplated herein.
Upon the fulfillment of all the conditions precedent to the obligations of the
Parties contained herein, Sellers will forthwith proceed to Closing.
5.9 COMPANY'S INDEBTEDNESS; SELLER LOANS. At Closing, Sellers shall
cause the indebtedness of the Company to third parties to be not more than Three
Million and No/100 Dollars ($3,000,000.00) (exclusive of trade payables).
Following the Closing, and in no event more than one hundred twenty (120) days
after the Closing Date, Purchaser will use reasonable efforts to have the
Sellers released from any and all guarantees of the indebtedness of the Company.
There is not, and at Closing there will not be, any indebtedness owed by the
Company to any shareholder, (other than salary accrued in the ordinary course of
business) Mr. Walker shall repay to the Company at Closing the indebtedness owed
by him to the Company, which as of the date hereof has an outstanding balance,
principal and interest, of $68,555.64. Such indebtedness represents and at
Closing will represent, all indebtedness owed to the Company by any Seller.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligations of Purchaser
hereunder to consummate the transactions contemplated hereby are subject to the
satisfaction, as of the Closing Date, of the following respective conditions
(any of which may be waived in whole or in part in writing by Purchaser at or
prior to the Closing):
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(A) REPRESENTATIONS AND WARRANTIES OF SELLERS TO BE TRUE. The
representations and warranties of Sellers herein contained shall be
true, complete and correct in all material respects at the Closing Date
with the same effect as though made at Closing (except insofar as such
representations and warranties are given as of a particular date) except
to the extent waived hereunder or affected by the transactions
contemplated or permitted herein.
(B) PERFORMANCE BY SELLERS. Sellers shall have performed in all
material respects all obligations and complied in all material respects
with all covenants and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing Date.
(C) NO LEGAL PROCEEDINGS. No injunction shall have been obtained,
and no suit, action or other proceeding shall be pending before any
court or governmental agency, in which it is sought to restrain or
prohibit the consummation of the transactions contemplated hereby, the
Additional Acquisitions or the IPO, or in which it is sought to obtain
damages in connection therewith, or involving a claim that the
consummation of the transactions contemplated hereby, the Additional
Acquisitions or the IPO would result in a violation of any law, decree
or regulation of any government or agency thereof having jurisdiction.
There shall not have been enacted, voted or promulgated by any
legislative or administrative body having jurisdiction any legislation,
ruling or decree which in the reasonable judgment of Purchaser would be
materially prejudicial to Purchaser with respect to the transactions
contemplated by this Agreement, the Additional Acquisitions or the IPO.
(D) PREMERGER ACT. If required by applicable law, Purchaser and
Sellers shall have previously submitted a premerger notification report
form as required by the Hart-Scott-Rodino Antitrust Improvements Act
(the "Premerger Act") to the Federal Trade Commission (the "FTC") and
the Justice Department and the applicable waiting period pursuant to the
Premerger Act shall have passed or been terminated early without the FTC
or the Justice Department challenging, questioning or requesting
additional information (which request remains unsatisfied) with respect
to the transactions contemplated by this Agreement.
(E) STATUTORY REQUIREMENTS. All other statutory requirements for
the valid consummation by Purchaser of the transactions contemplated by
this Agreement shall have been fulfilled; all authorizations, consents
and approvals of all federal, state and local governmental agencies and
authorities required to be obtained in order to permit consummation by
Purchaser of the transactions contemplated by this Agreement and to
permit the businesses presently carried on by the Purchaser, and the
Company to continue unimpaired immediately following the Closing, shall
have been obtained and shall be in full force and effect.
(F) REQUIRED CONSENTS. Sellers shall have obtained the written
consent or approval of each person listed on SCHEDULE 3.3, in form and
content reasonably acceptable to Purchaser. Purchaser shall have
obtained all governmental, lender or third party approvals
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required to be obtained in connection with the consummation of the
Additional Acquisition and the IPO.
(G) RESIGNATIONS OF DIRECTORS AND OFFICERS. There shall have been
delivered to Purchaser the immediately effective written resignations of
such directors and officers of the Company as Purchaser may request.
(H) ACCOUNTING AND TAX TREATMENT. The Parties intend that the
acquisition of the Subject Shares will be treated as a stock purchase
under generally accepted accounting principles. At Purchaser's option,
Sellers will join with Purchaser in making an election under Section
338(h)(10) of the Internal Revenue Code (and any corresponding elections
under state or local tax law) with respect to the purchase and sale of
the Company. The Shareholders will have opportunity to review any
election forms prior to filing. The Purchaser shall promptly reimburse
the Sellers the amount equal to the amount of any tax liability realized
and paid by Sellers as a result of any such election under Section
338(h)(10) of the Code (and any corresponding elections under state or
local tax law) contemplated herein.
(I) FINANCIAL DUE DILIGENCE. Purchaser shall have completed, to
the satisfaction of Purchaser and its officers, directors, attorneys,
accountants and other representatives, reasonable due diligence
regarding the operations and financial condition of the Company.
(J) FINANCIAL STATEMENT REVIEW; FISCAL 1996 EBIT; OUTSTANDING
INDEBTEDNESS. Purchaser shall have completed a review of the Audited
Financial Statements, the Closing Financial Statements and all interim
financial statements of the Company, and determined, to the satisfaction
of Purchaser and its officers, directors, attorneys, accountants and
other representatives, that (i) the Audited Financial Statements and
such other financial statements are true, complete and accurate in all
respects, and (ii) no material adverse change in the financial
condition, results of operations, Business or prospects of the Company
has occurred since the Balance Sheet Date. The Purchaser's independent
accountant shall have also determined that the historical financial
statements of the Company are suitable or readily adaptable for
incorporation into the registration statements and annual and other
reports to be filed by the Purchaser with the Securities and Exchange
Commission. Further, the Audited Financial Statements shall indicate
that the Company's EBIT for the fiscal year ended October 31, 1996,
equals or exceeds Five Hundred Thousand and No/100 Dollars
($500,000.00). Finally, in the event that the Company's Indebtedness
(exclusive of trade payables) exceeds $3,000,000, in violation of
Sellers' covenant set forth in SECTION 5.9, Purchaser may elect to waive
this condition and proceed to Closing, in which event the Purchase Price
shall be reduced by the amount of the excess. This reduction shall be
effected first by reducing the amount of cash payable at Closing, and
then by reducing the aggregate original principal amount of the
Convertible Notes.
(K) ENVIRONMENTAL, HEALTH AND SAFETY DUE DILIGENCE. Purchaser
shall have completed, to the satisfaction of Purchaser and its officers,
directors, attorneys, accountants
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and other representatives, reasonable due diligence regarding the
environmental practices and procedures of the Company, including without
limitation compliance by the Company with Environmental, Health & Safety
Laws, and the existence of any solid, hazardous, industrial, or toxic
pollutants, contaminants, substances or wastes on any of the Real
Property, and determined that, except as to matters pertaining to
Environmental, Health & Safety Laws specifically described in SCHEDULE
3.31, there exist no material actual or probable violations, compliance
problems, required capital expenditures or other substantive
environmental, health or safety concerns.
(L) PERMIT AND LICENSE DUE DILIGENCE. Purchaser shall have
completed, to the satisfaction of Purchaser and its officers, directors,
attorneys, accountants and other representatives, reasonable due
diligence in order to verify the existence and sufficiency of all
operating permits, licenses and authorities necessary or advisable for
the operation of the Business.
(M) NO MATERIAL ADVERSE CHANGE. Except for matters of a general
economic or political nature, no event or series of events shall have
occurred between the Balance Sheet Date and the Closing Date, the effect
of which is or may reasonably be expected to be materially adverse to
the business, prospects or financial condition of the Company, other
than the information already disclosed to Purchaser by Sellers pursuant
to this Agreement. As of the date of this Agreement, Sellers hereby
represent and warrant that none of them is aware of any such event or
series of events which would represent such a change from the
information already disclosed. Any material change in any disclosure set
forth in any of the Schedules to the Agreement shall for purposes of
this condition be deemed to be a material adverse change.
(N) TITLE AND SURVEY DUE DILIGENCE. Acceptable title, survey,
environmental and other conditions exist as provided in Article V
hereof.
(O) PROPERTY CONDITION. The Walker Real Property shall not have
been damaged by fire, vandalism, acts of God, or other casualty or
cause, unless Sellers have diligently repaired and restored the Walker
Real Property, at Sellers' sole cost and expense and subject to the
supervision, control and consent of Purchaser, to a condition at least
as good as the condition in which the Walker Real Property exists on the
date of execution hereof.
(P) CONDEMNATION. Neither the Walker Real Property, nor any
portion thereof, shall have been taken, or threatened with taking, by
eminent domain. If only part of the Walker Real Property is so taken,
Purchaser shall have the option of (i) proceeding with the Closing and
acquiring the Walker Real Property as affected by such taking, together
with all compensation and damages awarded or the right to receive same,
or (ii) canceling this Agreement. If Purchaser elects option (i) above,
Mr. Walker agrees to assign to Purchaser, or at the option of Purchaser
to the Company, at Closing his rights to such compensation and
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damages, and will not settle any proceedings relating to such taking
without Purchaser's prior written consent.
(Q) CONTEMPORANEOUS CLOSING. Purchaser shall acquire the Walker
Real Property and all of the Subject Shares contemporaneously at
Closing, in accordance with the terms and provisions of this Agreement.
(R) APPROVAL OF DOCUMENTS. The form and substance of the Audited
Financial Statements, all interim financial statements, including the
Closing Financial Statements, and all certificates, instruments,
opinions and other documents delivered or to be delivered to Purchaser
under this Agreement shall be satisfactory in all reasonable respects to
Purchaser and its counsel.
Purchaser may waive any or all of the foregoing conditions in whole or in part
only in writing but without prior notice; provided, however, that no such waiver
of a condition shall constitute a waiver by Purchaser of any other conditions or
of its other rights or remedies, at law or in equity, if Sellers shall be in
default of any of their representations, warranties, covenants or agreements
under this Agreement.
6.2 CONDITIONS TO SELLERS' OBLIGATIONS. The obligations of Sellers'
hereunder to consummate the transactions contemplated hereby are subject to the
satisfaction, as of the Closing Date, of the following respective conditions
(any of which may be waived in whole or in part in writing by Sellers at or
prior to the Closing):
(A) REPRESENTATIONS AND WARRANTIES OF PURCHASER TO BE TRUE. The
representations and warranties of Purchaser herein contained shall be
true, complete and correct in all material respects at the Closing Date
with the same effect as though made at Closing (except insofar as such
representations and warranties are given as of a particular date) except
to the extent waived hereunder or affected by the transactions
contemplated or permitted herein.
(B) PERFORMANCE BY PURCHASER. Purchaser shall have performed in
all material respects all obligations and complied in all material
respects with all covenants and conditions required by this Agreement to
be performed or complied with by Purchaser at or prior to the Closing
Date.
(C) NO LEGAL PROCEEDINGS. No injunction shall have been obtained,
and no suit, action or other proceeding shall be pending before any
court or governmental agency, in which it is sought to restrain or
prohibit the consummation of the transactions contemplated hereby, or in
which it is sought to obtain damages in connection therewith, or
involving a claim that the consummation of the transactions contemplated
hereby would result in a violation of any law, decree or regulation of
any government or agency thereof having jurisdiction. There shall not
have been enacted, voted or promulgated by any legislative or
administrative body having jurisdiction any legislation, ruling or
decree which in the reasonable judgment of Sellers would
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be materially prejudicial to Sellers with respect to the transactions
contemplated by this Agreement.
(D) PREMERGER ACT. If required by applicable law, Purchaser and
Sellers shall have previously submitted a premerger notification report
form as required by the Premerger Act to the FTC and the Justice
Department and the applicable waiting period pursuant to the Premerger
Act shall have passed or been terminated early without the FTC or the
Justice Department challenging, questioning or requesting additional
information (which request remains unsatisfied) with respect to the
transactions contemplated by this Agreement.
(E) STATUTORY REQUIREMENTS. All other statutory requirements for
the valid consummation by Sellers of the transactions contemplated by
this Agreement shall have been fulfilled; all authorizations, consents
and approvals of all federal, state and local governmental agencies and
authorities required to be obtained in order to permit consummation by
Sellers of the transactions contemplated by this Agreement shall have
been obtained and shall be in full force and effect.
(F) REQUIRED CONSENTS. Purchaser shall have obtained the written
consent or approval of each person listed on SCHEDULE 4.3, in form and
content reasonably acceptable to Sellers.
(G) ACCOUNTING AND TAX TREATMENT. The Parties intend that the
acquisition of the Subject Shares be treated as a stock purchase under
generally accepted accounting principles. At Purchaser's option, Sellers
will join with Purchaser in making an election under Section 338(h)(10)
of the Internal Revenue Code (and any corresponding elections under
state or local tax law) with respect to the purchase and sale of the
Company. The Shareholders will have opportunity to review any election
forms prior to filing.
(H) NO MATERIAL ADVERSE CHANGE. Except for matters of a general
economic or political nature, no event or series of events shall have
occurred between the Balance Sheet Date and the Closing Date, the effect
of which is or may reasonably be expected to be materially adverse to
the business, prospects or financial condition of Purchaser, other than
the information already disclosed to Sellers by Purchaser pursuant to
this Agreement. As of the date of this Agreement, Purchaser hereby
represents and warrants that it is not aware of any such event or series
of events which would represent such a change from the information
already disclosed.
(I) APPROVAL OF DOCUMENTS. The form and substance of all
certificates, instruments, opinions and other documents delivered or to
be delivered to Sellers under this Agreement shall be satisfactory in
all reasonable respects to Sellers and their counsel.
Sellers may waive any or all of the foregoing conditions in whole or in part
only in writing but without prior notice; provided, however, that no such waiver
of a condition shall constitute a waiver by Sellers
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of any other conditions or of their other rights or remedies, at law or in
equity, if Purchaser shall be in default of any of its representations,
warranties, covenants or agreements under this Agreement.
ARTICLE VII
THE CLOSING
7.1 TIME AND PLACE. Delivery of the Stock Purchase Price by Purchaser to
Sellers, and the transfer of the Subject Shares by Sellers, and the conveyance
of the Walker Real Property to Purchaser or the Company, as applicable, and
delivery to Mr. Walker of the Mortgage Note, and the other transactions
contemplated hereby (the "Closing") shall take place at the offices of Boyer,
Ewing & Harris Incorporated, 9 Greenway Plaza Suite 3100, Houston, Texas 77046,
at or about 10:00 a.m.
on the Closing Date.
7.2 SELLERS' DELIVERIES. At or before the Closing, Sellers shall deliver
or cause to be delivered to Purchaser:
(a) All of the stock certificates evidencing the Subject Shares,
together with irrevocable stock powers in form and content acceptable to
Purchaser, duly authorized and executed by the record holder of each
such stock certificate;
(b) An Investor Representation Letter in substantially the form
attached hereto as EXHIBIT E executed by each of the Sellers with
respect to each Seller's acquisition of a Convertible Note as part of
the Stock Purchase Price at Closing;
(c) Resignations of all directors as officers of the Company,
effective as of the Closing;
(d) Employment Agreement in substantially the form attached
hereto as EXHIBIT F, duly executed by Mr. Walker (the "Walker Employment
Agreement");
(e) Confidentiality and Noncompetition Agreement in
substantially the form attached hereto as EXHIBIT C, duly executed by
Mr. Walker (the "Walker Noncompete Agreement");
(f) Registration Rights Agreement in substantially the form
attached hereto as EXHIBIT G, duly executed by all of the Sellers (the
"Registration Rights Agreement");
(g) Act of Sale and Vendor's Lien in substantially the form
attached hereto as EXHIBIT H, duly executed by Mr. Walker and Ms.
Walker, in order to convey the Walker Real Property to Purchaser or, at
the option of Purchaser, to the Company;
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(h) The Title Policy, or the updated Title Commitment, together
with payment of one-half (1/2) of the cost and expense of obtaining the
Title Policy, as contemplated in SECTION 5.4 hereof;
(i) Copies of all certificates of occupancy, licenses, permits,
authorizations and approvals required by law and issued by all
governmental authorities having jurisdiction, and the original of each
invoice for current real estate and personal property taxes;
(j) A sworn affidavit, in form and substance acceptable to the
Purchaser and the Title Company, duly executed by Mr. Walker and
acknowledged, stating, under penalty of perjury, that Mr. Walker is not
a "foreign person" within the meaning of Section 1445 of the Internal
Revenue Code of the United States, as amended through the Closing Date,
and setting forth Mr. Walker's taxpayer identification number;
(k) All original promissory notes or other debt instruments
executed by the Company to any Seller, marked "Paid in Full;"
(l) Payment of any outstanding amounts owed by any Seller to the
Company, as expressly set forth in SECTION 5.9 hereof;
(m) Such subordination or other agreements as the Company's
lender may require with respect to payment of the Convertible Notes, or
substantially in the form of EXHIBIT I;
(n) An opinion of counsel issued by Roddy & Watson, counsel for
Sellers, in form and content reasonably satisfactory to Purchaser and
Purchaser's counsel;
(o) Certificate in form and substance satisfactory to Purchaser,
dated the Closing Date and executed by all of the Sellers, stating that
after due inquiry, each of them has determined that (1) all of the
Sellers' representations and warranties set forth in ARTICLE III of this
Agreement are true, complete and correct as of the Closing Date, (2)
Sellers' have performed all of the covenants and agreements to be
performed by Sellers pursuant to ARTICLE V of this Agreement, and (3)
all conditions to Closing set forth in SECTION 6.1 of this Agreement
have been satisfied;
(p) The Closing Financial Statements Certificates;
(q) The certificates of existence, good standing and authority
of the Company as contemplated in SECTION 3.1 of this Agreement;
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(r) Such documents as Purchaser may require in connection with
the election under 338(h)(10) under the Internal Revenue Code (and any
corresponding elections under state and local tax law);
(s) Such consents, waivers, estoppel letters, lien releases or
similar documentation as Purchaser shall request, in Purchaser's sole
discretion, in connection with the transfer of the Subject Shares or the
conveyance of the Walker Real Property; and
(t) All other items required to be delivered hereunder or as may
be reasonably requested which are necessary or would reasonably
facilitate consummation of the transactions contemplated hereby,
including such certificates as are necessary from third parties to
establish the truth and accuracy of Sellers' representations and
warranties set forth herein, or any items requested by the Title
Company.
In addition, Sellers will put Purchaser into full possession and enjoyment of
the Company, the Business, the Assets, the Leased Assets, the Walker Real
Property and all documents, books, records, agreements, and financial data of
any sort relating to the Business or the Walker Real Property, immediately upon
the occurrence of the Closing.
7.3 PURCHASER'S OBLIGATIONS. At the Closing, Purchaser will deliver or
cause to be delivered to Sellers, the following:
(a) The Convertible Notes;
(b) Certified check or wire transfer of funds to Mr. Walker in
the amount of Ten Thousand and No/100 Dollars ($10,000.00), as payment
of the independent consideration payable pursuant to SECTION 2.2 of this
Agreement;
(c) The Mortgage Note;
(d) Guaranty of Specific Indebtedness in substantially the form
attached hereto as EXHIBIT I, duly executed by Allwaste guaranteeing
repayment of the Convertible Notes;
(e) The Walker Employment Agreement, duly executed by the
Purchaser;
(f) The Walker Noncompete Agreement, duly executed by the
Purchaser;
(g) The Registration Rights Agreement, duly executed by Invatec;
(h) Payment of any outstanding amounts payable to Sellers
pursuant to SECTION 5.9 of this Agreement;
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(i) An opinion of counsel issued by Boyer, Ewing & Harris
Incorporated, counsel for Purchaser, in form and content reasonably
satisfactory to Sellers and Sellers' legal counsel;
(j) Certificate in form and substance satisfactory to Sellers,
dated the Closing Date and executed by Purchaser, stating that after due
inquiry, Purchaser has determined that (1) all of Purchaser's
representations and warranties set forth in ARTICLE IV of this Agreement
are true, complete and correct as of the Closing Date, (2) Purchaser has
performed all of the covenants and agreements to be performed by
Purchaser pursuant to SECTION 5.9 of this Agreement, and (3) all
conditions to Closing set forth in SECTION 6.2 of this Agreement have
been satisfied;
(k) Certified resolutions of the Board of Directors of Purchaser,
in form and content reasonably acceptable to Sellers, authorizing the
transactions contemplated herein; and
(l) All other items required to be delivered hereunder or as may
be requested or which are necessary or would reasonably facilitate
consummation of the transactions contemplated hereby, including such
certificates as are necessary from third parties to establish the truth
and accuracy of Purchaser's representations and warranties set forth
herein.
7.4 FURTHER ASSURANCES. At and after the Closing, each of the Parties
shall take all appropriate action and execute all documents of any kind which
may be reasonably necessary or desirable to carry out the transactions
contemplated hereby. Each Seller, at any time at or after the Closing, will
execute, acknowledge and deliver any further stock powers, deeds, bills of sale,
assignments and other assurances, documents and instruments of transfer,
reasonably requested by Purchaser, and will take any other action consistent
with the terms of this Agreement that may reasonably be requested by Purchaser,
for the purpose of assigning and confirming to Purchaser (or, with respect to
the Walker Real Property, the Company), all of the Subject Shares, or if
necessary, any of the Assets, and the Walker Real Property.
7.5 PRORATION OF RENT AND AD VALOREM TAXES. Mr. Walker, Ms. Walker and
Purchaser hereby agree that all ad valorem taxes on the Walker Real Property for
the 1997 tax year, and any rental amounts owed by the Company to Mr. Walker
and/or Ms. Walker for the month in which Closing occurs and disclosed to the
Purchaser in the Schedules attached to this Agreement, shall be prorated as of
the Closing Date.
ARTICLE VIII
TERMINATION OF OBLIGATIONS, WAIVERS
OF CONDITIONS, PAYMENT OF EXPENSES AND LIQUIDATED DAMAGES
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8.1 TERMINATION OF AGREEMENT. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated herein may be
terminated at any time prior to Closing, as follows, and in no other manner:
(A) MUTUAL CONSENT. By mutual written consent of Purchaser and
Sellers;
(B) EXPIRATION DATE. By either Purchaser or Sellers if Closing
shall not have occurred on or before June 15, 1997 (as same may be
extended by mutual agreement of the Purchaser and Sellers), provided,
however, that the Party seeking to terminate shall be in compliance with
all of its covenants and obligations hereunder.
(C) PURCHASER'S OPTION. By the Board of Directors of Purchaser at
any time after the Closing Date (as same may be extended by mutual
agreement of the Purchaser and Sellers) if, by that date, the conditions
set forth in SECTION 6.1 hereof have not been met, provided, however,
that the failure to meet such conditions was not caused by the failure
of Purchaser to perform any of its covenants or obligations hereunder.
(D) SELLERS' OPTION. By any Seller at any time after the Closing
Date (as same may be extended by mutual agreement of the Purchaser and
Sellers) if, by that date, the conditions set forth in SECTION 6.2
hereof have not been met, provided, however, that the failure to meet
such conditions was not caused by the failure of any Seller to perform
any of his or her covenants or obligations hereunder.
8.2 PAYMENT OF EXPENSES; WAIVER OF CONDITIONS. In the event that this
Agreement shall be terminated pursuant to SECTION 8.1, all obligations of the
Parties under this Agreement shall terminate and there shall be no liability of
any Party to another (except by reason of default hereunder which has not been
waived). Absent such default, each Party will pay all costs and expenses
incident to such Party's negotiation and preparation of this Agreement and all
documents, instruments and agreements relating to the transactions contemplated
herein, and such Party's performance of and compliance with all agreements and
conditions contained herein or therein on such Party's part to be performed or
complied with, including the fees, expenses and disbursements of such Party's
counsel, auditors and investment bankers. If any of the conditions specified in
SECTION 6.1 have not been satisfied, Purchaser may nevertheless elect to waive
such conditions and proceed with the transactions contemplated hereby and, if
any of the conditions specified in SECTION 6.2 have not been satisfied, Sellers
may nevertheless elect to waive such conditions and proceed with the
transactions contemplated hereby. Any such waiver and election shall be
evidenced by a written instrument executed by the President of Purchaser and all
of the Sellers, setting forth with particularity the condition which has been
waived.
8.3 FORFEITURE OF CASH DOWN PAYMENT FOR FAILING TO CLOSE/LIQUIDATED
DAMAGES. In the event that his Agreement is validly terminated by the Sellers
under Section 8.1 (D) for failure of the Purchaser to close the transactions
contemplated in this Agreement on or prior to the Closing Date and the Sellers
are not in breach of this Agreement, the Sellers shall be entitled to retain the
Cash
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Down Payment. In the event of such termination and notwithstanding any other
provision of this Agreement, the Cash Down Payment shall be full and liquidated
damages for any breach by the Purchaser of any term or condition of this
Agreement or any other claim whatsoever related to or arising out of this
agreement or the transactions contemplated herein and the Sellers' shall have no
further recourse whatsoever against the Purchaser, Invatec or any Affiliate of
any of the foregoing relating to or arising out of this Agreement or the
transactions contemplated herein or therein.
ARTICLE IX
INDEMNIFICATION, ADJUSTMENT TO
STOCK PURCHASE PRICE AND OTHER REMEDIES
9.1 INDEMNIFICATION.
A. BY SELLERS. Sellers shall, jointly and severally, indemnify,
save, defend and hold harmless Purchaser, and Purchaser's shareholders,
directors, officers, agents, attorneys, accountants, investment bankers,
representatives and employees from and against any and all costs,
lawsuits, losses, liabilities, deficiencies, claims and expenses,
including interest, penalties, attorneys' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing
(collectively referred to herein as "Damages"), incurred in connection
with or arising out of or resulting from or incident to any breach of
any covenant or warranty, or the inaccuracy of any representation, made
by any Seller in or pursuant to this Agreement or any other agreement
contemplated hereby or in any schedule, certificate, exhibit, or other
instrument furnished by the Company, any Seller or any Affiliate of any
Seller under this Agreement.
B. BY PURCHASER. Purchaser shall indemnify, save, defend and
hold harmless Sellers, and Sellers' agents, attorneys, accountants,
investment bankers, representatives and employees from and against any
and all Damages incurred in connection with or arising out of or
resulting from or incident to any breach of any covenant or warranty, or
the inaccuracy of any representation, made by Purchaser in or pursuant
to this Agreement or any other agreement contemplated hereby or in any
schedule, certificate, exhibit, or other instrument furnished by
Purchaser under this Agreement.
C. DEFENSE OF CLAIMS. If any lawsuit or enforcement action is
filed against any person or entity entitled to the benefit of indemnity
hereunder, written notice thereof describing such lawsuit or enforcement
action in reasonable detail and indicating the amount (estimated, if
necessary) or good faith estimate of the reasonably foreseeable
estimated amount of Damages (which estimate shall in no way limit the
amount of indemnification the indemnified person or entity is entitled
to receive hereunder), shall be given to the indemnifying Party as
promptly as practicable (and in any event within ten (10) business days
after the service of the citation or summons); provided that the failure
of any indemnified person or entity to give timely notice shall not
affect such Party's rights to indemnification hereunder to the extent
that the indemnified person or entity demonstrates that the amount the
indemnified
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person or entity is entitled to recover exceeds the actual damages to
the indemnifying Party caused by such failure to so notify within ten
(10) days. After such notice, if the indemnifying Party elects to
compromise or defend any such asserted liability and to assume all
obligations contained in this SECTION 9.1 to indemnify the indemnified
person or entity, then the indemnifying Party shall be entitled, if the
indemnifying Party so elects, to take control of the defense and
investigation of such lawsuit or action and to employ and engage
attorneys of such indemnifying Party's own choice to handle and defend
the same, at the indemnifying Party's sole cost, risk and expense, and
such indemnified person or entity shall cooperate in all reasonable
respects, at the indemnifying Party's sole cost, risk and expense, with
the indemnifying Party and such attorneys in the investigation, trial,
and defense of such lawsuit or action and any appeal arising therefrom;
provided, however, that the indemnified person or entity may, at its or
his own cost, risk and expense, participate in such investigation, trial
and defense of such lawsuit or action and any appeal arising therefrom.
If the indemnifying Party promptly notifies the indemnified person or
entity that it or he intends to defend the claim and to assume all
obligations contained in this SECTION 9.1 to indemnify the indemnified
person or entity, the indemnified person or entity shall not pay, settle
or compromise such claim without the indemnifying Party's consent, which
consent shall not be unreasonably withheld. If the indemnifying Party
elects not to defend the claim of the indemnified person or entity, the
indemnified person or entity may, but shall not be obligated to, defend
or the indemnified person or entity may compromise or settle (exercising
reasonable business judgment) the claim or other matter on behalf, for
the account, and at the risk, of the indemnifying Party.
D. THIRD PARTY CLAIMS. The provisions of this SECTION 9.1 are
not limited to matters asserted by the Parties, but cover costs, losses,
liabilities, damages, lawsuits, claims and expenses incurred in
connection with third party claims. The indemnity hereunder is in
addition to any and all rights and remedies of the Parties in connection
herewith.
9.2 POST-CLOSING ADJUSTMENT TO STOCK PURCHASE PRICE. Within thirty (30)
days after the Closing Date, the Sellers shall deliver to Purchaser an unaudited
balance sheet and income statement of the Business, prepared as of the Closing
Date (the "Post-Closing Financial Statements"), which shall be true, complete
and correct in all respects and prepared in accordance with generally accepted
accounting principles, consistently applied, and certified as true, complete and
correct by Sellers. These Post-Closing Financial Statements shall become final
and binding on the Parties on the 15th day following receipt thereof by
Purchaser unless Purchaser furnishes written notice of Purchaser's disagreement
("Notice of Disagreement") to Mr. Walker prior to such date. Any Notice of
Disagreement shall specify in detail the nature of any disagreement so asserted.
If a Notice of Disagreement is sent by Purchaser to Mr. Walker in accordance
with this SECTION 9.2, then the Post-Closing Financial Statements shall become
final and binding upon the Parties on the earlier to occur of: (i) the date the
Parties resolve in writing any differences they have with respect to any matter
specified in the Notice of Disagreement, or (ii) the date any disputed matters
are finally resolved in writing by the Arbitrator (as defined below). During the
10-day period following the delivery of a Notice of Disagreement, the Parties
shall seek in good faith to resolve in writing any differences which they may
have with respect to any matter specified in the Notice of Disagreement. If, at
the end of
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such 10-day period (or such longer period of time as the Parties may agree upon
in writing), the Parties have not reached agreement on such matters, the matters
which remain in dispute, together with copies of this Agreement, the
Post-Closing Financial Statements, and the Notice of Disagreement, shall be
submitted, within five (5) days following the expiration of such 10-day period
(or any agreed upon extension thereof), to an arbitrator (the "Arbitrator") for
review and resolution. The Arbitrator shall be such nationally recognized
independent public accounting firm as shall be agreed upon by the Parties in
writing, after disclosure of any services provided by such firm to any of the
Parties, Allwaste, Inc., or any of their affiliates during the preceding
five-year period. All proceedings conducted by the Arbitrator shall be conducted
at the offices of the Arbitrator in Houston, Texas. The Arbitrator shall render
a decision resolving the matters in dispute as soon as practicable following the
date of the submission to the Arbitrator. The cost of any arbitration (including
the fees of the Arbitrator but excluding the fees and disbursements of each
party's independent auditors and counsel) pursuant to this SECTION 9.2 shall be
borne one-half by Purchaser and one-half by Sellers. The fees and disbursements
of Sellers' independent auditors and counsel incurred in connection with this
SECTION 9.2 shall be borne by Sellers, and the fees and disbursements of
Purchaser's independent auditors and counsel incurred in connection with this
SECTION 9.2 shall be borne by Purchaser. The final determination as described in
the procedures set forth hereinabove shall constitute the "Final Post-Closing
Financial Statements". To the extent that Two Million Four Hundred Thirty-Two
Thousand and No/100 Dollars ($2,432,000.00) exceeds the net book value of the
Company, as set forth in the Final Post-Closing Financial Statements (which net
book value shall not include the amount of any Walker Real Property Value or
Excess Inventory and Equipment Value), then the Purchase Price shall be
decreased by the amount of such excess. This decrease in the Purchase Price
shall be effected by reducing the original principal amount of each Convertible
Note, pro rata in the ratio which the original principal amount of such
Convertible Note bears to the aggregate original principal amount of all
Convertible Notes, and each Seller hereby covenants and agrees to execute and
deliver to Purchaser, within three (3) business days after receipt of an
execution counterpart thereof from Purchaser, a note modification agreement
reflecting this modification of the Purchase Price and of the original principal
amount of such Seller's Convertible Note.
9.3 SPECIFIC PERFORMANCE. Each of the Parties hereby acknowledges and
agrees that the transactions contemplated by this Agreement are unique, and that
it would be impossible to measure the damages which would result if any Party
should default in such Party's obligations under this Agreement; accordingly the
Parties hereby agree that each Party shall have, in addition to any other legal
or equitable remedy available to such Party, the right to enforce this Agreement
by decree of specific performance or other equitable remedy, and each Party
hereby irrevocably waives any defense, claim or assertion that a remedy in
damages will be adequate.
9.4 OFFSET; ATTORNEYS' FEES. To the extent permitted by applicable law,
all amounts due and owing to any Seller under this Agreement, the Convertible
Notes, the Mortgage Note or any document, instrument, or agreement executed in
connection herewith or therewith shall be subject to offset by the Purchaser to
the extent of any damages incurred as a result of any Seller's breach of this
Agreement or any document, instrument, or agreement executed by any Seller in
connection herewith. Each Seller hereby acknowledges and agrees that but for the
right of offset contained in this SECTION
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9.4, the Purchaser would not have entered into this Agreement or any of the
transactions contemplated herein. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing Party or Parties shall be entitled
to recover reasonable attorneys' fees and other costs incurred in that action or
proceeding in addition to any other remedies to which such Party or Parties may
be entitled at law or equity. The rights and remedies granted herein are
cumulative and not exclusive of any other right or remedy granted herein or
provided by law.
9.5 RIGHTS AND LIABILITIES OF PARTIES. Except as set forth in SECTION
9.1 with respect to certain indemnified third parties, nothing in this
Agreement, whether express or implied, is intended to confer any rights or
remedies under or by reason of this Agreement on any persons other than the
Parties and their respective successors and assigns, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third persons to any Party to this Agreement, nor shall any provision give any
third person any right of subrogation or action over against any Party to this
Agreement.
9.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing of the transaction contemplated herein and
the execution and delivery of the documents, instruments and agreements executed
or delivered at Closing, notwithstanding any investigation made by or on behalf
of Sellers or Purchaser.
ARTICLE X
MISCELLANEOUS
10.1 CONFIDENTIALITY. Unless and until Closing has occurred, or such
information is or becomes public through no fault of the disclosing Party, each
Party hereby agrees that he or it will not disclose any information of a
confidential or proprietary nature concerning the other Parties or their
respective businesses or operations to any third parties, except for the
following, each of whom shall be informed of the confidential nature of such
information and the necessity to retain it in confidence: (A) Purchaser's and
Sellers' officers, directors, and employees, (B) a limited number of outside
legal, accounting and other professional consultants or key agents, (C) the bank
lenders of the Company and the Purchaser, (D) Purchaser's underwriters, and
their respective attorneys and advisors, and (E) such other parties to whom such
Party is required to disclose such information under applicable law, pursuant to
the advice of legal counsel for such Party, in which event the disclosing Party
shall (i) give prior written notice to the other Parties of the disclosing
Party's legal obligation to disclose such information, including the person(s)
to whom such information is legally required to be disclosed, and (ii) disclose
only the portion of such information which the disclosing Party reasonably
believes, on the advice of legal counsel, is legally required to be disclosed.
Each Party agrees that prior to Closing, he or it and all of his or its
Affiliates will use information obtained in connection with the transactions
contemplated in this Agreement solely for the purpose of evaluating such
transactions, and in no event shall any Party use any of such confidential or
proprietary information for his or its own benefit or to
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the detriment of the other Parties. In the event that Closing does not occur
each Party shall, promptly upon request, return all of such confidential or
proprietary information to the appropriate Party, including any and all copies
thereof.
10.2 ANNOUNCEMENTS. Except as contemplated in SECTION 10.1, no public or
private announcement or disclosure shall be made by the Company or the Sellers
of the transactions contemplated herein without the prior written consent of the
Purchaser. None of the Parties nor their respective Affiliates shall publicly
disclose (whether by press release or filing of a report or disclosure with any
securities exchange or governmental authority) the matters contemplated hereby,
except as expressly contemplated herein, unless and until the Party proposing
such announcement or disclosure shall have supplied the proposed text of such
announcement or disclosure to the other Parties for review and comment at least
twenty-four (24) hours prior to release; provided however, that if in the good
faith opinion of legal counsel to the announcing or disclosing Party, such
announcement or disclosure is required under applicable federal or state law to
be made sooner, a copy of such announcement or disclosure shall be made
available to all other Parties as soon as possible, but in any event prior to
release.
10.3 IPO HOLDBACK. Each Seller hereby agrees that he or she will not
dispose of any of Invatec's common stock for a period of two years following the
date on which Invatec first receives payment for the shares of its common stock
which it sells to the underwriter in the IPO.
10.4 BROKERAGE COMMISSIONS AND OTHER FEES. Sellers hereby represent and
warrant that neither the Sellers nor the Company has incurred any liability for,
nor knows of any person or entity entitled to, any commission or finder's fee in
connection with this Agreement or the transactions contemplated herein.
Purchaser hereby represents and warrants that Purchaser has not incurred any
liability for, and does not know of any person or entity entitled to, any
commission or finder's fee in connection with this Agreement or the transactions
contemplated herein. Each Party shall be responsible for all costs, fees and
expenses (including attorney and accountant fees and expenses) paid or incurred
by such Party, and Sellers shall be responsible for all costs, fees and expenses
paid or incurred by the Sellers or the Company, in connection with the
preparation, negotiation, execution, delivery and performance of this Agreement,
or otherwise in connection with the transactions contemplated hereby.
10.5 ATTORNEYS' FEES. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing Party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or proceeding
in addition to any other remedies to which it may be entitled at law or equity
10.6 MODIFICATION OF AGREEMENT. This Agreement may be amended or
modified only in writing signed by all of the Parties.
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10.7 NOTICES. All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given when delivered personally or telefaxed during regular
business hours during a business day to the appropriate location described in
the preamble to this Agreement, or three (3) business days after posting thereof
by United States first-class, registered or certified mail, return receipt
requested, with postage and fees prepaid and addressed the appropriate Party's
address set forth in the preamble to this Agreement, with a copy to legal
counsel for such Party, at the address set forth on the letterhead on which such
counsel's legal opinion was delivered. Any Party may designate a different
address for subsequent notices or communications by furnishing notice to the
other Parties in the manner described above.
10.8 ADDITIONAL REMEDIES. All rights and remedies of each Party
hereunder are cumulative of every other right or remedy that such Party may
otherwise have at law or in equity or under this Agreement or any other
document, instrument or agreement. The exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
10.9 JOINT AND SEVERAL LIABILITY. All of Sellers' liabilities and
obligations hereunder shall be joint and several.
10.10 NON-WAIVER. Failure on the part of a Party in any one or more
instances to enforce any of such Party's rights which arise in connection with
this Agreement, or to insist upon the strict performance of any of the terms,
conditions or covenants of this Agreement, shall not be construed as a waiver or
relinquishment for the future of any such rights, terms, conditions or
covenants. No waiver of any condition of this Agreement shall be valid unless it
is in writing, and executed by the Party against whom such waiver is sought to
be enforced. Any valid waiver shall be effective only for the purposes expressly
set forth therein.
10.11 GOVERNING LAW; JURISDICTION; VENUE; SERVICE OF PROCESS. This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Texas, without regard to conflicts of law principles, and
the laws of the United States applicable in Texas. Venue for any litigation
between or among the Parties with respect to the subject matter of this
Agreement shall be Harris County, Texas or Calcasieu Parish Louisiana. Each
Party hereby irrevocably submits to personal jurisdiction in Texas and
Louisiana, and irrevocably waives all objections to personal jurisdiction in
Texas and Louisiana and venue in Harris County or Calcasieu Parish Louisiana for
purposes of such litigation. Process in any action or proceeding referred to in
this section may be served on any Party anywhere in the world.
10.12 CONSTRUCTION. The Parties and their respective legal counsel have
participated extensively in the preparation, negotiation and drafting of this
Agreement. Accordingly, no presumption will apply in favor of either Sellers or
Purchaser in the interpretation of this Agreement or in the resolution of the
ambiguity of any provision hereof. All words used herein shall be construed to
be of such gender or number as the circumstances require. As used herein the
term "this Agreement" shall mean this Agreement as a whole and as the same may,
from time to time hereafter,
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be amended, supplemented or modified. The words "herein," "hereof," "hereto,"
"hereunder," "hereinafter," "hereinabove," and "hereinbelow," and other words of
similar import, refer to this Agreement as a whole and not to any particular
article, section, paragraph, clause or other subdivision hereof, unless
otherwise specifically noted. As used herein, the words "include" or "including"
shall mean "including without limitation."
10.13 HEADINGS. The headings and subheadings of the Articles and
Sections contained herein or on any Schedule or Exhibit attached hereto are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement or any provisions hereof. Any reference herein to an Article
or Section shall be deemed to be a reference to the corresponding Article or
Section of this Agreement unless otherwise stated herein.
10.14 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective, valid and enforceable
under applicable law, but if any provision of this Agreement shall be prohibited
by, or invalid or unenforceable under, applicable law, then (i) the Parties
agree that they will amend such provisions by the minimal amount necessary to
bring such provisions within the ambit of enforceability, and (ii) any court of
competent jurisdiction may, at the request of either Party, revise, reform or
reconstruct such provisions in a manner sufficient to cause them to be
enforceable. In no event shall any prohibition against, or the invalidity or
unenforceability of, any provision hereof affect the validity or enforceability
of any other provision hereof.
10.15 SCHEDULES AND EXHIBITS. All schedules and exhibits attached to
this Agreement are hereby incorporated into and made a part of this Agreement.
10.16 FURTHER ASSURANCES. Each of the Parties shall perform such actions
and deliver or cause to be delivered any and all such documents, instruments and
agreements as the other Party may reasonably request for the purpose of fully
and effectively carrying out this Agreement and the transactions contemplated
hereby.
10.17 SUCCESSORS AND ASSIGNS. None of the Parties may assign their
rights, duties or obligations under this Agreement to any third party without
the written consent of the other Parties; provided, however, that Purchaser may
assign any or all of its rights, duties and obligations under this Agreement to
any corporation, whether now existing or formed hereafter, that is wholly owned
by Purchaser, for the purpose of reincorporating or reorganizing Purchaser in
contemplation of the IPO. This Agreement shall inure to the benefit of and be
binding upon the Parties and their respective successors and assigns.
10.18 ENTIRE AGREEMENT. This Agreement and all of the documents and
agreements executed in connection herewith set forth the entire agreement
between and among the Parties with respect to the subject matter hereof, and
supersede all prior or contemporaneous oral agreements or understandings, and
all prior written agreements, with respect thereto. There are no oral agreements
between or among the Parties.
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10.19 MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall have the force and effect of an original, and
all of which together shall constitute but one and the same agreement
EXECUTED AND DELIVERED EFFECTIVE as of the date first written above.
PURCHASER:
THE SAFE SEAL COMPANY, INC.
a Texas corporation
By:____________________________
WILLIAM E. HAYNES,
President & CEO
SELLERS:
___________________________________ __________________________________
CURRY B. WALKER, Individually NOLLIE J. WALKER, Individually
___________________________________ __________________________________
DEBORAH ELAINE RENFROE Individually CURRY B. WALKER, III, Individually
___________________________________ __________________________________
CHERYL LYNN MOUTON, Individually LAURA ANN THOMAS, Individually
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The undersigned, the spouses of each of Ms. Renfroe, Mr. Walker III, Ms.
Mouton and Ms. Thomas, are fully aware of, understand, and fully consent and
agree to the provisions of this Stock and Real Estate Purchase Agreement, and
its binding effect upon any community or other property interests that they may
own, and their awareness, understanding, consent and agreement are evidenced by
their execution hereof. The undersigned spouses of each of Ms. Renfroe, Mr.
Walker III, Ms. Mouton and Ms. Thomas additionally join in the execution hereof
in order to sell, assign and transfer unto Purchaser all of their respective
rights, titles and interests, legal or beneficial, if any, in the Subject
Shares.
______________________________________
NAME:________________________________,
SPOUSE OF DEBORAH ELAINE RENFROE
______________________________________
NAME:________________________________,
SPOUSE OF CURRY B. WALKER III
______________________________________
NAME:________________________________,
SPOUSE OF CHERYL LYNN MOUTON
______________________________________
NAME:________________________________,
SPOUSE OF LAURA ANN THOMAS
THE COMPANY:
PLANT SPECIALTIES, INC.
a Louisiana corporation
By:___________________________________
Curry B. Walker, President
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Schedule 1.5 - Assets
Schedule 2.2 - Sellers' Respective Ownership Interests
Schedule 3.3 - (A) Sellers' Consents and Approvals
Schedule 3.3 - (B) Sellers' Breaches and Defaults
Schedule 3.5 - Options, etc.
Schedule 3.7 - Exceptions to Title to Assets
Schedule 3.8 - Exceptions to Title to Walker Real Property
Schedule 3.9 - Leased Assets (Personal Property)
Schedule 3.10 - Condition of Assets and Leased Assets
Schedule 3.11 - Contracts
Schedule 3.12 - Other Contracts
Schedule 3.13 - Exceptions to Title to Equipment
Schedule 3.16 - Licenses
Schedule 3.17 - Intellectual Property
Schedule 3.18 - (A) Real Property Owned
Schedule 3.18 - (B) Real Property Leased
Schedule 3.19 - Subsidiaries
Schedule 3.20 - Insurance
Schedule 3.21 - Banking
Schedule 3.22 - Powers of Attorney
Schedule 3.23 - Personnel
Schedule 3.24 - Employee Benefits
Schedule 3.25 - Employment Agreements
Schedule 3.27 - Additional Liabilities
Schedule 3.28 - Litigation
Schedule 3.29 - Tax Returns
Schedule 3.31 - Environmental, Health and Safety
Schedule 3.33 - Certain Changes or Events
Schedule 3.34 - Customers
Schedule 3.35 - Interests in Customers, Supplies and Competitors
Schedule 4.3 - Purchaser's Consents
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Exhibit A - Legal Description of Walker Real Property
Exhibit B - Form of Convertible Note
Exhibit C - Form of Confidentiality and Noncompetition Agreement
Exhibit D - Mortgage Note
Exhibit E - Form of Sellers' Investor Representation Letters
Exhibit F - Form of Employment Agreement
Exhibit G - Registration Rights Agreement
Exhibit H - Act of Sale and Vendor's Lien
Exhibit I - Lender Subordination Agreement
Exhibit J - Allwaste Guaranty
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EXHIBIT 2.7
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 27, 1997
BY AND AMONG
INNOVATIVE VALVE TECHNOLOGIES, INC.,
SVSI ACQUISITION INC.,
SOUTHERN VALVE SERVICE, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is
made as of June 27, 1997, by and among Innovative Valve Technologies, Inc., a
Delaware corporation ("INVATEC"), SVSI Acquisition Inc., an Alabama corporation
and a wholly owned subsidiary of INVATEC ("INVATEC Sub"), Southern Valve
Service, Inc., an Alabama corporation (the "Company"), and the persons listed on
the signature page hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination by means of a plan of
reorganization providing for a Merger pursuant to which INVATEC Sub will merge
with and into the Company on the terms and subject to the conditions set forth
herein (that Merger being the "Acquisition"), which Acquisition will be
consummated substantially concurrently with a public offering of shares of
common stock of INVATEC;
The parties understand that INVATEC may enter into other
agreements similar to this Agreement (the "Other Agreements") for the
acquisition by INVATEC of other entities (collectively, the "Other Acquired
Businesses," and each of those entities, individually, an "Other Acquired
Business"), which Other Agreements will be among those entities and their equity
owners, INVATEC and subsidiaries of INVATEC;
The parties further understand that the concurrent public
offering of shares of INVATEC and the Acquisition will qualify as a Section 351
transaction in accordance with the Internal Revenue Code of 1986, as amended;
and
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
Paragraph 1. CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms have the meanings assigned to them below in this Paragraph
1. Capitalized terms used in this Agreement and not defined below in this
Paragraph 1 have the meanings assigned to them in the Preliminary Statement,
Article IX of the Uniform Provisions or the Special Provisions, as the case may
be.
"ABCA" means the Alabama Business Corporation Act.
"ACQUIRED BUSINESS" means the Company.
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"ACQUISITION CONSIDERATION" has the meaning specified in
Paragraph 2(D).
"CALCULATED VALUE" has the meaning specified in Schedule 2(D).
"CEILING AMOUNT" means $3,000,000.
"CLOSING" has the meaning specified in Paragraph 3.
"CLOSING DATE" means the IPO Pricing Date or such other date as
to which INVATEC and the Company may agree.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by INVATEC and approved by the Company and the Stockholders
(which approval will not be unreasonably withheld) for the Closing under
this Agreement in which are included the forms of certificates of
officers, opinions of counsel and certain other documents to be
delivered at the Closing as provided in Article V of the Uniform
Provisions.
"COMPANY" means Southern Valve Service, Inc., an Alabama
corporation.
"COMPANY CAPITAL STOCK" means the Common Stock, par value $10.00
per share, of the Company.
"CONTINGENT PAYMENT" has the meaning specified in Section 6.07 of
the Uniform Provisions.
"CONTINGENT PAYMENT DATE" means the date of the payment of the
Contingent Payment, which date shall be determined by INVATEC and shall
be within 60 days after the first anniversary of the Effective Time,
subject to extension as set forth in Paragraph C(2) of Schedule 2(D).
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Jenkens &
Gilchrist, Dallas, Texas.
"COUNSEL FOR INVATEC AND INVATEC SUB" means Boyer, Ewing & Harris
Incorporated, Houston, Texas.
"CURRENT BALANCE SHEET" means the balance sheet of the Company as
of January 31, 1997.
"CURRENT BALANCE SHEET DATE" means January 31, 1997.
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"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to INVATEC prior
to the execution and delivery of this Agreement by INVATEC and INVATEC
Sub in which either (a) exceptions are taken to any of certain of the
representations and warranties made by the Company and the Stockholders
herein or (b) it is confirmed that no exceptions are taken to the
representations and warranties made by the Company and the Stockholders.
"EBIT" means, for purposes of determining the EBIT Excess
hereunder, the Company's earnings before interest, income taxes and
extraordinary items, as determined in accordance with GAAP at the time
EBIT is to be determined; provided, however, that EBIT is to be
calculated only with respect to the business lines engaged in by the
Company immediately prior to the IPO Closing Date to the extent it is
generated by the business acquired by INVATEC in the Acquisition,
notwithstanding the fact that the Company may, after the Merger (and
subject to the limitations set forth in Section 6.07 of the Uniform
Provisions) from time to time in the future be modified or changed
through the addition of other businesses through merger, reorganization,
restructuring or otherwise.
"EBIT EXCESS" means an amount, to be determined in accordance
with GAAP, equal to the product of (a) four multiplied by (b) the
amount, if any, by which EBIT for the 12 month period commencing with
the first full month following the IPO Closing Date exceeds $880,000.
"EFFECTIVE DATE" means the IPO Closing Date.
"EXECUTIVE EMPLOYMENT AGREEMENTS" means the Employment Agreements
to be delivered at the Closing and entered into effective as of the
Effective Date between the INVATEC Sub and each of Lee Jordan, Ralph
Buffkin, Lee Roy Jordan and Clint Jordan substantially in the form of
Exhibits A-1- A-4, respectively.
"EXTENSION PAYMENT" means the cash payment of $100,000 payable by
INVATEC to the Stockholders (to be allocated between the Stockholders in
accordance with their Pro Rata Share) on or prior to August 31, 1997 in
the event that the IPO Closing Date does not occur on or prior to August
31, 1997 and INVATEC desires to extend the IPO Closing Date Deadline as
permitted under Section 11.01(a)(ii) of the Uniform Provisions, which
Extension Payment will be applied to the cash consideration payable to
the Stockholders under Schedule 2(D) in the event the IPO Closing Date
occurs on or prior to October 31, 1997 or retained by the Stockholders
as liquidated damages in the event the IPO Closing Date has not occurred
on or prior to such date.
"INITIAL FINANCIAL STATEMENTS" means (a) the balance sheets of
the Company as of October 31, 1995 and 1996 and the related statements
of operations and retained earnings for each of the Company's fiscal
years in the three-year period ended October 31, 1996, and (b)
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the Current Balance Sheet and the related statement of operations for
the three months ended on the Current Balance Sheet Date, which the
Company has delivered to INVATEC.
"PRO RATA SHARE" of a Stockholder means: (a) 76% in the case of
Lee Roy Jordan; and (b) 24% in the case of the Carl C. Jordan
Irrevocable Trust (the "Jordan Trust").
"PUBLICLY TRADED" means, with respect to the INVATEC Common
Stock, that such security is (a) listed on a domestic securities
exchange or (b) quoted on the Nasdaq National Market.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement evidencing the Registration Rights of the Stockholders, to be
delivered at the Closing in substantially the form of Exhibit B.
"RESPONSIBLE OFFICER" means Lee Roy Jordan.
"SPECIAL PROVISIONS" has the meaning specified in Paragraph 5.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"THRESHOLD AMOUNT" means $100,000.
"UNIFORM PROVISIONS" has the meaning specified in Paragraph 4.
Paragraph 2. THE MERGER.
(A) CERTIFICATE OF MERGER. Subject to the terms and conditions
hereof, the Company will cause the Certificate of Merger to be duly executed and
delivered on or promptly after the Closing Date and filed with the Secretary of
State of the State of Alabama.
(B) THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the Effective Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., Houston, Texas time, on the Effective Date.
(C) CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (1) INVATEC Sub will be merged with and into the Company in accordance
with the provisions of the ABCA, (2) INVATEC Sub will cease to exist as a
separate legal entity, (3) the articles of incorporation of the Company will be
amended to change the Company's authorized shares of capital stock to 1,000
shares, par value $1.00 per share, of Common Stock, (4) the Company will be the
Surviving Corporation and, as such, will, all with the effect provided by the
ABCA, (a) possess all the properties and rights, and be subject to all the
restrictions, duties and obligations, of the Company
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and INVATEC Sub and (b) be governed by the laws of the State of Alabama, (5) the
Charter Documents of the Company then in effect (after giving effect to the
amendment to the Company's articles of incorporation specified in clause (3) of
this sentence) will become and thereafter remain (until changed in accordance
with (a) applicable law (in the case of the articles of incorporation) or (b)
their terms (in the case of the bylaws)) the Charter Documents of the Surviving
Corporation, (6) the initial board of directors of the Surviving Corporation
will be the persons named in Schedule 2(C), and those persons will hold the
office of director of the Surviving Corporation, subject to the provisions of
the applicable laws of the State of Alabama and the Charter Documents of the
Surviving Corporation, and (7) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2(C), and each of those persons will serve in
each office specified for that person in Schedule 2(C), subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
person's successor is duly elected to, and, if necessary, qualified for, that
office.
(D) EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(1) the shares of Company Capital Stock issued and outstanding
immediately prior to the Effective Time will (a) be converted into the
right to receive, subject to the provisions of Paragraph 2(E), without
interest, on surrender of the certificates evidencing those shares, the
amount of cash and the number of whole and fractional shares of INVATEC
Common Stock determined as provided in Schedule 2(D) (the "Acquisition
Consideration"), (b) cease to be outstanding and to exist and (c) be
canceled and retired;
(2) each share of Company Capital Stock held in the treasury of
the Company or any Company Subsidiary will (a) cease to be outstanding
and to exist and (b) be canceled and retired; and
(3) each share of the Common Stock, par value $1.00 per share, of
INVATEC Sub issued and outstanding immediately prior to the Effective
Time will be converted into one share of Common Stock, par value $1.00
per share, of the Surviving Corporation and the shares of Common Stock
of the Surviving Corporation issued on that conversion will constitute
all the issued and outstanding shares of Capital Stock of the Surviving
Corporation.
Each holder of a certificate representing shares of Company Capital Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, subject to the provisions of Paragraph 2(E), without interest,
the Acquisition Consideration and the additional cash, if any, owing with
respect to those shares as provided in Paragraph 2(F).
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(E) DELIVERY, EXCHANGE AND PAYMENT.
(1) At or after the Effective Time: (a) the Stockholders, as
holders of certificates representing shares of Company Capital Stock,
will, on surrender of those certificates to INVATEC (or any agent that
may be appointed by INVATEC for purposes of this Paragraph 2(E)),
receive, subject to the provisions of this Paragraph 2(E) and Paragraph
2(F), the Acquisition Consideration; and (b) until any certificate
representing Company Capital Stock has been surrendered and replaced
pursuant to this Paragraph 2(E), that certificate will, for all
purposes, be deemed to evidence ownership of the number of whole shares
of INVATEC Common Stock included in the Acquisition Consideration
payable in respect of that certificate pursuant to Paragraph 2(D). All
shares of INVATEC Common Stock issuable in the Merger will be deemed for
all purposes to have been issued by INVATEC at the Effective Time.
(2) Each Stockholder will deliver to INVATEC (or any agent that
may be appointed by INVATEC for purposes of this Paragraph 2(E)) on the
Effective Date the certificates representing all the Company Capital
Stock owned by that Stockholder, duly endorsed in blank, or accompanied
by stock powers in blank duly executed, by that Person, and with all
necessary transfer tax and other revenue stamps, acquired at that
Person's expense, affixed and canceled. Each Stockholder shall cure any
deficiencies in the endorsement of the certificates or other documents
of conveyance respecting, or in the stock powers accompanying, the
certificates representing Company Capital Stock delivered by that
Person.
(3) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to INVATEC Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Capital Stock for which shares of INVATEC Common Stock
have been issued in the Merger until those certificates are surrendered
as provided herein, but (a) on that surrender INVATEC will cause to be
paid, to the Person in whose name the certificates representing such
shares of INVATEC Common Stock shall then be issued, the amount of
dividends or other distributions previously paid with respect to such
whole shares of INVATEC Common Stock with a record date, or which have
accrued, subsequent to the Effective Time, but prior to surrender, and
the amount of any cash payable to such Person for and in lieu of
fractional shares pursuant to Paragraph 2(F) and (b) at the appropriate
payment date or as soon as practicable thereafter, INVATEC will cause to
be paid to that Person the amount of dividends or other distributions
with a record date, or which have been accrued, subsequent to the
Effective Time, but which are not payable until a date subsequent to
surrender, which are payable with respect to such whole shares of
INVATEC Common Stock, subject in all cases to any applicable escheat
laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional
shares on surrender of outstanding certificates.
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(F) NO FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of INVATEC Common Stock will be issued, and if any
Stockholder would be entitled hereunder to receive a fractional share of INVATEC
Common Stock but for this Paragraph 2(F), that Stockholder will be entitled
hereunder to receive a cash payment for and in lieu thereof in the amount
(rounded upward to the nearest whole cent) equal to that Stockholder's
fractional interest in a share of INVATEC Common Stock multiplied by the IPO
Price.
(G) COMPANY DEBT LIMITATION. The Stockholders shall cause the
Company's total Indebtedness to be, immediately prior to the Closing Date and at
the Effective Time (and after giving effect to the repayment by the Company of
the net Indebtedness owed to the Stockholders by the Company, which net
Indebtedness owed to the Stockholders will be $185,000), not more than
$1,860,000. INVATEC may, at its sole option, waive the foregoing limitation on
Indebtedness by using all or a portion of the cash portion of the Acquisition
Consideration to repay any Company Indebtedness that is, immediately prior to
the Effective Time, in excess of $1,860,000, and the cash portion of the
Acquisition Consideration to be paid hereunder shall be reduced by the amount of
such repayment.
Paragraph 3. THE CLOSING. On or before the Closing Date, the
parties hereto will take all actions (other than those actions required or
contemplated to take place on the IPO Closing Date) necessary to (A) effect the
Acquisition (including, as permitted by the ABCA, (i) the execution of
Certificates of Merger, which will be subject to approval of counsel to the
Company, which approval will not be unreasonably withheld, (a) meeting the
requirements of the ABCA, (b) providing that the Merger will become effective on
the Effective Date and (ii) the transmitting for filing of those Certificates of
Merger with the Secretary of State of the State of Alabama), (B) verify the
existence and ownership of the certificates evidencing the Company Capital Stock
to be exchanged for the Acquisition Consideration pursuant to Paragraph 2(E) and
(C) satisfy the document delivery requirements on which the obligations of the
parties to effect the Acquisition and the other transactions contemplated hereby
are conditioned by the provisions of Article V of the Uniform Provisions (all
those actions collectively being the "Closing"). The Closing will take place at
the offices of Boyer, Ewing & Harris Incorporated, Nine Greenway Plaza, #3100,
Houston, Texas 77046 at 10:00 a.m., Houston time, or at such later time on the
Closing Date as INVATEC shall specify by written notice to Lee Roy Jordan. The
actions taken at the Closing will not include the delivery of the Company
Capital Stock to INVATEC Sub or the payment of the Acquisition Consideration to
the Stockholders. Instead, on the IPO Closing Date, the Company Capital Stock
will be surrendered in exchange for the Acquisition Consideration (with the cash
portion of the Acquisition Consideration being paid by wire transfer pursuant to
instructions delivered to INVATEC by the Stockholders prior to Closing or, in
the absence of such instructions, an INVATEC check), and all transactions
contemplated by this Agreement to be closed, delivered or completed on or before
the IPO Closing Date, including the delivery of Executive Employment Agreements
and the grant of options to purchase an aggregate of 50,000 shares of INVATEC
Common Stock at the IPO Price, will be closed, delivered and completed, as the
case may be. At the IPO Closing Date, INVATEC shall also purchase all of the
stock of 55 Leasing & Sales, Inc. ("Leasing Company"),
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under the terms of the Agreement attached as Exhibit C hereto, for aggregate
consideration consisting of the assumption of approximately $248,000 in Leasing
Company debt and the transfer of three motor vehicles and $30,000 in cash to the
stockholders of Leasing Company.
Paragraph 4. INCORPORATION OF UNIFORM PROVISIONS. (A) The
Innovative Valve Technologies, Inc. Uniform Provisions for Business Combinations
attached hereto as Annex 1 (the "Uniform Provisions") hereby are incorporated in
this Agreement by this reference and constitute a part of this Agreement with
the same force and effect as if set forth at length herein (except as otherwise
expressly set forth in this Paragraph 4).
(B) The introductory paragraphs to Articles I and II shall be
amended hereby to provide that the representations and warranties made by the
Stockholders are made severally by each Stockholder and not jointly.
Additionally, the representations and warranties made by the Stockholders in
Sections 1.03(a), 2.03(c)(i)(B), 2.03(c)(iv) and (d), Sections 2.15, 2.25 and
2.27(g) of the Uniform Provisions shall be deemed to be made solely to the
knowledge of the Stockholders. For purposes of such representations and
warranties "knowledge" shall mean any matters of which the Person making such
representation or warranty has actual knowledge and, in the case of an officer
or director of the Company, such Person shall also be imputed to have knowledge
of such things of which he would reasonably be expected to have knowledge based
upon his position and responsibilities with the Company. For purposes of such
representations and warranties "knowledge of the Company" shall mean only
matters of which any of the executive officers and directors of the Company have
knowledge. In addition, to the extent that a factual disclosure is made in the
Disclosure Statement with respect to one or more specified representations or
warranties (the "Specified Representations and Warranties") set forth in the
Uniform Provisions or this Agreement and the factual disclosure set forth
therein is relevant to one or more other representations and warranties in the
Uniform Provisions or this Agreement (the "Other Representations and
Warranties") such factual disclosure shall not be required to be repeated by the
Stockholders or the Company and shall be deemed to have been made with respect
to such Other Representations and Warranties to the extent that the facts set
forth in the Disclosure Statement with respect to the Specified Representations
and Warranties would reasonably alert INVATEC as to the potential applicability
or relevance of such factual disclosure to the Other Representations and
Warranties.
(C) The Parties also acknowledge that the Company does not have
any subsidiaries or multi-employer pension plans and that any references thereto
in the Uniform Provisions are inapplicable.
(D) Paragraph (c) of Section 3.04 of the Uniform Provisions is
hereby amended in its entirety to read as follows:
(c) All shares of INVATEC Common Stock and Newco Common Stock
outstanding immediately prior to the Effective Time, and all shares of
INVATEC Common Stock to be issued pursuant to Paragraph 2 (whether
issued at the Effective
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Date or as Contingent Consideration), when issued, (i) will have been
duly authorized and validly issued in accordance with the DGCL and their
issuer's Charter Documents and (ii) will be fully paid and
nonassessable. None of the shares of INVATEC Common Stock to be issued
pursuant to Paragraph 2 (whether issued at the Effective Date or as
Contingent Consideration) or Newco Common Stock will, when issued, have
been issued in breach or violation of (i) any applicable statutory or
contractual preemptive rights, or any other rights of any kind
(including any rights of first offer or refusal), of any Person or (ii)
the terms of any of its Derivative Securities then outstanding.
(E) Article III of the Uniform Provisions hereby is amended by
adding thereto the following Section 3.08.
3.08. DISCLOSURE TO STOCKHOLDERS. INVATEC has furnished the
Stockholders with a draft dated June 23, 1997 of the Registration
Statement (the "Draft Registration Statement"). The Draft Registration
Statement has been and the Registration Statement will be prepared in
substantial compliance with the Requirements of Form S-1 promulgated by
the SEC under the Securities Act (as such terms are defined in the
Uniform Provisions). As of the date of this Agreement and subject to
completion of the blank information to be completed therein, the Draft
Registration Statement does not, and as of the Closing Date and IPO
Closing Date the Registration Statement will not, contain an untrue
statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(F) INVATEC acknowledges that it has as of the date of this
Agreement completed the due diligence upon which it has determined the
Acquisition Consideration and determined to consummate the Acquisition. INVATEC
acknowledges that the obligations of the Company under Section 4.01 are to
enable INVATEC to fulfill its disclosure obligations under the Securities Act
and the Exchange Act in connection with the IPO and that, absent a material
breach of the representations or warranties or covenants or agreements set forth
in the Agreement, INVATEC shall have no right to terminate the Agreement based
upon information provided under Section 4.01.
(G) The following sentence is added to the end of Paragraph (a)
of Section 4.01:
INVATEC hereby indemnifies, holds harmless and agrees to defend the
Company for all losses, costs or expenses, including but not limited to
attorneys' fees, relating to physical damage or injury to any persons or
property caused by INVATEC's or its
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Representatives' inspections of, or access to, such sites and properties
and any costs and expenses incurred by INVATEC in conducting such
inspections.
(H) Paragraph (b) of Section 4.01 and Paragraphs (b), (c), (d),
(f) and (g) of Section 4.02 of the Uniform Provisions are modified to provide
that the Company and the Stockholders will use "reasonable commercial efforts"
to fulfill their obligations set forth in such Paragraphs instead of any other
standard set forth in those Paragraphs.
(I) Section 4.07 is hereby amended in its entirety to read as
follows:
Section 4.07. SUPPLEMENTAL INFORMATION. (a)Each of the Company
and the Stockholders agrees that, with respect to the representations
and warranties of that party contained in this Agreement, that party
will have the continuing obligation (except to the extent otherwise
provided in Section 4.07) until the Effective Time to provide INVATEC
promptly with such additional supplemental Information (collectively,
the "Supplemental Information"), in the form of (a) amendments to then
existing Schedules or Sections of the Disclosure Statement or (b)
additional Schedules or Sections of the Disclosure Statement, as would
be necessary, in the light of the circumstances, conditions, events and
states of facts then known to the Company or any Stockholder, to make
each of those representations and warranties true and correct as of the
Closing and on the IPO Closing Date. For purposes only of determining
whether the conditions to the obligations of INVATEC and Newco which are
specified in Section 5.03 have been satisfied, the Schedules and the
Disclosure Statement as of the Closing and on the IPO Closing Date shall
be deemed to be the Schedules and the Disclosure Statement as of the
date hereof as amended or supplemented by the Supplemental Information
provided to INVATEC prior to the Effective Time pursuant to this Section
4.07; provided, however, that if the Supplemental Information so
provided discloses the existence of circumstances, conditions, events or
states of facts which, in any combination thereof, have had, are having
or will have a Material Adverse Effect, INVATEC will be entitled to
terminate this Agreement pursuant to Section 11.01(a)(iv); and provided,
further, that if INVATEC is entitled to terminate this Agreement
pursuant to Section 11.01(a)(iv), but elects not to do so, it will be
entitled to treat as INVATEC Unindemnified Losses or INVATEC Indemnified
Losses (which treatment will not prejudice the right of any Stockholder
under Section 6.05 or Article VII, as applicable, to contest Damage
Claims made by INVATEC in respect of those INVATEC Unindemnified Losses
or INVATEC Indemnified Losses), as applicable, all Damages to the
Acquired Business which are attributable to the circumstances,
conditions, events and states of facts first disclosed herein after the
date hereof in the Supplemental Information.
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(b) INVATEC agrees that, with respect to the representations and
warranties of INVATEC contained in this Agreement, that INVATEC will
have the continuing obligation (except to the extent otherwise provided
in Section 4.07) until the Effective Time to provide the Company and the
Stockholders with such additional supplemental Information
(collectively, the "INVATEC Supplemental Information"), in the form of
all pre-effective and post effective amendments to the Registration
Statement promptly after filing thereof with the SEC. If the Company or
the Stockholders are entitled to terminate this Agreement or not close
pursuant to Sections 5.02 or 11.01(a)(iii), but elect not to do so, or
if there is a breach of INVATEC's representations or warranties
occurring at or after the Closing and prior to the IPO Closing, the
Stockholders will be entitled to treat as Stockholder Unindemnified
Losses or Stockholder Indemnified Losses (which treatment will not
prejudice the right of INVATEC under Section 6.05 or Article VII, as
applicable, to contest Damage Claims made by the Company or the
Stockholders respect of those Stockholder Unindemnified Losses or
Stockholder Indemnified Losses), as applicable, all Damages which are
attributable to the circumstances, conditions, events and states of
facts first disclosed herein after the date hereof in the INVATEC
Supplemental Information.
(J) Sections 4.10, 4.11 and 6.04 of the Uniform Provisions are
hereby deleted.
(K) A new Section 4.13 is hereby added to Article IV of the
Uniform Provisions which shall read as follows:
Section 4.13. Removal of Guaranties. No later than five business
days after the IPO Closing Date, INVATEC will cause the Stockholder
Guaranties, if any, listed in Section 4.13 of the Disclosure Statement,
to be terminated. INVATEC will indemnify and hold harmless each
Stockholder from and against any liabilities, claims, demands,
judgments, losses, costs, damages or expenses whatsoever (including
reasonable attorneys' fees) that such Stockholder may sustain, suffer or
incur and that result from or arise out of or relate to such Stockholder
Guaranties.
(L) Subparagraph (ii)(B)(4) of Section 5.02 of the Uniform
Provisions is hereby amended in its entirety to read as follows:
(4) the Registration Rights Agreement duly executed and delivered
by INVATEC and the Executive Employment Agreements duly executed by
INVATEC Sub; and
(M) Section 5.03 of the Uniform Provisions is hereby amended as
follows:
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(1) Subparagraph (a)(ii)(A) of Section 5.03 of the Uniform
Provisions is amended in its entirety to read as follows:
(A) REPRESENTATIONS AND WARRANTIES. All the
representations and warranties of the stockholders and the
Company in Articles I and II and in the Special Provisions, if
any, shall be true and correct in all material respects as of the
Closing as though made at that time.
(2) Subparagraph (a)(ii)(B)(1) of Section 5.03 of the Uniform
Provisions is amended in its entirety to read as follows:
(1) a Company officer's certificate, signed by a
Responsible Officer, respecting (i) the representations and
warranties of the Stockholders and the Company in Articles I and
II and in the Special Provisions, if any, (ii) compliance with
the covenants of the Stockholders and the Company in Article IV,
and (iii) for the period beginning on the last date for which the
Company's financial information was provided by the Company to
INVATEC prior to the execution of this Agreement and ending on
the Closing Date, the material conformity of operations of the
Company with all the budgets and projections furnished to INVATEC
by the Company or the Stockholders, and in the form thereof
attached as an exhibit to the Closing Memorandum;
(3) A new Paragraph (C) is added to Section 5.03(a)(ii) of the
Uniform Provisions which shall read as follows:
(C) At least fifteen days prior to Closing unaudited
financial statements (the "Interim Financial Statements") dated
as of June 30, 1997, subject to review and approval by INVATEC,
which shall reflect net book value of at least the amount set
forth in the Current Balance Sheet.
(4) Paragraph (b) of Section 5.03 is hereby amended in its
entirety to read as follows:
(b) The obligations of INVATEC and Newco with respect to
the actions to be taken on the IPO Closing Date are subject to
(i) the satisfaction on that date of all the conditions set forth
in Section 5.01(b), if any, and (ii) the condition that all the
representations and warranties of the Stockholders and the
Company in Articles I and II and the Special Provisions, if any,
shall be true and correct in all material respects as of the IPO
Closing Date as though made on that date.
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<PAGE>
(N) Sections 6.05 and Subsection 6.06(a) of the Uniform
Provisions shall be amended in their entirety to read as follows:
Section 6.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Notwithstanding any investigation at any time made by or on behalf of
any party hereto, the representations and warranties set forth in
Articles I and II and in any certificate delivered in connection
herewith with respect to any of those representations and warranties
will survive the Effective Time until the day that is eighteen months
from the Effective Time, whereupon they will terminate and expire,
except as follows (i) the representations and warranties of the
Stockholders which relate expressly or by necessary implication to the
environment or Environmental Laws will survive for three years from the
Effective Time and then terminate and expire, (ii) the representations
and warranties of the Stockholders with respect to Taxes, ERISA or the
Governmental Requirements referred to in clause (iii) of Section 7.02(a)
shall survive for the duration of the applicable statute of limitations
(including all periods of extension and tolling) and then terminate and
expire, and (iii) the representations and warranties of the Company will
terminate and expire at the Effective Time. The representations and
warranties of INVATEC set forth in Article III shall survive for two
years following the Effective Date and thereafter terminate or expire,
except that any representations and warranties that would relate to a
claim by any of the Stockholders against INVATEC under Section 3.08
shall survive for the duration of the applicable statute of limitations
(including all periods of extension and tolling) relating to claims made
under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and
then terminate and expire.
Section 6.06. LIMITATIONS ON DAMAGE CLAIMS. (a) In the event
INVATEC should have any Damage Claim hereunder following the Effective
Time against any Stockholder which does not involve an INVATEC
Indemnified Loss (each such Damage Claim not involving an INVATEC
Indemnified Loss being an "INVATEC Unindemnified Loss"), that
Stockholder will not be liable to INVATEC on account of that INVATEC
Unindemnified Loss unless the liability of that Stockholder in respect
of that INVATEC Unindemnified Loss, when aggregated with the liability
of that Stockholder in respect of the sum of (i) his Pro Rata Share of
all INVATEC Unindemnified Losses and (ii) his Pro Rata Share of all
INVATEC Indemnified Losses under Sections 7.02(a) and 7.02(b), exceeds,
and only to the extent the aggregate amount of all those INVATEC
Unindemnified Losses and INVATEC Indemnified Losses does exceed, his Pro
Rata Share of the Threshold Amount. In no event shall the aggregate
liability of the Stockholders under this Agreement, including Sections
7.02(a) and 7.02(b), exceed the Ceiling Amount or the aggregate
liability of each Stockholder under this Agreement, including Sections
7.02(a) and
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<PAGE>
7.02(b), exceed that Stockholder's Pro Rata Share of the Ceiling Amount.
Also, notwithstanding any other provisions of this Agreement or the
Uniform Provisions, the beneficiaries of the Jordan Trust shall not have
any liability under this Agreement beyond the amount of any Acquisition
Consideration distributed to such beneficiaries. For purposes of
determining the amount of INVATEC Unindemnified Losses and INVATEC
Indemnified Losses, no effect will be given to any resulting Tax benefit
to INVATEC or any other INVATEC Indemnified Party.
(O) Article VI of the Uniform Provisions hereby is amended by
adding thereto the following Section 6.07, which will read in its entirety as
follows:
Section 6.07. CONTINGENT PAYMENT. Subject to the terms and
conditions of this Agreement, on the Contingent Payment Date, each
Stockholder will receive his Pro Rata Share of the number of whole
shares of INVATEC Common Stock and/or cash determined as provided in
Schedule 2(D) of this Agreement (the "Contingent Payment"). INVATEC
agrees that during the twelve months following the Effective Date it
will not make, or allow to be made, any material change in the Acquired
Business which could reasonably be expected to reduce the amount of the
Contingent Payment (including, without limitation, incorporation of an
acquisition or other material operations into the Acquired Business, a
change in key management, or diversion of key management of the Company
to other INVATEC projects), without prior consultation with the
Stockholders and the mutual agreement of the Stockholders and INVATEC
and as to an equitable adjustment of the threshold for determination of
EBIT Excess of the Acquired Business, so as to ensure that the
Contingent Payment is not reduced by any such material change in the
Acquired Business without the express agreement of the Stockholders.
(P) Section 7.01 of the Uniform Provisions is hereby amended in
its entirety to read as follows:
Section 7.01. IN RESPECT OF REPRESENTATIONS AND WARRANTIES. After
a representation and warranty has terminated and expired as provided in
Section 6.05, no indemnification will or may be sought pursuant to this
Article VII on the basis of that representation and warranty by any
Person who would have been entitled pursuant to this Article VII to
indemnification on the basis of that representation and warranty prior
to its termination and expiration. In the case of each representation
and warranty that will terminate and expire as provided in Section 6.05,
no claim presented in writing for indemnification pursuant to this
Article VII on the basis of that representation and warranty prior to
its termination and expiration will be affected in any way by that
termination and expiration.
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<PAGE>
(Q) Section 7.02 of the Uniform Provisions is hereby amended in
its entirety to read as follows:
Section 7.02. INDEMNIFICATION OF INVATEC INDEMNIFIED PARTIES. (a)
Subject to the applicable provisions of Sections 7.01 and 7.06, the
Stockholders covenant and agree that they, severally and not jointly,
will indemnify each INVATEC Indemnified Party against, and hold each
INVATEC Indemnified Party harmless from and in respect of, all Third
Party Claims that arise from, are based on or relate or otherwise are
attributable to (i) any breach of the representations and warranties of
the Stockholders or the Company set forth herein (other than in Article
I) or in certificates delivered in connection herewith (other than in
respect of certificates relating only to the representations and
warranties in Article I), (ii) any nonfulfillment of any covenant or
agreement on the part of the Stockholders or the Company under this
Agreement or (iii) any liability under the Securities Act, the Exchange
Act or other applicable Governmental Requirement which arises out of or
is based on (A) any untrue statement or alleged untrue statement of a
material fact relating to the Company and the Company Subsidiaries, or
any of them, which is (1) provided in writing to INVATEC or its counsel
by the Company or the Stockholders and (2) contained in any preliminary
prospectus relating to the IPO, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or
supplement thereto, and not corrected by the Stockholder or the Company
after the Company or such Stockholder has been given a reasonable
opportunity to review such preliminary prospectus or other
documentation, or (B) any omission or alleged omission to state therein
a material fact relating to the Company and the Company Subsidiaries, or
any of them, required to be stated therein or necessary to make the
statements therein not misleading, and not provided to INVATEC or its
counsel by the Company or the Stockholders after the Company or the
Stockholders have been given a reasonable opportunity to review such
preliminary prospectus or other documentation or furnish such
information (each such Third Party Claim and each Third Party Claim
described in Section 7.02(b) being an "INVATEC Indemnified Loss").
(b) Each Stockholder, severally and not jointly with any other
Person, covenants and agrees that he will indemnify each INVATEC
Indemnified Party against, and hold each INVATEC Indemnified Party
harmless from and in respect of, all Third Party Claims that arise from,
are based on or relate or otherwise are attributable to (i) any breach
of the representations and warranties of that Stockholder solely as to
that Stockholder set forth in Article I or in certificates delivered by
that Stockholder and relating to those representations and warranties,
(ii) any nonfulfillment of any several, and not joint and several,
agreement on the part of that Stockholder under this Agreement or (iii)
any liability under the Securities Act, the
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<PAGE>
Exchange Act or other applicable Governmental Requirement which arises
out of or is based on (A) any untrue statement or alleged untrue
statement of a material fact relating solely to that Stockholder which
is (1) provided in writing to INVATEC or its counsel by that Stockholder
and (2) contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto and not corrected by the
Stockholder or the Company after the Company or such Stockholder has
been given a reasonable opportunity to review such preliminary
prospectus or other documentation, or (B) any omission or alleged
omission to state therein a material fact relating solely to that
Stockholder required to be stated therein or necessary to make the
statements therein not misleading, and not provided to INVATEC or its
counsel by that Stockholder after the Company or such Stockholder has
been given a reasonable opportunity to review such preliminary
prospectus or other documentation or furnish such information.
(R) Section 7.05 and Paragraph (a) of Section 7.06 of the Uniform
Provisions are hereby amended in their entirety to read as follows:
Section 7.05. REMEDIES NOT EXCLUSIVE. The remedies provided in
this Agreement shall not be exclusive of any other rights or remedies
available to one party against any other party, either at law or in
equity, provided that any damages by reason of such remedies shall be
limited as provided in Sections 6.05, 6.06, 7.01, 7.02 and 7.06 of the
Uniform Provisions.
Section 7.06. LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding
the provisions of Sections 7.02(a) and (b), no Stockholder shall be
required to indemnify or hold harmless any of the INVATEC Indemnified
Parties on account of any INVATEC Indemnified Loss under Sections
7.02(a) and (b) unless the Pro Rata Share of liability of that
Stockholder in respect of that INVATEC Indemnified Loss, when aggregated
with the liability of that Stockholder in respect of the sum of his Pro
Rata Share of (i) all INVATEC Unindemnified Losses and (ii) all INVATEC
Indemnified Losses under Sections 7.02(a) and 7.02(b), exceeds, and only
to the extent the aggregate amount of his Pro Rata Share of all those
INVATEC Unindemnified Losses and INVATEC Indemnified Losses does exceed,
his Pro Rata Share of the Threshold Amount. In no event shall (i) the
aggregate liability of the Stockholders under this Agreement, including
Sections 7.02(a) and 7.02(b), exceed the Ceiling Amount or (ii) the
aggregate liability of each Stockholder under this Agreement, including
Sections 7.02(a) and 7.02(b), exceed that Stockholder's Pro Rata Share
of the Ceiling Amount. In addition, to the extent that INVATEC is
entitled to any indemnity hereunder from the Stockholders, the
Stockholders shall be entitled to surrender to INVATEC shares of INVATEC
Common Stock in lieu of
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<PAGE>
cash, such INVATEC Common Stock to be valued at the Calculated Value
determined on the last trading day immediately prior to the date of
surrender of such shares to INVATEC. For purposes of determining the
amount of INVATEC Indemnified Losses, no effect will be given to any
resulting Tax benefit to any INVATEC Indemnified Party.
(S) Sections 10.01 and 10.02 are hereby amended in their entirety
to read as follows:
Section 10.01. TREATMENT OF CONFIDENTIAL INFORMATION. (a) Each of
the Company and the Stockholders, severally and not jointly with any
other Person, acknowledges that it has or may have had in the past,
currently has had access to Confidential Information of the Company, the
Other Acquired Businesses and their Subsidiaries and INVATEC and its
Subsidiaries. Each of the Company and the Stockholders, severally and
not jointly with any other Person, agrees that it will keep confidential
all such Confidential Information furnished to it and, except with the
specific prior written consent of INVATEC, will not disclose such
Confidential Information to any Person except (a) Representatives of
INVATEC and (b) its own Representatives, provided that these
Representatives (other than counsel) agree to the confidentiality
provisions of this Section 10.01. Each of INVATEC and INVATEC Sub
acknowledges that in connection with its investigation of the Company
and the Stockholders and the negotiation of this Agreement that it has
had access to Confidential Information of the Company. INVATEC and
INVATEC Sub agree that they will keep confidential all such Confidential
Information of the Company furnished to either of them and will not
disclose such Confidential Information to any Person, except that such
Confidential Information may be disclosed (a) to Representatives of the
Stockholders, (b) to Representatives of INVATEC OR INVATEC Sub, provided
that these Representatives (other than counsel) agree to the
confidentiality provisions of this Section 10.01, (c) with the specific
prior written consent of the Company or the Stockholders, (d) following
the Closing or (e) to the extent reasonably customary or necessary in
connection with the "Road Show" to be conducted with respect to the IPO.
"Confidential Information" shall not include such information as (i)
becomes known to the public generally through no fault of any person
subject to a confidentiality obligations with respect to such
Confidential Information, (ii) is required to be disclosed by law or the
order of any Governmental Authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), the
Person required to disclose such information shall, if possible, give
prior written notice thereof to the Person for whose benefit the
Confidential Information is subject to protection and provide such
person with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably
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<PAGE>
believes is required to be disclosed in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or
threatened breach by any Person of the provisions of this Section 10.01
with respect to any Confidential Information, the Person or Persons
entitled to protection of such Confidential Information shall be
entitled to an injunction restraining such Person from disclosing, in
whole or in part, that Confidential Information. Nothing herein shall be
construed as prohibiting a Person from pursuing any other available
remedy for such breach or threatened breach, including the recovery of
damages.
(b) Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 10.01(a), and
because of the immediate and irreparable damage that would be caused to
any Person for which it would have no other adequate remedy, each of
INVATEC, the Company and the Stockholders agrees that INVATEC, the
Company or the Stockholders, as the case may be, may enforce the
provisions of Section 10.01(a) by injunctions and restraining orders
against any Person who breaches any of those provisions.
(c) The obligations of the parties under this Section 10.01 shall
survive the termination of this Agreement.
Section 10.02. BROKERS AND AGENTS. The Stockholders jointly and
severally represent and warrant to INVATEC that the Company has not
directly or indirectly employed or become obligated to pay any broker or
similar agent in connection with the transactions contemplated hereby
and agree, without regard to the Threshold Amount limitations set forth
in Article VII, to indemnify INVATEC against all Damage Claims arising
out of claims for any and all fees and commissions of brokers or similar
agents employed or promised payment by the Company. INVATEC represents
and warrants to the Stockholders that INVATEC has not directly or
indirectly employed or become obligated to pay any broker or similar
agent in connection with the transactions contemplated hereby and
agrees, without regard to the Threshold Amount limitations set forth in
Article VII, to indemnify the Stockholders and the Company against all
Damage Claims arising out of claims for any and all fees and commissions
of brokers or similar agents employed or promised payment by INVATEC.
(T) Section 10.12 is amended to read in its entirety as follows:
Section 10.12 RELEASES. (a) Subject to the limitations set forth
in the last sentence in this Section 10.12(a), each Stockholder hereby
unconditionally and irrevocably releases and forever discharges,
effective as of and forever after the Effective Time, to the fullest
extent permitted by applicable law, all past, present and
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<PAGE>
future INVATEC Indemnified Parties (including, after the Effective Time,
each of the Company and the Company Subsidiaries which is a Subsidiary
of INVATEC immediately after the Effective Time) (collectively, the
"Released Parties") from any and all debts, liabilities, obligations,
claims, demands, actions or causes of action, suits, judgments or
controversies of any kind whatsoever (collectively, "Pre-Acquisition
Claims") against the Company or any of them that arises out of or is
based on any agreement or understanding or act or failure to act
(INCLUDING ANY ACT OR FAILURE TO ACT THAT CONSTITUTES ORDINARY OR GROSS
NEGLIGENCE OR RECKLESS OR WILLFUL, WANTON MISCONDUCT),
misrepresentation, omission, transaction, fact, event or other matter
occurring prior to the Effective Time (whether based at law or in equity
or otherwise, foreseen or unforeseen, matured or unmatured, known or
unknown, accrued or not accrued) (collectively, "Pre-Acquisition
Matters"), including: (a) claims by the Stockholder with respect to
repayment of loans or indebtedness; (b) any rights, titles and interests
in, to or under any agreements, arrangements or understandings to which
the Stockholder is a party, including any stockholder agreement,
shareholder agreement, buy-sell agreement or other agreement offering
the shareholder rights or imposing restrictions as to the Company Common
Stock; and (c) claims by the Stockholder with respect to dividends,
violation of preemptive rights, or payment of salaries or other
compensation or in any way arising out of or in connection with the
Stockholder's employment with the Company, the cessation of that
employment, the Stockholder's status as an officer, director or
stockholder of the Company or otherwise (but excluding any and all
claims in respect of (i) accrued and unpaid amounts owing to the
Stockholder pursuant to each Employment Agreement disclosed in Section
2.27 to the Disclosure Statement to which the Stockholder is a party,
(ii) accrued and unpaid cash compensation owing to the Stockholder in
the normal and ordinary course of business and consistent with past
practices, (iii) benefits accrued under each Company ERISA Benefit Plan
or Other Compensation Plan, the existence of which has been disclosed in
Section 2.27 to the Disclosure Statement, and (iv) amounts or other
obligations owing to the Stockholder, directly or indirectly, pursuant
to each Retained Related Party Agreement, if any, which is disclosed in
Section 2.12 to the Disclosure Statement and to which the Stockholder,
directly or indirectly, is a party). The Stockholder further agrees not
to file or bring any Litigation before any Governmental Authority on the
basis of or respecting any Pre-Acquisition Claim concerning any
Pre-Acquisition Matter against any Related Party. Each Stockholder (a)
acknowledges that he or she fully comprehends and understands all the
terms of this Section 10.12(a) and their legal effects and (b) expressly
represents and warrants that (i) he or she is competent to effect the
release made in this Section 10.12(a) knowingly and voluntarily and
without reliance on any statement or representation of any Released
Party or its Representatives and (ii) he or she had the opportunity to
consult with an attorney of his or her choice regarding this Section
10.12(a). This
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<PAGE>
Section 10.12(a) shall not affect the rights of the Stockholders under
this Agreement or any other Transaction Document.
(b) Subject to the limitations set forth in the last sentence in
this Section 10.12(b) INVATEC hereby on behalf of itself, its Affiliates
and, after the Effective Time, the Company unconditionally and
irrevocably releases and forever discharges, effective as of and forever
after the Effective Time, to the fullest extent permitted by applicable
law, each of the Stockholders from any and all debts, liabilities,
obligations, claims, demands, actions or causes of action, suits,
judgments or controversies of any kind whatsoever against the
Stockholders that arise out of or are based on any agreement or
understanding or act or failure to act (INCLUDING ANY ACT OR FAILURE TO
ACT THAT CONSTITUTES ORDINARY OR GROSS NEGLIGENCE AND EXCLUDING ANY
FRAUD OR CRIMINAL ACTIVITIES), misrepresentation, omission, transaction,
fact, event or other matter occurring prior to the Effective Time
(whether based at law or in equity or otherwise, foreseen or unforeseen,
matured or unmatured, known or unknown, accrued or not accrued and
whether related to their capacity as officers, directors or stockholders
of the Company) (collectively, "Pre-Acquisition Stockholder Matters").
The Company further agrees not to file or bring any Litigation before
any Governmental Authority on the basis of or respecting any
Pre-Acquisition Claim against Stockholders concerning any
Pre-Acquisition Stockholder Matter against any Related Party. This
Section 10.12(b) shall not affect the rights of INVATEC or any INVATEC
Indemnified Parties under this Agreement or any other Transaction
Document.
(U) Section 11.01(a)(ii) of the Uniform Provisions shall be
amended in its entirety to read as follows:
(ii) by the Stockholders or the Company, on the one hand, or by
INVATEC, on the other hand, if the transactions contemplated by this
Agreement to take place at the IPO Closing Date shall not have occurred
by August 31, 1997 (the "IPO Closing Date Deadline"), unless the failure
of such transactions to be consummated results from the willful failure
of the party (or in the case of the Stockholders and the Company, any of
them) seeking to terminate this Agreement to perform or adhere to any
agreement required hereby to be performed or adhered to by it prior to
or at the Closing or thereafter on the IPO Closing Date; provided
however, that the IPO Closing Date Deadline may be unilaterally extended
by INVATEC to October 31, 1997 upon payment by INVATEC to the
Stockholders of the Extension Payment on or prior to August 31, 1997;
(V) Section 11.02 of the Uniform Provisions shall be amended to
read in its entirety as follows:
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<PAGE>
Section 11.02. LIABILITIES IN EVENT OF TERMINATION. If this
Agreement is terminated pursuant to Section 11.01, there shall be no
liability or obligation on the part of any party hereto except to the
extent that such liability is based on the breach by that party of any
of its representations, warranties or covenants set forth in this
Agreement; provided, however, that, without regard to the Threshold
Amount, (i) if INVATEC terminates this Agreement pursuant to Section
11.01(iii), then the Company and the Stockholders shall be jointly and
severally obligated to pay INVATEC, within 10 days of such termination,
an amount in cash (up to a maximum of $25,000) equal to one-half of the
reasonable out-of-pocket costs and expenses incurred by or on behalf of
INVATEC or INVATEC Sub in connection with their due diligence with
respect to the aborted Acquisition, (ii) if the Stockholders or the
Company terminate this Agreement pursuant to Section 11.01(iii), then
INVATEC and INVATEC Sub shall be jointly and severally obligated to pay
the Company, within 10 days of such termination, an amount in cash (up
to a maximum of $25,000) equal to one-half of the reasonable
out-of-pocket costs and expenses incurred by or on behalf of the Company
or the Stockholders in connection with the negotiation of the
transaction and their due diligence with respect to the aborted
Acquisition and (iii) in the event that INVATEC pays the Stockholders
the Extension Payment, and the Closing does not occur on or prior to
October 31, 1997 the Stockholders shall, in addition to any other
amounts payable in accordance with this sentence, be entitled to retain
such Extension Payment as liquidated damages for failure of INVATEC and
INVATEC Sub to effect the Closing on or prior to such date.
Paragraph 5. INCORPORATION OF SPECIAL PROVISIONS. Addendum U --
"Special Provisions Relating to the Unregistered INVATEC Common Stock Included
in the Acquisition Consideration" attached hereto as an Addendum (the "Special
Provisions") hereby is incorporated in this Agreement by this reference and
constitutes a part of this Agreement with the same force and effect as if set
forth at length herein.
Paragraph 6. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument. THE PARTIES SPECIFICALLY
CONTEMPLATE THAT THIS AGREEMENT SHALL BECOME BINDING UPON THE EXECUTION OF ONE
OR MORE COUNTERPARTS OF THIS AGREEMENT BY EACH PARTY AND THE DELIVERY BY OF SUCH
COUNTERPART OR COUNTERPARTS BY FACSIMILE COPY TO THE OTHER PARTIES HERETO.
Paragraph 7. NOTICES. For purposes of Section 10.06, notices
shall be addressed to the Stockholders and the Company, as follows:
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if to the Company or a Stockholder, addressed to:
Mr. Lee Roy Jordan
2425 Burbank Street
Dallas, Texas 75235
Fax No.: (214) 351-6076
or
Mr. Carl C. Jordan Irrevocable Trust
2425 Burbank Street
Dallas, Texas 75235
Fax No.: (214) 351-6076
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Jenkens & Gilchrist
Fountain Place
1445 Ross Avenue
Suite 3200
Dallas, Texas 75202-2799
Fax No.:(214) 855-4300
Attn: Thomas L. Bloodworth
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By: ___________________________
Name:
Title:
SVSI ACQUISITION INC.
By: ___________________________
Name:
Title:
SOUTHERN VALVE SERVICE, INC.
By: ___________________________
Lee Roy Jordan
President
Stockholders:
___________________________
Lee Roy Jordan
CARL C. JORDAN
IRREVOCABLE TRUST
By:__________________________
Lee Roy Jordan, Co-Trustee
By:__________________________
Clint Jordan, Co-Trustee
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<PAGE>
SCHEDULE 2(C)
to the
Agreement and Plan of Reorganization
to which
Innovative Valve Technologies, Inc.
and
Southern Valve Service, Inc.
are parties
A. Words and terms used in this Schedule which are defined in the
captioned Agreement are used herein as therein defined.
B. The sole director of the Surviving Corporation immediately
after the Effective Time will be William E. Haynes.
C. The officers of the Surviving Corporation immediately after
the Effective Time are as follows:
Chief Executive Officer............................. William E. Haynes
President........................................... Lee Roy Jordan
Senior Vice President, Treasurer and Secretary...... Charles F. Schugart
Vice President...................................... John L. King
Vice President and Controller....................... Douglas R. Harrington, Jr.
End of Schedule
<PAGE>
SCHEDULE 2(D)
to the
Agreement and Plan of Reorganization
to which
Innovative Valve Technologies, Inc.
and
Southern Valve Service, Inc.
are parties
A. Words and terms used in this Schedule which are defined in the
captioned Agreement are used herein as therein defined.
B. Subject to reduction by the application of the provisions of
Paragraph 2 of this Agreement, the aggregate Acquisition Consideration will be
comprised of (1) $2,197,000 in cash, (2) such number of whole shares of INVATEC
Common Stock on the IPO Closing Date as, when multiplied by the IPO Price, will
most nearly approximate, but not exceed, $1,500,000 and (3) cash in the amount
equal to the excess of $1,500,000 over the product of that number of shares of
INVATEC Common Stock multiplied by the IPO Price. In addition, INVATEC shall at
the IPO Closing Date pay Lee Roy Jordan and the Jordan Trust, $2,280 and $720,
respectively and in cash, in consideration of their respective obligations set
forth under Article VIII of the Uniform Provisions.
C. (1) The aggregate Contingent Payment will be comprised of (1)
such number of whole shares of INVATEC Common Stock as, when multiplied by the
Calculated Value on the Contingent Payment Date (the "Determination Date"), will
most nearly approximate, but not exceed, any sixty percent (60%) of the EBIT
Excess and (2) cash in an amount equal to (x) forty percent of such EBIT Excess
and (y) the excess of such EBIT Excess over the product of that number of shares
of INVATEC Common Stock multiplied by that Calculated Value (or, if agreed by
the parties, some other combination of INVATEC Common Stock (valued as described
in this sentence) and cash equal to the amount of such EBIT Excess); provided,
however, that unless the parties agree otherwise, if the shares of INVATEC
Common Stock are not Publicly Traded as of the Determination Date, then the
Contingent Payment shall be made solely in cash. As used in this Agreement,
"Calculated Value" means the average of the closing prices, regular way, of a
share of INVATEC Common Stock on all domestic securities exchanges on which the
INVATEC Common Stock is then listed, or, if there have been no sales on any such
exchange on such day, the average of the closing bid and asked prices on all
such exchanges on such day, or, if the INVATEC Common Stock is not so listed,
the closing price quoted on the Nasdaq National Market on such day, in each such
case averaged over the twenty consecutive trading days immediately preceding the
second trading day preceding the Determination Date. The Calculated Value of a
share of that stock may be higher or lower than the fair market value of that
share on the Contingent Payment Date. To the extent that any interest is imputed
by the Internal Revenue Service on the Contingent Payment or any
<PAGE>
portion thereof, such interest will be paid or deemed to be paid out of the cash
portion of the Contingent payment and, to the extent such imputed interest
exceeds such cash portion, the parties will designate specific shares of the
INVATEC Common Stock that constitute part of the Contingent Payment as
representing interest.
(2) A calculation of the Contingent Payment (the "Initial
Contingent Payment Calculation") shall be prepared by INVATEC and delivered to
the Stockholders within 45 days of the first anniversary of the Effective Date.
The Stockholders or their Representatives shall review the Initial Contingent
Payment Calculation and report to Company in writing within fifteen days of
receipt thereof of any dispute with this calculation. If INVATEC and the
Stockholders cannot resolve the dispute, if any, INVATEC shall immediately pay
the Stockholders any of the Contingent Payment which is not in dispute (the
"Undisputed Contingent Payment") and INVATEC and the Stockholders within fifteen
(15) days thereafter, shall mutually select and retain an independent public
accounting firm which has no prior conflicts to review the Initial Contingent
Payment Calculation and determine the amount of the Contingent Payment which is
in dispute. Such firm's conclusion as to the amount of the Contingent Payment
shall be conclusive. INVATEC and the Stockholders shall share equally in the
expenses of retaining such accounting firm unless the final Contingent Payment
exceeds the Initial Continent Payment Calculation by more than 15%, in which
case the expenses of retaining such accounting firm shall be borne by INVATEC.
D. Each Stockholder will be entitled to receive his Pro Rata
Share of the Acquisition Consideration pursuant to this Schedule 2(D).
E. Each Stockholder will be entitled to receive his Pro Rata
Share of the Contingent Payment pursuant to Section 6.07 of Annex 1.
End of Schedule
EXHIBIT 2.8
STOCK REDEMPTION AND PURCHASE AGREEMENT
THIS STOCK REDEMPTION AND PURCHASE AGREEMENT (THE "AGREEMENT") IS MADE
AS OF THE 27TH DAY OF JUNE, 1997, BY AND AMONG INNOVATIVE VALVE TECHNOLOGIES,
INC., A DELAWARE CORPORATION ("INVATEC"), AND LEE ROY JORDAN ("JORDAN"), A
RESIDENT OF TEXAS, RALPH BUFFKIN, A RESIDENT OF ALABAMA ("BUFFKIN"), AND JOHNNY
MARTIN ("MARTIN"), A RESIDENT OF TEXAS (JORDAN, BUFFKIN AND MARTIN BEING
COLLECTIVELY REFERRED TO AS THE "SELLERS") AND 55 LEASING & SALES, INC., AN
ALABAMA CORPORATION ("55 LEASING"). INVATEC, 55 LEASING AND THE SELLERS ARE
SOMETIMES HEREINAFTER REFERRED TO HEREIN COLLECTIVELY AS THE "PARTIES" OR
SINGULARLY AS A "PARTY."
W I T N E S S E T H:
WHEREAS, THE SELLERS OWN ALL OF THE SHARES (THE "SHARES") OF COMMON
STOCK (THE "COMMON STOCK") OF 55 LEASING WHICH SHARES REPRESENT ALL OF THE
ISSUED AND OUTSTANDING SHARES OF THE COMMON STOCK; AND
WHEREAS, INVATEC HAS CONCURRENTLY ENTERED INTO AN AGREEMENT AND PLAN OF
REORGANIZATION (THE "SOUTHERN VALVE AGREEMENT") BY AND AMONG SVSI ACQUISITION
INC., A DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF INVATEC , SOUTHERN
VALVE SERVICE, INC., AN ALABAMA CORPORATION (THE "SOUTHERN VALVE"), AND THE
STOCKHOLDERS OF SOUTHERN VALVE (THE PRINCIPAL STOCKHOLDER OF WHICH IS JORDAN)
FOR THE PURPOSE OF INVATEC ACQUIRING SOUTHERN VALVE, AND A SUBSTANTIAL PORTION
OF THE ASSETS OF 55 LEASING ARE UTILIZED IN THE BUSINESS OF SOUTHERN VALVE;
WHEREAS, THE SELLERS DESIRE TO SELL TO INVATEC, CONCURRENTLY WITH THE
ACQUISITION OF SOUTHERN VALVE BY INVATEC, ALL OF THE SHARES OF 55 LEASING, AND
INVATEC DESIRES TO PURCHASE ALL OF THE SHARES, ON THE TERMS AND CONDITIONS SET
FORTH IN THIS AGREEMENT;
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED HEREIN
AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH
ARE HEREBY ACKNOWLEDGED, IT IS HEREBY AGREED AS FOLLOWS:
REDEMPTION AND PURCHASE OF SHARES. SET FORTH ON SCHEDULE 1(A) IS A
SCHEDULE OF ALL OF THE SHARES AND THE RECORD AND BENEFICIAL OWNERSHIP OF THE
SHARES BY EACH OF THE SELLERS. AT THE CLOSING (AS DEFINED IN THE SOUTHERN VALVE
AGREEMENT), 55 LEASING AGREES TO REDEEM FROM JORDAN THE SHARES OWNED BY JORDAN
IN CONSIDERATION OF THE CONVEYANCE TO JORDAN OF THE THREE MOTOR VEHICLES
DESCRIBED IN SCHEDULE 1(B) (THE "VEHICLES"), FREE AND CLEAR OF ANY LIENS
CHARGES, ENCUMBRANCES OR RESTRICTIONS, AND BUFFKIN AND MARTIN EACH AGREE TO
AGREE TO TRANSFER TO INVATEC ALL OF THE REMAINING SHARES FOR THE CASH
CONSIDERATION SET FORTH IN SECTION 2, WHICH WILL RESULT IN INVATEC OWNING ALL OF
THE OUTSTANDING SECURITIES OF 55 LEASING.
<PAGE>
2. PURCHASE PRICE FOR BUFFKIN AND MARTIN SHARES. UPON THE TERMS
AND SUBJECT TO THE CONDITIONS CONTAINED HEREIN, INVATEC AGREES TO PAY BUFFKIN
AND MARTIN EACH $15,000 IN CASH AT THE CLOSING.
3. ASSUMPTION OF 55 LEASING DEBT. AS ADDITIONAL CONSIDERATION TO
INDUCE THE SELLERS TO CONSUMMATE THE TRANSACTIONS SET FORTH ABOVE, AT THE
CLOSING INVATEC SHALL ASSUME THE LIABILITIES AND OBLIGATIONS OF 55 LEASING AND
THE STOCKHOLDERS SET FORTH ON SCHEDULE 3 (THE "ASSUMED LIABILITIES"), SUCH
ASSUMPTION CONDITIONED UPON SUCH LIABILITIES NOT EXCEEDING AN AGGREGATE OF
$248,000 AT THE CLOSING AND TO BE EFFECTED UNDER THE TERMS OF THE ASSUMPTION
AGREEMENT SET FORTH ON EXHIBIT A. In addition, no later than five business days
after the IPO Closing Date, INVATEC will cause the any guaranties, if any,
listed in the Disclosure Statement to be terminated. INVATEC will indemnify and
hold harmless each Seller from and against any liabilities, claims, demands,
judgments, losses, costs, damages or expenses whatsoever (including reasonable
attorneys' fees) that such Seller may sustain, suffer or incur and that result
from or arise out of or relate to such guaranties or otherwise relating to the
Assumed Liabilities.
4 SELLERS' REPRESENTATIONS AND WARRANTIES. THE SELLERS REPRESENT
AND WARRANT TO INVATEC THAT (I) THE SELLERS HAVE (AND AS OF THE CLOSING WILL
HAVE) GOOD AND MARKETABLE TITLE TO THE SHARES TO BE REDEEMED BY 55 LEASING FROM
JORDAN OR TRANSFERRED TO INVATEC BY BUFFKIN AND MARTIN HEREUNDER, FREE AND CLEAR
OF ANY LIENS, CHARGES, ENCUMBRANCES OR RESTRICTIONS, (II) EACH OF THE SHARES TO
BE REDEEMED BY 55 LEASING OR TRANSFERRED TO INVATEC BY THE SELLERS HEREUNDER IS
FULLY PAID AND NONASSESSABLE, AS OF THE CLOSING WILL BE FREELY TRANSFERABLE TO
55 LEASING OR INVATEC, AS THE CASE MAY BE, UNDER THE LAWS OF THE UNITED STATES
AND THE STATE OF ALABAMA AND THERE ARE NO (AND AS OF THE CLOSING WILL NOT BE
ANY) OUTSTANDING RIGHTS TO PURCHASE OR ACQUIRE ANY COMMON STOCK OR ANY OTHER
SECURITIES OR INTEREST IN 55 LEASING, (III) AT THE DATE OF THIS AGREEMENT THE
ASSUMED LIABILITIES CONSTITUTE (AND AS OF THE CLOSING SUCH ASSUMED LIABILITIES
WILL CONTINUE TO CONSTITUTE) ALL OF THE LIABILITIES OF 55 LEASING, WHETHER
KNOWN, CONTINGENT OR OTHERWISE, (IV) THE ASSETS OF 55 LEASING SET FORTH ON
SCHEDULE 3 CONSTITUTE (AND AS OF THE CLOSING WILL CONSTITUTE EXCEPT THE VEHICLES
THAT ARE TRANSFERRED) ALL OF THE ASSETS OF 55 LEASING, (V) THE ASSETS LEASED SET
FORTH ON SCHEDULE 3 AND DESIGNATED AS LEASED TO THIRD PARTIES ARE LEASED UNDER
VALID LEASES, WHICH LEASES ARE IN FULL FORCE AND EFFECT (AND 55 LEASING IS NOT
IN MATERIAL DEFAULT WITH RESPECT THERETO) AND A COPY OF EACH OF WHICH HAS BEEN
PREVIOUSLY FURNISHED TO INVATEC.
5 DOCUMENTS TO BE DELIVERED. TO EFFECT THE TRANSFERS OF THE
SHARES AND THE DELIVERY OF THE REDEMPTION OR PURCHASE PRICE DESCRIBED IN SECTION
2, THE SELLERS AND INVATEC WILL, AT THE CLOSING, EXCEPT AS OTHERWISE PROVIDED,
DELIVER OR CAUSE TO BE DELIVERED THE FOLLOWING:
(A) EACH OF THE SELLERS WILL DELIVER TO 55 LEASING OR INVATEC,
AS APPROPRIATE, THE CERTIFICATES REPRESENTING THE SHARES
OWNED BY SUCH SELLER, ENDORSED IN BLANK, OR ACCOMPANIED BY
DULY EXECUTED STOCK POWERS OR ASSIGNMENTS, DULY AUTHORIZED
AND EXECUTED BY THE APPROPRIATE SELLER;
2
<PAGE>
(B) 55 LEASING WILL DELIVER TO JORDAN MOTOR VEHICLE TITLES,
DULY ENDORSED BY AN AUTHORIZED OFFICER OF 55 LEASING,
TRANSFERRING TITLE TO EACH OF THE VEHICLES TO JORDAN;
(C) INVATEC WILL DELIVER TO EACH OF BUFFKIN AND MARTIN
$15,000; AND
(D) PROVIDED THE ASSUMED LIABILITIES ARE $248,000 OR LESS,
INVATEC WILL DELIVER TO EACH OF THE SELLERS A FULLY
EXECUTED ASSUMPTION AGREEMENT
ASSUMING THE ASSUMED LIABILITIES.
6 MODIFICATION OF AGREEMENT. THIS AGREEMENT MAY BE AMENDED OR
MODIFIED ONLY IN WRITING SIGNED BY ALL OF THE PARTIES.
7. TERMINATION. THIS AGREEMENT SHALL AUTOMATICALLY TERMINATE UPON
TERMINATION OF THE SOUTHERN VALVE AGREEMENT, AND UPON SUCH TERMINATION, THE
PARTIES SHALL HAVE NO LIABILITY HEREUNDER.
8 NOTICES. ALL NOTICES, CONSENTS, DEMANDS OR OTHER COMMUNICATIONS
REQUIRED OR PERMITTED TO BE GIVEN PURSUANT TO THIS AGREEMENT SHALL BE DEEMED
SUFFICIENTLY GIVEN WHEN TELEFAXED OR DELIVERED PERSONALLY DURING REGULAR
BUSINESS HOURS DURING A BUSINESS DAY TO THE APPROPRIATE LOCATION DESCRIBED
BELOW, OR THREE (3) DAYS AFTER POSTING THEREOF BY UNITED STATES FIRST-CLASS,
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, WITH POSTAGE AND FEES
PREPAID AND ADDRESSED AS FOLLOWS:
IF TO INVATEC: Innovative Valve Technologies, Inc.
14900 Woodham, Suite A-125
Houston, Texas 77073
Attn.: John King
Fax No.: (281) 821-1123
WITH A COPY TO:
BOYER, EWING & HARRIS INCORPORATED
NINE GREENWAY PLAZA, #3100
HOUSTON, TEXAS 77046
ATTN.: JOHN R. BOYER, JR.
FAX NO.: 713-871-2024
IF TO JORDAN OR 55 LEASING:
Mr. Lee Roy Jordan
2425 Burbank Street
Dallas, Texas 75235
3
<PAGE>
FAX NO.: (214) 351-6076
IF TO BUFFKIN: Mr. Ralph Buffkin
209 Childree Drive
Mobile, Alabama 36608
Fax No.: (334) 679-3688
IF TO MARTIN Johnny Martin
711 Ida Vista
Duncanville, Texas 75116
Fax No.: (214) 351-6076
IN THE CASE OF JORDAN, 55 LEASING, BUFFKIN OR MARTIN WITH A COPY
TO:
Jenkens & Gilchrist
Fountain Place
1445 Ross Avenue
Suite 3200
Dallas, Texas 75205-2799
Fax No.:(214) 855-4300
Attn: Thomas L. Bloodworth
ANY PARTY AT ANY TIME BY FURNISHING NOTICE TO THE OTHER PARTIES IN THE MANNER
DESCRIBED ABOVE MAY DESIGNATE ADDITIONAL OR DIFFERENT ADDRESSES FOR SUBSEQUENT
NOTICES OR COMMUNICATIONS.
9 SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT SHALL FOR ANY
REASON BE HELD TO VIOLATE APPLICABLE LAW, AND SO MUCH OF SAID AGREEMENT IS HELD
UNENFORCEABLE, THEN THE INVALIDITY OF SUCH SPECIFIC PROVISION HEREIN SHALL NOT
BE HELD TO INVALIDATE ANY OTHER PROVISION HEREIN, WHICH SHALL REMAIN IN FULL
FORCE AND EFFECT.
10 ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER
AGREEMENTS OF EVEN DATE EXECUTED BY THE PARTIES, COLLECTIVELY SET FORTH THE
ENTIRE AGREEMENT AMONG THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF.
11 NON-WAIVER. FAILURE ON THE PART OF A PARTY IN ANY ONE OR MORE
INSTANCES TO ENFORCE ANY OF ITS RIGHTS WHICH ARISE IN CONNECTION WITH THIS
AGREEMENT, OR TO INSIST UPON THE STRICT PERFORMANCE OF ANY OF THE TERMS,
CONDITIONS OR COVENANTS OF THIS AGREEMENT, SHALL NOT BE CONSTRUED AS A WAIVER OR
RELINQUISHMENT FOR THE FUTURE OF ANY SUCH RIGHTS, TERMS, CONDITIONS OR
COVENANTS. NO WAIVER OF ANY CONDITION OF THIS AGREEMENT SHALL BE VALID UNLESS IT
IS IN WRITING, AND EXECUTED BY THE PARTY AGAINST WHOM SUCH WAIVER IS SOUGHT TO
BE ENFORCED.
4
<PAGE>
12 GOVERNING LAW. THE LAWS OF THE UNITED STATES AND THE INTERNAL
LAWS OF THE STATE OF TEXAS SHALL GOVERN THIS AGREEMENT AND THE PERFORMANCE OF
THE TRANSACTIONS BY THE PARTIES HERETO. THE PARTIES HERETO IRREVOCABLY SUBMIT TO
THE JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF TEXAS, AND
AGREE THAT VENUE FOR ANY LITIGATION CONCERNING THIS AGREEMENT SHALL BE IN HARRIS
COUNTY, TEXAS.
13 NO ASSIGNMENT. NEITHER PARTY SHALL HAVE THE RIGHT TO TRANSFER
OR ASSIGN, IN WHOLE OR IN PART, ITS RIGHTS AND OBLIGATIONS HEREUNDER WITHOUT THE
PRIOR WRITTEN CONSENT OF THE OTHER PARTY.
14 HEADINGS. HEADINGS IN THIS AGREEMENT ARE FOR CONVENIENCE ONLY
AND SHALL NOT AFFECT THE INTERPRETATION OF THIS AGREEMENT.
15. SCHEDULES AND EXHIBITS. ALL SCHEDULES AND EXHIBITS ATTACHED
TO THIS AGREEMENT ARE HEREBY INCORPORATED IN AND MADE A PART OF THIS AGREEMENT.
16 COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN MULTIPLE
COUNTERPARTS, EACH OF WHICH SHALL HAVE THE FORCE AND EFFECT OF AN ORIGINAL, AND
ALL OF WHICH SHALL CONSTITUTE ONE AND THE SAME AGREEMENT. THE PARTIES
SPECIFICALLY CONTEMPLATE THAT THIS AGREEMENT SHALL BECOME BINDING UPON THE
EXECUTION OF ONE OR MORE COUNTERPARTS OF THIS AGREEMENT BY EACH PARTY AND THE
DELIVERY BY OF SUCH COUNTERPART OR COUNTERPARTS BY FACSIMILE COPY TO THE OTHER
PARTIES HERETO.
17 SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL INURE TO THE
BENEFIT OF AND BE BINDING UPON THE PARTIES AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS, BUT THIS PROVISION SHALL IN NO WAY ALTER THE RESTRICTIONS SET FORTH
HEREIN RELATING TO ASSIGNMENT BY THE PARTIES.
5
<PAGE>
IN WITNESS WHEREOF, THE PARTIES TO THIS AGREEMENT HAVE DULY EXECUTED IT
AS OF THE DATE FIRST ABOVE WRITTEN.
INVATEC:
INNOVATIVE VALVE TECHNOLOGIES,
INC.
BY:__________________________
NAME:________________________
TITLE:_______________________
55 LEASING:
55 LEASING & SALES, INC..
BY:__________________________
NAME:________________________
TITLE:_______________________
SELLERS:
_______________________ ____________________________________
JOHNNY MARTIN LEE ROY JORDAN
_______________________
RALPH BUFFKIN
6
<PAGE>
EXHIBIT A
ASSUMPTION AGREEMENT
This ASSUMPTION AGREEMENT (this "ASSIGNMENT') is made effective as of
June , 1997, between INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware corporation
("ASSIGNOR"), and 55 LEASING & SALES, INC., an Alabama corporation ("LEASING")
AND LEE ROY JORDAN ("JORDAN"), A RESIDENT OF TEXAS, RALPH BUFFKIN, A RESIDENT OF
ALABAMA ("BUFFKIN"), AND JOHNNY MARTIN ("MARTIN"), A RESIDENT OF TEXAS (JORDAN,
BUFFKIN AND MARTIN
BEING COLLECTIVELY REFERRED TO AS THE "STOCKHOLDERS") .
WHEREAS, the Stockholders, constitute all of the stockholders of
Leasing, and Assignor and the Stockholders have entered into a Stock Redemption
and Purchase Agreement dated as of June , 1997 ("PURCHASE AGREEMENT"), pursuant
to which the Stockholders have agreed to sell to Assignor all of the issued and
outstanding stock of Leasing; and
WHEREAS, Assignor has agreed in the Purchase Agreement to assume certain
liabilities and obligations of Leasing and the Stockholders described or
identified on EXHIBIT A (the "ASSUMED LIABILITIES").
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, INVATEC and Leasing
hereby covenant and agree as follows:
1. ASSUMPTION. INVATEC hereby agrees that it will observe and perform
(or cause Leasing to observe and perform) all of the terms, conditions and
stipulations contained in any contracts or agreements constituting the Assumed
Liabilities which are to be observed and performed by Leasing with respect
thereto and will save harmless, indemnify and defend the Stockholders against
all claims, demands, and actions that arise relating to the Assumed Liabilities.
2. BINDING EFFECT. This Assignment shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
3. SEVERABILITY. Each paragraph of this Assignment shall be viewed as
separate and divisible, and in the event that any paragraph shall be held to be
invalid, the remaining paragraphs shall continue to be in full force and effect.
4. ENTIRE AGREEMENT. This Assignment constitutes the entire agreement
and understanding among the parties hereto relating to the subject matter hereof
and supersedes all prior understandings, written or oral, with respect to the
subject matter hereof.
5. CAPTIONS. The captions of the sections and paragraphs of this
Assignment are for convenience of reference only and shall not restrict or
modify any of the terms or provisions hereof.
<PAGE>
6. COUNTERPARTS. This Assignment may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same instrument.
8. APPLICABLE LAW. This Assignment shall be governed by and construed in
accordance with the laws of the State of Texas, without regard to the conflict
of laws provisions thereof.
IN WITNESS WHEREOF, the undersigned have executed this Assignment
effective as of the date first above written.
INVATEC:
INNOVATIVE VALVE TECHNOLOGIES, INC.,
a Delaware corporation
By:
Name:__________________________
Title:_________________________
LEASING:
55 LEASING & SALES, INC.,
an Alabama corporation
By:
Name:__________________________
Title:_________________________
STOCKHOLDERS:
_______________________ ____________________________________
JOHNNY MARTIN LEE ROY JORDAN
_______________________
RALPH BUFFKIN
-2-
<PAGE>
EXHIBIT A
ASSUMED LIABILITIES
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
FIRST:The name of the Corporation is Innovative Valve Technologies,
Inc.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD:The purpose of the Corporation is to engage in any lawful
business, act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware or any successor statute (the
"DGCL").
FOURTH: The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is Thirty-Five Million (35,000,000),
divided into Thirty Million (30,000,000) shares of common stock, par value
$0.001 per share ("Common Stock"), and Five Million (5,000,000) shares of
preferred stock, par value $0.001 per share ("Preferred Stock"). Shares of any
class of capital stock of the Corporation may be issued for such consideration
and for such corporate purposes as the Board of Directors of the Corporation
(the "Board of Directors") may from time to time determine. Each share of Common
Stock shall be entitled to one vote.
The Preferred Stock may be divided into and issued from time to time
in one or more series as may be fixed and determined by the Board of Directors.
The relative rights and preferences of the Preferred Stock of each series shall
be such as shall be stated in any resolution or resolutions adopted by the Board
of Directors setting forth the designation of the series and fixing and
determining the relative rights and preferences thereof, any such resolution or
resolutions being herein called a "Directors' Resolution." The Board of
Directors is hereby authorized to fix and determine the powers, designations,
preferences, and relative, participating, optional or other rights (including,
without limitation, voting powers, full or limited, preferential rights to
receive dividends or assets upon liquidation, rights of conversion or exchange
into Common Stock, Preferred Stock of any series or other securities, any right
of the Corporation to exchange or convert shares into Common Stock, Preferred
Stock of any series or other securities, or redemption provisions or sinking
fund provisions) as between series and as between the Preferred Stock or any
series thereof and the Common Stock, and the qualifications, limitations or
restrictions thereof, if any, all as shall be stated in a Directors' Resolution,
and the shares of
-1-
<PAGE>
Preferred Stock or any series thereof may have full or limited voting powers, or
be without voting powers, all as shall be stated in a Directors' Resolution.
No stockholder shall, by reason of the holding of shares of any
class or series of capital stock of the Corporation, have a preemptive or
preferential right to acquire or subscribe for any shares or securities of any
class, whether now or hereafter authorized, which may at any time be issued,
sold or offered for sale by the Corporation, unless specifically provided for in
a Directors' Resolution with respect to a series of Preferred Stock.
Cumulative voting of shares of any class or series of capital stock
having voting rights is prohibited unless specifically provided for in a
Directors' Resolution with respect to a series of Preferred Stock.
FIFTH:The name and mailing address of the incorporator are as
follows:
Name Mailing Address
- ---- ---------------
Ted W. Paris 3000 One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
SIXTH:(a) DIRECTORS. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. In
addition to the authority and powers conferred upon the Board of Directors by
the DGCL or by the other provisions of this Certificate of Incorporation, the
Board of Directors is hereby authorized and empowered to exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject to the provisions of the DGCL, this Certificate of
Incorporation and any Bylaws adopted by the stockholders of the Corporation;
PROVIDED, HOWEVER, that no Bylaws hereafter adopted by the stockholders of the
Corporation, or any amendments thereto, shall invalidate any prior act of the
Board of Directors that would have been valid if such Bylaws or amendment had
not been adopted.
(b) NUMBER, ELECTION AND TERMS OF DIRECTORS. The number of directors
which shall constitute the whole Board of Directors shall be fixed from time to
time by a majority of the directors then in office, subject to an increase in
the number of directors by reason of any provisions contained in or established
pursuant to Article FOURTH, but in any event shall not be less than one. Each
director shall hold office until the next annual meeting following such
director's election or re-election and, the foregoing notwithstanding, shall
serve until his successor shall have been duly elected and qualified or until
his earlier death, resignation or removal.
Election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
-2-
<PAGE>
(c) INITIAL BOARD OF DIRECTORS. The powers of the incorporator shall
terminate upon the filing of this Certificate of Incorporation and the name and
mailing address of the person to serve as the initial director of the
Corporation are:
Name Mailing Address
- ---- ---------------
Roger L. Miller 14900 Woodham Drive, Suite A-125
Houston, Texas 77073
(d) REMOVAL OF DIRECTORS. No director of the Corporation shall be
removed from office as a director by vote or other action of the stockholders or
otherwise except for cause, and then only by the affirmative vote of the holders
of at least a majority of the voting power of all outstanding shares of capital
stock of the Corporation generally entitled to vote in the election of
directors, voting together as a single class. Except as may otherwise be
provided by law, cause for removal of a director shall be deemed to exist only
if: (i) the director whose removal is proposed has been convicted, or where a
director is granted immunity to testify where another has been convicted, of a
felony by a court of competent jurisdiction and such conviction is no longer
subject to direct appeal (for this purpose, the entry by the director of a plea
of NOLO CONTENDERE shall be deemed to be a conviction not subject to appeal);
(ii) such director has been found by the affirmative vote of a majority of the
entire Board of Directors at any regular or special meeting of the Board of
Directors called for that purpose or by a court of competent jurisdiction to
have been grossly negligent or guilty of misconduct in the performance of his
duties to the Corporation in a matter of substantial importance to the
Corporation; or (iii) such director has been adjudicated by a court of competent
jurisdiction to be mentally incompetent, which mental incompetency directly
affects his ability as a director of the Corporation. Notwithstanding the
foregoing, whenever holders of outstanding shares of one or more series of
Preferred Stock are entitled to elect members of the Board of Directors pursuant
to the provisions applicable in the case of arrearages in the payment of
dividends or other defaults contained in the Directors' Resolution providing for
the establishment of any series of Preferred Stock, any such director of the
Corporation so elected may be removed in accordance with the provision of such
Directors' Resolution.
(e) VACANCIES. Except as provided in Article FOURTH hereof, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
removal or other cause shall be filled by the affirmative vote of a majority of
the remaining directors then in office, even though less than a quorum of the
Board of Directors. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SEVENTH: From and after the first date as of which the Corporation
has a class or series of capital stock registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), any action required or permitted
to be taken by the stockholders of the Corporation must be effected at an annual
or special meeting of stockholders of the Corporation
-3-
<PAGE>
and may not be effected by any consent in writing by such stockholders. Except
as otherwise required by law, or as may be prescribed in a Directors'
Resolution, special meetings of stockholders of the Corporation may be called
only by the Chairman of the Board of Directors or by the President of the
Corporation or by the Board of Directors pursuant to a resolution approved by
the affirmative vote of a majority of the entire Board of Directors.
EIGHTH: No director of the Corporation shall be personally liable to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director; PROVIDED, HOWEVER, that the foregoing provisions
shall not eliminate or limit the liability of a director (i) for any breach of
such director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, as the same
exists or as such provision may hereafter be amended, supplemented or replaced,
or (iv) for any transactions from which such director derived an improper
personal benefit. If the DGCL is amended after the filing of this Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by such law, as so
amended. Any repeal or modification of this Article EIGHTH by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
NINTH:In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation, or adopt new Bylaws, without any
action on the part of the stockholders, except as may be otherwise provided by
applicable law or the Bylaws of the Corporation.
TENTH:Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under
Section 291 of Title 8 of the Delaware Code, or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Corporation
under Section 279 of Title 8 of the Delaware Code, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If the majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders, of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
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I, the undersigned, being the incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the DGCL, do make this
certificate, hereby declaring that this is my act and deed, and that the facts
herein stated are true, and accordingly have hereunto set my hand this 6th day
of March, 1997.
____________________________
Ted W. Paris
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EXHIBIT 3.2
BYLAWS
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
ADOPTED TO BE EFFECTIVE AS OF MARCH 16, 1997.
<PAGE>
BYLAWS
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
TABLE OF CONTENTS
ARTICLE I OFFICES
1.1 Registered Office.............................................1
1.2 Other Offices.................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings.............................................1
2.2 Annual Meeting................................................1
2.3 Special Meetings..............................................2
2.4 Notice of Meeting.............................................2
2.5 Registered Holders of Shares; Closing of Share
Transfer Records; and Record Date.............................2
2.6 Quorum of Stockholders; Adjournment...........................3
2.7 Voting by Stockholders........................................3
2.8 Business to be Conducted......................................4
2.9 Proxies.......................................................5
2.10 Approval or Ratification of Acts or Contracts by Stockholders.5
ARTICLE III DIRECTORS
3.1 Powers, Number and Tenure.....................................6
3.2 Qualifications................................................6
3.3 Nomination of Directors.......................................6
3.4 Place of Meeting; Order of Business...........................7
3.5 Regular Meetings..............................................8
3.6 Special Meetings..............................................8
3.7 Attendance at and Notice of Meetings..........................8
3.8 Quorum of and Action by Directors.............................8
3.9 Board and Committee Action Without a Meeting..................8
3.10 Board and Committee Telephone Meetings........................9
3.11 Compensation..................................................9
3.12 Removal.......................................................9
3.13 Committees of the Board of Directors..........................9
ARTICLE IV OFFICERS
4.1 Designation..................................................12
4.2 Chairman of the Board of Directors...........................12
4.3 President....................................................13
4.4 Vice President...............................................13
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4.5 Secretary....................................................13
4.6 Treasurer....................................................14
4.7 Corporate Controller.........................................14
4.8 Assistant Secretaries........................................14
4.9 Assistant Treasurers.........................................14
4.10 Assistant Controllers........................................15
4.11 Other Officers...............................................15
4.12 Vacancies....................................................15
4.13 Removal......................................................15
4.14 Action with Respect to Securities of Other Corporations......15
ARTICLE V CAPITAL STOCK
5.1 Certificates for Shares......................................16
5.2 Transfer of Shares...........................................16
5.3 Ownership of Shares..........................................16
5.4 Regulations Regarding Certificates...........................16
5.5 Lost or Destroyed Certificates...............................16
ARTICLE VI INDEMNIFICATION
6.1 General......................................................17
6.2 Expenses.....................................................17
6.3 Advances.....................................................17
6.4 Request for Indemnification..................................18
6.5 Nonexclusivity of Rights.....................................18
6.6 Insurance and Subrogation....................................18
6.7 Severability.................................................18
6.8 Certain Actions Where Indemnification Is Not Provided........19
6.9 Definitions..................................................19
6.10 Notices......................................................19
6.11 Contractual Rights...........................................20
ARTICLE VII MISCELLANEOUS PROVISIONS
7.1 Bylaw Amendments.............................................20
7.2 Books and Records............................................20
7.3 Notices; Waiver of Notice....................................20
7.4 Resignations.................................................21
7.5 Seal.........................................................21
7.6 Fiscal Year..................................................21
7.7 Facsimile Signatures.........................................21
7.8 Reliance upon Books, Reports and Records.....................21
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<PAGE>
BYLAWS
OF
INNOVATIVE VALVE TECHNOLOGIES, INC.
ARTICLE I
OFFICES
1.1 REGISTERED OFFICE. The registered office of Innovative Valve Technologies,
Inc. (the "Corporation") required by the General Corporation Law of the
State of Delaware or any successor statute (the "DGCL"), to be maintained
in the State of Delaware, shall be the registered office named in the
Certificate of Incorporation of the Corporation, as it may be amended or
restated in accordance with the DGCL from time to time (the "Certificate
of Incorporation"), or such other office as may be designated from time to
time by the Board of Directors of the Corporation (the "Board of
Directors" or the "Board") in the manner provided by applicable law.
Should the Corporation maintain a principal office within the State of
Delaware, such registered office need not be identical to such principal
office of the Corporation.
1.2 OTHER OFFICES. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors
may determine from time to time or as the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at such place
within or without the State of Delaware as may be designated by the Board
of Directors or the officer calling the meeting, or, in the absence of
such designation, at the registered office of the Corporation in the State
of Delaware.
2.2 ANNUAL MEETING. An annual meeting of the stockholders, for the election of
directors to succeed those whose terms expire or to fill vacancies and for
the transaction of such other business as may properly come before the
meeting, shall be held on such date and at such time as the Board of
Directors shall fix and set forth in the notice of the meeting, which date
shall be within thirteen months subsequent to the last annual meeting of
stockholders. At the annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
annual meeting as set forth in Section 2.8 hereof. Failure to hold the
annual meeting at the designated time shall not work a dissolution of the
Corporation.
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2.3 SPECIAL MEETINGS. Special meetings of the stockholders may be called at
any time by the Chairman of the Board, the President or a majority of the
Board of Directors. Upon written request of any person or persons who have
duly called a special meeting, it shall be the duty of the Secretary of
the Corporation to fix the date of the meeting to be held not less than
ten nor more than 60 days after the receipt of the request and to give due
notice thereof. If the Secretary shall neglect or refuse to fix the date
of the meeting and give notice thereof, the person or persons calling the
meeting may do so.
2.4 NOTICE OF MEETING. Written or printed notice of all meetings stating the
place, day and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be
delivered not less than ten nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, President or Secretary of the Corporation, to each
stockholder entitled to vote at such meeting. If mailed, such notice shall
be deemed to be delivered to a stockholder when deposited in the United
States mail addressed to such stockholder at such stockholder's address as
it appears on the stock transfer records of the Corporation, with postage
thereon prepaid.
2.5 REGISTERED HOLDERS OF SHARES; CLOSING OF SHARE TRANSFER RECORDS; AND
RECORD DATE.
(a) REGISTERED HOLDERS AS OWNERS. Unless otherwise provided under
Delaware law, the Corporation may regard the person in whose name
any shares issued by the Corporation are registered in the stock
transfer records of the Corporation at any particular time
(including, without limitation, as of a record date fixed pursuant
to paragraph (b) of this Section 2.5) as the owner of those shares
at that time for purposes of voting those shares, receiving
distributions thereon or notices in respect thereof, transferring
those shares, exercising rights of dissent with respect to those
shares, entering into agreements with respect to those shares, or
giving proxies with respect to those shares; and neither the
Corporation nor any of its officers, directors, employees or agents
shall be liable for regarding that person as the owner of those
shares at that time for those purposes, regardless of whether that
person possesses a certificate for those shares.
(b) RECORD DATE. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive a distribution by the
Corporation (other than a distribution involving a purchase or
redemption by the Corporation of any of its own shares) or a share
dividend, or in order to make a determination of stockholders for
any other proper purpose, the Board of Directors may fix in advance
a date as the record date for any such determination of
stockholders, such date in any case to be not more than 60 days and,
in the case of a meeting of stockholders, not less than ten days,
prior to the date on which the particular action requiring such
determination of
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stockholders is to be taken. The Board of Directors shall not close
the books of the Corporation against transfers of shares during the
whole or any part of such period.
If the Board of Directors does not fix a record date for any
meeting of the stockholders, the record date for determining
stockholders entitled to notice of or to vote at such meeting shall
be at the close of business on the day next preceding the day on
which notice is given, or, if in accordance with Section 7.3 of
these Amended and Restated Bylaws (these "Bylaws") notice is waived,
at the close of business on the day next preceding the day on which
the meeting is held.
2.6 QUORUM OF STOCKHOLDERS; ADJOURNMENT. Unless otherwise provided in the
Certificate of Incorporation, a majority of the outstanding shares of
capital stock of the Corporation entitled to vote, present in person or
represented by proxy, shall constitute a quorum at any meeting of the
stockholders, and the stockholders present at any duly convened meeting
may continue to do business until adjournment notwithstanding any
withdrawal from the meeting of holders of shares counted in determining
the existence of a quorum. Unless otherwise provided in the Certificate of
Incorporation or these Bylaws, any meeting of the stockholders may be
adjourned from time to time by the chairman of the meeting or the holders
of a majority of the issued and outstanding stock, present in person or
represented by proxy, whether or not a quorum is present, without notice
other than by announcement at the meeting at which such adjournment is
taken, and at any such adjourned meeting at which a quorum shall be
present any action may be taken that could have been taken at the meeting
originally called; PROVIDED that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
2.7 VOTING BY STOCKHOLDERS.
(a) VOTING ON MATTERS OTHER THAN THE ELECTION OF DIRECTORS. With respect
to any matters as to which no other voting requirement is specified
by the DGCL, the Certificate of Incorporation or these Bylaws, the
affirmative vote required for stockholder action shall be that of a
majority of the shares present in person or represented by proxy at
the meeting (as counted for purposes of determining the existence of
a quorum at the meeting). In the case of a matter submitted for a
vote of the stockholders as to which a stockholder approval
requirement is applicable under the stockholder approval policy of
any stock exchange or quotation system on which the capital stock of
the Corporation is traded or quoted, the requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any provision of the Internal Revenue Code of 1986, as amended (the
"Code"), in each case for which no higher voting requirement is
specified by the DGCL, the
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<PAGE>
Certificate of Incorporation or these Bylaws, the vote required for
approval shall be the requisite vote specified in such stockholder
approval policy, the Exchange Act or Code provision, as the case may
be (or the highest such requirement if more than one is applicable).
For the approval of the appointment of independent public
accountants (if submitted for a vote of the stockholders), the vote
required for approval shall be a majority of the votes cast on the
matter.
(b) VOTING IN THE ELECTION OF DIRECTORS. Unless otherwise provided in
the Certificate of Incorporation or these Bylaws in accordance with
the DGCL, directors shall be elected by a plurality of the votes
cast by the holders of outstanding shares of capital stock of the
Corporation entitled to vote in the election of directors at a
meeting of stockholders at which a quorum is present.
(c) OTHER. The Board of Directors, in its discretion, or the officer of
the Corporation presiding at a meeting of stockholders of the
Corporation, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
2.8 BUSINESS TO BE CONDUCTED.
(a) At an annual meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall
have been brought before the annual meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is a stockholder of record at the time of the
giving of such stockholder's notice provided for in this Section
2.8, who shall be entitled to vote at such meeting and who complies
with the requirements of this Section 2.8 and as shall otherwise be
proper subjects for stockholder action and shall be properly
introduced at the meeting. For a proposal to be properly brought
before an annual meeting by a stockholder, in addition to any other
applicable requirements, the stockholder must have given timely
advance notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered
to, or mailed and received at, the principal executive offices of
the Corporation not later than the 90th day prior to the first
anniversary of the preceding year's annual meeting; PROVIDED,
HOWEVER, that with respect to the annual meeting of stockholders to
be held in 1998 or in the event that the date of the annual meeting
is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so
delivered not later than the close of business on the later of the
90th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is
first made by the Corporation. Any such stockholder's notice to the
Secretary of the Corporation shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a
description of the proposal desired to be brought before the annual
meeting and the reasons for
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<PAGE>
conducting such business at the annual meeting, (ii) the name and
address, as they appear on the Corporation's books, of the
stockholder proposing such business and any other stockholders known
by such stockholder to be supporting such proposal, (iii) the class
and number of shares of the Corporation's stock which are
beneficially owned by the stockholder on the date of such notice,
(iv) any financial interest of the stockholder in such proposal and
(v) a representation that the stockholder intends to appear in
person or by proxy at the meeting to bring the proposed business
before the annual meeting. The presiding officer of the annual
meeting shall determine whether the requirements of this paragraph
(a) have been met with respect to any stockholder proposal. If the
presiding officer determines that a stockholder proposal was not
made in accordance with the terms of this paragraph (a), he shall so
declare at the meeting and any such proposal shall not be acted upon
at the meeting. At a special meeting of stockholders, only such
business shall be acted upon as shall have been set forth in the
notice relating to the meeting required by Section 2.4 hereof or as
shall constitute matters incident to the conduct of the meeting as
the presiding officer of the meeting shall determine to be
appropriate.
(b) Notwithstanding the foregoing provisions of this Section 2.8, a
stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 2.8.
2.9 PROXIES. Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for him by proxy. Proxies
for use at any meeting of stockholders shall be filed with the Secretary,
or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received
and canvassed by the secretary of the meeting who shall decide all
questions relating to the qualification of voters, the validity of the
proxies, and the acceptance or rejection of votes, unless an inspector or
inspectors shall have been appointed by the chairman of the meeting, in
which event such inspector or inspectors shall decide all such questions.
2.10 APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY STOCKHOLDERS. The Board
of Directors in its discretion may submit any act or contract for approval
or ratification at any annual meeting of the stockholders, or at any
special meeting of the stockholders called for the purpose of considering
any such act or contract, and any act or contract that shall be approved
or be ratified by the vote of the stockholders holding a majority of the
issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum
is present) shall be as valid and as binding upon the Corporation and upon
all the stockholders as if it had been approved or ratified by every
stockholder of the Corporation.
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<PAGE>
ARTICLE III
DIRECTORS
3.1 POWERS, NUMBER AND TENURE.
(a) The powers of the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall
be managed by or under the direction of, the Board of Directors.
Each director shall hold office for the full term for which such
director is elected and until such director's successor shall have
been duly elected and qualified or until his earlier death or
resignation or removal in accordance with the Certificate of
Incorporation or these Bylaws.
(b) Within the limits specified in the Certificate of Incorporation, the
number of directors that shall constitute the whole Board of
Directors shall be fixed by, and may be increased or decreased from
time to time by, the affirmative vote of a majority of the members
at any time constituting the Board of Directors. Except as provided
in the Certificate of Incorporation, newly created directorships
resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the
Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full
term in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected
and qualified or until his earlier death, resignation or removal. No
decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
3.2 QUALIFICATIONS. Directors need not be residents of the State of Delaware
or stockholders of the Corporation.
3.3 NOMINATION OF DIRECTORS. Subject to such rights of the holders of one or
more outstanding series of Preferred Stock of the Corporation to elect one
or more directors in case of arrearages in the payment of dividends or
other defaults as shall be prescribed in the Certificate of Incorporation
or in the resolutions of the Board of Directors providing for the
establishment of any such series, only persons who are nominated in
accordance with the procedures set forth in this Section 3.3 shall be
eligible for election as, and to serve as, directors. Nominations of
persons for election to the Board of Directors may be made at a meeting of
the stockholders at which Directors are to be elected (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is a stockholder of record at the time of the giving of
such stockholder's notice provided for
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in this Section 3.3, who shall be entitled to vote at such meeting in the
election of directors and who complies with the requirements of this
Section 3.3. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be preceded by timely advance
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Corporation (i) with respect to an
election to be held at the annual meeting of the stockholders of the
Corporation, not later than the close of business on the 90th day prior to
the first anniversary of the preceding year's annual meeting; PROVIDED,
HOWEVER, that with respect to the annual meeting of stockholders to be
held in 1998 or in the event that the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary date,
notice by the stockholder to be timely must be so delivered not later than
the close of business on the later of the 90th day prior to such annual
meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made by the Corporation; and (ii) with
respect to an election to be held at a special meeting of stockholders of
the Corporation for the election of directors not later than the close of
business on the tenth day following the day on which notice of the date of
the special meeting was mailed to stockholders of the Corporation as
provided in Section 2.4 hereof or public disclosure of the date of the
special meeting was made, whichever first occurs. Any such stockholder's
notice to the Secretary of the Corporation shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the number of shares of each class of
capital stock of the Corporation beneficially owned by such person, (iv)
the written consent of such person to having such person's name placed in
nomination at the meeting and to serve as a director if elected and (v)
any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, pursuant to Regulation 14A under the Exchange Act, and
(b) as to the stockholder giving the notice, (i) the name and address, as
they appear on the Corporation's books, of such stockholder and (ii) the
number of shares of each class of voting stock of the Corporation which
are then beneficially owned by such stockholder. The presiding officer of
the meeting of stockholders shall determine whether the requirements of
this Section 3.3 have been met with respect to any nomination or intended
nomination. If the presiding officer determines that any nomination was
not made in accordance with the requirements of this Section 3.3, he shall
so declare at the meeting and the defective nomination shall be
disregarded. Notwithstanding the foregoing provisions of this Section 3.3,
a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 3.3.
3.4 PLACE OF MEETING; ORDER OF BUSINESS. Except as otherwise provided by law,
meetings of the Board of Directors, regular or special, may be held either
within or without the State
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of Delaware, at whatever place is specified by the person or persons
calling the meeting. In the absence of specific designation, the meetings
shall be held at the principal office of the Corporation. At all meetings
of the Board of Directors, business shall be transacted in such order as
shall from time to time be determined by the Chairman of the Board (if
any), or in his absence by the President, or by resolution of the Board of
Directors.
3.5 REGULAR MEETINGS. Regular meetings of the Board of Directors shall be
held, in each case, at such hour and on such day as may be fixed by
resolution of the Board of Directors, without further notice of such
meetings. The time or place of holding regular meetings of the Board of
Directors may be changed by the Chairman of the Board or the President by
giving written notice thereof as provided in Section 3.7 hereof.
3.6 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be
held, whenever called by the Chairman of the Board, the President or by
resolution adopted by the Board of Directors, in each case, at such hour
and on such day as may be stated in the notice of the meeting.
3.7 ATTENDANCE AT AND NOTICE OF MEETINGS. Written notice of the time and place
of, and general nature of the business to be transacted at, all special
meetings of the Board of Directors, and written notice of any change in
the time or place of holding the regular meetings of the Board of
Directors, shall be given to each director personally or by mail or by
telegraph, telecopier or similar communication at least one day before the
day of the meeting; PROVIDED, HOWEVER, that notice of any meeting need not
be given to any director if waived by him in writing, or if he shall be
present at such meeting. Participation in a meeting of the Board of
Directors shall constitute presence in person at such meeting, except
where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
3.8 QUORUM OF AND ACTION BY DIRECTORS. A majority of the directors in office
shall constitute a quorum of the Board of Directors for the transaction of
business; but a lesser number may adjourn from day to day until a quorum
is present. Except as otherwise provided by law or in these Bylaws, all
questions shall be decided by the vote of a majority of the directors
present.
3.9 BOARD AND COMMITTEE ACTION WITHOUT A MEETING. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required
or permitted to be taken at a meeting of the Board of Directors or any
committee thereof may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the members of the
Board of Directors or such committee, as the case may be, and shall be
filed with the Secretary of the Corporation.
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3.10 BOARD AND COMMITTEE TELEPHONE MEETINGS. Subject to the provisions required
or permitted by the DGCL for notice of meetings, unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, members of
the Board of Directors, or members of any committee designated by the
Board of Directors, may participate in and hold a meeting of such Board of
Directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant
to this Section 3.10 shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose
of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
3.11 COMPENSATION. Directors shall receive such compensation for their services
as shall be determined by the Board of Directors from time to time.
3.12 REMOVAL. No director of the Corporation shall be removed from office as a
director by vote or other action of the stockholders or otherwise except
for cause, and then only by the affirmative vote of the holders of at
least a majority of the voting power of all outstanding shares of capital
stock of the Corporation generally entitled to vote in the election of
directors, voting together as a single class. Cause for removal of a
director shall be as provided by law or in the Certificate of
Incorporation. Any proposal by a stockholder to remove a director of the
Corporation, in order to be validly acted upon at any meeting, shall
comply with paragraph (a) of Section 2.8 hereof.
Notwithstanding the first paragraph of this Section 3.12, whenever
holders of outstanding shares of one or more series of Preferred Stock are
entitled to elect members of the Board of Directors pursuant to the
provisions applicable in the case of arrearages in the payment of
dividends or other defaults contained in the resolution or resolutions of
the Board of Directors providing for the establishment of any series of
Preferred Stock, any such director of the Corporation so elected may be
removed in accordance with the provision of such resolution or
resolutions.
3.13 COMMITTEES OF THE BOARD OF DIRECTORS.
(a) The Board of Directors, by resolution adopted by a majority of the
full Board of Directors, may designate from among its members one or
more committees (in addition to those listed below), each of which
shall be comprised of one or more of its members, and may designate
one or more of its members as alternate members of any committee,
who may, subject to any limitations by the Board of Directors,
replace absent or disqualified members at any meeting of that
committee. Any such committee, to the extent provided in such
resolution or in the Certificate of Incorporation or these Bylaws,
shall have and may exercise all of the authority of the Board of
Directors to the extent permitted by the DGCL,
HOU03A:435289.1
063852.0102
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including, without limitation, the power and authority to declare a
dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the
DGCL. Any such committee may authorize the seal of the Corporation
to be affixed to all papers which may require it. In addition to the
above, such committee or committees shall have such other powers and
limitations of authority as may be determined from time to time by
resolution adopted by the Board of Directors.
(b) The Board of Directors shall have the power at any time to change
the membership of any such committee and to fill vacancies in it. A
majority of the number of members of any such committee shall
constitute a quorum for the transaction of business unless a greater
number is required by a resolution adopted by the Board of
Directors. The act of the majority of the members of a committee
present at any meeting at which a quorum is present shall be the act
of such committee, unless the act of a greater number is required by
a resolution adopted by the Board of Directors. Each such committee
may elect a chairman and appoint such subcommittees and assistants
as it may deem necessary. Except as otherwise provided by the Board
of Directors, meetings of any committee shall be conducted, and
other committee actions shall be taken, in accordance with Sections
3.5, 3.6, 3.7, 3.8, 3.9, 3.10 and 7.3 hereof. In the absence or
disqualification of a member of a committee, the member or members
present at any meeting and not disqualified from voting, whether or
not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the
absent or disqualified member. Any member of any such committee
elected or appointed by the Board of Directors may be removed by the
Board of Directors whenever in its judgment the best interests of
the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of a member of a committee shall
not of itself create contract rights.
(c) Any action taken by any committee of the Board of Directors shall
promptly be recorded in the minutes and filed with the Secretary of
the Corporation.
(d) EXECUTIVE COMMITTEE. From and after the date on which the Company
shall first receive payment for shares of Common Stock sold by the
Company in an initial public offering registered under the
Securities Act of 1933, as amended (the "IPO Closing Date"), there
shall be an Executive Committee of the Board of Directors, which
committee shall have and may exercise all the powers and authority
of the Board of Directors between regular or special meetings of the
Board in the management of the business and affairs of the
Corporation, except to the extent limited by Delaware law. Without
limiting the generality of the foregoing, the Executive Committee
shall have the power and authority to (i) declare dividends
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on any class of capital stock of the Corporation, (ii) authorize the
issuance of capital stock of the Corporation, (iii) adopt
certificates of ownership and merger pursuant to Section 253 of the
DGCL and (iv) in reference to amending the Certificate of
Incorporation, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the DGCL,
fix the designations and any of the preferences or rights of such
shares relating to dividends, redemptions, dissolution, any
distribution of assets of the Corporation or the conversion into, or
the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or
classes of stock of the Corporation or fix the number of shares of
any series of stock or authorize the increase or decrease of the
shares of any series.
(e) AUDIT COMMITTEE. From and after the IPO Closing Date, there shall be
an Audit Committee of the Board of Directors whose members shall
consist solely of directors who are not employees or affiliates of
the Corporation and have no relationship with the Corporation that
would, in the judgment of the Board of Directors, interfere with
their exercise of independent judgment as a member of such
Committee. The Audit Committee shall have and may exercise the power
and authority to recommend to the Board of Directors the accounting
firm to be selected by the Board or to be recommended by it for
stockholder approval, as independent auditor of the financial
statements of the Corporation and its subsidiaries, and to act on
behalf of the Board in meeting and reviewing with the independent
auditors, the chief accounting officer, the chief internal auditor,
if any, and the appropriate corporate officers, matters relating to
corporate financial reporting and accounting procedures and
policies, adequacy of financial, accounting and operating controls
and the scope of the respective audits of the independent auditors
and the internal auditor, if any. The Audit Committee shall also
review the results of such audits with the respective auditors and
shall report the results of those reviews to the Board of Directors.
The Audit Committee shall submit to the Board of Directors any
recommendations it may have from time to time with respect to
financial reporting and accounting practices and policies and
financial, accounting and operational controls and safeguards. The
Audit Committee may submit to the Compensation Committee any
recommendations it may have with respect to the compensation of the
chief accounting officer and the chief internal auditor, if any. The
Board of Directors shall, by resolution adopted by a majority of the
Board of Directors, designate not less than two of its qualifying
members from time to time to constitute members of the Audit
Committee.
(f) COMPENSATION COMMITTEE. From and after the IPO Closing Date, there
shall be a Compensation Committee of the Board of Directors, whose
members shall consist
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solely of directors who are not employees or affiliates of the
Corporation and have no relationship with the Corporation that
would, in the judgment of the Board of Directors, interfere with
their exercise of independent judgment as a member of such
committee. The Compensation Committee shall have and may exercise
all the power and authority to (i) establish a general compensation
policy for officers and employees of the Corporation, including to
establish and at least annually review officers' salaries and levels
of officers' participation in the benefit plans of the Corporation,
(ii) prepare any reports that may be required by the regulations of
the Securities and Exchange Commission or otherwise relating to
officer compensation, (iii) approve any increases in directors' fees
and (iv) exercise all other powers of the Board of Directors with
respect to matters involving the compensation of employees and the
employee benefits of the Corporation as shall be delegated by the
Board of Directors to the Compensation Committee from time to time.
Without limiting the generality of the foregoing, the Compensation
Committee shall have the power and authority to authorize the
issuance of capital stock of the Corporation pursuant to any
compensation or benefit plan or arrangement adopted or entered into
by the Corporation. The Board of Directors shall, by resolution
adopted by a majority of the Board, designate two or more of its
qualifying members from time to time to constitute members of the
Compensation Committee.
ARTICLE IV
OFFICERS
4.1 DESIGNATION. The officers of the Corporation shall consist of a Chairman
of the Board, President, Secretary, Treasurer, Corporate Controller and
such Executive, Senior or other Vice Presidents, Assistant Secretaries,
Assistant Treasurers, Assistant Controllers and other officers as may be
elected or appointed by the Board of Directors from time to time.
Any number of offices may be held by the same person.
4.2 CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors
shall preside at all meetings of the stockholders and of the Board of
Directors. Except where by law the signature of the President is required,
the Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. The
Chairman of the Board of Directors shall also perform such other duties
and may exercise such other powers as from time to time may be assigned to
him by these Bylaws or by the Board of Directors. In the absence or
incapacity to act of the President, the Chairman of the Board shall serve
as acting President, and when so acting, shall have all the powers of and
be subject to the restrictions of such office.
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4.3 PRESIDENT. The President shall be the chief executive officer of the
Corporation and shall have general supervision and control of the
business, affairs and properties of the Corporation and its general
officers, and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall have the power to appoint and
remove all subordinate officers, agents and employees, except those
elected or appointed by the Board of Directors, and shall execute all
bonds, mortgages, contracts and other instruments of the Corporation
requiring a seal, under the seal of the Corporation, except where required
or permitted by law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and execute documents when
so authorized by these Bylaws, the Board of Directors or the President.
The President shall also perform such other duties and may exercise such
other powers as from time to time may be assigned to him by these Bylaws
or by the Board of Directors. In the absence or incapacity to act of the
Chairman of the Board, the President shall serve as acting Chairman of the
Board, and when so acting, shall have all the powers of and be subject to
the restrictions of such office.
4.4 VICE PRESIDENT. The Board of Directors may appoint such Vice Presidents as
may be recommended by the President or as they deem necessary or
appropriate. Vice Presidents may be designated as Senior Vice Presidents,
Executive Vice Presidents or some other designation as the Board of
Directors deems appropriate (each a "Vice President"). Each Vice President
shall perform such duties as the Board of Directors may from time to time
prescribe and have such other powers as the President may from time to
time prescribe.
4.5 SECRETARY. The Secretary shall attend the meetings of the Board of
Directors and all meetings of stockholders and record the proceedings
thereat in a book or books to be kept for that purpose; the Secretary
shall also perform like duties for the standing committees when required.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision he shall be. If the Secretary shall
be unable or shall refuse to cause to be given notice of all meetings of
the stockholders and special meetings of the Board of Directors, and if
there be no Assistant Secretary, then either the Chairman of the Board or
the President may choose another officer to cause such notice to be given.
The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be any, shall have
authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the
Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
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4.6 TREASURER. The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipt and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of
Directors, at its regular meeting, or when the Board of Directors so
requires, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books papers, vouchers, money
and other property of whatever kind in his possession or under his control
belonging to the Corporation.
4.7 CORPORATE CONTROLLER. The Corporate Controller shall be the chief
accounting officer of the Corporation, shall maintain records of all
assets, liabilities, and transactions of the Corporation and shall be
responsible for the design, installation and maintenance of accounting and
cost control systems and procedures for the Corporation and shall perform
such other duties and have such other powers as from time to time may be
assigned to him by the Board of Directors, the Audit Committee or the
President.
4.8 ASSISTANT SECRETARIES. Except as may be otherwise provided in these
Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice- President, or the Secretary,
and in the absence of the Secretary or in the event of his disability or
refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
4.9 ASSISTANT TREASURERS. Assistant Treasurers, if there by any, shall perform
such duties and have such powers as from time to time may be assigned to
them by the Board of Directors, the President or the Treasurer, and in the
absence of the Treasurer or in the event of his disability or refusal to
act, shall perform the duties of the Treasurer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Treasurer. If required by the Board of Directors, an Assistant Treasurer
shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his office and for the restoration
to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging
to the Corporation.
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4.10 ASSISTANT CONTROLLERS. Except as may be otherwise provided in these
Bylaws, Assistant Controllers, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice-President, or the Corporate
Controller, and in the absence of the Corporate Controller or in the event
of his disability or refusal to act, shall perform the duties of the
Corporate Controller, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the Corporate Controller.
4.11 OTHER OFFICERS. Such other officers as to the Board of Directors may
choose shall perform such duties and have such powers, subordinate to
those powers specifically delegated to certain officer in these Bylaws, as
from time to time may be assigned to them by the Board of Directors. The
President of the Corporation shall have the power to choose such other
officers and to prescribe their respective duties and powers, subject to
control by the Board of Directors.
4.12 VACANCIES. Whenever any vacancies shall occur in any office by death,
resignation, increase in the number of offices of the Corporation, or
otherwise, the same shall be filled by the Board of Directors (or the
President, in accordance with Section 4.3 of these Bylaws, subject to
control by the Board of Directors), and the officer so appointed shall
hold office until such officer's successor is elected or appointed in
accordance with these Bylaws or until his earlier death, resignation or
removal.
4.13 REMOVAL. Any officer or agent of the Corporation may be removed by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
4.14 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless otherwise
directed by the Board of Directors, the Chairman of the Board, the
President, any Vice President and the Treasurer of the Corporation shall
each have power to vote and otherwise act on behalf of the Corporation, in
person or by proxy, at any meeting of security holders of or with respect
to any action of security holders of any other corporation in which this
Corporation may hold securities and otherwise to exercise any and all
rights and powers which this Corporation may possess by reason of its
ownership of securities in such other corporation.
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ARTICLE V
CAPITAL STOCK
5.1 CERTIFICATES FOR SHARES. The certificates for shares of the capital stock
of the Corporation shall be in such form as may be approved by the Board
of Directors or may be uncertificated shares. In the case of certificated
shares, the Corporation shall deliver certificates representing shares to
which stockholders are entitled. Certificates representing such
certificated shares shall be signed by the Chairman of the Board, the
President or a Vice President and either the Secretary or an Assistant
Secretary of the Corporation, and may bear the seal of the Corporation or
a facsimile thereof. The signatures of such officers upon a certificate
may be facsimiles. The stock record books and the blank stock certificate
books shall be kept by the Secretary of the Corporation, or at the office
of such transfer agent or transfer agents as the Board of Directors may
from time to time by resolution determine. In case any officer who has
signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it
may be issued by the Corporation with the same effect as if such person
were such officer at the date of its issuance.
5.2 TRANSFER OF SHARES. The shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof
in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of
shares.
5.3 OWNERSHIP OF SHARES. The Corporation shall be entitled to treat the holder
of record of any share or shares of capital stock of the Corporation as
the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.
5.4 REGULATIONS REGARDING CERTIFICATES. The Board of Directors shall have the
power and authority to make all such rules and regulations as they may
deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the
Corporation.
5.5 LOST OR DESTROYED CERTIFICATES. The Board of Directors may determine the
conditions upon which a new certificate of stock may be issued in place of
a certificate which is alleged to have been lost, stolen or destroyed; and
may, in its discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to indemnify the
Corporation and each transfer agent and registrar against any and all
losses or claims that may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
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ARTICLE VI
INDEMNIFICATION
6.1 GENERAL. The Corporation shall, to the fullest extent permitted by
applicable law in effect on the date of effectiveness of these Bylaws, and
to such greater extent as applicable law may thereafter permit, indemnify
and hold harmless an Indemnitee (as this and all other capitalized words
used in this Article VI not previously defined in these Bylaws are defined
in Section 6.9 hereof) from and against any and all judgments, penalties,
fines (including excise taxes), amounts paid in settlement and, subject to
Section 6.2, Expenses whatsoever arising out of any event or occurrence
related to the fact that Indemnitee is or was a director or officer of the
Corporation. The Corporation may, but shall not be required to, indemnify
and hold harmless an Indemnitee from and against any and all judgments,
penalties, fines (including excise taxes), amounts paid in settlement and,
subject to Section 6.2, Expenses whatsoever arising out of any event or
occurrence related to the fact that Indemnitee is or was an employee or
agent of the Corporation or is or was serving in another Corporate Status
(other than as an officer or director of the Corporation) at the written
request of the Corporation.
6.2 EXPENSES. If Indemnitee is, by reason of his serving as a director,
officer, employee or agent of the Corporation, a party to and is
successful, on the merits or otherwise, in any Proceeding, the Corporation
shall indemnify him against all Expenses actually and reasonably incurred
by him or on his behalf in connection therewith. If any such Indemnitee is
not wholly successful in such Proceeding but is successful, on the merits
or otherwise, as to any Matter in such Proceeding, the Corporation shall
indemnify such Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf relating to such Matter. The termination
of any Matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such Matter. If
Indemnitee is, by reason of any Corporate Status other than his serving as
a director, officer, employee or agent of the Corporation, a party to and
is successful, on the merits or otherwise, in any Proceeding, the
Corporation may, but shall not be required to, indemnify him against all
Expenses actually and reasonably incurred by him or on his behalf in
connection therewith. To the extent that the Indemnitee is, by reason of
his Corporate Status, a witness in any Proceeding, the Corporation may,
but shall not be required to, indemnify him against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith.
6.3 ADVANCES. In the event of any threatened or pending action, suit or
proceeding in which Indemnitee is a party or is involved and that may give
rise to a right of indemnification under this Article VI, following
written request to the Corporation by Indemnitee, the Corporation shall
promptly pay to Indemnitee amounts to cover expenses reasonably incurred
by Indemnitee in such proceeding in advance of its final disposition upon
the
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receipt by the Corporation of (i) a written undertaking executed by or on
behalf of Indemnitee providing that Indemnitee will repay the advance if
it shall ultimately be determined pursuant to the provisions of this
Article VI or by final judgment or other final adjudication under the
provisions of any applicable law that Indemnitee is not entitled to be
indemnified by the Corporation as provided in these Bylaws and (ii)
satisfactory evidence as to the amount of such expenses.
6.4 REQUEST FOR INDEMNIFICATION. To request indemnification, Indemnitee shall
submit to the Secretary of the Corporation a written claim or request.
Such written claim or request shall contain sufficient information to
reasonably inform the Corporation about the nature and extent of the
indemnification or advance sought by Indemnitee. The Secretary of the
Corporation shall promptly advise the Board of Directors of such request.
6.5 NONEXCLUSIVITY OF RIGHTS. The rights of indemnification and advancement of
Expenses as provided by this Article VI shall not be deemed exclusive of
any other rights to which Indemnitee may at any time be entitled to under
applicable law, the Certificate of Incorporation, these Bylaws, any
agreement, a vote of stockholders or a resolution of directors of the
Corporation, or otherwise. No amendment, alteration or repeal of this
Article VI or any provision hereof shall be effective as to any Indemnitee
for acts, events and circumstances that occurred, in whole or in part,
before such amendment, alteration or repeal. The provisions of this
Article VI shall continue as to an Indemnitee whose Corporate Status has
ceased for any reason and shall inure to the benefit of his heirs,
executors and administrators. Neither the provisions of this Article VI
nor those of any agreement to which the Corporation is a party shall be
deemed to preclude the indemnification of any person who is not specified
in this Article VI as having the right to receive indemnification or is
not a party to any such agreement, but whom the Corporation has the power
or obligation to indemnify under the provisions of the DGCL.
6.6 INSURANCE AND SUBROGATION. The Corporation shall not be liable under this
Article VI to make any payment of amounts otherwise indemnifiable
hereunder if, but only to the extent that, Indemnitee has otherwise
actually received such payment under any insurance policy, contract,
agreement or otherwise. In the event of any payment hereunder, the
Corporation shall be subrogated to the extent of such payment to all the
rights of recovery of Indemnitee, who shall execute all papers required
and take all action reasonably requested by the Corporation to secure such
rights, including execution of such documents as are necessary to enable
the Corporation to bring suit to enforce such rights.
6.7 SEVERABILITY. If any provision or provisions of this Article VI shall be
held to be invalid, illegal or unenforceable for any reason whatsoever,
the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby; and, to the fullest
extent possible, the provisions of this Article VI shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
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6.8 CERTAIN ACTIONS WHERE INDEMNIFICATION IS NOT PROVIDED. Notwithstanding any
other provision of this Article VI, no person shall be entitled to
indemnification or advancement of Expenses under this Article VI with
respect to any Proceeding, or any Matter therein, brought or made by such
person against the Corporation.
6.9 DEFINITIONS. For purposes of this Article VI:
(a) "CORPORATE STATUS" describes the status of a person who is or was a
director, officer, employee or agent of the Corporation or of any
other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, provided such person is or was
serving in such capacity at the written request of the Corporation.
For purposes of these Bylaws, "serving at the written request of the
Corporation" includes any service by Indemnitee which imposes duties
on, or involves services by, Indemnitee with respect to any employee
benefit plan or its participants or beneficiaries.
(b) "EXPENSES" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements
or expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in a
Proceeding.
(c) "INDEMNITEE" includes any person who is, or is threatened to be
made, a witness in or a party to any Proceeding as described in
Section 6.1 or 6.2 hereof by reason of his Corporate Status.
(d) "MATTER" is a claim, a material issue or a substantial request for
relief.
(e) "PROCEEDING" includes any action, suit, alternate dispute resolution
mechanism, hearing or any other proceeding, whether civil, criminal,
administrative, arbitrative, investigative or mediative, any appeal
in any such action, suit, alternate dispute resolution mechanism,
hearing or other proceeding and any inquiry or investigation that
could lead to any such action, suit, alternate dispute resolution
mechanism, hearing or other proceeding, except one (i) initiated by
an Indemnitee to enforce his rights under this Article VI or (ii)
pending on or before the date of adoption of these Bylaws.
6.10 NOTICES. Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding, Indemnitee shall, if he
anticipates or contemplates making a claim for expenses or an advance
pursuant to the terms of this Article VI, notify the Corporation of the
commencement of such action, suit or proceeding; PROVIDED, HOWEVER,
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that any delay in so notifying the Corporation shall not constitute a
waiver or release by Indemnitee of rights hereunder and that any omission
by Indemnitee to so notify the Corporation shall not relieve the
Corporation from any liability that it may have to Indemnitee otherwise
than under this Article VI. Any communication required or permitted to the
Corporation shall be addressed to the Secretary of the Corporation at its
principal executive offices and any such communication to Indemnitee shall
be addressed to Indemnitee's address as shown on the Corporation's records
unless he specifies otherwise and shall be personally delivered or
delivered by overnight mail delivery. Any such notice shall be effective
upon receipt.
6.11 CONTRACTUAL RIGHTS. The right to be indemnified or to the advancement or
reimbursement of Expenses (i) is a contract right based upon good and
valuable consideration, pursuant to which Indemnitee may sue as if these
provisions were set forth in a separate written contract between
Indemnitee and the Corporation, (ii) is and is intended to be retroactive
and shall be available as to events occurring prior to the adoption of
these provisions and (iii) shall continue after any rescission or
restrictive modification of such provisions as to events occurring prior
thereto.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 BYLAW AMENDMENTS. The Board of Directors shall have the power to adopt,
amend and repeal from time to time the Bylaws of the Corporation, subject
to the right of stockholders entitled to vote with respect thereto to
amend or repeal such Bylaws as adopted or amended by the Board of
Directors. Bylaws of the Corporation may be adopted, amended or repealed
by the affirmative vote of the holders of at least two-thirds of the
combined voting power of the outstanding shares of all classes of stock of
the Corporation entitled to vote generally in the election of directors,
voting together as a single class, at any annual meeting, or at any
special meeting if notice of the proposed amendment be contained in the
notice of said special meeting, or by the Board of Directors as specified
in the preceding sentence.
7.2 BOOKS AND RECORDS. The Corporation shall keep books and records of account
and shall keep minutes of the proceedings of its stockholders, its Board
of Directors and each committee of its Board of Directors.
7.3 NOTICES; WAIVER OF NOTICE. Whenever any notice is required to be given to
any stockholder, director or committee member under the provisions of the
DGCL or under the Certificate of Incorporation, as amended, or these
Bylaws, said notice shall be deemed to be sufficient if given (i) by
telegraphic, facsimile, cable or wireless transmission or (ii) by deposit
of the same in the United States mail, with postage paid thereon,
addressed to
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the person entitled thereto at his address as it appears on the records of
the Corporation, and such notice shall be deemed to have been given on the
day of such transmission or mailing, as the case may be.
Whenever any notice is required to be given to any stockholder,
director or committee member under the provisions of the DGCL or under the
Certificate of Incorporation or these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be equivalent to the giving of such
notice. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the stockholders, directors, or members
of a committee of directors need be specified in any written waiver of
notice unless so required by the Certificate of Incorporation or these
Bylaws.
7.4 RESIGNATIONS. Any director or officer may resign at any time. Such
resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt
by the President or the Secretary of the Corporation. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly
so provided in the resignation.
7.5 SEAL. The seal of the Corporation shall be in such form as the Board of
Directors may adopt.
7.6 FISCAL YEAR. The fiscal year of the Corporation shall end on the 31st day
of December of each year or as otherwise provided by a resolution adopted
by the Board of Directors.
7.7 FACSIMILE SIGNATURES. In addition to the provisions for the use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be
used whenever and as authorized by the Board of Directors.
7.8 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director and each member of
any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith
upon the books of account or reports made to the Corporation by any of its
officers, or by an independent certified public accountant, or by an
appraiser selected with reasonable care by the Board of Directors or by
any such committee, or in relying in good faith upon other records of the
Corporation.
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EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of June 12, 1997, by and among THE SAFE SEAL COMPANY, INC., a
Texas corporation ("Safe Seal"), INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware
corporation ("Invatec"), and each person listed on the signature pages hereto
under the caption "Noteholders" (each a "Noteholder" and, collectively, the
"Noteholders").
WHEREAS, pursuant to that certain Stock and Real Estate Purchase
Agreement dated May 22, 1997 (the "Purchase Agreement"), executed by and among
Safe Seal which is an Affiliate (as such term is defined in the Purchase
Agreement) of Invatec, the Noteholders, and Plant Specialties, Inc., a Louisiana
corporation, each of the Noteholders has received on the date hereof a 5.0%
Convertible Subordinated Promissory Note (each a "Note," and collectively the
"Notes") convertible on the terms set forth therein into shares of common stock
("Common Stock") of Safe Seal, Invatec or any successor thereto which first
conducts an initial public offering of its common stock, as further described in
the Notes (such entity first conducting such initial public offering is
hereinafter sometimes referred to as the "Issuer"); and
WHEREAS, to induce the Noteholders to enter into the Purchase Agreement,
Safe Seal and Invatec have agreed to provide registration rights on the terms
set forth in this Agreement for the benefit of the Noteholders;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
1. DEFINITIONS. The following capitalized terms shall have the meanings
assigned to them in this Section 1 or in the parts of this Agreement referred to
below:
CODE: The term "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto.
COMMISSION: The term "Commission" shall mean the Securities and Exchange
Commission, and any successor thereto.
EXCHANGE ACT: The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and any successor thereto, and the rules and
regulations thereunder.
EXEMPT OFFERING: The term "Exempt Offering" shall mean a registration
under the Securities Act of Common Stock by the Issuer for its own account
relating to the offering or issuance of shares in connection with (i) employee
compensation or benefit plans or (ii) one or more acquisition or exchange offer
transactions under a Registration Statement on Form S-4 under the Securities Act
(or a successor to Form S-4).
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REGISTRABLE COMMON: The term "Registrable Common" shall mean shares of
Common Stock issued to a Noteholder upon conversion of a Note, and any
additional shares of Common Stock issued or distributed in respect of any other
shares of Registrable Common by way of a stock dividend or distribution or stock
split or in connection with a combination of shares, recapitalization,
reorganization, merger, consolidation or otherwise. For purposes of this
Agreement, shares of Registrable Common will cease to be Registrable Common when
and to the extent that (i) a registration statement covering such shares has
been declared effective under the Securities Act and such shares have been
disposed of pursuant to such effective registration statement, (ii) such shares
are sold pursuant to Rule 144 or (iii) such shares have been otherwise
transferred to a person or entity that is not a Noteholder, other than pursuant
to Section 10 hereof.
REGISTRATION NOTICE: The term "Registration Notice" shall have the
meaning ascribed thereto in Section 2.
RULE 144: The term "Rule 144" shall mean Securities Act Rule 144 (or any
similar or successor provision under the Securities Act).
SECURITIES ACT: The term "Securities Act" shall mean the Securities Act
of 1933, as amended, and any successor thereto, and the rules and regulations
thereunder.
SELLING STOCKHOLDER: The term "Selling Stockholder" shall have meaning
ascribed thereto in Section 11.
2. PIGGYBACK REGISTRATION RIGHTS. If the Issuer proposes to register any
Common Stock for its own account under the Securities Act for a public offering
for cash at any time after the underwritten initial public offering of the
Common Stock of the Issuer and before March 31, 1999, other than an Exempt
Offering, the Issuer will give each Noteholder written notice of its intent to
do so (a "Registration Notice") at least 20 days prior to the filing of the
related registration statement with the Commission. Such notice shall specify
the approximate date on which the Issuer proposes to file such registration
statement and shall contain a statement that the Noteholders are entitled to
participate in such offering and shall set forth the number of shares of
Registrable Common that represents the best estimate of the lead managing
underwriter (or if not known or applicable, the Issuer) that will be available
for sale by the holders of Registrable Common in the proposed offering. If the
Issuer shall have delivered a Registration Notice, each Noteholder shall, upon
conversion of his or her Note, be entitled to participate on the same terms and
conditions as the Issuer in the public offering to which such Registration
Notice relates and to offer and sell shares of Registrable Common therein only
to the extent provided in this Section 2. Each Noteholder desiring to
participate in such offering shall, no later than ten days following receipt of
the Registration Notice, (i) effective immediately prior to the closing of the
offering, convert his or her Note into Registrable Common, if such Note has not
previously been converted and (ii) notify the Issuer of the aggregate number of
shares of Registrable Common that such Noteholder then desires to sell in the
offering. Each Noteholder desiring to participate in such public offering may
include shares of Registrable Common in the registration statement relating
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to the offering to the extent that the inclusion of such shares shall not reduce
the number of shares of Common Stock to be offered and sold by the Issuer to be
included therein. If the lead managing underwriter selected by the Issuer for a
public offering (or, if the offering is not underwritten, a financial advisor to
the Issuer) determines that marketing factors require a limitation on the number
of shares of Registrable Common to be offered and sold in such offering, there
shall be included in the offering only that number of shares of Registrable
Common, if any, that such lead managing underwriter or financial advisor, as the
case may be, reasonably and in good faith believes will not jeopardize the
success of the offering, provided that if the lead managing underwriter or
financial advisor, as the case may be, determines that marketing factors require
a limitation on the number of shares of Registrable Common to be offered and
sold as aforesaid and so notifies the Issuer in writing, then the number of
shares of Registrable Common to be offered and sold by holders desiring to
participate in the offering shall be allocated among such holders on a pro rata
basis based on their holdings of Registrable Common. The Issuer shall have the
right at any time to reduce the number of shares requested by any Noteholder to
be included in such registration to the extent that the Issuer reasonably
concludes that inclusion of such shares is likely to jeopardize the
non-recognition status under the Code of the transaction consummated pursuant to
the Purchase Agreement; provided that any determination to exclude shares from
any such registration pursuant to this provision shall be based on advice of tax
counsel to the Issuer or its independent accountants.
3. REGISTRATION PROCEDURES. In connection with any piggyback
registration under Section 2 hereof, and subject to the terms and conditions
contained therein, the Issuer shall (a) use its best efforts to prepare and file
with the Commission as soon as reasonably practicable after delivery of the
Registration Notice, a registration statement with respect to the Registrable
Common, and use its best efforts to cause such registration to promptly become
and remain effective for a period of at least 120 days (or such shorter period
during which holders shall have sold all Registrable Common which they requested
to be registered); provided, however, that such 120-day period shall be extended
for a period equal to the period that a Noteholder agrees to refrain from
selling any securities included in such registration in accordance with Section
7 hereof; (b) prepare and file with the Commission such amendments (including
post-effective amendments) to such registration statement and supplements to the
related prospectus to appropriately reflect the plan of distribution of the
securities registered thereunder until the completion of the distribution
contemplated by such registration statement or for so long thereafter as a
dealer is required by law to deliver a prospectus in connection with the offer
and sale of the shares of Registrable Common covered by such registration
statement and/or as shall be necessary so that neither such registration
statement nor the related prospectus shall contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and so that such
registration statement and the related prospectus will otherwise comply with
applicable legal requirements; (c) provide to any Noteholder requesting to
include shares of Registrable Common in such registration statement, and to a
single counsel for all holders of Registrable Common requesting to include
shares of Registrable Common in such registration statement (which counsel shall
be selected by the holders of a majority of shares of Registrable Common
requested to be included in such registration
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statement and shall be reasonably satisfactory to the Issuer), an opportunity to
review and provide comments with respect to such registration statement (and any
post-effective amendment thereto) prior to such registration statement (or
post-effective amendment) becoming effective; (d) use its best efforts to
register and qualify the Registrable Common covered by such registration
statement under applicable securities or "Blue Sky" laws of such jurisdictions
as the holders shall reasonably request for the distribution of the Registrable
Common; (e) take such other actions as are reasonable and necessary to comply
with the requirements of the Securities Act; (f) furnish such number of
prospectuses (including preliminary prospectuses) and documents incident thereto
as a Noteholder from time to time may reasonably request; (g) provide to any
Noteholder requesting to include Registrable Common in such registration
statement and any managing underwriter participating in any distribution
thereof, and to any attorney, accountant or other agent retained by such
Noteholder or managing underwriter, reasonable access to appropriate officers
and directors of the Issuer to ask questions and to obtain information
reasonably requested by any such Noteholder, managing underwriter, attorney,
accountant or other agent in connection with such registration statement or any
amendment thereto; provided, however, that (g-i) in connection with any such
access or request, any such requesting persons shall cooperate to the extent
reasonably practicable to minimize any disruption to the operation by the Issuer
of its business and (g-ii) any records, information or documents shall be kept
confidential by such requesting persons, unless (A) such records, information or
documents are in the public domain or otherwise publicly available or (B)
disclosure of such records, information or documents is required by a court of
competent jurisdiction, by administrative order or by applicable law (including,
without limitation, the Securities Act); (h) notify each Noteholder and any
managing underwriter participating in the distribution pursuant to such
registration statement promptly (h-i) when the Issuer is informed that such
registration statement or any post-effective amendment to such registration
statement becomes effective, (h-ii) of any request by the Commission for an
amendment or any supplement to such registration statement or any related
prospectus, (h-iii) of the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or of any order
preventing or suspending the use of any related prospectus or the initiation or
threat of any proceeding for that purpose, (h-iv) of the suspension of the
qualification of any shares of Registrable Common included in such registration
statement for sale in any jurisdiction or the initiation or threat of a
proceeding for that purpose, (h-v) of any determination by the Issuer that any
event has occurred which makes untrue any statement of a material fact made in
such registration statement or any related prospectus or which requires the
making of a change in such registration statement or any related prospectus in
order that the same will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading and (h-vi) of the completion of the
distribution contemplated by such registration statement if it relates to an
offering by the Issuer; (i) in the event of the issuance of any stop order
suspending the effectiveness of such registration statement or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any shares of Registrable Common included in such registration
statement for sale in any jurisdiction, use its best efforts to obtain its
withdrawal; (j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, but not later than fifteen months
after the effective date of such
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registration statement, an earnings statement covering the period of at least
twelve months beginning with the first full fiscal quarter after the effective
date of such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act; (k) use reasonable diligence
to cause all shares of Registrable Common included in such registration
statement to be listed on any securities exchange (including, for this purpose,
the Nasdaq National Market) on which the Common Stock is then listed at the
initiation of the Issuer; (l) use reasonable diligence to obtain an opinion from
legal counsel (which may include the General Counsel of the Issuer) in customary
form and content reasonably acceptable to any managing underwriter, if any; (m)
provide a transfer agent and registrar for all such Registrable Common not later
than the effective date of such registration statement; (n) enter into such
customary agreements (including an underwriting agreement in customary form) as
the underwriters, if any, may reasonably request in order to expedite or
facilitate the disposition of such shares of Registrable Common; and (o) use
reasonable diligence to obtain a "comfort letter" from the Issuer's independent
public accountants in customary form and content reasonably acceptable to the
underwriters, if any. As used in this Section 3 and elsewhere herein, the term
"underwriters" does not include any Noteholder.
4. UNDERWRITING AGREEMENT. In connection with each piggyback
registration pursuant to Section 2 covering an underwritten registered public
offering, the Issuer and each participating Noteholder agree to enter into a
written agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities industry for such an arrangement
between such underwriter and companies of the Issuer's size and investment
stature, including provisions for indemnification by the Issuer and each Selling
Noteholder as more fully described in Section 11 hereof.
5. AVAILABILITY OF RULE 144. Notwithstanding any provision contained
herein to the contrary (including without limitation Section 2 hereof), the
Issuer shall not be obligated to register shares of Registrable Common held by
any Noteholder when the resale provisions of Rule 144(k) are available to such
Noteholder or such Noteholder is otherwise entitled to sell the shares of
Registrable Common held by him or her in a brokerage transaction without
registration under the Securities Act and without limitation as to volume or
manner of sale.
6. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
shares of Registrable Common held by the Noteholders to the public without
registration, the Issuer agrees to:
(a) make and keep public information available (as those terms are
understood and defined in Rule 144) at all times from and after 90 days
following the effective date of the registration statement;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Issuer under the Securities Act
and the Exchange Act at any time that it is subject to such reporting
requirements; and
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(c) so long as a Noteholder owns any shares of Registrable Common,
furnish to the Noteholder forthwith upon request a written statement by the
Issuer as to its compliance with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act (at any time that it is subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
the Issuer, and such other reports and documents filed in accordance with such
reporting requirements as a Noteholder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Noteholder to sell any
such securities without registration; and
(d) if required by the transfer agent and registrar for the Common
Stock, use reasonable diligence to obtain an opinion from legal counsel (which
may include the General Counsel of the Issuer) addressed to such transfer agent
and registrar, with respect to any sale of shares of Registerable Common
pursuant to Rule 144 (or, at the option of the Issuer, pay the reasonable fees
and expenses of legal counsel retained by a Noteholder to provide such an
opinion).
7. MARKET STANDOFF. In consideration of the granting to Noteholders of
the registration rights pursuant to this Agreement, each Noteholder agrees that,
for so long as such Noteholder holds shares of Registrable Common, except as
permitted by Sections 2 and 3 hereof, such Noteholder will not sell, transfer or
otherwise dispose of, including without limitation through put or short sale
arrangements, shares of Common Stock in the ten days prior to the effectiveness
of any registration (other than relating to an Exempt Offering) of Common Stock
for sale to the public and for up to 180 days following the effectiveness of
such registration.
8. REGISTRATION EXPENSES. All expenses incurred in connection with any
registration, qualification and compliance under this Agreement (including,
without limitation, all registration, filing, qualification, legal, printing and
accounting fees) shall be borne by the Issuer. All underwriting commissions and
discounts applicable to shares of Registrable Common included in the
registrations under this Agreement shall be borne by the holders of the
securities so registered pro rata on the basis of the number of shares so
registered. Subject to the foregoing, all expenses incident to the Issuer's
performance of or compliance with this Agreement, including, without limitation,
all filing fees, fees and expenses of compliance with securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel in
connection with Blue Sky qualifications of the Registrable Common), printing
expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of the Issuer's officers and employees
performing legal or accounting duties), the fees and expenses applicable to
shares of Registrable Common included in connection with the listing of the
securities to be registered on each securities exchange (including, for this
purpose, the Nasdaq National Market) on which similar securities issued by the
Issuer are then listed at the initiation of the Issuer, registrar and transfer
agents' fees and fees and disbursements of counsel for the Issuer and its
independent certified public accountants, securities act liability insurance of
the Issuer and its officers and directors (if the Issuer elects to obtain such
insurance), the fees and expenses of any special experts retained by the Issuer
in connection with such registration and fees and expenses of other persons
retained by the Issuer and incurred in connection with each registration
hereunder (but not
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including, without limitation, any underwriting fees, discounts or commissions
attributable to the sale of Registrable Common, fees and expenses of counsel and
any other special experts retained by the holders of Registrable Common in
connection with a registration required hereunder, and transfer taxes, if any),
will be borne by the Issuer.
9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable
Common may participate in any underwritten registration hereunder unless such
holder (a) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, custody agreements, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
10. TRANSFER OF REGISTRATION RIGHTS; ADDITIONAL GRANTS OF REGISTRATION
RIGHTS. The registration rights provided to the holders of Registrable Common
under Section 2 hereof may not be transferred to any other person or entity,
except to another Noteholder or pursuant to the laws of descent and
distribution; provided that such transferees are bound by and subject to, and
upon the request of the Issuer shall agree to and assume, the terms, obligations
and conditions contained herein. The Company, Invatec or any successor may,
without the prior consent of the Noteholders, extend the registration rights
provided for in this Agreement to additional persons or entities who become
holders of Common Stock, or other instruments or securities convertible into
Common Stock, subsequent to the date of this Agreement by entering into one or
more addenda to this Agreement with any such holders, and, upon execution of any
such addenda, any such holder that is a party thereto shall thereafter be a
"Noteholder" for purposes of this Agreement and any shares of Common Stock
referred to therein as such shall be shares of "Registrable Common" for purposes
of this Agreement. Nothing herein shall limit the ability of Safe Seal, Invatec
or any successor to grant to any person or entity any registration or similar
rights of any type in the future with respect to Common Stock or other
securities (whether pursuant to the foregoing provision or otherwise).
11. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE ISSUER. To the extent permitted by law, the
Issuer agrees to indemnify and hold harmless each Noteholder who sells shares of
Registrable Common in a registered offering pursuant to Section 2 hereof (a
"Selling Stockholder"), from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable legal expenses) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Common or in any amendment or supplement thereto or in any related
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Issuer by such Selling Stockholder or on
such Selling Stockholder's behalf expressly for use therein. In
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connection with an underwritten offering of shares of Registrable Common, the
Issuer will indemnify any underwriters of the Registrable Common, their
partners, officers and directors and each person who controls such underwriters
(within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act) on substantially the same basis as that of the indemnification
of the Selling Stockholders provided in this Section 11(a). Notwithstanding the
foregoing, the Issuer indemnification obligations with respect to any
preliminary prospectus shall not inure to the benefit of any Selling Stockholder
or underwriter with respect to any loss, claim, damage, liability (or actions in
respect thereof) or expense arising out of or based on any untrue statement or
alleged untrue statement or omission or alleged omission to state a material
fact in such preliminary prospectus, in any case where (i) a copy of the
prospectus used to confirm sales of shares of Registrable Common was not sent or
given to the person asserting such loss, claim, damage, liability or expense at
or prior to the written confirmation of the sale to such person, and (ii) such
untrue statement or alleged untrue statement or omission or alleged omission was
corrected in such prospectus.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by a
Selling Stockholder of notice of any claim or the commencement of any action or
proceeding brought or asserted against such Selling Stockholder in respect of
which indemnity may be sought from the Issuer, such Selling Stockholder shall
notify the Issuer in writing of the claim or the commencement of that action or
proceeding; provided, however, that the failure to so notify the Issuer shall
not relieve the Issuer from any liability that it may have to the Selling
Stockholder otherwise than pursuant to the indemnification provisions of this
Agreement. If any such claim or action or proceeding shall be brought against a
Selling Stockholder and such Selling Stockholder shall have duly notified the
Issuer thereof, the Issuer shall have the right to assume the defense thereof,
including the employment of counsel. Such Selling Stockholder shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Selling Stockholder unless (i) the Issuer has agreed to pay such
fees and expenses or (ii) the named parties to any such action or proceeding
include both such Selling Stockholder and the Issuer, and such Selling
Stockholder shall have been advised in writing by counsel that there may be one
or more legal defenses available to such Selling Stockholder which are different
from or additional to those available to the Issuer, in which case, if such
Selling Stockholder notifies the Issuer in writing that it elects to employ
separate counsel at the expense of the Issuer, the Issuer shall not have the
right to assume the defense of such action or proceeding on behalf of such
Selling Stockholder; it being understood, however, that the Issuer shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (together with appropriate
local counsel) at any time for all Selling Stockholders. The Issuer shall not be
liable for any settlement of any such action or proceeding effected without the
Issuer written consent.
(c) INDEMNIFICATION BY HOLDERS OF REGISTRABLE COMMON. In connection with
any registration in which a Selling Stockholder is participating, such Selling
Stockholder will furnish
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to the Issuer in writing such information and affidavits as the Issuer
reasonably requests for use in connection with any related registration
statement or prospectus. To the extent permitted by law, each Selling
Stockholder agrees to indemnify and hold harmless the Issuer, its directors and
officers who sign the registration statement relating to shares of Registrable
Common offered by such Selling Stockholder and each person, if any, who controls
the Issuer within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Issuer to such Selling Stockholder, but only with respect to
information concerning such Selling Stockholder furnished in writing by such
Selling Stockholder or on such Selling Stockholder's behalf expressly for use in
any registration statement or prospectus relating to shares of Registrable
Common offered by such Selling Stockholder, or any amendment or supplement
thereto, or any related preliminary prospectus. In case any action or proceeding
shall be brought against the Issuer or its directors or officers, or any such
controlling person, in respect of which indemnity may be sought against such
Selling Stockholder, such Selling Stockholder shall have the rights and duties
given to the Issuer, and the Issuer or its directors or officers or such
controlling persons shall have the rights and duties given to such Selling
Stockholder, by the preceding paragraph. Each Selling Stockholder also agrees to
indemnify and hold harmless any underwriters of the Registrable Common, their
partners, officers and directors and each person who controls such underwriters
(within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act) on substantially the same basis as that of the indemnification
of the Issuer provided in this Section 11(c). Notwithstanding any provision to
the contrary set forth herein, in no event shall the amount paid or payable by
any Selling Stockholder under this Section 11(c) exceed the amount of proceeds
received by such Selling Stockholder from the offering of the Registrable
Common.
(d) CONTRIBUTION. If the indemnification provided for in this Section 11
is unavailable to any indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities and expenses in such proportion as is appropriate
to reflect the relative fault of the indemnifying party and the indemnified
parties in connection with the actions that resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnified party or indemnified parties and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The Issuer and the Selling Stockholders agree
that it would not be just and equitable if contribution pursuant to this Section
11(d) were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in this Section 11(d). No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. If indemnification is available under this Section 11, the
indemnifying parties shall indemnify each indemnified party to the full extent
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provided in Sections 11(a) and (c) without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 11(d).
12. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Issuer has obtained the written consent of holders of at least 51% of
the shares of Registrable Common (or Notes convertible into 51% of the
Registrable Common) then outstanding.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telex or telecopy, or registered or
certified mail (return receipt requested), postage prepaid, or courier to the
parties at the following addresses (or at such other address for any party as
shall be specified by like notice), provided that notices of a change of address
shall be effective only upon receipt thereof. Notices sent by mail shall be
effective on the fourth business day after mailing in accordance with the
preceding sentence, notices sent by telecopier shall be effective when receipt
is acknowledged or otherwise confirmed, and notices sent by courier delivery
shall be effective the business day upon which the notice is actually delivered
to the proper location (provided that notices delivered after 5:00 p.m. local
time shall not be effective until the next following business dy). Notices shall
be sent to the following addresses:
(i) if to a Noteholder, at the most current address given by
such Noteholder to the Issuer in a writing making specific reference to
this Agreement;
(ii) if to Safe Seal, Invatec or any successor, at the following
address:
14900 Woodham Drive
Suite A-125
Houston, Texas 77073
Telecopy: (281) 821-1123
with copies to:
John R. Boyer, Jr.
Boyer, Ewing & Harris Incorporated
Nine Greenway Plaza, Suite 3100
Houston, Texas 77046
Telecopy: (713) 871-2024
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the heirs, executors, administrators, successors and assigns
of each of the parties.
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<PAGE>
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the state of Texas applicable to contracts made and
to be performed wholly within that state.
(g) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all the rights and privileges of the Noteholders
shall be enforceable to the fullest extent permitted by law.
(h) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE SAFE SEAL COMPANY, INC.
By:_______________________________
WILLIAM E. HAYNES
President & CEO
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:____________________________
William E. Haynes, President
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NOTEHOLDERS:
__________________________________
CURRY B. WALKER
__________________________________
DEBORAH ELAINE RENFROE
__________________________________
CURRY B. WALKER III
__________________________________
CHERYL LYNN MOUTON
__________________________________
LAURA ANN THOMAS
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EXHIBIT 4.5
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR THE
SECURITIES LAWS OF ANY STATE. NEITHER THIS NOTE NOR SUCH SHARES MAY BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON (1) SUCH
REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF THIS NOTE OR SUCH SHARES OF AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER, OR (3) THE SUBMISSION TO THE ISSUER OF THIS NOTE OR
SUCH SHARES OF OTHER EVIDENCE, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE
EFFECT THAT ANY SUCH SALE, PLEDGE, HYPOTHECATION OR TRANSFER WILL NOT BE IN
VIOLATION OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR OTHER
APPLICABLE SECURITIES LAWS OF ANY STATE, OR ANY RULES OR REGULATIONS PROMULGATED
THEREUNDER.
THE PAYMENT OF THE PRINCIPAL OF, AND INTEREST ON, AND ALL OTHER AMOUNTS OWING IN
RESPECT OF THE INDEBTEDNESS EVIDENCED BY, THIS NOTE, IS AND SHALL BE EXPRESSLY
SUBORDINATED, TO THE EXTENT AND IN THE MANNER SET FORTH IN THAT CERTAIN
SUBORDINATION AGREEMENT DATED JUNE ___, 1997, AMONG THE COMPANY, THE PAYEE, THE
CHASE MANHATTAN BANK, TEXAS COMMERCE BANK NATIONAL ASSOCIATION (COLLECTIVELY,
"LENDERS"), AND THE CHASE MANHATTAN BANK ("AGENT"), AS AGENT FOR LENDERS.
ISSUE DATE: JUNE 12, 1997
THE SAFE SEAL COMPANY, INC.
5.0% CONVERTIBLE SUBORDINATED NOTE
NO. 1 HOUSTON, TEXAS $3,027,982.60
THE SAFE SEAL COMPANY, INC., a Texas corporation with offices at
14900 Woodham Drive, Suite A125, Houston, Texas 77073 (hereinafter referred to
as the "Company"), for value received, hereby promises to pay to the order of
CURRY B. WALKER (the "Payee"), at 2185 Leonard Road, Sulphur, Louisiana 70663
the sum of THREE MILLION, TWENTYSEVEN THOUSAND, NINE HUNDRED EIGHTY-TWO AND
60/100 DOLLARS ($3,027,982.60), together with interest on the unpaid principal
balance hereof from the date hereof until payment in full, in lawful money of
the United States of America which shall be legal tender for the payment of
debts from time to time, at a per annum rate of Five Percent (5.0%) prior to
maturity. All past due principal on this Note shall bear interest from and after
maturity until paid at a per annum rate equal to the lesser of (i) nine percent
(9.0%), or (ii) the maximum nonusurious rate allowable under applicable law.
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This 5.0% Convertible Subordinated Note (hereinafter referred to
as the "Note") is being issued by the Company pursuant to the terms of a Stock
and Real Estate Purchase Agreement (the "Agreement"), executed by and among the
Company, the Payee, Plant Specialties, Inc. ("PSI"), and all of the shareholders
of PSI other than Payee (the shareholders of PSI, other than the Payee, being
collectively sometimes herein referred to as the "Other Shareholders"), as
partial consideration for the shares of capital stock of PSI acquired by the
Company from the Payee. This Note is one of five (5) 5.0% Convertible
Subordinated Notes in an aggregate principal amount of Three Million Two Hundred
Ninety Five Thousand One Hundred Twenty Five and No/100 Dollars ($3,295,125.00)
(collectively, the "Notes") issued by the Company on the date hereof to Payee
and the Other Shareholders. The Notes have terms and provisions identical to one
another, other than the principal amounts and the respective payees thereof.
1. INTEREST AND PRINCIPAL PAYMENTS. Interest only is payable
quarterly on the last day of each calendar quarter, beginning June 30, 1997, and
continuing regularly and quarterly on the last day of every September, December,
March and June thereafter until March 31, 2002, on which date the entire unpaid
principal balance hereof, together with all accrued but unpaid interest, shall
mature and become due and payable. All payments received hereon by Payee shall
be applied first to accrued but unpaid interest, and the balance, if any, shall
be returned to Maker, except in those instances in which prepayment is permitted
hereunder, in which event such balance shall be applied to the principal
remaining unpaid hereon.
2. LIMITATIONS ON PREPAYMENTS. This Note may not be prepaid, in
whole or in part, prior to March 31, 1999, without the written consent of the
Payee. At any time on or after March 31, 1999, the Company may, upon thirty (30)
days prior written notice (the period commencing on the date on which such
notice is sent and expiring at the close of business on the thirtieth day
thereafter being hereinafter referred to as the "Prepayment Notice Period")
prepay all, but not less than all, of the unpaid balance hereof, provided that
the holder hereof shall maintain its right to convert the outstanding principal
amount hereof into fully paid and non-assessable shares of common stock (the
"Common Stock") of the Issuer (as defined below) through the expiration of the
Prepayment Notice Period. The Company, Innovative Valve Technologies, Inc., a
Delaware corporation ("Invatec") which is an affiliate of the Company that is
expected to become the parent of the Company prior to the closing of the IPO (as
defined below) or any other successor to or parent company of the Company or
Invatec that first conducts an IPO of its Common Stock is hereinafter sometimes
referred to as the "Issuer". Notwithstanding the foregoing or any provision
hereof to the contrary, however, no prepayment of this Note shall be attempted
or permitted if such prepayment would be or would be deemed to be, with notice
or lapse of time or both, or if there has then occurred and is then continuing,
a default or an event of default with respect to any Senior Indebtedness, as
hereinafter defined, under the terms of the instrument under which such Senior
Indebtedness is outstanding.
3. SUBORDINATION AND STANDSTILL PROVISIONS. The Company covenants
and agrees, and the Payee, on behalf of Payee and each subsequent holder of this
Note, by acceptance hereof likewise covenants and agrees, that notwithstanding
any provision of this Note to the
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contrary, the payment of all indebtedness evidenced by this Note is, to the
extent and in the manner hereinafter set forth, subordinated in right of payment
to all Senior Indebtedness (as hereinafter defined) of the Company, unless by
the terms of the instrument creating or evidencing such Senior Indebtedness it
is expressly and specifically provided that such Senior Indebtedness is
subordinate or on parity in right of payment to the indebtedness evidenced by
this Note. Except as permitted in the immediately following sentence, or unless
and until all Senior Indebtedness has been paid in full and no commitment is in
existence to advance or create the Senior Indebtedness, no payment shall be made
by the Company, directly or indirectly, in respect of the principal of, interest
on, premium on, or otherwise owing in respect of, the indebtedness evidenced
hereby, and the Payee shall not ask, demand, sue for, take any action to
enforce, take or receive, directly or indirectly, in cash or other property, by
sale, setoff or in any other manner whatsoever, any amounts owing in respect of
the indebtedness evidenced hereby. Notwithstanding any provision of the
preceding sentence to the contrary, (i) so long as there shall exist no default
or event of default of which the Payee shall have been given notice (or if
notice of a default or event of default shall have been given to the Payee and
the Company shall have cured the event without the holder of any Senior
Indebtedness accelerating the maturity of such Senior Indebtedness), the Company
may make, and the Payee may receive and retain for Payee's account, regularly
scheduled accrued interest payments, as and when such interest payments are due
on the indebtedness evidenced hereby, and (ii) this Note shall always be and
remain convertible into Common Stock in accordance with the provisions of
Section 6 hereof, notwithstanding any default or event of default with respect
to any Senior Indebtedness. For purposes of this Note, the term "Senior
Indebtedness" shall mean and include (i) indebtedness of the Company for money
heretofore, now or hereafter borrowed by the Company, or by any subsidiary of
the Company and guaranteed by the Company, from any bank or banks, savings and
loan association or associations, insurance company or companies, or other
institutional lender or lenders, including any modifications, renewals,
extensions, rearrangements, increases or refinancings of indebtedness of the
kind described in this clause (i), and (ii) such other indebtedness of the
Company as to which the Payee (or other holder hereof) consents in writing. The
term "Senior Indebtedness" expressly includes all indebtedness, obligations and
liabilities of (i) the Company under that certain Credit Agreement dated January
31, 1997, among the Company, the direct and indirect subsidiaries of the
Company, and the Agent, as agent for Lenders, or any other document or
instrument evidencing, securing, guaranteeing, or in any way pertaining to
Loans, as such term is defined in such Credit Agreement, and all other
indebtedness, obligations, and liabilities owing by the Company to the Lenders
howsoever evidenced, whether now or hereafter existing for principal or interest
(including without limitation interest accruing after the commencement of any
proceeding referred to in Section 3 of the Credit Agreement), or for fees,
expenses or otherwise, and (ii) the Company under that certain Credit agreement
dated effective March 6, 1997, between the Company and Texas Commerce Bank
National Association, or any other document or instrument evidencing, securing,
guaranteeing, or in any way pertaining to the Loans, as such term is defined in
such Credit Agreement, and expressly including all obligations, of such term as
defined in such Credit Agreement. Each holder of this Note agrees, solely for
the benefit of holders of Senior Indebtedness, that no consent of any holder of
this Note shall be required for any modification, renewal, extension,
rearrangement, increase or refinancing of any Senior Indebtedness, or waiver of
any guaranty therefor, or release of any collateral
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<PAGE>
securing payment thereof, or any other alteration of the relationship between
the Company and any holder of Senior Indebtedness.
(a) SUBORDINATION UPON DISTRIBUTION OF ASSETS. Upon any
distribution of the assets of the Company in connection with any
dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency or receivership proceedings, or upon
an assignment for the benefit of creditors, or any other marshaling of
the assets and liabilities of the Company or otherwise), the holders of
all Senior Indebtedness shall first be entitled to receive payment in
full, in accordance with the terms of such Senior Indebtedness, of the
principal thereof (and premium, if any) and the interest accrued but
unpaid thereon, if any, before any holder of this Note is entitled to
receive any payment upon the principal or accrued but unpaid interest
evidenced by this Note; and, upon any such dissolution, winding up,
liquidation or reorganization, any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or
securities (other than shares of stock of the Company as reorganized or
adjusted or readjusted, the payment or distribution of which is
subordinate to the payment of all Senior Indebtedness which may at the
time be outstanding and which are provided for by a plan of
reorganization or readjustment, or securities of the Company or any
other corporation provided for by plan of reorganization or readjustment
which does not alter the rights of the holders of Senior Indebtedness at
the time outstanding and under which such other corporation, if any,
assumes all Senior Indebtedness at the time outstanding), to which the
holder of this Note would be entitled except for the provisions of this
paragraph (a), shall be made by the liquidating trustee or agent or
other persons making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to
the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under
which such instruments evidencing any of such Senior Indebtedness may
have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the principal of (and premium, if any) and accrued
but unpaid interest on the Senior Indebtedness held or represented by
each, to the extent necessary to pay in full all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness. In the event
that, notwithstanding the foregoing, upon any such dissolution, winding
up, liquidation or reorganization, any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities (other than shares of stock of the Company as reorganized or
readjusted or securities of the Company or any other corporation
provided for by plan of reorganization or readjustment, the payment or
distribution of which is subordinate to the payment of all Senior
Indebtedness which may at the time be outstanding and which are provided
for by a plan of reorganization or readjustment which does not alter the
rights of the holder of Senior Indebtedness at the time outstanding and
under which such other
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<PAGE>
corporation, if any, assumes all Senior Indebtedness at the time
outstanding), shall be received by a holder of this Note before all
Senior Indebtedness is paid in full, such payment or distribution shall
be paid over to the holders of such Senior Indebtedness or their
representative or representatives or to the trustee under any indenture
under which any instruments evidencing any of such Senior Indebtedness
may have been issued, ratably as aforesaid, for application to the
payment of all Senior Indebtedness remaining unpaid until all of such
Senior Indebtedness shall have been paid in full, after giving effect to
any concurrent payment or distribution to the holders of any such Senior
Indebtedness.
(b) MATURITY OF OTHER INDEBTEDNESS. Upon the maturity of any
Senior Indebtedness by lapse of time, acceleration or otherwise, all
outstanding principal of and accrued but unpaid interest on all such
matured Senior Indebtedness shall first be paid in full before any
payment on account of principal of or interest on this Note is made.
(c) DEFAULT ON SENIOR INDEBTEDNESS. Upon a default in the payment
of principal or interest with respect to any Senior Indebtedness, or
upon the happening of any default or event of default with respect to
any Senior Indebtedness, as defined in the instrument under which the
same is outstanding, permitting the holder or holders thereof to
accelerate the maturity thereof, and during the continuance of any such
default or event of default, no amount shall be paid by the Company, and
the holder of this Note shall not be entitled to receive any amount, in
respect of the principal of or interest on this Note, unless and until
such default shall have been remedied or waived.
(d) STANDSTILL. Notwithstanding the provisions of Section 5
hereof, for so long as any Senior Indebtedness, principal or interest,
remains outstanding and unpaid, upon the occurrence of any Event of
Default (as defined in Section 4 hereof) other than an Event of Default
described under Section 4(c) hereof, the holder of this Note shall have
no right to declare the indebtedness evidenced by this Note due and
payable, or to exercise any remedies to enforce the collection of
obligations evidenced hereby, without obtaining the prior written
consent of the holders of at least 50% of the principal indebtedness
outstanding under the Notes. Once such written consent has been
obtained, the holder of this Note may declare that the indebtedness
evidenced hereby shall become due and payable, and this Note shall then
become due and payable, upon the expiration of two hundred seventy (270)
days after the date on which written notice of such declaration is sent
by the holder hereof to the Company. Upon the occurrence of an Event of
Default described under Section 4(c) hereof, the holder of this Note may
exercise such holder's remedies hereunder, including the right to
accelerate payment hereof pursuant to Section 5, but the holder of this
Note shall remain subordinate in right
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<PAGE>
of payment in all respects to the holders of Senior Indebtedness as set
forth in this Section 3.
(e) SUBROGATION. Subject to the payment in full of all Senior
Indebtedness, the holder of this Note shall be subrogated to the rights
of the holders of all Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior
Indebtedness until this Note shall be paid in full. None of the payments
or distributions to holders of the Senior Indebtedness to which the
holder of this Note would be entitled but for the provisions of the
foregoing paragraphs (a) through (d) of this Section 3 shall, as between
the Company, its creditors, and the holder of this Note, be deemed to be
a payment by the Company to or on account of Senior Indebtedness of the
Company; it being understood that the subordination provisions of this
Note are and are intended solely for the purpose of defining the
relative rights of the holder of this Note, on the one hand, and the
holders of the Senior Indebtedness on the other hand. Nothing contained
in this Note is intended to or shall impair, as between the Company, its
creditors, and the holders of this Note, the obligation of the Company
to pay to the holder of this Note the principal of and interest on this
Note as and when the same shall become due and payable in accordance
with its terms, or to affect the relative rights of the holder of this
Note and the creditors of the Company other than holders of Senior
Indebtedness.
(f) RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS. Each holder of
this Note acknowledges and agrees that each holder of Senior
Indebtedness, whether outstanding at the date of this Note or incurred
hereafter, shall have extended credit to the Company, or shall have
purchased or accepted or will purchase or accept such Senior
Indebtedness, in reliance upon the subordination and standstill
provisions contained in this Note.
(g) EFFECT. If the Company fails because of this Section 3 to
make a payment, principal or interest, otherwise due under this Note,
such failure shall nonetheless become an Event of Default as set forth
in Section 4.
4. EVENTS OF DEFAULT. The occurrence and continuation of any one
of the following events or conditions shall constitute an "Event of Default":
(a) The Company fails to make any payment, principal or interest,
within ten (10) business days after the date such payment is due under
any of the Notes;
(b) An event of default occurs under any arrangement with any
holder of Senior Indebtedness and the Senior Indebtedness is accelerated
and not reinstated; or
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(c) The Company makes an assignment for the benefit of creditors
or becomes insolvent or unable to pay its debts generally as they become
due, or applies to any tribunal for the appointment of a trustee or
receiver for a substantial part of the assets of the Company, or
commences any proceedings relating to the Company under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debts,
dissolution or other liquidation law of any jurisdiction; or any such
application is filed, or any such proceedings are commenced against the
Company and the Company indicates its consent to such proceedings, or an
order is entered appointing such trustee or receiver, or approving the
petition in any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or other liquidation proceedings, and
such order remains in effect for one hundred twenty (120) days.
5. REMEDIES. Subject to the provisions of Section 3(d) hereof,
upon the occurrence of an Event of Default other than as described in Section
4(c) hereof, the Payee or other holder of this Note may declare the entire
unpaid principal of this Note, and all accrued but unpaid interest thereon, at
once due and payable, and upon the occurrence of an Event of Default under
Section 4(c) hereof, the entire unpaid principal of this Note and all accrued
but unpaid interest thereon shall automatically be declared at once due and
payable, and upon any such declaration the principal of this Note and such
accrued but unpaid interest shall become and be immediately due and payable, and
the Payee or any other holder of this Note may, subject to the provisions of
Section 3(d) hereof, thereupon proceed to protect and enforce its rights, either
by suit in equity or by action at law or by other appropriate proceedings,
whether for specific performance (to the extent permitted by law) of any
covenant or agreement contained herein or in aid of the exercise of any power
granted herein, or proceed to enforce the payment of this Note or to enforce any
other legal or equitable right of the Payee or such other holder. The foregoing
shall not affect the relative rights and obligations as between any holder of
Senior Indebtedness and the Payee or other holder hereof; as between such
parties, Section 3 shall control the exercise of remedies.
6. CONVERSION RIGHTS.
(a) AT THE OPTION OF HOLDER. From the date of the closing of the
initial public offering and sale (the "IPO") of shares of the Common
Stock of the Issuer for the account of the Issuer, which offering
results in net proceeds to the Issuer of not less than Ten Million
Dollars ($10,000,000) through the earlier of the maturity date or the
expiration of the Prepayment Notice Period (as such term is defined in
Section 2 hereof), the holder of this Note shall have the right to
convert all, but not less than all, of the outstanding principal amount
of this Note into shares of Common Stock at a price equal to 130% of the
IPO Price, as hereinafter defined (the "Initial Conversion Price") (the
Initial Conversion Price, as same may hereinafter be adjusted from time
to time pursuant to the provisions hereof being referred to herein as
the "Conversion Price"), and otherwise on and subject to the
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terms and conditions set forth in paragraphs 6(c) through 6(i). As used
herein, the term "IPO Price" shall mean the initial issuance price per
share of the Common Stock issued in the IPO, without giving effect to
any underwriting discounts or commissions. The holder of this Note may
exercise such holder's right to convert all, but not less than all, of
the outstanding principal amount of this Note into shares of Common
Stock by (i) giving written notice to the Issuer that such holder elects
to convert the outstanding principal amount into Common Stock, (ii)
stating in such written notice the denominations in which such holder
wishes the certificate or certificates for Common Stock to be issued,
and (iii) surrendering this Note to the Issuer.
(b) AT THE OPTION OF THE ISSUER. If the average closing price per
share of Common Stock (as reported by the principal securities exchange
or trading market, as the case may be, on which the Common Stock is then
traded) during a period of 20 consecutive trading days occurring after
March 31, 1999 (such 20-day average being refereed to herein as the
"Average Price") equals or exceeds 150% of the IPO Price (a "Special
Conversion Event"), the Issuer may, at its option exercisable in its
sole discretion at any time following such Special Conversion Event,
convert all (but not less than all) of the outstanding principal balance
of this Note into fully paid and non-assessable shares of Common Stock
at the Conversion Price then in effect. If the Issuer elects pursuant to
this Section 6(b) to convert this Note into Common Stock, the Issuer
shall send notice (the "Issuer Conversion Notice") to the holder hereof
at the address specified above (or such other address as may have been
designated in writing by the holder). Such conversion shall be deemed to
have been effected immediately upon the mailing of the Issuer Conversion
Notice, whereupon the person or persons entitled to receive the Common
Stock deliverable upon such conversion shall be treated for all purposes
as the record holder or holders of such Common Stock, and this Note
shall be deemed to represent only the right to receive certificates
representing the number of shares of Common Stock, plus cash in lieu of
fractional shares in accordance with this Section 6, into which this
Note has been so converted. The Issuer Conversion Notice shall specify
(i) the date the conversion was effected, (ii) the Conversion Price,
(iii) the number or amount of any securities and property as hereinafter
provided into which the Note has been converted, (iv) the place or
places that this Note is to be surrendered upon conversion, and (v) that
on or after the effective date of the conversion, interest will cease to
accrue on this Note.
(c) ACCRUED INTEREST; FRACTIONAL SHARES; CONVERSION DATE. In the
event of any conversion, the Issuer will, as soon as practicable after
surrender of this Note and compliance by the holder hereof with any
other conditions herein contained, cause to be issued and delivered to
the surrendering holder certificates for the number of full shares of
Common Stock to which such holder shall be entitled as aforesaid,
together with any unpaid interest on the principal amount converted
accrued through the Conversion Date, as hereinafter defined. The Issuer
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shall not issue fractional shares of Common Stock upon conversion or
script in lieu thereof, but the number of shares of Common Stock to be
received by any holder upon conversion shall be rounded down to the next
whole number and the holder shall be entitled to payment for the
fractional share in cash at the then applicable Conversion Price. Such
conversion shall be deemed to have been made as of the close of business
on the date the notice of conversion is sent by or delivered to the
Issuer, as applicable, in accordance with the notice provisions
hereinafter set forth (the close of business on such date being herein
sometimes called the "Conversion Date"), so that the persons entitled to
receive the shares of Common Stock upon conversion of the principal
amount hereof shall be treated for all purposes as having been the
record holder or holders of such shares of Common Stock at such time.
(d) SUBDIVISIONS, COMBINATIONS, DIVIDENDS OR DISTRIBUTIONS OF
STOCK. In the event that, while this Note shall remain outstanding and
after the IPO shall have occurred, the Issuer shall at any time
subdivide or combine the outstanding shares of Common Stock, or issue
additional shares of Common Stock as a dividend or other distribution on
the Common Stock, the Conversion Price shall be proportionately adjusted
so that, with respect to each such subdivision of shares or stock
dividend or stock distribution, the number of shares of Common Stock
deliverable upon conversion of this Note shall be increased in
proportion to the increase in the number of then outstanding shares of
Common Stock resulting from such subdivision of shares or stock dividend
or stock distribution, and, with respect to each such combination of
shares, the number of shares of Common Stock deliverable upon conversion
of this Note shall be decreased in proportion to the decrease in the
number of then outstanding shares of Common Stock resulting from such
combination of shares. Any such adjustment in the Conversion Price shall
become effective, in the case of any subdivision or combination of
shares, at the close of business on the effective date thereof, and, in
the case of any such stock dividend or stock distribution, at the close
of business on the record date fixed for the determination of
stockholders entitled thereto, or on the first business day during which
the stock transfer books of the Issuer shall be closed for the purpose
of such determination. No adjustment shall be made by reason of the
issuance of shares of Common Stock or of any securities convertible into
shares of Common Stock in exchange for cash, property or services, or in
any event other than those specifically set forth in this Section 6.
(e) OTHER NONCASH DIVIDENDS. In the event that, while this Note
shall be outstanding, the Issuer shall distribute to the holders of its
Common Stock as a class any assets (other than stock dividends or
distributions) or evidences of indebtedness, the Issuer shall,
concurrently therewith reduce the Conversion Price by the amount of the
value per share of such distribution, but in no event shall the
Conversion Price be or become less than the par value per share of
Common
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Stock. The provisions of this paragraph (e) shall similarly apply to
successive distributions to holders of Common Stock.
(f) LIQUIDATION, DISSOLUTION, CONSOLIDATION, MERGER, SALE,
RECLASSIFICATION. In the event, while this Note shall remain
outstanding, there shall be any liquidation or dissolution of the
Issuer, consolidation or merger of the Issuer with another corporation,
a sale to another corporation of all or substantially all of the assets
of the Issuer, or a reclassification of the Common Stock of the Issuer
into securities including other than Common Stock, then the holder of
this Note shall thereafter have the right to convert the outstanding
principal amount of this Note (or such other stock or securities) into
the kind and amount of shares of stock and other securities and property
receivable upon such liquidation, dissolution, consolidation, merger,
sale of assets or reclassification by a holder of the number of shares
of Common Stock into which the outstanding principal amount of this Note
could have been converted immediately prior to such liquidation,
dissolution, consolidation, merger, sale or reclassification. The
instruments effecting such liquidation, dissolution, consolidation,
merger, sale or reclassification, and, where appropriate, the
certificate of incorporation of the surviving or resulting or purchasing
corporation shall provide for such conversion rights, and the provisions
of this paragraph (f) shall similarly apply to successive liquidations,
dissolutions, consolidations, mergers, sales or reclassifications. In
case securities or property other than Common Stock shall be issuable or
deliverable upon conversion as aforesaid, then all references to Common
Stock in this Section 6 shall be deemed to apply, so far as appropriate
and as nearly as may be, to such other securities or property.
(g) RESERVATION OF ADEQUATE SHARES. The Issuer shall at all times
reserve and keep available out of its authorized Common Stock, for
issuance upon conversion of this Note as herein provided, such number of
shares of Common Stock as shall then be issuable upon the conversion of
all of the Notes. All shares of Common Stock which shall be so issuable
shall, when so issued upon any such conversion, be duly and validly
issued and fully paid and nonassessable.
(h) DELIVERY OF CERTIFICATES. If the outstanding principal amount
of this Note shall be converted within any period during which the
transfer books for the the Issuer's Common Stock are closed for any
purpose, the Issuer shall not be required to make delivery of
certificates for Common Stock until the date of the reopening of such
transfer books.
(i) NO SHAREHOLDER RIGHTS. This Note shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the
Company or the Issuer, or to any other rights whatsoever except the
rights herein expressed and such as are set forth, and no dividends
shall be payable or accrue in respect of this Note or the
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interest represented hereby or the Common Stock purchasable hereunder
until or unless, and except to the extent that, the outstanding
principal amount hereof shall be converted.
7. IMMUNITY. This Note and the indebtedness and obligations
evidenced hereby are solely corporate indebtedness and obligations, and no
personal liability whatsoever shall attach to or be incurred by any past,
present or future officer, director, shareholder, agent, attorney or employee of
the Company, Invatec or any successor, under or by reason of any of the
obligations, covenants or agreements contained in or implied by this Note or the
Agreement.
8. NOTICES. All notices, requests, consents, and other
communications required or permitted under this Note shall be in writing and
shall be deemed, unless otherwise provided, to have been delivered on the date
mailed, postage prepaid, by certified mail, return receipt requested, or on the
date personally delivered:
(i) If to the Payee, to the address of the Payee set forth on
the first page of this Note;
(ii) If to the Company, Invatec or any successor, to the address
of the Company set forth on the first page of this Note, Attention:
President, with a copy of such notice to Mr. John R. Boyer, Jr., Boyer,
Ewing & Harris Incorporated, Nine Greenway Plaza, Suite 3100, Houston,
Texas 77046;
(iii) If to any holder other than the Payee, to such address as
may have been designated by notice given the Company by such holder; and
(iv) If to any holder of Senior Indebtedness, to such address as
may have been designated by notice given the Company by such holder,
which the Company will provide to the holder of this Note upon request.
The Company, Invatec, the Payee or any other holder hereof may designate a
different address by notice given in accordance with the foregoing.
9. USURY. It is expressly provided and stipulated that
notwithstanding any provision of this Note or any other instrument evidencing or
securing the indebtedness evidenced hereby, in no event shall the aggregate of
all interest paid by the Company to the Payee hereunder ever exceed the Maximum
Nonusurious Rate of interest which may lawfully be charged the Company under the
laws of the State of Texas or the United States Federal Government, as
applicable, on the principal balance of this Note remaining unpaid. If under any
circumstances the aggregate amounts paid on the indebtedness evidenced by this
Note prior to and incident to the final payment hereof include amounts which by
law are deemed interest and which would exceed the Maximum Nonusurious Rate of
interest which could lawfully have been charged or collected on this Note, the
Company stipulates that (a) any non-principal payment shall be
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characterized as an expense, fee, or premium rather than as interest, and any
excess shall be credited hereon by the holder hereof (or, if this Note shall
have been paid in full, refunded to the Company); (b) determination of the rate
of interest for determining whether the indebtedness evidenced hereby is
usurious shall be made by amortizing, prorating, allocating, and spreading, in
equal parts during the full stated term of such indebtedness, all interest at
any time contracted for, charged, or received from the Company in connection
with such indebtedness, and any excess shall be canceled, credited or refunded
as set forth in (a) herein.
In connection with Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended, the Company hereby agrees that the "Maximum Nonusurious
Rate of interest" which may be charged as herein contemplated shall be the
indicated rate ceiling from time to time in effect as defined by said article,
as amended, provided that Payee may also rely on any alternative Maximum
Nonusurious Rate of interest provided by other applicable laws if such other
rates are higher than that allowed by said Article, as amended.
THIS NOTE, THE AGREEMENT AND ALL DOCUMENTS, INSTRUMENTS AND
AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH, REPRESENT THE FINAL
AGREEMENT BETWEEN THE COMPANY AND PAYEE AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE COMPANY AND THE
PAYEE. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE COMPANY AND PAYEE.
THIS NOTE IS SUBJECT TO FINAL ACCEPTANCE IN, AND ALL TERMS, OBLIGATIONS, AND
PROVISIONS OF THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF, THE STATE OF TEXAS.
10. EXECUTION BY INVATEC. Invatec has executed this Note solely
to evidence its agreement to the potential obligations of Invatec with respect
to conversion of the Note into Invatec Common Stock, as set forth in Section 6
of this Agreement, in the event that Invatec becomes the Issuer. To the extent
any successor to the Company or Invatec becomes the Issuer, the Company and
Invatec agree to cause such successor to assume the obligations of the Company
or Invatec under Section G.
IN WITNESS WHEREOF, the Company and Invatec have authorized this
Note to be executed in its corporate name by its duly authorized officer as of
the date first above written.
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Invatec has executed this Note solely to evidence its agreement to the
potential obligations of Invatec with respect to conversion of the Note into
Invatec Common Stock, as set forth in Section 6 of this Agreement, in the event
that Invatec becomes the Issuer.
THE SAFE SEAL COMPANY, INC.
By:_____________________________
WILLIAM E. HAYNES
President & CEO
INNOVATIVE VALVE TECHNOLOGIES,
INC.
By:
WILLIAM E. HAYNES
President & CEO
13
EXHIBIT 4.6
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR THE
SECURITIES LAWS OF ANY STATE. NEITHER THIS NOTE NOR SUCH SHARES MAY BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME, EXCEPT UPON (1) SUCH
REGISTRATION, OR (2) DELIVERY TO THE ISSUER OF THIS NOTE OR SUCH SHARES OF AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER, OR (3) THE SUBMISSION TO THE ISSUER OF THIS NOTE OR
SUCH SHARES OF OTHER EVIDENCE, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE
EFFECT THAT ANY SUCH SALE, PLEDGE, HYPOTHECATION OR TRANSFER WILL NOT BE IN
VIOLATION OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR OTHER
APPLICABLE SECURITIES LAWS OF ANY STATE, OR ANY RULES OR REGULATIONS PROMULGATED
THEREUNDER.
THE PAYMENT OF THE PRINCIPAL OF, AND INTEREST ON, AND ALL OTHER AMOUNTS OWING IN
RESPECT OF THE INDEBTEDNESS EVIDENCED BY, THIS NOTE, IS AND SHALL BE EXPRESSLY
SUBORDINATED, TO THE EXTENT AND IN THE MANNER SET FORTH IN THAT CERTAIN
SUBORDINATION AGREEMENT DATED EFFECTIVE JULY 1, 1997, OR ANY OTHER SUBORDINATION
AGREEMENT NOW OR HEREAFTER EXECUTED AMONG THE COMPANY AND ITS DIRECT AND
INDIRECT SUBSIDIARIES, THE PAYEE, THE CHASE MANHATTAN BANK, TEXAS COMMERCE BANK
NATIONAL ASSOCIATION (COLLECTIVELY, "LENDERS"), AND THE CHASE MANHATTAN BANK
("AGENT"), AS AGENT FOR LENDERS, OR ANY OTHER SUBORDINATION AGREEMENT HEREAFTER
EXECUTED BY PAYEE IN FAVOR OF A HOLDER OF SENIOR INDEBTEDNESS (IN ANY SUCH
EVENT, THE "SUBORDINATION AGREEMENT").
ISSUE DATE: JULY ___, 1997
INNOVATIVE VALVE TECHNOLOGIES, INC.
5.5% CONVERTIBLE SUBORDINATED NOTE
NO. 1 HOUSTON, TEXAS $ 1,956,000.00
INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware corporation with
offices at 14900 Woodham Drive, Suite A125, Houston, Texas 77073 (hereinafter
referred to as the "Company"), for value received, hereby promises to pay to the
order of D. BOWEN KING (the "Payee"), at 8291 Seaview Avenue, Indianola,
Washington 98342 the sum of ONE MILLION NINE HUNDRED THOUSAND FIFTY-SIX AND
NO/100 DOLLARS ($1,956,000.00), together with interest on the unpaid principal
balance hereof from the date hereof until payment in full, in lawful money of
the United States of America which shall be legal tender for the payment of
debts from time to time, at a per annum rate of Five and One-Half Percent (5.5%)
prior to maturity. All past due principal, and, to the extent permitted by
applicable law, past due interest, on this
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Note shall bear interest from and after maturity until paid at a per annum rate
equal to the lesser of (i) nine percent (9.0%), or (ii) the maximum nonusurious
rate allowable under applicable law.
This 5.5% Convertible Subordinated Note (hereinafter referred to
as the "Note") is being issued by the Company pursuant to the terms of a Stock
Purchase Agreement dated effective of even date with the date hereof (the
"Agreement"), executed by and among the Company, the Payee, E.S. Ries, ("Mr.
Ries"), Flickinger-Benicia Inc. ("FBI") and Puget Investments, Inc. ("PII"), as
partial consideration for the shares of capital stock of FBI and PII acquired by
the Company from the Payee. This Note is one of two (2) 5.5% Convertible
Subordinated Notes in an aggregate principal amount of Three Million and No/100
Dollars ($3,000,000) (collectively, the "Notes") issued by the Company on the
date hereof to Payee and Mr. Ries. The Notes have terms and provisions identical
to one another, other than the principal amounts and the respective payees and
the locations of payment thereof.
1. INTEREST AND PRINCIPAL PAYMENTS. Interest only is payable
quarterly on the last day of each calendar quarter, beginning September 30,
1997, and continuing regularly and quarterly on the last day of every December,
March, June and September thereafter until June 30, 2004, on which date the
entire unpaid principal balance hereof, together with all accrued but unpaid
interest, shall mature and become due and payable. If the IPO (as hereinafter
defined) does not occur on or before July 1, 1998, then principal shall also
become payable in quarterly installments of Forty-Eight Thousand Nine Hundred
and No/100 Dollars ($48,900.00) each, payable on the last day of each calendar
quarter, commencing September 30, 1998, and continuing regularly through June
30, 2004, on which date the entire unpaid principal balance hereof, together
with all accrued but unpaid interest, shall mature and become due and payable.
All payments received hereon by Payee shall be applied first to accrued but
unpaid interest, and the balance, if any, shall be returned to Maker, except in
those instances in which principal payment is required or prepayment is
permitted hereunder, in which event such balance shall be applied to the
principal remaining unpaid hereon, up to the amount due or permitted to be
prepaid, as applicable. As used herein, the term 'IPO" shall mean an
underwritten public offering of shares of the Common Stock of the Company (or
the common stock of a successor to the Company) (in either such event, the "IPO
Shares"), for the account of the Company or such successor, which offering
results in net proceeds to the Company or such successor of not less than
Fifteen Million Dollars ($15,000,000).
2. LIMITATIONS ON PREPAYMENTS. This Note may not be prepaid, in
whole or in part, prior to July 1, 1998, without the written consent of the
Payee. At any time on or after July 1, 1998, the Company may, upon thirty (30)
days prior written notice (the period commencing on the date on which such
notice is sent and expiring at the close of business on the thirtieth day
thereafter being hereinafter referred to as the "Prepayment Notice Period")
prepay all, but not less than all, of the unpaid balance hereof, provided that
the holder hereof shall maintain its right to convert the outstanding principal
amount hereof into fully paid and non-assessable shares of common stock of the
Company, par value $.001 per share ("Common Stock"), under paragraph 6(a) of
this Note through
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the expiration of the Prepayment Notice Period. Notwithstanding the foregoing or
any provision hereof to the contrary, however, no prepayment of this Note shall
be attempted or permitted if such prepayment would be or would be deemed to be,
with notice or lapse of time or both, or if there has then occurred and is then
continuing, a default or an event of default with respect to any Senior
Indebtedness, as hereinafter defined, under the terms of the instrument under
which such Senior Indebtedness is outstanding; provided however, that the
foregoing shall not preclude nor be deemed to preclude a payment by Allwaste,
Inc., a Delaware corporation ("Allwaste") under its Guaranty Agreement in favor
of Payee of even date herewith (the "Guarantor").
3. SUBORDINATION AND STANDSTILL PROVISIONS. The Company covenants
and agrees, and the Payee, on behalf of Payee and each subsequent holder of this
Note, by acceptance hereof likewise covenants and agrees, that notwithstanding
any provision of this Note to the contrary, the payment of all indebtedness
evidenced by this Note is, to the extent and in the manner hereinafter set
forth, subordinated in right of payment to all Senior Indebtedness (as
hereinafter defined) of the Company, unless by the terms of the instrument
creating or evidencing such Senior Indebtedness it is expressly and specifically
provided that such Senior Indebtedness is subordinate or on parity in right of
payment to the indebtedness evidenced by this Note. Except as permitted in the
immediately following sentence, or unless and until all Senior Indebtedness has
been paid in full and no commitment is in existence to advance or create the
Senior Indebtedness, no payment shall be made by the Company, directly or
indirectly, in respect of the principal of, interest on, premium on, or
otherwise owing in respect of, the indebtedness evidenced hereby, and the Payee
shall not ask, demand, sue for, take any action to enforce, take or receive,
directly or indirectly, in cash or other property, by sale, setoff or in any
other manner whatsoever, any amounts owing in respect of the indebtedness
evidenced hereby. Notwithstanding any provision of the preceding sentence to the
contrary, subject to the terms of the Subordination Agreement (i) so long as
there shall exist no default or event of default of which the Payee shall have
been given notice (or if notice of a default or event of default shall have been
given to the Payee and the Company shall have cured the event without the holder
of any Senior Indebtedness accelerating the maturity of such Senior
Indebtedness), the Company may make, and the Payee may receive and retain for
Payee's account, regularly scheduled accrued interest payments, and regularly
scheduled principal payments (if any), as and when such interest or principal
payments are due on the indebtedness evidenced hereby, and (ii) this Note shall
always be and remain convertible into Common Stock in accordance with the
provisions of Section 6 hereof, notwithstanding any default or event of default
with respect to any Senior Indebtedness. For purposes of this Note, the term
"Senior Indebtedness" shall mean and include (i) indebtedness of the Company for
money heretofore, now or hereafter borrowed by the Company, or by any subsidiary
of the Company and guaranteed by the Company, from any bank or banks, savings
and loan association or associations, insurance company or companies, or other
institutional lender or lenders, including any modifications, renewals,
extensions, rearrangements, increases or refinancings of indebtedness of the
kind described in this clause (i), and (ii) such other indebtedness of the
Company as to which the Payee (or other holder hereof) consents in writing. The
term "Senior Indebtedness" expressly includes all indebtedness, obligations and
liabilities of (i) the Company, whether currently outstanding or hereafter
incurred, under any Credit Agreement or similar instrument executed or to be
executed among the Company and/or the direct and
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indirect subsidiaries of the Company, and the Agent, as agent for Lenders, or
any other document or instrument evidencing, securing, guaranteeing, or in any
way pertaining to the Loans, as such term is defined in any such Credit
Agreement, and all other indebtedness, obligations, and liabilities owing by the
Company to the Lenders howsoever evidenced, whether now or hereafter existing
for principal or interest (including without limitation interest accruing after
the commencement of any proceeding referred to in Section 3 of the Credit
Agreement), or for fees, expenses or otherwise, and (ii) the Company under any
Credit Agreement or similar instrument between the Company and/or any of its
direct or indirect subsidiaries and Texas Commerce Bank National Association, or
any other document or instrument evidencing, securing, guaranteeing or in any
way pertaining to the Loans, as such term is defined in any such Credit
Agreement, and expressly including all Obligations, as such term is defined in
such Credit Agreement. Each holder of this Note agrees, solely for the benefit
of holders of Senior Indebtedness, that (i) no consent of any holder of this
Note shall be required for any modification, renewal, extension, rearrangement,
increase or refinancing of any Senior Indebtedness, or waiver of any guaranty
therefor, or release of any collateral securing payment thereof, or any other
alteration of the relationship between the Company and any holder of Senior
Indebtedness, and (ii) at the request of the Company, the holder hereof will
promptly execute a subordination agreement substantially in the form attached to
the Agreement as Exhibit A. The subordination provisions of this Section 3 shall
not limit or impair the obligations of Allwaste under the Guaranty, upon the
expiration of the standstill period described in Section 3(d) hereof.
(a) SUBORDINATION UPON DISTRIBUTION OF ASSETS. Upon any
distribution of the assets of the Company in connection with any
dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency or receivership proceedings, or upon
an assignment for the benefit of creditors, or any other marshaling of
the assets and liabilities of the Company or otherwise), the holders of
all Senior Indebtedness shall first be entitled to receive payment in
full, in accordance with the terms of such Senior Indebtedness, of the
principal thereof (and premium, if any) and the interest accrued but
unpaid thereon, if any, before any holder of this Note is entitled to
receive any payment upon the principal or accrued but unpaid interest
evidenced by this Note; and, upon any such dissolution, winding up,
liquidation or reorganization, any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or
securities (other than shares of stock of the Company as reorganized or
adjusted or readjusted, the payment or distribution of which is
subordinate to the payment of all Senior Indebtedness which may at the
time be outstanding and which is provided for by a plan of
reorganization or readjustment which does not alter the rights of the
holders of Senior Indebtedness at the time outstanding), to which the
holder of this Note would be entitled except for the provisions of this
paragraph (a), shall be made by the liquidating trustee or agent or
other persons making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to
the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture
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<PAGE>
under which such instruments evidencing any of such Senior Indebtedness
may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the principal of (and premium, if any)
and accrued but unpaid interest on the Senior Indebtedness held or
represented by each, to the extent necessary to pay in full all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness. In
the event that, notwithstanding the foregoing, upon any such
dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets of the Company of any kind or character, whether
in cash, property or securities (other than shares of stock of the
Company as reorganized or adjusted or readjusted, the payment or
distribution of which is subordinate to the payment of all Senior
Indebtedness which may at the time be outstanding and which is provided
for by a plan of reorganization or readjustment which does not alter the
rights of the holders of Senior Indebtedness at the time outstanding),
shall be received by a holder of this Note before all Senior
Indebtedness is paid in full, such payment or distribution shall be paid
over to the holders of such Senior Indebtedness or their representative
or representatives or to the trustee under any indenture under which any
instruments evidencing any of such Senior Indebtedness may have been
issued, ratably as aforesaid, for application to the payment of all
Senior Indebtedness remaining unpaid until all of such Senior
Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution to the holders of any such Senior
Indebtedness.
(b) MATURITY OF OTHER INDEBTEDNESS. Upon the maturity of any
Senior Indebtedness by lapse of time, acceleration or otherwise, all
outstanding principal of and accrued but unpaid interest on all such
matured Senior Indebtedness shall first be paid in full before any
payment on account of principal of or interest on this Note is made.
(c) DEFAULT ON SENIOR INDEBTEDNESS. Upon a default in the payment
of principal or interest with respect to any Senior Indebtedness, or
upon the happening of any default or event of default with respect to
any Senior Indebtedness, as defined in the instrument under which the
same is outstanding, permitting the holder or holders thereof to
accelerate the maturity thereof, and during the continuance of any such
default or event of default, no amount shall be paid by the Company, and
the holder of this Note shall not be entitled to receive any amount, in
respect of the principal of or interest on this Note, unless and until
such default shall have been remedied or waived.
(d) STANDSTILL. Notwithstanding the provisions of Section 5
hereof, for so long as any Senior Indebtedness, principal or interest,
remains outstanding and unpaid, upon the occurrence of any Event of
Default described under Section 4(a), 4(b) or 4(d) hereof, the holder of
this Note shall have no right to declare the
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indebtedness evidenced by this Note due and payable, or to exercise any
remedies to enforce the collection of obligations evidenced hereby,
without obtaining the prior written consent of the holders of at least
50% of the principal indebtedness outstanding under the Notes. Once such
written consent has been obtained, the holder of this Note may declare
that the indebtedness evidenced hereby shall become due and payable, and
this Note shall then become due and payable, upon the expiration of
ninety (90) days after the date on which written notice of such
declaration is sent by the holder hereof to the Company. Upon the
occurrence of an Event of Default described under Section 4(c) hereof,
the holder of this Note may exercise such holder's remedies hereunder,
including the right to accelerate payment hereof pursuant to Section 5,
but the holder of this Note shall remain subordinate in right of payment
in all respects to the holders of Senior Indebtedness as set forth in
this Section 3.
(e) SUBROGATION. Subject to the payment in full of all Senior
Indebtedness, the holder of this Note shall be subrogated to the rights
of the holders of all Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior
Indebtedness until this Note shall be paid in full. None of the payments
or distributions to holders of the Senior Indebtedness to which the
holder of this Note would be entitled but for the provisions of the
foregoing paragraphs (a) through (d) of this Section 3 shall, as between
the Company, its creditors, and the holder of this Note, be deemed to be
a payment by the Company to or on account of Senior Indebtedness of the
Company; it being understood that the subordination provisions of this
Note are and are intended solely for the purpose of defining the
relative rights of the holder of this Note, on the one hand, and the
holders of the Senior Indebtedness on the other hand. Nothing contained
in this Note is intended to or shall impair, as between the Company, its
creditors, and the holders of this Note, the obligation of the Company
to pay to the holder of this Note the principal of and interest on this
Note as and when the same shall become due and payable in accordance
with its terms, or to affect the relative rights of the holder of this
Note and the creditors of the Company other than holders of Senior
Indebtedness.
(f) RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS. Each holder of
this Note acknowledges and agrees that each holder of Senior
Indebtedness, whether outstanding at the date of this Note or incurred
hereafter, shall have extended credit to the Company, or shall have
purchased or accepted or will purchase or accept such Senior
Indebtedness, in reliance upon the subordination and standstill
provisions contained in this Note.
(g) EFFECT. If the Company fails because of this Section 3 to
make a payment, principal or interest, otherwise due under this Note,
such failure shall nonetheless become an Event of Default as set forth
in Section 4.
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(h) GUARANTY. No provision of this Section 3 shall preclude, nor
be deemed to preclude, any payment by Allwaste under the Guaranty in
accordance with the terms of the Guaranty.
4. EVENTS OF DEFAULT. The occurrence and continuation of any one
of the following events or conditions shall constitute an "Event of Default":
(a) The Company fails to make any payment, principal or interest,
within ten (10) business days after the date such payment is due under
any of the Notes;
(b) An event of default occurs under any arrangement with any
holder of Senior Indebtedness and the Senior Indebtedness is accelerated
and not reinstated;
(c) The Company makes an assignment for the benefit of creditors
or becomes insolvent or unable to pay its debts generally as they become
due, or applies to any tribunal for the appointment of a trustee or
receiver for a substantial part of the assets of the Company, or
commences any proceedings relating to the Company under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debts,
dissolution or other liquidation law of any jurisdiction; or any such
application is filed, or any such proceedings are commenced against the
Company and the Company indicates its consent to such proceedings, or an
order is entered appointing such trustee or receiver, or approving the
petition in any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or other liquidation proceedings, and
such order remains in effect for one hundred twenty (120) days; or
(d) The Company fails to perform any of its obligations under the
Agreement or this Note (other than the payment obligation described in
Section 4(a) hereof) within thirty (30) days after receipt from Payee of
written notice of such failure to perform.
5. REMEDIES. Subject to the provisions of Section 3(d) hereof,
upon the occurrence of an Event of Default other than as described in Section
4(c) hereof, the Payee or other holder of this Note may declare the entire
unpaid principal of this Note, and all accrued but unpaid interest thereon, at
once due and payable, and upon the occurrence of an Event of Default under
Section 4(c) hereof, the entire unpaid principal of this Note and all accrued
but unpaid interest thereon shall automatically be declared at once due and
payable, and upon any such declaration the principal of this Note and such
accrued but unpaid interest shall become and be immediately due and payable, and
the Payee or any other holder of this Note may, subject to the provisions of
Section 3(d) hereof, thereupon proceed to protect and enforce its rights, either
by suit in equity or by action at law or by other appropriate proceedings,
whether for specific
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performance (to the extent permitted by law) of any covenant or agreement
contained herein or in aid of the exercise of any power granted herein, or
proceed to enforce the payment of this Note or to enforce any other legal or
equitable right of the Payee or such other holder. The foregoing shall not
affect the relative rights and obligations as between any holder of Senior
Indebtedness and the Payee or other holder hereof; as between such parties,
Section 3 shall control the exercise of remedies.
6. CONVERSION RIGHTS.
(a) AT THE OPTION OF HOLDER. From the date of the closing of the
IPO (as defined in Section 1 hereof) through the earlier of the maturity
date or the expiration of the Prepayment Notice Period (as defined in
Section 2 hereof), the holder of this Note shall have the right to
convert all, but not less than all, of the outstanding principal amount
of this Note into shares of Common Stock at a price equal to 130% of the
IPO Price, as hereinafter defined (the "Initial Conversion Price") (the
Initial Conversion Price, as same may hereinafter be adjusted from time
to time pursuant to the provisions hereof being referred to herein as
the "Conversion Price"), and otherwise on and subject to the terms and
conditions set forth in paragraphs 6(c) through 6(i). As used herein,
the term "IPO Price" shall mean the initial issuance price per share of
the Common Stock issued in the IPO, without giving effect to any
underwriting discounts or commissions. The holder of this Note may
exercise such holder's right to convert all, but not less than all, of
the outstanding principal amount of this Note into shares of Common
Stock by (i) giving written notice to the Company that such holder
elects to convert the outstanding principal amount into Common Stock,
(ii) stating in such written notice the denominations in which such
holder wishes the certificate or certificates for Common Stock to be
issued, and (iii) surrendering this Note to the Company.
(b) AT THE OPTION OF THE COMPANY. If the average closing price
per share of Common Stock (as reported by the principal securities
exchange or trading market, as the case may be, on which the Common
Stock is then traded) during a period of 20 consecutive trading days
occurring after the expiration of eighteen (18) months from the date of
closing of the IPO (such 20-day average being referred to herein as the
"Average Price") equals or exceeds one hundred fifty percent (150%) of
the IPO Price (a "Special Conversion Event"), the Company may, at its
option exercisable in its sole discretion at any time following such
Special Conversion Event, convert all (but not less than all) of the
outstanding principal balance of this Note into fully paid and
non-assessable shares of Common Stock at the Conversion Price then in
effect. If the Company elects pursuant to this Section 6(b) to convert
this Note into Common Stock, the Company shall send notice (the "Company
Conversion Notice") to the holder hereof at the address specified above
(or such other address as may have been designated in writing by the
holder). Such conversion shall be deemed to have been effected
immediately upon the mailing of the Company Conversion Notice,
8
<PAGE>
whereupon the person or persons entitled to receive the Common Stock
deliverable upon such conversion shall be treated for all purposes as
the record holder or holders of such Common Stock, and this Note shall
be deemed to represent only the right to receive certificates
representing the number of shares of Common Stock, plus cash in lieu of
fractional shares in accordance with this Section 6, into which this
Note has been so converted. The Company Conversion Notice shall specify
(i) the date the conversion was effected, (ii) the Conversion Price,
(iii) the number or amount of any securities and property as hereinafter
provided into which the Note has been converted, (iv) the place or
places that this Note is to be surrendered upon conversion, and (v) that
on or after the effective date of the conversion, interest will cease to
accrue on this Note.
(c) ACCRUED INTEREST; FRACTIONAL SHARES; CONVERSION DATE. In the
event of any conversion, the Company will, as soon as practicable after
surrender of this Note and compliance by the holder hereof with any
other conditions herein contained, cause to be issued and delivered to
the surrendering holder certificates for the number of full shares of
Common Stock to which such holder shall be entitled as aforesaid,
together with any unpaid interest on the principal amount converted
accrued through the Conversion Date, as hereinafter defined. The Company
shall not issue fractional shares of Common Stock upon conversion or
script in lieu thereof, but the number of shares of Common Stock to be
received by any holder upon conversion shall be rounded down to the next
whole number and the holder shall be entitled to payment for the
fractional share in cash at the then applicable Conversion Price. Such
conversion shall be deemed to have been made as of the close of business
on the date the notice of conversion is sent by or delivered to the
Company, as applicable, in accordance with the notice provisions
hereinafter set forth (the close of business on such date being herein
sometimes called the "Conversion Date"), so that the persons entitled to
receive the shares of Common Stock upon conversion of the principal
amount hereof shall be treated for all purposes as having been the
record holder or holders of such shares of Common Stock at such time.
(d) SUBDIVISIONS, COMBINATIONS, DIVIDENDS OR DISTRIBUTIONS OF
STOCK. In the event that, while this Note shall remain outstanding, the
Company shall at any time subdivide or combine the outstanding shares of
Common Stock, or issue additional shares of Common Stock as a dividend
or other distribution on the Common Stock, the Conversion Price shall be
proportionately adjusted so that, with respect to each such subdivision
of shares or stock dividend or stock distribution, the number of shares
of Common Stock deliverable upon conversion of this Note shall be
increased in proportion to the increase in the number of then
outstanding shares of Common Stock resulting from such subdivision of
shares or stock dividend or stock distribution, and, with respect to
each such combination of shares, the number of shares of Common Stock
deliverable upon conversion of this
9
<PAGE>
Note shall be decreased in proportion to the decrease in the number of
then outstanding shares of Common Stock resulting from such combination
of shares. Any such adjustment in the Conversion Price shall become
effective, in the case of any subdivision or combination of shares, at
the close of business on the effective date thereof, and, in the case of
any such stock dividend or stock distribution, at the close of business
on the record date fixed for the determination of stockholders entitled
thereto, or on the first business day during which the stock transfer
books of the Company shall be closed for the purpose of such
determination, as the case may be. No adjustment shall be made by reason
of the issuance of shares of Common Stock or of any securities
convertible into shares of Common Stock in exchange for cash, property
or services, or in any event other than those specifically set forth in
this Section 6.
(e) OTHER NONCASH DIVIDENDS. In the event that, while this Note
shall be outstanding, the Company shall distribute to the holders of its
Common Stock as a class any assets (other than stock dividends or
distributions) or evidences of indebtedness, the Company shall,
concurrently therewith reduce the Conversion Price by the amount of the
value per share of such distribution, but in no event shall the
Conversion Price be or become less than the par value per share of
Common Stock. The provisions of this paragraph (e) shall similarly apply
to successive distributions to holders of Common Stock.
(f) LIQUIDATION, DISSOLUTION, CONSOLIDATION, MERGER, SALE,
RECLASSIFICATION. In the event that, while this Note shall remain
outstanding, there shall be any liquidation or dissolution of the
Company, consolidation or merger of the Company with another
corporation, sale to another corporation of all or substantially all of
the assets of the Company, or reclassification of the Common Stock of
the Company into securities including other than Common Stock, then the
holder of this Note shall thereafter have the right to convert the
outstanding principal amount of this Note (or such other stock or
securities) into the kind and amount of shares of stock and other
securities and property receivable upon such liquidation, dissolution,
consolidation, merger, sale of assets or reclassification by a holder of
the number of shares of Common Stock into which the outstanding
principal amount of this Note could have been converted immediately
prior to such liquidation, dissolution, consolidation, merger, sale or
reclassification. The instruments effecting such liquidation,
dissolution, consolidation, merger, sale or reclassification, and, where
appropriate, the certificate of incorporation of the surviving or
resulting or purchasing corporation shall provide for such conversion
rights, and the provisions of this paragraph (f) shall similarly apply
to successive liquidations, dissolutions, consolidations, mergers, sales
or reclassifications. In case securities or property other than Common
Stock shall be issuable or deliverable upon conversion as aforesaid,
then all references to Common Stock in
10
<PAGE>
this Section 6 shall be deemed to apply, so far as appropriate and as
nearly as may be, to such other securities or property.
(g) RESERVATION OF ADEQUATE SHARES. The Company shall at all
times reserve and keep available out of its authorized Common Stock, for
issuance upon conversion of this Note as herein provided, such number of
shares of Common Stock as shall then be issuable upon the conversion of
all of the Notes. All shares of Common Stock which shall be so issuable
shall, when so issued upon any such conversion, be duly and validly
issued and fully paid and nonassessable.
(h) DELIVERY OF CERTIFICATES. If the outstanding principal amount
of this Note shall be converted within any period during which the
transfer books for the Company's Common Stock are closed for any
purpose, the Company shall not be required to make delivery of
certificates for Common Stock until the date of the reopening of such
transfer books.
(i) NO SHAREHOLDER RIGHTS. This Note shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the
Company, or to any other rights whatsoever except the rights herein
expressed and such as are set forth, and no dividends shall be payable
or accrue in respect of this Note or the interest represented hereby or
the Common Stock purchasable hereunder until or unless, and except to
the extent that, the outstanding principal amount hereof shall be
converted.
7. IMMUNITY. This Note and the indebtedness and obligations
evidenced hereby are solely corporate indebtedness and obligations, and no
personal liability whatsoever shall attach to or be incurred by any past,
present or future officer, director, shareholder, agent, attorney or employee of
the Company, under or by reason of any of the obligations, covenants or
agreements contained in or implied by this Note or the Agreement. No provision
of this Section 7 shall limit, or be construed to limit, Allwaste's obligation
under the Guaranty.
8. NOTICES. All notices, requests, consents, and other
communications required or permitted under this Note shall be in writing and
shall be deemed, unless otherwise provided, to have been delivered on the date
mailed, postage prepaid, by certified mail, return receipt requested, or on the
date personally delivered:
(i) If to the Payee, to the address of the Payee set forth
above, with a copy of such notice to Mr. George S. Holzapfel, Lasher
Holzapfel Sperry & Ebberson, PLLC 2600 Two Union Square, 601 Union
Street, Seattle, Washington 98101;
(ii) If to the Company, to the address of the Company set forth
above, Attention: President, with a copy of such notice to Mr. David A.
Jones, Jr.,
11
<PAGE>
Boyer, Ewing & Harris Incorporated, Nine Greenway Plaza, Suite 3100,
Houston, Texas 77046;
(iii) If to any holder other than the Payee, to such address as
may have been designated by notice given the Company by such holder,
with a copy of such notice to Mr. George S. Holzapfel, Lasher Holzapfel
Sperry & Ebberson PLLC, 2600 Two Union Square, 601 Union Street,
Seattle, Washington 98101;
(iv) If to any holder of Senior Indebtedness, to such address as
may have been designated by notice given the Company by such holder,
which the Company will provide to the holder of this Note upon request.
The Company, the Payee or any other holder hereof may designate a different
address by notice given in accordance with the foregoing.
9. USURY. It is expressly provided and stipulated that
notwithstanding any provision of this Note or any other instrument evidencing or
securing the indebtedness evidenced hereby, in no event shall the aggregate of
all interest paid by the Company to the Payee hereunder ever exceed the Maximum
Nonusurious Rate of interest which may lawfully be charged the Company under the
laws of the State of Texas or the United States Federal Government, as
applicable, on the principal balance of this Note remaining unpaid. If under any
circumstances the aggregate amounts paid on the indebtedness evidenced by this
Note prior to and incident to the final payment hereof include amounts which by
law are deemed interest and which would exceed the Maximum Nonusurious Rate of
interest which could lawfully have been charged or collected on this Note, the
Company stipulates that (a) any non-principal payment shall be characterized as
an expense, fee, or premium rather than as interest, and any excess shall be
credited hereon by the holder hereof (or, if this Note shall have been paid in
full, refunded to the Company); (b) determination of the rate of interest for
determining whether the indebtedness evidenced hereby is usurious shall be made
by amortizing, prorating, allocating, and spreading, in equal parts during the
full stated term of such indebtedness, all interest at any time contracted for,
charged, or received from the Company in connection with such indebtedness, and
any excess shall be canceled, credited or refunded as set forth in (a) herein.
In connection with Article 5069-1.04, Vernon's Annotated Civil
Statutes, as amended, the Company hereby agrees that the "Maximum Nonusurious
Rate of interest" which may be charged as herein contemplated shall be the
indicated rate ceiling from time to time in effect as defined by said article,
as amended, provided that Payee may also rely on any alternative Maximum
Nonusurious Rate of interest provided by other applicable laws if such other
rates are higher than that allowed by said Article, as amended.
THIS NOTE, THE AGREEMENT, THE SUBORDINATION AGREEMENT AND ALL
DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR
THEREWITH, REPRESENT THE FINAL AGREEMENT
12
<PAGE>
BETWEEN THE COMPANY AND PAYEE AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE COMPANY AND THE PAYEE.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE COMPANY AND PAYEE.
THIS NOTE IS SUBJECT TO FINAL ACCEPTANCE IN, AND ALL TERMS,
OBLIGATIONS, AND PROVISIONS OF THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF, THE STATE OF TEXAS.
IN WITNESS WHEREOF, the Company has authorized this Note to be
executed in its corporate name by its duly authorized officer as of the date
first above written.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By:________________________________
CHARLES F. SCHUGART
Senior Vice President
13
EXHIBIT 10.5
CONSULTING AGREEMENT
This Consulting Agreement between Wasatch Capital Corporation
("Consultant") and Innovative Valve Technologies, Inc. ("Invatec") is entered
into March 27, 1997, effective as of the first day of the month (the
"Commencement Date") in which Invatec closes its initial public offering of its
Common Stock (the "IPO").
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, it is hereby agreed
as follows:
1. DUTIES.
(a) Invatec hereby engages Consultant to assist Invatec in (1)
evaluating acquisition opportunities, (2) reviewing acquisition
strategies, (3) meeting with acquisition candidates, and (4) such
other matters necessary to accomplish the above.
(b) Consultant shall perform such duties, assume responsibilities
and devote such time, attention and energy to the above as Invatec
shall reasonably require.
(c) All services performed by Consultant shall be performed either
by or under the direction of Michael A. Baker.
2. COMPENSATION. For all services rendered by Consultant to Invatec,
Invatec shall the Consultant as follows:
(a) BASE COMPENSATION. The base compensation payable to Consultant
shall be $100,000, $80,000, and $60,000 for each of the first three
years of this Consulting Agreement, respectively, payable in 12
equal monthly payments at the end of each month beginning with the
month in which Invatec closes the IPO. Thereafter, Consultant shall
receive $60,000 per year payable monthly at the end of each month.
(b) BONUS. Consultant shall be entitled to receive such bonuses as
are recommended by the President of Invatec and consented to by the
Executive Committee of the Board of Directors of Invatec for the
successful completion of projects.
(c) EXPENSES. Invatec shall reimburse Consultant for all ordinary
and necessary business expenses lawfully and reasonably incurred by
Consultant in the performance of his services. All reasonable
expenses shall be appropriately documented in reasonable detail by
Consultant upon submission of any request for reimbursement.
-1-
<PAGE>
3. TERM; TERMINATION. The term of this Consulting Agreement shall begin on
the Commencement Date and continue for a period of three years. Thereafter, this
consulting Agreement shall automatically renew for additional one year periods
unless either party gives the other party 60 days written notice of termination
prior to the end of the then current term. Upon termination, Consultant shall be
entitled to receive all compensation earned under the Consultant Agreement to
the end of the then current term.
4. TAXES. It is mutually understood and agreed that in the performance of
its services under this Consulting Agreement, Consultant is at all times
performing its services as an independent contractor, and it acknowledges that
it is responsible for payment of its estimated federal income taxes and social
security taxes. Further, Consultant will comply with all taxing authorities,
regulation and laws, both State and Federal.
5. COMPLETE AGREEMENT. There are no oral representations, understandings
or agreements with Invatec or any of its officers, directors or representatives
covering the same subject matter of this Agreement. This written agreement is
the final, complete and exclusive statement and expression of the agreement
between Invatec and Consultant and of all the terms of this Agreement.
6. NOTICES. Whenever any notice or payment is to be made or required
hereunder, it shall be given to the address as follows:
To Invatec, Inc.: 14900 Woodham Drive
Suite A-125
Houston, Texas 77073
If to Consultant: 3322 Albans
Houston, Texas 77005
7. GOVERNING LAW. This Consulting Agreement shall in all respects be
construed according to the laws of the State of Texas.
WASATCH CAPITAL CORPORATION INNOVATIVE VALVE TECHNOLOGIES, INC.
By:________________________ By:_______________________________
-2-
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in this registration
statement.
ARTHUR ANDERSEN LLP
Houston, Texas
July 17, 1997
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Innovative Valve
Technologies, Inc. on Form S-1 of our report dated January 17, 1997(January 31,
1997 as to Notes 2 and 7) on the consolidated financial statements of Harley
Industries, Inc. as of October 31, 1995 and 1996 and for each of the three years
in the period ended October 31, 1996, appearing in the Prospectus, which is part
of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Tulsa, Oklahoma
July 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SAFE SEAL COMPANY, INC. AND SUBSIDIARIES AS THE ACCOUNTING ACQUIROR AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 396,637
<SECURITIES> 0
<RECEIVABLES> 560,647
<ALLOWANCES> (25,000)
<INVENTORY> 36,140
<CURRENT-ASSETS> 1,080,062
<PP&E> 186,912
<DEPRECIATION> (46,463)
<TOTAL-ASSETS> 2,288,115
<CURRENT-LIABILITIES> 1,092,891
<BONDS> 588,970
0
2,000,000
<COMMON> 43,950
<OTHER-SE> (1,437,336)
<TOTAL-LIABILITY-AND-EQUITY> 2,288,115
<SALES> 3,887,761
<TOTAL-REVENUES> 3,887,761
<CGS> 2,375,245
<TOTAL-COSTS> 4,330,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,703
<INCOME-PRETAX> (414,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (414,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (414,499)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
