UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _______________
COMMISSION FILE NUMBER: 000-23231
------------------------
INNOVATIVE VALVE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0530346
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
14900 WOODHAM DRIVE, SUITE A-125 77073
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 821-9407
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X] *
The number of shares of Common Stock of the Registrant, par value $.001 per
share, outstanding at December 1, 1997 was 7,819,920.
* The Registrant became subject to the reporting requirements of Section 13 of
the Securities Exchange Act of 1934 on October 21, 1997.
================================================================================
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE
----
Part I -- Financial Information ............................................ 2
Item 1 -- Financial Statements ........................................... 2
General Information ................................................... 2
Consolidated Balance Sheets as of December 31, 1996 and
September 30, 1997 ................................................... 3
Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 1996 and 1997 (Unaudited) ............ 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1997 (Unaudited) .............................. 5
Unaudited Pro Forma Combined Statements of Operations for the
Three Months and Nine Months Ended September 30, 1996 and 1997 ....... 6
Notes to Financial Statements (Unaudited) ............................. 7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................... 12
Part II -- Other Information ............................................... 17
Item 1 -- Legal Proceedings .............................................. 17
Item 2 -- Changes in Securities and Use of Proceeds ...................... 17
Item 4 -- Submission of Matters to a Vote of Security Holders ............ 19
Item 6 -- Exhibits and Reports on Form 8-K ............................... 20
1
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENERAL INFORMATION
The following historical consolidated financial statements of Innovative
Valve Technologies, Inc. ("Invatec") are the historical consolidated financial
statements of The Safe Seal Company, Inc. ("SSI"), which became a wholly owned
subsidiary of Invatec in October 1997 and has been identified as the
"accounting acquirer" for Invatec's financial reporting purposes in connection
with the purchase and merger transactions described in Note 1 to the following
financial statements. The following unaudited pro forma combined statements of
operations are the historical statements of operations of SSI, as adjusted on
the bases described in that Note 1.
2
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash.................................... $ 396,637 $ 9,671
Accounts receivable, net of allowance of
$25,000 and $454,000.................. 535,647 9,437,665
Inventories............................. 36,140 6,326,812
Prepaid expenses and other current
assets................................ 111,638 301,297
------------ -------------
Total current assets.......... 1,080,062 16,075,445
PROPERTY AND EQUIPMENT, net............. 140,449 6,084,153
GOODWILL, net........................... -- 15,261,792
PATENT COSTS, net....................... 741,611 571,042
OTHER NONCURRENT ASSETS, net............ 325,993 3,229,710
------------ -------------
$ 2,288,115 $ 41,222,142
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term debt......................... $ -- $ 79,690
Current maturities of long-term debt.... -- 21,861,516
Accounts payable and accrued expenses... 1,092,891 6,075,434
Other current liabilities............... -- 722,748
------------ -------------
Total current liabilities..... 1,092,891 28,739,388
LONG-TERM DEBT, net of current
maturities............................ 588,970 --
PAYABLE TO AFFILIATE.................... -- 6,311,950
DEFERRED TAX LIABILITY.................. -- 115,460
OTHER LONG-TERM OBLIGATIONS............. -- 27,272
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK.............. 2,000,000 2,000,000
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value,
10,000,000 shares authorized,
2,963,838 and 4,838,669 shares
issued and outstanding........... 29,638 48,386
Additional paid-in capital......... 1,270,315 8,411,427
Retained deficit................... (2,693,699) (4,431,741)
------------ -------------
Total stockholders' equity
(deficit).................. (1,393,746) 4,028,072
------------ -------------
$ 2,288,115 $ 41,222,142
============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
---------------------------- ----------------------------
1996 1997 1996 1997
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
REVENUES................................ $ 1,208,721 $ 13,596,854 $ 2,814,789 $ 33,356,489
COST OF OPERATIONS...................... 791,167 9,079,837 1,691,713 22,574,450
------------ -------------- ------------ --------------
Gross profit....................... 417,554 4,517,017 1,123,076 10,782,039
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 317,790 3,190,190 1,203,489 8,107,514
SPECIAL COMPENSATION EXPENSE ON COMMON
STOCK ISSUANCE........................ -- -- -- 2,605,005
------------ -------------- ------------ --------------
Income (loss) from operations...... 99,764 1,326,827 (80,413) 69,520
OTHER INCOME (EXPENSE):
Interest expense, net.............. -- (669,820) -- (1,667,932)
Other.............................. (393) 3,694 (393) 5,937
------------ -------------- ------------ --------------
INCOME (LOSS) BEFORE INCOME TAXES....... 99,371 660,701 (80,806) (1,592,475)
PROVISION FOR INCOME TAXES.............. -- 278,162 -- 3,067
------------ -------------- ------------ --------------
NET INCOME (LOSS)....................... $ 99,371 $ 382,539 $ (80,806) $ (1,595,542)
============ ============== ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
1996 1997
------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $ (80,806) (1,595,542)
Adjustments to reconcile net loss
to net cash used in operating
activities --
Depreciation and amortization.... 26,773 919,946
Special compensation expense on
common stock issuance........... -- 2,605,005
Change in deferred tax
accounts........................ -- (233,247)
(Increase) decrease in --
Accounts receivable........... (193,973) (1,562,966)
Inventories................... 12,359 (774,840)
Prepaid expenses and other
current assets............ 2,493 327,401
Other noncurrent assets....... (219,278) 1,561
Decrease in --
Accounts payable and accrued
expenses.................. (371,249) (506,206)
Payable to affiliate.......... -- (1,107,750)
------------ ---------------
Net cash used in operating
activities.............. (823,681) (1,926,638)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment......................... (123,975) (434,488)
Additions to patent costs.......... (6,472) --
Proceeds from sale of property and
equipment......................... -- 10,226
Business acquisitions, net of cash
acquired of $135,109.............. -- (19,109,479)
------------ ---------------
Net cash used in investing
activities.............. (130,447) (19,533,741)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt................. 140,000 20,624,541
Repayments of debt................. -- (540,365)
Payments on noncompete
obligations....................... -- (85,118)
Proceeds from exercise of common
stock warrant..................... -- 1,216,855
Preferred stock dividends.......... (98,600) (142,500)
------------ ---------------
Net cash provided by
financing activities.... 41,400 21,073,413
NET DECREASE IN CASH.................... (912,728) (386,966)
CASH, beginning of period............... 1,458,096 396,637
------------ ---------------
CASH, end of period..................... $ 545,368 $ 9,671
============ ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............. $ 3,000 $ 1,211,424
Cash paid for income taxes......... -- 89,000
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES................................ $ 20,273 $ 21,432 $ 56,876 $ 68,134
COST OF OPERATIONS...................... 14,136 14,665 39,252 46,857
--------- --------- --------- ---------
Gross profit....................... 6,137 6,767 17,624 21,277
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 5,049 6,133 14,383 17,840
--------- --------- --------- ---------
Income from operations............. 1,088 634 3,241 3,437
OTHER INCOME (EXPENSE):
Interest, net...................... (81) (77) (247) (243)
Other.............................. 27 (4) (2) --
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES.......................... 1,034 553 2,992 3,194
PROVISION FOR INCOME TAXES.............. 445 241 1,287 1,456
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS....... $ 589 $ 312 $ 1,705 $ 1,738
========= ========= ========= =========
PRO FORMA EARNINGS PER SHARE FROM
CONTINUING OPERATIONS................. $ 0.08 $ 0.04 $ 0.22 $ 0.22
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING..... 7,820 7,820 7,820 7,820
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
6
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Innovative Valve Technologies, Inc. ("Invatec") was incorporated in
Delaware in March 1997 to create the leading single-source provider of
comprehensive maintenance, repair, replacement and value-added distribution
services for industrial valves and related process-system components throughout
North America. Except for its purchase of Steam Supply & Rubber Co., Inc. and
three related entities (collectively, "Steam Supply") in July 1997, Invatec
conducted no operations of its own prior to the closing on October 28, 1997 of
(i) its initial public offering (the "IPO") of its common stock, par value
$.001 per share ("Common Stock"), (ii) its purchase of Industrial Controls &
Equipment, Inc. and three related entities (collectively, "ICE/VARCO") and
Southern Valve Services, Inc. and a related entity (collectively, "SVS") and
(iii) a merger (the "SSI Merger") in which The Safe Seal Company, Inc.
("SSI") became its subsidiary. Earlier in 1997, SSI had purchased Harley
Industries, Inc. ("Harley"), GSV, Inc. ("GSV") and Plant Specialties, Inc.
("PSI"). SSI and its subsidiaries were affiliates of Invatec prior to the SSI
Merger.
For financial reporting purposes, SSI is presented as the "accounting
acquirer" of Steam Supply, ICE/VARCO, SVS, Harley, GSV and PSI (collectively,
the "Acquired Businesses"), and, as used herein, the term "Company" means
(i) SSI and its consolidated subsidiaries prior to October 31, 1997 and (ii)
Invatec and its consolidated subsidiaries (including SSI) on that date and
thereafter.
The Company is accounting for the acquisitions of the Acquired Businesses
in accordance with the purchase method of accounting. For accounting purposes,
the effective dates of the acquisitions of the Acquired Businesses (the
"Acquisitions") in 1997 are as follows: (i) Harley -- January 31; (ii) GSV --
February 28; (iii) PSI -- May 31; (iv) Steam Supply -- July 31, and (v)
ICE/VARCO and SVS -- October 31. The allocation of the purchase prices paid to
the assets acquired and the liabilities assumed in the Acquisitions has been
recorded initially on the basis of preliminary estimates of fair value and may
be revised as additional information concerning the valuation of those assets
and liabilities becomes available.
The accompanying historical consolidated statements of operations present
historical information of the Company which gives effect to the acquisitions of
Harley, GSV and PSI as of their respective acquisition dates. The accompanying
unaudited pro forma combined statements of operations present historical
information as adjusted to give effect to the following events and transactions
as if they had occurred on January 1, 1996: (i) the SSI Merger and all the
Acquisitions; (ii) the financing of the purchase prices paid for the Acquired
Businesses; (iii) the reverse stock splits described in Note 6; (iv) the
issuance of Common Stock and the payment of cash to repay indebtedness owed to
Philip Services Corp. (collectively with its subsidiaries, "Philip"); and (v)
the closing of the IPO and the application of Invatec's proceeds therefrom. The
unaudited pro forma statements convert the results of operations of the Acquired
Businesses whose historical fiscal periods were not on a calendar-year basis to
a calendar-year basis and include pro forma adjustments consisting principally
of the following: (i) the adjustments to selling, general and administrative
expenses described below; (ii) adjustments for the effects of recording
inventories on a first-in, first-out rather than on a last-in first-out basis at
PSI and Steam Supply; (iii) adjustments for pro forma goodwill amortization
using a 40-year estimated life; (iv) eliminations of historical interest expense
resulting from the application of proceeds from the IPO and the use of Common
Stock to retire outstanding indebtedness; and (v) adjustments to federal and
state income tax provisions.
The unaudited pro forma combined statements of operations include
preliminary pro forma adjustments to selling, general and administrative
expenses to reflect: (i) the decrease in salaries and benefits associated with
certain owners and managers of the Acquired Businesses who were not employed by
the Company after the acquisition of their Acquired Businesses and will not be
replaced; (ii) the elimination of certain excess administrative support service
fees charged by ICE/VARCO's former parent company; and (iii) the reversal of the
special non-cash, non-recurring compensation expense attributable to stock
awards made by SSI and Common Stock sales and option awards made by Invatec.
7
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The integration of the Acquired Businesses may present opportunities to
reduce other costs through the elimination of duplicative functions and
operating locations and the development of 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 the Company 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 unaudited pro forma financial information
herein reflects neither unquantifiable expected savings nor unquantifiable
expected incremental costs.
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 unaudited pro
forma combined statements of operations do not include adjustments for $330,000
of bonuses paid to three executive officers of Invatec on completion of the IPO
and $260,000 of financing charges due to Philip to be recorded subsequent to
September 30, 1997.
The consolidated financial statements herein have been prepared by the
Company without audit, pursuant to rules and regulations of the Securities and
Exchange Commission (the "SEC") which permit certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles to be condensed or omitted. The
Company believes the presentation and disclosures herein are adequate to make
the information not misleading, and the financial statements reflect all
elimination entries and normal adjustments that are necessary for a fair
presentation of the results for the interim periods ended September 30, 1996 and
1997.
Operating results for interim periods are not necessarily indicative of the
results for a full year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Fluctuations in Operating Results" in
Item 2 of this Part I.
2. SPECIAL COMPENSATION EXPENSE ON COMMON STOCK ISSUANCE:
In the nine months ended September 30, 1997, the Company recorded a special
non-cash compensation expense of approximately $2.6 million related to the
issuance of 443,190 shares of SSI common stock to three members of executive
management and to Computerized Accounting & Tax Services, Inc. ("CATS"), a
related party owned by a major stockholder, to attract such individuals and CATS
to effect the IPO. For financial statement presentation purposes, these shares
were valued at approximately $5.85 per share.
3. NEW ACCOUNTING PRONOUNCEMENTS:
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," issued in February 1997, revises the calculations to be used in
determining earnings per share ("EPS"). Consistent with the provisions of SFAS
No. 128, the Company will begin using the new EPS calculation effective December
31, 1997. The Company believes implementation of SFAS No. 128 will not have a
material effect on its calculation of earnings per share as reported herein.
SFAS No. 130, "Reporting Comprehensive Income" issued in June 1997,
establishes standards for the reporting of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in a company's
equity during the period which result from transactions with its stockholders.
For the Company, SFAS No. 130 will be effective for the year beginning January
1, 1998. The Company has not completed its analysis of the impact of this new
pronouncement. On the basis of a preliminary
8
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
review, the Company believes implementation of SFAS No. 130 will not have a
material effect on its financial statements.
4. LONG-TERM DEBT:
Contemporaneously with the closing of the IPO, Invatec entered into a $60.0
million revolving credit facility (the "Credit Facility") with a syndicate of
commercial banks. Borrowings under the Credit Facility may be used for
acquisitions and general corporate purposes. For a description of the Credit
Facility, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" in Item 2 of this
Part I. The Credit Facility replaced SSI's commercial credit facilities in
effect on September 30, 1997, and the current maturities of the Company's
long-term debt outstanding as of that date have been repaid with proceeds from
the IPO.
For information respecting long-term debt issued by Invatec as part of the
purchase price for Steam Supply and by SSI as part of the purchase price for
PSI, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" in Item 2 of this
Part I.
5. INCOME TAXES:
Prior to the Acquisitions, certain Acquired Businesses' stockholders were
taxed under the provisions of subchapter S of the Internal Revenue Code. Under
these provisions, the stockholders paid income taxes on their proportionate
share of their companies' earnings. Because the stockholders were taxed
directly, their businesses paid no federal income tax and only certain state
income taxes.
The Company intends to file a consolidated federal income tax return that
will include the operations of the Acquired Businesses for periods subsequent to
their respective acquisition dates. The Acquired Businesses will be separately
responsible for filing "short period" federal income tax returns through their
respective acquisition dates.
The provisions for income taxes included in the unaudited pro forma
combined statements of operations for the three months and nine months ended
September 30, 1996 and 1997 are estimates of the federal and state income taxes
that would have been applicable to the Company had it effected all the
Acquisitions on January 1, 1996. The tax rates indicated by these provisions
differ from statutory federal and state rates primarily because amortization of
goodwill arising from the Acquisitions is not deductible for tax purposes. The
provision for income taxes included in the unaudited consolidated income
statement for the nine months ended September 30, 1997 differs from statutory
federal and state rates primarily due to the partial recognition of certain net
operating loss benefits carried forward by SSI.
6. CAPITAL STOCK AND STOCK OPTIONS:
Prior to the SSI Merger, SSI and Invatec each effected a 0.68-for-one
reverse stock split of its outstanding common stock. The accompanying financial
statements have been prepared as if these splits had been effected on January 1,
1996.
As a result of the SSI Merger: (i) the shares of SSI common stock and
redeemable preferred stock outstanding as of September 30, 1997 were converted
into shares of Common Stock; (ii) outstanding options and a warrant to purchase
shares of SSI common stock were converted into options to purchase Common Stock;
and (iii) SSI's authorized capital stock became 1,000 shares of SSI common
stock, par value $1.00 per share, all of which have been issued and are
outstanding and owned by Invatec.
Invatec's certificate of incorporation authorizes the issuance of up to
30.0 million shares of Common Stock, of which 7,819,920 shares were issued and
outstanding as of November 30, 1997, and 5.0 million shares of preferred stock,
none of which has been issued.
Invatec sold 3,852,500 shares of Common Stock in the IPO, consisting of
3,350,000 shares sold on October 28, 1997 and 502,500 shares sold on November 5,
1997 pursuant to the exercise of an over-allotment option Invatec had granted
its underwriters. The initial price to the public in the IPO was $13.00,
9
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and Invatec's proceeds from the IPO, net of an underwriting discount of
$3,505,775 and estimated IPO expenses of $2.8 million, including approximately
$1.5 million of expenses which were initially funded through advances obtained
from Philip, totaled $43.8 million.
At November 30, 1997, an aggregate of 363,497 shares of Common Stock were
issuable at an initial conversion price of $16.90 per share on the conversion of
convertible notes issued as part of the purchase prices for Steam Supply and PSI
and an aggregate of 1,308,248 shares of Common Stock were issuable on the
exercise of stock options then outstanding under Invatec's 1997 Incentive Plan,
of which options to purchase a total of 533,873 shares then were exercisable at
exercise prices ranging from $1.00 per share to $13.00 per share.
7. EARNINGS PER SHARE:
For historical periods through September 30, 1997, earnings per share
amounts are not meaningful. Accordingly, historical earnings per share for these
periods have not been presented.
The computation of pro forma net income per share of Common Stock for the
interim periods presented is based on 7,819,920 shares of Common Stock
outstanding, as follows:
Issued prior to the IPO.............. 242,839
Issued in the IPO.................... 3,852,500
Issued in the SSI Merger............. 2,419,338
Redemption of SSI redeemable
preferred stock and payment of
indebtedness owed to Philip........ 1,189,860
Issued to acquire SVS................ 115,383
-----------
Shares outstanding................... 7,819,920
===========
8. ACQUISITION OF ACQUIRED BUSINESSES:
The following table sets forth the consideration paid for each of the
Acquired Businesses (in thousands):
CASH(4) DEBT ISSUED(5) STOCK ISSUED
-------- --------------- -------------
Harley(1)(2)................. $ 13,982 $-- $--
Steam Supply(3).............. 7,762 2,848 --
ICE/VARCO.................... 5,250 -- --
GSV.......................... 7,272 -- --
PSI.......................... 3,361 4,147 --
SVS.......................... 4,310 -- 1,500
-------- --------------- -------------
$ 41,937 $ 6,995 $ 1,500
======== =============== =============
(FOOTNOTES ON FOLLOWING PAGE)
10
<PAGE>
INNOVATIVE VALVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- ------------
(1) The cash consideration paid for Harley (i) is net of approximately $3.8
million in cash and notes received from the sale of a discontinued operation
of Harley, subject to adjustment, and (ii) includes $1.0 million paid in
cash to the former owners of Harley on completion of the IPO.
(2) Includes $3.3 million aggregate principal amount of notes issued by Philip.
(3) Cash includes $0.7 million of Steam Supply preferred stock that remains
outstanding.
(4) Cash includes cash paid to former owners of, and debt assumed from, the
Acquired Businesses.
(5) Includes (i) the issuance of convertible subordinated notes of $3.3 million
to the former owners of PSI and $2.8 million to the former owners of Steam
Supply which may be converted into Common Stock at $16.90 per share at the
option of the note holders and (ii) a $0.9 million SSI note issued to the
former owners of PSI which is secured by real property.
Of the total purchase price paid for the Acquisitions, $26.7 million has
been allocated to net assets acquired, and the remaining $23.7 million has been
recorded as goodwill. On the basis of management's preliminary analysis, the
Company expects the historical carrying values 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.
9. RELATIONSHIP WITH INVATEC:
From May 1997 until the closing of the IPO, SSI and Invatec were under the
common control of a voting trustee pursuant to two voting trust agreements
covering a majority of the outstanding SSI common stock and most of the
outstanding shares of Common Stock. These agreements terminated on October 28,
1997.
10. RELATIONSHIP WITH PHILIP:
In 1996, Philip agreed to make certain advances (the "Philip Advances")
to SSI to enable SSI, or its successors, to pursue a possible initial public
offering. As a result of Philip's financial support of SSI's acquisition of
Harley, Philip became a related party of the Company for financial statement
presentation purposes effective January 31, 1997. In June 1997, Invatec entered
into a funding arrangement with Philip pursuant to which Philip advanced funds
to Invatec to pay costs related to the IPO and Invatec assumed SSI's obligation
to repay the Philip Advances and the related deferred offering costs funded with
the Philip Advances. Pursuant to that agreement, certain amounts of short-term
debt and accrued financing charges were transferred from SSI to Invatec.
In connection with the IPO, Invatec issued 1,036,013 shares of Common Stock
to Philip as payment of $8.6 million of indebtedness owed to Philip. Immediately
after the IPO, Invatec repaid the remaining $3.0 million of indebtedness owed to
Philip in cash. At November 30, 1997, Philip owned 2,340,716 shares of Common
Stock, or approximately 30.0% of the shares then outstanding.
11. SUBSEQUENT EVENT:
In November 1997, the Company purchased certain assets and assumed certain
liabilities of a valve repair and distribution company based in Tulsa, Oklahoma,
for $1.6 million. The unaudited pro forma combined statements of operations do
not include the results of this acquisition.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the historical
consolidated and unaudited pro forma combined financial statements and the notes
thereto which are included in Item 1 of this Part I.
OVERVIEW
The Company derives its revenue principally from (i) sales of industrial
valves and other process-system components to its process-industry customers and
commissions paid by the manufacturers of these products in connection with their
direct sales of these products and (ii) performance of comprehensive,
maintenance, repair, replacement and value-added distribution services of
industrial valves and process-system components for its 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 amortization and other
related expenses.
SSI has been identified as the "accounting acquirer" for financial
reporting purposes.
RESULTS OF OPERATIONS -- PRO FORMA COMBINED
The accompanying unaudited pro forma combined statements of operations
include pro forma adjustments to selling, general and administrative expenses to
reflect (i) the decrease in salaries and benefits associated with certain owners
and managers of the Acquired Businesses who were not employed by the Company
after the acquisition of their Acquired Businesses and will not be replaced,
(ii) the elimination of certain excess administrative support service fees
charged by ICE/VARCO's former parent company and (iii) the reversal of the
special non-cash, non-recurring compensation expenses described below, which
were attributable to stock awards made by SSI and Common Stock sales and certain
option awards made by Invatec. These unaudited pro forma statements also convert
the results of operations of Acquired Businesses whose historical fiscal periods
were not on a calendar-year basis to a calendar-year basis.
The integration of the Acquired Businesses may present opportunities to
reduce other costs through the elimination of duplicative functions and
operating locations and the development of 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
administrative areas. The Company cannot currently quantify these anticipated
savings and expects these savings will be partially offset by incremental costs
that the Company 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 unaudited pro forma combined financial
information herein reflects neither unquantifiable expected savings nor
unquantifiable expected incremental costs.
In connection with certain issuances of SSI common stock by SSI and sales
of Common Stock and option awards by Invatec during the nine months ended
September 30, 1997, Invatec and SSI recorded non-cash, non-recurring
compensation charges in that period of $7.6 million, representing the difference
between the amount paid for the shares (or, in the case of option awards, the
exercise price of the options) and the estimated fair value of the shares on the
date of issuance or sale. The unaudited pro forma combined statements of
operations contain adjustments to reverse the effects of these compensation
charges as they are considered to be non-recurring.
12
<PAGE>
The unaudited pro forma combined results of operations for the interim
periods presented below do not purport to be comparable to and may not be
indicative of the Company's post-combination results of operations because (i)
SSI and the Acquired Businesses were not under common control or management
throughout the periods presented and (ii) the Company established a new basis of
accounting to record the purchase of the Acquired Businesses under the purchase
method of accounting. See Note 1 in Item 1 of this Part I.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------------------ ------------------------------------------
1996 1997 1996 1997
-------------------- -------------------- -------------------- --------------------
(UNAUDITED AND DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 20,273 100.0% $ 21,432 100.0% $ 56,876 100.0% $ 68,134 100.0%
Cost of operations...................... 14,136 69.7 14,665 68.4 39,252 69.0 46,857 68.8
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............................ 6,137 30.3 6,767 31.6 17,624 31.0 21,277 31.2
Selling, general and administrative
expenses.............................. 5,049 24.9 6,133 28.6 14,383 25.3 17,840 26.2
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations.................. $ 1,088 5.4% $ 634 3.0% $ 3,241 5.7% $ 3,437 5.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $1.1 million, or 5.7%, from $20.3 million in
the three months ended September 30, 1996 to $21.4 million in the corresponding
period in 1997. This increase was primarily attributable to a $1.0 million
increase in revenues of GSV resulting from its broad and continued penetration
of new markets.
GROSS PROFIT -- Gross profit increased $0.6 million, or 10.3%, from $6.1
million in the three months ended September 30, 1996 to $6.7 million in the
corresponding period in 1997. As a percentage of revenues, gross profit
increased to 31.6% in the three months ended September 30, 1997 from 30.3% in
the same period in 1996. This increase was primarily attributable to a shift in
the mix of products sold toward value-added distribution services that
historically have generated higher gross profit margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $1.1 million, or 21.5%, from $5.0 million in
the three months ended September 30, 1996 to $6.1 million in the corresponding
period in 1997. This increase was primarily the result of $0.9 million of costs
associated with the non-recurring building of Invatec's corporate management
team. Excluding the effect of these corporate management costs, selling, general
and administrative expenses, as a percentage of revenues, decreased to 24.3% in
the three months ended September 30, 1997 from 24.9% in the corresponding period
in 1996.
NINE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $11.2 million, or 19.8%, from $56.9 million
in the nine months ended September 30, 1996 to $68.1 million in the
corresponding period in 1997. This increase was primarily attributable to the
following: (i) a $5.2 million increase in the revenues of Harley resulting from
its acquisition of a business in June 1996 and from strengthened sales of its
existing and new product lines; (ii) a $1.3 million increase in the revenues of
ICE/VARCO associated with its acquisition of a business in August 1996 and its
continued penetration of existing markets; and (iii) a $1.6 million increase in
revenues of GSV attributable to the addition of a significant product line late
in 1996 and GSV's continued emphasis on developing and pursuing new markets.
GROSS PROFIT -- Gross profit increased $3.7 million, or 20.7%, from $17.6
million in the nine months ended September 30, 1996 to $21.3 million in the
corresponding period in 1997. As a percentage of revenues, gross profit
increased to 31.2% in the nine months ended September 30, 1997 from 31.0% in the
corresponding period in 1996. This slight increase was primarily attributable to
a shift in the mix of products sold toward value-added distribution services
that historically have generated higher gross profit margins.
13
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $3.4 million, or 24%, from $14.4 million in
the nine months ended September 30, 1996 to $17.8 million in the corresponding
period in 1997. This increase reflected expenses attributable to the business
Harley acquired in June 1996 and approximately $2.2 million associated with the
building of Invatec's corporate management team during the first nine months of
1997. Excluding the effect of the Invatec corporate management costs, selling,
general and administrative expenses, as a percentage of revenues, decreased to
22.9% in the nine months ended September 30, 1997 from 25.3% in the same period
in 1996.
RESULTS OF OPERATIONS -- HISTORICAL
The following table sets forth for SSI, the accounting acquirer, certain
selected consolidated financial data and that data as a percentage of
consolidated revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------------------ ------------------------------------------
1996 1997 1996 1997
-------------------- -------------------- -------------------- --------------------
(UNAUDITED AND DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 1,209 100.0% $ 13,597 100.0% $ 2,815 100.0% $ 33,356 100.0%
Cost of operations...................... 791 65.4 9,080 66.8 1,692 60.1 22,574 67.7
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............................ 418 34.6 4,517 33.2 1,123 39.9 10,782 32.3
Selling, general and administrative
expenses.............................. 318 26.3 3,190 23.5 1,203 42.7 8,108 24.3
Special compensation expense............ -- -- -- -- -- -- 2,605 7.8
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........... $ 100 8.3% $ 1,327 9.7% $ (80) (2.8)% $ 69 0.2%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $12.4 million, or 1024.6%, from $1.2 million
in the three months ended September 30, 1996 to $13.6 million in the
corresponding period in 1997. This increase resulted from the inclusion of the
results of Harley, GSV and PSI from their respective dates of acquisition,
January 31, February 28 and May 31, 1997.
GROSS PROFIT -- Gross profit increased $4.1 million, or 980.6%, from $0.4
million in the three months ended September 30, 1996 to $4.5 million in the
corresponding period in 1997. This increase occurred principally as a result of
the incremental gross margin generated by Harley, GSV and PSI. As a percentage
of revenues, gross profit decreased from 34.6% in the three months ended
September 30, 1996 to 33.2% in the same period in 1997. This decrease reflected
the expansion of the Company's consolidated operations to include the
distribution and related services operations of Harley and the on-site and
in-shop repair services of Harley, GSV and PSI, which historically have
generated lower gross margins than SSI's gross margins attributable to its
on-line repair services operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $2.9 million, or 903.1%, from $0.3 million in
the three months ended September 30, 1996 to $3.2 million in the corresponding
period in 1997. This increase reflected the incremental selling, general and
administrative expenses of Harley, GSV and PSI. As a percentage of revenues,
these expenses decreased from 26.3% in the three months ended September 30, 1996
to 23.5% in the same period in 1997 as a result of being spread over a larger
revenue base.
NINE MONTHS ENDED SEPTEMBER 30
REVENUES -- Revenues increased $30.6 million, or 1084.9%, from $2.8 million
in the nine months ended September 30, 1996 to $33.4 million in the
corresponding period in 1997. The increase primarily resulted from the inclusion
of the results of Harley, GSV and PSI from their respective dates of
acquisition.
GROSS PROFIT -- Gross profit increased $9.7 million, or 860.1%, from $1.1
million in the nine months ended September 30, 1996 to $10.8 million in the
corresponding period in 1997. This increase occurred principally as a result of
the incremental gross margin generated by Harley, GSV and PSI. As a percentage
of revenues, gross profit decreased from 39.9% in the nine months ended
September 30, 1996 to 32.3% in
14
<PAGE>
the same period in 1997. This decrease reflected the expansion of the Company's
consolidated operations to include the distribution and related services
operations of Harley and the on-site and in-shop repair services of Harley, GSV
and PSI, which historically have generated lower gross margins than SSI's gross
margins attributable to its on-line repair services operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $6.9 million, or 575.0%, from $1.2 million in
the nine months ended September 30, 1996 to $8.1 million in the corresponding
period in 1997. This increase reflected the incremental selling, general and
administrative expenses of Harley, GSV and PSI. As a percentage of revenues,
these expenses decreased from 42.7% in the nine months ended September 30, 1996
to 24.3% in the corresponding period in 1997 as a result of being spread over a
larger revenue base.
SPECIAL COMPENSATION EXPENSE ON COMMON STOCK ISSUANCES -- In connection
with the issuance of common stock to certain members of management and a
management services provider, the Company recorded a $2.6 million special
non-cash, non-recurring compensation charge in the nine months ended September
30, 1997.
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 the
Company's services 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.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, after giving pro forma effect to the following
events and transactions as if they had occurred on September 30, 1997 -- (i) the
SSI Merger and the acquisitions of ICE/VARCO and SVS; (ii) the issuance of
Common Stock and the payment of cash to repay indebtedness owed to Philip; and
(iii) the sale of 3,852,500 shares of Common Stock in the IPO and the
application of Invatec's proceeds therefrom, the Company's consolidated
short-term debt (including current maturities of consolidated long-term debt)
would have been $0.1 million, while the Company's consolidated long-term debt
(net of current maturities) and other long-term obligations to third parties
would have totaled $7.5 million and the Company's consolidated stockholders'
equity would have totaled $60.0 million.
The Credit Facility is a three-year revolving credit facility pursuant to
which Invatec may borrow up to $60.0 million to finance acquisitions and for
general corporate purposes, including the refinancing of borrowed-money
indebtedness of acquired businesses and fund working capital needs. Loans under
the Credit Facility will bear interest at a designated variable base rate plus a
margin ranging from 0 to 50 basis points depending on the ratio of the Company's
borrowed-money and certain other indebtedness to its trailing pro forma
consolidated earnings before interest, income taxes, depreciation and
amortization. At Invatec's option, loans may bear interest based on a designated
London interbank offering rate plus a margin ranging from 100 to 200 basis
points depending on the same ratio. The margin is subject to being reset from
time to time. Commitment fees of 25 to 40 basis points per annum are payable on
the unused portion of the line of credit. The Credit Facility has a $5.0 million
sublimit for standby letters of credit. It requires the consent of the lenders
for any acquisition involving a purchase price of greater than $5.0 million,
prohibits the payment of dividends by Invatec, limits the amount of indebtedness
the Company may incur and requires the Company to comply with certain financial
covenants. The Credit Facility will terminate and all amounts outstanding, if
any, thereunder, will be due and payable in September 2000. The Company's
subsidiaries have guaranteed the repayment of, and the capital stock of those
subsidiaries and the Company's accounts receivable and inventories will be
collateral security for, all amounts owed under the Credit Facility. At November
30, 1997, the Company had no borrowings outstanding under the Credit Facility.
15
<PAGE>
At November 30, 1997, the Company's capitalization included approximately
$3.3 million aggregate principal amount of 5.0% convertible subordinated notes
due 2002 and $2.8 million aggregate principal amount of 5.5% convertible
subordinated notes due 2004, which were issued as consideration in the
acquisitions of PSI and Steam Supply, respectively. These notes are convertible
into Common Stock at an initial conversion price of $16.90 per share (i) at the
option of the holder in whole at any time and (ii) at the option of Invatec in
whole at any time after the closing sales prices of the Common Stock for a
period of 20 consecutive trading days beginning in 1999 exceeds $19.50 per
share.
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 for at
least the next several years. On a combined basis, Invatec, SSI and the Acquired
Businesses made capital expenditures of $1.9 million in fiscal year 1996 and
$0.8 million during the first nine months of 1997. Invatec presently expects
that the Company's capital expenditures during the balance of 1997 will total
approximately $0.2 million (excluding acquisitions of businesses).
The Company intends to pursue 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 cash flow from operations and borrowings, including borrowings
under the Credit Facility.
16
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Steam Supply and a Mobil Corp. unit are named defendants in a proceeding
initiated by the City of Long Beach, California in October 1997 in a Long Beach
municipal court. The complaint arises from an in-shop repair Steam Supply
performed in February 1997, alleges the repair involved a release of hydrogen
sulfide gas into the atmosphere in violation of the California Health & Safety
Code and seeks monetary sanctions. Management of the Company believes this
proceeding will not have any material adverse effect on the Company's financial
condition or operating results.
The Company is involved in various legal proceedings that have arisen in
the ordinary course of business. The Company does not believe that any of these
proceedings will have a material adverse effect on its financial condition or
operating results.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Immediately prior to the closing of the IPO, William E. Haynes had
sole voting power over all the outstanding shares of Common Stock through his
direct ownership of shares and pursuant to two separate voting trusts (the
"Voting Trusts") of which he was the voting trustee (in that capacity, the
"Voting Trustee"). On the closing of the IPO, the Voting Trusts terminated
pursuant to their respective terms and the voting power with respect to the
shares of Common Stock previously subject thereto reverted to the beneficial
owners of those shares.
On October 20, 1997, Invatec's certificate of incorporation was amended to
effect a 0.68-for-one reverse stock split of the then outstanding Common Stock.
All Invatec share and per share information contained in this Report has been
presented on a basis that gives effect to that reverse stock split.
(b) The Credit Facility prohibits Invatec and its subsidiaries from (i)
redeeming, retiring or otherwise acquiring, directly or indirectly, any shares
of Common Stock and (ii) making any dividends or distributions of cash or
property to any shareholder of Invatec, without the prior written consent of the
lenders.
(c) In March 1997, Invatec sold a total of 146,959 shares of Common Stock
to certain of its executive officers (William E. Haynes, Charles F. Schugart and
Frank L. Lombard) and CATS, for a total purchase price of $216.12. In June 1997,
Invatec sold a total of 95,880 shares of 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 of 1933, as
amended (the "Securities Act"), by virtue of Section 4(2) thereof as
transactions not involving any public offering.
In June 1997, SSI issued $3.3 million aggregate principal amount of its
5.0% convertible subordinated notes to the former owners of PSI as partial
payment of the purchase price for the stock of PSI. Invatec succeeded SSI as the
obligor on those notes and, on the closing of the IPO, those notes became
convertible into shares of Common Stock at an initial conversion price of $16.90
per share, subject to adjustment pursuant to customary anti-dilution provisions,
(i) at the option of the holder in whole at any time and (ii) at the option of
Invatec in whole at any time after the closing sales prices of the Common Stock
for a period of 20 consecutive trading days beginning in 1999 exceeds $19.50 per
share. The sale of those notes (and the underlying rights to shares of Common
Stock) was exempt, and Invatec's succession as the obligor thereon 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
shares of Common Stock on conversion of those notes will be exempt from those
requirements pursuant to Section 3(a)(9) of the Securities Act.
In July 1997, Invatec issued $2.8 million aggregate principal amount of its
5.5% convertible subordinated notes to the former owners of Steam Supply as
partial payment of the purchase price for the stock of Steam Supply. On the
closing of the IPO, those notes became convertible into shares of Common Stock
at an initial conversion price of $16.90 per share, subject to adjustment
pursuant to customary anti-dilution provisions, (i) at the option of the holder
in whole at any time and (ii) at the option of Invatec in whole at any time
after the closing sales prices of the Common Stock for a period of 20
consecutive trading
17
<PAGE>
days beginning in 1999 exceeds $19.50 per share. The sale of those notes (and
the underlying rights to shares of 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
shares of Common Stock on conversion of those notes will be exempt from those
requirements pursuant to Section 3(a)(9) of the Securities Act.
Before the completion of the IPO, Invatec issued shares of Common Stock in
connection with the SSI Merger. Concurrently with the completion of the IPO,
Invatec issued 115,383 shares of Common Stock in connection with its acquisition
of SVS. These transactions were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as not involving any public
offering.
Concurrently with the closing of the IPO, Invatec issued to Philip (i) an
aggregate of 1,036,013 shares of Common Stock in repayment of an aggregate of
$8.6 million of indebtedness owed by Invatec to Philip and (ii) 153,846 shares
of Common Stock in redemption of 20,000 shares of SSI preferred stock issued by
SSI to Philip and having an aggregate redemption price of $2.0 million. These
conversions were (and the initial issuances of the securities evidencing these
obligations were) exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof as transactions not involving any public
offering.
(d) The shares of Common Stock issued and sold in the IPO were registered
under the Securities Act pursuant to a Registration Statement on Form S-1 (Reg.
No. 333-31617), which was declared effective by the SEC subsequent to the end of
the period covered by this Report, on October 21, 1997. That Registration
Statement initially registered an indeterminate number of shares of Common Stock
having a maximum aggregate offering price of $59,386,400. Subsequently, Invatec
determined to offer 3,350,000 shares of Common Stock in the IPO and granted the
underwriters a 30-day option to purchase up to 502,500 additional shares, solely
to cover over-allotments. The IPO was completed through a syndicate of
underwriters for which NationsBanc Montgomery Securities, Inc. and Furman Selz
LLC acted as representatives.
In the IPO, Invatec issued and sold 3,350,000 shares of Common Stock on
October 28, 1997 at an initial public offering price of $13.00 per share,
resulting in gross proceeds of $43,550,000. On November 5, 1997, Invatec issued
and sold an additional 502,500 shares of Common Stock (the "Over-allotment
Shares") on the exercise in full of the underwriters' over-allotment option
granted in connection with the IPO, resulting in additional gross proceeds of
$6,532,500. Following the closing of the sale of the Over-allotment Shares, the
IPO terminated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On September 18, 1997, the Voting Trustee of the two Voting Trusts covering
most of the outstanding shares of Common Stock and William E. Haynes, as the
holder of all the remaining shares of Common Stock outstanding as of that date,
approved by written consent (i) the amendment of Invatec's certificate of
incorporation to effect a 0.68-for-one reverse stock split of the then
outstanding shares of Common Stock and (ii) the form, terms and provisions of
Invatec's 1997 Incentive Plan.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits --
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C> <C>
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. ("Harley") and Harley
(Form S-1 (Reg. No. 333-31617), Ex. 2.1).
2.2* -- Stock Transfer Agreement dated as of January 24, 1997 by and among SSI, a stockholder of
Harley, Harley and Harley Equipment Corporation (Form S-1 (Reg. No. 333-31617), Ex. 2.2).
2.3* -- Stock Purchase Agreement entered into on June 23, 1997 by and among the Company, Puget
Investments, Inc., Flickinger-Benicia Inc. and the stockholders named therein (Form S-1
(Reg. No. 333-31617), Ex. 2.3).
2.4* -- Stock Purchase Agreement dated as of July 15, 1997 by and among the Company, Industrial
Controls & Equipment, Inc., Valve Actuation & Repair Co. and the other parties thereto
(Form S-1 (Reg. No. 333-31617), Ex. 2.4).
2.5* -- Stock Purchase Agreement dated as of February 26, 1997 by and among SSI and the
stockholders of GSV, Inc. (Form S-1 (Reg. No. 333-31617), Ex. 2.5).
2.6* -- Stock and Real Estate Purchase Agreement dated as of May 22, 1997 by and among SSI, Plant
Specialties, Inc. and the stockholders named therein (Form S-1 (Reg. No. 333-31617), Ex.
2.6).
2.7* -- Agreement and Plan of Reorganization dated as of June 27, 1997 by and among the Company,
Southern Valve Service, Inc. and the other parties thereto (Form S-1 (Reg. No. 333-31617),
Ex. 2.7).
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. (Form S-1 (Reg. No.
333-31617), Ex. 2.8).
2.9* -- Agreement and Plan of Merger dated as of June 27, 1997 by and among the Company, IVT
Acquisition, Inc. and SSI, as amended as of August 15, 1997 (Form S-1 (Reg. No.
333-31617), Ex. 2.9).
2.10* -- Uniform Provisions for Acquisitions (Form S-1 (Reg. No. 333-31617), Ex. 2.10).
3.1* -- Certificate of Incorporation of the Company (Form S-1 (Reg. No. 333-31617), Ex. 3.1).
3.2* -- Bylaws of the Company (Form S-1 (Reg. No. 333-31617), Ex. 3.2).
4.1* -- Form of Certificate representing Common Stock (Form S-1 (Reg. No. 333-31617), Ex. 4.1).
4.2* -- Registration Rights Agreement dated as of June 9, 1997 by and among the Company and the
stockholders listed on the signature pages thereto (Form S-1 (Reg. No. 333-31617), Ex.
4.2).
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 (Form S-1 (Reg. No. 333-31617), Ex. 4.3).
4.4* -- Addendum to Registration Rights Agreement dated as of July 28, 1997 by and among the
Company and the holders listed on the signature pages thereto (Form S-1 (Reg. No.
333-31617), Ex. 4.4).
4.5 -- Rights Agreement by and between the Company and ChaseMellon Shareholder Services, L.L.C.,
including form of Rights Certificate attached as Exhibit B thereto.
4.6 -- Loan Agreement among the Company, Texas Commerce Bank National Association, as Agent and
as a lender, and the other lenders referred to therein.
Invatec 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
Invatec and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of
Item 601(b) of Regulation S-K, Invatec agrees to furnish a copy of such instruments to the
SEC on request.
19
<PAGE>
10.1* -- 1997 Incentive Plan of Innovative Valve Technologies, Inc. (Form S-1 (Reg. No. 333-31617),
Ex. 10.1).
10.2* -- Form of Employment Agreement dated as of January 27, 1997 between SSI and William E.
Haynes (Form S-1 (Reg. No. 333-31617), Ex. 10.2).
10.3* -- Form of Employment Agreement dated as of January 27, 1997 between SSI and Charles F.
Schugart (Form S-1 (Reg. No. 333-31617), Ex. 10.3).
10.4* -- Form of Employment Agreement dated as of May 6, 1997 between the Company and Denny A.
Rigas (Form S-1 (Reg. No. 333-31617), Ex. 10.4).
10.5* -- Consulting Agreement dated as of March 27, 1997 by and between Wasatch Capital Corporation
and the Company (Form S-1 (Reg. No. 333-31617), Ex. 10.5).
10.6* -- Form of Indemnification Agreement between the Company and each of its directors and
officers (Form S-1 (Reg. No. 333-31617), Ex. 10.6).
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* Incorporated by reference to the filing indicated.
(b) Reports on Form 8-K --
None.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Innovative Valve Technologies, Inc., has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
INNOVATIVE VALVE TECHNOLOGIES, INC.
__________________________________________
CHARLES F. SCHUGART
CHIEF FINANCIAL OFFICER, SENIOR VICE
PRESIDENT --
CORPORATE DEVELOPMENT
Dated: December 2, 1997
21
EXHIBIT 4.5
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INNOVATIVE VALVE TECHNOLOGIES, INC.
AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
RIGHTS AGENT
----------------
RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 18, 1997
------------------------------------------------------------------------------
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TABLE OF CONTENTS
Section 1. Certain Definitions..............................................1
Section 2. Appointment of Rights Agent......................................8
Section 3. Issue of Rights Certificates.....................................8
Section 4. Form of Rights Certificates......................................9
Section 5. Countersignature and Registration...............................10
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates....................................................11
Section 7. Exercise of Rights; Purchase Price..............................12
Section 8. Cancellation and Destruction of Rights Certificates.............13
Section 9. Reservation and Availability of Capital Stock...................14
Section 10. Preferred Stock Record Date.....................................15
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights................................................16
Section 12. Certificate of Adjusted Purchase Price or Number of Shares......23
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power...................................................23
Section 14. Fractional Rights and Fractional Shares.........................26
Section 15. Rights of Action................................................27
Section 16. Agreement of Rights Holders.....................................27
Section 17. Rights Certificate Holder Not Deemed a Stockholder..............28
Section 18. Concerning the Rights Agent.....................................28
Section 19. Merger or Consolidation or Change of Name of Rights Agent.......29
Section 20. Duties of Rights Agent..........................................29
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Section 21. Change of Rights Agent..........................................31
Section 22. Issuance of New Rights Certificates.............................32
Section 23. Redemption and Termination......................................33
Section 24. Exchange........................................................33
Section 25. Notice of Certain Events........................................35
Section 26. Notices.........................................................35
Section 27. Supplements and Amendments......................................36
Section 28. Successors......................................................37
Section 29. Determinations and Actions by the Board of Directors, etc.......37
Section 30. Benefits of this Agreement......................................37
Section 31. Severability....................................................37
Section 32. Governing Law...................................................38
Section 33. Counterparts....................................................38
Section 34. Descriptive Headings............................................38
Exhibit A - Form of Certificate of Designations of Series A Junior Participating
Preferred Stock
Exhibit B - Form of Rights Certificate
Exhibit C - Summary of Rights to Purchase Preferred Stock
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RIGHTS AGREEMENT
This Rights Agreement, dated as of September 18, 1997 (the
"Agreement"), between Innovative Valve Technologies, Inc., a Delaware
corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C. (the
"Rights Agent"),
W I T N E S S E T H:
WHEREAS, on September 18, 1997 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
of one Right for each share of common stock, par value $.001 per share, of the
Company (the "Common Stock") outstanding at the close of business on September
19, 1997 (the "Record Date"), and has authorized the issuance of one Right (as
such number may hereinafter be adjusted pursuant to the provisions of Section
11(p) hereof) for each share of Common Stock of the Company issued (whether
originally issued or delivered from the Company's treasury) between the Record
Date and the earlier of the Distribution Date (as hereinafter defined) and the
Expiration Date (as hereinafter defined), and, in certain circumstances provided
for in Section 22 hereof, after the Distribution Date, each Right initially
representing the right to purchase one Fractional Share (as hereinafter defined)
of Series A Junior Participating Preferred Stock of the Company, upon the terms
and subject to the conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meanings indicated:
"Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding, PROVIDED, HOWEVER,
that a Person shall not be or become an Acquiring Person if such Person,
together with its Affiliates and Associates, shall become the Beneficial Owner
of 15% or more of the shares of Common Stock then outstanding solely as a result
of a reduction in the number of shares of Common Stock outstanding due to the
repurchase of Common Stock by the Company, unless and until such time as such
Person or any Affiliate or Associate of such Person shall purchase or otherwise
become 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 (or
Persons) who is (or collectively are) the Beneficial Owner of shares of Common
Stock constituting 1% or more of the then outstanding shares of Common Stock
shall become an Affiliate or Associate of such Person, unless, in either such
case, such Person, together with all Affiliates and Associates of such Person,
is not then the Beneficial Owner of 15% or more of the shares of Common Stock
then outstanding; and PROVIDED, FURTHER, that if the Board of Directors, with
the concurrence of a majority of the members of the Board of Directors who are
not, and are not representatives, nominees, Affiliates or Associates of, such
Person or an Acquiring Person, determines in good faith that a Person that would
otherwise be an "Acquiring Person" has
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<PAGE>
become such inadvertently (including, without limitation, because (i) such
Person was unaware that it beneficially owned a percentage of Common Stock that
would otherwise cause such Person to be an "Acquiring Person" or (ii) such
Person was aware of the extent of its Beneficial Ownership of Common Stock but
had no actual knowledge of the consequences of such Beneficial Ownership under
this Agreement) and without any intention of changing or influencing control of
the Company, and if such Person as promptly as practicable divested or divests
itself of Beneficial Ownership of a sufficient number of shares of Common Stock
so that such Person would no longer be an "Acquiring Person," then such Person
shall not be deemed to be or to have become an "Acquiring Person" for any
purposes of this Agreement.
Notwithstanding anything in this definition of "Acquiring Person" to
the contrary: (i) no Exempt Person shall be deemed to be or become an "Acquiring
Person" or an Affiliate or Associate of any director or officer of the Company;
and (ii) so long as an Existing Stockholder, together with all Affiliates and
Associates thereof, remains the Beneficial Owner of 15% or more of the
outstanding shares of Common Stock, such Existing Stockholder shall not be or
become an Acquiring Person.
At any time that the Rights are redeemable, the Board of Directors
may, generally or with respect to any specified Person or Persons, determine to
increase to a specified percentage greater than that set forth herein or
decrease to a specified percentage lower than that set forth herein or determine
a number of shares to be (but in no event less than or equal to the percentage
or number of shares of Common Stock then beneficially owned by such Person), the
level of Beneficial Ownership of Common Stock at which a Person or such Person
or Persons becomes an Acquiring Person.
Notwithstanding anything in this Agreement to the contrary, no
Person shall be or become an Acquiring Person until after the consummation of
the Company's initial public offering of the Common Stock.
"Adjustment Shares" shall have the meaning set forth in Section 11
(a)(ii) hereof.
"Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on the date of this Agreement.
"Associate" shall mean, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a Subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (ii) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (iii) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.
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A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act as in effect on the date of this Agreement) or
otherwise has the right to vote or dispose of, including pursuant to any
agreement, arrangement or understanding (whether or not in writing);
PROVIDED, HOWEVER, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," any security under this subparagraph
(i) as a result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding: (A) arises
solely from a revocable proxy or consent given in response to a public
(I.E., not including a solicitation exempted by Rule 14a-2(b)(2) of the
General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement) proxy or consent solicitation made pursuant to,
and in accordance with, the applicable provisions of the General Rules and
Regulations under the Exchange Act and (B) is not then reportable by such
Person on Schedule 13D under the Exchange Act (or any comparable or
successor report);
(ii) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to acquire
(whether such right or obligation is exercisable or effective immediately
or only after the passage of time or the occurrence of an event) pursuant
to any agreement, arrangement or understanding (whether or not in writing)
or upon the exercise of conversion rights, exchange rights, other rights,
warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person shall
not be deemed the "Beneficial Owner" of, or to "beneficially own," (A)
securities tendered pursuant to a tender or exchange offer made by such
Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, (B) securities
issuable upon exercise of Rights at any time prior to the occurrence of a
Triggering Event or (C) securities issuable upon exercise of Rights from
and after the occurrence of a Triggering Event which Rights were acquired
by such Person or any of such Person's Affiliates or Associates prior to
the Distribution Date or pursuant to Section 3(a) or Section 22 hereof
(the "Original Rights") or pursuant to Section 11(i) or (p) hereof in
connection with an adjustment made with respect to any Original Rights; or
(iii) that are beneficially owned, directly or indirectly, by (A)
any other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (whether or not in writing) for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in the proviso to subparagraph (i) of this
definition) or disposing of any voting securities of the Company or (B)
any group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) of which such Person is a member;
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<PAGE>
PROVIDED, HOWEVER, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting (including,
without limitation, securities acquired pursuant to stabilizing transactions to
facilitate a public offering in accordance with Regulation M promulgated under
the Exchange Act or to cover overallotments created in connection with a public
offering) until the expiration of forty days after the date of such acquisition.
For purposes of this Agreement, "voting" a security shall include voting,
granting a proxy, acting by consent, making a request or demand relating to
corporate action (including, without limitation, calling a stockholder meeting)
or otherwise giving an authorization (within the meaning of Section 14(a) of the
Exchange Act as in effect on the date of this Agreement) in respect of such
security.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"close of business" on any given date shall mean 5:00 p.m., New York
time, on such date; PROVIDED, however, that if such date is not a Business Day,
it shall mean 5:00 p.m., New York time, on the next succeeding Business Day.
"Closing Price" of a security for any day shall mean the last sales
price, regular way, on such day or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, on such day,
in either case as reported in the principal transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange, or, if such security is not listed or admitted to trading on the New
York Stock Exchange, on the principal national securities exchange on which such
security is listed or admitted to trading, or, if such security is not listed or
admitted to trading on any national securities exchange but sales price
information is reported for such security, as reported by NASDAQ or such other
self-regulatory organization or registered securities information processor (as
such terms are used under the Exchange Act) that then reports information
concerning such security, or, if sales price information is not so reported, the
average of the high bid and low asked prices in the over-the-counter market on
such day, as reported by NASDAQ or such other entity, or, if on such day such
security is not quoted by any such entity, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in such
security selected by the Board of Directors of the Company. If on such day no
market maker is making a market in such security, the fair value of such
security on such day as determined in good faith by the Board of Directors of
the Company shall be used.
"Common Stock" shall mean the common stock, par value $.001 per
share, of the Company, except that "Common Stock" when used with reference to
equity interests issued by any Person other than the Company shall mean the
capital stock of such Person with the greatest voting power, or the equity
securities or other equity interest having power to control or direct the
management, of such Person.
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<PAGE>
"Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
"Company" shall mean the Person named as the "Company" in the
preamble of this Agreement until a successor Person shall have become such or
until a Principal Party shall assume, and thereafter be liable for, all
obligations and duties of the Company hereunder, pursuant to the applicable
provisions of this Agreement, and thereafter "Company" shall mean such successor
Person or Principal Party.
"Current Market Price" shall have the meaning set forth in Section
11(d) hereof.
"Current Value" shall have the meaning set forth in Section 11(a)
(iii) hereof.
"Distribution Date" shall mean the earlier of (i) the close of
business on the tenth day (or, if such Stock Acquisition Date results from the
consummation of a Permitted Offer, such later date as may be determined by the
Company's Board of Directors as set forth below before the Distribution Date
occurs) after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the close of business on the
Record Date) or (ii) the close of business on the tenth Business Day (or such
later date as may be determined by the Company's Board of Directors as set forth
below before the Distribution Date occurs) after the date that a tender offer or
exchange offer by any Person (other than any Exempt Person) is first published
or sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act as then in effect, if upon consummation
thereof, such Person would be an Acquiring Person, other than a tender or
exchange offer that is determined before the Distribution Date occurs to be a
Permitted Offer. The Board of Directors of the Company may, to the extent set
forth in the preceding sentence, defer the date set forth in clause (i) or (ii)
of the preceding sentence to a specified later date or to an unspecified later
date to be determined by a subsequent action or event (but in no event to a date
later than the close of business on the tenth day after the first occurrence of
a Triggering Event).
"Equivalent Preferred Stock" shall have the meaning set forth in
Section 11(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
"Exempt Person" shall mean the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, and any Person organized, appointed or established by the Company for
or pursuant to the terms of any such plan or for the purpose of funding any such
plan or funding other employee benefits for employees of the Company or any
Subsidiary of the Company.
"Existing Stockholder" shall mean Philip Services Corp., an Ontario
corporation, and any wholly owned Subsidiary thereof.
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<PAGE>
"Expiration Date" shall mean the earliest of (i) the Final
Expiration Date, (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof, (iii) the time at which the Rights expire pursuant to Section
13(d) hereof and (iv) the time at which all Rights then outstanding and
exercisable are exchanged pursuant to Section 24 hereof.
"Final Expiration Date" shall mean the close of business on
September 30, 2007.
"Flip-In Event" shall mean an event described in Section 11(a)(ii)
hereof.
"Flip-In Trigger Date" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Flip-Over Event" shall mean any event described in clause (x), (y)
or (z) of Section 13(a) hereof, but excluding any transaction described in
Section 13(d) hereof that causes the Rights to expire.
"Fractional Share" with respect to the Preferred Stock shall mean
one one-hundredth of a share of Preferred Stock.
"NASDAQ" shall mean the National Association of Securities Dealers,
Inc. Automated Quotations System.
"Original Rights" shall have the meaning set forth in the definition
of "Beneficial Owner."
"Permitted Offer" shall mean a tender offer or an exchange offer for
all outstanding shares of Common Stock at a price and on terms determined by at
least a majority of the members of the Board of Directors who are not officers
or employees of the Company and who are not, and are not representatives,
nominees, Affiliates or Associates of, an Acquiring Person or the person making
the offer, after receiving advice from one or more investment banking firms, to
be (a) at a price and on terms that are fair to stockholders (taking into
account all factors that such members of the Board deem relevant including,
without limitation, prices that could reasonably be achieved if the Company or
its assets were sold on an orderly basis designed to realize maximum value) and
(b) otherwise in the best interests of the Company and its stockholders.
"Person" shall mean any individual, firm, corporation, partnership,
limited liability company, association, trust, unincorporated organization or
other entity.
"Preferred Stock" shall mean shares of Series A Junior Participating
Preferred Stock, par value $.001 per share, of the Company having the rights,
powers and preferences set forth in the form of Certificate of Designations
attached hereto as Exhibit A and, to the extent that there is not a sufficient
number of shares of Series A Junior Participating Preferred Stock authorized to
permit the full exercise of the Rights, any other series of Preferred Stock, par
value $.001 per share, of the Company designated for such purpose containing
terms substantially similar to the terms of the Series A Junior Participating
Preferred Stock.
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"Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
"Purchase Price" shall have the meaning set forth in Section 4(a)
hereof.
"Record Date" shall have the meaning set forth in the recitals
clause at the beginning of this Agreement.
"Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
"Rights" shall have the meaning set forth in the recitals clause at
the beginning of this Agreement.
"Rights Agent" shall mean the Person named as the "Rights Agent" in
the preamble of this Agreement until a successor Rights Agent shall have become
such pursuant to the applicable provisions hereof, and thereafter "Rights Agent"
shall mean such successor Rights Agent. If at any time there is more than one
Person appointed by the Company as Rights Agent pursuant to the applicable
provisions of this Agreement, "Rights Agent" shall mean and include each such
Person.
"Rights Certificates" shall mean the certificates evidencing the
Rights.
"Rights Dividend Declaration Date" shall have the meaning set forth
in the recitals clause at the beginning of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
"Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition and Section 23, shall
include, without limitation, a report filed pursuant to Section 13(d) of the
Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has
become such.
"Subsidiary" shall mean, with reference to any Person, any
corporation or other Person of which an amount of voting securities sufficient
to elect at least a majority of the directors or other persons performing
similar functions is beneficially owned, directly or indirectly, by such Person,
or otherwise controlled by such Person.
"Substitution Period" shall have the meaning set forth in Section 11
(a)(iii) hereof.
"Summary of Rights" shall mean the Summary of Rights to Purchase
Preferred Stock sent pursuant to Section 3(b) hereof.
"Trading Day" with respect to a security shall mean a day on which
the principal national securities exchange on which such security is listed or
admitted to trading is open for the
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<PAGE>
transaction of business, or, if such security is not listed or admitted to
trading on any national securities exchange but is quoted by NASDAQ, a day on
which NASDAQ reports trades, or, if such security is not so quoted, a Business
Day.
"Triggering Event" shall mean any Flip-In Event or any Flip-Over
Event.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent (i) to act as agent for the Company and (ii) to take certain
actions in respect of the holders of the Rights (who, in accordance with Section
3 hereof, shall prior to the Distribution Date also be the holders of the Common
Stock) (although it is expressly agreed that the Rights Agent shall not act as
agent for such holders) in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company may from time to
time appoint such Co-Rights Agents as it may deem necessary or desirable.
Section 3. ISSUE OF RIGHTS CERTIFICATES.
(a) Until the Distribution Date, (x) the Rights will be evidenced
(subject to the provisions of paragraph (b) of this Section 3) by the
certificates for Common Stock registered in the names of the holders of the
Common Stock and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Company). As soon as practicable after
the Distribution Date, the Rights Agent will send by first-class, insured,
postage prepaid mail, to each record holder of the Common Stock as of the close
of business on the Distribution Date (other than any Person referred to in the
first sentence of Section 7(e)), at the address of such holder shown on the
records of the Company, one or more Rights Certificates, evidencing one Right
for each share of Common Stock so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per share of
Common Stock has been made pursuant to Section 11(p) hereof, at the time of
distribution of the Rights Certificates, the Company shall make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit C, by first-class, postage
prepaid mail, to each record holder of Common Stock as of the close of business
on the Record Date, at the address of such holder shown on the records of the
Company. With respect to certificates for Common Stock outstanding as of the
Record Date, until the Distribution Date or the earlier surrender for transfer
thereof or the Expiration Date, the Rights associated with the shares of Common
Stock represented by such certificates shall be evidenced by such certificates
for Common Stock together with the Summary of Rights, and the registered holders
of the Common Stock shall also be the registered holders of the associated
Rights. Until the earlier of the Distribution Date or the Expiration Date, the
transfer of any of the certificates for Common Stock outstanding on the Record
Date, with or without a copy of the Summary of Rights, shall also
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<PAGE>
constitute the transfer of the Rights associated with the Common Stock
represented by such certificates.
(c) Rights shall be issued in respect of all shares of Common Stock
that are issued (whether originally issued or delivered from the Company's
treasury) after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date or, in certain circumstances provided in Section 22
hereof, after the Distribution Date. Certificates issued for shares of Common
Stock that shall so become outstanding or shall be transferred or exchanged
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date shall also be deemed to be certificates for Rights, and shall
bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between Innovative
Valve Technologies, Inc. (the "Company") and ChaseMellon Shareholder
Services, L.L.C. (the "Rights Agent") dated as of September 18, 1997 as it
may from time to time be supplemented or amended (the "Rights Agreement"),
the terms of which are hereby incorporated herein by reference and a copy
of which is on file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
redeemed, may be exchanged, may expire or may be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the Rights
Agreement, as in effect on the date of mailing, without charge promptly
after receipt of a written request therefor. UNDER CERTAIN CIRCUMSTANCES
SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY OR
TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), AND CERTAIN TRANSFEREES THEREOF, WILL BECOME NULL AND VOID AND
WILL NO LONGER BE TRANSFERABLE.
With respect to such certificates containing the foregoing legend, until the
earlier of the Distribution Date or the Expiration Date, the Rights associated
with the Common Stock represented by such certificates shall be evidenced by
such certificates alone, and registered holders of Common Stock shall also be
the registered holders of the associated Rights, and the transfer of any of such
certificates shall also constitute the transfer of the Rights associated with
the Common Stock represented by such certificates.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse thereof), when, as and if issued,
shall be substantially in the form set forth in Exhibit B hereto and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or quotation system
on which the Rights may from time to time be listed or
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<PAGE>
quoted, or to conform to usage. Subject to the provisions of Section 11 and
Section 22 hereof, the Rights Certificates, whenever issued, shall be dated as
of the Record Date and on their face shall entitle the holders thereof to
purchase such number of Fractional Shares of Preferred Stock as shall be set
forth therein at the price set forth therein (such exercise price per Fractional
Share (or, as set forth in this Agreement, for other securities), the "Purchase
Price"), but the amount and type of securities purchasable upon the exercise of
each Right and the Purchase Price thereof shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by a Person
described in the first sentence of Section 7(e), and any Rights Certificate
issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange,
replacement or adjustment of any such Rights, shall contain (to the extent
feasible) the following legend, modified as applicable to apply to such Person:
The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement). Accordingly, this Rights Certificate and the Rights
represented hereby [will] [have] become null and void in the circumstances
and with the effect specified in Section 7(e) of such Agreement.
The provisions of Section 7(e) of this Agreement shall be operative whether or
not the foregoing legend is contained on any such Rights Certificate. The
Company shall give notice to the Rights Agent promptly after it becomes aware of
the existence of any Acquiring Person or any Associate or Affiliate thereof.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof, which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be countersigned by the Rights Agent,
either manually or by facsimile signature, and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Rights Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Rights Certificates had not ceased
to be such officer of the Company; and any Rights Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Rights Certificate, shall be a proper officer of the Company to sign such
Rights Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
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(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the certificate number and the date of
each of the Rights Certificates.
Section 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES.
(a) Subject to the provisions of Section 4(b), Section 7(e), Section
13(d), Section 14 and Section 24 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
Expiration Date, any Rights Certificate or Rights Certificates may be
transferred, split up, combined or exchanged for another Rights Certificate or
Rights Certificates, entitling the registered holder to purchase a like number
of Fractional Shares of Preferred Stock (or, following a Triggering Event,
Common Stock, other securities, cash or other assets, as the case may be) as the
Rights Certificate or Rights Certificates surrendered then entitled such holder
(or former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Rights Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the principal office or offices
of the Rights Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) thereof or of the Affiliates or Associates thereof as
the Company shall reasonably request. Thereupon the Rights Agent shall, subject
to Section 4(b), Section 7(e), Section 13(d), Section 14 and Section 24 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment by the holder of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer,
split-up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will, subject to Section 4(b), Section 7(e), Section
13(d), Section 14 and Section 24, execute and deliver a new Rights Certificate
of like tenor to the Rights Agent for countersignature and delivery to the
registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or
mutilated.
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Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE.
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly completed and executed, to the
Rights Agent at the principal office or offices of the Rights Agent designated
for such purpose, together with payment of the aggregate Purchase Price with
respect to the total number of Fractional Shares of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the Expiration Date.
(b) The Purchase Price for each Fractional Share of Preferred Stock
pursuant to the exercise of a Right shall initially be $48.00, and shall be
subject to adjustment from time to time as provided in Sections 11 and 13(a)
hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate on the reverse
side thereof duly executed, accompanied by payment, with respect to each Right
so exercised, of the Purchase Price per Fractional Share of Preferred Stock (or
other shares, securities, cash or other assets, as the case may be) to be
purchased as set forth below and an amount equal to any applicable transfer tax,
the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly
(i)(A) requisition from any transfer agent of the shares of Preferred Stock (or
make available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of Fractional Shares of Preferred Stock to be
purchased, and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company, in its sole discretion,
shall have elected to deposit the shares of Preferred Stock issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing interests in such number of
Fractional Shares of Preferred Stock as are to be purchased (in which case
certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu of
fractional shares in accordance with Section 14 hereof, (iii) after receipt of
such certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Rights Certificate, registered
in such name or names as may be designated by such holder and (iv) after receipt
thereof, deliver such cash, if any, to or upon the order of the registered
holder of such Rights Certificate. The payment of the Purchase Price (as such
amount may be reduced pursuant to Section 11(a)(iii) hereof) may be made in cash
or by certified check, cashier's or official bank check or bank draft payable to
the order of the Company or the Rights Agent. In the event that the Company is
obligated to issue other securities (including Common Stock) of the Company, pay
cash and/or distribute other property pursuant to Section 11(a) or Section 13(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are
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available for distribution by the Rights Agent, if and when appropriate. The
Company reserves the right to require prior to the occurrence of a Triggering
Event that, upon exercise of Rights, a number of Rights be exercised so that
only whole shares of Preferred Stock would be issued.
(d) In case the registered holder of any Rights Certificate shall
exercise fewer than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Triggering Event, any Rights beneficially
owned by or transferred to (i) an Acquiring Person or an Associate or Affiliate
of an Acquiring Person other than any such Person that became such pursuant to a
Permitted Offer and the Board of Directors in good faith determines was not
involved in and did not cause or facilitate, directly or indirectly, such
Triggering Event, (ii) a direct or indirect transferee of such Rights from such
Acquiring Person (or any such Associate or Affiliate) who becomes a transferee
after such Triggering Event or (iii) a direct or indirect transferee of such
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with such Triggering Event and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration) from
such Acquiring Person (or such Affiliate or Associate) to holders of equity
interests in such Acquiring Person (or such Affiliate or Associate) or to any
Person with whom such Acquiring Person (or such Affiliate or Associate) has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer that the Board of Directors of the Company determines
is part of a plan, arrangement or understanding that has as a primary purpose or
effect the avoidance of this Section 7(e), shall become null and void without
any further action, no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise, and such Rights shall not be transferable. The Company shall use all
reasonable efforts to ensure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or its Affiliates, Associates
or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split-up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
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Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement, including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as any shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights are listed on any national
securities exchange or quoted on any trading system, the Company shall use its
best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such
exchange, or quoted on such system, upon official notice of issuance upon such
exercise. Following the occurrence of a Triggering Event, the Company will use
its best efforts to list (or continue the listing of) the Rights and the
securities issuable and deliverable upon the exercise of the Rights on one or
more national securities exchanges or to cause the Rights and the securities
purchasable upon exercise of the Rights to be reported by NASDAQ or such other
transaction reporting system then in use.
(c) The Company shall use its best efforts to (i) prepare and file,
as soon as practicable following the first occurrence of a Flip-In Event or, if
applicable, as soon as practicable following the earliest date after the first
occurrence of a Flip-In Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined pursuant to this
Agreement (including in accordance with Section 11(a)(iii) hereof), a
registration statement on an appropriate form under the Securities Act with
respect to the securities purchasable upon exercise of the Rights, (ii) cause
such registration statement to become effective as soon as practicable after
such filing, and (iii) cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the Securities Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities and (B) the Expiration Date. The Company will
also take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for a period
of time not to exceed 90 days after the date set forth in clause (i) of the
first sentence of this Section 9(c), the exercisability of the Rights in order
to prepare and file such registration statement and permit it to become
effective. In addition, if the
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Company shall determine that the Securities Act requires an effective
registration statement under the Securities Act following the Distribution Date,
the Company may temporarily suspend the exercisability of the Rights until such
time as such a registration statement has been declared effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction if the requisite qualification in
such jurisdiction shall not have been obtained, the exercise thereof shall not
be permitted under applicable law or any required registration statement shall
not have been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Fractional Shares of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Stock and/or
other securities) delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges that
may be payable in respect of the issuance or delivery of the Rights Certificates
and of any certificates for a number of Fractional Shares of Preferred Stock (or
Common Stock and/or other securities, as the case may be) upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax that
may be payable in respect of any transfer or delivery of Rights Certificates to
a Person other than, or the issuance or delivery of a number of Fractional
Shares of Preferred Stock (or Common Stock and/or other securities, as the case
may be) in respect of a name other than that of, the registered holder of the
Rights Certificates evidencing Rights surrendered for exercise or to issue or
deliver any certificates for a number of Fractional Shares of Preferred Stock
(or Common Stock and/or other securities, as the case may be) in a name other
than that of the registered holder upon the exercise of any Rights until such
tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.
Section 10. PREFERRED STOCK RECORD DATE. Each Person in whose name
any certificate for a number of Fractional Shares of Preferred Stock (or Common
Stock and/or other securities, as the case may be) is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of such shares (fractional or otherwise) of Preferred Stock (or Common Stock
and/or other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; PROVIDED, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the
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Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Rights Certificate, as such, shall not be entitled to any rights of
a stockholder of the Company with respect to shares for which the Rights shall
be exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES
OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares or other
securities subject to purchase upon exercise of each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.
(a)(i)In the event the Company shall at any time after the
Rights Dividend Declaration Date (A) declare a dividend on the outstanding
shares of Preferred Stock payable in shares of Preferred Stock, (B)
subdivide the outstanding shares of Preferred Stock, (C) combine the
outstanding shares of Preferred Stock into a smaller number of shares or
(D) otherwise reclassify the outstanding shares of Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e)
hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of Preferred Stock or
capital stock, as the case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive, upon payment of the Purchase Price
then in effect, the aggregate number and kind of shares of Preferred Stock
or capital stock, as the case may be, which, if such Right had been
exercised immediately prior to such date and at a time when the Preferred
Stock transfer books of the Company were open, he would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs that
would require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii) hereof.
(ii) Subject to Sections 23 and 24 of this Agreement, in the
event any Person shall, at any time after the Rights Dividend Declaration
Date, become an Acquiring Person, unless the event causing such Person to
become an Acquiring Person is (1) a Flip-Over Event or (2) an acquisition
of shares of Common Stock pursuant to a Permitted Offer (PROVIDED that
this clause (2) shall cease to apply if such Acquiring Person thereafter
becomes the Beneficial Owner of any additional shares of Common Stock
other than pursuant to such Permitted Offer or a transaction set forth in
Section 13(a) or 13(d) hereof), then (x) the Purchase Price shall be
adjusted to be the Purchase Price immediately prior to the first
occurrence of a Flip-In Event multiplied by the number of Fractional
Shares of Preferred Stock for which a Right was exercisable immediately
prior to such first occurrence and (y) each holder of a Right (except as
provided below in Section 11(a)(iii) and in Section 7(e) hereof) shall
thereafter have the right to receive, upon exercise thereof at a price
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equal to the Purchase Price in accordance with the terms of this
Agreement, in lieu of shares of Preferred Stock, such number of shares of
Common Stock of the Company as shall equal the result obtained by dividing
the Purchase Price by 50% of the Current Market Price per share of Common
Stock on the date of such first occurrence (such number of shares, the
"Adjustment Shares"); PROVIDED that the Purchase Price and the number of
Adjustment Shares shall be further adjusted as provided in this Agreement
to reflect any events occurring after the date of such first occurrence.
(iii) In the event that the number of shares of Common Stock
that are authorized by the Company's certificate of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights is not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company shall, to the extent permitted by applicable law and
regulation, (A) determine the excess of (1) the value of the Adjustment
Shares issuable upon the exercise of a Right (computed using the Current
Market Price used to determine the number of Adjustment Shares) (the
"Current Value") over (2) the Purchase Price (such excess is herein
referred to as the "Spread"), and (B) with respect to each Right, make
adequate provision to substitute for the Adjustment Shares, upon the
exercise of the Rights and payment of the applicable Purchase Price, (1)
cash, (2) a reduction in the Purchase Price, (3) Common Stock or other
equity securities of the Company (including, without limitation, shares,
or units of shares, of preferred stock (including, without limitation, the
Preferred Stock) that the Board of Directors of the Company has determined
to have the same value as shares of Common Stock (such shares of preferred
stock are herein referred to as "Common Stock Equivalents")), (4) debt
securities of the Company, (5) other assets or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where
such aggregate value has been determined by the Board of Directors of the
Company based upon the advice of a nationally recognized investment
banking firm selected by the Board of Directors of the Company; PROVIDED,
however, if the Company shall not have made adequate provision to deliver
value pursuant to clause (B) above within 30 days following the later of
(x) the first occurrence of a Flip-In Event and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires (the later
of (x) and (y) being referred to herein as the "Flip-In Trigger Date"),
then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase Price,
shares of Common Stock (to the extent available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the
Spread. If the Board of Directors of the Company shall determine in good
faith that it is likely that sufficient additional shares of Common Stock
could be authorized for issuance upon exercise in full of the Rights, the
30-day period set forth above may be extended to the extent necessary, but
not more than 90 days after the Flip-In Trigger Date, in order that the
Company may seek stockholder approval for the authorization of such
additional shares (such period, as it may be extended, the "Substitution
Period"). To the extent that the Company or the Board of Directors
determines that some action need be taken pursuant to the first and/or
second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (y) may suspend the
exercisability of the Rights
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until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form
of distribution to be made pursuant to such first sentence and to
determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the exercisability
of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For
purposes of this Section 11(a)(iii), the value of the Common Stock shall
be the Current Market Price per share of the Common Stock on the Flip-In
Trigger Date and the value of any Common Stock Equivalent shall be deemed
to have the same value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within 45 calendar days after
such record date) Preferred Stock (or shares having the same rights, privileges
and preferences as the shares of Preferred Stock ("Equivalent Preferred Stock"))
or securities convertible into Preferred Stock or Equivalent Preferred Stock at
a price per share of Preferred Stock or per share of Equivalent Preferred Stock
(or having a conversion price per share, if a security convertible into
Preferred Stock or Equivalent Preferred Stock) less than the Current Market
Price per share of Preferred Stock on such record date, the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock that the
aggregate offering price of the total number of shares of Preferred Stock and/or
Equivalent Preferred Stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such Current Market Price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or Equivalent Preferred Stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid by delivery of consideration, part or all of which may be in a form
other than cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price that would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for a distribution
to all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation) of evidences of indebtedness, cash (other than a
regular quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
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determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current Market
Price per share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent) of the portion of the cash,
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to a share of Preferred Stock and the denominator
of which shall be such Current Market Price per share of Preferred Stock. Such
adjustments shall be made successively whenever such a record date is fixed, and
in the event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price that would have been in effect if such record
date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "Current
Market Price" per share of Common Stock of a Person on any date shall be
deemed to be the average of the daily Closing Prices per share of such
Common Stock for the 30 consecutive Trading Days immediately prior to such
date, and for purposes of computations made pursuant to Section 11(a)(iii)
hereof, the "Current Market Price" per share of Common Stock on any date
shall be deemed to be the average of the daily Closing Prices per share of
such Common Stock for the 10 consecutive Trading Days immediately
following such date; PROVIDED, however, that in the event that the Current
Market Price per share of Common Stock is determined during a period
following the announcement of (A) a dividend or distribution on such
Common Stock other than a regular quarterly cash dividend or the dividend
of the Rights, or (B) any subdivision, combination or reclassification of
such Common Stock, and the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, shall not have occurred prior to the commencement of the
requisite 30 Trading Day or 10 Trading Day period, as set forth above,
then, and in each such case, the Current Market Price shall be properly
adjusted to take into account ex-dividend trading. If the Common Stock is
not publicly held or not so listed or traded, "Current Market Price" per
share shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the
"Current Market Price" per share (or Fractional Share) of Preferred Stock
shall be determined in the same manner as set forth above for the Common
Stock in clause (i) of this Section 11(d) (other than the last sentence
thereof). If the Current Market Price per share (or Fractional Share) of
Preferred Stock cannot be determined in the manner provided above or if
the Preferred Stock is not publicly held or listed or traded in a manner
described in clause (i) of this Section 11(d), the "Current Market Price"
per share of Preferred Stock shall be conclusively deemed to be an amount
equal to 100 (as such number may be appropriately adjusted for such events
as stock splits, stock dividends and recapitalizations with respect to the
Common Stock occurring after the date of this Agreement) multiplied by the
Current Market Price per share of the Common Stock. If neither the Common
Stock nor the Preferred Stock is publicly held or so listed or traded,
Current Market Price per share of the Preferred Stock shall mean the
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fair value per share as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes. For
all purposes of this Agreement, the Current Market Price of a Fractional
Share of Preferred Stock shall be equal to the Current Market Price of one
share of Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no adjustment
in the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; PROVIDED, however,
that any adjustments that by reason of this Section 11(e) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest ten-thousandth of a share of Common Stock or other share
or to the nearest ten-thousandth of a Fractional Share of Preferred Stock, as
the case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which mandates such
adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive in respect of such Right any shares of capital stock
other than Preferred Stock, thereafter the number of such other shares so
receivable upon exercise of any Right and the Purchase Price thereof shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Preferred Stock
contained in Sections 11(a), (b), (c), (e), (f), (g), (h), (i), (j), (k) and (m)
hereof, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect
to the Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Fractional Shares of
Preferred Stock purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of Fractional Shares of
Preferred Stock (calculated to the nearest one ten-thousandth of a Fractional
Share) obtained by (i) multiplying (x) the number of Fractional Shares of
Preferred Stock covered by a Right immediately prior to this adjustment by (y)
the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price, and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect, on or after the date of any adjustment of
the Purchase Price, to adjust the number of Rights in lieu of any adjustment in
the number of Fractional Shares of Preferred Stock purchasable upon the exercise
of a Right. Each of the Rights outstanding
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after the adjustment in the number of Rights shall be exercisable for the number
of Fractional Shares of Preferred Stock for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least 10 days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of Fractional Shares of Preferred Stock issuable upon the exercise
of the Rights, the Rights Certificates theretofore and thereafter issued may
continue to express the Purchase Price per Fractional Share and the number of
Fractional Shares that were expressed in the initial Rights Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, or the stated capital of
the number of Fractional Shares of Preferred Stock or of the number of shares of
Common Stock or other securities issuable upon exercise of a Right, the Company
shall take any corporate action that may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable such number of Fractional Shares of Preferred Stock or such number
of shares of Common Stock or other securities at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of Fractional Shares of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of Fractional Shares of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; PROVIDED, however, that
the Company shall deliver to such holder a due bill or other appropriate
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instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at less than the current market price, (iii) issuance wholly
for cash of shares of Preferred Stock or securities that by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11 hereafter made by the Company to holders of its Preferred Stock shall
not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time
that there is an Acquiring Person, (i) consolidate with any other Person, (ii)
merge with or into any other Person, or (iii) sell, lease or transfer (or permit
one or more Subsidiaries to sell, lease or transfer), in one transaction or a
series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any other Person or Persons, if (x) at the time of or immediately
after such consolidation, merger, sale, lease or transfer there are any rights,
warrants or other instruments or securities of the Company or any other Person
outstanding or agreements, arrangements or understandings in effect that would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights, (y) prior to, simultaneously with or immediately after
such consolidation, merger, sale, lease or transfer, the stockholders or other
equity owners of the Person who constitutes, or would constitute, the "Principal
Party" for purposes of Section 13(a) hereof shall have received a distribution
of Rights previously owned by such Person or any of its Affiliates or
Associates, or (z) the identity, form or nature of organization of the Principal
Party (including without limitation the selection of the Person that will be the
Principal Party as a result of the Company's entering into one or more
consolidations, mergers, sales, leases, transfers or transactions with more than
one party) would preclude or limit the exercise of Rights or otherwise diminish
substantially or eliminate the benefits intended to be afforded by the Rights.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23, Section 24 or Section 27
hereof, take (or permit any Subsidiary to take) any action if the purpose of
such action is to, or if at the time such action is taken it is reasonably
foreseeable that such action will, diminish substantially or eliminate the
benefits intended to be afforded by the Rights.
(p) Notwithstanding Section 3(c) hereof or any other provision of
this Agreement to the contrary, in the event that the Company shall at any time
after the Rights Dividend Declaration Date and prior to the Distribution Date
(i) declare a dividend on the outstanding shares of Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock,
(iii) combine the outstanding shares of Common Stock into a smaller number of
shares or (iv) otherwise reclassify the outstanding shares of Common Stock
(including any such reclassification
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in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), the number of Rights associated with each
share of Common Stock then outstanding, or issued or delivered thereafter but
prior to the Distribution Date, shall be proportionately adjusted so that the
number of Rights thereafter associated with each share of Common Stock following
any such event shall equal the result obtained by multiplying the number of
Rights associated with each share of Common Stock immediately prior to such
event by a fraction (the "Adjustment Fraction") the numerator of which shall be
the total number of shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total number
of shares of Common Stock outstanding immediately following the occurrence of
such event. In lieu of such adjustment in the number of Rights associated with
one share of Common Stock, the Company may elect to adjust the number of
Fractional Shares of Preferred Stock purchasable upon the exercise of one Right
and the Purchase Price. If the Company makes such election, the number of Rights
associated with one share of Common Stock shall remain unchanged, and the number
of Fractional Shares of Preferred Stock purchasable upon exercise of one Right
and the Purchase Price shall be proportionately adjusted so that (i) the number
of Fractional Shares of Preferred Stock purchasable upon exercise of a Right
following such adjustment shall equal the product of the number of Fractional
Shares of Preferred Stock purchasable upon exercise of a Right immediately prior
to such adjustment multiplied by the Adjustment Fraction and (ii) the Purchase
Price following such adjustment shall equal the product of the Purchase Price
immediately prior to such adjustment multiplied by the Adjustment Fraction.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11 or Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Stock, a copy of such certificate and (c) mail a
brief summary thereof to each registered holder of a Rights Certificate (or, if
prior to the Distribution Date, to each registered holder of a certificate
representing shares of Common Stock) in accordance with Section 26 hereof. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) In the event that, from and after the time an Acquiring Person
has become such, directly or indirectly, (x) the Company shall consolidate with,
or merge with and into, any other Person, and the Company shall not be the
continuing or surviving corporation of such consolidation or merger, (y) any
Person shall consolidate with, or merge with or into, the Company, and the
Company shall be the continuing or surviving corporation of such consolidation
or merger, and, in connection with such consolidation or merger, all or part of
the outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of the Company or any other Person or cash or any
other property, or (z) the Company shall sell, lease or otherwise transfer (or
one or more of its Subsidiaries shall sell, lease or otherwise transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets
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or earning power of the Company and its Subsidiaries (taken as a whole) to any
Person or Persons (other than the Company or any wholly owned Subsidiary of the
Company or any combination thereof in one or more transactions each of which
complies (and all of which together comply) with Section 11(o) hereof), then,
and in each such case (except as may be contemplated by Section 13(d) hereof),
proper provision shall be made so that: (i) the Purchase Price shall be adjusted
to be the Purchase Price immediately prior to the first occurrence of a
Triggering Event multiplied by the number of Fractional Shares of Preferred
Stock for which a Right was exercisable immediately prior to such first
occurrence; (ii) on and after the Distribution Date, each holder of a Right,
except as provided in Section 7(e) hereof, shall thereafter have the right to
receive, upon the exercise thereof at the Purchase Price in accordance with the
terms of this Agreement, in lieu of shares of Preferred Stock or Common Stock of
the Company, such number of validly authorized and issued, fully paid,
nonassessable and freely tradeable shares of Common Stock of the Principal Party
(as such term is hereinafter defined), not subject to any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result
obtained by dividing the Purchase Price by 50% of the Current Market Price per
share of the Common Stock of such Principal Party on the date of consummation of
such Flip-Over Event; PROVIDED that the Purchase Price and the number of shares
of Common Stock of such Principal Party issuable upon exercise of each Right
shall be further adjusted as provided in this Agreement to reflect any events
occurring after the date of such first occurrence of a Triggering Event or after
the date of such Flip-Over Event, as applicable; (iii) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such Flip-Over
Event, all the obligations and duties of the Company pursuant to this Agreement;
(iv) the term "Company" shall thereafter be deemed to refer to such Principal
Party, it being specifically intended that the provisions of Section 11 hereof
shall apply only to such Principal Party following the first occurrence of a
Flip-Over Event; (v) such Principal Party shall take such steps (including, but
not limited to, the reservation of a sufficient number of shares of its Common
Stock) in connection with the consummation of any such transaction as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to its shares of Common Stock
thereafter deliverable upon the exercise of the Rights; and (vi) the provisions
of Section 11(a)(ii) hereof shall be of no effect following the occurrence of
any Flip-Over Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), (A) the Person that is the issuer of
any securities into which shares of Common Stock of the Company are
converted in such merger or consolidation, or, if there is more than one
such issuer, the issuer the Common Stock of which has the greatest
aggregate market value, or (B) if no securities are so issued, (x) the
Person that survives such consolidation or is the other party to the
merger and survives such merger, or, if there is more than one such
Person, the Person the Common Stock of which has the greatest aggregate
market value or (y) if the Person that is the other party to the merger
does not survive the merger, the Person that does survive the merger
(including the Company if it survives); and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving
the greatest portion of the assets or
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earning power transferred pursuant to such transaction or transactions,
or, if each Person that is a party to such transaction or transactions
receives the same portion of the assets or earning power so transferred,
or if the Person receiving the greatest portion of the assets or earning
power cannot be determined, the Person the Common Stock of which has the
greatest aggregate market value;
PROVIDED, however, that in any such case, if the Common Stock of such Person is
not at such time and has not been continuously over the preceding twelve-month
period registered under Section 12 of the Exchange Act, and if (1) such Person
is a direct or indirect Subsidiary of another Person the Common Stock of which
is and has been so registered, "Principal Party" shall refer to such other
Person; (2) such Person is a Subsidiary, directly or indirectly, of more than
one Person, the Common Stocks of all of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Stock having the greatest aggregate market value; and (3) such Person is
owned, directly or indirectly, by a joint venture formed by two or more Persons
that are not owned, directly or indirectly, by the same Person, the rules set
forth in (1) and (2) above shall apply to each of the chains of ownership having
an interest in such joint venture as if such party were a "Subsidiary" of both
or all of such joint venturers and the Principal Parties in each such chain
shall bear the obligations set forth in this Section 13 in the same ratio as
their direct or indirect interests in such Person bear to the total of such
interests.
(c) The Company shall not consummate any Flip-Over Event unless each
Principal Party (or Person that may become a Principal Party as a result of such
Flip-Over Event) shall have a sufficient number of authorized shares of its
Common Stock that have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 13 and unless
prior thereto the Company and each such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in paragraphs (a) and (b) of this Section 13 and further providing
that, as soon as practicable after the date of such Flip-Over Event, the
Principal Party at its own expense will
(i) prepare and file a registration statement under the Securities
Act with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date;
(ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the "blue sky"
laws of such jurisdictions as may be necessary or appropriate;
(iii) use its best efforts, if the Common Stock of the Principal
Party is or shall become listed on a national securities exchange, to list
(or continue the listing of) the Rights and the securities purchasable
upon exercise of the Rights on such securities exchange and, if the Common
Stock of the Principal Party shall not be listed on a national securities
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exchange, to cause the Rights and the securities purchasable upon exercise
of the Rights to be reported by NASDAQ or such other transaction reporting
system then in use; and
(iv) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates that comply
in all respects with the requirements for registration on Form 10 under
the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Flip-Over Event
shall occur at any time after the occurrence of a Flip-In Event, the Rights that
have not theretofore been exercised shall thereafter become exercisable in the
manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired shares of Common Stock pursuant to a Permitted
Offer (or a wholly owned subsidiary of any such Person or Persons), (ii) the
price per share of Common Stock offered in such transaction is not less than the
price per share of Common Stock paid to all holders of Common Stock whose shares
were purchased pursuant to such Permitted Offer, and (iii) the form of
consideration being offered to the remaining holders of shares of Common Stock
pursuant to such transaction is the same as the form of consideration paid
pursuant to such Permitted Offer. Upon consummation of any such transaction
contemplated by this Section 13(d), all Rights hereunder shall expire.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates or scrip evidencing fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the Closing Price
of one Right for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable.
(b) The Company shall not be required to issue fractions of shares
of Preferred Stock (other than, except as provided in Section 7(c) hereof,
fractions that are integral multiples of a Fractional Share of Preferred Stock)
upon exercise of the Rights or to distribute certificates or scrip evidencing
fractional shares of Preferred Stock (other than, except as provided in Section
7(c) hereof, fractions that are integral multiples of a Fractional Share of
Preferred Stock). Interests in fractions of shares of Preferred Stock in
integral multiples of a Fractional Share of Preferred Stock may, at the election
of the Company in its sole discretion, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it, provided that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the shares of Preferred Stock
represented by such depositary receipts. In lieu of fractional shares of
Preferred Stock that are
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not integral multiples of a Fractional Share of Preferred Stock, the Company may
pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of one
one-hundredth of the Closing Price of a share of Preferred Stock for the Trading
Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company
shall not be required to issue fractions of shares of Common Stock upon exercise
of the Rights or to distribute certificates or scrip evidencing fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the Closing Price of one share of Common Stock for the Trading Day
immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. RIGHTS OF ACTION. All rights of action in respect of
this Agreement, other than rights of action vested in the Rights Agent pursuant
to Section 18 hereof, are vested in the respective registered holders of the
Rights Certificates (and, prior to the Distribution Date, the registered holders
of the Common Stock) and, where applicable, the Company; and any registered
holder of any Rights Certificate (or, prior to the Distribution Date, of the
Common Stock), without the consent of the Rights Agent or of the holder of any
other Rights Certificate (or, prior to the Distribution Date, of the Common
Stock), may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Rights Certificate in the manner provided in such Rights
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
After a Triggering Event, holders of Rights shall be entitled to recover the
reasonable costs and expenses, including attorneys' fees, incurred by them in
any action to enforce the provisions of this Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will not be evidenced
by Rights Certificates and will be transferable only in connection with the
transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates will be
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the
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Rights Agent designated for such purposes, duly endorsed or accompanied by a
proper instrument of transfer and with the form of assignment set forth on the
reverse side thereof and the certificate contained therein duly completed and
fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the Person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of Fractional
Shares of Preferred Stock or any other securities of the Company that may at any
time be issuable upon the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be construed to confer
upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 25 hereof),
or to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other reasonable disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in
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connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it, after proper inquiry or examination, to be
genuine and to be signed, executed and, where necessary, guaranteed, verified or
acknowledged, by the proper Person or Persons.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS
AGENT.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; PROVIDED, however, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and
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protection to the Rights Agent as to any action taken or omitted by it in good
faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of "Current Market Price") be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct. In no event shall the Rights Agent
be liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Rights Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after receipt of actual knowledge of any such
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Preferred Stock or Common Stock or other securities to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any shares of
Preferred Stock or Common Stock or other securities will, when so issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
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(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, omission, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such act,
omission, default, neglect or misconduct; PROVIDED, however, that reasonable
care was exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company, and to each
transfer agent of the Common Stock and the Preferred Stock, by registered or
certified mail, and to the registered holders, if any, of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent (with or without cause) upon 30 days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Stock and the Preferred Stock, by registered
or certified mail, and to the registered holders of the Rights Certificates, if
any, by first-class mail. If the Rights Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. Notwithstanding the foregoing provisions of this
Section 21, in no event shall the resignation or removal of a Rights Agent be
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effective until a successor Rights Agent shall have been appointed and have
accepted such appointment. If the Company shall fail to make such appointment
within a period of 30 days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the registered holder of a Rights Certificate
(who shall, with such notice, submit his Rights Certificate for inspection by
the Company), then the Rights Agent or the registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States or of the State of New York (or of
any other state of the United States so long as such corporation is authorized
to conduct a stock transfer or corporate trust business in the State of New
York), in good standing, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$100,000,000 or (b) an affiliate of a corporation described in clause (a) of
this sentence. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and the Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock following the Distribution
Date and prior to the Expiration Date, the Company (a) shall, with respect to
shares of Common Stock so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement granted or awarded on or prior
to the Distribution Date, or upon the exercise, conversion or exchange of
securities issued by the Company on or prior to the Distribution Date, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Rights Certificates representing the appropriate
number of Rights in connection with such issuance or sale; PROVIDED, however,
that (i) no such Rights Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
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Section 23. REDEMPTION AND TERMINATION.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the tenth day
following the first date of public announcement of the occurrence of a Flip-In
Event (or, if such date shall have occurred prior to the Record Date, the close
of business on the tenth day following the Record Date) and (ii) the Expiration
Date, cause the Company to redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, as such amount may be
appropriately adjusted, if necessary, to reflect any stock split, stock dividend
or similar transaction occurring after the Rights Dividend Declaration Date
(such redemption price being hereinafter referred to as the "Redemption Price");
PROVIDED, however, that the Rights may not be redeemed following any merger to
which the Company is a party that (i) occurs when there is an Acquiring Person
and (ii) was not approved prior to such merger by the Board of Directors of the
Company and by the stockholders of the Company at a stockholders' meeting.
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Flip-In Event until
such time as the Company's right of redemption hereunder has expired. The
Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock (based on the Current Market Price of the Common Stock at the time of
redemption) or any other form of consideration deemed appropriate by the Board
of Directors.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the redemption of the Rights (the
effectiveness of which action may be conditioned on the occurrence of one or
more events or on the existence of one or more facts or may be effective at some
future time), evidence of which shall be filed with the Rights Agent and without
any further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price for each Right so held. Promptly after the
effectiveness of the action of the Board of Directors ordering the redemption of
the Rights, the Company shall give notice of such redemption to the Rights Agent
and the registered holders of the then outstanding Rights by mailing such notice
to all such holders at each holder's last address as it appears upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the Company for the Common Stock. Any notice that is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption shall state the method by
which the payment of the Redemption Price will be made.
Section 24. EXCHANGE.
(a) The Board of Directors of the Company may, at its option, at any
time and from time to time after the occurrence of a Flip-In Event, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 7(e) hereof)
for shares of Common Stock or Common Stock Equivalents or any combination
thereof, at an exchange ratio of one share of Common Stock, or such number of
Common Stock Equivalents or units representing fractions thereof as would be
deemed to have the same value as one share of Common Stock, per Right,
appropriately adjusted, if necessary, to reflect
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any stock split, stock dividend or similar transaction occurring after the
Rights Dividend Declaration Date (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors may not effect such exchange at any time after (i) any Person (other
than an Exempt Person), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the shares of Common
Stock then outstanding or (ii) the occurrence of a Flip-Over Event.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to and in
accordance with subsection (a) of this Section 24 (the effectiveness of which
action may be conditioned on the occurrence of one or more events or on the
existence of one or more facts or may be effective at some future time) and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of shares of Common Stock and/or Common Stock
Equivalents equal to the number of such Rights held by such holder multiplied by
the Exchange Ratio. The Company shall promptly give public notice of any such
exchange; PROVIDED, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the registered holders of
such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the shares of Common
Stock and/or Common Stock Equivalents for Rights will be effected and, in the
event of any partial exchange, the number of Rights that will be exchanged. Any
partial exchange shall be effected as nearly pro rata as possible based on the
number of Rights (other than Rights that have become void pursuant to the
provisions of Section 7(e) hereof) held by each holder of Rights.
(c) In the event that the number of shares of Common Stock that are
authorized by the Company's certificate of incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights is not
sufficient to permit an exchange of Rights as contemplated in accordance with
this Section 24, the Company may, at its option, take all such action as may be
necessary to authorize additional shares of Common Stock for issuance upon
exchange of the Rights.
(d) The Company shall not be required to issue fractions of shares
of Common Stock or to distribute certificates or scrip evidencing fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock, the
Company shall pay to the registered holders of Rights with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the value of a whole share of Common Stock. For
purposes of this Section 24, the value of a whole share of Common Stock shall be
the Closing Price per share of Common Stock for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24, and the value of any
Common Stock Equivalent shall be deemed to have the same value as the Common
Stock on such date.
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Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a wholly owned Subsidiary of
the Company in a transaction that complies with Section 11(o) hereof), or to
effect any sale, lease or other transfer of all or substantially all the
Company's assets to any other Person or Persons (other than a wholly owned
Subsidiary of the Company in a transaction that complies with Section 11(o)
hereof), or (v) to effect the liquidation, dissolution or winding up of the
Company, then, in each such case, the Company shall give to each holder of
record of a Rights Certificate, to the extent feasible and in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, lease, transfer, liquidation, dissolution or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least 20 days prior to
the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least 20
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock, whichever
shall be the earlier. The failure to give notice required by this Section 25 or
any defect therein shall not affect the legality or validity of the action taken
by the Company or the vote upon any such action.
(b) In case any Flip-In Event or Flip-Over Event shall occur, then
(i) the Company shall as soon as practicable thereafter give to each registered
holder of a Rights Certificate (or if occurring prior to the Distribution Date,
the registered holders of Common Stock), in accordance with Section 26 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) or
Section 13(a) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.
Section 26. NOTICES. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
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Innovative Valve Technologies, Inc.
14900 Woodham Drive, Suite A-125
Houston, Texas 77073
Attention: Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
2323 Bryan Street, Suite 2300
Dallas, Texas 75201
Attention: R. John Davis
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. Except as provided in the
last sentence of this Section 27, at any time when the Rights are then
redeemable, the Company may in its sole and absolute discretion and the Rights
Agent shall, if the Company so directs, supplement or amend any provision of
this Agreement in any respect without the approval of any holders of Rights or
holders of Common Stock. At any time when the Rights are not redeemable, except
as provided in the last sentence of this Section 27, the Company may and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein that may
be defective or inconsistent with any other provisions herein, (iii) to shorten
or lengthen any time period hereunder or (iv) to change or supplement the
provisions hereunder in any manner that the Company may deem necessary or
desirable; PROVIDED that no such amendment or supplement shall materially
adversely affect the interests of the holders of Rights (other than an Acquiring
Person or an Affiliate or Associate of an Acquiring Person); and FURTHER
PROVIDED that this Agreement may not be supplemented or amended pursuant to this
sentence to lengthen (A) a time period relating to when the Rights may be
redeemed or (B) any other time period unless the lengthening of such other time
period is for the purpose of protecting, enhancing or clarifying the rights of,
and/or the benefits to, the holders of Rights (other than any Acquiring Person
and its Affiliates and Associates). Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 27, the Rights Agent
shall execute such supplement or amendment; PROVIDED, however, that the Rights
Agent may, but shall not be obligated to, enter into any such supplement or
amendment that affects the Rights Agent's own rights, duties or immunities under
this Agreement. Notwithstanding anything contained in this
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Agreement to the contrary, no supplement or amendment shall be made that
decreases the Redemption Price.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS,
ETC. For all purposes of this Agreement, any calculation of the number of shares
of Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act as in effect on the date of this Agreement. The Board of
Directors of the Company (or, as set forth herein, certain specified members
thereof) shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board of Directors of the Company or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including, without limitation, a determination
to redeem or not redeem the Rights or to amend this Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) that
are done or made by the Board of Directors of the Company in good faith, shall
(x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights, as such, and all other parties, and (y) not subject the
Board of Directors to any liability to the holders of the Rights.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, then, unless there has occurred any merger referred to
in the proviso to the first sentence of Section 23(a), the right of redemption
set forth in Section 23 hereof shall be reinstated
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and shall not expire until the close of business on the tenth day following the
date of such determination by the Board of Directors of the Company or, if
earlier, immediately prior to any such merger. Without limiting the foregoing,
if any provision requiring that a determination be made by less than the entire
Board of Directors of the Company is held by a court of competent jurisdiction
or other authority to be invalid, void or unenforceable, such determination
shall then be made by the entire Board of Directors of the Company.
Section 32. GOVERNING LAW. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
INNOVATIVE VALVE TECHNOLOGIES, INC.
By /s/ CHARLES F. SCHUGART
Name: CHARLES F. SCHUGART
Title: CHIEF FINANCIAL OFFICER, SENIOR VICE PRESIDENT
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By /s/ R. JOHN DAVIS
Name: R. JOHN DAVIS
Title: VICE PRESIDENT
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EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
INNOVATIVE VALVE TECHNOLOGIES, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
INNOVATIVE VALVE TECHNOLOGIES, INC., a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on September 18, 1997 adopted the
following resolution creating a series of 300,000 shares of Preferred Stock
designated as "Series A Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Certificate of Incorporation, a series of Preferred Stock, par value $.001
per share, of the Corporation be and hereby is created, and that the
designation and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional or other rights of the
shares of such series and the qualifications, limitations and restrictions
thereof are as follows:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred
Stock that shall be designated as "Series A Junior Participating Preferred
Stock," and the number of shares constituting such series shall be 300,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number of shares
of Series A Junior Participating Preferred Stock to less than the number of
shares then issued and outstanding plus the number of shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
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2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock, in
preference to the holders of shares of any class or series of stock of the
Corporation ranking junior to the Series A Junior Participating Preferred Stock,
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each year (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Junior Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $10 or (b) the Adjustment Number (as defined below) times the aggregate
per share amount of all cash dividends, and the Adjustment Number times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.001 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. The "Adjustment Number" shall initially be
100. In the event the Corporation shall at any time after September 18, 1997
(the "Rights Declaration Date") (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such
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shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A Junior Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to the
date fixed for the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to a number of votes equal to the Adjustment
Number on all matters submitted to a vote of the stockholders of the
Corporation.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series A Junior Participating
Preferred Stock, the holders of shares of any other class or series entitled to
vote with the Common Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
(C)(i)If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") that shall extend until such time
when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series A
Junior Participating Preferred Stock then outstanding shall have been declared
and paid or set apart for payment. During each default period, (1) the number of
Directors shall be increased by two, effective as of the time of election of
such Directors as herein provided, and (2) the holders of Preferred Stock
(including holders of the Series A Junior Participating Preferred Stock) upon
which these or like voting rights have been conferred and are exercisable (the
"Voting Preferred Stock") with dividends in arrears in an amount equal to six
quarterly dividends thereon, voting as a class, irrespective of series, shall
have the right to elect such two Directors.
(ii) During any default period, such voting right of the holders of
Series A Junior Participating Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at
any annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that such voting right shall not be exercised unless the
holders of at least one-third in number of the shares of Voting Preferred Stock
outstanding shall be
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present in person or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Voting Preferred Stock of
such voting right.
(iii) Unless the holders of Voting Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent of the total number of shares
of Voting Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Voting Preferred Stock, which
meeting shall thereupon be called by the Chairman of the Board, the President, a
Vice President or the Secretary of the Corporation. Notice of such meeting and
of any annual meeting at which holders of Voting Preferred Stock are entitled to
vote pursuant to this paragraph (C)(iii) shall be given to each holder of record
of Voting Preferred Stock by mailing a copy of such notice to him at his last
address as the same appears on the books of the Corporation. Such meeting shall
be called for a time not earlier than 20 days and not later than 60 days after
such order or request or, in default of the calling of such meeting within 60
days after such order or request, such meeting may be called on similar notice
by any stockholder or stockholders owning in the aggregate not less than ten
percent of the total number of shares of Voting Preferred Stock outstanding.
Notwithstanding the provisions of this paragraph (C)(iii), no such special
meeting shall be called during the period within 60 days immediately preceding
the date fixed for the next annual meeting of the stockholders.
(iv) In any default period, after the holders of Voting Preferred
Stock shall have exercised their right to elect Directors voting as a class, (x)
the Directors so elected by the holders of Voting Preferred Stock shall continue
in office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the Board of
Directors may be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class or classes of stock which
elected the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class or
classes of stock shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Voting Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of Voting
Preferred Stock as a class shall terminate and (z) the number of Directors shall
be such number as may be provided for in the Certificate of Incorporation or
By-Laws irrespective of any increase made pursuant to the provisions of
paragraph (C) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the Certificate of Incorporation
or By-Laws). Any vacancies in the Board of Directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
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4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
A Junior Participating Preferred Stock, except dividends paid ratably on
the Series A Junior Participating Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
or
(iii) redeem or purchase or otherwise acquire for
consideration any shares of Series A Junior Participating Preferred Stock,
or any shares of stock ranking on a parity with the Series A Junior
Participating Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of Series A Junior Participating Preferred
Stock, or to all such holders and the holders of any such shares ranking
on a parity therewith, upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. REACQUIRED SHARES. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to any conditions and restrictions on issuance set forth
herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made to the
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holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Series A Junior
Participating Preferred Stock shall have received $100 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation Preference,
no additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) the Adjustment Number. Following the payment of
the full amount of the Series A Liquidation Preference and the Common Adjustment
in respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall, subject to the
prior rights of all other series of Preferred Stock, if any, ranking prior
thereto, receive their ratable and proportionate share of the remaining assets
to be distributed in the ratio of the Adjustment Number to 1 with respect to
such Series A Junior Participating Preferred Stock and Common Stock, on a per
share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any, that
rank on a parity with the Series A Junior Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) Neither the merger or consolidation of the Corporation into or
with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6, but the sale, lease or conveyance of all or substantially all the
Corporation's assets shall be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 6.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. REDEMPTION. (A) The Corporation, at its option, may redeem shares
of the Series A Junior Participating Preferred Stock in whole at any time and in
part from time to time, at a redemption price equal to the Adjustment Number
times the current per share market price (as such
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<PAGE>
term is hereinafter defined) of the Common Stock on the date of the mailing of
the notice of redemption, together with unpaid accumulated dividends to the date
of such redemption. The "current per share market price" on any date shall be
deemed to be the average of the closing price per share of such Common Stock for
the ten consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; PROVIDED, however, that in the event that the
current per share market price of the Common Stock is determined during a period
following the announcement of (A) a dividend or distribution on the Common Stock
other than a regular quarterly cash dividend or (B) any subdivision, combination
or reclassification of such Common Stock and the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, shall not have occurred prior to the commencement of such
ten Trading Day period, then, and in each such case, the current per share
market price shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sales price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange, or, if the Common Stock is
not listed or admitted to trading on the New York Stock Exchange, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or, if the Common Stock is not listed or admitted to
trading on any national securities exchange but sales price information is
reported for such security, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
self-regulatory organization or registered securities information processor (as
such terms are used under the Securities Exchange Act of 1934, as amended) that
then reports information concerning the Common Stock, or, if sales price
information is not so reported, the average of the high bid and low asked prices
in the over-the-counter market on such day, as reported by NASDAQ or such other
entity, or, if on any such date the Common Stock is not quoted by any such
entity, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Corporation. If on any such date no such market maker
is making a market in the Common Stock, the fair value of the Common Stock on
such date as determined in good faith by the Board of Directors of the
Corporation shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Common Stock is listed or
admitted to trading is open for the transaction of business, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
but is quoted by NASDAQ, a day on which NASDAQ reports trades, or, if the Common
Stock is not so quoted, a Monday, Tuesday, Wednesday, Thursday or Friday on
which banking institutions in the State of New York are not authorized or
obligated by law or executive order to close.
(B) In the event that fewer than all the outstanding shares of the
Series A Junior Participating Preferred Stock are to be redeemed, the number of
shares to be redeemed shall be determined by the Board of Directors and the
shares to be redeemed shall be determined by lot or pro rata as may be
determined by the Board of Directors or by any other method that may be
determined by the Board of Directors in its sole discretion to be equitable.
(C) Notice of any such redemption shall be given by mailing to the
holders of the shares of Series A Junior Participating Preferred Stock to be
redeemed a notice of such redemption,
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first class postage prepaid, not later than the fifteenth day and not earlier
than the sixtieth day before the date fixed for redemption, at their last
address as the same shall appear upon the books of the Corporation. Each such
notice shall state: (i) the redemption date; (ii) the number of shares to be
redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where certificates for such shares
are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on the close of
business on such redemption date. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the stockholder received such notice, and failure duly to give such notice by
mail, or any defect in such notice, to any holder of Series A Junior
Participating Preferred Stock shall not affect the validity of the proceedings
for the redemption of any other shares of Series A Junior Participating
Preferred Stock that are to be redeemed. On or after the date fixed for
redemption as stated in such notice, each holder of the shares called for
redemption shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the redemption price. If fewer than all the
shares represented by any such surrendered certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(D) The shares of Series A Junior Participating Preferred Stock
shall not be subject to the operation of any purchase, retirement or sinking
fund.
9. RANKING. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise, and shall rank senior to the Common Stock
as to such matters.
10. AMENDMENT. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Certificate of Incorporation
of the Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds or more of the outstanding shares
of Series A Junior Participating Preferred Stock, voting separately as a class.
11. FRACTIONAL SHARES. Series A Junior Participating Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
A-8
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate
and does affirm the foregoing as true this 22nd day of October, 1997.
_________________________________________________
Charles F. Schugart
Chief Financial Officer, Senior Vice President --
Corporate Development, Treasurer and Secretary
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<PAGE>
EXHIBIT B
[Form of Rights Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER SEPTEMBER 30, 2007 OR EARLIER IF REDEEMED OR EXCHANGED BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY OR
TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO
LONGER BE TRANSFERABLE.
RIGHTS CERTIFICATE
INNOVATIVE VALVE TECHNOLOGIES, INC.
This certifies that _____________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of September 18, 1997 as it may from time to time
be supplemented or amended (the "Rights Agreement"), between Innovative Valve
Technologies, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C. (the "Rights Agent"), to purchase from the Company
at any time prior to 5:00 p.m. (New York time) on September 30, 2007 at the
principal office or offices of the Rights Agent designated for such purpose, or
its successors as Rights Agent, one one-hundredth of a fully paid, nonassessable
share (a "Fractional Share") of Series A Junior Participating Preferred Stock
(the "Preferred Stock") of the Company, at a purchase price of $48.00 per one
one-hundredth of a share (the "Purchase Price"), upon presentation and surrender
of this Rights Certificate with the Form of Election to Purchase and related
Certificate set forth on the reverse hereof duly executed. The Purchase Price
may be paid in cash or by certified check, cashier's or official bank check or
bank draft payable to the order of the Company or the Rights Agent. The number
of Rights evidenced by this Rights Certificate (and the number of shares which
may be purchased upon exercise thereof) set forth above, and the Purchase Price
per Fractional Share set forth above, are the number and Purchase Price as of
September 18, 1997, based on the Preferred Stock as constituted at such date.
The Company reserves the right to require prior to the occurrence of a
Triggering Event (as such term is defined in the Rights Agreement) that a number
of Rights be exercised so that only whole shares of Preferred Stock will be
issued.
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From and after the first occurrence of a Triggering Event (as such
term is defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by or transferred to (i) an Acquiring Person
or an Associate or Affiliate of an Acquiring Person (as such terms are defined
in the Rights Agreement), (ii) a transferee of any such Acquiring Person,
Associate or Affiliate, or (iii) under certain circumstances specified in the
Rights Agreement, a transferee of a person who, concurrently with or after such
transfer, became an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, such Rights shall, with certain exceptions, become null and
void in the circumstances set forth in the Rights Agreement, and no holder
hereof shall have any rights whatsoever with respect to such Rights from and
after the occurrence of such Triggering Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Preferred Stock or other securities or assets that
may be purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening of
certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Fractional Shares of Preferred Stock as the
Rights evidenced by the Rights Certificate or Rights Certificates surrendered
shall have entitled such holder to purchase. If this Rights Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Rights Certificate or Rights Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at its option
at a redemption price of $.01 per Right, payable, at the election of the
Company, in cash or shares of Common Stock or such other consideration as the
Board of Directors may determine, at any time prior to the earlier of the close
of business on (a) the tenth day following the first public announcement of the
occurrence of a Flip-In Event (as such time period may be extended or shortened
pursuant to the Rights Agreement) and (b) the Expiration Date (as such term is
defined in the Rights Agreement) or (ii) may be exchanged in whole or in part
for shares of the Company's Common Stock, par value $.001 per share, and/or
other equity securities of the Company deemed to have the same value as shares
of Common Stock,
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at any time prior to a person's becoming the beneficial owner of 50% or more of
the shares of Common Stock outstanding or the occurrence of a Flip-Over Event.
No fractional shares of Preferred Stock are required to be issued
upon the exercise of any Right or Rights evidenced hereby (other than, except as
set forth above, fractions that are integral multiples of a Fractional Share of
Preferred Stock, which may, at the election of the Company, be evidenced by
depositary receipts), but in lieu thereof a cash payment may be made, as
provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of shares of
Preferred Stock or of any other securities of the Company that may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of September 19, 1997
ATTEST: INNOVATIVE VALVE TECHNOLOGIES, INC.
________________________ By ________________________________
Secretary Title:
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By ________________________________
Authorized Signature
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[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer any Rights evidenced by the Rights Certificate.)
FOR VALUE RECEIVED _______________________________________ hereby sells, assigns
and transfers unto _____________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
_________ Rights evidenced by this Rights Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
__________________ Attorney, to transfer the said Rights on the books of the
within-named Company, with full power of substitution.
Dated: _________________, 199__
___________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
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<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being sold, assigned and transferred by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as
such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or who is a direct or indirect
transferee of an Acquiring Person or of an Affiliate or Associate of an
Acquiring Person.
Dated: _____________, 199__ ____________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
NOTICE
The signatures to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-5
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate.)
To: INNOVATIVE VALVE TECHNOLOGIES, INC.
The undersigned hereby irrevocably elects to exercise _________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person that may be issuable upon the
exercise of the Rights) and requests that certificates for such shares (or other
securities) be issued in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by
this Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ____________, 199__
_____________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
B-6
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person or who is a direct or indirect transferee of an
Acquiring Person or of an Affiliate or Associate of an Acquiring Person.
Dated: _____________, 199__ ____________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
NOTICE
The signatures to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
B-7
<PAGE>
EXHIBIT C
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT), AND CERTAIN TRANSFEREES THEREOF, WILL BECOME NULL AND
VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On September 18, 1997, the Board of Directors of Innovative Valve
Technologies, Inc. (the "Company") declared a dividend of one right to purchase
preferred stock ("Right") for each outstanding share of the Company's Common
Stock, par value $.001 per share ("Common Stock"), to stockholders of record at
the close of business on September 19, 1997. Each Right entitles the registered
holder to purchase from the Company 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 (the "Preferred Stock"), at a purchase price of $48.00
per Fractional Share, subject to adjustment (the "Purchase Price"). The
description and terms of the Rights are set forth in a Rights Agreement dated as
of September 18, 1997 as it may from time to time be supplemented or amended
(the "Rights Agreement") between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent.
Initially, the Rights will be attached to all certificates
representing outstanding shares of Common Stock, 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 occur, with
certain exceptions, upon the earlier of (i) ten 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) ten 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 Philip Services Corp. (or any wholly owned subsidiary thereof)
("Phillip"), together with all affiliates and associates thereof, remains the
beneficial owner of 15% or more of the outstanding shares of Common Stock,
Philip 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 Philip. In certain circumstances, the
Distribution Date may be deferred by the Board of Directors. 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, (a) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (b) Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference and (c) the surrender for
transfer of any certificate for Common Stock will also constitute the transfer
of the Rights associated with the Common Stock represented by such certificate.
C-1
<PAGE>
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on September 30, 2007, unless earlier redeemed
or exchanged by the Company 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 of Directors, 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
directors of the Company determines to be fair to and otherwise in the best
interests of the Company and its stockholders (a "Permitted Offer")), each
holder of a Right will thereafter have the right to receive, upon exercise of
such Right, a number of shares of Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a Current Market Price
(as defined in the Rights Agreement) equal to two times the exercise price of
the Right. Notwithstanding the foregoing, following the occurrence of any
Triggering Event, all Rights that are, or (under certain circumstances specified
in the Rights Agreement) were, beneficially owned by or transferred to an
Acquiring Person (or by certain related parties) will be null and void in the
circumstances set forth in the Rights Agreement. However, Rights are not
exercisable following the occurrence of any Flip-In Event until such time as the
Rights are no longer redeemable by the Company 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) the Company 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
are voided as set forth above) shall thereafter have the right to receive, upon
exercise, 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 number of outstanding Rights associated with a share of Common
Stock, or the number of Fractional Shares of Preferred Stock issuable upon
exercise of a Right and the Purchase Price, are subject to adjustment in the
event of a stock dividend on, or a subdivision, combination or reclassification
of, the Common Stock occurring prior to the Distribution Date. The Purchase
Price payable, and the number of Fractional Shares of Preferred Stock or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution in the event of certain
transactions affecting the Preferred Stock.
C-2
<PAGE>
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 Preferred Stock that are not integral multiples
of a Fractional Share are required to be issued and, in lieu thereof, an
adjustment in cash may be made based on the market price of the Preferred Stock
on the last trading date prior to the date of exercise. Pursuant to the Rights
Agreement, the Company reserves the right to require prior to the occurrence of
a Triggering Event that, upon any exercise of Rights, a number of Rights be
exercised so that only whole shares of Preferred Stock will be issued.
At any time until ten days following the first date of public
announcement of the occurrence of a Flip-In Event, the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right, payable, at the
option of the Company, in cash, shares of Common Stock or such other
consideration as the Board of Directors may determine. Immediately upon the
effectiveness of the action of the Board of Directors 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 or the occurrence of a Flip-Over Event, the Company may
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.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
should not be taxable to stockholders or to the Company, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
Rights become exercisable for Common Stock (or other consideration) of the
Company or for the common stock of the acquiring company as set forth above or
are exchanged as provided in the preceding paragraph.
Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company 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 of Directors 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.
A copy of the Rights Agreement has been filed with the Securities
and Exchange Commission as an exhibit to the Company's Registration Statement on
Form S-1. A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the
C-3
<PAGE>
Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement, which is incorporated herein by reference.
C-4
EXHIBIT 4.6
LOAN AGREEMENT
($60,000,000 REVOLVING LOAN FACILITY)
EXECUTED AS OF OCTOBER 23, 1997, TO BE EFFECTIVE AS OF OCTOBER 17, 1997
AMONG
INNOVATIVE VALVE TECHNOLOGIES, INC.,
AS BORROWER,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
AS AGENT AND AS A LENDER,
AND
THE OTHER LENDERS NOW OR HEREAFTER
PARTIES HERETO
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS..............................................................1
1.1 CERTAIN DEFINED TERMS............................................1
1.2 MISCELLANEOUS...................................................18
2. COMMITMENTS AND LOANS...................................................18
2.1 LOANS...........................................................18
2.2 LETTERS OF CREDIT...............................................19
2.3 TERMINATIONS OR REDUCTIONS OF COMMITMENTS......................22
2.4 COMMITMENT FEES.................................................23
2.5 SEVERAL OBLIGATIONS.............................................23
2.6 NOTES...........................................................23
2.7 USE OF PROCEEDS.................................................24
3. BORROWINGS, PAYMENTS, PREPAYMENTS AND INTEREST OPTIONS..................24
3.1 BORROWINGS......................................................24
3.2 PREPAYMENTS.....................................................24
3.3 INTEREST OPTIONS................................................25
3.4 CAPITAL ADEQUACY................................................29
3.5 LIMITATION ON CHARGES; SUBSTITUTE LENDERS; NON-DISCRIMINATION...29
4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS, ETC.........................30
4.1 PAYMENTS........................................................30
4.2 PRO RATA TREATMENT..............................................32
4.3 CERTAIN ACTIONS, NOTICES, ETC...................................32
4.4 NON-RECEIPT OF FUNDS BY AGENT...................................33
4.5 SHARING OF PAYMENTS, ETC........................................33
5. CONDITIONS PRECEDENT....................................................34
5.1 INITIAL LOANS AND LETTERS OF CREDIT.............................34
5.2 ALL LOANS AND LETTERS OF CREDIT.................................35
6. REPRESENTATIONS AND WARRANTIES..........................................36
6.1 ORGANIZATION....................................................36
6.2 FINANCIAL STATEMENTS............................................36
6.3 ENFORCEABLE OBLIGATIONS; AUTHORIZATION..........................37
6.4 OTHER DEBT......................................................37
6.5 LITIGATION......................................................37
6.6 TITLE...........................................................37
<PAGE>
6.7 TAXES...........................................................37
6.8 REGULATIONS G, U AND X..........................................37
6.9 SUBSIDIARIES....................................................38
6.10 NO UNTRUE OR MISLEADING STATEMENTS..............................38
6.11 ERISA...........................................................38
6.12 INVESTMENT COMPANY ACT..........................................38
6.13 PUBLIC UTILITY HOLDING COMPANY ACT..............................38
6.14 SOLVENCY........................................................38
6.15 FISCAL YEAR.....................................................38
6.16 COMPLIANCE......................................................38
6.17 ENVIRONMENTAL MATTERS...........................................39
7. AFFIRMATIVE COVENANTS...................................................39
7.1 TAXES, EXISTENCE, REGULATIONS, PROPERTY, ETC....................39
7.2 FINANCIAL STATEMENTS AND INFORMATION............................40
7.3 FINANCIAL TESTS.................................................40
7.4 INSPECTION......................................................41
7.5 FURTHER ASSURANCES..............................................41
7.6 BOOKS AND RECORDS...............................................41
7.7 INSURANCE.......................................................41
7.8 NOTICE OF CERTAIN MATTERS.......................................41
7.9 ERISA INFORMATION AND COMPLIANCE................................42
8. NEGATIVE COVENANTS......................................................43
8.1 BORROWED MONEY INDEBTEDNESS.....................................43
8.2 LIENS...........................................................44
8.3 CONTINGENT LIABILITIES..........................................45
8.4 MERGERS AND CONSOLIDATIONS......................................45
8.5 DISPOSITION OF ASSETS...........................................46
8.6 REDEMPTION, DIVIDENDS AND DISTRIBUTIONS.........................46
8.7 NATURE OF BUSINESS..............................................46
8.8 TRANSACTIONS WITH RELATED PARTIES...............................46
8.9 LOANS AND INVESTMENTS...........................................46
8.10 ORGANIZATIONAL DOCUMENTS........................................47
8.11 UNFUNDED LIABILITIES............................................47
8.12 CAPITAL EXPENDITURES............................................47
8.13 ACQUISITIONS....................................................47
8.14 SUBORDINATED INDEBTEDNESS.......................................47
8.15 SUBSIDIARIES....................................................47
9. DEFAULTS................................................................48
9.1 EVENTS OF DEFAULT...............................................48
ii
<PAGE>
9.2 RIGHT OF SETOFF.................................................50
9.3 COLLATERAL ACCOUNT..............................................51
9.4 PRESERVATION OF SECURITY FOR UNMATURED REIMBURSEMENT
OBLIGATIONS.....................................................51
9.5 REMEDIES CUMULATIVE.............................................51
10. AGENT...................................................................51
10.1 APPOINTMENT, POWERS AND IMMUNITIES..............................51
10.2 RELIANCE........................................................52
10.3 DEFAULTS........................................................53
10.4 MATERIAL WRITTEN NOTICES........................................53
10.5 RIGHTS AS A LENDER..............................................53
10.6 INDEMNIFICATION.................................................54
10.7 NON-RELIANCE ON AGENT AND OTHER LENDERS.........................54
10.8 FAILURE TO ACT..................................................54
10.9 RESIGNATION OR REMOVAL OF AGENT.................................55
10.10 NO PARTNERSHIP..................................................55
11. MISCELLANEOUS...........................................................55
11.1 WAIVER..........................................................55
11.2 NOTICES.........................................................56
11.3 EXPENSES, ETC...................................................56
11.4 INDEMNIFICATION.................................................57
11.5 AMENDMENTS, ETC.................................................57
11.6 SUCCESSORS AND ASSIGNS..........................................58
11.7 LIMITATION OF INTEREST..........................................60
11.8 SURVIVAL........................................................61
11.9 CAPTIONS........................................................61
11.10 COUNTERPARTS....................................................61
11.11 GOVERNING LAW...................................................61
11.12 SEVERABILITY....................................................62
11.13 TAX FORMS.......................................................62
11.14 CONFLICTS BETWEEN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS...62
11.15 DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY....................62
iii
<PAGE>
EXHIBITS
A -- Request for Extension of Credit
B -- Rate Designation Notice
C -- Note
D -- Assignment and Acceptance
E -- Compliance Certificate
F -- Subsidiaries as of the Effective Date
G -- Existing Borrowed Money Indebtedness
H -- Existing Liens
I -- Existing Investments
iv
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT is executed as of October 23, 1997, to be effective as
of October 17, 1997 (the "EFFECTIVE DATE"), by and among INNOVATIVE VALVE
TECHNOLOGIES, INC., a Delaware corporation (together with its permitted
successors, herein called the "BORROWER"); each of the lenders which is or may
from time to time become a party hereto (individually, a "LENDER" and,
collectively, the "LENDERS"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION
("TCB"), a national banking association, as agent for the Lenders (in such
capacity, together with its successors in such capacity, the "AGENT").
The parties hereto agree as follows:
1. DEFINITIONS.
1.1 CERTAIN DEFINED TERMS.
Unless a particular term, word or phrase is otherwise defined or the
context otherwise requires, capitalized terms, words and phrases used herein or
in the Loan Documents (as hereinafter defined) have the following meanings (all
definitions that are defined in this Agreement in the singular have the same
meanings when used in the plural and VICE VERSA):
ACCOUNTS, GENERAL INTANGIBLES, INVENTORY and EQUIPMENT shall have the
respective meanings assigned to them in the Uniform Commercial Code enacted in
the State of Texas in force on the Effective Date.
ADDITIONAL INTEREST means the aggregate of all amounts accrued or paid
pursuant to the Notes or any of the other Loan Documents (other than interest on
the Notes at the Stated Rate) which, under applicable laws, are or may be deemed
to constitute interest on the indebtedness evidenced by the Notes.
ADJUSTED LIBOR means, with respect to each Interest Period applicable to a
LIBOR Borrowing, a rate per annum equal to the quotient, expressed as a
percentage, of (a) LIBOR with respect to such Interest Period divided by (b)
1.0000 minus the Eurodollar Reserve Requirement in effect on the first day of
such Interest Period.
AFFILIATE means any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "CONTROL"
(including "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise.
AGREEMENT means this Loan Agreement, as it may from time to time be
amended, modified, restated or supplemented.
1
<PAGE>
ANNUAL FINANCIAL STATEMENTS means the annual financial statements of a
Person, including all notes thereto, which statements shall include a balance
sheet as of the end of such fiscal year and an income statement and a statement
of cash flows for such fiscal year, all setting forth in comparative form the
corresponding figures from the previous fiscal year, all prepared in conformity
with GAAP in all material respects, and accompanied by the opinion of
independent certified public accountants of recognized national standing, which
shall state that such financial statements present fairly in all material
respects the financial position of such Person and, if such Person has any
Subsidiaries, its consolidated Subsidiaries as of the date thereof and the
results of its operations for the period covered thereby in conformity with
GAAP. Such annual financial statements of Borrower shall be accompanied by a
certificate of such accountants that in making the appropriate audit and/or
investigation in connection with such report and opinion, such accountants did
not become aware of any Default relating to the financial tests set forth in
SECTION 7.3 hereof that had not been waived by Lenders or, if in the opinion of
such accountants any such Default exists, a description of the nature and status
thereof. To the extent required by Agent or the Majority Lenders, Annual
Financial Statements shall also include an unaudited consolidating balance sheet
and income statement for the applicable Person, in Proper Form, certified by the
chief financial officer or other authorized officer of such Person as true,
correct and complete in all material respects.
APPLICATIONS means all applications and agreements for Letters of Credit,
or similar instruments or agreements, in Proper Form, now or hereafter executed
by any Person in connection with any Letter of Credit now or hereafter issued or
to be issued under the terms hereof at the request of any Person. To the extent
that any Application contains provisions granting liens or security interests
not granted in the Loan Agreement or contains events of default waivers, and
cure periods (or fails to provide cure periods as provided in the Loan
Agreement) which are more restrictive than those contained in the Loan
Agreement, the provisions of the Loan Agreement shall control.
ASSIGNMENT AND ACCEPTANCE shall have the meaning ascribed to such term in
SECTION 11.6 hereof.
BANKRUPTCY CODE means the United States Bankruptcy Code, as amended, and
any successor statute.
BASE RATE means for any day a rate per annum equal to the lesser of (a)
the applicable Margin Percentage from time to time in effect plus the greater of
(1) the Prime Rate for that day or (2) the Federal Funds Rate for that day plus
1/2 of 1% or (b) the Ceiling Rate. If for any reason Agent shall have determined
(which determination shall create a rebuttable presumption as to the accuracy
thereof) that it is unable to ascertain the Federal Funds Rate for any reason,
including, without limitation, the inability or failure of Agent to obtain
sufficient quotations in accordance with the terms hereof (and in such event,
Agent shall furnish written evidence to Borrower showing how Agent made such
determination), the Base Rate shall, until the circumstances giving rise to such
inability no longer exist, be the lesser of (a) the applicable Margin Percentage
from time to time in effect plus the Prime Rate or (b) the Ceiling Rate.
2
<PAGE>
BASE RATE BORROWING means that portion of the principal balance of the
Loans at any time bearing interest at the Base Rate.
BORROWED MONEY INDEBTEDNESS means, with respect to any Person, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (iii) all obligations of such Person under conditional sale or
other title retention agreements relating to Property purchased by such Person,
(iv) all obligations of such Person issued or assumed as the deferred purchase
price of property or services (excluding obligations of such Person to creditors
for raw materials, inventory, services and supplies and deferred payments for
services to employees and former employees incurred in the ordinary course of
such Person's business), (v) all capital lease obligations of such Person, (vi)
all obligations of others secured by any lien on property or assets owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (vii) Interest Rate Risk Indebtedness of such Person (to the
extent treated as Indebtedness under GAAP), (viii) all obligations of such
Person in respect of outstanding letters of credit issued for the account of
such Person and (ix) all guarantees of such Person of any of the foregoing.
BUSINESS DAY means any day other than a day on which commercial banks are
authorized or required to close in Houston, Texas.
CAPITAL EXPENDITURES means, with respect to any Person for any period,
expenditures in respect of fixed or capital assets by such Person, including
capital lease obligations incurred during such period (to the extent not already
included), which would be reflected as additions to Property, plant or equipment
on a balance sheet of such Person and its consolidated Subsidiaries, if any,
prepared in accordance with GAAP; but EXCLUDING expenditures during such period
for the repair or replacement of any fixed or capital asset which was destroyed
or damaged, in whole or in part, to the extent financed by the proceeds of an
insurance policy maintained by such Person. Capital Expenditures shall not
include Permitted Investments or the assets owned by any Person acquired by way
of a Permitted Investment or assets comprising substantially all of an entire
business which is acquired by the applicable Person.
CEILING RATE means, on any day, the maximum nonusurious rate of interest
permitted for that day by whichever of applicable federal or Texas (or any
jurisdiction whose usury laws are deemed to apply to the Notes or any other Loan
Documents despite the intention and desire of the parties to apply the usury
laws of the State of Texas) laws permits the higher interest rate, stated as a
rate per annum. On each day, if any, that Chapter 1D establishes the Ceiling
Rate, the Ceiling Rate shall be the "weekly rate ceiling" (as defined in ss.303
of the Texas Finance Code ) for that day. Agent may from time to time, as to
current and future balances, implement any other ceiling under Texas Finance
Code or Chapter 1D by notice to Borrower, if and to the extent permitted by
Texas Finance Code or Chapter 1D. Without notice to Borrower or any other person
or entity, the Ceiling Rate shall automatically fluctuate upward and downward as
and in the amount by which such maximum nonusurious rate of interest permitted
by applicable law fluctuates.
3
<PAGE>
CHANGE OF CONTROL means a change resulting when any Unrelated Person or
any Unrelated Persons (other than Philip Services Corp. or its Affiliates)
acting together which would constitute a Group together with any Affiliates or
Related Persons thereof (in each case also constituting Unrelated Persons) shall
at any time either (i) Beneficially Own more than 50% of the aggregate voting
power of all classes of Voting Stock of Borrower or (ii) succeed in having
sufficient of its or their nominees elected to the Board of Directors of
Borrower such that such nominees, when added to any existing directors remaining
on the Board of Directors of Borrower after such election who is an Affiliate or
Related Person of such Person or Group, shall constitute a majority of the Board
of Directors of Borrower. As used herein (a) "BENEFICIALLY OWN" means
"beneficially own" as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended, or any successor provision thereto; PROVIDED, HOWEVER, that,
for purposes of this definition, a Person shall not be deemed to Beneficially
Own securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates until such tendered
securities are accepted for purchase or exchange; (b) "GROUP" means a "group"
for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended; (c) "UNRELATED PERSON" means at any time any Person other than Borrower
or any Subsidiary of Borrower and other than any trust for any employee benefit
plan of Borrower or any Subsidiary of Borrower; (d) "RELATED PERSON" of any
Person shall mean any other Person owning (1) 5% or more of the outstanding
common stock of such Person or (2) 5% or more of the Voting Stock of such
Person; and (e) "VOTING STOCK" of any Person shall mean capital stock of such
Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
CHAPTER 1D means Chapter 1D of Title 79, Texas Rev. Civ. Stats. 1925, as
amended.
CODE means the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
COLLATERAL means all Property, tangible or intangible, real, personal or
mixed, now or hereafter subject to the Security Documents.
COMMITMENT FEE PERCENTAGE means (i) on any day prior to January 1, 1998,
0.30% and (ii) on and after January 1, 1998, the applicable per annum percentage
set forth at the appropriate intersection in the table shown below, based on the
Debt to Pro Forma Consolidated EBITDA Ratio as of the last day of the most
recently ended fiscal quarter of Borrower calculated by Agent as soon as
practicable after receipt by Agent of all financial reports required under this
Agreement with respect to such fiscal quarter (including a Compliance
Certificate) (provided, however, that if the Commitment Fee Percentage is
increased as a result of the reported Debt to Pro Forma Consolidated EBITDA
Ratio, such increase shall be retroactive to the date that Borrower was
obligated to deliver such financial reports to Agent pursuant to the terms of
this Agreement and provided further, however, that if the Commitment Fee
Percentage is decreased as a result of the reported Debt to Pro Forma
Consolidated EBITDA Ratio, and such financial reports are delivered
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to Agent not more than ten (10) calendar days after the date required to be
delivered pursuant to the terms of this Agreement, such decrease shall be
retroactive to the date that Borrower was obligated to deliver such financial
reports to Agent pursuant to the terms of this Agreement):
Debt to Pro Forma Commitment
CONSOLIDATED EBITDA RATIO FEE PERCENTAGE
Greater than 2.50 0.40
Greater than 2.00 but
less than or equal to 2.50 0.375
Greater than 1.50 but
less than or equal to 2.00 0.35
Greater than 1.00 but
less than or equal to 1.50 0.30
Less than or equal to 1.00 0.25
COMPLIANCE CERTIFICATE shall have the meaning given to it in SECTION 7.2
hereof.
CONSOLIDATED EBITDA means, without duplication, for any period the
Consolidated Net Income of Borrower PLUS, to the extent deducted in calculating
Consolidated Net Income, depreciation, amortization, other non-cash items
(including special non-cash compensation expenses associated with the issuance
of stock to certain members of executive management), Interest Expense,
provisions for income taxes, management fees paid to Computerized Accounting &
Tax Services, Inc. for the fiscal 1997 year in an aggregate amount not to exceed
$360,000 and excess management fees charged to Subsidiaries of Borrower by
Synergistic Partners, Inc. for the calendar 1997 year (in an aggregate amount
not to exceed $500,000) as described in the Form S-1 for Borrower filed with the
Securities and Exchange Commission in October, 1997.
CONSOLIDATED NET INCOME means for any period for which the amount thereof
is to be determined the net income (or net losses) of Borrower and its
Subsidiaries on a consolidated basis as determined in accordance with GAAP after
deducting, to the extent included in computing said net income and without
duplication, (i) the income (or deficit) of any Person (other than a Subsidiary)
in which Borrower or any of its Subsidiaries has any ownership interest, except
to the extent that any such income has been actually received by Borrower or
such Subsidiary in the form of cash dividends or similar cash distribution, (ii)
any income (or deficit) of any other Person accrued prior to the date it becomes
a Subsidiary of Borrower or merges into or consolidates with Borrower or a
Subsidiary of Borrower, (iii) the gain or loss (net of any tax effect) resulting
from the sale of any capital assets (other than sales in the ordinary course of
business), (iv) any gains or losses or other income which is non-recurring or
extraordinary, (v) income resulting from the
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write-up of any assets, and (vi) any portion of the net income of any
Subsidiaries of Borrower which is not available for distribution.
CONTROLLED GROUP means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with Borrower, are treated as a single employer under Section
414 of the Code.
CORPORATION means any corporation, limited liability company, partnership,
joint venture, joint stock association, business trust and other business
entity.
COVER for Letter of Credit Liabilities shall be effected by paying to
Agent immediately available funds, to be held by Agent in a collateral account
maintained by Agent at its Principal Office and collaterally assigned as
security for the financial accommodations extended pursuant to this Agreement
using documentation reasonably satisfactory to Agent, in the amount required by
any applicable provision hereof. Such amount shall be retained by Agent in such
collateral account until such time as in the case of the Cover being provided
pursuant to SECTIONS 2.2(A) or 9.3 hereof, the applicable Letter of Credit shall
have expired and the Reimbursement Obligations, if any, with respect thereto
shall have been fully satisfied; PROVIDED, HOWEVER, that at such time if a
Default or Event of Default has occurred and is continuing, Agent shall not be
required to release such amount in such collateral account until such Default or
Event of Default shall have been cured or waived.
DEBT TO PRO FORMA CONSOLIDATED EBITDA RATIO means, as of the end of any
fiscal quarter, the ratio of (a) Indebtedness as of such date to (b) Pro Forma
Consolidated EBITDA for the 12 months ending on such date.
DEFAULT means an Event of Default or an event which with notice or lapse
of time or both would, unless cured or waived, become an Event of Default.
DOLLARS and $ means lawful money of the United States of America.
ENVIRONMENTAL CLAIM means any third party (including Governmental
Authorities and employees) action, lawsuit, claim or proceeding (including
claims or proceedings at common law or under the Occupational Safety and Health
Act or similar laws relating to safety of employees) which seeks to impose
liability for (i) noise; (ii) pollution or contamination of the air, surface
water, ground water or land or the clean-up of such pollution or contamination;
(iii) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) the manufacture, processing, distribution
in commerce or use of Hazardous Substances. An "ENVIRONMENTAL CLAIM" includes,
but is not limited to, a common law action, as well as a proceeding to issue,
modify or terminate an Environmental Permit, or to adopt or amend a regulation
to the extent that such a proceeding attempts to redress violations of an
applicable permit, license, or regulation as alleged by any Governmental
Authority.
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ENVIRONMENTAL LIABILITIES includes all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs and expenses necessary to cause the issuance, reissuance or
renewal of any Environmental Permit including reasonable attorneys' fees and
court costs.
ENVIRONMENTAL PERMIT means any permit, license, approval or other
authorization under any applicable Legal Requirement relating to pollution or
protection of health or the environment, including laws, regulations or other
requirements relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or Hazardous Substances.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the U.S. Department
of Labor thereunder.
EURODOLLAR RATE means for any day during an Interest Period for a LIBOR
Borrowing a rate per annum equal to the lesser of (a) the sum of (1) the
Adjusted LIBOR in effect on the first day of such Interest Period plus (2) the
applicable Margin Percentage in effect from time to time or (b) the Ceiling
Rate. Each Eurodollar Rate is subject to adjustments for reserves, insurance
assessments and other matters as provided for in SECTION 3.3 hereof.
EURODOLLAR RESERVE REQUIREMENT means, on any day, that percentage
(expressed as a decimal fraction and rounded, if necessary, to the next highest
one ten thousandth [.0001]) which is in effect on such day for determining all
reserve requirements (including, without limitation, basic, supplemental,
marginal and emergency reserves) applicable to "Eurocurrency liabilities," as
currently defined in Regulation D. Each determination of the Eurodollar Reserve
Requirement by Agent shall create a rebuttable presumption as to the accuracy
thereof, and may be computed using any reasonable averaging and attribution
method.
EVENT OF DEFAULT shall have the meaning assigned to it in SECTION 9
hereof.
FEDERAL FUNDS RATE means, for any day, a fluctuating interest rate per
annum equal for such day to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any such day which is a
Business Day, the average of the quotations for such day on such transactions
received by Agent from three Federal funds brokers of recognized standing
selected by Agent in its sole and absolute discretion.
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FINANCING STATEMENTS means all such Uniform Commercial Code financing
statements as Agent shall reasonably require, in Proper Form, duly executed by
Borrower (or any other applicable Obligor) to give notice of and to perfect or
continue perfection of Agent's Liens in any applicable Collateral, as any of the
foregoing may from time to time be amended, modified, supplemented or restated.
FIXED CHARGE COVERAGE RATIO means, as of the end of any fiscal quarter,
the ratio of (a) Consolidated EBITDA for the 12 months ending on such day LESS
provisions for income taxes to (b) Fixed Charges for such 12-month period. With
respect to the Founding Companies acquired during such 12-month period, the
components of the Fixed Charge Coverage Ratio attributable to such Founding
Companies shall be determined on an annualized basis, using the financial
information available for such Founding Companies since its acquisition by the
Borrower.
FIXED CHARGES means, for any period for which the amount thereof is to be
determined, the sum of current maturities of long term debt as of the date that
"Fixed Charges" are required to be calculated, Interest Expenses and Capital
Expenditures.
FOUNDING COMPANIES means The Safe Seal Company, Inc., a Texas corporation,
Harley Industries, Inc., a California corporation, Valve Repair of South
Carolina, Inc., a South Carolina corporation, Spinsafe Corporation, a Texas
corporation, The Safe Seal Company (Canada), Inc., a corporation organized under
the laws of the Province of Ontario, Canada, Plant Specialties, Inc., a
Louisiana corporation, GSV, Inc., a Florida corporation, Puget Investments,
Inc., a Washington corporation, Steam Supply & Rubber Co., Inc., a Washington
corporation, Flickinger Company, a Washington corporation, Flickinger-Benecia,
Inc., a Washington corporation, Industrial Controls & Equipment, Inc., a
Pennsylvania corporation, Valve Actuation & Repair Company, Inc., a West
Virginia corporation, Rickco Acquisition, Inc. d/b/a BAS Technical Services
Inc., a West Virginia corporation, BAS Technical Employment Placement Company, a
West Virginia corporation, Southern Valve Service, Inc., an Alabama corporation,
and 55 Leasing and Sales Company, Inc., an Alabama corporation.
FUNDING LOSS means, with respect to (a) Borrower's payment of principal of
a LIBOR Borrowing on a day other than the last day of the applicable Interest
Period; (b) Borrower's failure to borrow a LIBOR Borrowing on the date specified
by Borrower; (c) Borrower's failure to make any prepayment of the Loans (other
than Base Rate Borrowings) on the date specified by Borrower, or (d) any
cessation of a Eurodollar Rate to apply to the Loans or any part thereof
pursuant to SECTION 3.3, in each case whether voluntary or involuntary, any
loss, expense, penalty, premium or liability actually incurred by any Lender
(including but not limited to any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by any Lender to
fund or maintain a Loan), but excluding loss of margin or profit for the period
after such payment or failure to borrow or prepay and excluding losses resulting
from the gross negligence or willful misconduct of the applicable Lender.
GAAP means, as to a particular Person, such accounting practice as, in the
opinion of independent certified public accountants of recognized national
standing regularly retained by such Person, conforms at the time to generally
accepted accounting principles, consistently applied for
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all periods after the Effective Date so as to present fairly the financial
condition, and results of operations and cash flows, of such Person. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board, all reports and financial statements required
hereunder may be prepared in accordance with such change so long as Borrower
provides to Agent such disclosures of the impact of such change as Agent may
reasonably require. No such change in any accounting principle or practice
shall, in itself, cause a Default or Event of Default hereunder (but Borrower,
Agent and Lenders shall negotiate in good faith to replace any financial
covenants hereunder to the extent such financial covenants are affected by such
change in accounting principle or practice).
GOVERNMENTAL AUTHORITY means any foreign governmental authority, the
United States of America, any State of the United States, and any political
subdivision of any of the foregoing, and any central bank, agency, department,
commission, board, bureau, court or other tribunal having jurisdiction over
Agent, any Lender, any Obligor or their respective Property.
GUARANTIES means, collectively, (i) the Guaranties dated concurrently
herewith executed by each of the current Subsidiaries of Borrower in favor of
Agent, for the benefit of Lenders, and (ii) any and all other guaranties
hereafter executed in favor of Agent, for the benefit of Lenders, relating to
the Obligations, as any of them may from time to time be amended, modified,
restated or supplemented.
HAZARDOUS SUBSTANCE means petroleum products, and any hazardous or toxic
waste or substance defined or regulated as such from time to time by any law,
rule, regulation or order described in the definition of "Requirements of
Environmental Law".
INDEBTEDNESS means, for any Person, (i) all obligations of such Person for
Borrowed Money Indebtedness or which has been incurred in connection with the
acquisition of property and (ii) preferred stock having a mandatory redemption
prior to the maturity of the Obligations. Earnouts shall not be treated as
Indebtedness except to the extent required under GAAP.
INTEREST COVERAGE RATIO means, as of any day, the ratio of (a)
Consolidated EBITDA for the 12 months ending on the last day of the immediately
preceding fiscal quarter of Borrower to (b) Interest Expense for such period.
With respect to the Founding Companies acquired during such 12-month period, the
components of the Interest Coverage Ratio attributable to such Founding
Companies shall be determined on an annualized basis, using the financial
information available for such Founding Companies since its acquisition by the
Borrower.
INTEREST EXPENSE means, for any Person, the sum of (i) all interest on
Indebtedness paid or payable (including the portion of rents payable under
capital leases allocable to interest) plus (ii) all debt discount and expense
amortized or required to be amortized during such period. "Interest Expense"
shall not include fees paid to Philip Services Corp. (or its predecessors) as
consideration for guaranties provided with respect to Indebtedness of Borrower
or any of its Subsidiaries (or their respective predecessors).
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INTEREST OPTIONS means the Base Rate and each Eurodollar Rate, and
"INTEREST OPTION" means any of them.
INTEREST PAYMENT DATES means (a) FOR BASE RATE BORROWINGS, January 1, 1998
and the first Business Day following each March 31, June 30, September 30 and
December 31 thereafter prior to the Revolving Loan Maturity Date and the
Revolving Loan Maturity Date; and (b) FOR LIBOR BORROWINGS, the end of the
applicable Interest Period (and if such Interest Period exceeds three months'
duration, quarterly, commencing on the first quarterly anniversary of the first
day of such Interest Period) and the Revolving Loan Maturity Date.
INTEREST PERIOD means, for each LIBOR Borrowing, a period commencing on
the date such LIBOR Borrowing began and ending on the numerically corresponding
day which is, subject to availability as set forth in SECTION 3.3(C)(III), 1, 2,
3 or 6 months thereafter, as Borrower shall elect in accordance herewith;
PROVIDED, (1) unless Agent shall otherwise consent, no Interest Period with
respect to a LIBOR Borrowing shall commence on a date earlier than three (3)
Business Days after this Agreement shall have been fully executed; (2) any
Interest Period with respect to a LIBOR Borrowing which would otherwise end on a
day which is not a LIBOR Business Day shall be extended to the next succeeding
LIBOR Business Day, unless such LIBOR Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding LIBOR
Business Day; (3) any Interest Period with respect to a LIBOR Borrowing which
begins on the last LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last LIBOR Business Day of the
appropriate calendar month; (4) no Interest Period for a Loan shall ever extend
beyond the Revolving Loan Maturity Date, and (5) Interest Periods shall be
selected by Borrower in such a manner that the Interest Period with respect to
any portion of the Loans which shall become due shall not extend beyond such due
date.
INTEREST RATE RISK AGREEMENT means an interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar
arrangement entered into by Borrower for the purpose of reducing Borrower's
exposure to interest rate fluctuations and not for speculative purposes,
approved in writing by Agent (such approval not to be unreasonably withheld), as
it may from time to time be amended, modified, restated or supplemented.
INTEREST RATE RISK INDEBTEDNESS means all obligations and Indebtedness of
Borrower with respect to the program for the hedging of interest rate risk
provided for in any Interest Rate Risk Agreement.
INVESTMENT means the purchase or other acquisition of any securities or
Indebtedness of, or the making of any loan, advance, transfer of Property (other
than transfers in the ordinary course of business) or capital contribution to,
or the incurring of any liability (other than trade accounts payable arising in
the ordinary course of business), contingently or otherwise, in respect of the
Indebtedness of, any Person; PROVIDED, HOWEVER, that the purchase by Borrower or
any of its Subsidiaries of any Indebtedness of Borrower or any of its
Subsidiaries for the purpose of retiring such Indebtedness shall not be deemed
to be an Investment.
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ISSUER means the issuer (or, where applicable, each issuer) of a Letter of
Credit under this Agreement.
LEGAL REQUIREMENT means any law, statute, ordinance, decree, requirement,
order, judgment, rule, or regulation (or interpretation of any of the foregoing)
of, and the terms of any license or permit issued by, any Governmental
Authority, whether presently existing or arising in the future.
LETTER OF CREDIT shall have the meaning assigned to such term in SECTION
2.2 hereof.
LETTER OF CREDIT LIABILITIES means, at any time and in respect of any
Letter of Credit, the sum of (i) the amount available for drawings under such
Letter of Credit PLUS (ii) the aggregate unpaid amount of all Reimbursement
Obligations at the time due and payable in respect of previous drawings made
under such Letter of Credit. For the purpose of determining at any time the
amount described in clause (i), in the case of any Letter of Credit payable in a
currency other than Dollars, such amount shall be converted by Agent to Dollars
by any reasonable method, and such converted amount shall be conclusive and
binding, absent manifest error.
LIBOR means, for each Interest Period for any LIBOR Borrowing, the rate
per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%)
appearing on Telerate Page 3750 (or if such Telerate Page shall not be
available, any successor or similar service as may be selected by Agent and
Borrower as the London interbank rate for deposits in United States dollars) as
of 10:00 a.m., Houston, Texas time (or as soon thereafter as practicable) on the
day two LIBOR Business Days prior to the first day of such Interest Period for
deposits in United States dollars having a term comparable to such Interest
Period and in an amount comparable to the principal amount of the LIBOR
Borrowing to which such Interest Period relates. If none of such Telerate Page
3750 nor any successor or similar service is available, then "LIBOR" shall mean,
with respect to any Interest Period for any applicable LIBOR Borrowing, the rate
of interest per annum, rounded upwards, if necessary, to the nearest 1/100th of
1%, quoted by Agent at or before 10:00 a.m., Houston, Texas time (or as soon
thereafter as practicable), on the date two LIBOR Business Days before the first
day of such Interest Period, to be the arithmetic average of the prevailing
rates per annum at the time of determination and in accordance with the then
existing practice in the applicable market, for the offering to Agent by one or
more prime banks selected by Agent in its sole discretion, in the London
interbank market, of deposits in United States dollars for delivery on the first
day of such Interest Period and having a maturity equal to the length of such
Interest Period and in an amount equal (or as nearly equal as may be) to the
LIBOR Borrowing to which such Interest Period relates. Each determination by
Agent of LIBOR shall create a rebuttable presumption as to the accuracy thereof,
and may be computed using any reasonable averaging and attribution method.
LIBOR BORROWING means each portion of the principal balance of the Loans
at any time bearing interest at a Eurodollar Rate.
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LIBOR BUSINESS DAY means a Business Day on which transactions in United
States dollar deposits between lenders may be carried on in the London interbank
market.
LIEN means any mortgage, pledge, charge, encumbrance, security interest,
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional provision, statute or contract, and shall include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions and other title exceptions.
LOANS means the loans provided for by SECTION 2.1 hereof.
LOAN DOCUMENTS means, collectively, this Agreement, the Notes, the
Guaranties, all Applications, the Notice of Entire Agreement, all instruments,
certificates and agreements now or hereafter executed or delivered by any
Obligor to Agent or any Lender pursuant to any of the foregoing or in connection
with the Obligations or any commitment regarding the Obligations, and all
amendments, modifications, renewals, extensions, increases and rearrangements
of, and substitutions for, any of the foregoing.
MAJORITY LENDERS means Lenders having greater than 60% of the Revolving
Loan Commitments or, if the Revolving Loan Commitments are terminated, Lenders
having greater than 60% of the outstanding Loans.
MARGIN PERCENTAGE means, on any day prior to January 1, 1998, 0% with
respect to Base Rate Borrowings and 1.25% with respect to LIBOR Borrowings and
on and after January 1, 1998, the applicable per annum percentage set forth at
the appropriate intersection in the table shown below, based on the Debt to Pro
Forma Consolidated EBITDA Ratio as of the last day of the most recently ended
fiscal quarter of Borrower calculated by Agent as soon as practicable after
receipt by Agent of all financial reports required under this Agreement with
respect to such fiscal quarter (including a Compliance Certificate) (provided,
however, that if the Margin Percentage is increased as a result of the reported
Debt to Pro Forma Consolidated EBITDA Ratio, such increase shall be retroactive
to the date that Borrower was obligated to deliver such financial reports to
Agent pursuant to the terms of this Agreement and provided further, however,
that if the Margin Percentage is decreased as a result of the reported Debt to
Pro Forma Consolidated EBITDA Ratio, and such financial reports are delivered to
Agent not more than ten (10) calendar days after the date required to be
delivered pursuant to the terms of this Agreement, such decrease shall be
retroactive to the date that Borrower was obligated to deliver such financial
reports to Agent pursuant to the terms of this Agreement):
Debt to Pro Forma LIBOR Borrowings Base Rate Borrowings
CONSOLIDATED EBITDA RATIO MARGIN PERCENTAGE MARGIN PERCENTAGE
Greater than 2.50 2.00 0.50
Greater than 2.00 but
less than or equal to 2.50 1.75 0.25
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Greater than 1.50 but
less than or equal to 2.00 1.50 0.00
Greater than 1.00 but
less than or equal to 1.50 1.25 0.00
Less than or equal to 1.00 1.00 0.00
MATERIAL ADVERSE EFFECT means relative to any occurrence of whatever
nature (including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding), resulting in (i) a material adverse
effect on the financial condition, business, operations, or assets of Borrower
and its Subsidiaries, on a consolidated basis, from those reflected in the
financial statements furnished to Agent referred to in SECTION 6.2 hereof or
from the facts represented or warranted in this Agreement or any other Loan
Document, (ii) a material impairment of the ability of Borrower and its
Subsidiaries, on a consolidated basis, to perform their obligations under the
Loan Documents or (iii) a material impairment of the validity or enforceability
of the Loan Documents the result of which is a material adverse effect on the
ability of Lenders to collect the Obligations when due.
MONTHLY FINANCIAL STATEMENTS means the monthly financial statements of a
Person, which statements shall include a balance sheet as of the end of such
fiscal month, an income statement for the period ended on such fiscal month and
for the fiscal year to date and a statement of cash flows for the fiscal year to
date, subject to normal year-end adjustments, prepared in accordance with GAAP
in all material respects except that such statements are condensed and exclude
detailed footnote disclosures and certified by the chief financial officer or
other authorized officer of such Person as fairly presenting, in all material
respects, the financial position of such person as of such date. Monthly
Financial Statements prepared as of the last day of a March, June or September
shall set forth in comparative form the corresponding figures as of the end of
and for the corresponding fiscal quarter of the preceding year (except for cash
flow statements, which will be year to date comparisons). To the extent required
by Agent or the Majority Lenders, Monthly Financial Statements shall also
include an unaudited consolidating balance sheet and income statement for the
applicable Person, in Proper Form, certified by the chief financial officer or
other authorized officer of such Person as true, correct and complete in all
material respects.
NOTES shall have the meaning assigned to such term in SECTION 2.6 hereof.
NOTICE OF ENTIRE AGREEMENT means a notice of entire agreement, in Proper
Form, executed by Borrower, each other Obligor and Agent, as the same may from
time to time be amended, modified, supplemented or restated.
OBLIGATIONS means, as at any date of determination thereof, the sum of the
following: (i) the aggregate principal amount of Loans outstanding hereunder on
such date, PLUS (ii) the aggregate amount of the outstanding Letter of Credit
Liabilities hereunder on such date, PLUS (iii) all other outstanding
liabilities, obligations and indebtedness of any Obligor under any Loan Document
on such date.
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OBLIGORS means Borrower, each Person (other than Agent or a Lender) now or
hereafter executing a Guaranty and each Subsidiary of Borrower.
ORGANIZATIONAL DOCUMENTS means, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership and with respect to a trust, the instrument
establishing such trust; in each case including any and all modifications
thereof as of the date of the Loan Document referring to such Organizational
Document and any and all future modifications thereof.
PAST DUE RATE means, on any day, a rate per annum equal to the lesser of
(i) the Ceiling Rate for that day or (ii) the Base Rate plus five percent (5%).
PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
PERMITTED INVESTMENT means Investments permitted under the terms of
SECTION 8.9 hereof.
PERMITTED LIENS means Liens permitted under the provisions of SECTION 8.2
hereof.
PERSON means any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
PLAN means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code and is either (a) maintained by Borrower or any member of the Controlled
Group for employees of Borrower or any member of the Controlled Group or (b)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
Borrower or any member of the Controlled Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.
PRIME RATE means, on any day, the prime rate for that day as determined
from time to time by TCB. The Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate or a favored rate, and TCB, Agent
and each Lender disclaims any statement, representation or warranty to the
contrary. TCB, Agent or any Lender may make commercial loans or other loans at
rates of interest at, above or below the Prime Rate.
PRINCIPAL OFFICE means the principal office of Agent, presently located at
712 Main Street, Houston, Harris County, Texas 77002.
PRO FORMA CONSOLIDATED EBITDA means, for any period for which the amount
thereof is to be determined, Consolidated EBITDA of Borrower plus (or minus),
without duplication, the allocable share of Consolidated EBITDA, including (i)
such adjustments, on a pooling-of-interest basis, necessary to present on a pro
forma basis, for such period of any Person acquired during such period
(calculated as if such Person had been a Subsidiary for all of such period) and
with respect
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to which Agent and Lenders have been provided with Annual Financial Statements
for the most recently ended fiscal year of such Person, (ii) adjustments
approved by Agent and the Majority Lenders for compensation of former owners of
any Person acquired during such period in excess of compensation that will be
paid for similar management following the applicable acquisition and (iii) other
pro forma adjustments in accordance with rules and regulations of the Securities
and Exchange Commission approved by Agent and the Majority Lenders. Borrower
shall furnish to Agent supporting calculations for Pro Forma Consolidated EBITDA
and such other information as Agent may reasonably request to determine the
accuracy of such calculation.
PROPER FORM means in form reasonably satisfactory to Agent.
PROPERTY means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
QUARTERLY DATES means the last day of each March, June, September and
December, PROVIDED that if any such date is not a Business Day, then the
relevant Quarterly Date shall be the next succeeding Business Day.
RATE DESIGNATION DATE means that Business Day which is (a) in the case of
Base Rate Borrowings, 11:00 a.m., Houston, Texas time, on the date of such
borrowing and (b) in the case of LIBOR Borrowings, 11:00 a.m., Houston, Texas
time, on the date three LIBOR Business Days preceding the first day of any
proposed Interest Period.
RATE DESIGNATION NOTICE means a written notice substantially in the form
of EXHIBIT B.
REGULATION D means Regulation D of the Board of Governors of the Federal
Reserve System from time to time in effect and includes any successor or other
regulation relating to reserve requirements applicable to member banks of the
Federal Reserve System.
REGULATORY CHANGE means with respect to any Lender, any change on or after
the date of this Agreement in any Legal Requirement (including, without
limitation, Regulation D) or the adoption or making on or after such date of any
interpretation, directive or request applying to a class of lenders including
such Lender under any Legal Requirements (whether or not having the force of
law) by any Governmental Authority.
REIMBURSEMENT OBLIGATIONS means, as at any date, the obligations of
Borrower then outstanding, or which may thereafter arise, in respect of Letters
of Credit under this Agreement, to reimburse the applicable Issuers for the
amount paid by such Issuers in respect of any drawing under such Letters of
Credit, which obligations shall at all times be payable in Dollars
notwithstanding any such Letter of Credit being payable in a currency other than
Dollars.
REQUEST FOR EXTENSION OF CREDIT means a request for extension of credit
duly executed by the chief executive officer, chief financial officer, any vice
president or treasurer of Borrower or any other officer of Borrower duly
authorized in writing by Borrower, appropriately completed and substantially in
the form of EXHIBIT A attached hereto.
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REQUIREMENTS OF ENVIRONMENTAL LAW means all requirements imposed by any
law (including for example and without limitation The Resource Conservation and
Recovery Act and The Comprehensive Environmental Response, Compensation, and
Liability Act), rule, regulation, or order of any federal, state or local
executive, legislative, judicial, regulatory or administrative agency, board or
authority in effect at the applicable time which relate to (i) noise; (ii)
pollution, protection or clean-up of the air, surface water, ground water or
land; (iii) solid, gaseous or liquid waste generation, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) regulation of the manufacture, processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.
REVOLVING LOAN AVAILABILITY PERIOD means, for each Revolving Loan Lender,
the period from and including the Effective Date to (but not including) the
Revolving Loan Termination Date.
REVOLVING LOAN LENDER means each Lender with (i) prior to the Revolving
Loan Termination Date, a Revolving Loan Commitment and (ii) on and after the
Revolving Loan Termination Date, any outstanding Revolving Loan Obligations.
REVOLVING LOAN COMMITMENT means, as to any Lender, the obligation, if any,
of such Lender to make Loans and incur or participate in Letter of Credit
Liabilities in an aggregate principal amount at any one time outstanding up to
(but not exceeding) the amount, if any, set forth opposite such Lender's name on
the signature pages hereof under the caption "Revolving Loan Commitment", or
otherwise provided for in an Assignment and Acceptance Agreement (as the same
may be reduced from time to time pursuant to SECTION 2.3 hereof).
REVOLVING LOAN COMMITMENT PERCENTAGE means, as to any Revolving Loan
Lender, the percentage equivalent of a fraction the numerator of which is the
amount of such Lender's Revolving Loan Commitment and the denominator of which
is the aggregate amount of the Revolving Loan Commitments of all Lenders.
REVOLVING LOAN MATURITY DATE means the maturity of the Notes, September
30, 2000. Upon written request from Borrower at any time after February 28, 1999
but prior to May 31, 2000 (and thereafter annually within the same three month
period), Agent shall make request on the Lenders for approval to a one (1) year
extension of the Revolving Loan Maturity Date; PROVIDED, HOWEVER, that no such
extension shall be effective without the unanimous written consent of the
Lenders, which may be given or denied in their sole discretion, with or without
cause.
REVOLVING LOAN OBLIGATIONS means, as at any date of determination thereof,
the sum of the following (determined without duplication): (i) the aggregate
principal amount of Loans outstanding hereunder PLUS (ii) the aggregate amount
of the Letter of Credit Liabilities hereunder.
REVOLVING LOAN TERMINATION DATE means the earlier of (a) the Revolving
Loan Maturity Date or (b) the date specified by Agent in accordance with SECTION
9.1 hereof.
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SECRETARY'S CERTIFICATE means a certificate, in Proper Form, of the
Secretary or an Assistant Secretary of a corporation as to (a) the resolutions
of the Board of Directors of such corporation authorizing the execution,
delivery and performance of the documents to be executed by such corporation;
(b) the incumbency and signature of the officer of such corporation executing
such documents on behalf of such corporation, and (c) the Organizational
Documents of such corporation.
SECURITY AGREEMENTS means (i) security agreements, each in Proper Form,
executed or to be executed in favor of Agent, securing the Obligations, covering
all of the issued and outstanding equity interests in any Subsidiary of Borrower
(other than non-voting preferred stock of Puget Investments, Inc. outstanding as
of the Effective Date) and (ii) security agreements, each in Proper Form,
executed in favor of Agent, securing the Obligations, covering all of the
Accounts and Inventory of Borrower and its Subsidiaries, as the same may from
time to time be amended, modified, restated or supplemented.
SECURITY DOCUMENTS means, collectively, the Security Agreements and any
and all security documents now or hereafter executed and delivered by any
Obligor to secure all or any part of the Obligations, as any of them may from
time to time be amended, modified, restated or supplemented.
STATED RATE means the effective weighted per annum rate of interest
applicable to the Loans; PROVIDED, that if on any day such rate shall exceed the
Ceiling Rate for that day, the Stated Rate shall be fixed at the Ceiling Rate on
that day and on each day thereafter until the total amount of interest accrued
at the Stated Rate on the unpaid principal balances of the Notes plus the
Additional Interest equals the total amount of interest which would have accrued
if there had been no Ceiling Rate. If the Notes mature (or are prepaid) before
such equality is achieved, then, in addition to the unpaid principal and accrued
interest then owing pursuant to the other provisions of the Loan Documents,
Borrower promises to pay on demand to the order of the holder of each Note
interest in an amount equal to the excess (if any) of (a) the lesser of (i) the
total interest which would have accrued on such Note if the Stated Rate had been
defined as equal to the Ceiling Rate from time to time in effect and (ii) the
total interest which would have accrued on such Note if the Stated Rate were not
so prohibited from exceeding the Ceiling Rate, over (b) the total interest
actually accrued on such Note to such maturity (or prepayment) date. Without
notice to Borrower or any other Person, the Stated Rate shall automatically
fluctuate upward and downward in accordance with the provisions of this
definition.
STOCKHOLDERS' EQUITY means the consolidated stockholders' equity of
Borrower and its Subsidiaries determined in accordance with GAAP.
SUBORDINATED INDEBTEDNESS means all Indebtedness of a Person which has
been subordinated on terms and conditions satisfactory to the Majority Lenders,
in their sole discretion, to all Indebtedness of such Person to Lenders, whether
now existing or hereafter incurred. Indebtedness shall not be considered as
"Subordinated Indebtedness" unless and until Agent shall have received copies of
the documentation evidencing or relating to such Indebtedness together with a
subordination agreement, in Proper Form, duly executed by the holder or holders
of such
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Indebtedness and evidencing the terms and conditions of subordination required
by the Majority Lenders.
SUBSIDIARY means, as to a particular parent Corporation, any Corporation
of which more than 50% of the indicia of equity rights (whether outstanding
capital stock or otherwise) is at the time directly or indirectly owned by, such
parent Corporation.
TAXES shall have the meaning ascribed to it in SECTION 4.1(D).
TEXAS CREDIT CODE means Title 79, Texas Revised Civil Statutes, 1925, as
amended.
UNFUNDED LIABILITIES means, with respect to any Plan, at any time, the
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent actuarial valuation report for such
Plan, but only to the extent that such excess represents a potential liability
of any member of the Controlled Group to the PBGC or a Plan under Title IV of
ERISA. With respect to multi-employer Plans, the term "Unfunded Liabilities"
shall also include asserted withdrawal liability under Section 4201 of ERISA to
all multi-employer Plans to which Borrower or any member of a Controlled Group
for employees of Borrower contributes in the event of complete withdrawal from
such plans.
1.2 MISCELLANEOUS. The words "HEREOF," "HEREIN," and "HEREUNDER" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not any particular provision of this Agreement. The term "ANNUALIZED"
as used herein shall mean the multiplication of the applicable amount for any
given period by a fraction, the numerator of which is 365 and the denominator of
which is the number of days elapsed in such period.
2. COMMITMENTS AND LOANS.
2.1 LOANS. Each Lender severally agrees, subject to all of the terms and
conditions of this Agreement (including, without limitation, SECTIONS 5.1 AND
5.2 hereof), to make Loans to Borrower, from time to time on or after the
Effective Date and during the Revolving Loan Availability Period, in an
aggregate principal amount at any one time outstanding (including its Revolving
Loan Commitment Percentage of all Letter of Credit Liabilities at such time) up
to but not exceeding such Lender's Revolving Loan Commitment Percentage of the
aggregate of the Revolving Loan Commitments. Subject to the conditions in this
Agreement, any such Loan repaid prior to the Revolving Loan Termination Date may
be reborrowed pursuant to the terms of this Agreement; PROVIDED, that any and
all such Loans shall be due and payable in full at the end of the Revolving Loan
Availability Period. Borrower, Agent and the Lenders agree pursuant to Chapter
346 ("CHAPTER 346") of the Texas Finance Code, that Chapter 346 (which relates
to open-end line of credit revolving loan accounts) shall not apply to this
Agreement, the Revolving Notes or any Revolving Loan Obligation and that neither
the Revolving Notes nor any revolving Loan Obligation shall be governed by
Chapter 346 or subject to its provisions in any manner whatsoever.
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The aggregate of all Loans to be made by the Lenders in connection with a
particular borrowing shall be equal to an integral multiple of $250,000.
2.2 LETTERS OF CREDIT.
(a) LETTERS OF CREDIT. Subject to the terms and conditions of this
Agreement, and on the condition that aggregate Letter of Credit Liabilities
shall never exceed $5,000,000, (i) Borrower shall have the right to, in addition
to Loans provided for in SECTION 2.1 hereof, utilize the Revolving Loan
Commitments from time to time during the Revolving Loan Availability Period by
obtaining the issuance of standby letters of credit for the account of Borrower
if Borrower shall so request in the notice referred to in SECTION 2.2(B)(I)
hereof (such standby letters of credit as any of them may be amended,
supplemented, extended or confirmed from time to time, being herein collectively
called the "LETTERS OF CREDIT)" and (ii) TCB agrees to issue such Letters of
Credit. Upon the date of the issuance of a Letter of Credit, the applicable
Issuer shall be deemed, without further action by any party hereto, to have sold
to each Revolving Loan Lender, and each such Lender shall be deemed, without
further action by any party hereto, to have purchased from the applicable
Issuer, a participation, to the extent of such Lender's Revolving Loan
Commitment Percentage, in such Letter of Credit and the related Letter of Credit
Liabilities, which participation shall terminate on the earlier of the
expiration date of such Letter of Credit or the Revolving Loan Termination Date.
No Letter of Credit shall have an expiration date later than one year from date
of issuance. Any Letter of Credit that shall have an expiration date after the
end of the Revolving Loan Availability Period shall be subject to Cover or
backed by a standby letter of credit in form and substance, and issued by a
Person, acceptable to Agent in its sole discretion. TCB or, with the prior
approval of Borrower, Agent and the applicable Lender, another Lender shall be
the Issuer of each Letter of Credit.
(b) ADDITIONAL PROVISIONS. The following additional provisions shall apply
to each Letter of Credit:
(i) Borrower shall give Agent notice requesting each issuance of a
Letter of Credit hereunder as provided in SECTION 4.3 hereof and shall
furnish such additional information regarding such transaction as Agent
may reasonably request. Upon receipt of such notice, Agent shall promptly
notify each Revolving Loan Lender of the contents thereof and of such
Lender's Revolving Loan Commitment Percentage of the amount of such
proposed Letter of Credit.
(ii) No Letter of Credit may be issued if after giving effect
thereto the sum of (A) the aggregate outstanding principal amount of Loans
plus (B) the aggregate Letter of Credit Liabilities would exceed the
aggregate of the Revolving Loan Commitments. On each day during the period
commencing with the issuance of any Letter of Credit and until such Letter
of Credit shall have expired or been terminated, the Revolving Loan
Commitment of each Revolving Loan Lender shall be deemed to be utilized
for all purposes hereof in an amount equal to such Lender's Revolving Loan
Commitment
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Percentage of the amount then available for drawings under such Letter of
Credit (or any unreimbursed drawings under such Letter of Credit).
(iii) Upon receipt from the beneficiary of any Letter of Credit of
any demand for payment thereunder, Agent shall promptly notify Borrower
and each Lender as to the amount to be paid as a result of such demand and
the payment date therefor. If at any time prior to the earlier of the
expiration date of a Letter of Credit or the Revolving Loan Termination
Date any Issuer shall have made a payment to a beneficiary of a Letter of
Credit in respect of a drawing under such Letter of Credit, each Revolving
Loan Lender will pay to Agent immediately upon demand by such Issuer at
any time during the period commencing after such payment until
reimbursement thereof in full by Borrower, an amount equal to such
Lender's Revolving Loan Commitment Percentage of such payment, together
with interest on such amount for each day from the date of demand for such
payment (or, if such demand is made after 11:00 a.m. Houston time on such
date, from the next succeeding Business Day) to the date of payment by
such Lender of such amount at a rate of interest per annum equal to the
Federal Funds Rate for such period. To the extent that it is ultimately
determined that the Borrower is relieved of its obligation to reimburse
the applicable Issuer because of such Issuer's gross negligence or willful
misconduct in determining that documents received under any applicable
Letter of Credit comply with the terms thereof, the applicable Issuer
shall be obligated to refund to the paying Lenders all amounts paid to
such Issuer to reimburse Issuer for the applicable drawing under such
Letter of Credit.
(iv) Borrower shall be irrevocably and unconditionally obligated
forthwith to reimburse Agent, on the date on which the Agent notifies
Borrower of the date and amount of any payment by the Issuer of any
drawing under a Letter of Credit, for the amount paid by any Issuer upon
such drawing, without presentment, demand, protest or other formalities of
any kind, all of which are hereby waived. Such reimbursement may, subject
to satisfaction of the conditions in SECTIONS 5.1 and 5.2 hereof and to
the aggregate of the Revolving Loan Commitments (after adjustment in the
same to reflect the elimination of the corresponding Letter of Credit
Liability), be made by the borrowing of Loans. Agent will pay to each
Revolving Loan Lender such Lender's Revolving Loan Commitment Percentage
of all amounts received from Borrower for application in payment, in whole
or in part, of the Reimbursement Obligation in respect of any Letter of
Credit, but only to the extent such Lender has made payment to Agent in
respect of such Letter of Credit pursuant to CLAUSE (III) above.
(v) Borrower will pay to Agent at the Principal Office for the
account of each Revolving Loan Lender a letter of credit fee with respect
to each Letter of Credit equal to the greater of (x) $500 or (y) the then
current Margin Percentage for LIBOR Borrowings multiplied by the face
amount of such Letter of Credit (and computed on the basis of the actual
number of days elapsed in a year composed of 360 days), in each case for
the period from and including the date of issuance of such Letter of
Credit to and including the date of expiration or termination thereof,
such fee to be due and payable in advance. Agent will
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pay to each Revolving Loan Lender, promptly after receiving any payment in
respect of letter of credit fees referred to in this CLAUSE (V), an amount
equal to the product of such Lender's Revolving Loan Commitment Percentage
TIMES the amount of such fees. In addition to and cumulative of the above
described fees, Borrower shall pay to Agent, for the account of the
applicable Issuer, in advance on the date of the issuance of the
applicable Letter of Credit, a fronting fee in an amount equal to 1/8% of
the face amount of the applicable Letter of Credit (such fronting fee to
be retained by the applicable Issuer for its own account).
(vi) The issuance by the applicable Issuer of each Letter of Credit
shall, in addition to the conditions precedent set forth in SECTION 5
hereof, be subject to the conditions precedent (A) that such Letter of
Credit shall be in such form and contain such terms as shall be reasonably
satisfactory to Agent, and (B) that Borrower shall have executed and
delivered such Applications and other instruments and agreements relating
to such Letter of Credit as Agent shall have reasonably requested and are
not inconsistent with the terms of this Agreement. In the event of a
conflict between the terms of this Agreement and the terms of any
Application, the terms hereof shall control.
(vii) Issuer will send to the Borrower and each Lender, immediately
upon issuance of any Letter of Credit issued by Issuer or any amendment
thereto, a true and correct copy of such Letter of Credit or amendment.
(c) INDEMNIFICATION; RELEASE. Borrower hereby indemnifies and holds
harmless Agent, each Revolving Loan Lender and each Issuer from and against any
and all claims and damages, losses, liabilities, costs or expenses which Agent,
such Lender or such Issuer may incur (or which may be claimed against Agent,
such Lender or such Issuer by any Person whatsoever), REGARDLESS OF WHETHER
CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES,
in connection with the execution and delivery of any Letter of Credit or
transfer of or payment or failure to pay under any Letter of Credit; PROVIDED
that Borrower shall not be required to indemnify any party seeking
indemnification for any claims, damages, losses, liabilities, costs or expenses
to the extent, but only to the extent, caused by (i) the willful misconduct or
gross negligence of the party seeking indemnification, or (ii) the failure by
the party seeking indemnification to pay under any Letter of Credit after the
presentation to it of a request required to be paid under applicable law.
Borrower hereby releases, waives and discharges Agent, each Revolving Loan
Lender and each Issuer from any claims, causes of action, damages, losses,
liabilities, reasonable costs or expenses which may now exist or may hereafter
arise, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY
OF THE INDEMNIFIED PARTIES, by reason of or in connection with the failure of
any other Revolving Loan Lender to fulfill or comply with its obligations to
Agent, such Lender or such Issuer, as the case may be, hereunder (but nothing
herein contained shall affect any rights Borrower may have against such
defaulting Lender); PROVIDED that Borrower shall not be required to indemnify
any party seeking indemnification for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (i) the
willful misconduct or gross negligence of the party seeking
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indemnification, or (ii) the failure by the party seeking indemnification to pay
under any Letter of Credit after the presentation to it of a request required to
be paid under applicable law or (iii) disputes between or among any and all of
Agent, Lenders and Issuers. Nothing in this SECTION 2.2(C) is intended to limit
the obligations of Borrower under any other provision of this Agreement.
(d) ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. If as a result of
any Regulatory Change there shall be imposed, modified or deemed applicable any
tax (other than any tax based on or measured by net income), reserve, special
deposit or similar requirement against or with respect to or measured by
reference to Letters of Credit issued or to be issued hereunder or
participations in such Letters of Credit, and the result shall be to increase
the cost to any Revolving Loan Lender of issuing or maintaining any Letter of
Credit or any participation therein, or materially reduce any amount receivable
by any Revolving Loan Lender hereunder in respect of any Letter of Credit or any
participation therein (which increase in cost, or reduction in amount
receivable, shall be the result of such Lender's reasonable allocation of the
aggregate of such increases or reductions resulting from such event), then such
Lender shall notify Borrower through Agent (which notice shall be accompanied by
a statement setting forth in reasonable detail the basis for the determination
of the amount due), and within 15 Business Days after demand therefor by such
Lender through Agent, Borrower shall pay to such Lender, from time to time as
specified by such Lender, such additional amounts as shall be sufficient to
compensate such Lender for such increased costs or reductions in amount. Such
statement as to such increased costs or reductions in amount incurred by such
Lender, submitted by such Lender to Borrower, shall create a rebuttable
presumption as to the accuracy thereof, and may be computed using any reasonable
averaging and attribution method. Each Lender will notify Borrower through Agent
of any event occurring after the date of this Agreement which will entitle such
Lender to compensation pursuant to this Section as promptly as practicable after
any executive officer of such Lender obtains knowledge thereof and determines to
request such compensation, and (if so requested by Borrower through Agent) will
designate a different lending office of such Lender for the issuance or
maintenance of Letters of Credit by such Lender or will take such other action
as Borrower may reasonably request if such designation or action is consistent
with the internal policy of such Lender and legal and regulatory restrictions,
can be undertaken at no additional cost, will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such Lender,
be disadvantageous to such Lender (PROVIDED that such Lender shall have no
obligation so to designate a different lending office which is not located in
the United States of America).
2.3 TERMINATIONS OR REDUCTIONS OF COMMITMENTS.
(a) MANDATORY. On the Revolving Loan Termination Date, all Revolving Loan
Commitments shall be terminated in their entirety.
(b) OPTIONAL. Borrower shall have the right to terminate or reduce the
unused portion of the Revolving Loan Commitments at any time or from time to
time, PROVIDED that (i) Borrower shall give notice of each such termination or
reduction to Agent as provided in SECTION 4.3 hereof and (ii) each such partial
reduction shall be in an integral multiple of $5,000,000.
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(c) NO REINSTATEMENT. No termination or reduction of the Revolving Loan
Commitments may be reinstated without the written approval of Agent and the
Lenders.
2.4 COMMITMENT FEES.
(a) Borrower shall pay to Agent for the account of each Revolving Loan
Lender revolving loan commitment fees for the period from the earlier of the
initial Loan hereunder or October 31, 1997 to and including the Revolving Loan
Termination Date at a rate per annum equal to the Commitment Fee Percentage.
Such revolving loan commitment fees shall be computed (on the basis of the
actual number of days elapsed in a year composed of 360 days) on each day and
shall be based on the excess of (x) the aggregate amount of each Revolving Loan
Lender's Revolving Loan Commitment for such day over (y) the sum of (i) the
aggregate unpaid principal balance of such Lender's Revolving Note on such day
PLUS (ii) the aggregate Letter of Credit Liabilities as to such Lender for such
day. Accrued revolving loan commitment fees shall be payable in arrears on the
Quarterly Dates prior to the Revolving Loan Termination Date and on the
Revolving Loan Termination Date.
(b) All past due fees payable under this Section shall bear interest at
the Past Due Rate.
2.5 SEVERAL OBLIGATIONS. The failure of any Lender to make any Loan to be
made by it on the date specified therefor shall not relieve any other Lender of
its obligation to make its Loan on such date, but neither Agent nor any Lender
shall be responsible or liable for the failure of any other Lender to make a
Loan to be made by such other Lender or to participate in, or co-issue, any
Letter of Credit. Notwithstanding anything contained herein to the contrary, (a)
no Lender shall be required to make or maintain Loans at any time outstanding if
as a result the total Revolving Loan Obligations held by such Lender shall
exceed the lesser of (1) such Lender's Revolving Loan Commitment Percentage of
all Revolving Loan Obligations and (2) such Lender's Revolving Loan Commitment
Percentage of the aggregate of the Revolving Loan Commitments and (b) if a
Revolving Loan Lender fails to make a Loan as and when required hereunder, then
upon each subsequent event which would otherwise result in funds being paid to
the defaulting Lender, the amount which would have been paid to the defaulting
Lender shall be divided among the non-defaulting Lenders ratably according to
their respective shares of the outstanding Revolving Loan Commitment Percentages
until the Revolving Loan Obligations of each Revolving Loan Lender (including
the defaulting Lender) are equal to such Lender's Revolving Loan Commitment
Percentage of the total Revolving Loan Obligations.
2.6 NOTES. The Loans made by each Lender shall be evidenced by a single
promissory note of Borrower in substantially the form of EXHIBIT C hereto
payable to the order of such Lender in a principal amount equal to the Revolving
Loan Commitment of such Lender, and otherwise duly completed. The promissory
notes described in this Section are each, together with all renewals,
extensions, modifications, amendments, increases and/or and replacements thereof
and substitutions therefor, called a "NOTE" and collectively called the "NOTES".
Each Lender is hereby authorized by Borrower to endorse on the schedule (or a
continuation thereof) that may be attached to each Note of such Lender, to the
extent applicable, the date, amount, type of and the applicable
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period of interest for each Loan made by such Lender to Borrower hereunder, and
the amount of each payment or prepayment of principal of such Loan received by
such Lender, PROVIDED, that any failure by such Lender to make any such
endorsement shall not affect the obligations of Borrower under such Note or
hereunder in respect of such Loan.
2.7 USE OF PROCEEDS. The proceeds of the Loans shall be used to refinance
existing Borrowed Money Indebtedness of Borrower, to finance acquisitions and
for other working capital and general corporate purposes. Neither Agent nor any
Lender shall have any responsibility as to the use of any proceeds of the Loans.
3. BORROWINGS, PAYMENTS, PREPAYMENTS AND INTEREST OPTIONS.
3.1 BORROWINGS. Borrower shall give Agent notice of each borrowing to be
made hereunder as provided in SECTION 4.3 hereof and Agent shall promptly notify
each Lender of such request. Not later than 2:00 p.m. Houston time on the date
specified for each such borrowing hereunder, each Lender shall make available
the amount of the Loan, if any, to be made by it on such date to Agent at its
Principal Office, in immediately available funds, for the account of Borrower.
Such amounts received by Agent will be held in an account maintained by Borrower
with Agent. The amounts so received by Agent shall, subject to the terms and
conditions of this Agreement, be made available to Borrower by wiring or
otherwise transferring, in immediately available funds, such amount to an
account designated by Borrower.
3.2 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Except as provided in SECTION 3.3 hereof,
Borrower shall have the right to prepay, on any Business Day, in whole or in
part, without the payment of any penalty or fee, any Loans at any time or from
time to time, PROVIDED that Borrower shall give Agent notice of each such
prepayment as provided in SECTION 4.3 hereof. Each optional prepayment on a Loan
shall be in an amount equal to an integral multiple of $250,000.
(b) INTEREST PAYMENTS. Accrued and unpaid interest on the unpaid principal
balance of the Loans shall be due and payable on the Interest Payment Dates.
(c) PAYMENTS AND INTEREST ON REIMBURSEMENT OBLIGATIONS. Borrower will pay
to Agent for the account of each Lender the amount of each Reimbursement
Obligation on the date on which the Agent notifies Borrower of the date and
amount of the applicable payment by the Issuer of any drawing under a Letter of
Credit. The amount of any Reimbursement Obligation may, if the applicable
conditions precedent specified in SECTIONS 5.1 and 5.2 hereof have been
satisfied, be paid with the proceeds of Loans. Subject to SECTION 11.7 hereof,
Borrower will pay to Agent for the account of each Lender interest on any
Reimbursement Obligation (i) at the Base Rate plus the applicable Margin
Percentage from the date such Reimbursement Obligation arises until the date
five (5) Business Days thereafter and (ii) at the Past Due Rate thereafter until
the same is paid in full.
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3.3 INTEREST OPTIONS
(a) OPTIONS AVAILABLE. The outstanding principal balance of the Notes
shall bear interest at the Base Rate; PROVIDED, that (1) all past due amounts,
both principal and accrued interest, shall bear interest at the Past Due Rate,
and (2) subject to the provisions hereof, Borrower shall have the option of
having all or any portion of the principal balances of the Notes from time to
time outstanding bear interest at a Eurodollar Rate. The records of Agent and
each of the Lenders with respect to Interest Options, Interest Periods and the
amounts of Loans to which they are applicable shall create a rebuttable
presumption as to the accuracy thereof, and Agent and Lenders agree to furnish
written evidence to Borrower upon request of Borrower with respect to such
matters. Interest on the Loans shall be calculated at the Base Rate except where
it is expressly provided pursuant to this Agreement that a Eurodollar Rate is to
apply. Interest on the amount of each advance against the Notes shall be
computed on the amount of that advance and from the date it is made.
Notwithstanding anything in this Agreement to the contrary, for the full term of
the Notes the interest rate produced by the aggregate of all sums paid or agreed
to be paid to the holders of the Notes for the use, forbearance or detention of
the debt evidenced thereby (including all interest on the Notes at the Stated
Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
(b) DESIGNATION AND CONVERSION. Borrower shall have the right to designate
or convert its Interest Options in accordance with the provisions hereof.
PROVIDED no Event of Default has occurred and is continuing and subject to the
last sentence of SECTION 3.3(A) and the provisions of SECTION 3.3(C), Borrower
may elect to have a Eurodollar Rate apply or continue to apply to all or any
portion of the principal balance of the Notes. Each change in Interest Options
shall be a conversion of the rate of interest applicable to the specified
portion of the Loans, but such conversion shall not change the respective
outstanding principal balances of the Notes. The Interest Options shall be
designated or converted in the manner provided below:
(i) Borrower shall give Agent telephonic notice, promptly confirmed by a
Rate Designation Notice (and Agent shall promptly inform each Lender
thereof). Each such telephonic and written notice shall specify the
amount of the Loan which is the subject of the designation, if any;
the amount of borrowings into which such borrowings are to be
converted or for which an Interest Option is designated; the
proposed date for the designation or conversion and the Interest
Period or Periods, if any, selected by Borrower. Such telephonic
notice shall be irrevocable and shall be given to Agent no later
than the applicable Rate Designation Date.
(ii) No more than eight (8) LIBOR Borrowings shall be in effect with
respect to the Loans at any time.
(iii) Each designation or conversion of a LIBOR Borrowing shall occur on a
LIBOR Business Day.
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(iv) Each request for a LIBOR Borrowing shall be in the amount equal to
an integral multiple of $250,000.
(v) Each designation of an Interest Option with respect to the Revolving
Notes shall apply to all of the Revolving Notes ratably in
accordance with their respective outstanding principal balances. If
any Lender assigns an interest in any of its Notes when any LIBOR
Borrowing is outstanding with respect thereto, then such assignee
shall have its ratable interest in such LIBOR Borrowing.
(c) SPECIAL PROVISIONS APPLICABLE TO LIBOR BORROWINGS.
(i) OPTIONS UNLAWFUL. If the adoption of any applicable Legal Requirement
after the Effective Date or any change after the Effective Date in any
applicable Legal Requirement or in the interpretation or administration thereof
by any Governmental Authority or compliance by any Lender with any request or
directive (whether or not having the force of law) issued after the Effective
Date by any central bank or other Governmental Authority shall at any time make
it unlawful or impossible for any Lender to permit the establishment of or to
maintain any LIBOR Borrowing, the commitment of such Lender to establish or
maintain such LIBOR Borrowing shall forthwith be canceled and Borrower shall
forthwith, upon demand by Agent to Borrower, (1) convert the LIBOR Borrowing of
such Lender with respect to which such demand was made to a Base Rate Borrowing;
(2) pay all accrued and unpaid interest to date on the amount so converted; and
(3) pay any amounts required to compensate each Lender for any additional cost
or expense which any Lender may incur as a result of such adoption of or change
in such Legal Requirement or in the interpretation or administration thereof and
any Funding Loss which any Lender may incur as a result of such conversion. If,
when Agent so notifies Borrower, Borrower has given a Rate Designation Notice
specifying a LIBOR Borrowing but the selected Interest Period has not yet begun,
as to the applicable Lender such Rate Designation Notice shall be deemed to be
of no force and effect, as if never made, and the balance of the Loans made by
such Lender specified in such Rate Designation Notice shall bear interest at the
Base Rate until a different available Interest Option shall be designated in
accordance herewith.
(ii) INCREASED COST OF BORROWINGS. If the adoption after the Effective
Date of any applicable Legal Requirement or any change after the Effective Date
in any applicable Legal Requirement or in the interpretation or administration
thereof by any Governmental Authority or compliance by any Lender with any
request or directive (whether or not having the force of law) issued after the
Effective Date by any central bank or Governmental Authority shall at any time
as a result of any portion of the principal balances of the Notes being
maintained on the basis of a Eurodollar Rate:
(1) subject any Lender to any Taxes, or any deduction or
withholding for any Taxes, on or from any payment due under
any LIBOR Borrowing or other amount due hereunder, other than
income and franchise taxes of the United States or its
political subdivisions or such other jurisdiction in which the
applicable Lender has its principal office or applicable
lending office; or
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(2) change the basis of taxation of payments due from Borrower to
any Lender under any LIBOR Borrowing (other than by a change
in the rate of taxation of the overall net income of such
Lender); or
(3) impose, modify, increase or deem applicable any reserve
requirement (excluding that portion of any reserve requirement
included in the calculation of the applicable Eurodollar
Rate), special deposit requirement or similar requirement
(including, but not limited to, state law requirements and
Regulation D) against assets of any Lender, or against
deposits with any Lender, or against loans made by any Lender,
or against any other funds, obligations or other property
owned or held by any Lender; or
(4) impose on any Lender any other condition regarding any LIBOR
Borrowing;
and the result of any of the foregoing is to increase the cost to any Lender of
agreeing to make or of making, renewing or maintaining such LIBOR Borrowing, or
reduce the amount of principal or interest received by any Lender, then, within
15 Business Days after demand by the applicable Lender (accompanied by a
statement setting forth in reasonable detail the applicable Lender's basis
therefor), Borrower shall pay to Agent additional amounts which shall compensate
each Lender for such increased cost or reduced amount. The determination by any
Lender of the amount of any such increased cost, increased reserve requirement
or reduced amount shall create a rebuttable presumption as to the accuracy
thereof. Borrower shall have the right, if it receives from Agent any notice
referred to in this paragraph, upon three Business Days' notice to Agent (which
shall notify each affected Lender), either (i) to repay in full (but not in
part) any borrowing with respect to which such notice was given, together with
any accrued interest thereon, or (ii) to convert the LIBOR Borrowing which is
the subject of the notice to a Base Rate Borrowing; PROVIDED, that any such
repayment or conversion shall be accompanied by payment of (x) the amount
required to compensate each Lender for the increased cost or reduced amount
referred to in the preceding paragraph; (y) all accrued and unpaid interest to
date on the amount so repaid or converted, and (z) any Funding Loss which any
Lender may incur as a result of such repayment or conversion. Each Lender will
notify Borrower through Agent of any event occurring after the date of this
Agreement which will entitle such Lender to compensation pursuant to this
Section as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, and (if so requested by Borrower
through Agent) will designate a different lending office of such Lender for the
applicable LIBOR Borrowing or will take such other action as Borrower may
reasonably request if such designation or action is consistent with the internal
policy of such Lender and legal and regulatory restrictions, will avoid the need
for, or reduce the amount of, such compensation and will not, in the sole
opinion of such Lender, be disadvantageous to such Lender (PROVIDED that such
Lender shall have no obligation so to designate a different lending office which
is located in the United States of America).
(iii) INADEQUACY OF PRICING AND RATE DETERMINATION. If, for any reason
with respect to any Interest Period, Agent (or, in the case of CLAUSE 3 below,
the applicable Lender) shall have
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determined (which determination shall create a rebuttable presumption as to the
accuracy thereof) that:
(1) Agent is unable through its customary general practices to
determine any applicable Eurodollar Rate, or
(2) by reason of circumstances affecting the applicable market,
generally, Agent is not being offered deposits in United
States dollars in such market, for the applicable Interest
Period and in an amount equal to the amount of any applicable
LIBOR Borrowing requested by Borrower, or
(3) any applicable Eurodollar Rate will not adequately and fairly
reflect the cost to any Lender of making and maintaining such
LIBOR Borrowing hereunder for any proposed Interest Period,
then Agent shall give Borrower written notice thereof (accompanied by a
statement setting forth in reasonable detail the applicable Lender's basis
therefor) and thereupon, (A) any Rate Designation Notice previously given by
Borrower designating the applicable LIBOR Borrowing which has not commenced as
of the date of such notice from Agent shall be deemed for all purposes hereof to
be of no force and effect, as if never given, and (B) until Agent shall notify
Borrower that the circumstances giving rise to such notice from Agent no longer
exist, each Rate Designation Notice requesting the applicable Eurodollar Rate
shall be deemed a request for a Base Rate Borrowing, and any applicable LIBOR
Borrowing then outstanding shall be converted, without any notice to or from
Borrower, upon the termination of the Interest Period then in effect with
respect to it, to a Base Rate Borrowing.
(iv) FUNDING LOSSES. Borrower shall indemnify each Lender against and hold
each Lender harmless from any Funding Loss. This indemnity shall survive the
payment of the Notes. A certificate of such Lender (explaining in reasonable
detail the amount and calculation of the amount claimed) as to any additional
amounts payable pursuant to this paragraph submitted to Borrower shall create a
rebuttable presumption as to the accuracy thereof.
(d) FUNDING OFFICES; ADJUSTMENTS AUTOMATIC; CALCULATION YEAR. Any Lender
may, if it so elects, fulfill its obligation as to any LIBOR Borrowing by
causing a branch or affiliate of such Lender to make such Loan and may transfer
and carry such Loan at, to or for the account of any branch office or affiliate
of such Lender; PROVIDED, that in such event for the purposes of this Agreement
such Loan shall be deemed to have been made by such Lender and the obligation of
Borrower to repay such Loan shall nevertheless be to such Lender and shall be
deemed held by it for the account of such branch or affiliate. Without notice to
Borrower or any other Person, each rate required to be calculated or determined
under this Agreement shall automatically fluctuate upward and downward in
accordance with the provisions of this Agreement. Interest at the Prime Rate
shall be computed on the basis of the actual number of days elapsed in a year
consisting of 365 or 366 days, as the case may be. All other interest required
to be calculated or determined under this Agreement shall be computed on the
basis of the actual number of days
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elapsed in a year consisting of 360 days, unless the Ceiling Rate would thereby
be exceeded, in which event, to the extent necessary to avoid exceeding the
Ceiling Rate, the applicable interest shall be computed on the basis of the
actual number of days elapsed in the applicable calendar year in which accrued.
(e) FUNDING SOURCES. Notwithstanding any provision of this Agreement to
the contrary, each Lender shall be entitled to fund and maintain its funding of
all or any part of the Loans in any manner it sees fit, it being understood,
however, that for the purposes of this Agreement all determinations hereunder
shall be made as if each Lender had actually funded and maintained each LIBOR
Borrowing during each Interest Period through the purchase of deposits having a
maturity corresponding to such Interest Period and bearing an interest rate
equal to the Eurodollar Rate for such Interest Period.
3.4 CAPITAL ADEQUACY. If any Lender shall have determined that the
adoption after the Effective Date or effectiveness after the Effective Date
(whether or not previously announced) of any applicable law, rule, regulation or
treaty regarding capital adequacy, or any change therein after the Effective
Date, or any change in the interpretation or administration thereof after the
Effective Date by any Governmental Authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender with any request or directive after the Effective Date regarding capital
adequacy (whether or not having the force of law) of any such Governmental
Authority, central bank or comparable agency has or would have the effect of
reducing the rate of return on such Lender's capital as a consequence of its
obligations hereunder, under the Letters of Credit, the Notes or other
Obligations held by it to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, upon satisfaction of the
conditions precedent set forth in this Section, after demand by such Lender
(with a copy to Agent) as provided below, Borrower shall pay (subject to SECTION
11.7 hereof) to such Lender such additional amount or amounts as will compensate
such Lender for such reduction. The certificate of any Lender setting forth such
amount or amounts as shall be necessary to compensate it and the basis thereof
and reasons therefor shall be delivered as soon as practicable to Borrower and
shall create a rebuttable presumption as to the accuracy thereof. Borrower shall
pay the amount shown as due on any such certificate within five (5) Business
Days after the delivery of such certificate. In preparing such certificate, a
Lender may employ such assumptions and allocations of costs and expenses as it
shall in good faith deem reasonable and may use any reasonable averaging and
attribution method.
3.5 LIMITATION ON CHARGES; SUBSTITUTE LENDERS; NON-DISCRIMINATION.
Anything in SECTIONS 3.3(C) or 3.4 notwithstanding:
(1) Borrower shall not be required to pay to any Lender
reimbursement with regard to any costs or expenses described in such
Sections, unless such Lender notifies Borrower of such costs or expenses
within 90 days after the date paid or incurred;
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(2) none of the Lenders shall be permitted to pass through to
Borrower charges and costs under such Sections on a discriminatory basis
(i.e., which are not also passed through by such Lender to other customers
of such Lender similarly situated where such customer is subject to
documents providing for such pass through); and
(3) if any Lender elects to pass through to Borrower any material
charge or cost under such Sections or elects to terminate the availability
of LIBOR Borrowings for any material period of time, Borrower may, within
60 days after the date of such event and so long as no Default shall have
occurred and be continuing, elect to terminate such Lender as a party to
this Agreement; PROVIDED that, concurrently with such termination Borrower
shall (i) if Agent and each of the other Lenders shall consent, pay that
Lender all principal, interest and fees and other amounts owed to such
Lender through such date of termination or (ii) have arranged for another
financial institution approved by Agent (such approval not to be
unreasonably withheld) as of such date, to become a substitute Lender for
all purposes under this Agreement in the manner provided in SECTION 11.6;
PROVIDED FURTHER that, prior to substitution for any Lender, Borrower
shall have given written notice to Agent of such intention and the Lenders
shall have the option, but no obligation, for a period of 60 days after
receipt of such notice, to increase their Revolving Loan Commitments in
order to replace the affected Lender in lieu of such substitution.
4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS, ETC.
4.1 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made by
Borrower hereunder, under the Notes and under the other Loan Documents shall be
made in Dollars, in immediately available funds, to Agent at the Principal
Office (or in the case of a successor Agent, at the principal office of such
successor Agent in the United States), not later than 11:00 a.m. Houston time on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day).
(b) Borrower shall, at the time of making each payment hereunder, under
any Note or under any other Loan Document, specify to Agent the Loans or other
amounts payable by Borrower hereunder or thereunder to which such payment is to
be applied. Each payment received by Agent hereunder, under any Note or under
any other Loan Document for the account of a Lender shall be paid promptly to
such Lender, in immediately available funds. If Agent fails to send to any
Lender the applicable amount by the close of business on the date any such
payment is received by Agent if such payment is received prior to 11:00 a.m.
Houston time (or on the next succeeding Business Day with respect to payments
which are received after 11:00 a.m. Houston time), Agent shall pay to the
applicable Lender interest on such amount from such date at the Federal Funds
Rate. Borrower, the Lenders and Agent acknowledge and agree that this provision
and each other provision of this Agreement or any of the other Loan Documents
relating to the application of amounts in payment of the Obligations shall be
subject to the provisions of SECTION
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4.2(D) regarding PRO RATA application of amounts after an Event of Default shall
have occurred and be continuing.
(c) If the due date of any payment hereunder or under any Note falls on a
day which is not a Business Day, the due date for such payments (except as
otherwise provided in SECTION 3.3 hereof) shall be extended to the next
succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension.
(d) All payments by the Borrower hereunder or under any other Loan
Document shall be made free and clear of and without deduction for or on account
of any present or future income, stamp, or other taxes, fees, duties,
withholding or other charges of any nature whatsoever imposed by any taxing
authority excluding in the case of each Lender taxes imposed on or measured by
its net income or franchise taxes imposed by the jurisdiction in which it is
organized or through which it acts for purposes of this Agreement (such
non-excluded items being hereinafter referred to as "TAXES"). If as a result of
any change in law (or the interpretation thereof) after the date that the
applicable Lender became a "Lender" under this Agreement any withholding or
deduction from any payment to be made to, or for the account of, a Lender by the
Borrower hereunder or under any other Loan Document is required in respect of
any Taxes pursuant to any applicable law, rule, or regulation, then the Borrower
will (i) pay to the relevant authority the full amount required to be so
withheld or deducted; (ii) to the extent available, promptly forward to the
Agent an official receipt or other documentation reasonably satisfactory to the
Agent evidencing such payment to such authority; and (iii) pay to the Agent, for
the account of each affected Lender, such additional amount or amounts as are
necessary to ensure that the net amount actually received by such Lender will
equal the full amount such Lender would have received had no such withholding or
deduction been required. Each Lender shall determine such additional amount or
amounts payable to it (which determination shall create a rebuttable presumption
as to the accuracy thereof), and in such event, Agent shall furnish written
evidence to Borrower showing how Agent made such determination. If a Lender
becomes aware that any such withholding or deduction from any payment to be made
by the Borrower hereunder or under any other Loan Document is required, then
such Lender shall promptly notify the Agent and the Borrower thereof stating the
reasons therefor and the additional amount required to be paid under this
Section. Each Lender shall execute and deliver to the Agent and Borrower such
forms as it may be required to execute and deliver pursuant to SECTION 11.13
hereof. To the extent that any such withholding or deduction results from the
failure of a Lender to provide a form required by SECTION 11.13 hereof (unless
such failure is due to some prohibition under applicable Legal Requirements),
the Borrower shall have no obligation to pay the additional amount required by
CLAUSE (III) above. Anything in this Section notwithstanding, if any Lender
elects to require payment by the Borrower of any material amount under this
Section, the Borrower may, within 60 days after the date of receiving notice
thereof and so long as no Default shall have occurred and be continuing, elect
to terminate such Lender as a party to this Agreement; PROVIDED that,
concurrently with such termination the Borrower shall (i) if the Agent and each
of the other Lenders shall consent, pay that Lender all principal, interest and
fees and other amounts owed to such Lender through such date of termination or
(ii) have arranged for another financial institution approved by the Agent (such
approval not to be unreasonably withheld) as of such date, to become a
substitute Lender for all
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purposes under this Agreement in the manner provided in SECTION 11.6; PROVIDED
FURTHER that, prior to substitution for any Lender, the Borrower shall have
given written notice to the Agent of such intention and the Lenders shall have
the option, but no obligation, for a period of 60 days after receipt of such
notice, to increase their Commitments in order to replace the affected Lender in
lieu of such substitution.
4.2 PRO RATA TREATMENT. Except to the extent otherwise provided herein:
(a) each borrowing from the Lenders under SECTION 2.1 hereof shall be made
ratably from the Revolving Loan Lenders in accordance with their respective
Revolving Loan Commitments; (b) each payment of revolving loan commitment fees
shall be made for the account of the Revolving Loan Lenders, and each
termination or reduction of the Revolving Loan Commitments of the Revolving Loan
Lenders under SECTION 2.3 hereof shall be applied, PRO RATA, according to the
Revolving Loan Lenders' respective Revolving Loan Commitments; (c) each payment
by Borrower of principal of or interest on the Loans shall be made to Agent for
the account of the Lenders PRO RATA in accordance with the respective unpaid
principal amounts of such Loans held by the Lenders, and (d) the Revolving Loan
Lenders (other than the applicable Issuer) shall purchase from the applicable
Issuer participations in each Letter of Credit to the extent of their respective
Revolving Loan Commitment Percentages.
4.3 CERTAIN ACTIONS, NOTICES, ETC. Notices to Agent of any termination or
reduction of Revolving Loan Commitments and of borrowings and optional
prepayments of Loans and requests for issuances of Letters of Credit shall be
irrevocable and shall be effective only if received by Agent not later than
11:00 a.m. Houston time on the number of Business Days prior to the date of the
relevant termination, reduction, borrowing and/or prepayment specified below:
NUMBER OF BUSINESS DAYS
PRIOR NOTICE
------------
Borrowing at the Base Rate same day
Repayment of Base Rate Borrowing same day
Borrowing at Eurodollar Rate 3 LIBOR Business Days
Repayment of LIBOR Borrowing
prior to last day of the applicable 1 LIBOR Business day
Interest Period
Letter of Credit issuance 3
Termination or Reduction of
Revolving Loan Commitments 3
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Each such notice of termination or reduction shall specify the amount of the
applicable Revolving Loan Commitment to be terminated or reduced. Each such
notice of borrowing or prepayment shall specify the amount of the Loans to be
borrowed or prepaid and the date of borrowing or prepayment (which shall be a
Business Day). Agent shall promptly notify the affected Lenders of the contents
of each such notice. Any selection of a Eurodollar Rate with respect to a Loan
shall be subject to the advance notice requirements set forth in SECTION 3.3
hereof.
4.4 NON-RECEIPT OF FUNDS BY AGENT. Unless Agent shall have been notified
by a Lender or Borrower (the "PAYOR") prior to the date on which such Lender is
to make payment to Agent of the proceeds of a Loan (or funding of a drawing
under a Letter of Credit or reimbursement with respect to any drawing under a
Letter of Credit) to be made by it hereunder or Borrower is to make a payment to
Agent for the account of one or more of the Lenders, as the case may be (such
payment being herein called the "REQUIRED PAYMENT"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to Agent, Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available to the intended recipient on such date and, if the
Payor has not in fact made the Required Payment to Agent, the recipient of such
payment (or, if such recipient is the beneficiary of a Letter of Credit,
Borrower and, if Borrower fails to pay the amount thereof to Agent forthwith
upon demand, the Lenders ratably in proportion to their respective Revolving
Loan Commitment Percentages) shall, on demand, pay to Agent the amount made
available by Agent, together with interest thereon in respect of the period
commencing on the date such amount was so made available by Agent until the date
Agent recovers such amount at a rate per annum equal to the Federal Funds Rate
for such period.
4.5 SHARING OF PAYMENTS, ETC. If a Lender shall obtain payment of any
principal of or interest on any Loan made by it under this Agreement, on any
Reimbursement Obligation or on any other Obligation then due to such Lender
hereunder, through the exercise of any right of set-off (including, without
limitation, any right of setoff or lien granted under SECTION 9.2 hereof),
banker's lien, counterclaim or similar right, or otherwise, it shall promptly
purchase from the other Lenders participations in the Loans made, or
Reimbursement Obligations or other Obligations held, by the other Lenders in
such amounts, and make such other adjustments from time to time as shall be
equitable to the end that all the Lenders shall share the benefit of such
payment (net of any expenses which may be incurred by such Lender in obtaining
or preserving such benefit) PRO RATA in accordance with the unpaid Obligations
then due to each of them. To such end all the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if such payment is rescinded or must otherwise be restored. Borrower agrees, to
the fullest extent it may effectively do so under applicable law, that any
Lender so purchasing a participation in the Loans made, or Reimbursement
Obligations or other Obligations held, by other Lenders may exercise all rights
of set-off, bankers' lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans, or
Reimbursement Obligations or other Obligations in the amount of such
participation. Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of Borrower.
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5. CONDITIONS PRECEDENT.
5.1 INITIAL LOANS AND LETTERS OF CREDIT. The obligation of each Lender or
each Issuer to make its initial Loans or issue or participate in a Letter of
Credit (if such Letter of Credit is issued prior to the funding of the initial
Loans) hereunder is subject to the following conditions precedent, each of which
shall have been fulfilled or waived to the satisfaction of Agent:
(a) AUTHORIZATION AND STATUS. Agent shall have received from the
appropriate Governmental Authorities certified copies of the Organizational
Documents (other than by-laws) of each Obligor, and evidence satisfactory to
Agent of all action taken by each Obligor authorizing the execution, delivery
and performance of the Loan Documents and all other documents related to this
Agreement to which it is a party (including, without limitation, a certificate
of the secretary of each such party which is a corporation setting forth the
resolutions of its Board of Directors authorizing the transactions contemplated
thereby and attaching a copy of its bylaws), together with such certificates as
may be appropriate to demonstrate the qualification and good standing of and
payment of taxes by each Obligor in the jurisdiction of its organization and in
each other jurisdiction where the failure in which to qualify would have a
Material Adverse Effect.
(b) INCUMBENCY. Each Obligor shall have delivered to Agent a certificate
in respect of the name and signature of each of the officers (i) who is
authorized to sign on its behalf the applicable Loan Documents related to any
Loan or the issuance of any Letter of Credit and (ii) who will, until replaced
by another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with any Loan or the issuance of any Letter
of Credit. Agent and each Lender may conclusively rely on such certificates
until they receive notice in writing from the applicable Obligor to the
contrary.
(c) NOTES. Agent shall have received the appropriate Notes of Borrower for
each Lender, duly completed and executed.
(d) LOAN DOCUMENTS. Each Obligor shall have duly executed and delivered
the Loan Documents to which it is a party (in such number of copies as Agent
shall have requested). Each such Loan Document shall be in substantially the
form furnished to the Lenders prior to their execution of this Agreement,
together with such changes therein as Agent may approve.
(e) SECURITY MATTERS. All such action as Agent shall have requested to
perfect the Liens created pursuant to the Security Documents shall have been
taken, including, without limitation, where applicable, the filing and recording
of the Security Documents with the appropriate Governmental Authorities. Agent
shall also have received evidence satisfactory to it that the Liens created by
the Security Documents constitute first priority Liens, except for the
exceptions expressly provided for herein, including, without limitation,
delivery of all applicable stock certificates (with stock powers executed in
blank), Uniform Commercial Code search reports, satisfactory title evidence in
form and substance acceptable to Agent, and executed releases of any prior Liens
(except as permitted by SECTION 8.2).
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(f) FEES AND EXPENSES. Borrower shall have paid to Agent all unpaid fees
in the amounts previously agreed upon in writing among Borrower and Agent; and
shall have in addition paid to Agent all amounts payable under SECTION 11.3
hereof, on or before the date of this Agreement, except for amounts which Agent,
in its sole discretion, agrees may be paid at a later date.
(g) INSURANCE. Borrower shall have delivered to Agent certificates of
insurance satisfactory to Agent evidencing the existence of all insurance
required to be maintained by each Obligor by this Agreement and the Security
Documents.
(h) OPINIONS OF COUNSEL. Agent shall have received such opinions of
counsel to Obligors as Agent shall reasonably request with respect to Obligors
and the Loan Documents.
(i) CONSENTS. Agent shall have received evidence satisfactory to Agent
that all material consents of each Governmental Authority and of each other
Person, if any, reasonably required in connection with (a) the Loans and the
Letters of Credit and (b) the execution, delivery and performance of this
Agreement and the other Loan Documents have been satisfactorily obtained.
(j) PAYMENT OF CERTAIN OUTSTANDING INDEBTEDNESS. Agent shall have received
evidence satisfactory to Agent that, except for presently existing Subordinated
Indebtedness in an aggregate amount not to exceed $6,500,000 and except for
other Indebtedness permitted under SECTION 8.1 hereof, all existing Borrowed
Money Indebtedness owing by Borrower or any of its Subsidiaries shall have been
paid in full (or will be paid in full out of the initial advance hereunder) and
that any credit availability under any facility for Borrowed Money Indebtedness
to which Borrower or any of its Subsidiaries are a party as the borrower shall
have been terminated.
(k) EQUITY. Borrower shall have received not less than $32,000,000 in net
proceeds from the sale of equity interests in Borrower.
(l) ACQUISITION OF FOUNDING COMPANIES. The Founding Companies shall have
become wholly-owned Subsidiaries of Borrower.
(m) OTHER DOCUMENTS. Agent shall have received such other documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as Agent may reasonably request.
5.2 ALL LOANS AND LETTERS OF CREDIT. The obligation of each Lender to make
any Loan to be made by it hereunder or to issue or participate in any Letter of
Credit is subject to (a) the accuracy, in all material respects, on the date of
such Loan or such issuance of all representations and warranties of each Obligor
contained in this Agreement and the other Loan Documents; (b) Agent shall have
received the following, all of which shall be duly executed and in Proper Form:
(1) a Request for Extension of Credit as to the Loan or the Letter of Credit, as
the case may be, no later than 11:00 a.m. Houston time on the Business Day on
which such Request for Extension of Credit must be given under SECTION 4.3
hereof, (2) in the case of a Letter of Credit, an Application, and (3) such
other documents as Agent may reasonably require; (c) prior to the
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making of such Loan or the issuance of such Letter of Credit, there shall have
occurred no event having a Material Adverse Effect; (d) no Default or Event of
Default shall have occurred and be continuing; (e) the making of such Loan or
the issuance of such Letter of Credit shall not be illegal or prohibited by any
Legal Requirement, and (f) Borrower shall have paid all fees and expenses of the
type described in SECTION 11.3 hereof and all other fees owed to Agent or any
Lender under the Loan Documents which are due and payable, in each case, prior
to or on the date of such Loan or such issuance (except for amounts which Agent
or the applicable Lender, as the case may be, in their sole discretion, agree
may be paid at a later date). The submission by the Borrower of a Request for
Extension of Credit shall be deemed to be a representation and warranty that the
conditions precedent to the applicable Loan or Letter of Credit have been
satisfied. Selection of a new interest rate at the expiration of an Interest
Period shall not constitute a new Loan hereunder.
6. REPRESENTATIONS AND WARRANTIES.
To induce the Lenders to enter into this Agreement and to make the Loans
and issue or participate in the Letters of Credit, Borrower represents and
warrants (such representations and warranties to survive any investigation and
the making of the Loans and the issuance of any Letters of Credit) to the
Lenders and Agent as follows:
6.1 ORGANIZATION. Each Obligor (a) is duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its organization; (b)
has all necessary power and authority to conduct its business as presently
conducted, and (c) is duly qualified to do business and in good standing in the
jurisdiction of its organization and in all jurisdictions in which the failure
to so qualify would reasonably be expected to have a Material Adverse Effect.
6.2 FINANCIAL STATEMENTS. Borrower has furnished to Agent (i) audited
financial statements (including a balance sheet) as to each Subsidiary of
Borrower which fairly present in all material respects, in accordance with GAAP,
the combined financial condition and the results of operations of the applicable
Person as at the end of such Person's fiscal year ending in 1996, (ii) unaudited
pro forma financial statements (including a balance sheet) as to Borrower which
fairly present in all material respects, on a pro forma basis but otherwise in
accordance with GAAP, the combined financial condition and the results of
operations of Borrower as at the end of Borrower's fiscal year ending December
31, 1996, (ii) an unaudited pro forma balance sheet and income statement as to
Borrower which fairly present in all material respects, on a pro forma basis but
otherwise in accordance with GAAP, the combined financial position and the
results of operations of Borrower as at June 30, 1997 and (iii) unaudited
interim financial statements for each Subsidiary. No events, conditions or
circumstances have occurred from the date that the financial statements were
delivered to Agent through the Effective Date which would cause said financial
statements to be misleading in any material respect. There are no material
instruments or liabilities which should, in accordance with GAAP, be reflected
in such financial statements provided to Agent which are not so reflected.
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6.3 ENFORCEABLE OBLIGATIONS; AUTHORIZATION. The Loan Documents are legal,
valid and binding obligations of each applicable Obligor, enforceable in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency and other similar laws and judicial decisions affecting creditors'
rights generally and by general equitable principles. The execution, delivery
and performance of the Loan Documents (a) have all been duly authorized by all
necessary action; (b) are within the power and authority of each applicable
Obligor; (c) to the best of Borrower's knowledge, do not and will not contravene
or violate any Legal Requirement applicable to any applicable Obligor or the
Organizational Documents of any applicable Obligor, the contravention or
violation of which would reasonably be expected to have a Material Adverse
Effect; (d) do not and will not result in the breach of, or constitute a default
under, any material agreement or instrument by which any Obligor or any of its
Property may be bound, and (e) do not and will not result in the creation of any
Lien upon any Property of any Obligor. All necessary permits, registrations and
consents for such making and performance have been obtained, except where the
failure to obtain the same would not have a Material Adverse Effect. Except as
otherwise expressly stated in the Security Documents, the Liens of the Security
Documents will constitute valid and perfected first and prior Liens on the
Property described therein, subject to no other Liens whatsoever except
Permitted Liens covering Collateral other than equity interests in the
Subsidiaries of Borrower.
6.4 OTHER DEBT. After giving effect to the initial advance hereunder (and
the payment of certain existing Indebtedness of Borrower and its Subsidiaries),
no Obligor is in default in the payment of any other Indebtedness or under any
agreement, mortgage, deed of trust, security agreement or lease to which it is a
party and which would constitute an Event of Default under SECTION 9.1(B).
6.5 LITIGATION. There is no litigation or administrative proceeding, to
the knowledge of any executive officer of Borrower, pending or threatened
against, nor any outstanding judgment, order or decree against, any Obligor
before or by any Governmental Authority which does or would reasonably be
expected to have a Material Adverse Effect. No Obligor is in default with
respect to any judgment, order or decree of any Governmental Authority where
such default would have a Material Adverse Effect.
6.6 TITLE. Each Obligor has good and marketable title to its material
Property, free and clear of all Liens except Permitted Liens.
6.7 TAXES. Each Obligor has filed all tax returns required to have been
filed and paid all taxes shown thereon to be due, except those for which
extensions have been obtained and those which are being contested in good faith.
6.8 REGULATIONS G, U AND X. None of the proceeds of any Loan will be used
for the purpose of purchasing or carrying directly or indirectly any margin
stock or for any other purpose which would constitute this transaction a
"purpose credit" within the meaning of Regulations G, U and X of the Board of
Governors of the Federal Reserve System, as any of them may be amended from time
to time.
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6.9 SUBSIDIARIES. As of the Effective Date, Borrower has no Subsidiaries
other than those set forth on EXHIBIT F hereto.
6.10 NO UNTRUE OR MISLEADING STATEMENTS. No representation or warranty
made by Borrower in any Loan Document or in any document, instrument or other
writing furnished to the Lenders by or on behalf of any Obligor in connection
with the transactions contemplated in any Loan Document contains any untrue
material statement of fact or omits to state any such fact (of which any
executive officer of Borrower has knowledge) necessary to make the
representations, warranties and other statements contained herein or in such
other document, instrument or writing not misleading in any material respect on
the date when made or deemed made.
6.11 ERISA. With respect to each Plan, Borrower and each member of the
Controlled Group have fulfilled their obligations, including obligations under
the minimum funding standards of ERISA and the Code and are in compliance in all
material respects with the provisions of ERISA and the Code. No event has
occurred which could result in a liability of Borrower or any member of the
Controlled Group to the PBGC or a Plan (other than to make contributions in the
ordinary course) that would reasonably be expected to have a Material Adverse
Effect. There have not been any nor are there now existing any events or
conditions that would cause the Lien provided under Section 4068 of ERISA to
attach to any Property of Borrower or any member of the Controlled Group.
Unfunded Liabilities as of the date hereof do not exceed $500,000. No
"prohibited transaction" (for which there is not an exemption) has occurred with
respect to any Plan.
6.12 INVESTMENT COMPANY ACT. No Obligor is an investment company within
the meaning of the Investment Company Act of 1940, as amended, or, directly or
indirectly, controlled by or acting on behalf of any Person which is an
investment company, within the meaning of said Act.
6.13 PUBLIC UTILITY HOLDING COMPANY ACT. No Obligor is an "affiliate" or a
"subsidiary company" of a "public utility company," or a "holding company," or
an "affiliate" or a "subsidiary company" of a "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
6.14 SOLVENCY. None of Borrower, any Obligor, or Borrower and its
Subsidiaries, on a consolidated basis, is "insolvent," as such term is used and
defined in (i) the Bankruptcy Code and (ii) the fraudulent conveyance statutes
of the State of Texas or of any other applicable jurisdiction.
6.15 FISCAL YEAR. The fiscal year of each Obligor ends on December 31.
6.16 COMPLIANCE. To the best knowledge of any executive officer of
Borrower, each Obligor is in compliance with all Legal Requirements applicable
to it, except to the extent that the failure to comply therewith would not
reasonably be expected to have a Material Adverse Effect.
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6.17 ENVIRONMENTAL MATTERS. Each Obligor has, to the best knowledge of
Borrower's executive officers, obtained and maintained in effect all
Environmental Permits (or the applicable Person has initiated the necessary
steps to transfer the Environmental Permits into its name or obtain such
permits), the failure to obtain which would reasonably be expected to have a
Material Adverse Effect. Each Obligor and its Properties, business and
operations have been and are, to the best knowledge of Borrower's executive
officers, in compliance with all applicable Requirements of Environmental Law
and Environmental Permits, the failure to comply with which would reasonably be
expected to have a Material Adverse Effect. Each Obligor and its Properties,
business and operations are not, to the best knowledge of Borrower's executive
officers (after making reasonable inquiry of the personnel and records of their
respective Corporations), subject to any (a) Environmental Claims or (b)
Environmental Liabilities, in either case direct or contingent, arising from or
based upon any act, omission, event, condition or circumstance occurring or
existing on or prior to the date hereof which would reasonably be expected to
have a Material Adverse Effect. None of the officers of Borrower have received
nor is aware of any Obligor receiving any notice of any violation or alleged
violation of any Requirements of Environmental Law or Environmental Permit or
any Environmental Claim in connection with its Properties, liabilities,
condition (financial or otherwise), business or operations which would
reasonably be expected to have a Material Adverse Effect. Borrower does not know
of any event or condition with respect to currently enacted Requirements of
Environmental Laws presently scheduled to become effective in the future with
respect to any of the Properties of any Obligor which would reasonably be
expected to have a Material Adverse Effect, for which the applicable Obligor has
not made good faith provisions in its business plan and projections of financial
performance.
7. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees with Agent and the Lenders that prior to the
termination of this Agreement it will do or cause to be done, and cause each
other Obligor (unless limited by the language of the applicable provision to
less than all of the Obligors) to do or cause to be done, each and all of the
following:
7.1 TAXES, EXISTENCE, REGULATIONS, PROPERTY, ETC. At all times (a) pay
when due all taxes and governmental charges of every kind upon it or against its
income, profits or Property, unless and only to the extent that the same shall
be contested diligently in good faith and adequate reserves in accordance with
GAAP have been established therefor; (b) do all things necessary to preserve its
existence, qualifications, rights and franchises in all jurisdictions where such
failure to qualify would reasonably be expected to have a Material Adverse
Effect; (c) comply with all applicable Legal Requirements (including without
limitation Requirements of Environmental Law) in respect of the conduct of its
business and the ownership of its Property, the noncompliance with which would
reasonably be expected to have a Material Adverse Effect; and (d) cause its
Property to be protected, maintained and kept in good repair (ordinary wear and
tear excepted) and make all replacements and additions to such Property as may
be reasonably necessary to conduct its business properly and efficiently except
where the failure to do so would not reasonably be expected to have a Material
Adverse Effect.
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7.2 FINANCIAL STATEMENTS AND INFORMATION. Furnish to Agent and each Lender
each of the following: (a) as soon as available and in any event within 120 days
after the end of each applicable fiscal year, beginning with the fiscal year
ending on December 31, 1997, Annual Financial Statements of Borrower; (b) as
soon as available and in any event within 45 days after the end of each fiscal
month (other than the March, June, September and December fiscal months), and as
soon as available and in any event within 60 days after the end of each March,
June, September and December fiscal month, Monthly Financial Statements of
Borrower; (c) concurrently with the financial statements provided for in
SUBSECTIONS 7.2(A) and (B) hereof, such schedules, computations and other
information, in reasonable detail, as may be required by Agent to demonstrate
compliance with the covenants set forth herein or reflecting any non-compliance
therewith as of the applicable date, all certified and signed by the president,
chief financial officer or treasurer of Borrower (or other authorized officer
approved by Agent) as true and correct in all material respects to the best
knowledge of such officer and, concurrently with the financial statements
provided for in SUBSECTION 7.2(A) hereof and concurrently with the financial
statements provided for in SUBSECTIONS 7.2(B) prepared as of each March 31, June
30, September 30 and December 31 commencing with the Monthly Financial Statement
prepared as of December 31, 1997, a compliance certificate ("COMPLIANCE
CERTIFICATE") in the form of EXHIBIT E hereto, duly executed by such authorized
officer; (d) promptly upon their becoming publicly available, each financial
statement, report, notice or definitive proxy statements sent by any Obligor to
shareholders generally and each regular or periodic report and each registration
statement or prospectus filed by any Obligor with any securities exchange or the
Securities and Exchange Commission or any successor agency, and (e) such other
financial projections and other information relating to the condition (financial
or otherwise), operations or business of any Obligor as from time to time may be
reasonably requested by Agent. Each delivery of a financial statement pursuant
to this SECTION 7.2 shall constitute a restatement of the representations
contained in the last two sentences of SECTION 6.2 with respect to the period of
time from the date of such most recently delivered financial statements.
7.3 FINANCIAL TESTS. Borrower will have and maintain (in each case, on a
consolidated basis for Borrower and its Subsidiaries):
(a) MINIMUM NET WORTH - Stockholders' Equity at all times after
October 31, 1997 of not less than Stockholders' Equity as of October 31,
1997 PLUS 80% of the Consolidated Net Income (if positive) for the period
from and after October 31, 1997 through the date of such calculation PLUS
100% of the net proceeds (whether cash or non-cash) realized from the
issuance of any equity securities by Borrower or its Subsidiaries (or
other capital contributions made to Borrower) after October 31, 1997.
(b) INTEREST COVERAGE RATIO - an Interest Coverage Ratio of not less
than 3.00 at the end of each fiscal quarter.
(c) DEBT TO PRO FORMA CONSOLIDATED EBITDA RATIO - a Debt to Pro
Forma Consolidated EBITDA Ratio at the end of each fiscal quarter of not
greater than 3.00.
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(d) FIXED CHARGE COVERAGE RATIO - a Fixed Charge Coverage Ratio at
the end of each fiscal quarter of not less than 1.50.
The use of historical financial results for acquired Subsidiaries in connection
with "pooling of interests" accounting shall not serve to cure any default under
the covenants set forth in this Section that would otherwise arise.
7.4 INSPECTION. Permit Agent and each Lender upon 1 day's prior notice
(unless a Default or an Event of Default has occurred which is continuing, in
which case no prior notice is required) to inspect its Property, to examine its
files, books and records, except privileged communication with legal counsel and
classified governmental material, and make and take away copies thereof, and to
discuss its affairs with its officers and accountants, all during normal
business hours and at such intervals and to such extent as Agent may reasonably
desire. Unless an Event of Default has occurred which is continuing, Agent or
the applicable Lender, as the case may be, shall pay its own costs and expenses
relating to the exercise of the rights under this Section.
7.5 FURTHER ASSURANCES. Promptly execute and deliver, at Borrower's
expense, any and all other and further instruments which may be reasonably
requested by Agent to cure any defect in the execution and delivery of any Loan
Document in order to effectuate the transactions contemplated by the Loan
Documents, and in order to grant, preserve, protect and perfect the validity and
priority of the security interests created by the Security Documents.
7.6 BOOKS AND RECORDS. Maintain accounting records which permit financial
statements to be prepared in accordance with GAAP.
7.7 INSURANCE. Borrower will (and will cause each of its Subsidiaries to)
maintain insurance with such insurers, on such of its Property, with responsible
companies in such amounts, with such deductibles and against such risks as are
usually carried by owners of similar businesses and properties in the same
general areas in which the applicable Person operates or as Agent may otherwise
reasonably require, and furnish Agent satisfactory evidence thereof promptly
upon request. These insurance provisions are cumulative of the insurance
provisions of the Security Documents. Agent shall be provided with copies of the
policies of insurance and a certificate of the insurer that the insurance
required by this Section may not be canceled, reduced or affected in any
material manner without thirty (30) days' prior written notice to Agent.
Wherever applicable, such insurance shall name Agent as loss payee and/or
mortgagee insured.
7.8 NOTICE OF CERTAIN MATTERS. Give Agent written notice of the following
promptly (and in any event within five Business Days) after any executive
officer of Borrower shall become aware of the same:
(a) the issuance by any court or governmental agency or authority of any
injunction, order or other restraint prohibiting, or having the effect of
prohibiting, the performance of this Agreement, any other Loan Document, or the
making of the Loans or the initiation of any
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litigation, or any claim or controversy which would reasonably be expected to
result in the initiation of any litigation, seeking any such injunction, order
or other restraint;
(b) the filing or commencement of any action, suit or proceeding, whether
at law or in equity or by or before any court or any Governmental Authority
involving claims in excess of $1,000,000 (exclusive of claims covered by
insurance) or which may reasonably be expected to result in a Default hereunder;
(c) any Event of Default or Default, specifying the nature and extent
thereof and the action (if any) which is proposed to be taken with respect
thereto;
(d) the incurrence of material burdensome restrictions under contracts or
applicable law which could reasonably be expected to have a Material Adverse
Effect and any other event (including strikes, labor disputes or loss of use of
material patents or trademarks) which could reasonably be expected to have a
Material Adverse Effect; and
Borrower will also notify Agent in writing at least 30 days prior to the date
that any Obligor changes its name or the location of its chief executive office
or principal place of business or the place where it keeps its books and
records.
7.9 ERISA INFORMATION AND COMPLIANCE. Promptly furnish to Agent (i)
immediately upon receipt, a copy of any notice of complete or partial withdrawal
liability under Title IV of ERISA which could reasonably be expected to have a
Material Adverse Effect and any notice from the PBGC under Title IV of ERISA of
an intent to terminate or appoint a trustee to administer any Plan which could
reasonably be expected to have a Material Adverse Effect, (ii) if requested by
Agent, promptly after the filing thereof with the United States Secretary of
Labor or the PBGC or the Internal Revenue Service, copies of each annual and
other report with respect to each Plan or any trust created thereunder, (iii)
immediately upon becoming aware of the occurrence of any "reportable event," as
such term is defined in Section 4043 of ERISA which could reasonably be expected
to have a Material Adverse Effect, for which the disclosure requirements of
Regulation Section 2615.3 promulgated by the PBGC have not been waived, or of
any "prohibited transaction," as such term is defined in Section 4975 of the
Code, in connection with any Plan or any trust created thereunder which could
reasonably be expected to have a Material Adverse Effect, a written notice
signed by the President or the principal financial officer of Borrower or the
applicable member of the Controlled Group specifying the nature thereof, what
action Borrower or the applicable member of the Controlled Group is taking or
proposes to take with respect thereto, and, when known, any action taken by the
PBGC, the Internal Revenue Service or the Department of Labor with respect
thereto, (iv) promptly after the filing or receiving thereof by Borrower or any
member of the Controlled Group of any notice of the institution of any
proceedings or other actions which may result in the termination of any Plan
which could reasonably be expected to have a Material Adverse Effect, and (v)
each request for waiver of the funding standards or extension of the
amortization periods required by Sections 303 and 304 of ERISA or Section 412 of
the Code promptly after the request is submitted by Borrower or any member of
the Controlled Group to the Secretary of the Treasury, the Department of Labor
or the
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Internal Revenue Service, as the case may be. To the extent required under
applicable statutory funding requirements, Borrower will fund, or will cause the
applicable member of the Controlled Group to fund, all current service pension
liabilities as they are incurred under the provisions of all Plans from time to
time in effect, and comply with all applicable provisions of ERISA, in each
case, except to the extent that failure to do the same would not reasonably be
expected to have a Material Adverse Effect. Except to the extent that failure to
do the same would not reasonably be expected to have a Material Adverse Effect,
Borrower covenants that it shall and shall cause each member of the Controlled
Group to (1) make contributions to each Plan in accordance with the time limits
imposed by ERISA and in an amount sufficient to comply with the contribution
obligations under such Plan and the minimum funding standards requirements of
ERISA; (2) prepare and file in accordance with the time limits imposed by ERISA
all notices and reports required under the terms of ERISA including but not
limited to annual reports; and (3) pay in accordance with the time limits
imposed by ERISA all required PBGC premiums.
8. NEGATIVE COVENANTS.
Borrower covenants and agrees with Agent and the Lenders that prior to the
termination of this Agreement it will not, and will not suffer or permit any
other Obligor or any Subsidiary of Borrower to, do any of the following without
the prior written consent of the Majority Lenders:
8.1 BORROWED MONEY INDEBTEDNESS. Create, incur, suffer or permit to exist,
or assume or guarantee, directly or indirectly, or become or remain liable with
respect to any Borrowed Money Indebtedness, whether direct, indirect, absolute,
contingent or otherwise, except the following:
(i) Indebtedness under this Agreement and the other Loan Documents and
Indebtedness secured by Liens permitted by SECTION 8.2 hereof;
(ii) the liabilities existing on the date of this Agreement and disclosed
in the financial statements delivered on or prior to the Effective
Date pursuant to SECTION 6.2 hereof and set forth on EXHIBIT G
hereto, and all renewals, extensions and replace ments (but not
increases) of any of the foregoing;
(iii) the Interest Rate Risk Indebtedness;
(iv) current liabilities incurred in the ordinary course of business;
(v) so long as no Event of Default has occurred which is continuing (or
would result as a result of the applicable additional Indebtedness),
(i) Subordinated Indebtedness payable to the applicable sellers in
connection with an acquisition by an Obligor of a new Subsidiary (or
the assets of another Person in lieu of an equity stock acquisition)
providing for payment terms approved by Agent and the Majority
Lenders in writing and (ii) purchase money Indebtedness, in an
aggregate amount not to exceed $1,000,000 at any one time
outstanding, incurred by Subsidiaries
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acquired after the date hereof which is assumed in connection with
such acquisition;
PROVIDED, HOWEVER, that the Indebtedness permitted under SECTION 8.1(V) hereof
shall be on terms and conditions no more restrictive upon Borrower than the
terms and conditions provided for herein.
8.2 LIENS. Create or suffer to exist any Lien upon any of its Property now
owned or hereafter acquired, or acquire any Property upon any conditional sale
or other title retention device or arrangement or any purchase money security
agreement; or in any manner directly or indirectly sell, assign, pledge or
otherwise transfer any of its Accounts or General Intangibles; PROVIDED,
HOWEVER, that any Obligor may create or suffer to exist the following:
(i) artisans' or mechanics' Liens arising in the ordinary course of
business, and Liens for taxes, but only to the extent that payment
thereof shall not at the time be due or if due, the payment thereof
is being diligently contested in good faith and adequate reserves
computed in accordance with GAAP have been set aside therefor;
(ii) normal encumbrances and restrictions on title which do not secure
Borrowed Money Indebtedness and which do not have a Material Adverse
Effect;
(iii) Liens in favor of Agent or any Lender under the Loan Documents,
including, without limitation, Liens securing Interest Rate Risk
Indebtedness owed to one or more of the Lenders (but not to any
Person which is not, at the time the Interest Rate Risk Indebtedness
is incurred, a Lender);
(iv) Liens incurred or deposits made in the ordinary course of business
(1) in connection with workmen's compensation, unemployment
insurance, social security and other like laws, or (2) to secure
insurance in the ordinary course of business, the performance of
bids, tenders, contracts, leases, licenses, statutory obligations,
surety, appeal and performance bonds and other similar obligations
incurred in the ordinary course of business, not, in any of the
cases specified in this clause (2), incurred in connection with the
borrowing of money, the obtaining of advances or the payment of the
deferred purchase price of Property;
(v) attachments, judgments and other similar Liens arising in connection
with court proceedings, PROVIDED that the execution and enforcement
of such Liens are effectively stayed and the claims secured thereby
are being actively contested in good faith with adequate reserves
made therefor in accordance with GAAP;
(vi) Liens imposed by law, such as carriers', warehousemen's, mechanics',
materialmen's and vendors' liens, incurred in good faith in the
ordinary course of business and securing obligations which are not
yet due or which are being
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contested in good faith by appropriate proceedings if adequate
reserves with respect thereto are maintained in accordance with
GAAP;
(vii) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, and restrictions on the use of
Property, and which do not in any case singly or in the aggregate
materially impair the present use or value of the Property subject
to any such restriction or materially interfere with the ordinary
conduct of the business of any Obligor or any Subsidiary of Borrower
to the extent that it would cause a Material Adverse Effect;
(viii)capital leases permitted under the other provisions of this
Agreement;
(ix) Liens securing assumed purchase money Indebtedness which is
permitted under SECTION 8.1(V) hereof and which cover only the
applicable Property purchased;
(x) existing Liens as of Effective Date as set forth on EXHIBIT H
hereto; and
(xi) extensions, renewals and replacements of Liens referred to in
CLAUSES (I) through (X) above; PROVIDED that any such extension,
renewal or replacement Lien shall be limited to the Property or
assets covered by the Lien extended, renewed or replaced and that
the Borrowed Money Indebtedness secured by any such extension,
renewal or replacement Lien shall be in an amount not greater than
the amount of the Indebtedness secured by the Lien extended, renewed
or replaced.
8.3 CONTINGENT LIABILITIES. Except for indemnification and contribution
arrangements with customers, sellers of businesses and officers and directors of
Borrower and its Subsidiaries in the ordinary course of business, directly or
indirectly guarantee the performance or payment of, or purchase or agree to
purchase, or assume or contingently agree to become or be secondarily liable in
respect of, any obligation or liability of any other Person (other than
Subsidiaries) except for (a) the endorsement of checks or other negotiable
instruments in the ordinary course of business; (b) obligations disclosed to
Agent in the financial statements delivered on or prior to the Effective Date
pursuant to SECTION 6.2 hereof (but not increases of such obligations after the
Effective Date), (c) those liabilities permitted under SECTION 8.1 hereof, and
(d) earnouts incurred in connection with acquisitions.
8.4 MERGERS AND CONSOLIDATIONS. In any single transaction or series of
transactions, directly or indirectly: (a) liquidate or dissolve; (b) be a party
to any merger or consolidation unless and so long as (i) no Default or Event of
Default has occurred that is then continuing, (ii) immediately thereafter and
giving effect thereto, no event will occur and be continuing which constitutes a
Default, (iii) the applicable Obligor subject to such merger is the surviving
Person and (iv) Agent is given at least 30 days' prior notice of such merger or
consolidation. The provisions of this Section are subject to the restrictions
set forth in SECTION 8.13 hereof.
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8.5 DISPOSITION OF ASSETS. Sell, convey or lease all or any part of its
assets, except for (x) the sale of assets of, or stock owned by, Subsidiaries
acquired after the date hereof within six (6) calendar months following the
acquisition of such Subsidiary, (y) sales of Inventory in the ordinary course of
business and (z) sales of other Property in the ordinary course of business so
long as that portion of the net proceeds realized from such sales in any fiscal
year are, within one (1) year, either reinvested in assets that may be
productively used in the business of the Borrower or the applicable Subsidiary
of Borrower or used to repay Indebtedness of Borrower which has not been
subordinated to the Obligations; PROVIDED, that for purposes of this Agreement,
no sale/leaseback transaction will be deemed to be in the ordinary course of
business.
8.6 REDEMPTION, DIVIDENDS AND DISTRIBUTIONS. At any time: (a) redeem,
retire or otherwise acquire, directly or indirectly, any equity interest in
Borrower or (b) make any distributions of any Property or cash to the owner of
any of the equity interests in any Obligor other than dividends or distributions
by a Subsidiary of Borrower to Borrower.
8.7 NATURE OF BUSINESS. Change the nature of its business or enter into
any business which is substantially different from the business in which it is
presently engaged.
8.8 TRANSACTIONS WITH RELATED PARTIES. Enter into any material transaction
or agreement with any officer, director or holder of any equity interest in any
Obligor (or any Affiliate of any such Person) unless the same is upon terms
substantially similar to those obtainable from wholly unrelated sources (to the
best knowledge of the executive officers of Borrower).
8.9 LOANS AND INVESTMENTS. Make any loan, advance, extension of credit or
capital contribution to, or make or have any Investment in, any Person, or make
any commitment to make any such extension of credit or Investment, except (a)
normal and reasonable advances in the ordinary course of business to officers
and employees and (b) the following:
(i) obligations, with a maturity of less than two years, with the full
faith and credit of the United States of America;
(ii) direct obligations of any state of the United States, or
municipality therein, rated in one of the two top classifications by
Standard and Poor's Ratings Services or Moody's Investors Services,
Inc. and maturing within two years;
(iii) certificates of deposit or banker's acceptances, maturing within two
years, issued by US commercial banks having capital, surplus and
undivided profits aggregating not less than $100 million and whose
unsecured long-term debt is rated in one of the two classifications
by Standard and Poor's Ratings Services or Moody's Investors
Services, Inc.;
(iv) commercial paper of any U.S. corporation with a maturity of less
than 270 days and which is rated in one of the two top
classifications by Standard and Poor's Ratings Services or Moody's
Investors Services, Inc.;
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(v) Investments by Borrower or any of its Subsidiaries in and to
Borrower or any other Obligor, including Investments in Persons
which after giving effect thereto will become a wholly-owned
Subsidiary of Borrower (subject to compliance with the provisions of
SECTION 8.15 hereof), and
(vi) existing Investments as of Effective Date as set forth on EXHIBIT I
hereto.
8.10 ORGANIZATIONAL DOCUMENTS. Amend, modify, restate or supplement any of
its Organizational Documents if such action would reasonably be expected to have
a Material Adverse Effect, unless such action shall be consented to in writing
by Agent.
8.11 UNFUNDED LIABILITIES. Incur any Unfunded Liabilities after the
Effective Date or allow any Unfunded Liabilities in excess of $500,000, in the
aggregate, to arise or exist.
8.12 CAPITAL EXPENDITURES. Permit Capital Expenditures of Borrower and its
Subsidiaries to exceed $5,000,000, in the aggregate for any period of 12 months.
8.13 ACQUISITIONS. Acquire any real Property or any material personal
Property (including any acquisition of equity interests in another Person) after
the Effective Date with respect to which the aggregate consideration for a
single transaction would exceed $5,000,000.
8.14 SUBORDINATED INDEBTEDNESS. Except as expressly permitted in writing
by the Majority Lenders, Borrower will not amend, modify or obtain or grant a
waiver of any provision of any document or instrument evidencing any
Subordinated Indebtedness or purchase, redeem, retire or otherwise acquire for
value, deposit any monies with any Person with respect to or make any payment or
prepayment of the principal of or any other amount owing in respect of, any
Subordinated Indebtedness (other than scheduled payments under payment terms
approved by Agent and the Majority Lenders in writing).
8.15 SUBSIDIARIES. Form, create or acquire any Subsidiary, except that
Borrower (or any of its Subsidiaries) may form, create or acquire a wholly-owned
Subsidiary so long as (a) immediately thereafter and giving effect thereto, no
event will occur and be continuing which constitutes a Default; (i) such
Subsidiary shall execute and deliver to Agent a Guaranty in substantially the
same form as the Guaranties executed concurrently herewith; (ii) the applicable
owner(s) of the equity interests in such Subsidiary shall execute and deliver to
Agent such Security Documents as Agent may reasonably require in order to create
a valid, perfected, first priority Lien upon all of the issued and outstanding
equity interests in such Subsidiary, and (iii) the new Subsidiary shall execute
and deliver to Agent such Security Documents as Agent may reasonably require in
order to create a valid, perfected, first priority Lien upon all of the Accounts
and Inventory of such new Subsidiary and (b) Agent is given at least 30 days'
prior written notice of such formation, creation or acquisition.
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9. DEFAULTS.
9.1 EVENTS OF DEFAULT. If any one or more of the following events (herein
called "EVENTS OF DEFAULT") shall occur, then Agent may (and at the direction of
the Majority Lenders, shall) do any or all of the following: (1) without notice
to Borrower or any other Person, declare the Revolving Loan Commitments
terminated (whereupon the Revolving Loan Commitments shall be terminated) and/or
accelerate the Revolving Loan Termination Date to a date as early as the date of
termination of the Revolving Loan Commitments; (2) terminate any Letter of
Credit allowing for such termination, by sending a notice of termination as
provided therein and require Borrower to provide Cover for outstanding Letters
of Credit; (3) declare the principal amount then outstanding of and the unpaid
accrued interest on the Loans and Reimbursement Obligations and all fees and all
other amounts payable hereunder, under the Notes and under the other Loan
Documents to be forthwith due and payable, whereupon such amounts shall be and
become immediately due and payable, without notice (including, without
limitation, notice of acceleration and notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by Borrower; PROVIDED that in the case of the occurrence
of an Event of Default with respect to any Obligor referred to in CLAUSE (F),
(G) or (H) of this SECTION 9.1, the Revolving Loan Commitments shall be
automatically terminated and the principal amount then outstanding of and unpaid
accrued interest on the Loans and the Reimbursement Obligations and all fees and
all other amounts payable hereunder, under the Notes and under the other Loan
Documents shall be and become automatically and immediately due and payable,
without notice (including, without limitation, notice of acceleration and notice
of intent to accelerate), presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by Borrower, and (4) exercise
any or all other rights and remedies available to Agent or any of the Lenders
under the Loan Documents, at law or in equity:
(a) PAYMENTS - (i) any Obligor shall fail to make any payment or
required prepayment of any installment of principal on the Loans or any
Reimbursement Obligation payable under the Notes, this Agreement or the
other Loan Documents when due or (ii) any Obligor fails to make any
payment or required prepayment of interest with respect to the Loans, any
Reimbursement Obligation or any other fee or amount under the Notes, this
Agreement or the other Loan Documents when due and such failure to pay
continues unremedied for a period of three Business Days; or
(b) OTHER OBLIGATIONS - any Obligor shall default in the payment
when due of any principal of or interest on any Indebtedness having an
outstanding principal amount of at least $250,000 (other than the Loans
and Reimbursement Obligations) and such default shall continue beyond any
applicable period of grace; or any event or condition shall occur which
results in the acceleration of the maturity of any Indebtedness having an
outstanding principal amount of at least $250,000 (other than the Loans
and Reimbursement Obligations) or enables (or, with the giving of notice
or lapse of time or both, would enable) the holder of any such
Indebtedness or any Person acting on such holder's behalf to accelerate
the maturity thereof and such event or condition shall not be cured within
any applicable period of grace; or
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(c) REPRESENTATIONS AND WARRANTIES - any representation or warranty
made or deemed made by or on behalf of any Obligor in this Agreement or
any other Loan Document or in any certificate furnished or made by any
Obligor to Agent or the Lenders in connection herewith or therewith shall
prove to have been incorrect, false or misleading in any material respect
as of the date thereof or as of the date as of which the facts therein set
forth were stated or certified or deemed stated or certified; or
(d) AFFIRMATIVE COVENANTS - (i) default shall be made in the due
observance or performance of any of the covenants or agreements contained
in SECTIONS 7.3 or 7.8(C) hereof or (ii) default is made in the due
observance or performance of any of the other covenants and agreements
contained in SECTION 7 hereof or any other affirmative covenant of any
Obligor contained in this Agreement or any other Loan Document and such
default continues unremedied for a period of 30 days after (x) notice
thereof is given by Agent to Borrower or (y) such default otherwise
becomes known to any executive officer of Borrower, whichever is earlier;
or
(e) NEGATIVE COVENANTS - default is made in the due observance or
performance by Borrower of any of the other covenants or agreements
contained in SECTION 8 of this Agreement or of any other negative covenant
of any Obligor contained in this Agreement or any other Loan Document; or
(f) INVOLUNTARY BANKRUPTCY OR RECEIVERSHIP PROCEEDINGS - a receiver,
conservator, liquidator or trustee of any Obligor or of any of its
Property is appointed by the order or decree of any court or agency or
supervisory authority having jurisdiction, and such decree or order
remains in effect for more than 60 days; or any Obligor is adjudicated
bankrupt or insolvent; or any of such Person's Property is sequestered by
court order and such order remains in effect for more than 60 days; or a
petition is filed against any Obligor under any state or federal
bankruptcy, reorganization, arrangement, insolvency, readjustment or debt,
dissolution, liquidation or receivership law or any jurisdiction, whether
now or hereafter in effect, and is not dismissed within 60 days after such
filing; or
(g) VOLUNTARY PETITIONS OR CONSENTS - any Obligor commences a
voluntary case or other proceeding or order seeking liquidation,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or other relief with respect to itself or its
debts or other liabilities under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it
or any substantial part of its Property, or consents to any such relief or
to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or fails
generally to, or cannot, pay its debts generally as they become due or
takes any corporate action to authorize or effect any of the foregoing; or
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(h) ASSIGNMENTS FOR BENEFIT OF CREDITORS OR ADMISSIONS OF INSOLVENCY
- any Obligor makes an assignment for the benefit of its creditors, or
admits in writing its inability to pay its debts generally as they become
due, or consents to the appointment of a receiver, trustee, or liquidator
of such Obligor or of all or any substantial part of its Property; or
(i) UNDISCHARGED JUDGMENTS - a final non-appealable judgment or
judgments for the payment of money exceeding, in the aggregate, $1,000,000
in excess of amounts covered by insurance) is rendered by any court or
other governmental body against any Obligor and such Obligor does not
discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof within 60 days from the date
of entry thereof; or
(j) SECURITY DOCUMENTS - any Security Document for any reason ceases
to create a valid and perfected Lien of the first priority (subject to the
Permitted Liens), required thereby on any of the Collateral purported to
be covered thereby and securing that portion of the Obligations which is
therein designated as being secured, or any Obligor (or any other Person
who may have granted or purported to grant such Lien) will so state in
writing; or
(k) CONCEALMENT - any Obligor shall have concealed, removed, or
permitted to be concealed or removed, any part of its Property, with
intent to hinder, delay or defraud its creditors or any of them, or shall
have made any transfer of its Property to or for the benefit of a creditor
at a time when other creditors similarly situated have not been paid; or
(l) CHANGE OF CONTROL - there should occur any Change of Control.
9.2 RIGHT OF SETOFF. Upon the occurrence and during the continuance of any
Event of Default, each Lender (with the approval of the Majority Lenders) is
hereby authorized at any time and from time to time, without notice to any
Obligor (any such notice being expressly waived by Borrower and the other
Obligors), to setoff and apply any and all deposits (general or special, time or
demand, provisional or final (but excluding the funds held in accounts clearly
designated as escrow or trust accounts held by Borrower or any other Obligor for
the benefit of Persons which are not Affiliates of any Obligor, whether or not
such setoff results in any loss of interest or other penalty, and including
without limitation all certificates of deposit) at any time held, and any other
funds or Property at any time held, and other Indebtedness at any time owing by
such Lender to or for the credit or the account of Borrower or any other Obligor
against any and all of the Obligations irrespective of whether or not such
Lender or Agent will have made any demand under this Agreement, the Notes or any
other Loan Document. Should the right of any Lender to realize funds in any
manner set forth hereinabove be challenged and any application of such funds be
reversed, whether by court order or otherwise, the Lenders shall make
restitution or refund to Borrower pro rata in accordance with their Revolving
Loan Commitments. Each Lender agrees to promptly notify Borrower and Agent after
any such setoff and application, provided that the
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failure to give such notice will not affect the validity of such setoff and
application. The rights of Agent and the Lenders under this Section are in
addition to other rights and remedies (including without limitation other rights
of setoff) which Agent or the Lenders may have. This Section is subject to the
terms and provisions of SECTIONS 4.5 and 11.7 hereof.
9.3 COLLATERAL ACCOUNT. Borrower hereby agrees, in addition to the
provisions of SECTION 9.1 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by Agent or the
Majority Lenders (through Agent), pay to Agent an amount in immediately
available funds equal to the then aggregate amount available for drawings under
all Letters of Credit issued for the account of Borrower, which funds shall be
held by Agent as Cover.
9.4 PRESERVATION OF SECURITY FOR UNMATURED REIMBURSEMENT OBLIGATIONS. In
the event that, following (i) the occurrence of an Event of Default and the
exercise of any rights available to Agent or any Lender under the Loan
Documents, and (ii) payment in full of the principal amount then outstanding of
and the accrued interest on the Loans and Reimbursement Obligations and fees and
all other amounts payable hereunder and under the Notes, any Letters of Credit
shall remain outstanding and undrawn upon, Agent shall be entitled to hold (and
Borrower and each other Obligor hereby grants and conveys to Agent a security
interest in and to) all cash or other Property ("PROCEEDS OF REMEDIES") realized
or arising out of the exercise of any rights available under the Loan Documents,
at law or in equity, including, without limitation, the proceeds of any
foreclosure, as collateral for the payment of any amounts due or to become due
under or in respect of such Letters of Credit. Such Proceeds of Remedies shall
be held for the ratable benefit of the Lenders. The rights, titles, benefits,
privileges, duties and obligations of Agent with respect thereto shall be
governed by the terms and provisions of this Agreement. Agent may, but shall
have no obligation to, invest any such Proceeds of Remedies in such manner as
Agent, in the exercise of its sole discretion, deems appropriate. Such Proceeds
of Remedies shall be applied to Reimbursement Obligations arising in respect of
any such Letters of Credit and/or the payment of any Lender's obligations under
any such Letter of Credit when such Letter of Credit is drawn upon. Nothing in
this Section shall cause or permit an increase in the maximum amount of the
Revolving Loan Obligations permitted to be outstanding from time to time under
this Agreement.
9.5 REMEDIES CUMULATIVE. No remedy, right or power conferred upon Agent or
any Lender is intended to be exclusive of any other remedy, right or power given
hereunder or now or hereafter existing at law, in equity, or otherwise, and all
such remedies, rights and powers shall be cumulative.
10. AGENT.
10.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby irrevocably
appoints and authorizes Agent to act as its agent hereunder, under the Letters
of Credit and under the other Loan Documents with such powers as are
specifically delegated to Agent by the terms hereof and thereof, together with
such other powers as are reasonably incidental thereto. Any Loan Documents
executed in favor of Agent shall be held by Agent for the ratable benefit of the
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Lenders. Agent ("Agent" as used in this SECTION 10 shall include reference to
its Affiliates and its own and its Affiliates' respective officers,
shareholders, directors, employees and agents) (a) shall not have any duties or
responsibilities except those expressly set forth in this Agreement, the Letters
of Credit, and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Lender;
(b) shall not be responsible to any Lender for any recitals, statements,
representations or warranties contained in this Agreement, the Letters of Credit
or any other Loan Document, or in any certificate or other document referred to
or provided for in, or received by any of them under, this Agreement, the
Letters of Credit or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability, execution, filing, registration,
collectibility, recording, perfection, existence or sufficiency of this
Agreement, the Letters of Credit, or any other Loan Document or any other
document referred to or provided for herein or therein or any Property covered
thereby or for any failure by any Obligor or any other Person to perform any of
its obligations hereunder or thereunder, and shall not have any duty to inquire
into or pass upon any of the foregoing matters; (c) shall not be required to
initiate or conduct any litigation or collection proceedings hereunder or under
the Letters of Credit or any other Loan Document except to the extent requested
by the Majority Lenders; (d) shall not be responsible for any mistake of law or
fact or any action taken or omitted to be taken by it hereunder or under the
Letters or Credit or any other Loan Document or any other document or instrument
referred to or provided for herein or therein or in connection herewith or
therewith, including, without limitation, pursuant to its own negligence, except
for its own gross negligence or willful misconduct; (e) shall not be bound by or
obliged to recognize any agreement among or between Borrower and any Lender to
which Agent is not a party, regardless of whether Agent has knowledge of the
existence of any such agreement or the terms and provisions thereof; (f) shall
not be charged with notice or knowledge of any fact or information not herein
set out or provided to Agent in accordance with the terms of this Agreement or
any other Loan Document; (g) shall not be responsible for any delay, error,
omission or default of any mail, telegraph, cable or wireless agency or
operator, and (h) shall not be responsible for the acts or edicts of any
Governmental Authority. Agent may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Without in any way
limiting any of the foregoing, each Lender acknowledges that Agent shall have no
greater responsibility in the operation of the Letters of Credit than is
specified in the Uniform Customs and Practice for Documentary Credits (1993
Revision, International Chamber of Commerce Publication No. 500). In any
foreclosure proceeding concerning any Collateral, each holder of an Obligation
if bidding for its own account or for its own account and the accounts of other
Lenders is prohibited from including in the amount of its bid an amount to be
applied as a credit against the Obligations held by it or the Obligations held
by the other Lenders; instead, such holder must bid in cash only. However, in
any such foreclosure proceeding, Agent may (but shall not be obligated to)
submit a bid for all Lenders (including itself) in the form of a credit against
the Obligations, and Agent or its designee may (but shall not be obligated to)
accept title to such collateral for and on behalf of all Lenders.
10.2 RELIANCE. Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be
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genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel (which
may be counsel for Borrower), independent accountants and other experts selected
by Agent. Agent shall not be required in any way to determine the identity or
authority of any Person delivering or executing the same. As to any matters not
expressly provided for by this Agreement, the Letters of Credit, or any other
Loan Document, Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder and thereunder in accordance with instructions
of the Majority Lenders, and any action taken or failure to act pursuant thereto
shall be binding on all of the Lenders. Pursuant to instructions of the Majority
Lenders, Agent shall have the authority to execute releases of the Security
Documents on behalf of the Lenders without the joinder of any Lender. If any
order, writ, judgment or decree shall be made or entered by any court affecting
the rights, duties and obligations of Agent under this Agreement or any other
Loan Document, then and in any of such events Agent is authorized, in its sole
discretion, to rely upon and comply with such order, writ, judgment or decree
which it is advised by legal counsel of its own choosing is binding upon it
under the terms of this Agreement, the relevant Loan Document or otherwise; and
if Agent complies with any such order, writ, judgment or decree, then it shall
not be liable to any Lender or to any other Person by reason of such compliance
even though such order, writ, judgment or decree may be subsequently reversed,
modified, annulled, set aside or vacated.
10.3 DEFAULTS. Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or interest
on Loans or Reimbursement Obligations) unless Agent has received notice from a
Lender or Borrower specifying such Default and stating that such notice is a
"NOTICE OF DEFAULT." In the event that Agent receives such a Notice of Default,
Agent shall give prompt notice thereof to the Lenders (and shall give each
Lender prompt notice of each such non-payment). Agent shall (subject to SECTION
10.7 hereof) take such action with respect to such Notice of Default as shall be
directed by the Majority Lenders and within its rights under the Loan Documents
and at law or in equity, PROVIDED that, unless and until Agent shall have
received such directions, Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, permitted hereby with respect to
such Notice of Default as it shall deem advisable in the best interests of the
Lenders and within its rights under the Loan Documents, at law or in equity.
10.4 MATERIAL WRITTEN NOTICES. In the event that Agent receives any
written notice of a material nature from the Borrower or any Obligor under the
Loan Documents, Agent shall promptly inform each of the Lenders thereof.
10.5 RIGHTS AS A LENDER. With respect to its Revolving Loan Commitments
and the Loans made and Letter of Credit Liabilities, TCB in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting in its agency
capacity, and the term "LENDER" or "LENDERS" shall, unless the context otherwise
indicates, include Agent in its individual capacity. Agent may (without having
to account therefor to any Lender) accept deposits from, lend money to and
generally engage in any kind of banking, trust, letter of credit, agency or
other business with Borrower (and any of its Affiliates) as if it were not
acting as Agent, and Agent may accept fees and other consideration
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from Borrower (in addition to the fees heretofore agreed to between Borrower and
Agent) for services in connection with this Agreement or otherwise without
having to account for the same to the Lenders.
10.6 INDEMNIFICATION. The Lenders agree to indemnify Agent (to the extent
not reimbursed under SECTION 2.2(C), SECTION 11.3 or SECTION 11.4 hereof, but
without limiting the obligations of Borrower under said SECTIONS 2.2(C), 11.3
and 11.4), ratably in accordance with the Lenders' respective Revolving Loan
Commitments, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY
THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES, which may be imposed on, incurred by
or asserted against Agent in any way relating to or arising out of this
Agreement, the Letters of Credit or any other Loan Document or any other
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses which Borrower is obligated to pay under SECTIONS 2.2(C), 11.3 and 11.4
hereof, interest, penalties, attorneys' fees and amounts paid in settlement, but
excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents; PROVIDED that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified. The obligations of the Lenders under
this SECTION 10.6 shall survive the termination of this Agreement and the
repayment of the Obligations.
10.7 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it
has received current financial information with respect to Borrower and each
other Obligor that it has, independently and without reliance on Agent or any
other Lender and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Borrower and each other Obligor and
decision to enter into this Agreement and that it will, independently and
without reliance upon Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Loan Documents. Agent shall not be required to keep itself
informed as to the performance or observance by any Obligor of this Agreement,
the Letters of Credit or any of the other Loan Documents or any other document
referred to or provided for herein or therein or to inspect the properties or
books of any Obligor. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by Agent
hereunder, under the Letters of Credit or the other Loan Documents, Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of any
Obligor (or any of their affiliates) which may come into the possession of
Agent.
10.8 FAILURE TO ACT. Except for action expressly required of Agent
hereunder, under the Letters of Credit or under the other Loan Documents, Agent
shall in all cases be fully justified in failing or refusing to act hereunder
and thereunder unless it shall receive further assurances to its satisfaction by
the Lenders of their indemnification obligations under SECTION 10.6 hereof
against
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any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action.
10.9 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any time
by giving notice thereof to the Lenders and Borrower, and Agent may be removed
at any time with or without cause by the Majority Lenders; PROVIDED, that Agent
shall continue as Agent until such time as any successor shall have accepted
appointment as Agent hereunder. Upon any such resignation or removal, (i) the
Majority Lenders without the consent of Borrower shall have the right to appoint
a successor Agent so long as such successor Agent is also a Lender at the time
of such appointment and (ii) the Majority Lenders shall have the right to
appoint a successor Agent that is not a Lender at the time of such appointment
so long as Borrower consents to such appointment (which consent shall not be
unreasonably withheld). If no successor Agent shall have been so appointed by
the Majority Lenders and accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation or the Majority Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent. Any successor Agent shall be a bank which
has an office in the United States and a combined capital and surplus of at
least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and the retiring Agent shall be discharged from its duties and obligations
hereunder and under any other Loan Documents. Such successor Agent shall
promptly specify by notice to Borrower its Principal Office referred to in
SECTION 3.1 and SECTION 4 hereof. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this SECTION 10 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as Agent.
10.10 NO PARTNERSHIP. Neither the execution and delivery of this Agreement
nor any of the other Loan Documents nor any interest the Lenders, Agent or any
of them may now or hereafter have in all or any part of the Obligations shall
create or be construed as creating a partnership, joint venture or other joint
enterprise between the Lenders or among the Lenders and Agent. The relationship
between the Lenders, on the one hand, and Agent, on the other, is and shall be
that of principals and agent only, and nothing in this Agreement or any of the
other Loan Documents shall be construed to constitute Agent as trustee or other
fiduciary for any Lender or to impose on Agent any duty, responsibility or
obligation other than those expressly provided for herein and therein.
11. MISCELLANEOUS.
11.1 WAIVER. No waiver of any Default or Event of Default shall be a
waiver of any other Default or Event of Default. No failure on the part of Agent
or any Lender to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under any Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege thereunder preclude any other or further exercise
thereof
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or the exercise of any other right, power or privilege. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law or in equity.
11.2 NOTICES. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telegraph, telecopy
(confirmed by mail), cable or other writing and telexed, telecopied,
telegraphed, cabled, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof (or
provided for in an Assignment and Acceptance); or, as to any party hereto, at
such other address as shall be designated by such party in a notice (given in
accordance with this Section) (i) as to Borrower, to Agent, (ii) as to Agent, to
Borrower and to each Lender, and (iii) as to any Lender, to Borrower and Agent.
Except as otherwise provided in this Agreement, all such notices or
communications shall be deemed to have been duly given when (i) transmitted by
telex or telecopier or delivered to the telegraph or cable office, (ii)
personally delivered (iii) one Business Day after deposit with an overnight mail
or delivery service, postage prepaid or (iv) three Business Days' after deposit
in a receptacle maintained by the United States Postal Service, postage prepaid,
registered or certified mail, return receipt requested, in each case given or
addressed as aforesaid.
11.3 EXPENSES, ETC. Whether or not any Loan is ever made or any Letter of
Credit ever issued, Borrower shall pay or reimburse within 10 days after written
demand (a) Agent for paying the reasonable fees and expenses of legal counsel to
Agent in connection with the preparation, negotiation, execution and delivery of
this Agreement (including the exhibits and schedules hereto), the other Loan
Documents and the making of the Loans and the issuance of Letters of Credit
hereunder, and any modification, supplement or waiver of any of the terms of
this Agreement, the Letters of Credit or any other Loan Document; (b) Agent for
any lien search fees; (c) Agent for reasonable out-of-pocket expenses incurred
by Agent in connection with the preparation, documentation, administration and
syndication of the Loans or any of the Loan Documents (including, without
limitation, the marketing, printing, duplicating, mailing and similar expenses)
of the Loans and Letter of Credit Liabilities; (d) Agent for paying all
transfer, stamp, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement,
any Letter of Credit or any other Loan Document or any other document referred
to herein or therein; (e) Agent for paying all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
this Agreement or any document referred to herein and (f) following the
occurrence and during the continuation of an Event of Default, any Lender or
Agent for paying all amounts reasonably expended, advanced or incurred by such
Lender or Agent to satisfy any obligation of any Obligor under this Agreement or
any other Loan Document, to protect Collateral, to collect the Obligations or to
enforce, protect, preserve or defend the rights of the Lenders or Agent under
this Agreement or any other Loan Document, including, without limitation, fees
and expenses incurred in connection with such Lender's or Agent's participation
as a member of a creditor's committee in a case commenced under the Bankruptcy
Code or other similar law, fees and expenses incurred in connection with lifting
the automatic stay prescribed in ss. 362 of the Bankruptcy Code and fees and
expenses incurred in connection with any action pursuant to ss. 1129 of the
Bankruptcy Code and all other customary
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out-of-pocket expenses incurred by such Lender or Agent in connection with such
matters, together with interest thereon at the Past Due Rate on each such amount
until the date of reimbursement to such Lender or Agent.
11.4 INDEMNIFICATION. Borrower shall indemnify each of Agent, the Lenders,
and each Affiliate thereof and their respective directors, officers, employees
and agents from, and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become subject,
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY
INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or damages
arise out of or result from any (i) actual or proposed use by Borrower of the
proceeds of any extension of credit (whether a Loan or a Letter of Credit) by
any Lender hereunder; (ii) breach by any Obligor of this Agreement or any other
Loan Document; (iii) violation by any Obligor of any Legal Requirement; (iv)
investigation, litigation or other proceeding relating to any of the foregoing,
and Borrower shall reimburse Agent, each Lender, and each Affiliate thereof and
their respective directors, officers, employees and agents, upon demand for any
reasonable expenses (including reasonable legal fees) incurred in connection
with any such investigation or proceeding, or (v) taxes (excluding income taxes
and franchise taxes) payable or ruled payable by any Governmental Authority in
respect of the Obligations or any Loan Document, together with interest and
penalties, if any; PROVIDED that Borrower shall not be required to indemnify any
party seeking indemnification for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (i) the
willful misconduct or gross negligence of the party seeking indemnification, or
(ii) the failure by the party seeking indemnification to pay under any Letter of
Credit after the presentation to it of a request required to be paid under
applicable law or (iii) disputes between or among any and all of Agent, Lenders
and Issuers.. Nothing in this Section is intended to limit the obligations of
Borrower under any other provision of this Agreement. Agent and each Lender,
respectively, shall indemnify Borrower and hold Borrower harmless from and
against the gross negligence or willful misconduct of Agent or such Lender, as
the case may be.
11.5 AMENDMENTS, ETC. No amendment or modification of this Agreement, the
Notes or any other Loan Document shall in any event be effective against
Borrower unless the same shall be agreed or consented to in writing by Borrower.
No amendment, modification or waiver of any provision of this Agreement, the
Notes or any other Loan Document, nor any consent to any departure by Borrower
therefrom, shall in any event be effective against the Lenders unless the same
shall be agreed or consented to in writing by the Majority Lenders, and each
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; PROVIDED, that no amendment, modification,
waiver or consent shall, unless in writing and signed by each Lender affected
thereby, do any of the following: (a) increase any Revolving Loan Commitment of
any of the Lenders (or reinstate any termination or reduction of the Revolving
Loan Commitments) or subject any of the Lenders to any additional obligations;
(b) reduce the principal of, or interest on, any Loan, Reimbursement Obligation
or fee hereunder; (c) postpone or extend the Revolving Loan Maturity Date, the
Revolving Loan Termination Date, the Revolving Loan Availability Period or any
scheduled date fixed for any payment of principal of, or interest on, any Loan,
Reimbursement Obligation, fee or other sum to be paid hereunder or
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waive any Event of Default described in SECTION 9.1(A) hereof; (d) change the
percentage of any of the Revolving Loan Commitments or of the aggregate unpaid
principal amount of any of the Loans and Letter of Credit Liabilities, or the
percentage of Lenders, which shall be required for the Lenders or any of them to
take any action under this Agreement (including, without linitation, the
definition of "Majority Lenders"); (e) change any provision contained in
SECTIONS 2.2(C), 3.4, 11.3 OR 11.4 hereof or this SECTION 11.5; (f) release any
Person from liability under a Guaranty or substantially all of the security for
the Obligations or release Collateral (exclusive of Collateral with respect to
which Agent is obligated to provide a release pursuant to this Agreement or any
of the other Loan Documents or by law) in any one (1) calendar year ascribed an
aggregate value on the most recent financial statements of Borrower delivered to
Agent in excess of $1,000,000, or (g) modify the provisions of SECTIONS 4.1(B)
or 4.2 hereof regarding PRO RATA application of amounts after an Event of
Default shall have occurred and be continuing. Notwithstanding anything in this
SECTION 11.5 to the contrary, no amendment, modification, waiver or consent
shall be made with respect to SECTION 10 without the consent of Agent to the
extent it affects Agent, as Agent.
11.6 SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to the benefit of
Borrower, Agent and the Lenders and their respective successors and assigns;
PROVIDED, HOWEVER, that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written con sent of all of the Lenders,
and any such assignment or transfer without such consent shall be null and void.
Each Lender may sell participations to any Person in all or part of any Loan, or
all or part of its Notes, Revolving Loan Commitments or interests in Letters of
Credit, in which event, without limiting the foregoing, the provisions of the
Loan Documents shall inure to the benefit of each purchaser of a participation;
PROVIDED, HOWEVER, the PRO RATA treatment of payments, as described in SECTION
4.2 hereof, shall be determined as if such Lender had not sold such
participation. Any Lender that sells one or more participations to any Person
shall not be relieved by virtue of such participation from any of its
obligations to Borrower under this Agreement relating to the Loans. In the event
any Lender shall sell any participation, such Lender shall retain the sole right
and responsibility to enforce the obligations of Borrower relating to the Loans,
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement other than amendments,
modifications or waivers with respect to (i) any fees payable hereunder to the
Lenders, (ii) the amount of principal or the rate of interest payable on, or the
dates fixed for the scheduled repayment of principal of, the Loans and (iii) the
release of the Liens on all or substantially all of the Collateral.
(b) Each Lender may assign to one or more Lenders or any other Person all
or a portion of its interests, rights and obligations under this Agreement;
PROVIDED, HOWEVER, that (i) the aggregate amount of the Revolving Loan
Commitments of the assigning Lender subject to each such assignment shall in no
event be less than $5,000,000; (ii) other than in the case of an assignment to
another Lender (that is, at the time of the assignment, a party hereto) or to an
Affiliate of such Lender or to a Federal Reserve Bank, Agent and, so long as no
Event of Default shall have occurred and be continuing, Borrower must each give
its prior written consent, which
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consents shall not be unreasonably withheld, and (iii) the parties to each such
assignment shall execute and deliver to Agent, for its acceptance an Assignment
and Acceptance in the form of EXHIBIT D hereto (each an "ASSIGNMENT AND
ACCEPTANCE") with blanks appropriately completed, together with any Note or
Notes subject to such assignment and a processing and recording fee of $3,000
paid by the assignee (for which Borrower will have no liability). Upon such
execution, delivery and acceptance, from and after the effective date specified
in each Assignment and Acceptance, (A) the assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder and (B) the Lender thereunder
shall, to the extent provided in such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto except in respect of provisions of this Agreement which survive payment
of the Obligations and termination of the Commitments). Notwithstanding anything
contained in this Agreement to the contrary, any Lender may at any time assign
all or any portion of its rights under this Agreement and the Notes issued to it
as collateral to a Federal Reserve Bank; provided that no such assignment shall
release such Lender from any of its obligations hereunder.
(c) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, such Lender assignor makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such Lender assignor makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower or the performance or observance by Borrower of any of its obligations
under this Agreement or any of the other Loan Documents or any other instrument
or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in SECTION 6.2 hereof and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon Agent, such Lender assignor or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Loan Documents; (v) such assignee
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the other Loan Documents as are
delegated to Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all obligations that by the terms of this
Agreement and the other Loan Documents are required to be performed by it as a
Lender.
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(d) The entries in the records of Agent as to each Assignment and
Acceptance delivered to it and the names and addresses of the Lenders and the
Revolving Loan Commitments of, and principal amount of the Loans owing to, each
Lender from time to time shall create a rebuttable presumption as to the
accuracy thereof and Borrower, Agent and the Lenders may treat each Person the
name of which is recorded in the books and records of Agent as a Lender
hereunder for all purposes of this Agreement and the other Loan Documents.
(e) Upon Agent's receipt of an Assignment and Acceptance executed by an
assigning Lender and the assignee thereunder, together with any Note or Notes
subject to such assignment and the written consent to such assignment (to the
extent consent is required), Agent shall, if such Assignment and Acceptance has
been completed with blanks appropriately filled, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in its records and
(iii) give prompt notice thereof to Borrower. Within ten (10) Business Days
after receipt of notice, Borrower, at its own expense, shall execute and deliver
to Agent in exchange for the surrendered Notes new Notes to the order of such
assignee in an amount equal to the Revolving Loan Commitments assumed by it
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained Revolving Loan Commitments hereunder, new Notes to the order of the
assigning Lender in an amount equal to the Revolving Loan Commitment retained by
it hereunder. Such new Notes shall be in an aggregate principal amount equal to
the aggregate principal amount of such surrendered Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of the respective Note. Thereafter, such surrendered
Notes shall be marked renewed and substituted and the originals thereof
delivered to Borrower (with copies, certified by Borrower as true, correct and
complete, to be retained by Agent).
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this SECTION 11.6, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to Borrower furnished to such Lender by or on behalf of Borrower.
11.7 LIMITATION OF INTEREST. Borrower and the Lenders intend to strictly
comply with all applicable federal and Texas laws, including applicable usury
laws (or the usury laws of any jurisdiction whose usury laws are deemed to apply
to the Notes or any other Loan Documents despite the intention and desire of the
parties to apply the usury laws of the State of Texas). Accordingly, the
provisions of this SECTION 11.7 shall govern and control over every other
provision of this Agreement or any other Loan Document which conflicts or is
inconsistent with this Section, even if such provision declares that it
controls. As used in this Section, the term "interest" includes the aggregate of
all charges, fees, benefits or other compensation which constitute interest
under applicable law, PROVIDED that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Obligations. In
no event shall Borrower or any other Person be obligated to pay, or any Lender
have any right
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or privilege to reserve, receive or retain, (a) any interest in excess of the
maximum amount of nonusurious interest permitted under the laws of the State of
Texas or the applicable laws (if any) of the United States or of any other
jurisdiction, or (b) total interest in excess of the amount which such Lender
could lawfully have contracted for, reserved, received, retained or charged had
the interest been calculated for the full term of the Obligations at the Ceiling
Rate. The daily interest rates to be used in calculating interest at the Ceiling
Rate shall be determined by dividing the applicable Ceiling Rate per annum by
the number of days in the calendar year for which such calculation is being
made. None of the terms and provisions contained in this Agreement or in any
other Loan Document (including, without limitation, SECTION 9.1 hereof) which
directly or indirectly relate to interest shall ever be construed without
reference to this SECTION 11.7, or be construed to create a contract to pay for
the use, forbearance or detention of money at an interest rate in excess of the
Ceiling Rate. If the term of any Obligation is shortened by reason of
acceleration of maturity as a result of any Default or by any other cause, or by
reason of any required or permitted prepayment, and if for that (or any other)
reason any Lender at any time, including but not limited to, the stated
maturity, is owed or receives (and/or has received) interest in excess of
interest calculated at the Ceiling Rate, then and in any such event all of any
such excess interest shall be canceled automatically as of the date of such
acceleration, prepayment or other event which produces the excess, and, if such
excess interest has been paid to such Lender, it shall be credited PRO TANTO
against the then-outstanding principal balance of Borrower's obligations to such
Lender, effective as of the date or dates when the event occurs which causes it
to be excess interest, until such excess is exhausted or all of such principal
has been fully paid and satisfied, whichever occurs first, and any remaining
balance of such excess shall be promptly refunded to its payor.
11.8 SURVIVAL. The obligations of Borrower under SECTIONS 2.2(C), 2.2(D),
3.4, 11.3 AND 11.4 hereof and all other obligations of Borrower in any other
Loan Document (to the extent stated therein), the obligations of each Issuer
under the last sentence of SECTION 2.2(B)(III) and the obligations of the
Lenders under SECTION 10.5 and 11.7 hereof, shall, notwithstanding anything
herein to the contrary, survive the repayment of the Loans and Reimbursement
Obligations and the termination of the Revolving Loan Commitments and the
Letters of Credit.
11.9 CAPTIONS. Captions and section headings appearing herein are included
solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
11.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.11 GOVERNING LAW. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME
TO TIME IN EFFECT.
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11.12 SEVERABILITY. Whenever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid, illegal
or unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions of such Loan Document shall not
be affected or impaired thereby.
11.13 TAX FORMS. Each Lender which is organized under the laws of a
jurisdiction outside the United States shall, on the day of the initial
borrowing from each such Lender hereunder and from time to time thereafter if
requested by Borrower or Agent, provide Agent and Borrower with the forms
prescribed by the Internal Revenue Service of the United States certifying as to
such Lender's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Lender
hereunder or other documents satisfactory to such Lender, Borrower and Agent
indicating that all payments to be made to such Lender hereunder are not subject
to United States withholding tax or are subject to such tax at a rate reduced by
an applicable tax treaty. Unless Borrower and Agent shall have received such
forms or such documents indicating that payments hereunder are not subject to
United States withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, Borrower or Agent shall withhold taxes from such payments
at the applicable statutory rate.
11.14 CONFLICTS BETWEEN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. In
the event of any conflict between the terms of this Agreement and the terms of
any of the other Loan Documents, the terms of this Agreement shall control.
11.15 DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY. Agent and each Lender
agree that it may deliver copies of any financial statements and other documents
or information delivered to it and disclose any other information disclosed to
it by or on behalf of Borrower or any Subsidiary of Borrower in connection with
or pursuant to this Agreement and the other Loan Documents only to:
(i) its directors, officers, employees and professional
consultants;
(ii) any other Lender;
(iii) any Person to which such Lender offers to sell its Note or any
part thereof, provided that each such Person agrees in writing to observe
the confidentiality standards described in this Section;
(iv) any Person to which such Lender sells or offers to sell a
participation in all or any part of its Note, PROVIDED that each such
Person agrees in writing to observe the confidentiality standards
described in this Section;
(v) any federal or state regulatory authority having jurisdiction
over it;
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(vi) any other Person to which such delivery or disclosure may be
necessary or reasonably appropriate in response to any subpoena or other
legal process or investigative demand, and
(vii) any other Person in connection with any litigation involving
any obligation, right or remedy of Agent or any Lender under the Loan
Documents.
Subject to the foregoing, Agent and each Lender hereby agrees to use its best
efforts to hold in confidence and not to disclose any Confidential Information;
PROVIDED, that such Person will be free, after notice to Borrower, to correct
any false or misleading information which may become public concerning its
relationship to Borrower. For the purpose of this Section, the term
"CONFIDENTIAL INFORMATION" shall mean information about Borrower or any
Subsidiary of Borrower furnished by Borrower or any such Subsidiary, but does
not include any information which (i) is publicly known, or otherwise known to
such holder, at the time of disclosure; (ii) subsequently becomes publicly
known, but not through any act or omission by such holder, or (iii) otherwise
becomes known to such holder other than through disclosure by Borrower or any
Subsidiary of Borrower.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
INNOVATIVE VALVE TECHNOLOGIES, INC.,
a Delaware corporation
By:____________________________________
Charles F. Schugart, Senior Vice
President, Chief Financial Officer,
Treasurer and Secretary
Address for Notices:
14900 Woodham Drive, Suite A-125
Houston, Texas 77073
Attention: Mr.Charles F. Schugart, Senior
Vice President, Chief Financial Officer,
Treasurer and Secretary
Telecopy No.: (281) 821-1123
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TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent and as a Lender
By:____________________________________
Name:__________________________________
Title:_________________________________
Address for Notices:
Revolving Loan Commitment: 712 Main Street
Houston, Texas 77002
$15,000,000 Attention: Manager, Diversified Corporate
Group
Telecopy No.: (713) 216-6004
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FIRST UNION NATIONAL BANK
By:____________________________________
Name:__________________________________
Title:_________________________________
Address for Notices:
Revolving Loan Commitment: One First Union Center
301 South College Street, DC-5
Charlotte, North Carolina 28288
$10,000,000 Attention: Mr. David Hall
Telecopy No.: (704) 374-2802
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WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By:____________________________________
Name:__________________________________
Title:_________________________________
Address for Notices:
Revolving Loan Commitment: Wells Fargo Bank (Texas), National Association
1000 Louisiana, 3rd Floor
$10,000,000 Houston, Texas 77002
Attention: Mr. Christopher King
Telecopy No.: (713) 250-7029
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BANK OF AMERICA TEXAS, N.A.
By:___________________________________
Name:_________________________________
Title:________________________________
Address for Notices:
Revolving Loan Commitment: Bank of America Texas, N.A.
333 Clay Street, Suite 3600
$15,000,000 Houston, Texas 77002
Attention: Mr. Victor N. Tekell
Telecopy No.: (713) 652-3619
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COMERICA BANK, TEXAS
By:___________________________________
Name:_________________________________
Title:________________________________
Address for Notices:
Revolving Loan Commitment: Comerica Bank, Texas
910 Louisiana
One Shell Plaza
$10,000,000 Houston, Texas 77002
Attention: Mr. Eric Lindquist
Telecopy No.: (713) 722-6550
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RATE DESIGNATION NOTICE
INNOVATIVE VALVE TECHNOLOGIES, INC., Texas Commerce Bank National
Association, as Agent, and certain financial institutions executed and delivered
that certain Loan Agreement (as amended, supplemented and restated, the "LOAN
AGREEMENT") dated as of October _____, 1997. Any term used herein and not
otherwise defined herein shall have the meaning herein ascribed to it in the
Loan Agreement. In accordance with the Loan Agreement, Borrower hereby notifies
Agent of the exercise of an Interest Option.
A. CURRENT BORROWINGS
1. Interest Options now in effect:____________
2. Amounts: $__________
3. Expiration of current Interest Periods, if applicable:__________
B. PROPOSED ELECTION
1. Total Amount: $___________
2. Date Interest Option is to be effective:_______________
3. Interest Option to be applicable (check one):
[ ] Base Rate
[ ] Eurodollar Rate
4. Interest Period: ___[months] [days] (if available and if applicable)
EXHIBIT B
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Borrower represents and warrants that the Interest Option and Interest
Period selected above comply with all provisions of the Loan Agreement and that
there exists no Event of Default or any event which, with the passage of time,
the giving of notice or both, would be an Event of Default.
Date:__________
INNOVATIVE VALVE TECHNOLOGIES, INC.,
a Delaware corporation
By:__________________________________
Name:________________________________
Title:_______________________________
EXHIBIT B
2
<PAGE>
NOTE
Houston, Texas
$______________________ ______________, 199_
FOR VALUE RECEIVED, INNOVATIVE VALVE TECHNOLOGIES, INC. ("MAKER"),
a Delaware corporation, promises to pay to the order of _______________________
("PAYEE"), at the principal office of Texas Commerce Bank National Association,
a national banking association, 712 Main Street, Houston, Harris County, Texas
77002, in immediately available funds and in lawful money of the United States
of America, the principal sum of ________________________________ Dollars
($_____________) (or the unpaid balance of all principal advanced against this
note, if that amount is less), together with interest on the unpaid principal
balance of this note from time to time outstanding at the rate or rates provided
in that certain Loan Agreement (as amended, supplemented, restated or replaced
from time to time, the "LOAN AGREEMENT") dated as of October _____, 1997 among
Maker, certain signatory banks named therein and Texas Commerce Bank National
Association, as Agent; PROVIDED, that for the full term of this note the
interest rate produced by the aggregate of all sums paid or agreed to be paid to
the holder of this note for the use, forbearance or detention of the debt
evidenced hereby (including, but not limited to, all interest on this note at
the Stated Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
Any term defined in the Loan Agreement which is used in this note and which is
not otherwise defined in this note shall have the meaning ascribed to it in the
Loan Agreement.
1. LOAN AGREEMENT; ADVANCES; SECURITY. This note has been issued pursuant
to the terms of the Loan Agreement, and is one of the Notes referred to in the
Loan Agreement. Advances against this note by Payee or other holder hereof shall
be governed by the terms and provisions of the Loan Agreement. Reference is
hereby made to the Loan Agreement for all purposes. Payee is entitled to the
benefits of the Loan Agreement. The unpaid principal balance of this note at any
time shall be the total of all amounts lent or advanced against this note less
the amount of all payments or permitted prepayments made on this note and by or
for the account of Maker. All loans and advances and all payments and permitted
prepayments made hereon may be endorsed by the holder of this note on a schedule
which may be attached hereto (and thereby made a part hereof for all purposes)
or otherwise recorded in the holder's records; PROVIDED, that any failure to
make notation of (a) any advance shall not cancel, limit or otherwise affect
Maker's obligations or any holder's rights with respect to that advance, or (b)
any payment or permitted prepayment of principal shall not cancel, limit or
otherwise affect Maker's entitlement to credit for that payment as of the date
received by the holder.
EXHIBIT C
to Loan Agreement
-1-
<PAGE>
2. MANDATORY PAYMENTS OF PRINCIPAL AND INTEREST.
(a) Accrued and unpaid interest on the unpaid principal balance of this
note shall be due and payable on the Interest Payment Dates.
(b) On the Revolving Loan Maturity Date, the entire unpaid principal
balance of this note and all accrued and unpaid interest on the unpaid principal
balance of this note shall be finally due and payable.
(c) All payments hereon made pursuant to this Paragraph shall be applied
first to accrued interest, the balance to principal.
(d) If any payment provided for in this note shall become due on a day
other than a Business Day, such payment may be made on the next succeeding
Business Day (unless the result of such extension of time would be to extend the
date for such payment into another calendar month or beyond the Revolving Loan
Maturity Date, and in either such event such payment shall be made on the
Business Day immediately preceding the day on which such payment would otherwise
have been due), and such extension of time shall in such case be included in the
computation of interest on this note.
(e) The Loan Agreement provides for required prepayments of the
indebtedness evidenced hereby upon terms and conditions specified therein.
3. NO USURY INTENDED; SPREADING. Notwithstanding any provision to the
contrary contained in this note or any of the other Loan Documents, it is
expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to
this note or any of the other Loan Documents, which under applicable laws are or
may be deemed to constitute interest upon the indebtedness evidenced by this
note from the date hereof, ever exceed the Ceiling Rate. In this connection,
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable federal and Texas usury
laws (and the usury laws of any other jurisdiction whose usury laws are deemed
to apply to this note or any of the other Loan Documents despite the intention
and desire of the parties to apply the usury laws of the State of Texas). In
furtherance thereof, none of the terms of this note or any of the other Loan
Documents shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or detention of money, interest at a rate in excess of
the Ceiling Rate. Maker or other parties now or hereafter becoming liable for
payment of the indebtedness evidenced by this note shall never be liable for
interest in excess of the Ceiling Rate. If, for any reason whatever, the
interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against the
principal of this note (or, if such indebtedness shall have been paid in full,
shall refund to the payor of such interest) such portion of said interest as
shall be
EXHIBIT C
to Loan Agreement
-2-
<PAGE>
necessary to cause the interest paid on this note to produce a rate equal to the
Ceiling Rate. All sums paid or agreed to be paid to the holder of this note for
the use, forbearance or detention of the indebtedness evidenced hereby shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread in equal parts throughout the full term of this note, so that the
interest rate is uniform throughout the full term of this note. The provisions
of this Paragraph shall control all agreements, whether now or hereafter
existing and whether written or oral, between Maker and Payee.
4. DEFAULT. The Loan Agreement provides for the acceleration of the
maturity of this note and other rights and remedies upon the occurrence of
certain events specified therein.
5. WAIVERS BY MAKER AND OTHERS. Except to the extent, if any, that notice
of default is expressly required herein or in any of the other Loan Documents,
Maker and any and all co-makers, endorsers, guarantors and sureties severally
waive notice (including, but not limited to, notice of intent to accelerate and
notice of acceleration, notice of protest and notice of dishonor), demand,
presentment for payment, protest, diligence in collecting and the filing of suit
for the purpose of fixing liability and consent that the time of payment hereof
may be extended and re-extended from time to time without notice to any of them.
Each such person agrees that his, her or its liability on or with respect to
this note shall not be affected by any release of or change in any guaranty or
security at any time existing or by any failure to perfect or to maintain
perfection of any lien against or security interest in any such security or the
partial or complete unenforceability of any guaranty or other surety obligation,
in each case in whole or in part, with or without notice and before or after
maturity.
6. PARAGRAPH HEADINGS. Paragraph headings appearing in this note are for
convenient reference only and shall not be used to interpret or limit the
meaning of any provision of this note.
7. CHOICE OF LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES
OF AMERICA FROM TIME TO TIME IN EFFECT.
8. SUCCESSORS AND ASSIGNS. This note and all the covenants and agreements
contained herein shall be binding upon, and shall inure to the benefit of, the
respective legal representatives, heirs, successors and assigns of Maker and
Payee.
9. SEVERABILITY. If any provision of this note is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this note shall not be
affected thereby, and this note shall be liberally construed so as to carry out
the intent of the parties to it.
EXHIBIT C
to Loan Agreement
-3-
<PAGE>
10. REVOLVING LOAN. Subject to the terms and provisions of the Loan
Agreement, Maker may use all or any part of the credit provided to be evidenced
by this note at any time before the Revolving Loan Maturity Date. Maker may
borrow, repay and reborrow hereunder, and except as set forth in the Loan
Agreement there is no limitation on the number of advances made hereunder.
Pursuant to Article 15.10(b) of Chapter 15 ("CHAPTER 15") of Title 79, Texas
Revised Civil Statutes, 1925, as amended, Maker and Payee expressly agree that
Chapter 15 shall not apply to this note or to any loan evidenced by this note
and that neither this note nor any such loan shall be governed by or subject to
the provisions of Chapter 15 in any manner whatsoever.
11. BUSINESS LOANS. Maker warrants and represents to Payee and all other
holders of this note that all loans evidenced by this note are and will be for
business, commercial, investment or other similar purpose and not primarily for
personal, family, household or agricultural use, as such terms are used in
Chapter One.
INNOVATIVE VALVE TECHNOLOGIES, INC.,
a Delaware corporation
By:_________________________________
Name:_______________________________
Title:______________________________
EXHIBIT C
to Loan Agreement
-4-
<PAGE>
ASSIGNMENT AND ACCEPTANCE
Dated:_____________
Reference is made to the Loan Agreement dated as of October _____, 1997
(as restated, amended, modified, supplemented and in effect from time to time,
the "LOAN AGREEMENT"), among INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware
corporation (the "COMPANY"), the Lenders named therein and Texas Commerce Bank
National Association, as Agent (the "AGENT"). Capitalized terms used herein and
not otherwise defined shall have the meanings assigned to such terms in the Loan
Agreement. This Assignment and Acceptance, between the Assignor (as defined and
set forth on SCHEDULE I hereto and made a part hereof) and the Assignee (as
defined and set forth on SCHEDULE I hereto and made a part hereof) is dated as
of the Effective Date (as set forth on SCHEDULE I hereto and made a part
hereof).
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date, an undivided interest (the "ASSIGNED INTEREST") in and to all
the Assignor's rights and obligations under the Loan Agreement respecting those,
and only those, credit facilities contained in the Loan Agreement as are set
forth on SCHEDULE I (collectively, the "ASSIGNED FACILITIES," individually, an
"ASSIGNED FACILITY"), in a principal amount for each Assigned Facility as set
forth on SCHEDULE I.
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Agreement or any other Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Company or its Subsidiaries or the performance or observance by the
Company or its Subsidiaries of any of its respective obligations under the Loan
Agreement, any other Loan Document or any other instrument or document furnished
pursuant thereto; and (iii) attaches the Note(s) held by it evidencing the
Assigned Facility or Facilities, as the case may be, and requests that the Agent
exchange such Note(s) for a new Note or Notes payable to the Assignor (if the
Assignor has retained any interest in the Assigned Facility or Facilities) and a
new Note or Notes payable to the Assignee in the respective amounts which
reflect the assignment being made hereby
EXHIBIT D
to
Loan Agreement
-1-
<PAGE>
(and after giving effect to any other assignments which have become effective on
the Effective Date).
3. The Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (ii) confirms that it has received
a copy of the Loan Agreement, together with copies of the financial statements
referred to in SECTION 6.2 thereof, or if later, the most recent financial
statements delivered pursuant to SECTION 7.2 thereof, and such other documents
and information as it has deemed appropriate to make its own credit analysis;
(iii) agrees that it will, independently and without reliance upon the Agent,
the Assignor or any other Lender and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Loan Agreement; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Loan Agreement as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably incidental thereto; (v)
agrees that it will be bound by the provisions of the Loan Agreement and will
perform in accordance with its terms all the obligations which by the terms of
the Loan Agreement are required to be performed by it as a Lender; (vi) if the
Assignee is organized under the laws of a jurisdiction outside the United
States, attaches the forms prescribed by the Internal Revenue Service of the
United States certifying as to the Assignee's exemption from United States
withholding taxes with respect to all payments to be made to the Assignee under
the Loan Agreement or such other documents as are necessary to indicate that all
such payments are subject to such tax at a rate reduced by an applicable tax
treaty, and (vii) has supplied the information requested on the administrative
questionnaire attached hereto as EXHIBIT A.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Agent for acceptance by it and the Company and recording by the
Agent pursuant to SECTION 11.6 of the Loan Agreement, effective as of the
Effective Date (which Effective Date shall, unless otherwise agreed to by the
Agent, be at least five Business Days after the execution of this Assignment and
Acceptance).
5. Upon such acceptance and recording, from and after the Effective Date,
the Agent shall make all payments in respect of the Assigned Interest (including
payments of principal, interest, fees and other amounts) to the Assignee,
whether such amounts have accrued prior to the Effective Date or accrue
subsequent to the Effective Date. The Assignor and Assignee shall make all appro
priate adjustments in payments for periods prior to the Effective Date by the
Agent or with respect to the making of this assignment directly between
themselves.
6. From and after the Effective Date, (i) the Assignee shall be a party to
the Loan Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and
EXHIBIT D
to
Loan Agreement
-2-
<PAGE>
obligations of a Lender thereunder, and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Agreement.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
and Acceptance to be executed by their respective duly authorized officers on
Schedule I hereto.
EXHIBIT D
to
Loan Agreement
-3-
<PAGE>
SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE
Legal Name of Assignor:______________________________________________________
Legal Name of Assignee:______________________________________________________
Effective Date of Assignment:________________________________________________
Percentage Assigned of Each
Facility (to at least 8
Principal decimals) (Shown as a
Amount (or, percentage of aggregate
with respect original principal amount
to Letters [or, with respect to Letters
Assigned of Credit, face Credit, face amount]
FACILITIES AMOUNT) ASSIGNED OF ALL LENDERS)
---------- ---------------- ----------------------------
Loans : $______________ ______%
Letter of Credit
participation interests $______________ ______%
Total $______________
____________________________________,
as Assignor
By:_________________________________
Name:_______________________________
Title:______________________________
EXHIBIT D
to
Loan Agreement
-1-
<PAGE>
____________________________________,
as Assignee
By:_________________________________
Name:_______________________________
Title:______________________________
INNOVATIVE VALVE TECHNOLOGIES, INC.,
a Delaware corporation
By:_________________________________
Name:_______________________________
Title:______________________________
EXHIBIT D
to
Loan Agreement
-2-
<PAGE>
Accepted:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent
By:_________________________________
Name:_______________________________
Title:______________________________
EXHIBIT D
to
Loan Agreement
-3-
<PAGE>
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the_________________________of
INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware corporation (the "BORROWER"),
and that as such he is authorized to execute this certificate on behalf of the
Borrower pursuant to the Loan Agreement (the "AGREEMENT") dated as of October
_____, 1997, by and among the Borrower, TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent, and the lenders therein named; and that a review of the
Borrower and the other Obligors has been made under his supervision with a view
to determining whether the Borrower and the other Obligors have fulfilled all of
their respective obligations under the Agreement, the Notes and the other Loan
Documents; and on behalf of the Borrower further certifies, represents and
warrants that to his knowledge, after due inquiry (each capitalized term used
herein having the same meaning given to it in the Agreement unless otherwise
specified):
(a) The Borrower and the other Obligors have fulfilled, in all
material respects, their respective obligations under the Agreement, the
Notes and the other Loan Documents.
(b) The representations and warranties made in each Loan Document
are true and correct in all material respects on and as of the time of
delivery hereof, with the same force and effect as if made on and as of
the time of delivery hereof.
(c) The financial statements delivered to the Agent concurrently
with this Compliance Certificate have been prepared in accordance with
GAAP consistently followed throughout the period indicated and fairly
present the financial condition and results of operations of the
applicable Persons as at the end of, and for, the period indicated
(subject, in the case of Quarterly Financial Statements, to normal changes
resulting from year-end adjustments).
(d) No Default or Event of Default has occurred and is continuing.
In this regard, the compliance with the provisions of SECTIONS 7.3 and
8.12 is as follows:
(i) SECTION 7.3(A) -- MINIMUM NET WORTH
ACTUAL REQUIRED
$___________ $___________
EXHIBIT E
1
<PAGE>
(ii) SECTION 7.3(B) -- INTEREST COVERAGE RATIO
ACTUAL REQUIRED
______ 3.00
(iii) SECTION 7.3(C) -- DEBT TO PRO FORMA CONSOLIDATED EBITDA RATIO
ACTUAL REQUIRED
______ 3.00
(iv) SECTION 7.3(D) -- FIXED CHARGE COVERAGE RATIO
ACTUAL REQUIRED
______ 1.50
(v) SECTION 8.12 -- CAPITAL EXPENDITURES
ACTUAL MAXIMUM
______ _______
(e) Attached hereto are calculations for the appropriate components
to the ratios contemplated in SECTIONS 7.3 and 8.12 supporting the
determination of said ratios as of the date of this Certificate.
(f) No material adverse change in the assets, liabilities,
financial condition, business or affairs of the Borrower or any of the
other Obligors has occurred since the Effective Date.
EXHIBIT E
2
<PAGE>
DATED as of ____________________.
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT E
3
<PAGE>
[LETTERHEAD OF THE BORROWER]
REQUEST FOR EXTENSION OF CREDIT
________________, 199____
Texas Commerce Bank National
Association, as Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Diversified Corporate Group
Gentlemen:
The undersigned hereby certifies that he is the _______________________ of
INNOVATIVE VALVE TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY"), and
that as such he is authorized to execute this Request for Extension of Credit
(the "REQUEST") on behalf of the Company pursuant to the Loan Agreement (as it
may be amended, supplemented or restated from time to time, the "AGREEMENT")
dated as of October _____, 1997, by and among the Company, Texas Commerce Bank
National Association, as Agent and the Lenders therein named. The (check one) [
] Loan [ ] Letter of Credit being requested hereby is to be in the amount set
forth in (b) below and is requested to be made on __________________, which is a
Business Day. The undersigned further certifies, represents and warrants that to
his knowledge, after due inquiry (each capitalized term used herein having the
same meaning given to it in the Agreement unless otherwise specified herein):
(a) As of the date hereof:
(1) The aggregate outstanding amount of Revolving
Loan Obligations is: $__________
(2) The Letter of Credit Liabilities as of the date
hereof, before giving effect to the Letter
of Credit, if any, requested hereby,
is: $__________
EXHIBIT A
to Loan Agreement
1
<PAGE>
(3) The aggregate unused Revolving Loan Commitments
of all Lenders [$50,000,000 MINUS the amount in
(a)(1) above], if positive, is: $__________
(b) If and only if the aggregate unused Revolving Loan Commitments of
all Lenders is positive, the Company hereby requests under this
Request a Loan or Letter of Credit (as indicated above) in the
amount of $____________ (which is no more than the aggregate unused
Revolving Loan Commitments of all Lenders).
(c) If a Letter of Credit is requested hereby, it should be issued for
the benefit of ___________________________________ and should have
an expiration date of ____________________ (which date is no later
than one year from the proposed date of issuance) and any special
language to be incorporated into such Letter of Credit is attached
hereto. The sum of the face amount of the requested Letter of Credit
PLUS the Letter of Credit Liabilities as the date hereof as
specified in item 2 above does not exceed $5,000,000.
(d) The representations and warranties made in each Loan Document are
true and correct in all material respects on and as of the time of
delivery hereof, with the same force and effect as if made on and as
of the time of delivery hereof.
(e) No change in the assets, liabilities, financial condition, business
or affairs of the Company or any of the other Obligors has occurred
which results in a Material Adverse Effect.
(f) No Default or Event of Default has occurred and is continuing.
Thank you for your attention to this matter.
Very truly yours,
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT A
to Loan Agreement
2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,671
<SECURITIES> 0
<RECEIVABLES> 9,891,665
<ALLOWANCES> 454,000
<INVENTORY> 6,326,812
<CURRENT-ASSETS> 16,075,445
<PP&E> 14,516,895
<DEPRECIATION> 8,432,742
<TOTAL-ASSETS> 41,222,142
<CURRENT-LIABILITIES> 28,739,388
<BONDS> 0
0
2,000,000
<COMMON> 48,386
<OTHER-SE> 3,979,686
<TOTAL-LIABILITY-AND-EQUITY> 41,222,142
<SALES> 33,356,489
<TOTAL-REVENUES> 33,356,489
<CGS> 22,574,450
<TOTAL-COSTS> 30,681,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,667,932
<INCOME-PRETAX> (1,592,475)
<INCOME-TAX> 3,067
<INCOME-CONTINUING> (1,595,542)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,595,542)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
